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FINAL EXAM - PART 1 (THEORY)
1. Direct material cost combined with manufacturing overhead cost is known as
conversion cost. False
2. Although depreciation is always a period cost in a merchandising firm, it can be a
product cost in a manufacturing firm. TRUE
3. In a manufacturing firm, all costs are product costs. FALSE
4. Advertising is a product cost as long as it promotes specific products. FALSE
5. In a process costing system, overhead is allocated to departments before being
applied to units of product.TRUE
6. The “costs accounted for” portion of the cost reconciliation report includes the cost of
ending work in process inventory and the costs of units transferred out. TRUE
7. In order to use process costing, the output of a processing department should be
homogenous. TRUE
8. The “costs to be accounted for” portion of the cost reconciliation report includes the
cost of beginning work in process inventory and the cost of ending work in process
inventory.FALSE
9. The production manager is usually held responsible for the labor efficiency variance.
TRUE
10. From a standpoint of cost control, the most effective time to recognize materials
price variances is when the materials are placed into production. FALSE
11. The materials quantity variance is computed based on the amount of materials
purchased during the period. FALSE
12. Purchase of poor quality materials will generally result in a favorable materials price
variance and an unfavorable labor rate variance. FALSE
13. Net realizable value at split-off is used to allocate separable cost FALSE
14. In a sell-or-process further decision, joint costs are irrelevant. TRUE
15. The split-off in a joint situation refers to the stage of processing where two or more
products are separated. TRUE
16. The price variance reflects the difference between the price paid for inputs and the
standard price for those inputs. TRUE
17. The usage variance reflects the difference between the price paid for inputs and the
standard price for those inputs. FALSE
18. The formula for usage variance is (AQ – SQ) . FALSE
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19. The difference between the actual wages paid to employees and the standard
wages for all hours worked is the labor efficiency variance. TRUE
20. The difference between the standard hours worked for a specific level of production
and the actual hours worked is the labor efficiency variance. TRUE
21. A standard cost system is applicable only to process costing where the operation is
repetitive. FALSE
22. A fixed overhead volume variance is a noncontrollable variance. TRUE
23. A budget variance is a controllable variance. TRUE
24. Unfavorable variances are represented by debit balances in the overhead account.
TRUE
25. Favorable variances are represented by credit balances in the overhead account.
TRUE
26. If the net realizable value of by-product will be treated as additional revenue of the
main product, it has the same effect if by-product will be treated as a deduction from
production cost assuming that there is ending inventory of main product. FALSE
27. If the net realizable value of by-product will be treated as other income, it has the
same effect if by-product will be treated as a deduction from production cost assuming
that there is no ending inventory. TRUE
28. Under the FIFO method, units transferred out are treated in separate blocks – one
block consisting of the units in the beginning inventory, and the other block consisting of
the units started and complete during the period. TRUE
29. The controller is responsible for reporting and interpreting results of operations and
system installation. FALSE
30. The treasurer is responsible for the protection of asset. FALSE
If the estimate of the stage of completion of work in process is too high, the figure
representing equivalent production would be understated and, therefore, the unit
cost for the month would be too low. False
Losses from abnormal spoilage due to unexpected circumstances such as

machine operator error should be assigned to 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. False
A major difference between FIFO and average costing is its treatment to the
ending inventory from current production. False
Materials in process cost accounting system could be applied at the start, middle,
or end of the production process. TRUE
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It is not necessary to estimate the stage of completed of work in process at the
end of the accountancy period so that the costs incurred during the period maybe
properly allocated. False
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. False
Normal losses that occur in the manufacturing process are properly classified as
period costs. False
The units gained in the production under a process cost system will causes a
decrease in the preceding department's unit cost but does not necessitate an
adjustment of the transferred-in unit cost. False
The usual starting point in budgeting is to make a forecast of sales. TRUE
A budgeted balance sheet is part of a master budget; it is also an operating

budget. False
Operating budgets generally have long time horizons and may extend many
years into the future. False
Normal capacity is the level of production that provides complete utilization of all
facilities and personnel but allows for some idle capacity due to operating
interruptions. False
Any for profit organization has the primary objective of maximizing its income by
attaining the highest volume of sales at the lowest possible cost. TRUE
The basic idea behind responsibility accounting is that each manager's

performance should be judged by how well he or she manages those items
directly under his or her control. TRUE
A budget prepared for a single level of activity is called a static budget. TRUE
Fixed costs should never be included in the flexible budget. False
Budget are essentially planning devices, rather than control devices. False
The break-even point can be expressed either in terms of units sold or in terms of
total sales dollars. TRUE
For a given increase in sales dollars, a high CM ratio will result in a greater
increase in profits than with a low CM ratio. TRUE
When there is expected decrease in finished goods inventory, it implies that the
number of units to be produced exceeds sales volume. False
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One of the assumptions of break-even analysis is that there is no change in
inventories. TRUE
At break-even point, fixed cost is equal to contribution margin. TRUE
If production exceeds sales for the period, variable costing net operating income
will typically be greater than absorption costing net operating income. False
Variable costing will always produce a higher net income figure than will
absorption costing. . False
In target costing, the selling price is the starting point and the cost follows from
the selling price. TRUE
Net income reported under variable costing will exceed net income reported
under absorption costing for a given period if sales is less than the production for
that period. False
Under variable costing, variable selling and administrative expenses are treated
as product costs. False
The costs assigned to units in inventory are typically lower under absorption
costing than under variable costing. False
Fixed manufacturing overhead costs are treated the same way under both the
variable costing and absorption costing methods. False
The formula for target cost is: Target cost = Anticipated selling price + Desired
profit False
Joint costs are commonly allocated based upon relative: Sales value.
What losses should not affect the recorded cost of inventories? Abnormal

losses
If two or more products share a common process before they are separated, the
joint costs should be allocated in a manner that: Assigns a proportionate
amount of the total cost to each product equitably.
Dover Enterprises has two products, Chalk V and Alabaster X, that come from a
joint process, blending. Alabaster X undergoes additional curing after the split-off
before it can be sold. The entry to account for the movement of products from
the blending department is: Debit - Finished Goods and Work in Process -
Curing Credit - Work in Process - Blending
In process costing system, the materials can be added in any department
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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? Relative total sales value
The normal or standard loss in processing departments is generally considered:

an unavoidable loss
Producing goods evenly throughout the year despite having a seasonal sales
pattern could lead to: The potential for inventory obsolescence.
The level of production that provides complete utilization of all facilities and
personnel, but allows for some idle capacity due to operating interruptions such
as machinery breakdowns, idle time and other inescapable inefficiencies is:
practical capacity.
Flexible budgeting is a reporting system wherein the: Planned level of activity

is adjusted to the actual level of activity before the budget comparison
report is prepared.
When using a flexible budget, what occurs to total fixed costs as production
decreases? Fixed costs remain the same
Which of the following is an operating budget? Selling and Administrative

