Introduction to Cost Accounting Multiple Choice Questions

INTRODUCTION TO COST ACCOUNTING
MULTIPLE CHOICE
1. Factory overhead includes:

a. Indirect labor but not indirect materials.
b. Indirect materials but not indirect labor.
c. All manufacturing costs, except indirect materials and indirect labor.
d. All manufacturing costs, except direct materials and direct labor.
ANS: D
Factory overhead includes all manufacturing costs except direct materials and direct labor.
2. The term "prime cost" refers to:

a. The sum of direct labor costs and all factory overhead costs.
b. The sum of raw material costs and direct labor costs.
c. All costs associated with manufacturing other than direct labor costs and raw material costs.
d. Manufacturing costs incurred to produce units of output.
ANS: B
The term "prime cost" refers to the sum of raw materials costs and direct labor costs.
3. The term "conversion costs" refers to:

a. The sum of direct labor costs and all factory overhead costs.
b. The sum of raw material costs and direct labor costs.
c. All costs associated with manufacturing other than direct labor costs.
d. Direct labor costs incurred to produce units of output.
ANS: A
The term "conversion costs" refers to the sum of direct labor costs and all factory overhead costs.
4. A typical factory overhead cost is:

a. Freight out.
b. Stationery and printing.
c. Depreciation on machinery and equipment.
d. Postage.
ANS: C
Depreciation on machinery and equipment is a factory overhead cost (i.e., it is a manufacturing cost, but it can't be identified with specific jobs or
processes), whereas the other three items are selling and administrative expenses.
5. Under a job order system of cost accounting, the dollar amount of the entry to transfer inventory from Work in Process to Finished Goods is the sum of
the costs charged to all jobs:
a. In process during the period.
b. Completed and sold during the period.
c. Completed during the period.
d. Started in process during the period.
ANS: C
When jobs are completed during the period, Finished Goods is debited and Work in Process is credited for the cost of the finished jobs.
6. Which of the following production operations would be most likely to employ a job order system of cost accounting?
a. Candy manufacturing
b. Crude oil refining
c. Printing text books
d. Flour Milling
ANS: C
Printing would be most likely to employ a job order system of cost accounting due to the number of custom jobs involved. The manufacture of candy,
the vulcanizing of rubber, and the refining of crude oil would normally be a continuous process of producing like goods and would be accounted for
under the process cost system.
7. In job order costing, the basic document for accumulating the cost of each order is the:
a. Job cost sheet.
b. Requisition sheet.
c. Purchase order.
d. Invoice.
ANS: A
In job order costing, the basic document to accumulate the cost of each order is the job cost sheet.
8. When should process costing techniques be used in assigning costs to products?

a. In situations where standard costing techniques should not be used
b. If the product is composed of mass-produced homogeneous units
c. When production is only partially completed during the accounting period
d. If the product is manufactured on the basis of each order received
ANS: B
Process costing techniques should be used in assigning costs to products if the product is composed of mass-produced homogeneous units.
9. An industry that would most likely use process costing procedures is:
a. Beverage.
b. Home Construction.
c. Printing.
d. Shipbuilding.
ANS: A
Beverage production usually consists of manufacturing "long runs" of homogeneous products for which process costing is used. The other three
industries would utilize job order costing.
10. Under a job order system of cost accounting, Cost of Goods Sold is debited and Finished Goods is credited for a:
a. Transfer of materials to the factory.
b. Shipment of completed goods to the customer.
c. Transfer of completed production to the finished goods storeroom.
d. Purchase of goods on account.
ANS: B
When completed goods are shipped to customers, Cost of Goods Sold is debited and Finished Goods is credited.
11. Payroll is debited and Wages Payable is credited to:

a. Pay the payroll taxes.
b. Record the payroll.
c. Pay the payroll.
d. Distribute the payroll.
ANS: B
When the payroll is recorded, Payroll is debited and Wages Payable is credited. When payroll taxes are paid, the various liability accounts are debited
and Cash is credited. When the payroll is paid, Wages Payable is debited and Cash is credited. When the payroll is distributed, Work in Process, Factory
Overhead, and Selling and Administrative Expenses are debited and Payroll is credited.
12. Selected data concerning the past fiscal year's operations (000's omitted) of the Stanley Manufacturing Company are presented below:
INVENTORIES
Beginning Ending
Raw materials $ 90 $ 85
Work in process 50 65
Finished goods 100 90
Other data:
Raw materials used $365
Total manufacturing costs charged to production during
the year (includes raw materials, direct labor, and factory
overhead) 680
Cost of goods available for sale 765
Selling and general expenses 250
The cost of raw materials purchased during the year amounted to:
a. $455.
b. $450.
c. $365.
d. $360.
ANS: D
Add ending inventory of raw materials 85
Materials available during the year $450
Less beginning inventory of raw materials 90
Purchases of raw materials during the year $360
INVENTORIES
Beginning Ending
Other data:
overhead) 680
The cost of goods manufactured during the year was:

a. $735.
b. $710.
c. $665.
d. $705.
ANS: C
Total manufacturing costs during the year $680
Add beginning work in process inventory 50
Total $730
Less ending work in process inventory - 65
Cost of goods manufactured during the year $665
INVENTORIES
Beginning Ending
Other data:
overhead) 680
The cost of goods sold during the year was:

a. $730.
b. $775.
c. $675.
d. $765.
ANS: C
Beginning finished goods inventory $100
Add cost of goods manufactured during the year ($680 + $50 - $65) 665
Total cost of goods available for sale $765
Less ending finished goods inventory 90
Cost of goods sold during the year $675
15. At a certain level of operations, per unit costs and profit are as follows: manufacturing costs, $50; selling and administrative expenses, $10; desired
profit, $20. Given this information, the mark-on percentage to manufacturing cost used to determine selling price must have been:
a. 40 percent.
b. 60 percent.
c. 33 percent.
d. 25 percent.
ANS: B
Manufacturing cost $50
Selling and administrative expenses 10
Desired profit 20
Selling price $80
Selling price - Manufacturing costs

= Mark-on percentage
Manufacturing costs
$80 - $50
= 60%
$50
16. Which of the following items of cost would be least likely to appear on a performance report based on responsibility accounting for the supervisor of an
assembly line in a large manufacturing situation?
a. Direct labor
b. Supervisor's salary
c. Materials
d. Repairs and maintenance
ANS: B
A supervisor's salary would be least likely to appear on a performance report, because that person's salary is determined by the company and is not
controllable by the supervisor.
17. Which of the following items of cost would be least likely to appear on a performance report based on responsibility accounting for the supervisor of an
assembly line in a large manufacturing situation?
a. Direct labor
b. Indirect materials
c. Selling expenses
d. Repairs and maintenance
ANS: C
Selling expenses would be least likely to appear on a performance report, because the supervisor would not have responsibility for the sales function.
18. Which of the following statements best describes a characteristic of a performance report prepared for use by a production line department head?
a. The costs in the report should include only those controllable by the department head.
b. The report should be stated in dollars rather than in physical units so the department head knows the financial magnitude
of any variances.
c. The report should include information on all costs chargeable to the department, regardless of their origin or control.
d. It is more important that the report be precise than timely.
ANS: A
The performance report should include only those costs controllable by the department head. It should also be timely and should include production
data as well as dollar amounts.
19. Unit cost information is important for making all of the following marketing decisions except:
a. Determining the selling price of a product.
b. Bidding on contracts.
c. Determining the amount of advertising needed to promote the product.
d. Determining the amount of profit that each product earns.
ANS: C
Unit cost information is used in determining selling price, bidding on contracts and determining product profitability, but would not have a bearing on
determining how much the product would need to be advertised..
20. Cost accounting differs from financial accounting in that financial accounting:
a. Is mostly concerned with external financial reporting.
b. Is mostly concerned with individual departments of the company.
c. Provides the additional information required for special reports to management.
d. Puts more emphasis on future operations.
ANS: A
Items (b) through (d) are characteristics of cost accounting, whereas Item (a) is a feature of financial accounting.
21. The business entity that converts purchased raw materials into finished goods by using labor, technology, and facilities is a:
a. Manufacturer.
b. Merchandiser.
c. Service business.
d. Not-for-profit service agency.
ANS: A
The business entity that converts purchased raw materials into finished goods by using labor, technology, and facilities is a manufacturer.
22. The business entity that purchases finished goods for resale is a:
a. Manufacturer.
b. Merchandiser.
c. Service business.
d. For-profit service business.
ANS: B
The business entity that purchases finished goods for retail is a merchandiser.
23. The type of merchandiser who purchases goods from the producer and sells to stores who sell to the consumer is a:
a. Manufacturer.
b. Retailer.
c. Wholesaler.
d. Service business.
ANS: C
The type of merchandiser that purchases goods from the producer and sells to the retailer is a wholesaler.
24. Inventory accounts for a manufacturer include all of the following except:
a. Merchandise Inventory.
b. Finished Goods.
c. Work in Process.
d. Materials.
ANS: A
Inventory accounts for a manufacturer include Materials, Work in Process, and Finished Goods.
25. Examples of service businesses include:

a. Airlines, architects, and hair stylists.
b. Department stores, poster shops, and wholesalers.
c. Aircraft producers, home builders, and machine tool makers.
d. None of these are correct.
ANS: A
Examples of service businesses include airlines, architects, and hair stylists.
26. In the financial statements, Materials should be categorized as:

a. Revenue.
b. Expenses.
c. Assets.
d. Liabilities.
ANS: C
Materials are included in inventory, which is an asset on the balance sheet because it has a future benefit.
27. Factory overhead would include:

a. Wages of office clerk.
b. Sales manager’s salary.
c. Supervisor’s salary.
d. Tax accountant’s salary.
ANS: C
The supervisor’s salary is an indirect factory cost.
28. The statement of costs of goods manufactured shows:

a. Office supplies used in accounting office.
b. Deprecation of factory building.
c. Salary of sales manager.
d. Rent paid on finished goods warehouse.
ANS: B
29. Responsibility accounting would most likely hold a manager of a manufacturing unit responsible for:
a. cost of raw materials.
b. quantity of raw materials used.
c. workers pay scale.
d. amount of taxes incurred.
ANS: B
In responsibility accounting the manager of a cost center is only responsible for those costs the manager controls.
30. Which of the following is not a cost that is accumulated in Work in process?
a. Direct materials
b. Administrative expense
c. Direct labor
d. Factory overhead
ANS: B
Administrative expense is not a factory cost, so it would not be included in work in process.
31. Mountain Company produced 20,000 blankets in June to be sold during the holiday season. The manufacturing costs were:
Direct materials $125,000

Direct labor 55,000
Factory overhead 60,000
Managment has decided that the mark-on percentage necessary to cover the product’s share of selling and administrative expenses and to earn a
satisfactory profit is 30%. The selling price per blanket should be:
a. $12.00.
b. $15.60.
c. $23.60.
d. $31.20.
ANS: B
Direct labor 55,000
Total manufacturing costs $240,000
$240,000 / 20,000 units = $12.00 cost per unit

$12.00 x 30% = $3.60 + $12.00 = $15.60
32. Mountain Company produced 20,000 blankets in June to be sold during the holiday season. The manufacturing costs were:

Direct labor 55,000
Selling expense 25,000
Administrative expense 30,000
The cost per blanket is:

a. $6.25.
b. $9.00.
c. $12.00.
d. $14.75.
ANS: C
Direct labor 55,000
Total manufacturing costs $240,000
$240,000 / 20,000 units = $12.00 cost per unit
33. A law firm wanting to track the costs of serving different clients may use a:
a. process cost system.
b. job order cost system.
c. cost control system.
d. standard cost system.
ANS: B
Professional firms use job order cost systems to track client costs.
34. A standard cost system is one:

a. that provides a separate record of cost for each special-order product.
b. that uses predetermined costs to furnish a measurement that helps management make decisions regarding the efficiency
of operations.
c. that accumulates costs for each department or process in the factory.
d. where costs are accumulated on a job cost sheet.
ANS: B
A standard cost system uses predetermined standard costs to furnish a measurement that helps managment make decisions regarding the efficiency of
operations.
35. Which of the following is most likely to be considered an indirect material in the manufacture of a sofa?
a. Lumber
b. Glue
c. Fabric
d. Foam rubber
ANS: B
While glue would be included in the finished product, its cost would be relatively insignificant, therefore, it would not be cost effective to trace its cost
to specific products.
36. The Macke Company’s payroll summary showed the following in November:
Sales department salaries $10,000

