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COST ACCOUNTING

1 Cost accounting involves the measuring, recording, and reporting of A. product costs C. future costs B. manufacturing process D. managerial accounting decisions The cost management function is usually under A. the chief information officer. C. purchasing manager. B. treasurer. D. controller. The cost management information system provides information A. that the accountant needs to prepare the financial statements. B. that the manager needs to effectively manage the firm. C. that the manager needs to effectively manage not-for-profit organization. D. b and c. The main focus of cost management information must be A. usefulness and accuracy. C. usefulness and timeliness. B. timeliness and accuracy. D. relevance and good format. With regard to the task of management s decision making, cost management information is needed to A. make sound strategic decisions regarding choice of products, methods, and techniques. B. support recurring decisions regarding replacement of equipment, managing cash flow, etc. C. provide a fair and effective basis for identifying inefficient operations. D. provide accurate accounting for inventory, receivables, and other assets. Product costing system design or selection: A. requires an understanding of the nature of the business B. should provide useful cost information for strategic and operational decision needs C. should be cost effective in design and selection D. all the above answers are correct Which of the following is an example of a committed fixed costs? A. direct materials C. supervisor s salary B. depreciation on a factory building D. insurance on a building An example of a committed fixed cost is: A. a training program for salespersons. B. executive travel expenses. C. property taxes on the factory building. D. new product research and development. Which of the following is an example of discretionary fixed cost? A. direct labor C. property taxes on a factory building B. insurance on a building D. depreciation on a factory building Controllable costs are: A. Costs that management decides to incur in the current period to enable the company to achieve operating objectives other than the filling of orders placed by customers. B. Costs that are governed mainly by past decisions that established the present levels of operating and organizational capacity and that only change slowly in response to small changes in capacity. C. Costs that will unaffected by current managerial decisions. D. Costs that are likely to respond to the amount of attention devoted to them by a specified manager. Controllable costs for responsibility accounting purposes are directly influenced only by A. A given manager within a given period. B. A change in activity. C. Production volume. D. Sales volume. An imputed cost is A. The difference in total costs which results from selecting one choice instead of another. B. A cost that does not entail any cash outlay but which is relevant to the decision-making process. C. A cost that may be shifted to the future with little or no effect on current operations. D. A cost that continues to be incurred even though there is no activity. Semi-variable costs A. per unit remain the same regardless of total output B. remain the same within the relevant range of output C. increase in steps as the amount of the cost driver volume increases D. have both fixed and variable components in them A step cost is A. the same as semi-fixed cost B. the same as mixed cost C. a cost that increases in steps as the amount of cost-driver volume increases D. a and c only. Which of the following would NOT be a period cost for a manufacturing firm? A. Selling expenses B. Salary paid to the CEO of the company C. Repairs to the Receptionist's computer D. Utilities in manufacturing plant What kind of costs can be conveniently and economically traced to a cost object or pool? C. Direct Costs. A. Indirect Costs. B. Relevant Costs. D. Overhead Costs. Direct product expenses A. are incurred for the benefit of the business as a whole B. cannot be identified readily with a given product C. can be assigned to product only by a process of allocation D. would not be incurred if the product did not exist The distinction between direct and indirect costs depends on whether a cost A. is controllable or non-controllable.