Expense Budget
Consider the following budgets:
(1) Direct labor (2) Income statement

(3) Production (4) Sales
In what order should these budgets be prepared? 4,3,1,2
When preparing the flexible budget for factory overhead, variable costs may
include all but the following: insurance
Quinn Company’s master budget called for 30,000 units of production. Budgeted

direct material costs at this level were $450,000 or $15 per unit. Quinn actually
produced 32,000 units and incurred direct material costs of $496,000. Quinn
uses flexible budgeting to evaluate variances and determined that there was a
$16,000 unfavorable direct materials variance. All of the following reasons could
have contributed to the flexible budget variance except: Quinn produced more
than the master budget called for.
The term relevant range, as used in cost accounting, means the range over
which cost relationships are valid
At the break-even-point, fixed cost is always equal to the contribution margin
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The indicator that results in total revenues being equal to total cost is called the?
break-even point
Following are the uses of CVP analysis, except: Analyze cash flows
A technique that uses the degrees of cost variability to measure the effect of
changes in volume on resulting profits is: Cost-volume-profit analysis.
A calculation used in CVP analysis is the break-even point. At this point, total
revenue equals total costs. Beyond the break-even point, operating income will
increase by the Contribution margin per unit for each additional unit
A company increased the selling price for its product from $1.00 to $1.20 a unit
when total fixed costs increased from $400,000 to $450,000 and variable cost
per unit remained unchanged. How would these changes affect the break-even
point? The break-even point in units would be decreased.
Which of the following would cause the break-even point to change? Fixed
costs increased due to addition to physical plant.
The margin of safety is the amount: that sales can decrease before the
company will suffer a loss.
Absorption cost is required for: both external financial reporting and income
tax purposes.
A manager can increase income under absorption costing by increasing

production.
Which of the following does not appear on an income statement prepared using

Absorption costing? Contribution margin.
Net income reported under Absorption costing will exceed net income reported
under variable costing for a given period if: Production exceeds sales for that
period.
Which of the following does not appear on an income statement prepared using

variable costing? Gross margin/profit.
Under variable costing, fixed manufacturing overhead is: expensed

immediately when incurred
FINAL EXAM - PART 1 (PROBLEM))
Calico Corporation makes the following products:
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Unit
Budgeted Sales
Contribution Margin
Cotton cloth 1,500,000 yds. $.80
Wool cloth 1,000,000 yds. $.75
Budgeted fixed costs are $1,560,000. The break-even point in total yards is:
2,000,000
The production of a new product required Ayab Manufacturing Co. to lease

additional plant facilities. Based on studies, the following data have been made
available: Estimated annual sales - 30,000 units
Amount Per Unit
Estimated costs:
Materials $150,000 $5.00
Direct labor 69,000 2.30
Factory overhead 30,000 1.00
Administrative
36,000 1.20
expense
Total $285,000 9.50
Selling expense are expected to be 10% of sales, and net income is to amount to $3 per
unit. Calculate the selling price per unit. $13.89
Ayo Corporation has fixed cost of $300,000, a contribution margin of 40%, and a margin
of safety of $250,000. What is Ayo's sales revenue? $1,000,000
Queen, Ltd. desires to earn an after-tax income of $150,000. It has a fixed cost of
$1,000,000, a unit sales price of $500, and a variable cost of $200. The company is in
the 30% tax bracket. How many dollars of sales revenue must be earned to achieve the
after-tax profit of $150,000? $2,023, 810
The Blue Saints Band is holding a concert in Toronto. Fixed costs relating to staging a
concert are $350,000. Variable costs per patron are $10.00. The selling price for a
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tickets $30.00. The Blue Saints Band has sold 23,000 tickets so far. How many tickets
does the Blue Saints Band need to sell to earn a net operating of 75,000? 21,250
Consider the income statement for Pickbury Farm: Compute the degree of operating
leverage. 2.14
Sales $500,000
Variable costs 350,000
Contribution margin 150,000
Fixed costs 80,000
Net income $ 70,000
Kehler Corporation wished to market a new product for $2.00 a unit. Fixed costs to
manufacture this product are $100,000. The contribution margin is 40
percent. Compute the margin of safety ratio should the corporation realized a net
income of $140,000 from this product. 58.33%
Franklin Company is a medium-sized manufacturer of bicycles. During the year a new

line called "Radical" was made available to Franklin's customers. The break-even point
for sales of Radical is $200,000 with a contribution margin ratio of 40 percent. Compute
the total fixed costs. $80,000.
Nothing Company sells three types of nuts: almonds, cashews, and walnuts. Ten
thousand cans of nuts were sold in 2016, and the amount of walnuts sold were twice as
much as the number of cans of cashews, whereas almond sales were one-half the
amount of cashew sales. Fixed costs were $40,000 and the unit sales prices and unit
variable costs were as follows:
Unit Sales Unit Variable CM per

Product
Price Cost unit
Almonds $8 $4 $4
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Cashews 10 5 5
Walnuts 6 4 2
Compute the weighted-average contribution margin per unit. $3.1429
Abdol Company, which has only one product, has provided the following data
concerning its most recent month of operations:
Selling price $86
Units in beginning inventory 0
Units produced 6,600
Units sold 6,500
Units in ending inventory 100
Variable costs per unit:
Direct materials $22
Direct labor $12
Variable manufacturing
$4
overhead
Variable selling and

$6
administrative
Fixed Costs:
Fixed manufacturing overhead $231,000
Fixed selling and administrative $32,500
What is the net operating income for the month under variable costing? 9,500
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Mobile, Inc., manufactured 700 units of Product A, a new product, during the
year. Product A's variable and fixed manufacturing costs per unit were $8.00 and
$2.00, respectively. The inventory of Product A on December 31 of the year consisted
of 200 units. There was no inventory of Product A on January 1 of the year. What
would be the change in the profit on December 31 if absorption costing were used
instead of variable costing? $400 increase
A company had income of $50,000 using variable costing for a given period. Beginning
and ending inventories for the period were 18,000 units and 13,000 units, respectively.
If the fixed overhead application rate was $2 per unit, what was the net income, using
absorption costing? 40,000
Selling price $86
Units sold 6,500
Direct labor $12
Variable manufacturing
$4
overhead

$6
administrative
Fixed Costs:
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What is the unit product cost for the month under variable costing? 38
Using the following data as follows:
$
Direct materials
90,000
Direct labor 120,000
Variable factory overhead 60,000
Fixed factory overhead 150,000
Fixed marketing and administrative