Supervisor salaries 20,000
Assembly workers’ wages 25,000
Machine operators’ wages 35,000
Maintenance workers’ wages 15,000
Accounting department salaries 5,000
What is the amount that would be included in direct labor in November?

a. $25,000
b. $60,000
c. $95,000
d. $120,000
ANS: B
Assembly workers and machine operators would be considered direct labor.
Assembly workers’ wages $25,000
Total direct labor $60,000
37. The Macke Company’s payroll summary showed the following in November:
Sales department salaries $10,000

Supervisor salaries 20,000
Assembly workers’ wages 25,000
Accounting department salaries 5,000
What is the amount that would be included in factory overhead in November?

a. $20,000
b. $35,000
c. $95,000
d. $120,000
ANS: B
The supervisors’ salaries and maintenance workers’ wages would be inlcuded in factory overhead.
Supervisors’ salaries $20,000
Total direct labor $35,000
The wages of the assembly workers and machine operators would be included in direct labor, while the sales and accounting department salaries would
be included in selling and administrative expense.
38. According to the Institute of Management Accountants (IMA) Statement of Ethical Professional Practice, performing professional dutes in accordance
with relevant laws, regulations and technical standards is a component of which standard?
a. Competence
b. Confidentiality
c. Integrity
d. Credibility
ANS: B
Performing technical duties in accordance with relevant laws, regulations and technical standards is a component of the competence standard.
39. The Institute of Management Accountants (IMA) Statement of Professional Practice includes all of the following standards except:
a. Confidentiality.
b. Commitment.
c. Integrity.
d. Competence.
ANS: B
The four IMA Professional Standards are: Competence, Confidentiality, Integrity and Credibility.
40. According to the Institute of Management Accountants (IMA) Statement of Ethical Professional Practice, under the Integrity Standard, each member has
the responsibility to:
a. Communicate information fairly and objectively.
b. Keep information confidential.
c. Mitigate conflicts of interest.
d. Maintain an appropriate leve of professional competence.
ANS: C
Under the Integrity Standard, IMA members have the responsibility to mitigate actual conflicts of interest and avoid apparent conflicts of interest.
41. Under a job cost system of accounting, the entry to distribute payroll to the appropriate accounts would be:
a. Debit-Payroll
Credit-Wages Payable
b. Debit-Work In Process
Debit-Factory Overhead
Debit-Selling and Administrative Expense
Credit-Payroll
c. Debit-Work In Process
Debit-Finished Goods
Debit-Cost of Goods Sold
Credit-Payroll
d. Debit-Work in Process
Debit-Factory Overhead
Debit-Selling and Administrative Expense
Credit-Wages Payable
ANS: B
Payroll is credited when the amounts are distributed to the appropriate accounts. Those accounts include Work In Process for direct labor, Factory
Overhead for indirect labor and Selling and Administrative Expense for salaries and wages incurred outside of the factory.
42. The following data were taken from Mansfield Merchandisers on January 31:
Merchandise inventory, January 1 $ 90,000
Sales salaries 35,000
Merchandise inventory, January 31 65,000
Purchases 560,000
What was the Cost of goods sold in January?

a. $585,000
b. $650,000
c. $620,000
d. $535,000
ANS: A
Merchandise Inventory, January 1 $ 90,000
Plus Purchases 560,000
Equals Cost of Goods Available for Sale $650,000
Less Merchandise Inventory, January 31 65,000
Equals Cost of Goods Sold $585,000
43. Joshua Company prepares monthly performance reports for each department. The budgeted amounts of wages for the Finishing Department for the
month of August and for the eight-month period ended August 31 were $12,000 and $100,000, respectively. Actual wages paid through July were
$91,500, and wages for the month of August were $11,800. The month and year-to-date variances, respectively, for wages on the August performance
report would be:
a. $200 F; $8,500 F
b. $200 F; $3,300 U
c. $200 U; $3,300 U
d. $200 U; $8,500 F
ANS: B
Calculation of monthly variance:
Budgeted wages for August $12,000
Actual wages for August 11,800
Variance for August $ 200 F
Calculation of year-to-date variance:

Budgeted wages for the eight-month period ended August 31 $100,000
Actual wages for the eight-month period ended August 31 (91,500 + 11,800) 103,300
Variance for eight-month period ended August 31 $ 3,300 U
PROCESS COST ACCOUNTING--GENERAL PROCEDURES
MULTIPLE CHOICE
1. Which of the following characteristics applies to process costing but not to job order costing?
a. Differentiated products are provided on a special order basis.
b. Cost are accumulated by department.
c. Cost are accumulated by jobs.
d. Direct labor workers must keep detailed records as to the jobs on which they worked.
ANS: B
In a process costing system, costs may be accumulated by department, not by job; therefore requiring more detailed labor records. Job costing would
be used for special order items.
2. A true process costing system could make use of each of the following except:
a. Predetermined factory overhead rates.
b. Individual jobs.
c. Cost centers.
d. Responsibility accounting.
ANS: B
A true process costing system would not make use of individual jobs. Both process and job order cost accounting systems can use predetermined
factory overhead rates, cost centers, and responsibility accounting.
3. A cost center in a process cost system is a:

a. Unit to which costs are accumulated.
b. Job.
c. Specific product.
d. Employee.
ANS: A
A cost center is a unit to which costs are accumulated.
4. Process costing techniques should be used in assigning costs to products:

a. If the product is manufactured on the basis of each order received.
b. In all manufacturing situations.
c. When production is only partially completed during the accounting period.
d. If the product is composed of mass-produced homogeneous units.
ANS: D
Process costing techniques should be used in assigning costs to products if the product is composed of mass-produced homogeneous units.
5. The cost of an equivalent unit is equal to:

a. A unit of work in process inventory.
b. The amount of cost necessary to start a unit of production into work in process.
c. The cost necessary to complete one unit of production.
d. A unit of work in process inventory.
ANS: C
An equivalent unit of cost is equal to the amount of cost necessary to complete one unit of production. An equivalent of material or conversion cost is
the amount of these elements that is required to complete one unit of a manufactured product. For example, if 10 units are 50 percent completed, in
terms of equivalency, they are equivalent to 5 units 100 percent completed.
6. A characteristic of a process cost accounting system is:

a. Costs are accumulated by order.
b. Work in process inventory is restated in terms of equivalent whole units.
c. It is used by a company manufacturing custom machinery.
d. None of these is correct.
ANS: B
With a process costing system, work in process inventory is restated in terms of equivalent whole units. Costs are accumulated by order in a job order
cost system, which would be used, for example, by a company manufacturing custom machinery. Standard costs can be used with job order or process
systems.
7. Daniel LLC incurred cost of $43,000 for material, $26,000 for labor, and $23,000 for factory overhead. There was no beginning or ending work in
process. 5,000 units were completed and transferred out. The unit cost for labor is:
a. $ 8.60
b. $ 5.20
c. $ 18.40
d. $ 4.60
ANS: B
Labor unit cost: $26,000 / 5,000 = 5.20
8. If there is no beginning work in process inventory and the ending work in process inventory is 90 percent complete, the number of equivalent units
would be:
a. The same as the units placed in process.
b. The same as the units completed.
c. Less than the units placed in process.
d. Less than the units completed.
ANS: C
Proof: Units
In process, beginning of period None
Placed in process 10,000
Completed and transferred 9,000
Work in process, end of period 1,000
Stage of completion 90%
Equivalent production:
Completed during period 9,000
Equivalent units of work in process, end of period (1,000 units, 90%
completed) 900
Total equivalent production 9,900
9. The computation of manufacturing cost per equivalent unit, using the average cost method of process costing, considers:
a. Current costs only.
b. Current costs plus cost of beginning work in process inventory.
c. Current costs plus cost of ending work in process inventory.
d. Current costs less cost of beginning work in process inventory.
ANS: B
The average cost method of process costing considers current cost plus cost of beginning work in process inventory.
10. In a given process costing system, the equivalent units of production are computed using the average cost method. The percentage of completion for
the current period only is included in the calculation of the:
Beginning Work in Ending Work in

Process Inventory Process Inventory
a. No No
b. No Yes
c. Yes No
d. Yes Yes
ANS: B
In computing equivalent units of production, the percentage of completion of the current period is used only in the calculation of the ending work in
process inventory.
11. The beginning work in process inventory is 60 percent complete, and the ending work in process inventory is 45 percent complete. The dollar amount
of the production cost included in the ending work in process inventory (using the average cost method) is determined by multiplying the average unit
costs by what percentage of the total units in the ending work in process inventory?
a. 100 percent
b. 60 percent
c. 55 percent
d. 45 percent
ANS: D
The dollar amount of production cost included in the ending work in process inventory is determined by multiplying the average unit costs by the
percentage of completion of the ending work in process inventory (45 percent).
12. What are transferred-in costs as used in a process cost accounting system?
a. Labor that is transferred from another department within the same plant instead of hiring temporary workers from the
outside
b. Costs that have been incurred in a prior department on units that have been moved into a subsequent department
c. Supervisory salaries that are transferred from an overhead cost center to a production cost center
d. Ending work in process inventory of a previous process that will be used in a succeeding process
ANS: B
Transferred-in costs, as used in a process cost system, represent the cost of the production of a previous internal process or department subsequently
used in a succeeding internal process.
13. An error was made in the computation of the stage of completion of the current year's ending work in process inventory. The error resulted in assigning
a lower stage of completion to each component of the inventory than actually was the case. What is the resultant effect of this error upon:
(1) The computation of equivalent units in total?

(2) The computation of costs per equivalent unit?
(3) Costs assigned to cost of goods completed for the period?
(1) (2) (3)
a. Understate Overstate Overstate
b. Understate Understate Overstate
c. Overstate Understate Understate
d. Overstate Overstate Understate
ANS: A
As computed
Proof: Actual incorrectly
Equivalent units in ending work in process 2,000 1,000
Equivalent units in goods completed 20,000 20,000
Total equivalent units 22,000 21,000 (u)
Production cost $462,000 $462,000
Unit cost (Production cost / Total equivalent units) $ 21.00 $ 22.00 (o)
Cost of goods completed: 20,000 units  $21 unit
cost $420,000
20,000 units  $22 unit cost $440,000 (o)
14. Lily Corporation uses process costing to calculate the cost of manufacturing pool systems. Beginning work in process included 7,000 units 50 percent
complete. During the month 15,000 units were completed, 1,400 units remain in work in process at 80 percent complete. Using the average cost
method, the equivalent units are:
a. 14,000
b. 18,720
c. 16,120
d. 19,900
ANS: C
Units output for the month:
Finished during month 15,000
Equivalent units, work in process ending
(1,400 x 80% complete) 1,120
16,120
15. Norma Company had 10,000 units in work in process at January 1 that were 50 percent complete. During January, 25,000 units were completed. At
January 31, 6,000 units remained in work in process that were 75 percent complete. Using the average cost method, the equivalent units for January
were:
a. 31,000.
b. 29,500.
c. 35,000.
d. 36,000.
ANS: B
Unit output for month:
Finished during month 25,000
Equivalent units of work in process, end of month (6,000 units, 75%
completed) 4,500
29,500
16. Michael Company had 2,000 units in work in process at January 1 that were 80 percent complete. During January, 15,000 units were completed. At
January 31, 4,000 units remained in work in process that were 40 percent complete. Using the average cost method, how many units were started
during January?
a. 21,000
b. 18,200
c. 17,000
d. 19,000
ANS: C
Beginning work-in-process 2,000
Units started during month ???
Total units worked on during month 19,000
Units completed during month 15,000
Ending work-in-process 4,000
Ending work-in-process and units completed during the month total 19,000 units. 19,000 units less 2,000 units equal 17,000 units.
17. Information concerning the materials used in the Mixing Department in October is as follows:
Units Materials Costs

