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ACC 271 Additional Practice Questions for Exam #1 Multiple Choice 1. Managerial accounting: a) b) c) d) e) 2 focuses only on historical data.

is governed by GAAP. focuses primarily on the needs of personnel within the organization. provides information for parties external to the organization. focuses on financial statements and other financial reports.

Which of the following would likely be considered an internal user of accounting information rather than an external user? a) b) c) d) e) Stockholders. Consumer groups. Lenders. Middle-level managers. Government agencies.


The day-to-day work of management teams will typically comprise all of the following activities except: a) b) c) d) e) decision making. planning. cost minimizing. directing operational activities. controlling.


All of the following are examples of product costs except: a) b) c) d) depreciation on the company's retail outlets. salary of the plant manager. insurance on the factory equipment. rental costs of the factory facility.


Inventoriable (i.e., product) costs that have become expenses can be found in: a) b) c) d) period costs. selling expenses. cost of goods sold. administrative expenses.

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If overhead is underapplied, then: a) actual overhead cost is less than estimated overhead cost. b) the amount of overhead cost applied to Work in Process is less than the actual overhead cost incurred. c) the predetermined overhead rate is too high. d) the Manufacturing Overhead account will have a credit balance at the end of the year.


Which of the following types of firms typically would use process costing rather than joborder costing? a) b) c) d) A small appliance repair shop. A manufacturer of commercial passenger aircraft. A specialty equipment manufacturer. A breakfast cereal manufacturer.


In a job-order costing system, the incurrence of indirect labor costs would usually be recorded as a increase (debit) to: a) b) c) d) Manufacturing Overhead. Finished Goods. Work in Process. Cost of Goods Sold.


The labor time required to assemble a product is an example of a: a) b) c) d) Unit-level activity. Batch-level activity. Product-level activity. Facility-level activity.

10. Which of the following is not a broad, cost classification category typically used in activitybased costing? a) Unit-level. b) Batch-level. c) Product-sustaining level. d) Facility-level. e) Management-level. 11. Activity-based costing systems: a) use a single, volume-based cost driver. b) assign overhead to products based on the products' relative usage of direct labor. c) often reveal products that were under- or overcosted by traditional costing systems. d) typically use fewer cost drivers than more traditional costing systems. Copyright 2013, School of Accountancy, Arizona State University

e) have a tendency to distort product costs.

12. Consider the following statements regarding traditional costing systems: (I) Overhead costs are applied to products on the basis of volume-related measures. (II) All manufacturing costs are easily traceable to the goods produced. (III) Traditional costing systems tend to distort unit manufacturing costs when numerous goods are made that have widely varying production requirements. Which of the above statements is (are) true? a) I only. b) II only. c) III only. d) I and III. e) II and III. 13. Airstream builds recreational motor homes. All of the following activities add value to the finished product except: a) b) c) d) e) installation of carpet. assembly of the frame to the chassis. storage of the vehicle in the sales area. addition of exterior lights. final painting and polishing.

14. During July at Loeb Corporation, $83,000 of raw materials were requisitioned from the storeroom for use in production. These raw materials included both direct and indirect materials. The indirect materials totaled $4,000. The effect on accounts to record the requisition from the storeroom would include a (n): a) b) c) d) increase (debit) to Work in Process of $79,000 increase (debit) to Work in Process of $83,000 decrease (credit) to Manufacturing Overhead of $4,000 increase (debit) to Raw Materials of $83,000

15. Niebla Corporation has provided data concerning the company's Manufacturing Overhead account for the month of July. Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the increases (debits) to the Manufacturing Overhead account was $72,000 and the total of the decreases (credits) to the account was $77,000. Which of the following statements is true?

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a) Manufacturing overhead applied to Work in Process for the month was $72,000. b) Actual manufacturing overhead for the month was $72,000. c) Manufacturing overhead for the month was underapplied by $5,000. d) Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during the month was $77,000.