180,000
expense
The factory produced 80,000 units during the period and 70,000 units were sold for
$700,000. How much is the gross profit? $332,500
The following production data come from the records of Olympic Enterprises for the
year ended December 31, 2019.
$
Direct materials
480,000
Variable factory
44,000
overhead
During the year, 40,000 units were manufactured but only 35,000 units were sold. How
much is the inventoriable cost of the remaining unsold units using absorption costing.
$102,600
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Selling price $86
Units sold 6,500
Direct labor $12
Variable manufacturing overhead $4

$6
administrative
Fixed Costs:
The total gross margin for the month is: 84,500
Banilad Corporation produces special hospital equipment. Direct materials and direct
labor costs are easy to trace to the jobs. Assemblers receive on the average P60 per
hour. The income statement of Banilad Corporation is given below:
Revenues $700,700
Cost of Goods Sold:
Direct materials $245,000
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Factory overhead 98,000 490,000
Gross Profit 210,700
Selling and Administrative Expense 50,000
Operating Income 160,700
What is the mark-up if based on Direct Materials and Direct Labor? 78.75%
Bradley Company has forecasted sales for the month of March for its single product to
be 10,000 in its Columbus Region, 13,000 units in its Cincinnati Region and 15,000
units in its Cleveland Region. The estimated inventory on March 1 is 4,500 units and
the company desires to have 3,800 units on hand March 31. The budgeted sales price
is $52.00 per unit.
Compute a production budget for the month of March. 37,300 units
Cooper Carriers has budgeted production of 185,000 units this fiscal year. There were
20,000 units on hand in finished goods inventory on January 1 and the company’s
desired inventory at the end of the year is 13,000 units. Cooper’s sales budget in units
is: 165,000
Darla Draperies manufactures top of the line window treatments. A standard package
involves 18 yard of decorative fabric costing $5.00 per yard. Darla has 10,000 yards of
fabric on hand at the beginning of the month, but management would like to reduce
inventory levels, so it would like to have 8,000 yards on hand at the end of the month. If
Darla’s production budget is 3,000 packages, what should the company’s direct
materials budget be? $260,000
The following information is from Franklin Industries master budget for the current year:
Number of units 15,000
Sales revenue $585,000
Direct materials 165,000
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Direct labor 90,000

60,000
administrative expenses
Fixed selling and administrative

20,000
expenses
Compute the contribution margin at 14,000 units level of sales $140,000
Jasinski Jewelry produces a component for lapel pins. Budgeted production in April is

8,400 units. Each unit requires 1/3 ounce of gold, and 2 hours of direct labor time. It is
estimated that Jasinski will have 100 ounces of gold on hand at April 1, and since
management anticipates an increase in the price of gold in the coming months, the
desired ending inventory at the end of April is 150 ounces. The standard cost of an
ounce of gold is $300. The standard rate for direct labor is $25 per hour. Compute the
direct labor budget. $420,000
The standard capacity of a factory is 9,000 units per month. Cost and production data
follow:
Standard application rate for fixed factory overhead for 9,000

$2.00
units
Standard application rate for variable factory overhead for

.50
9,000 units
Actual number of units produced 8,800
Actual factory overhead incurred $22,700
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What is the amount of overhead allowed for the actual volume of production? $22,400
Bradley Company has forecasted sales for the month of March for its single product to
be 10,000 in its Columbus Region, 13,000 units in its Cincinnati Region and 15,000
units in its Cleveland Region. The estimated inventory on March 1 is 4,500 units and
the company desires to have 3,800 units on hand March 31. The budgeted sales price
is $52.00 per unit. Compute the sales budget for the month of March. $1,976,000
Jim Davis Company processes hogs into three products, chops, bacon and
sausage. Production and selling price data follow:
Chops 100,000 lbs. $5.00/ lb.
Bacon 210,000 lbs. $4.00/ lb.
Sausage 410,000 lbs. $2.00/ lb.
Hogs are processed in the Processing Department. From the split-off point, bacon is
smoked, sliced and packaged in the Bacon Department. The cost incurred for these
processes was $100,000. In addition, sausage was ground and formed into patties in
the Sausage Department after the split-off. This process cost $60,000.
If joint processing costs were $1,500,000, calculate the total cost of the bacon using the
adjusted sales value method $555,000
Thomas Lumber Company produces furniture grade lumber and building grade lumber
from a joint process. Sawdust, a by-product of the manufacturing process is sold to a
local toy manufacturer to stuff leather toys for $10 per ton. In February, the company
produced 3,000 tons of sawdust. What is the entry to reduce the cost of the main
products by the estimated sales value of the by-product? Debit By-product inventory
$30,000; credit Work in process $30,000
Materials are added at the end of the process in a company's curing department, the
second stage of the production cycle. The following information is available for the
month of July:
Units
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Work in process, July 1 (50% complete as to conversion
50,000
costs)
Transferred from the previous department 200,000
Transferred to the next department 205,000
Lost in production 10,000
Work in process, July 31 (60% complete as to conversion

35,000
costs)
Under the cost accounting system, the costs incurred on the lost units are absorbed by
the remaining good units. Using the FIFO method, what are the equivalent units for the
materials unit cost calculation? 205,000
Howard Poster Incorporated had 12,000 units of work in process in Department B on

October 1. These units were 60 percent complete as to conversion costs. Materials are
added at the beginning of the process. During the month of October, 38,000 units were
transferred in from Department A and 40,000 units were completed. Howard had
10,000 units of work in process on October 31. These units were 75 percent complete
as to conversion costs.
Compute the equivalent units for materials costs for the month of October using
the FIFO method. (Ignore units transferred in.) 38,000
Klug Industries adds materials at the end of the process in the packaging department,
which is the second of two stages of its production cycle. Information concerning the
materials used in this department in August follows:
Materials
Units Costs
Work in process at August 1 8,000 $11,550
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Units started during August 20,000 $72,450
Units completed and transferred to warehouse

during August 21,000
Using the FIFO method, what is the materials cost of the work in process at August 31
(rounded to nearest dollar)? $ 0
The following information is available for the month of October from the First department
of the Vaughn Corporation:
Units
Work in process, October 1 (40% complete) 6,500
Started in October 32,000
Transferred to Second Department in October 31,000
Materials are added in the beginning of the process in the First department. Using the
FIFO method, what are the equivalent units of production for the month of October for
conversion? 33,650
8th Quiz _ 1206 _ SCM - Ch 3 and 6 (Problems)
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ABC Company joint cost of producing 6,000 gallons of product A and 8,000 gallons of
product B is $74,000. The company could sell product A at split-off for $11 per gallon
and the product B for $6.75. Alternatively, the product A can be processed further at a
cost of $8 per gallon (of product A) into product C. It takes 3 gallons of product A for
every gallon of product C. A gallon of product C sells for $60.
ABC should: Process further and have a $6,000 additional income
ABC Corporation manufactures lamps. Management is currently studying whether the

company should continue to make the cord assembly or purchase them from Graham
Company for $5.25. ABC needs 20,000 cord assemblies a year. If the part is
purchased, the company can not use the released facilities for another manufacturing
activity.
ABC’s unit cost to manufacture the cord assembly is:
Direct materials $2.25
Direct labor 1.75
Factory overhead (70%