Work in process, Oct. 1 11,700 $ 4,100
Units started during Oct. 43,300 22,900
Units completed and transferred to next department
during Oct. 45,000
If the ending work-in-process inventory is 50% complete, using the average cost method, what was the materials cost in work in process at October 31?
a. $2,644
b. $2,700
c. $4,330
d. $4,811
ANS: B
(B) Units in work in process, October 31:
In process, October 1 11,700

Started during October 43,300
Total units to account for 55,000
Units transferred 45,000
Units in process, October 31 10,000
Percentage of completion 50%
Equivalent units in process 5,000
Total materials cost

=
Units completed plus ending inventory
($4,100 + $22,900) = $27,000 = $.54 per unit

(45,000 + 5,000) 50,000
Materials cost for work in process, October 31:

5,000 units  $.54 = $2,700
18. In a production cost report using process costing, transferred-in costs are similar to:
a. Material added at the beginning of the process.
b. Conversion costs added during the process.
c. Costs transferred to the next process.
d. Costs included in beginning inventory.
ANS: A
The costs transferred in from another department are treated in a manner similar to materials added in a department at the very beginning of
processing in the department. They are finished units of the preceding department but will require additional processing in the department to which
they were transferred.
19. The Assembly Department is the second stage of Pine Company's production cycle. On May 1, the beginning work in process contained 15,000 units
that were 40 percent complete. During May, 85,000 units were transferred in from the first stage of Pine's production cycle. On May 31, the ending
work in process contained 20,000 units that were 75 percent complete. Using the average cost method, the equivalent units are:
Transferred-In Conversion
Costs Materials Costs
a. 85,000 70,000 70,000
b. 100,000 80,000 80,000
c. 100,000 95,000 95,000
d. 120,000 100,000 100,000
ANS: C
Units
Cost flow analysis:
Units in beginning work in process 15,000
Transferred in during month 85,000
Total units worked on 100,000
Less ending work-in-process 20,000
Units transferred out 80,000
Transferred-in costs:
Total units in department 15,000
Less units in ending work in process 85,000
Total units transferred in 100,000
Material and Conversion Costs:
Units completed and transferred (see above) 80,000
Ending work in process: (20,000 x 75% complete) 15,000
Equivalent units 95,000
20. Information for the month of January concerning Department A, the first stage of Cando Corporation's production cycle, follows:
Materials Conversion
Beginning work in process $17,200 $16,400
Current costs 50,000 34,000
Total costs $67,200 $50,400
Equivalent units using average cost method 112,000 112,000
Average unit costs $ 0.60 $ 0.45
Goods completed 100,000 units
Ending work in process 24,000 units
The ending work in process is 50 percent complete. How would the total costs accounted for be distributed using the average cost method?
Goods Ending Work

Completed in Process
a. $105,000 $12,600
b. $67,200 $14,400
c. $67,200 $50,400
d. $105,000 $14,400
ANS: A
Cost of the completed goods:
Materials (100,000  $.60) $ 60,000
Conversion costs (100,000  $.45) 45,000
Total cost of completed goods $105,000
Cost of ending work in process:
Materials (24,000 x 50%  $.60) $ 7,200
Conversion costs (24,000 units  50%  $.45) 5,400
Total cost of ending work in process $ 12,600
21. Characteristics that job order costing and process costing have in common include all of the following except:
a. The use of predetermined factory overhead rates.
b. Each can be used by service firms.
c. The costs of materials and labor are charged to the departments where they are incurred.
d. The primary objective is to complete a unit cost for products.
ANS: C
Charging the costs of material and labor to the departments in which they are incurred is a characteristic of process costing. In job order costing, these
costs are charged directly to jobs.
22. Daniel LLC incurred cost of $43,000 for material, $26,000 for labor, and $23,000 for factory overhead. There was no beginning or ending work in
process. 5,000 units were completed and transferred out. The cost per unit is:
a. $ 8.60
b. $ 5.20
c. $ 18.40
d. $ 4.60
ANS: C
Material $43,000
Labor 26,000
Total costs $92,000
Divided by the number of units 5,000
Cost per unit $18.40
23. All of the following could be included in the cost of a product located in the final production department of a multi-step process except:
a. The costs of materials, labor and overhead identifiable with that department.
b. Marketing and distribution costs.
c. The costs of service departments that have been allocated to production departments.
d. The costs of prior production departments.
ANS: B
Marketing and distribution costs are not product costs.
24. The number of whole units that could have been completed during a period, using the production costs incurred during that period is called:
a. Standard production.
b. Equivalent production.
c. Total units.
d. Manufactured units.
ANS: B
The number of whole units that could have been completed during a period, using the production costs incurred during that period is called equivalent
production.
25. All of the following are characteristics of a production report except:

a. It includes the number of units completed during the period.
b. It includes the costs incurred by the department during the period.
c. It includes the number of units in ending work-in-process and the estimated stage of completion.
d. The department manager completes the report on a monthly basis.
ANS: B
The production report is prepared by the department manager monthly and contains information about the number of units completed and on hand. It
does not contain information about department costs.
26. The cost of production summary for Maha Industries follows:

Maha Industries
Cost of Production Summary
For the Month Ended May 31, 20--
Cost of production for month:
Materials $ 8,000
Labor 4,000
Total costs to be accounted for $15,000
Finished and transferred to Finished goods
during month 3,500
Equivalent units of work in process, end of
month (2,000 units, 25% completed) 500
Unit cost for month:
Materials ($8,000 / 4,000) $2.00
Labor ($4,000 / 4,000) 1.00
Factory overhead ($3,000 / 4,000) .75
Total $3.75
Inventory costs:
Cost of goods finished and transferred to
Finished goods during month: (3,500  $3.75) $13,125
Cost of work in process, end of month:
Materials (2,000  .25  $2.00) $1,000
Labor (2,000  .25  $1.00) 500
Factory overhead (1,000  .25  $.75) 375 1,875
Total production costs accounted for $15,000
What is the journal entry to record materials issued into production?

a. Dr. Finished goods 8,000
Cr. Materials 8,000
b. Dr. Work-in-process 8,000

Cr. Materials 8,000
c. Dr. Work-in-process 1,000

Cr. Materials 1,000
d. Dr. Materials 8,000

Cr. Accounts payable 8,000
ANS: B
The entry to record materials issued into production is:
Work-in-process 8,000
Materials 8,000

Maha Industries
Materials $ 8,000
Labor 4,000
during month 3,500
Materials ($8,000 / 4,000) $2.00
Labor ($4,000 / 4,000) 1.00
Total $3.75
Inventory costs:
Materials (2,000  .25  $2.00) $1,000
Labor (2,000  .25  $1.00) 500
What is the journal entry to record the distribution of labor to production?

a. Dr. Finished goods 4,000
Cr. Payroll 4,000
b. Dr. Work-in-process 4,000

Cr. Overhead 4,000
c. Dr. Work-in-process 4,000

Cr. Payroll 4,000
d. Dr. Payroll 4,000

Cr. Accrued payroll 4,000
ANS: C
The entry to record the distribution of labor to production is:
Payroll 4,000

Maha Industries
Materials $ 8,000
Labor 4,000
during month 3,500
Materials ($8,000 / 4,000) $2.00
Labor ($4,000 / 4,000) 1.00
Total $3.75
Inventory costs:
Materials (2,000  .25  $2.00) $1,000
Labor (2,000  .25  $1.00) 500
What is the journal entry to record factory overhead applied to production?

a. Dr. Work-in-process 3,000
Cr. Factory overhead 3,000
b. Dr. Factory overhead 3,000

Cr. Various accounts 3,000
c. Dr. Work-in-process 375

Cr. Factory overhead 375
d. Dr. Factory overhead 375

Cr. Work-in-process 375
ANS: A
The entry to record materials issued into production is:
Maha Industries
Materials $ 8,000
Labor 4,000
during month 3,500
Materials ($8,000 / 4,000) $2.00
Labor ($4,000 / 4,000) 1.00
Total $3.75
Inventory costs:
Materials (2,000  .25  $2.00) $1,000
Labor (2,000  .25  $1.00) 500
What is the journal entry to record completed production and transfer to the warehouse?
a. Dr. Work-in-process 13,125
Cr. Finished goods 13,125
b. Dr. Finished goods 1,875

Cr. Work-in-process 1,875
c. Dr. Finished goods 3,000

Cr. Factory overhead 3,000
d. Dr. Finished goods 13,125

Cr. Work-in-process 13,125
ANS: D
The entry to completed production and transfer to the warehouse is:
Finished goods 13,125
30. Howell Company uses the average cost method of process costing. Howell had 1,000 units in beginning work-in-process which were 75% complete.
Costs associated with this inventory were $3,200. When calculating the cost per equivalent unit for the month of June, Howell’s controller should:
a. Not consider the $3,200 as those costs were incurred in a prior period.
b. Calculate the cost to complete the 1,000 items in beginning work-in-process separately.
c. Include the $3,200 with the current month’s cost to arrive at total cost for production to date.
d. Include the equivalent units to complete the beginning work-in-process inventory to arrive at the equivalent units for the
period.
ANS: C
When using the average cost method, the costs associated with the beginning work-in-process inventory should be added to the current month’s cost
to arrive at the total cost of production to date. This amount is then divided by the equivalent production for the month. The equivalent production is
amount of units completed added to the equivalent units of ending inventory (units in ending work-in-process x the stage of completion).
31. Wolf Company has two departments, Mixing and Curing. The following information is available for September:
Cost per equivalent
Mixing Department: Number of units unit
Transferred to the curing department 9,000 $2.00
Ending work-in-process inventory
70 % complete 4,000 $2.00
Curing Department:
Completed and transferred out 8,000 $3.00
30% complete 5,000 $3.00
The entry to record the transfer of inventory from the mixing to the curing department is:
a. Work-in-process - Curing 18,000
Work-in-process - Mixing 18,000
b. Finished goods 18,000

c. Work-in-process - Mixing 5,600

Work-in-process - Curing 5,600
d. Work-in-process - Curing 18,000

Transferred in costs 18,000
ANS: A
The entry to transfer the cost of inventory from the mixing to the curing department is:
Work-in-process - Curing 18,000*

* 9,000 x $2.00
32. Wolf Company has two departments, Mixing and Curing. The following information is available for September:
Cost per equivalent
Mixing Department: Number of units unit
Transferred to the curing department 9,000 $2.00
70 % complete 4,000 $2.00
Curing Department:
Completed and transferred out 8,000 $3.00
30% complete 5,000 $3.00
The entry to record the transfer of inventory from the curing department to the warehouse is:
a. Finished goods 18,000

c. Work-in-process - Curing 24,000

d. Work-in-process - Curing 4,500

ANS: B
The entry to record the completion of production and transfer of the goods to the finished goods warehouse is:
Finished goods 24,000*

* 8,000 x $3.00
33. The Columbus Company has three departments A, B and C. Material requisitions amounted to $10,000, $8,000 and $5,000, respectively, for
departments A, B and C. In addition, $2,000 of indirect materials were used during the period. What is the entry to record the materials used during
the period?
a. Work-in-process 23,000
Materials - Department A 10,000
Materials - Department B 8,000
Materials - Department C 5,000
b. Work-in-process - Department A 10,000

Work-in-process - Department B 8,000
Work-in-process - Department C 5,000
Materials 23,000
c. Work-in-process - Department A 10,000

Materials 25,000
d. Work-in-process 23,000
Materials 25,000
ANS: C
The entry to record the use of the materials in departments A, B and C and the indirect materials is:
Work-in-process - Department A 10,000