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The following data pertain to Graham Company's operations in May:

16. The ending raw materials inventory was: a) b) c) d) $5,000 $10,000 $15,000 $20,000

17. The beginning finished goods inventory was: a) b) c) d) $5,000 $15,000 $25,000 $30,000

18. The direct labor cost for May was: a) b) c) d) $35,000 $40,000 $30,000 $25,000

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Acheson Corporation, which applies manufacturing overhead on the basis of machinehours, has provided the following data for its most recent year of operations.

The estimates of the manufacturing overhead and of machine-hours were made at the beginning of the year for the purpose of computing the company's predetermined overhead rate for the year.

19. The applied manufacturing overhead for the year is closest to: a) b) c) d) $162,682 $155,995 $158,789 $159,842

20. Over/underapplied manufacturing overhead was: a) b) c) d) $2,792 underapplied $3,842 overapplied $2,792 overapplied $3,842 underapplied

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Problem #1 (Job Order Costing) Jen's has the following transactions for the month of November: 1. Purchased materials on account for $111,482. 2. Materials Requisitioned for $82,383. 3. Direct Labor for the month was incurred (but not yet paid) of $51,000 4. Actual Overhead for the month was $33,000. It has not been paid yet (Charge to Various Payables) 5. Overhead is applied to production at the rate of 70% of direct labor. 6. Jobs totaling $56,000 were transferred from Work-in-Process to Finished Goods. 7. Jobs costing $41,000 were sold. Balances at the beginning of the month were: Materials $17,890 Work-in-Process $0 Finished Goods $8,321 REQUIRED: YOU MUST SHOW YOUR WORK TO RECEIVE CREDIT 1. Calculate the Ending Balance of Raw Materials. $______________

2. Calculate the Ending Balance in Work-in-Process $_______________

3. Calculate the Ending Balance in Finished Goods $_________________

4. Determine the balance in the manufacturing overhead account. Label it as over or underapplied.

6. Calculate the adjusted Cost of Goods Sold amount.

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Problem #2: ACTIVITY BASED COSTING Assume Armstrong Cycles makes two products, a mountain bike, a high-volume product; and a racing bike, a low volume product. The direct labor costs are $30 and $60 per bike for the mountain and racing bikes, respectively. Amrmstrong allocates overhead to products in an amount equal to five times a products direct labor costs. The direct materials costs are $100 and $200 per bike for the mountain and racing bikes, respectively. Adding overhead at the rate of 500 percent of direct labor costs gave the following product costs per unit (plant-wide / traditional method): Mountain Bikes $100 30 150 $280 Racing Bikes $200 60 300 $560

Direct Material Direct Labor Manufacturing Overhead Total

Managers decide to experiment with activity-based costing at the Armstrong factory. The managers first identified four important activities. Second, they estimated the amount of annual overhead and the annual volume-of-activity for each activity as follows:

Activity Cost Driver Purchasing Materials Frames purchased Machine Setups Machine setups Inspections Hours of inspections Running Machines Machine Hours Total Estimated Overhead

Estimated Overhead $ 200,000 800,000 400,000 600,000 $ 2,000,000

Estimated Number of Cost Driver Units 10,000 frames 400 setups 4,000 I hours 20,000 M hours

Picking the month of January for their study, the managers collected the following information about the actual number of cost driver units for each of the two products: Cost Driver Number of frames purchased Number of machine setups Hours of inspections Machine Hours Mountain Bikes 1000 frames 13 setups 200 hours 1500 hours Racing Bikes 200 frames 30 setups 200 I hours 500 M hours

During January, the factory produced 1,000 mountain bikes and 200 racing bikes. Required: See next page

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YOU MUST SHOW YOUR WORK TO RECEIVE CREDIT a. Calculate the predetermined annual overhead rates for Activity-Based Costing:

Purchasing Materials: Machine Setups: Inspections: Running Machines:


Calculate the per unit total product cost for both products under ABC. Racing Bike Total Unit Cost: $__________

Mountain Bike Total Unit Cost: $_______

c. Compare the overhead applied using traditional costing to ABC costing and remark on the difference. Which one do you think is more accurate and why? ____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________

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