2.50
variable)
Total $6.50
ABC should: Buy from Graham and enjoy a differential income of $10,000
ABC Company produces a special gear used in automatic transmissions. Each gear

sells for $30, and the company sells approximately 500,000 gears each year. Unit cost
data for the year follows:
Direct material $9.00
Direct labor 8.00
Other costs: Variable Fixed
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Manufacturing $3.00 $7.00
Distribution 5.00 3.00
ABC has received an offer from a foreign manufacturer to purchase 25,000

gears. Domestic sales would be unaffected by this transaction. If the offer is accepted,
variable distribution costs will increase $1.00 per gear for insurance, shipping, and
import duties. The relevant unit cost to a pricing decision on this offer is: $26.00
ABC Inc. has the capacity to make 100,000 windows. ABC is currently operating at
100% capacity. The windows usually sell for $20.00 each. Costs for each window
follow:
Direct materials $ 5.00
Direct labor 3.00
Variable factory overhead 2.00
Fixed factory overhead 4.00
Total $14.00
The Army has offered to buy 10,000 windows for $12.00 each for barracks. ABC
should: Reject the offer because it currently does not have enough capacity to
accept the order.
ABC Co. provides two products. The projected income statement for the two products
are as follows:
Product A Product B
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Sales $4,200,000 $12,000,000
Less variable expenses 3,830,000 9,600,000
Contribution margin $370,000 $2,400,000
Less direct fixed expenses 400,000 500,000
Segment margin (30,000) 1,900,000
Less common fixed expenses (allocated 100,000 200,000
$ (130,000) $1,700,000
If ABC drops product A, by how much will income increase or decrease? $30,000
increase
ABC Company provided the following information:
Turnover 0.8250
Margin 12%
Operating income $7,920
If the imputed interest rate is 6%, what is the company's residual income for the year?
$3,120
ABC, Inc. has a Dyestuff division in Manila that makes dyestuff in a variety of colors
used to dye denim for jeans, and Clothing division located in Iloilo that manufactures
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denim clothing. The Dyestuff division incurs manufacturing costs of $2.68 for one
pound of powdered dye.
The Clothing Division located in Iloilo currently buys its dye powder from outside
supplier for $3.80 per pound. If the Clothing Division purchases the powder from
Dyestuff division, the shipping cost will be $0.34 per pound , but sales commissions of
$0.05 per pound will be avoided with an internal transfer. Calculate the appropriate
transfer price per pound. $4.09
Operating income 4,000.00
Margin 16%
Turnover 0.6250
Compute the Sales. $25,000.00
Turnover 0.8250
Margin 12%
Operating income $7,920
Compute the Sales. $66,000
Assets 40,000.00
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(average)
Margin 16%
Turnover 0.6250
Compute the ROI . 10%
8th Quiz _ 1206 _ SCM - Chapters 3 and 6 (Theory)
It will be affected by management decision. Relevant Cost
The amount varies in direct proportion to changes in level of activity within a

relevant range. Variable cost
Historical cost. Sunk cost
It is constant in amount within a relevant range. Fixed cost
Establishment of an individual’s accountability based on his scope of authority.

Responsibility Accounting
Salary income that a student foregoes by devoting full time to his studies.
Opportunity cost
The practice of delegating decision-making authority to the lower levels.

Decentralization
It shows how productively assets are being used to generate sales. Turnover
The excess of revenue over variable costs, including manufacturing, selling and
administrative costs. Contribution Margin
The prices charged for goods produced by one division and transferred to
another Transfer Prices
Recognition and definition of the problem is the first step among the six steps of the
decision-making model. TRUE
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The rent on a factory in a keep-or-drop decision is an example of a future cost that is
irrelevant. It will be there whether one of the factory’s products is dropped or kept.
TRUE
Flexible resources are relevant whenever the demand for an activity changes across
alternatives. TRUE
One of the advantages of decentralization is that developing authority to managers may

make conflicting decisions. FALSE
The imputed interest rate used is ordinarily the target return on investment set by the
company's management and should be equal to the weighted-average cost of capital or
discount rate. FALSE
Past costs are sunk and sometimes may also be relevant. FALSE
The manager of an investment center is responsible for generating revenue as well as

controlling expenses. TRUE
If a firm has unused production capacity and sufficient unused activity capacity, a one-
time special order may bring in more revenues even if it will be sold at lower than the
regular selling price. TRUE
Depreciation on an existing assets is always irrelevant. TRUE
The invested capital employed turnover rate would include profit in the numerator.
FALSE
Future costs that differ across alternatives are: Relevant costs
The following cost may be considered as relevant in tactical decision making, except:
depreciation of old equipment
Each year, ABC Company produces 18,000 units of a component used in microwave
ovens. An outside supplier has offered to supply the part for $1.38. The unit cost is
$0.78 for direct materials, $0.34 for direct labor, $0.13 for variable overhead and $2.75
for fixed overhead. What is the relevant cost of buying the part? Purchase price
Given the two alternatives of either to sell a product at split-off or process it further into
another product, what is normally the relevant cost of processing it further? Further
processing cost
$0.78 for direct materials, $0.34 for direct labor, $0.13 for variable overhead and $2.75
for fixed overhead. What is the relevant cost of making the part? Direct materials,
direct labor and variable overhead
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A company had WACC equal to 8.96%. If the company pays off mortgage bonds with
an interest rate of 4% and issues an equal amount of new stock considered to be
relatively risky by the market, which of the following is true? WACC will increase
A transfer price is the price charged by one segment of the company for goods or
service provided to another segment
The key difference between residual income and EVA is that EVA Uses the actual
cost of capital for the company rather than a minimum required cost of capital
The criteria used for evaluating performance Should be designed to help achieve
goal congruence
The following are the reasons why firms choose to decentralize, except: So that the
only top management should do the decision-making.
tExercise _ SCM - Ch7 (Matching type, true or false and classification)
A strategy that selects specific segments where firm's core competencies in the
segments are superior to those of competitors.

Focusing strategy
The complete range of tangible and and intangible benefits that a customer receives
from a purchased product.

Total product
Refers to the linked set of value creating activities from basic raw materials to the
disposal of the finished product by end-use customers.

Industrial value chain
All costs associated with the product for its entire life cycle.