Factory overhead 2,000*
Materials 25,000
*Indirect materials
34. Department B had 1,000 units in beginning work-in-process which had transferred in costs of $2,500 from Department A associated with them. During
the period, 12,000 more units having costs of $36,000 were transferred in to Department B from Department A. What is the unit cost for the period of
costs transferred from Department A.
a. $2.00
b. $2.75
c. $2.96
d. $3.00
ANS: C
When costs transferred in have different unit costs in different periods, these costs must be averaged as follows:
Units Costs
Beginning work-in-process 1,000 $ 2,500
Current period 12,000 36,000
13,000 $38,500
Cost per unit = 38,500 / 13,000 = $2.96
PROCESS COST ACCOUNTING--ADDITIONAL PROCEDURES
MULTIPLE CHOICE
1. The following information is available for the month of April from the First department of the Twigg Corporation:
Units
Work in process, August 1 (60% complete) 50,000
Started in April 190,000
Materials are added in the beginning of the process in the First department. Using the average cost method, what are the equivalent units of
production for the month of April?
a. 192,000 240,000
b. 190,000 192,000
c. 240,000 208,000
d. 240,000 192,000
ANS: D
Work in process, April 1 50,000
Total processed during April 240,000
Finished and transferred during April 160,000
Materials:
Finished and transferred during month 160,000
completed, all materials) 80,000
Total 240,000
Labor and factory overhead:
Work in process, end of April (80,000 units, 40% completed) 32,000
Total 192,000
2. The following information is available for the month of April from the First department of the Twigg Corporation:
Units
Materials are added at the end of the process in the First department. Using the average cost method, what are the equivalent units of production for
the month of April?
a. 192,000 160,000
b. 160,000 192,000
c. 160,000 208,000
d. 240,000 192,000
ANS: B
Total processed during April 240,000
Materials:
completed, no materials) 0
Total 160,000
Total 192,000
3. The following information is available for the month of April from the First department of the Armque Corporation:
Units
Work in process, April 1 (50% complete) 90,000
Transferred to Second Department in April 280,000
Materials are added in the beginning of the process in the First department. Using the average cost method, what are the equivalent units of
a. 310,000 250,000
b. 250,000 295,000
c. 340,000 316,000
d. 340,000 304,000
ANS: D
Materials:
Total 340,000
Total 304,000
Units
Materials are added at the end of the process in the First department. Using the average cost method, what are the equivalent units of production for
the month of April?
a. 304,000 250,000
b. 280,000 295,000
c. 340,000 316,000
d. 280,000 304,000
ANS: D
Materials:
Total 280,000
Total 304,000
Units
Materials are added in the beginning of the process in the First department. Using the first-in, first-out method, what are the equivalent units of
a. 250,000 259,000
b. 340,000 259,000
c. 280,000 271,000
d. 250,000 271,000
ANS: A
Materials:
To complete beginning units in process (materials were 100% complete) 0
Units started and finished during the month (250,000 started - 60,000 in ending WIP) 190,000
Total 250,000
To complete beginning units in process (conversion costs were 50% complete) 45,000
Total 259,000
Units
Materials are added at the end of the process in the First department. Using the first-in, first-out method, what are the equivalent units of production
for the month of April?
a. 250,000 259,000
b. 280,000 259,000
c. 340,000 271,000
d. 280,000 271,000
ANS: B
Materials:
To complete beginning units in process (materials were 0% complete) 90,000
Total 280,000
To complete beginning units in process (conversion costs were 50% complete) 45,000
Total 259,000
7. Information concerning Department A of Ali Company for the month of June is as follows:
Materials
Units Costs
Work in process, beginning of month 20,000 $14,250
Started in June 85,000 $66,600
Units completed 90,000
Work in process, end of month 15,000
All materials are added at the beginning of the process. Using the average cost method, the cost (rounded to two places) per equivalent unit for
materials is:
a. $0.74.
b. $0.90.
c. $0.77.
d. $0.78.
ANS: C
Units completed during June 90,000
Units in process, June 30 with all materials 15,000
Equivalent production for materials 105,000
Materials cost:
Work in process, beginning of June $14,250
Added during June 66,600
Total materials cost $80,850
$80,850 / 105,000 units = cost per equivalent unit $ .77
8. Information concerning Department A of Ali Company for the month of June is as follows:
Materials
Units Costs
Work in process, beginning of month 20,000 $14,250
Started in June 85,000 $66,600
Units completed 90,000
Work in process, end of month 15,000
All materials are added at the beginning of the process. Using the first-in, first-out method, the cost (rounded to two places) per equivalent unit for
materials is:
a. $0.74.
b. $0.90.
c. $0.77.
d. $0.78.
ANS: D
To complete beginning units in process (all had 100% of materials) 0
Units started and completed during the month (85,000 started - 15,000 in ending WIP) 70,000
Units in process, June 30 with all materials 15,000
Equivalent production for materials in period 85,000
Materials cost:
Added during June $66,600
Total materials cost for period $66,600
9. Plemmon Company adds materials at the beginning of the process in the forming department, which is the first of two stages of its production cycle.
Information concerning the materials used in the forming department in April follows:
Materials
Units Costs
Work in process at April 1 15,000 $ 8,000
Units started during April 60,000 $38,500
during April 65,000
Using the average cost method, what is the materials cost of the work in process at April 30 (rounded to nearest dollar)?
a. $7,154
b. $6,200
c. $7,750
d. $6,417
ANS: B
Units
Beginning work in process 15,000
Started 60,000
Total 75,000
Less completed 65,000
Ending work in process (complete as to material) 10,000
Unit cost (See calculation below) $ .62
Materials cost in ending work in process $ 6,200
Units completed during April 65,000

Units in process, April 30 with all materials 10,000
Materials cost:
Work in process, April 1 $ 8,000
Costs added during April 38,500
10. Plemmon Company adds materials at the beginning of the process in the forming department, which is the first of two stages of its production cycle.
Information concerning the materials used in the forming department in April follows:
Materials
Units Costs
Work in process at April 1 15,000 $ 8,000
Units started during April 60,000 $38,500
during April 65,000
Using the FIFO method, what is the materials cost of the work in process at April 30 (rounded to nearest dollar)?
a. $7,154
b. $6,200
c. $7,750
d. $6,417
ANS: D
Units
Beginning work in process 15,000
Started 60,000
Total 75,000
Less completed 65,000
Ending work in process (complete as to material) 10,000
Unit cost (See calculation below) $ .6417
Materials cost in ending work in process $ 6,417
To complete beginning in process units (materials all 100%) 0

Units started and finished during month (60,000 started - 10,000 in ending WIP) 50,000
Units in process, April 30 with all materials 10,000
Materials cost:
Costs added during June $38,500
11. During April, Birch Bay Company's Department B equivalent unit product costs computed under the average cost method were as follows:
Materials $2
Conversion $3
Transferred-in $5
Materials are introduced at the end of the process in Department B. There were 4,000 units (60 % complete as to conversion costs) in work in process
at April 30. The total costs assigned to the April 30 work in process inventory should be:
a. $20,000.
b. $24,800.
c. $27,200.
d. $35,200.
ANS: C
4,000 units @ $5 $20,000
Conversion costs:
4,000 units (60% complete) @ $3 7,200
$27,200
Because materials are introduced at the end of the process, no materials cost would be included in the ending work in process.
12. During April, Birch Bay Company's Department B equivalent unit product costs computed under the FIFO method were as follows:
Materials $2
Conversion $3
Transferred-in $5
Materials are introduced at the end of the process in Department B. There were 4,000 units (60 % complete as to conversion costs) in work in process
at April 30. The total costs assigned to the April 30 work in process inventory should be:
a. $20,000.
b. $24,800.
c. $27,200.
d. $35,200.
ANS: C
4,000 units @ $5 $20,000
Conversion costs:
4,000 units (60% complete) @ $3 7,200
$27,200
Because materials are introduced at the end of the process, no materials cost would be included in the ending work in process.
13. Normal losses that occur in the manufacturing process are properly classified as:
a. Extraordinary items.
b. Product costs.
c. Period costs.
d. Deferred charges.
ANS: B
Normal losses are properly classified as product costs and considered as part of the total cost of production.
14. Stanley Company adds materials at the beginning of the process in Department M. Data concerning the materials used in the March production follows:
Units
Work in process at March 1 15,000
Started during March 38,000
Completed and transferred to next department during March 37,000
Normal spoilage incurred 2,000
Work in process at March 31 14,000
Using the average cost method, the equivalent units for the materials unit cost calculation are:
a. 38,000.
b. 51,000.
c. 55,000.
d. 37,000.
ANS: B
Units completed and transferred 37,000
Ending work in process with all materials 14,000
51,000
15. Materials are added at the start of the process in McKay Company's blending department, the first stage of the production cycle. The following
information is available for the month of July:
Units
Work in process, July 1 (60% complete as to conversion costs) 50,000
Started in July 200,000
Transferred to the next department 195,000
Lost in production 15,000
Work in process, July 31 (50% complete as to conversion costs) 40,000
Under McKay's cost accounting system, the costs incurred on the lost units are absorbed by the remaining good units. Using the average cost method,
what are the equivalent units for the materials unit cost calculation?
a. 210,000
b. 195,000
c. 250,000
d. 235,000
ANS: D
Units completed and transferred 195,000
Ending work in process with all materials 40,000
235,000
16. In a process cost system, the cost attributable to abnormal losses that occur due to unexpected circumstances such as machine operator error should be
assigned to:
a. Ending work in process inventory.
b. Cost of goods manufactured and ending work in process inventory in the ratio of units worked on during the period to
units remaining in work in process inventory.
c. A separate loss account in order to highlight production inefficiencies
d. Cost of good manufactured (transferred out)
ANS: C
Losses from abnormal spoilage should be assigned to a separate account. These should be treated as a period cost.
17. If the amount of loss in a manufacturing process is abnormal, it should be classified as a:

a. Period cost.
b. Deferred charge.
c. Joint cost.
d. Product cost.
ANS: A
Abnormal loss should be classified as a period cost (charged to expense of the current period and reflected separately on the income statement).
18. What losses should not affect the recorded cost of inventories?
a. Normal losses
b. Abnormal losses
c. Seasonal losses
d. Standard losses
ANS: B
Abnormal losses should not affect the recorded cost of inventories because they are charged off as a period cost rather than being included in the cost
of manufactured goods.
19. In a process cost system, how is the unit cost affected in a production cost report when materials are added in a department subsequent to the first
department and the added materials result in additional units?
a. It causes an increase in the preceding department's unit cost that necessitates an adjustment of the transferred-in unit
cost.
b. It causes a decrease in the preceding department's unit cost that necessitates an adjustment of the transferred-in unit
cost.
c. It causes an increase in the preceding department's unit cost but does not necessitate an adjustment of the transferred-in
unit cost.
d. It causes a decrease in the preceding department's unit cost but does not necessitate an adjustment of the transferred-in
unit cost.
ANS: B
If added materials result in additional units, it causes a decrease in the preceding department's unit cost and necessitates an adjustment of the
transferred-in cost because there are more units over which to spread this cost.
20. Under which of the following conditions will the first-in, first-out method of process costing produce the same cost of goods manufactured amount as
the average cost method?
a. When goods produced are homogeneous in nature
b. When there is no beginning inventory
c. When there is no ending inventory
d. When beginning and ending inventories are each 50 percent complete
ANS: B
When there is no beginning inventory, the FIFO method and the average cost method will both produce the same cost of goods manufactured amount
because equivalent production and unit costs will be the same.
21. In order to compute equivalent units of production using the FIFO method of process costing, work for the period must be broken down to units:
a. Completed from beginning inventory, started and completed during the month, and units in ending inventory.
b. Completed during the period and units in ending inventory.
c. Started during the period and units transferred out during the period.
d. Processed during the period and units completed during the period.
ANS: A
In computing equivalent production under the FIFO method, work for the period must be broken down to units completed from beginning inventory,
units started and completed during the month, and units in ending inventory.
22. The average cost method of process costing differs from the FIFO method of process costing in that the average cost method:
a. Requires that ending work in process inventory be stated in terms of equivalent units of production.
b. Can be used under any cost-flow assumption.
c. Does not consider the degree of completion of beginning work in process inventory when computing equivalent units of
production.
d. Considers the ending work in process inventory only partially complete.
ANS: C
The average cost method of process costing does not consider the degree of completion of beginning work in process inventory when computing
equivalent units of production, while the FIFO method does.
23. Material is added at the beginning of a process in a process costing system. The beginning work in process inventory for this process this period was 30
percent complete as to conversion costs. Using the first-in, first-out method of costing, the total equivalent units for material for this process during
this period are equal to the:
a. Units started this period in this process.
b. Beginning inventory this period for this process.
c. Units started this period in this process plus the beginning inventory.
d. Units started this period in this process plus 70 percent of the beginning inventory.
ANS: A
With the FIFO method of costing, equivalent units for materials would be the units started in process this period because the beginning work in process
would have been complete as to materials.
24. Each of the following is a method by which to allocate joint costs except:
a. Chemical analysis.
b. Relative sales value.
c. Relative weight, volume, or linear measure.
d. Relative marketing costs.
ANS: D
Joint costs would not be allocated according to relative marketing costs because marketing costs are not necessarily incurred directly in proportion to
production costs.
25. Joint costs are commonly allocated based upon relative:

a. Sales value.
b. Marketing costs.
c. Conversion costs.
d. Prime costs.
ANS: A
Joint costs are commonly allocated based upon relative sales value. Profitability, conversion costs, and prime costs do not necessarily have a direct
relationship to production costs.
26. When two products are produced during a common process, what is the factor that determines whether the products are joint products or one
principal product and a by-product?
a. Potential marketability for each product
b. Amount of work expended in the production of each product
c. Management policy
d. Relative total sales value
ANS: D
The relative total sales value is the determining factor in deciding whether a product is a joint product or a by-product. Products with relatively little
value are by-products.
27. Which of the following statements best describes a by-product?

a. A product with a value that can easily and accurately be determined.
b. A product that has a greater value than the main product.
c. A product created along with the main product whose sales value does not cover the cost of its production.
d. A product that usually produces a small amount of revenue when compared to the main product revenue.
ANS: D
A by-product is a product that usually produces a small amount of revenue when compared to the main product revenue.
28. If two or more products share a common process before they are separated, the joint costs should be allocated in a manner that:
a. Assigns a proportionate amount of the total cost to each product by means of a quantitative basis.
b. Maximizes total earnings.
c. Minimizes variations in a unit of production cost.
d. Does not introduce an element of estimation into the process of accumulating costs for each product.
ANS: A
An allocation method is usually selected that will assign a portion of a given total cost to each of the products that are sharing a physical part of the total
item. A quantitative method is chosen that will least affect the gross profit percentage differences among these products.
29. In accounting for by-products:

a. Costs before the split-off point are allocated to by-products.
b. The estimated sales value of the by-product reduces the cost of the main product.
c. The joint costs allocated to by-products are included in an account called “By-products Inventory.”
ANS: B
When accounting for by-products, the estimated sales value of the by-product reduces the cost of the main product. Alternatively, if the sales value is
not easily estimated, the sales may be recorded as “Other Income.” Joint costs are not allocated to by-products.
30. Which of the following is most likely to be accounted for as a by-product?

a. Heating oil resulting from processing crude oil at a refinery.
b. Cream resulting from processing raw milk at a dairy.
c. Sawdust resulting from processing lumber at a lumber mill.
d. Ground beef resulting from processing beef at a meat packer.
ANS: C
Of the choices above, it is most likely that sawdust would have very little sales value compared to the lumber being processed.
31. Boyce Company manufactures chemicals. Chemical agent ABX is refined in the Refining department and, after it is transferred to the Mixing
department, a reactive agent is added to it. In May, 25,000 gallons of ABX having a cost of $100,000 were transferred from the refining to the Mixing
department where 15,000 gallons of the reactive agent were added. When calculating the inventory costs in the Mixing department, what will the cost
per unit relating to gallons transferred in from the Refining department be?
a. $4.00
b. $2.50
c. $3.75
d. $6.67
ANS: B
Gallons transferred in from the Refining Department 25,000
Additional gallons of reactive agent added in Mixing 15,000
Total gallons 40,000
Cost of ABX - $100,000 / 40,000 gallons = $2.50
32. Van Pelt Company uses the average cost method of process costing. The production report for the Mixing department follows:
In process, beginning of period 1,000 units

800 units - materials 50% complete; conversion costs 40% complete
Placed in process during period 5,000 units
Transferred to packing department 4,800 units
In process, end of period 1,200 units
What are the equivalent units for:
MaterialsConversion Costs
a. 5,650 5,450
b. 5,450 5,250
c. 4,850 4,400
d. 5,400 5,220
ANS: B
Conversion Costs
Material
Completed and transferred to packing department 4,800 4,800
Ending work-in-process:
700 x 75% - Material 525
700 x 50% - Labor 350
500 x 25% - Material 125
500 x 20% - Labor 100
5,450 5,250
33. Budde Chemicals produces two industrial chemical compounds, X15 and Z24, from the same process, which in 2008, cost $300,000. Budde produced
10,000 gallons of X15, which sells for $40 per gallon and 40,000 gallons of Z24, which sells for $20 per gallon. How much of the joint cost should be
allocated to X15?
a. $100,000
b. $200,000
c. $60,000
d. $75,000
ANS: A
Percent Assignment of
Selling price Ultimate sales sales joint
Product Gallons value value costs
X15 10,000 $40 $ 400,000 33.3% $100,000
Z24 40,000 $20 800,000 66.7% 200,000
$1,200,000 $300,000
34. Budde Chemicals produces two industrial chemical compounds, X15 and Z24, from the same process, which in 2008, cost $300,000. Budde produced
10,000 gallons of X15, which sells for $40 per gallon and 40,000 gallons of Z24, which sells for $20 per gallon. After the split-off point, X15 required
additional processing costing $200,000 to make it salable. How much of the joint cost should be allocated to X15?
a. $100,000
b. $200,000
c. $60,000
d. $75,000
ANS: C
Ultimate sales Costs after Sales value at Percent Assignment of
Selling value split-off split-off sales joint
Product Gallons price value costs
X15 10,000 $40 $ 400,000 $200,000 $ 200,000 20% $ 60,000
Z24 40,000 $20 800,000 0 800,000 80% 240,000
$1,200,000 $200,000 $1,000,000 $300,000
35. If a company produces two products, A and B, from a joint process, and B requires additional processing after the split-off in order to be salable, how is
the joint cost allocated to B determined?
a. The costs of the additional processing are ignored in allocating joint costs.
b. The costs of the additional processing are subtracted from the joint costs allocated to B.
c. The relative sales value used to allocate the joint cost are determined after the costs of further processing are subtracted
from the ultimate sales value of B.
d. None of these are correct.
ANS: C
The relative sales value used to determine joint costs is determined by subtracting the costs of further processing from the ultimate sales value of B.
STANDARD COST ACCOUNTING--MATERIALS, LABOR, and FACTORY OVERHEAD
MULTIPLE CHOICE
1. The purpose of standard costing is to:

a. Determine optimal production level for a given period.
b. Eliminate the need for subjective decisions by management.
c. Control costs.
d. Allocate cost with more accuracy.
ANS: C
The purpose of standard costing is to control cost and promote efficiency.
2. When performing input-output variance analysis in standard costing, "standard hours allowed" is a means of measuring:
a. Standard output at standard hours.
b. Actual output at standard hours.
c. Standard output at actual hours.
d. Actual output at actual hours.
ANS: B
Standard hours allowed in standard costing requires determining the allowed hours by converting the actual units or equivalent units produced by the
standard hours set for each unit on the standard cost card.
3. Which of the following terms best identifies a function of standard costs?

a. Management by exception
b. Contribution approach
c. Marginal costing
d. Standardized accounting system
ANS: A
A standard cost system shows the deviations from management's expectation of cost for its manufactured products. These variances (deviations) are
exceptions from the established goals; therefore, they are better able to manage when the exceptions are reported by the standard cost system.
4. When computing variances from standard costs, the difference between actual and standard price multiplied by actual quantity yields:
a. Combined price--quantity variance.
b. Price variance.
c. Volume variance.
d. Mix variance.
ANS: B
The difference between actual and standard price multiplied by actual quantity yields a price variance.
5. If a company follows a practice of isolating variances at the earliest point in time, what would be the appropriate time to isolate and recognize a direct
material price variance?
a. When material is purchased
b. When material is used in production
c. When purchase order is originated
d. When material is issued
ANS: A
The earliest point in time to isolate a direct material price variance is when the material is purchased, because at that time the difference between
actual price and standard price is known.
6. The materials purchase price variance, in a standard cost system, is obtained by multiplying the:
a. Actual price by the difference between actual quantity purchased and standard quantity used.
b. Actual quantity purchased by the difference between actual price and standard price.
c. Standard price by the difference between standard quantity purchased and standard quantity used.
d. Standard quantity purchased by the difference between actual price and standard price.
ANS: B
The materials purchase price variance is obtained by multiplying the actual quantity purchased by the difference between actual price and standard
price.
7. If the total materials variance (actual cost of materials used compared with the standard cost of the standard amount of materials required) for a given
operation is favorable, why must this variance be further evaluated as to price and usage?
a. There is no need to further evaluate the total materials variance if it is favorable.
b. Generally accepted accounting principles require that all variances be analyzed in three stages.
c. All variances must appear in the annual report to equity owners for proper disclosure.
d. It is done so that management can evaluate the efficiency of the purchasing and production functions.
ANS: D
All variances, favorable or unfavorable, must be evaluated. The analysis of a favorable materials variance allows management to evaluate the efficiency
of the purchasing and production functions through study of the price and usage variances.
8. What type of direct material variances for price and quantity will arise if the actual number of pounds of materials used exceeds standard pounds
allowed but actual cost was less than standard cost?
Quantity Price
a. Favorable Favorable
b. Unfavorable Favorable
c. Favorable Unfavorable
d. Unfavorable Unfavorable
ANS: B
The use of material in excess of standard will create an unfavorable usage (quantity) variance. If the actual cost of the material is less than standard
cost, this gives rise to a favorable price variance.
9. Woodside Company manufactures tables with vinyl tops. The standard material cost for the vinyl used per Style-R table is $7.20 based on 8 square feet
of vinyl at a cost of $.90 per square foot. A production run of 1,000 tables in January resulted in usage of 8,300 square feet of vinyl at a cost of $.85 per
square foot, a total cost of $7,055. The materials quantity variance resulting from the above production run was:
a. $255 favorable.
b. $255 unfavorable.
c. $270 unfavorable.
d. $270 favorable.
ANS: C
Materials quantity variance = (actual quantity of materials used - standard quantity of materials allowed) x standard price of material
Materials quantity variance = (8,300 - 8,000*) x $.90

* 1,000 units produced x 8 sq. ft. per unit
Actual quantity 8,300 sq. ft.