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COST ACCOUNTING
B. is variable or fixed. C. can be conveniently and physically traced to a cost object under consideration. D. will increase with changes in levels of activity. Of most relevance in deciding how indirect costs should be assigned to products is the degree of A. Linearity. C. Avoidability. B. Causality. D. Controllability. Almos, Inc. makes ski-boards in Davao. Identify the correct matching of terms. A. Fiberglass is factory overhead B. Plant real estate taxes are a period cost C. Depreciation on delivery trucks is a product cost D. Payroll taxes for workers in the Packaging Dept. are direct labor An accounting system that focuses on transactions is A. an activity-based accounting system. C. a traditional accounting system. B. a product life cycle costing system. D. all of the above. Traditionally, managers have focused cost reduction efforts on A. activities. C. departments. B. processes. D. costs. Which of the following is a trait of a traditional cost management system? A. unit-based drivers C. tracing is intensive B. detailed activity information D. focus on managing activities Which of the following is typically regarded as a cost driver in traditional accounting practices? A. number of purchase orders processed C. number of transactions processed B. number of customers served D. number of direct labor hours worked Which of the following is not a trait of a traditional cost management system? A. unit-based drivers C. focus on managing activities B. allocating intensive D. narrow and rigid product costing Which of the following is not typical of traditional costing systems? A. Use of a single predetermined overhead rate. B. Use of direct labor hours or direct labor cost to assign overhead. C. Assumption of correlation between direct labor an incurrence of overhead cost. D. Use of multiple cost drivers to allocate overhead. Conventional product costing uses which of the following procedures? A. Overhead costs are traced to departments, then costs are traced to products. B. Overhead costs are traced to activities, then costs are traced to products. C. Overhead costs are traced directly to product. D. All overhead costs are expensed as incurred. The overhead rates of the traditional approach to product costing use C. unit-based cost drivers A. nonunit-based cost drivers B. process costing D. job-order costing The use of unit-based activity drivers to assign costs tends to A. overcost low-volume products. C. overcost all products. B. overcost high-volume products. D. undercost all products. Traditional overhead allocations result in which of the following situations? A. Overhead costs are assigned as period costs to manufacturing operations. B. High-volume products are assigned too much overhead, and low-volume products are assigned too little overhead. C. Low-volume products are assigned too much, and high-volume products are assigned too little overhead. D. The resulting allocations cannot be used for financial reports. Product costs can be distorted if a unit-based cost driver is used and A. nonunit-based overhead costs are a significant proportion of total overhead B. the consumption ratios differ between unit-based and nonunit-based input categories C. both a and b D. neither a nor b Which of the following items is not a characteristic of a process cost system? A. Once production begins, it continues until the finished product emerges B. The products produced are heterogeneous in nature C. The focus is on continually producing homogeneous products D. When the finished product emerges, all units have precisely the same amount of materials, labor, and overhead The formula for computing the predetermined manufacturing overhead rate is estimated annual overhead costs divided by an expected annual operating activity, expressed as A. direct labor cost C. direct labor hours D. any of these B. machine hours The two main advantages of using predetermined factory overhead rates are to provide more accurate unit cost information and to: A. simplify the accounting process B. provide cost information on a timely basis C. insure transmission of correct data D. adjust for variances in data sources The effect of uniform production levels on production cost per unit can be achieved A. by using a factory overhead rate based on different production levels for each year B. by using a factory overhead rate based on selling price C. by closing the factory overhead at the end of the accounting period D. by using a factory overhead rate based on long-run normal production activity level No matter which method is used, underapplied or overapplied overhead usually is adjusted only: A. at the end of a year. B. monthly during the year C. if the difference exceeds P1,000 or one percent of total overhead. D. when the company's profit projections require an adjustment Disadvantages of actual costing include