Life-cycle cost
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This kind of strategy provides competitive advantage by providing something to
customers that is not provided by competitors.

Differentiation stategy
Simply the time a product exists from conception to abandonment.

product life cycle
The use of cost data to develop and identify superior strategies that will produce a
sustainable competitive advantage.

Strategic Cost Management
It is the difference between customer realization and customer sacrifice.

customer value
A kind of strategy that provides the same or better value to customers at a lower cost
than offered by competitors.

Cost leadership strategy
Choosing the among alternative strategies with the goal of selecting a strategy that
provides a company with reasonable assurance of long-term growth and survival.

Strategic decision making
A low cost strategy is said to be effective if it could increase the customer value by
increasing the customer realization. FALSE
Sales transaction between a customer and the firm is considered an external linkage.
TRUE
The different stages on the marketing viewpoint of the product life cycle emphasizes
life-cycle costs. FALSE
A focusing strategy recognizes that not all segments are the same. TRUE
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The objective of strategic cost management is to reduce the cost while simultaneously
strengthening the chosen strategic position. TRUE
At the maturity stage of the product cycle, sales growth is fast because of the high
advertising expense incurred at this point. FALSE
Value-chain analysis is a form of strategic cost management. It shares the same goal of
creating a long-term competitive advantage by using cost information. TRUE
One general strategy can be combined with another general strategy. TRUE
Organizational cost drivers are the structural and procedural factors that determine a
firm’s day to day activities. FALSE
Profits is generally at its peak level at the growth stage of the product life cycle. TRUE
Classify the following cost drivers as:
structural
executional
operational
Number of plants
structural

Number of moves
operational

Degree of employee involvement
executional

Capacity utilization
executional

Number of product lines
structural

-COST of Death-
Number of distribution channels
structural

Engineering hours
operational

Direct labor hours
operational

Scope
structural

product configuration
executional

Quality management approach
executional

Number of receiving orders
operational

Number of defective units
operational

Employee experience
executional

Types of process technologies
structural

Number of purchase orders
operational

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Type and efficiency of layout
executional

Scale
structural

Number of functional departments
structural

Number of planning meetings
executional

The following series of statements or phrases are associated with product life-
cycle viewpoints.
Identify whether each one is associated with the:
- marketing
- production
- customer viewpoint.
The time in which a product generates revenue for a company
marketing

90% or more of the costs are committed during the development stage.t
production

Sales are increasing at an increasing rate
marketing

The length of time that the product serves the needs of a customer.
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customer view point

Emphasizes internal activities that are needed to develop, produce, market, and service
products.
production

The product is losing market acceptance and sales are beginning to decrease.
marketing

The cost of maintaining the products after it is purchased.
customer view point

The concern is with product performance and price.
customer view point

Describes the general sales pattern of a product as it passes through distinct life-cycle
stages.
marketing

All the cost associated with a product for its entire life cycle.
production

7th Quiz _ Ch1 and 2 _ SCM
Junior Company has a breakeven point of 34,600 units and is selling 35,000 units. If
unit variable costs increase, the margin of safety will decrease
Which of the following is involved in studying cost-volume-profit relationship?
product mix, variable costs, fixed costs, all of the given choices
-COST of Death-
Following are the uses of CVP analysis, except: Analyze cash flows
A technique that uses the degrees of cost variability to measure the effect of changes in
volume on resulting profits is: Cost-volume-profit analysis.
CVP is a key factor in many decisions, including choice of product lines, pricing of
products, marketing stategy, and utilization of product facilities. A calculation used in
CVP Analysis is the break-even point. Once the break-even point has been reached,
operating income will increase by the: contribution margin per unit for each
additional unit sold
The rate or amount that sales may decline before losses are incurred is called Margin
of Safety
Which of the following assumptions does not pertain to cost-volume-profit analysis?

sales mix may vary during the related period
The indicator that results in total revenues being equal to total cost is called the?
break-even point
Each of the following would affect the break-even point except a change in the:
Number of units sold.
What is the difference between perfect competition and monopolistic competition? In

perfect competition, firms produce identical goods, while in monopolistic
competition, firms produce slightly different goods.
If the selling price and the variable cost per unit both increase 10 percent and fixed
costs do not change, what is the effect on the contribution margin per unit?
Contribution margin per unit increases
What is the pricing method that focuses on eliminating non-value-added costs? Target
costing
The contribution margin format income statement is organized by cost behavior
classifications
administrative costs, is called: Contribution margin.
-COST of Death-
What factor related to manufacturing costs causes the difference in net earnings
computed using absorption costing and net earnings computed using variable costing?
Absorption costing allocates fixed manufacturing costs between cost of goods
sold and inventories, and variable costing considers all fixed costs to be period
costs.
What costs are treated as product costs under direct costing? Only variable
manufacturing costs
Which of the following is true about absorption costing? Income is higher if the
production is greater than the sales.
Under variable costing, fixed manufacturing overhead is: expensed immediately when

incurred
Net income reported under variable costing will exceed net income reported under
absorption costing for a given period if: Sales exceed production for that period.
Consider the income statement for Pickbury Farm:
Sales $500,000
Fixed costs 80,000
Net income $ 70,000
What is the margin of safety ratio (to the nearest percentage point)? 47%
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Sales $500,000
Fixed costs 80,000
Net income $ 70,000
The Blue Saints Band is holding a concert in Toronto. Fixed costs relating to staging a
concert are $350,000. Variable costs per patron are $10.00. The selling price for a
tickets $30.00. The Blue Saints Band has sold 23,000 tickets so far.
How many tickets does the Blue Saints Band need to sell to break even? 17,500
Consider the following information for the Dehning Company:
Sales price per unit $ 130
Variable cost per unit 80
Total fixed costs 840,000
What are Dehning's variable costs at the break-even point? $1,344,000
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Kehler Corporation wished to market a new product for $2.00 a unit. Fixed costs to
manufacture this product are $100,000. The contribution margin is 40 percent. How
many units must be sold to realize net income of $140,000 from this product? 300,000
Franklin Company is a medium-sized manufacturer of bicycles. During the year a new