Standard quantity 8,000 sq. ft.
Excess of actual quantity over standard 300 sq. ft.
Standard price $ .90 sq. ft.
Materials quantity variance (unfavorable) $ 270
10. Ben's Climbing Gear, Inc. has direct material costs as follows:
Actual units of direct materials used 20,000

Standard price per unit of direct materials $2.50
Materials quantity variance--favorable $5,000
What was Ben's standard quantity of material allowed?

a. $18,000
b. $24,000
c. $20,000
d. $22,000
ANS: D
Materials quantity variance = (actual quantity of materials used - standard quantity of materials allowed) x standard unit price of material
$5,000 F = ($20,000 - standard quantity of materials allowed) x $2.50

$2,000 F* = $20,000 - standard quantity of materials allowed
$22,000** = standard quantity of materials allowed
* 5,000 F/ 2.50
** 20,000 + 2,000 (note that the favorable variance is added to the actual quantity to arrive at the standard quantity because by definition, a favorable
variance occurs when standard quantities exceed actual quantities.)
11. Thomas Company uses a standard cost system and recognizes the materials purchase price variance at the time materials are purchased. Information
for raw materials for Product RBI for the month of October follows:
Standard unit price $1.75

Actual purchase price per unit $1.65
Actual quantity purchased 4,000 units
Actual quantity used 3,900 units
Standard quantity allowed for actual production 3,800 units
What is the materials purchase price variance?

a. $390 favorable
b. $390 unfavorable
c. $400 favorable
d. $400 unfavorable
ANS: C
Materials purchase price variance = (actual unit price of materials - standard unit price of materials) x actual quantity of materials purchased
Materials purchase price variance = ($1.65 - $1.75) x 4,000
Actual unit price $1.65

Standard unit price 1.75
Excess of standard price over actual $ .10
Quantity purchased 4,000 units
Purchase price variance (favorable - standard price exceeds actual) $ 400

What is the entry to record the purchase of materials?

a. Materials 6,600
Material purchase price variance 400
Accounts payable 7,000
b. Materials 7,000
c. Materials 6,600
d. Materials 6,600
ANS: B
Materials purchase price variance = (actual unit price of materials - standard unit price of materials) x actual quantity of materials purchased
Materials purchase price variance = ($1.65 - $1.75) x 4,000
Materials purchase price variance = $400 F (because standard price exceeded actual price)
Materials (recorded at standard price 4,000 x 1.75) 7,000

Accounts payable (actual 4,000 x 1.65) 6,600

What is the materials quantity variance?

a. $175 unfavorable
b. $165 unfavorable
c. $175 favorable
d. $165 favorable
ANS: A
Materials quantity variance = (actual quantity of materials used - standard quantity of materials allowed) x standard unit price of materials
Materials quantity variance = (3,900 - 3,800) x $1.75 = $175 U (because actual amounts exceeded standard)

What is the entry to record material usage?

a. Work in process 6,825
Materials quantity variance 175
Materials 7,000
b. Work in process 6,825
Materials 6,435
c. Work in process 6,270
Materials 6,435
d. Work in process 6,650
Materials 6,825
ANS: D
Materials quantity variance = (actual quantity of materials used - standard quantity of materials allowed) x standard unit price of materials
Materials quantity variance = (3,900 - 3,800) x $1.75 = $175 U (because actual amounts exceeded standard)
Work in process (3,800 x 1.75) 6,650

Materials (3,900 x 1.75) 6,875
15. The direct labor costs for Boundary Company follow:
Standard direct labor hours 34,000

Actual direct labor hours 33,000
Direct labor efficiency variance--favorable $ 12,000
Direct labor rate variance--favorable $ 1,650
Total payroll $394,350
What was Boundary's standard direct labor rate?

a. $ 11.95
b. $ 11.49
c. $ 11.60
d. $ 12.00
ANS: D
Labor efficiency variance = (actual number of labor hours worked - standard number of labor hours allowed) x standard labor rate per hour
$12,000 F = (33,000 -34,000) x standard labor rate per hour
Actual hours 33,000

Standard hours 34,000
Standard hours allowed in excess of actual hours 1,000 hours
Efficiency variance:
$12,000 / 1,000 hours = $12.00 standard rate
16. Alyssa Corporation uses a standard cost system. Direct labor information for Product CER for the month of October is as follows:
Standard rate $8.00 per hour

Actual rate paid $8.30 per hour
Standard hours allowed for actual production 1,400 hours
Labor efficiency variance $ 800 unfavorable
What are actual hours worked?

a. 1,330
b. 1,400
c. 1,500
d. 1,300
ANS: C
$ 800 U = (actual number of labor hours worked - 1,400) x $8.00
Standard hours  standard rate:

1,400 hours  $8 $ 11,200
Efficiency variance (unfavorable) 800
Actual hours (X)  $8 $12,000
$12,000
X= = 1,500 hours
$8
17. Earl Company's direct labor costs for the month of January follow:

Direct labor rate variance--unfavorable $ 1,800
What was Earl's standard direct labor rate?

a. $6.50
b. $6.60
c. $6.16
d. $6.40
ANS: D
Labor rate variance = (actual labor rate per hour - standard labor rate per hour) x actual number of hours worked
$1,800 U = (6.50** - standard labor rate per hour) x 18,000

1,800 U / 18,000 = .10
.10 = 6.50 - standard labor rate per hour
6.40 = standard labor rate per hour (since variance is unfavorable, the standard rate is less than the actual rate)
**Total payroll / actual labor hours worked = actual labor rate per hour
$117,000 / 18,000 = $6.50
18. Earl Company's direct labor costs for the month of January follow:

Direct labor rate variance--unfavorable $ 1,800
What was Earl's direct labor efficiency variance?

a. $6,500 favorable
b. $6,400 unfavorable
c. $1,800 favorable
d. $6,400 favorable
ANS: D
Labor efficiency variance = (18,000 - 19,000) x $6.40*

Labor efficiency variance = 1,000 x 6.40 = $6,400 F (standard exceeded actual)
* The standard labor rate must be calculated prior to calculating the variance above by using the labor rate variance as follows:
Labor rate variance = (actual labor rate per hour - standard labor rate per hour) x actual number of hours worked
$1,800 U = (6.50** - standard labor rate per hour) x 18,000

1,800 U / 18,000 = .10
.10 = 6.50 - standard labor rate per hour
6.40 = standard labor rate per hour (since variance is unfavorable, the standard rate is less than the actual rate)
**Total payroll / actual labor hours worked = actual labor rate per hour
$117,000 / 18,000 = $6.50
19. What is the normal year-end treatment of immaterial variances recognized in a cost accounting system utilizing standards?
a. Reclassified to deferred charges until all related production is sold
b. Closed to cost of goods sold in the period in which they arose
c. Allocated among cost of goods manufactured and ending work in process inventory
d. Capitalized as a cost of ending finished goods inventory
20. Standard costing will produce the same income before extraordinary items as actual costing when standard cost variances are assigned to:
a. Work in process and finished goods inventories.
b. An income or expense account.
c. Cost of goods sold and inventories.
d. Cost of goods sold.
ANS: C
If standard cost variances are assigned to cost of goods sold and inventories, the result is the same as actual costing, resulting in the same income
before extraordinary items.
21. How should an efficiency variance that is material in amount be treated at the end of an accounting period?
a. Reported as a deferred charge or credit
b. Allocated among work in process inventory, finished goods inventory, and cost of goods sold
c. Charged or credited to cost of goods manufactured
d. Allocated among cost of goods manufactured, finished goods inventory, and cost of goods sold
ANS: B
A variance that is material in amount should be allocated among work in process inventory, finished goods inventory, and cost of goods sold at the end
of an accounting period.
22. Overapplied factory overhead would result if:

a. Factory overhead costs incurred were greater than standard costs charged to production.
b. The plant was operated at less than normal capacity.
c. Factory overhead costs incurred were less than standard costs charged to production.
d. Factory overhead costs incurred were unreasonably large in relation to units produced.
ANS: C
Overapplied overhead would result if factory overhead costs incurred were less than costs charged to production.
23. The Johns Company budgeted factory overhead at $125,000 for the period for Department A based on a budgeted volume of 50,000 direct labor hours.
At the end of the period, the factory overhead control account for Department A had a balance of $126,000. The actual (and allowed) direct labor hours
were 52,000.
What was the over- or underapplied factory overhead for the period?
a. $6,500 underapplied
b. $6,500 overapplied
c. $4,000 underapplied
d. $4,000 overapplied
ANS: D
Actual factory overhead incurred - factory overhead applied = over- or underapplied factory overhead
Budgeted overhead / budgeted direct labor hours =

$125,000 / 50,000 = factory overhead application rate per direct labor hour $ 2.50
Actual and allowed direct labor hours x 52,000
Factory overhead applied $130,000
Actual factory overhead incurred 126,000
Overapplied factory overhead for the period $ 4,000
24. Information on Shonda Company's factory overhead costs follows:
Actual variable factory overhead $95,000

Actual fixed factory overhead $28,000
Standard hours allowed for actual production 30,000
Standard variable overhead rate per direct labor hour $3.25
Standard fixed overhead rate per direct labor hour $1.00
What is the total factory overhead variance?

a. $4,500 unfavorable
b. $4,500 favorable
c. $2,500 unfavorable
d. $2,500 favorable
ANS: B
Actual factory overhead - Actual factory overhead = factory overhead variance
Variable factory overhead rate per direct labor hour $ 3.25

Fixed factory overhead rate per direct labor hour 1.00
Total factory overhead application rate $ 4.25
Standard hours allowed for actual production x 30,000
Factory overhead applied $127,500
Actual variable factory overhead $ 95,000
Actual fixed factory overhead 28,000
Total actual factory overhead incurred 123,000
Favorable overhead variance $ 4,500
25. Donellan Company has a standard and flexible budgeting system and uses a two-way analysis of overhead variances. Selected data for the February
production activity follows:
Budgeted fixed factory overhead costs $ 70,000

Actual factory overhead incurred $250,000
Variable factory overhead rate per direct labor hour $ 7
The controllable variance for February is:

a. $5,000 favorable.
b. $5,000 unfavorable.
c. $7,000 favorable.
d. $7,000 unfavorable.
ANS: B
Actual factory overhead - standard overhead budgeted for actual level of production = controllable variance
Budgeted fixed overhead $ 70,000

Standard direct labor hours $25,000
Variable overhead rate per hour x 7
Variable overhead budgeted 175,000
Total overhead budgeted $245,000
Actual overhead incurred 250,000
Budget variance--unfavorable $ 5,000
26. The data below relate to the month of April for Monroe, Inc., which uses a standard cost system and a two-variance analysis of factory overhead:
Actual total direct labor $54,200

Actual direct labor hours used 16,500
Standard direct labor hours allowed 16,250
Direct labor rate variance--unfavorable $1,400
Actual total factory overhead $53,200
Budgeted fixed factory overhead $12,000
Budgeted activity in hours 16,000
Total overhead application rate per standard direct labor hour $3.25
Variable overhead application rate per standard direct labor hour $2.50
What was Monroe's volume variance for April?

a. $187.50 favorable
b. $187.50 unfavorable
c. $437.50 favorable
d. $437.50 unfavorable
ANS: A
Standard overhead budgeted for actual level of production - applied overhead at standard = volume variance
Variable overhead application rate per hour $ 2.50

Standard hours allowed x 16,250
Variable overhead costs budgeted $ 40,625
Budget $40,625 (variable cost) + $12,000 (fixed cost) $52,625.00

Overhead applied: 16,250 hours  $3.25 52,812.50
Favorable volume variance $ 187.50
27. The data below relate to the month of April for Monroe, Inc., which uses a standard cost system and a two-variance analysis of factory overhead:
Actual total direct labor $54,200

Actual hours used 16,500
Standard hours allowed for good output 16,250
Direct labor rate variance--debit $ 1,400
Actual total overhead $53,200
Budgeted fixed costs $12,000
Budgeted activity in hours 16,000
Total overhead application rate per standard direct labor hour $ 3.25
Variable overhead rate per standard direct labor hour $ 2.50
What was Monroe's controllable variance for April?

a. $1,100 favorable
c. $575 favorable
d. $575 unfavorable
ANS: D
Actual factory overhead - Standard overhead budgeted for actual level of production = controllable variance
Budgeted overhead:
Fixed $12,000
Variable * 40,625 $52,625
Actual total overhead 53,200
Unfavorable budget variance $ 575
*Variable overhead application rate per hour $ 2.50