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COST ACCOUNTING
A. actual cost systems cannot provide accurate unit cost information on a timely basis B. actual cost systems produce unit costs that fluctuate from period to period C. estimates must be used when calculating the actual overhead rate D. a and b The principal difficulty with normal costing is that A. the unit cost information is not received on a timely basis B. it can result in fluctuating per-unit overhead costs C. estimated overhead and estimated activity are likely to differ from actual overhead and actual costs, resulting in underapplied or overapplied overhead D. there is no difficulty associated with using normal costing Normal costing and standard costing differ in that A. the two systems can show different overhead budget variances. B. only normal costing can be used with absorption costing. C. the two systems show different volume variances if standard hours do not equal actual hours. D. normal costing is less appropriate for multiproduct firms. The product cost which is determined in a conventional standard cost accounting system is a(an) A. Joint cost. C. Expected cost. B. Fixed cost. D. Direct cost. Volume-based plant-wide rates produce inaccurate product cost when: A. a large share of factory overhead cost is not volume-based B. firms produce a diverse mix of product C. large volumes of production occur D. Both a and b are correct. An activity that has a direct cause-effect relationship with the resources consumed is a(n) A. cost driver. C. cost pool. B. overhead rate. D. product activity. The term cost driver refer to: A. any activity that can be used to predict cost changes. B. the attempt to control expenditures at a reasonable level. C. the person who gathers and transfers cost data to the management accountant. D. any activity that causes costs to be incurred. Each group of overhead costs should be applied based on A. direct labor hours or cost. B. units produced. C. whatever activity drives those specific overhead costs. D. machine time. Which of the following statements is true? A. The traditional approach to costing uses many different cost drivers. B. Costs that are indirect to products are by definition traceable to directly to products. C. Costs that are indirect to products are traceable to some activity. D. All of the above statements are true. Why is it better to use separate overhead rates? A. Some departments are labor-intensive, some are machine-intensive. B. Labor rates vary considerably among departments. C. The resulting overhead rates are all about the same. D. All jobs require about the same percentage of time in all departments. If company A has a higher degree of operating leverage than company B, then: A. the company A has higher variable expenses. B. the company A's profits are more sensitive to percentage changes in sales. C. the company A is more profitable. D. the company A is less risky.

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PROBLEM SOLVING 1 Direct materials and direct labor costs total P120,000, conversion costs total P100,000, and factory overhead costs total P400 per machine hour. If 150 machine hours were used for Job #201, what is the total manufacturing cost for Job #201? A. 120,000 C. 180,000 B. 160,000 D. 280,000 Machine hours used to set the predetermined overhead rate were 25,000, actual hours were 24,000, and overhead applied was P60,000. Budgeted overhead for the year was A. P57,600. C. P60,000. D. P62,500. B. P59,000. ABC Company had a total overhead of P360,000 and selling and administrative expense of P140,000 for the year. 1,000 units of A and 3,000 units of B were produced. A requires 3 machine hours and B requires one machine hour per unit. What is overhead chargeable per unit of A A. P 60 C. P120 D. P180 B. P 90 ABC Company had a total overhead of P360,000 and selling and administration expense of P140,000 for the year. 1,000 units of A and 3,000 units of B were produced. A requires 3 and B requires one machine hours per unit. A requires 6 direct labor hours and B requires 4 direct labor hours per unit. 40% of overhead is related to labor and the balance to machines. Labor-related overhead per hour amounts to A. P 8 C. P18 B. P12 D. P24 ABC Company had a total overhead of P360,000 and selling and administration expense of P140,000 for the year. 1,000 units of A and 3,000 units of B were produced. A requires 3 and B requires one machine hours per unit. A requires 6 direct labor hours and B requires 4 direct labor hours per unit. 40% of overhead is related to labor and the balance to machines. The overhead per unit of B amounts to