line called "Radical" was made available to Franklin's customers. The break-even point
for sales of Radical is $200,000 with a contribution margin ratio of 40
percent. Assuming that the profit for the Radical line during the year amounted to
$80,000, total sales during the year would have amounted to: $400,000.
Consider the following information about the Gumm Company:
Unit Unit
Sales Variable
Budgeted
Price Cost
Sales
Mint gum 6,000 cases $5.00 $3.00
Bubble gum 4,000 cases $6.00 $3.50
Budgeted fixed costs are $550,000. Compute the break-even units for bubble gum.
100,000 cases
Giggles Company produces a product that has the following data per year:
Unit sales $400 per unit
Unit variable cost 260 per unit
Total fixed cost $7,000,000
Units sold 70,000
If sales increased by $500,000 how much would you expect profit to increase?
$175,000
-COST of Death-
A company has fixed costs of $700,000. The selling price and variable cost per unit are
$50.00, and $10.00, respectively. How many units does the company need to sell to
achieve net income of $100,000 after income tax, assuming the income tax rate is
50%? 22,500
$
Direct materials
480,000
Variable factory
44,000
overhead
Fixed selling expense 35,000
During the year, 40,000 units were manufactured but only 35,000 units were sold for
$25
A company had income of $50,000 using variable costing for a given period. Beginning
and ending inventories for the period were 18,000 units and 13,000 units, respectively.
If the fixed overhead application rate was $2 per unit, what was the net income, using
absorption costing? $60,000
$
Direct materials
480,000
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Variable factory
44,000
overhead
much is the inventoriable cost of the 35,000 units sold using variable costing. $686,000
Direct materials $ 90,000
Fixed marketing and administrative expense 180,000
$700,000. How much is the net income using absorption costing? $152,500
Mobile, Inc., manufactured 700 units of Product A, a new product, during the
year. Product A's variable and fixed manufacturing costs per unit were $6.00 and
$2.00, respectively. The inventory of Product A on December 31 of the year consisted
of 100 units. There was no inventory of Product A on January 1 of the year. What
would be the change in the dollar amount of inventory on December 31 if variable
costing were used instead of absorption costing? $200 decrease
-COST of Death-
$
Direct materials
90,000
Fixed marketing and administrative

180,000
expense
$700,000. How much is the contribution margin? $463,750
Exercise _ SMC - Ch 1 (MC Theory and Problem)
Junior Company has a breakeven point of 34,600 units and is selling 35,000 units. If
unit variable costs increase, the margin of safety will decrease
The relative percentage of unit sales among the various products made by a firm is the:
sales mix.
The margin of safety is the amount: that sales can decrease before the company
will suffer a loss.
Cost-volume-profit analysis includes some simplifying assumptions. Which of the

following is not one of these assumptions? Sales mix changes are irrelevant.
The term relevant range, as used in cost accounting, means the range over which
cost relationships are valid
-COST of Death-
If a company's variable cost per unit increases, which of the following is true? the
contribution margin ratio will decrease
Break-even sales volume in units is determined by: Dividing the fixed cost by the
difference between the unit selling price and unit variable costs.
Income taxes have no impact on the break-even point.
administrative costs, is called: Contribution margin.
Bialy Company had the following information:
Total Sales $120,000
Total variable costs 48,000
Operating income 12,000
What is the break-even sales revenue? $100,000
If a company has an income tax rate of 40% and fixed costs of $105,000, and wishes to
earn an after-tax profit of $150,000, what must its pre-tax income be? $250,000
Loessing Compan produced and sold 12,000 units last year with sales price of $45 per
unit and unit variable cost of $20. Fixed costs totaled $250,000. In the coming year,
Loessing expects price to decrease by ten percent. Neither unit variable cost nor fixed
costs can be changed. If Loessing wants to maintain the same level of income, what
will the new level of production need to be? 14,634 units
-COST of Death-

Information concerning Korian Corporation's product is as follows:
Sales $300,000
Variable cost 240,000
Fixed costs 40,000
Assuming that Korian increased sales of the product by 20%, what should the operating
income be? $32,000
First Class Corp. has sales of $200,000, a contribution margin of 20% and a margin of
safety of $80,000. What is First-class Corp's fixed cost? $24,000
Sales $500,000
Fixed costs 80,000
Net income $ 70,000
Vandenberg, Inc. produces and sell two products: a ceiling fan and a table fan.
Vandenberg plans to sell 30,000 ceiling fans and 70,000 table fans in the coming year.
Product price and cost information includes:
Ceiling Fan Table Fan
-COST of Death-
Price $60 $15
Unit variable cost $12 $7
Direct fix cost $23,600 $45,000
Common fixed selling and administrative expenses total $85,000.
How many ceiling fans are sold at break-even? 2,304 units
The following data apply to McNally Company for last year:
Total variable cost per unit $3.50
Contribution margin/sales 30%
Break-even sales (present volume) $1,000,000
Mc Nally wants to sell an additional 50,000 units at the same selling price and
contribution margin. By how much can fixed costs increase to generate additional profit
equal to 10% of the sales value of the additional 50,000 units to be sold? $50,000
Jester Company had unit contribution margin on $3.60 and fixed costs of $29,664.
Income was $2,520. What was the margin of safety in units? 700 units
Bryan Company's break-even point is 8,500 units. Variable cost per unit is $140, and
total fixed costs are $297,500 per year. What price does Bryan charge? $175
5th Quiz _ Acctg 1206 _ Chapter 6
If two or more products share a common process before they are separated, the joint
costs should be allocated in a manner that: Assigns a proportionate amount of the
total cost to each product equitably.
Normal losses that occur in the manufacturing process are properly classified as:
Product costs.
-COST of Death-
Which of the following is NOT true of joint costs? They are incurred after the point
where the joint products split off from each other.
Which of the following statements best describes a by-product? A product that

usually produces a small amount of revenue when compared to the main product
revenue.
An example of a process where all of the materials would be added at the end of the
process would be: The second process of a snack factory where snack chips
coming from the frying process are cooled and dried for an hour, then bagged.
The following losses affect the recorded cost of inventories, except: Abnormal losses
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? When there is no beginning inventory
Which of the following is not an acceptable method for accounting for by-products in a
joint manufacturing process? Costs before the split-off point are allocated to by-
products.
If the amount of loss in a manufacturing process is normal, it should be classified as a:

Product cost.
Which of the following is most likely to be accounted for as a by-product? Sawdust

resulting from processing lumber at a lumber mill.
During June, 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
-COST of Death-
Materials are introduced at the end of the process in Department B. There were 4,000
units (50 % complete as to conversion costs) in work in process at June 30. The total
costs assigned to the June 30 work in process inventory should be: $26,000
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

15% complete
Placed in process during period 5,000 units
Transferred to packing department 4,800 units
In process, end of period 1,200 units