Standard hours allowed x 16,250
Variable overhead costs budgeted $ 40,625
28. A company uses a two-variance analysis for overhead variances, controllable and volume. The volume variance is the difference between the factory
overhead applied at standard and:
a. Total factory overhead per the flexible budget.
b. Actual factory overhead incurred.
c. Total factory overhead per the master budget.
d. Fixed overhead incurred.
ANS: A
The volume variance is the difference between the factory overhead applied at standard and the factory overhead per the flexible budget (standard
overhead budgeted for actual level of production.).
29. The fixed overhead application rate is a function of a predetermined "normal" activity level. If standard hours allowed for good output equal this
"normal" activity level for a given period, the volume variance will be:
a. Zero.
b. Favorable.
c. Unfavorable.
d. Either favorable or unfavorable depending on the budgeted overhead.
ANS: A
If standard hours allowed for good output equal the normal activity level for a given period, the volume variance will be zero.
30. If a company uses a two-variance analysis for overhead variances and uses a predetermined rate for absorbing manufacturing overhead, the volume
variance is the:
a. Underapplied or overapplied variable cost element of overhead.
b. Underapplied or overapplied fixed cost element of overhead.
c. Difference in budgeted costs and actual costs of fixed overhead items.
d. Difference in budgeted costs and actual costs of variable overhead items.
ANS: B
If a company uses a predetermined rate for absorbing manufacturing overhead, the volume variance is the underapplied or overapplied fixed cost
element of overhead.
31. Elgin Company's budgeted fixed factory overhead costs are $50,000 per month plus a variable factory overhead rate of $4.00 per direct labor hour. The
standard direct labor hours allowed for October production were 20,000. An analysis of the factory overhead indicates that in October Elgin had an
unfavorable budget (controllable) variance of $1,500 and a favorable volume variance of $500. Elgin uses a two-variance analysis of overhead
variances.
The actual factory overhead incurred in October is:

a. $126,500.
b. $128,000.
c. $128,500.
d. $131,500.
ANS: D
Controllable variance = Actual factory overhead - Standard overhead budgeted for actual activity level*
$1,500 U = Actual factory overhead - $130,000

Actual factory overhead = $131,500 (Unfavorable variance indicates that actual factory overhead exceeds budgeted amounts.)
* Standard direct labor hours 20,000

Variable overhead rate per hour x $4.00
Variable overhead budgeted $ 80,000
Fixed overhead budgeted 50,000
32. Elgin Company's budgeted fixed factory overhead costs are $50,000 per month plus a variable factory overhead rate of $4.00 per direct labor hour. The
standard direct labor hours allowed for October production were 20,000. An analysis of the factory overhead indicates that in October, Elgin had an
unfavorable budget (controllable) variance of $1,500 and a favorable volume variance of $500. Elgin uses a two-variance analysis of overhead
variances.
The applied factory overhead in October is:

a. $129,500.
b. $128,000.
c. $130,000.
d. $130,500.
ANS: D
Volume variance = Standard overhead budgeted for actual production - Applied overhead at standard
$500 F = $130,000* - Applied overhead at standard

$130,500 = Applied overhead at standard (Favorable variance indicates that applied overhead exceeds budgeted amount.)
* Standard direct labor hours 20,000

Variable overhead rate per hour x $4.00
Fixed overhead budgeted 50,000
33. In the three-variance method of factory overhead analysis, what standard cost variance represents the difference between actual factory overhead
incurred and budgeted factory overhead based on actual hours worked?
a. Volume variance
b. Efficiency variance
c. Spending (budget) variance
d. Quantity variance
ANS: C
The spending (budget) variance represents the difference between actual factory overhead incurred and budgeted factory overhead based on actual
hours worked.
34. The following information is available from the Tomoto Company:
Actual factory overhead $16,500

Actual fixed overhead expenses $ 9,200
Budgeted fixed overhead expenses $ 9,000
Actual hours 3,600
Standard hours 3,800
Variable overhead rate per direct labor hour $ 2.25
Assuming that Tomoto uses a three-variance analysis of overhead variances, what is the budget (spending) variance?
a. $600 favorable
b. $600 unfavorable
c. $450 favorable
d. $450 unfavorable
ANS: A
Budget variance = Actual factory overhead - Budgeted overhead for actual hours worked
Budget variance = $16,500 - $17,100*
Budget variance = $600 F (Actual is less than budget so variance is unfavorable)
*Actual hours 3,600

Variable overhead rate x $2.25
Budgeted fixed overhead 9,000
Budgeted overhead for actual hours worked $17,100
35. RHO Company began its operations on January 1 and produces a single product that sells for $10.25 per unit. Standard capacity is 80,000 units per year.
The 80,000 units were produced and 70,000 units were sold during the year.
Manufacturing costs and selling and administrative expenses follow:

Fixed Costs Variable Costs
Raw materials -- $2.50 per unit produced
Direct labor -- 1.50 per unit produced
Factory overhead $120,000 1.00 per unit produced
Selling and administrative 80,000 .50 per unit sold
What is the standard cost of manufacturing a unit of product?

a. $6.00
b. $6.50
c. $5.00
d. $5.50
ANS: B
Raw materials $2.50
Direct labor 1.50
Factory overhead - variable 1.00
Factory overhead - fixed 1.50 ($120,000 / 80,000 units)
Standard unit manufacturing cost $6.50
36. PHI Company began its operations on January 1 and produces a single product that sells for $35.00 per unit. 5000 units were produced and 4000 units
were sold during the year.
Standard costs per unit follow:

Standard cost
Raw materials $12.50
Direct labor 6.50
Factory overhead 4.00
What is entry to record the finished goods?

a. Finished goods 115,000
Work in process 115,000


d. Cost of goods sold 92,000

ANS: A
Total unit cost = $12.50 + $6.50 + $4.00 = $23.00
Finished goods ($23.00 x 5,000) 115,000

37. Characteristics of ideal standards include all of the following except:

a. They generally give rise to unfavorable variances.
b. They may cause personnel to become discouraged.
c. They take into account normal waste and spoilage.
d. They provide a maximum objective for which to strive to improve efficiency.
ANS: C
Ideal standards are set considering ideal circumstances and are generally not attainable, which results in unfavorable variances. They do not consider
normal waste and spoilage.
38. A manufacturer generally wants to set a standard that:
a. Can be achieved only under the most efficient operating conditions.
b. Is high enough to provide motivation and promote efficiency, but is still attainable.
c. Makes no allowance for normal was or spoilage.
ANS: B
Options a and c are characteristics of ideal standards, which generally are not attainable and may cause employee morale problems. Generally
companies want standards that are high enough to provide motivation, but not too high.
39. Factors to be considered in setting materials standards include all of the following except:
a. Trend of prices of raw materials.
b. Historical costs.
c. Time necessary to perform tasks.
d. New production processes or market developments.
ANS: C
Historical costs are studied to gain familiarity with the materials standard, however, price trends, market developments and new production processes
must be considered as well too. Time necessary to perform tasks would be considered in setting labor standards.
40. Factors to be considered in setting labor standards include all of the following except:
a. Impact of negotiations with labor unions.
b. The learning effect.
c. Results of engineers’ time studies.
d. The purchasing manager’s estimate of suppliers’ prices.
ANS: D
Wage rates and time to complete tasks are considered in setting labor standards. Union negotiations would impact wage rates, while the learning effect
and engineers’ time studies could impact the standard amount of time allowed for tasks. The purchasing manager’s estimate of suppliers’ prices would
impact materials standards.
41. The materials quantity variance, in a standard cost system, is the:

a. Difference between the actual and standard quantities.
b. Difference between the actual and standard quantities multiplied by the actual unit price.
c. Difference between the actual quantity used and the actual quantity purchased multiplied by the standard unit price.
d. Difference between the actual and standard quantities multiplied by the standard unit price.
ANS: D
The materials quantity variance = (actual quantity of materials used - standard quantity of materials allowed) x standard unit price of material.
42. The actual hourly rate paid above or below the standard hourly rate, multiplied by the actual number of hours worked is the:
a. Labor rate variance.
b. Labor efficiency variance.
c. Labor usage variance.
d. Labor direct variance.
ANS: A
Labor rate variance = (Actual labor rate per hour - Standard labor rate per hour) x Actual number of hours worked.
43. An unfavorable labor efficiency variance is the:

a. Number of actual hours worked in excess of the standard hours allowed multiplied by the standard labor rate.
b. Number of actual hours worked in excess of the standard hours allowed multiplied by the actual labor rate.
c. The number of actual hours worked below the standard hours allowed multiplied by the standard labor rate.
d. Number of actual hours multiplied by the difference in the actual and standard labor rates.
ANS: A
Labor efficiency variance = (Actual number of hours worked - standard number of hours allowed) x standard labor rate per hour.
If actual hours exceed standard hours, the variance will be unfavorable.
44. Information relating to direct labor for the Newstead Company follow:

Total direct labor per payroll $53,200
Standard labor rate per hour $9.00
The labor rate variance is:

d. $1,800 unfavorable
ANS: A
Labor rate variance = (Actual labor rate per hour - standard labor rate per hour) x actual number of hours worked.
Labor rate variance = ($9.50* - $9.00) x 5,600

Labor rate variance = $2,800 U (because actual was in excess of standard)
* Actual labor rate per hour = $53,200 / 5,600 = $9.50

The labor efficiency variance is:

ANS: A
Labor efficiency variance = (Actual number of labor hours worked - standard number of labor hours allowed) x standard labor rate per hour.
Labor efficiency variance = (5,600 - 5,400) x $9

Labor efficiency variance = $1,800 U (because actual was in excess of standard)

The entry to record the direct labor cost is:

a. Work in process 53,200
Labor rate variance 2,800
Labor efficiency variance 1,800
Payroll 48,600

Payroll 53,200

Payroll 53,200

Payroll 53,200
ANS: C
Labor efficiency variance = (Actual number of labor hours worked - standard number of labor hours allowed) x standard labor rate per hour.
Labor efficiency variance = (5,600 - 5,400) x $9

Labor efficiency variance = $1,800 U (because actual was in excess of standard)
Labor rate variance = (Actual labor rate per hour - standard labor rate per hour) x actual number of labor hours worked
Labor rate variance = ($9.50* - $9.00) x 5,600

Labor rate variance = $2,800 U (because actual exceeded standard)
* Actual labor rate per hour = $53,200 / 5,600 = $9.50
Material (recorded at standard 5,400 x $9.00) 48,600

Payroll (actual amounts paid) 53,200
47. Andrews Corporation purchased 3,000 gallon of raw materials for $9,200. The standard price is $3.00 per gallon. If Andrews records the price variance
at the earliest possible time, the entry to record the purchase of the material is:
a. Materials 9,200
Material purchase price variance 200 Accounts payable 9,000
b. Materials 9,000
c. Materials 9,000
d. Materials 9,200
ANS: C
If the price variance is recorded at the earliest possible time (which would be upon purchase), the entry is to record the material into inventory at
standard:
Materials (3,000 x $3.00) 9,000

48. The following information pertains to Genie Company:

Standard materials allowed $12,000
Unfavorable materials price variance 2,000
Favorable materials usage variance 1,000
Actual payroll $20,000

Unfavorable labor rate variance 1,500
Unfavorable labor efficiency variance 500
What is the entry to record the direct materials cost and variances, assuming that the price variance is recorded when the materials are put into
production?
a. Materials 12,000
Materials price variance 2,000

Materials quantity variance 1,000
Materials 11,000

Materials 13,000

Materials 13,000
ANS: D
Materials that go into work in process are recorded at standard.
Unfavorable variances are debits and favorable variances are credits.
The materials account is credited for the residual amount.