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COST ACCOUNTING
A. P 60 C. P156 B. P 68 D. P180 ABC Company had a total overhead of P360,000 and selling and administration expense of P140,000 for the year. 1,000 units of A and 3,000 units of B were produced. Assuming that 20% of all overhead are batch-related for 1,000 batches, 40% of which was for producing product A, batch-related overhead for product A per unit amounts to A. P20 C. P60 B. P40 D. P80 ABC Company had a total overhead of P360,000 and selling and administration expense of P140,000 for the year. 1,000 units of A and 3,000 units of B were produced. Assuming that 30% of overhead is product related overhead - 20% of which is related to product A, product-related overhead per unit of A amounts to A. P30 C. P50 B. P40 D. P60 Cooke Company uses the equation P450,000 + P1.50 per direct labor hour to budget manufacturing overhead. Cooke has budgeted 150,000 direct labor hours for the year. Actual results were 156,000 direct labor hours and P697,500 total manufacturing overhead. The total overhead variance for the year is A. P4,500 favorable. C. P4,500 unfavorable. B. P18,000 favorable. D. P18,000 unfavorable. If estimated annual factory overhead is P800,000, estimated annual direct labor hours are 400,000, actual June factory overhead is P82,000, and actual June direct labor hours are 38,000, then overhead is: A. P6,000 overapplied C. P1,800 underapplied D. P6,000 underapplied B. P1,800 overapplied BKY Company predicted that factory overhead for 2006 and 2007 would be P60,000 for each year. The predicted and actual activity for 2006 and 2007 were 30,000 and 20,000 direct labor hours, respectively. 2007 2006 Sales in units 25,000 25,000 Selling price per unit P10 P10 Direct materials and direct labor per unit P 5 P 5 The company assumes that the long-run production level is 20,000 direct labor hours per year. The actual factory overhead cost for the end of 2006 and 2007 was P60,000. Assume that it takes one direct labor hour to make one finished unit. When the annual estimated factory overhead rate is used, the gross profits for 2006 and 2007, respectively, are A. P 75,000 and P 75,000 C. P125,000 and P125,000 B. P 75,000 and P 55,000 D. P 75,000 and P 50,000 Britney Company has unit costs of P10 for materials and P30 for conversion costs. If there are 2,500 units in ending work in process, 40% complete as to conversion costs, and fully complete as to materials cost, the total cost assignable to the ending work in process inventory is A. P 45,000 C. P 75,000 B. P 55,000 D. P100,000 In the Star Company, the predetermined overhead rate is 80% of direct labor cost. During the month, P210,000 of factory labor costs are incurred, of which P180,000 is direct labor and P30,000 is indirect labor. Actual overhead incurred was P200,000. The amount of overhead debited to Work in Process Inventory should be A. P120,000 C. P168,000 B. P144,000 D. P160,000 The Assembling Department s output during the period consists of 20,000 units completed and transferred out, and 5,000 units in ending work in process 60% complete as to materials and conversion costs. Beginning inventory is 1,000 units, 40% complete as to materials and conversion costs. The equivalent units of production are A. 22,600 C. 24,000 B. 23,000 D. 25,000 The Amor Company has 2,000 units in beginning work in process, 20% complete as to conversion costs, 23,000 units transferred out to finished goods, and 3,000 units in ending work in process one-third complete as to conversion costs. The beginning and ending inventory is fully complete as to materials costs. Equivalent units for materials and conversion costs are A. 22,000 and 24,000 C. 24,000 and 26,000 B. 26,000 and 24,000 D. 26,000 and 26,000 Dodge Company has a mixing department and a refining department. Its process-costing system in the mixing department has two direct materials cost categories (material J and material P) and one conversion costs pool. The company uses First-in, First out cost flow method. The following data pertain to the mixing department for November 2006 Units Work in process, November 1: 50 percent completed Work in process, November 30, 70 percent completed Units started Completed and transferred Costs Work-in-process, November 1 Material J Material P Conversion Costs 15,000 25,000 60,000 50,000 P218,000 720,000 750,000 300,000

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Material J is introduced at the start of operations in the Mixing department, and Material P is added when the product is three-fourths completed in the mixing department. Conversion costs are added uniformly during the process. A. The respective equivalent units for Material J and Material P in the mixing department for November 2006, are A. Both 50,000 units C. 75,000 units and 60,000 units B. 60,000 units and 50,000 units D. 60,000 units and 75,000 units B. The cost of goods completed and transferred out to the Refining department was