50% complete

25% complete
Compute the equivalent units for materials. 5,450
Regina Manufacturing uses the FIFO method of process costing. The production report
for the Curing Department, where the materials are added at the beginning of the
period, for September was as follows:
-COST of Death-
In process, beginning of the period 3,000 units
Stage of completion 30 %
Transferred to stockroom during period 12,000 units
In process, end of the period 6,000 units
The number of equivalent units for conversion costs during the period was: 13,500
Boron Refiners had 50,000 gallons started in its process in June. At June 30, 35,000
gallons were completed and transferred to finished goods and 10,000 gallons were still
in process, one-fourth completed as to materials, labor and overhead. The remaining
5,000 units were lost to evaporation, a normal result of the process. Costs of production
during the month were $75,000, $50,000, and $25,000 for material, labor and overhead,
respectively. What is the cost per equivalent unit in June? $4.00
The following information is available for the month of October from the First department
of the Vaughn Corporation:
Units
Started in October 32,000
Transferred to Second Department in October 31,000
Materials are added in the beginning of the process in the First department. Using the
-COST of Death-
average cost method, what are the equivalent units of production for the month of
October for conversion? 36,250
Budde Chemicals produces two industrial chemical compounds, X15 and Z24, from the
same process, which last year cost $800,000. Budde produced 10,000 gallons of X15,
which sells for $40 per gallon and 40,000 gallons of Z24, which sells for $10 per
gallon. Using the relative sales method, how much of the joint cost should be allocated
to X15? $400,000
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
Units completed and transferred to next

department 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)? $6,200
The following information is available for the month of April from the Second department
of the Armque Corporation:
Units
Work in process, April 1 (50% complete) 90,000
Transferred from First Department in April 250,000
-COST of Death-
Transferred out of Second Department in April 290,000
Materials are added at the end of the process in the Second department. Using the
average cost method, what are the equivalent units of production for materials for the
month of April? 290,000
Regina Manufacturing uses the FIFO method of process costing. The production report
for the Curing Department, where the materials are added at the beginning of the
period, for September was as follows:
In process, beginning of the period 3,000 units
Transferred to stockroom during period 12,000 units
In process, end of the period 6,000 units
The number of units started and completed during the period was: 9,000
Klug Industries adds materials at the beginning of the process in the molding
department, which is the first of two stages of its production cycle. Information
concerning the materials used in the molding department in August follows:
Materials
Units Costs
-COST of Death-
Units completed and transferred to next
department during August 21,000
Using the FIFO method, what is the materials cost of the work in process at August 31
(rounded to nearest dollar)? $25,358
Direct labor cost would generally be a better base to use in preparing a flexible budget
than direct labor hours. FALSE
In budgeting, goals- must be realistic; however, it may not be attained. TRUE
A continuous or perpetual budget is one that maintains a constant twelve month

planning horizon. TRUE
The basic idea behind responsibility accounting is that each manager's performance
should be judged by how well he or she manages those items directly under his or her
control. TRUE
For sales revenue, if budgeted amount exceeds actual amount, the variance is
favorable. FALSE
Although a static budget is effective in measuring production control, it is not effective in

measuring cost control. TRUE
facilities and personnel but allows for some idle capacity due to operating interruptions.
FALSE
The usual starting point in budgeting is to make a forecast of sales. TRUE
-COST of Death-
Interaction between the human resources and production departments is equally
important to ensure that enough of the right kind of labor is available to meet production.
TRUE
If overhead is applied to production on a basis of direct labor hours , there will be a

close relationship between the labor efficiency variance and the overhead efficiency
variance. TRUE
If the denominator activity level exceeds the standard hours allowed for the output, the
volume variance will be favorable. FALSE
Usually, factory activity will be exactly at the normal capacity level. TRUE
Fixed costs should never be included in the flexible budget. FALSE
Budget are essentially planning devices, rather than control devices. FALSE
Preparing a budget for a factory service department requires the same procedures as
those used for production departments. TRUE
The fixed overhead volume variance measures how well fixed overhead spending was
controlled. FALSE
Operating budgets generally have long time horizons and may extend many years into
the future. FALSE
A variable overhead spending variance is affected by waste and excessive usage as

well as price differentials. TRUE
Under absorption costing it is possible to defer some of the fixed manufacturing

overhead costs of the current period to future periods. TRUE
The variable costing method is not generally acceptable for external reporting or for
income tax purposes. TRUE
Advocates of variable costing argue that fixed manufacturing overhead costs should be
expensed in incurred (i.e., treated as period costs since fixed manufacturing overhead
costs have no future service potential. TRUE
-COST of Death-
Fixed manufacturing overhead costs are treated the same way under both the variable
costing and absorption costing methods. FALSE
The break-even point occurs where the contribution margin is equal to total variable
TRUE
For a given increase in sales dollars, a high CM ratio will result in a greater increase in
profits than will a low CM ratio. TRUE
If sales increase by 8 percent, and the degree of operating leverage is 4, then profits
can be expected to increase by 12 percent. FALSE
When production is less than sales, the net income reported under absorption costing
will generally be less than the net income reported under variable costing. TRUE
As an organization is broken down into smaller segments, costs that were traceable to
the larger segments may become common to the smaller segments. TRUE
If product A has a higher unit contribution margin than product B, then product A will
always have a higher CM ratio than product B.FALSE
A decentralized organization is one in which decision making is confined to top

management. FALSE
Under variable costing, variable selling and administrative expenses are treated as One
of the assumptions of break-even analysis is that there is no change in inventories.
TRUE
Advocates of variable costing argue that fixed manufacturing overhead costs are
incurred in order to have the capacity to produce and are not part of the cost of
producing any particular unit. TRUE
Selling and administrative expenses are treated as period costs under both the variable
costing and absorption costing methods. TRUE
A series of segmented reports focuses on progressively smaller pieces of an

organization. TRUE
Variable costing focuses on cost behavior in computing unit product costs. TRUE
If the product mix changes, the break-even point may change. TRUE
Product costs under the absorption costing method consist of direct materials, direct
labor, and both variable and fixed manufacturing overhead. TRUE
-COST of Death-
The segment margin is viewed as being the best gauge of the long-run profitability of a
segment. TRUE
producing any particular unit. TRUE

management. FALSE
Variable costing focuses on cost behavior in computing unit product costs. TRUE
Variable costing will always produce a higher net income figure than will absorption
costing. FALSE
profits than will a low CM ratio. TRUE
When production exceeds sales, the net income reported under absorption costing will
generally be greater than the net income reported under variable costing. TRUE
Under variable costing, variable selling and administrative expenses are treated as
product costs. FALSE
One of the assumptions of break-even analysis is that there is no change in inventories.