Materials 13,000
49. The following information pertains to Genie Company:

Standard materials allowed $12,000
Unfavorable materials price variance 2,000
Favorable materials usage variance 1,000
Actual payroll $20,000

Unfavorable labor rate variance 1,500
Unfavorable labor efficiency variance 500
What is the entry to record the direct labor cost and variances?
a. Payroll 20,000
Labor efficiency variance 500
Accrued payroll 21,500

Payroll 20,000

Payroll 20,000

Labor variances 2,000
Payroll 20,000
ANS: B
Labor that goes into work in process is recorded at standard. In this problem, it is the residual amount. Unfavorable variances are debits. The payroll
account is credited when labor is applied to production.

Labor price variance 1,500
Payroll 20,000
50. One possible explanation for a company that experiences a favorable labor efficiency variance, but an unfavorable labor rate variance could be:
a. The company paid the workers overtime.
b. The company hired more experienced workers.
c. The company purchased materials that were hard to work with.
d. The workers “goofed around” and wasted time.
ANS: B
If a company hires works that are more experienced, the average wage rate could be higher than the standard rate and they could complete the tasks
more quickly resulting in a favorable labor efficiency variance, but an unfavorable labor rate variance.
The overtime premium paid to workers is usually charged to overtime, so this should not impact the labor rate variance.
Situations c and d would be more likely to result in unfavorable labor efficiency variances.
51. Under normal circumstances, a purchasing manager who buys poor quality materials because they were cheaper could potentially be responsible for
causing all of the following variances except a(n):
a. Favorable purchase price variance.
b. Unfavorable materials quantity variance.
c. Unfavorable purchase price variance.
d. Unfavorable labor efficiency variance.
ANS: C
If the purchasing manager buys the materials because they are cheap, he normally would not have an unfavorable purchase price variance. However, if
the materials are difficult to work with, this could lead to unfavorable materials quantity variances and unfavorable labor efficiency variances.
52. To effectively use variances to improve operations, management should take the following steps except:
a. Taking appropriate action to follow up on variances.
b. Breaking down the total variance by usage and price.
c. Adding variances together to determine the impact on financial statements.
d. Analyzing cause and effect of both favorable and unfavorable variances.
ANS: C
The use of variances to improve operations normally would not include determination of the impact on the financial statements. Management should
break the variances down, determine the cause of the variances, and follow up appropriately.
53. Taking appropriate action on variances includes all of the following except:
a. Ignoring the cause of favorable variances.
b. Revising the standard because it was set incorrectly.
c. Improving the manufacturing process.
d. Looking for new suppliers.
ANS: A
Management should follow up on the causes of both favorable and unfavorable variances.
54. Bobby’s Burger Place monitors its variances on an hourly basis. It is not uncommon for Bobby to send workers home early when which of the following
variances indicates that he has over-scheduled the shift?
a. Unfavorable labor efficiency variance.
b. Favorable labor rate variance.
c. Unfavorable materials quantity variance.
d. Favorable labor efficiency variance.
ANS: A
If a shift has been over-scheduled, it would show up as an unfavorable labor efficiency variance since there would be too many hours for the amount of
activity.
55. All of the following are features of a standard cost system except:
a. Standards change as conditions change.
b. Variances my be determined more often than monthly to allow for more timely action.
c. Standards are based on estimates.
d. The company determines the actual cost of manufacturing a unit.
ANS: D
When using a standard cost system, the company will not determine the actual cost of manufacturing a unit.
56. All of the following are features of a standard cost system except:
a. Standards should not be adjusted.
b. Standards provide incentives for workers to keep costs in line.
c. Comparisons between actual and standard are more effective than comparisons between actual costs of the current
period and those of the prior period.
d. A standard cost system focuses management attention on materials prices and usages.
ANS: A
Standards should be flexible and should be changed as circumstances warrant. For example, if a new union contract is negotiated, the standard wage
rates should be adjusted to reflect the new wage rates.
57. In a two-variance system for analyzing factory overhead, a favorable volume variance could be caused by:
a. The top salesman leaving the company.
b. Receiving more orders than anticipated.
c. A machine breakdown.
d. A work slow-down by workers.
ANS: B
A favorable volume variance occurs when actual production levels exceed the standard production level set by management. The top salesman leaving
the company, a machine breakdown and a work slow-down would be more likely to lead to actual production levels not meeting expected levels of
production.
58. In a four-variance method analyzing factory overhead, the variable factory overhead efficiency variance measures:
a. The effect of differences in the actual variable factory overhead rate and the standard variable factory overhead rate.
b. The difference in the actual hours incurred and standard hours allowed for a given level of production.
c. The difference between actual and applied variable factory overhead.
d. The difference between actual variable factory overhead and budgeted variable factory overhead.
ANS: B
The variable overhead efficiency variance is the difference between the actual hours worked and the standard hours allowed multiplied by the standard
variable rate per hour.
59. Which of the following correctly demonstrates the comparison of the four-variance method of factory overhead analysis to the two-variance method of
factory overhead analysis?
a. The sum of the spending and budget variances in the four-variance method is equal to the controllable variance in the two-
variance method.
b. The sum of the spending and efficiency variances in the four-variance method is equal to the controllable variance in the
two-variance method.
c. The sum of the efficiency and volume variances in the four-variance method is equal to the controllable variance in the
two-variance method.
d. The sum of the budget and volume variances in the four-variance method is equal to the controllable variance in the two-
variance method.
ANS: B
The sum of the variable spending and efficiency variances in the four variance method is equal to the controllable variance in the two-variance method.
60. Which of the following correctly demonstrates the comparison of the four-variance method of factory overhead analysis to the two-variance method of
factory overhead analysis?
a. The sum of the spending and budget variances in the four-variance method is equal to the volume variance in the two-
variance method.
b. The sum of the spending and efficiency variances in the four-variance method is equal to the volume variance in the two-
variance method.
c. The sum of the efficiency and volume variances in the four-variance method is equal to the volume variance in the two-
variance method.
d. The sum of the budget and volume variances in the four-variance method is equal to the volume variance in the two-
variance method.
ANS: D
The sum of the fixed budget and volume variances in the four variance method is equal to the controllable variance in the two-variance method.
61. In a three-variance method of factory overhead analysis, the variance that measures the difference between the factory overhead applied and the
actual hours worked multiplied by the standard rate is the:
a. Budget variance.
b. Capacity variance.
c. Spending variance.
d. Efficiency variance.
ANS: D
The factory overhead efficiency variance in a three-variance method of factory overhead analysis is the difference between the factory overhead
applied and the actual hours worked multiplied by the standard rate.
The budget or spending factory overhead variance is the difference between the actual overhead incurred and the budgeted overhead for the actual
hours worked.
The capacity factory overhead variance is the difference between the budgeted overhead for the actual hours worked and the actual hours worked
multiplied by the standard rate.
62. In a three-variance method of factory overhead analysis, the variance that indicates that the volume of production was more or less than budgeted is
the:
a. Budget variance.
b. Capacity variance.
c. Spending variance.
d. Efficiency variance.
ANS: B
The factory overhead capacity variance in a three-variance method of factory overhead analysis indicates the volume of production was more or less
than budgeted because it reflects the difference between budgeted fixed overhead and the fixed overhead rate multiplied by the actual hours worked.
The factory overhead efficiency variance is the difference between the factory overhead applied and the actual hours worked multiplied by the standard
rate.
The budget or spending factory overhead variance is the difference between the actual overhead incurred and the budgeted overhead for the actual
hours worked.
63. The following information pertains to the Braun Company for March:
Standard direct labor hours per unit .5 hours
Budgeted production level 20,000 units
Actual units produced 22,000 units
Standard variable rate per direct labor hour $2.00
Standard fixed rate per direct labor hour $3.00
Actual direct labor hours worked 10,500 hours
Actual direct labor costs $150,000
Actual variable factory overhead 22,200
Using the four-variance method of factory overhead variance analysis, what is the spending variance?
b. $200 unfavorable
c. $1,000 favorable
d. $200 favorable
ANS: A
Spending variance = actual variable overhead - (actual hours worked x standard variable rate per hour)
Spending variance = $22,200 - (10,500 x $2)

Spending variance = $22,200 - $21,000
Spending variance = $1,200 Unfavorable (because actual exceeded standard)
Using the four-variance method of factory overhead variance analysis, what is the efficiency variance?
b. $200 unfavorable
c. $1,000 favorable
d. $200 favorable
ANS: C
Efficiency variance = (actual hours worked - standard hours allowed) x standard variable rate per hour
Efficiency variance = (10,500 - 11,000*) x $2

Efficiency variance = $1,000 Favorable (because actual hours worked were less than standard)
* Actual items produced x standard hours allowed (22,000 x .5 = 11,000)
Using the four-variance method of factory overhead variance analysis, what is the budget variance?
a. $1,200 favorable
c. $3,000 favorable
ANS: B
Budget variance = actual fixed cost - budgeted fixed cost
Budget variance = $31,800 - $30,000*
Budget variance = $1,800 U
* Budgeted production x standard hours allowed per unit x fixed factory overhead rate
(20,000 x .5 x $3 = $30,000)
Using the four-variance method of factory overhead variance analysis, what is the volume variance?
a. $1,200 favorable
c. $3,000 favorable
ANS: C
Volume variance = budgeted fixed cost - standard hours allowed x fixed rate
Volume variance = $30,000* - 11,000** x $3
Volume variance = $3,000 favorable (because production exceeded budget)
* Budgeted production x standard hours allowed per unit x fixed factory overhead rate
(20,000 x .5 x $3 = $30,000)
** Standard hours allowed = actual units x standard hours per unit

11,000 = 22,000 x .5
variability to measure the effect of changes in volume on profitability.
-WMG, CPA

Introduction to Cost Accounting Multiple Choice Questions

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INTRODUCTION TO COST ACCOUNTING

1. Factory overhead includes:

2. The term "prime cost" refers to:

3. The term "conversion costs" refers to:

4. A typical factory overhead cost is:

8. When should process costing techniques be used in assigning costs to products?

11. Payroll is debited and Wages Payable is credited to:

The cost of goods manufactured during the year was:

The cost of goods sold during the year was:

Selling price - Manufacturing costs

25. Examples of service businesses include:

26. In the financial statements, Materials should be categorized as:

27. Factory overhead would include:

28. The statement of costs of goods manufactured shows:

Direct materials $125,000

$240,000 / 20,000 units = $12.00 cost per unit

Direct materials $125,000

The cost per blanket is:

$240,000 / 20,000 units = $12.00 cost per unit

34. A standard cost system is one:

Sales department salaries $10,000

What is the amount that would be included in direct labor in November?

Sales department salaries $10,000

What is the amount that would be included in factory overhead in November?

What was the Cost of goods sold in January?

Calculation of year-to-date variance:

PROCESS COST ACCOUNTING--GENERAL PROCEDURES

3. A cost center in a process cost system is a:

4. Process costing techniques should be used in assigning costs to products:

5. The cost of an equivalent unit is equal to:

6. A characteristic of a process cost accounting system is:

Beginning Work in Ending Work in

(1) The computation of equivalent units in total?

(1) (2) (3)

Units Materials Costs

In process, October 1 11,700

Total materials cost

($4,100 + $22,900) = $27,000 = $.54 per unit

Materials cost for work in process, October 31:

Goods Ending Work

25. All of the following are characteristics of a production report except:

26. The cost of production summary for Maha Industries follows:

What is the journal entry to record materials issued into production?

b. Dr. Work-in-process 8,000

c. Dr. Work-in-process 1,000

d. Dr. Materials 8,000

27. The cost of production summary for Maha Industries follows:

What is the journal entry to record the distribution of labor to production?

b. Dr. Work-in-process 4,000

c. Dr. Work-in-process 4,000

d. Dr. Payroll 4,000

28. The cost of production summary for Maha Industries follows:

What is the journal entry to record factory overhead applied to production?

b. Dr. Factory overhead 3,000

c. Dr. Work-in-process 375

d. Dr. Factory overhead 375

b. Dr. Finished goods 1,875

c. Dr. Finished goods 3,000

d. Dr. Finished goods 13,125

b. Finished goods 18,000

c. Work-in-process - Mixing 5,600

d. Work-in-process - Curing 18,000