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COST ACCOUNTING
A. P1,930,750 C. P1,600,500 B. P1,350,000 D. P1,550,500 The Amor Company s accounting records reflected the following data for April 2003. The company accounts its production using Firstin, First-out cost flow method: Work in process, March 31,2003, 60% completed as to materials and conversion costs Work in process, April 30, 2003, 30% completed as to materials and conversion costs Equivalent units of production for April 2003 Units started and completed in April A. How many units were in the beginning work-in-process? A. 6,800 C. 17,000 B. 11,333 D. 24,000 B. Had the company used the weighted-average method of accounting for its production, the equivalent units should be A. 74,200 C. 81,000 B. 57,200 D. 53,800 In the Newman Company, there are zero units in beginning work in process, 7,000 units started into production, and 500 units in ending work in process 20% completed. The physical units to be accounted for are A. 7,000 C. 7,600 B. 7,360 D. 7,340 For the month of May, the Production Control Department of La Mesa, Inc. reported the following production data for Finishing Department (second department): Transferred-in from Assembly Department Transferred-out to Packaging Department In-process end of May (with 1/3 labor and factory overhead) 75,000 59,250 15,750

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? units 24,000 units 64,000 50,000

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All materials were put into process in Assembly Department. The Cost Accounting Department collected these figures for Finishing Department. Unit cost for unit transferred-in from Assembly Department Labor cost in Finishing Department Applied factory overhead P 2.70 41,280.00 112.5% of labor cost

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How much was the cost of Finished goods transferred out to the Packaging Department? A, P240,555 C. P260,580 B. P 80,580 D. P159,975 Mergy Company uses process costing in accounting for its production department, which uses two raw materials. Material Alpha is placed at the beginning of the process. Inspection is at the 85% completion stage. Material Bravo is then added to the good units. Normal spoilage units amount to 5% of good output. The company records contain the following information for April: Started during the period Material Alpha Material Beta Direct labor cost Factory overhead Transferred to finished goods Work in process (95% complete), April 30 20,000 units P26,800 P22,500 P75,160 P93,950 14,000 4,000

A. How much were Material cost per equivalent unit for Alpha and Beta, respectively? A. P1.40; P1.36 C. P1.34; P1.06 B. P1.40; P1.06 D. P1.34; P1.25 B. The equivalent units of production for Material Alpha and Beta are Alpha Beta A. 18,000 14,000 B. 18,000 18,000 C. 20,000 18,000 D. 20,000 14,000 C. The number of normal and abnormal lost units are: Abnormal Normal A. 700 1,400 B. 1,400 700 C. 900 1,100 D. 1,100 900 Catridge Company has no beginning work in process; 9,000 units are transferred out and 3,000 units in ending work in process are one-third finished as to conversion costs and fully complete as to materials cost. If total materials cost is P60,000, the unit materials cost is A. P5.00 C. P5.45 B. P6.00 D. P5.35 Lapid Company uses process costing. All materials are added at the beginning of the process. The product is inspected when it is 90 percent converted, and spoilage is identified only at that point. Normal spoilage is expected to be 5% of good output. The following are extracted from the production records of Lapid Company for May 2003:

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Units put into process Units transferred to finished goods In-process, May 31, 75% complete 21,000 14,000 6,000

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How many are considered abnormal lost units? A. Zero C. 15 B. 300 D. 850 Use the following information that pertains to beta manufacturing company to answer questions 21 through 23: Beginning direct materials inventory Beginning WIP inventory Beginning finished goods inventory Ending direct materials inventory Ending WIP inventory Ending finished goods inventory Purchases Direct labor Factory overhead A. What is the amount of direct materials used during the period? A. P140,000 C. P 60,000 B. P130,000 D. P150,000 B. What is the amount of cost of goods manufactured during the period? A. P430,000 C. P470,000 B. P420,000 D. P510,000 C. What is the amount of cost of goods sold during the period? A. P430,000 C. P470,000 B. P420,000 D. P510,000 P 20,000 20,000 40,000 10,000 100,000 50,000 140,000 160,000 200,000

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