TRUE
income tax purposes. TRUE

overhead costs of the current period to future periods. TRUE
labor, and both variable and fixed manufacturing overhead. TRUE
If the product mix changes, the break-even point may change. TRUE
Contribution margin is basically a short-run planning tool and is especially valuable in

decisions relating to temporary uses of capacity, special orders, and short-run
promotional strategy. TRUE
The terms "traceable cost" and "variable cost" are synonymous. FALSE
-COST of Death-
Changes in the level of production do not affect net income under the variable costing
method. TRUE
segment. TRUE
will generally be less than the net income reported under variable costing. TRUE
Common costs should be allocated to product line segments on a basis of sales dollars.
FALSE
FALSE
The break-even point can be expressed either in terms of units sold or in terms of total
sales dollars. TRUE
Only manufacturing companies use JIT purchasing. FALSE
those used for production departments. TRUE
favorable. FALSE
Advocates of continuous budgeting argue that it causes managers to have a more long-
term perspective rather than just concentrating on the next or month quarter. TRUE

well as price differentials. TRUE
A capital expenditures budget may influence the cash budget for expenditures and is
typically prepared for a one to five year time horizon. FALSE
control. TRUE

measuring cost control. TRUE
-COST of Death-
A budgeted balance sheet is part of a master budget; it is also an operating budget.

FALSE

planning horizon. TRUE
the future. FALSE
volume variance will be favorable. FALSE
Ending inventories occur because an organization is unable to sell all that it had
planned to sell during a period. FALSE
controlled. FALSE
In budgeting, goals- must be realistic; however, it may not be attained. FALSE
The difference between a flexible budget and a static budget is that a flexible budget
never contains fixed costs. FALSE
A self- imposed budget is one prepared by top management and imposed on other
management levels as it is passed downward through an organization. FALSE
costing and absorption costing methods TRUE
income tax purposes TRUE
Under variable costing, variable selling and administrative are treated as product costs
FALSE
Variable costing will always produce higher net income figure than will absorption
costing TRUE
-COST of Death-
promotional strategy TRUE
labor, and both variable and fixed manufacturing overhead TRUE
method TRUE
One of the assumptions of break-even analysis is that there is no change in inventories

TRUE
Absorption costing data are generally better suited for cost-volume-profit analysis than
variable costing data FALSE
segment TRUE

organization TRUE
If a product mix changes, the break-even point may change FALSE

overhead costs of the current period to future periods TRUE
will generally be less than the net income reported under variable costing TRUE
expensed in incurred (i.e, treated as period costs since fixed manufacturing overhead
costs have no future service potential TRUE
When production and sales are equal, the same net income will be reported regardless
of whether variable costing or absorption costing is being used TRUE

management FALSE
Common costs should be allocated to product line segment on a basis of sales dollars
FALSE
-COST of Death-
profits than will a low CM ratio TRUE
generally be greater than the net income reported under variable costing TRUE
If a product A has a higher unit contribution margin than product B, then product A will
always have a higher CM ratio than product B FALSE
For sales revenue. If budgeted amount exceeds actual amount, the variance is
favorable FALSE
Usually, factory activity will be exactly at the normal capacity level FALSE
planned to sell during a period FALSE
never contains fixed costs FALSE

well as price differentials FALSE
Variable costing focuses on cost behaviour in computing unit product costs TRUE
costing and absorption costing methods FALSE
FALSE
If overhead is applied to production on a basis of direct labor hours, there will be a close
relationship between the labor efficiency variance and the overhead efficiency variance
FALSE
Fixed costs should never be included in the flexible budget FALSE
controlled FALSE
typically prepared for a one to five year time horizon FALSE
-COST of Death-
facilities and personnel but allows for some idle capacity due to operating interruptions
FALSE
the future FALSE
In budgeting goals – must be realistic; however, it may not be attained FALSE
The basic idea behind responsibility accounting is that each manager’s performance
control TRUE
The usual starting point in budgeting is to make a forecast of sales FALSE
A budget prepared for a single level of activity is called a static budget TRUE
those used for production departments TRUE
The term “overhead efficiency variance” is really a misnomer since this variance as
nothing to do with efficiency in the use of overhead TRUE
term perspective rather than just concentrating on the next or month quarter TRUE
A budgeted balance sheet is part of a master budget it is also an operating budget

FALSE
1. At the break-even point, fixed cost is always
- equal to the contribution margin
2. Break-even sales volume in units is determined by:
- Dividing the fixed cost by the difference between the unit selling price and unit
variable costs.
3. Which of the following is involved in studying cost-volume-profit relationship?
- all of the above
-COST of Death-
4. CVP is a key factor in many decisions, including the choice of product lines, pricing of
products, marketing strategy and utilization of product facilities. A calculati3on used in
CVP analysis is the break-even point. Once the break-even point has been reached,
operating income will increase by the:
- Contribution margin per unit for each additional unit sold
5. The indicator that results in total revenues being equal to total cost is called the?
- break-even point
6. The rate or amount that sales may decline before losses are incurred is called
- Margin of Safety
7. A technique that uses the degrees of cost variability to measure the effect of changes
in volume on resulting profit is:
- Cost-volume-profit analysis
8. Following are the uses of CVP analysis, except:
- Analyze cash flows
9. Each of the following would affect the break-even point except a change in the:
- number of units sold.
10. Which of the following assumptions does not pertain to cost-volume-profit analysis
- Sales mix may vary during the related period
11. Which of the following is true about absorption costing?
- The term used to designate the difference between sales and cost of goods
sold is the “manufacturing margin”
12 .Net income reported under variable costing will exceed net income reported under
absorption for a given of period if:
-Sales exceed production for that period.
13 .The excess of revenue over variable costs, include manufacturing, selling and
administrative costs, is called
-COST of Death-
- Contribution margin
14 . If the selling price and the variable cost per unit both increase 10 percent and fixed
costs do not change, what is the effect on the contribution margin per unit?
- Contribution margin per unit increases
15. Under variable costing, fixed manufacturing overhead is:
Expensed immediately when incurred
16. What is the pricing method that focuses on eliminating non-value-added costs?
- Target costing
17. What is the difference between perfect competition and monopolistic competition?
- In perfect competition, firms produce identical goods, while in monopolistic

competition, firms produce slightly different goods.
18. What costs are treated as product costs under direct costing?
- only variable manufacturing costs
19. What factor related to manufacturing costs causes the difference in net earnings
computed using absorption costing and net earnings computed using variable costing?
- Absorption costing allocates fixed manufacturing costs between cost of good

sold and inventories, and variable costing considers all fixed costs to be period costs.
20. The contribution margin format income statement is organized by
- Cost behaviour classification
21. If a company’s variable cost per unit increases, which of the following is true?
- The contribution margin ration will decrease
22. Income taxes
- Have no impact on the break-even point
23. Bryan Company’s break-even point is 8,500 units. Variable cost per unit is $140 and
total fixed costs are $297,500 per year. What price does Bryan charge?
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- $175
24. A company has fixed costs of $700,000. The selling price and variable cost per unit
are $50.00 and $10.00 respectively. How many units does the company need to sell to
achieve net income of $100,000 after income tax, assuming the income tax rate is
50%?
- 22,500
25. Consider the following information for the Dehning Company:
What are Dehning’s variable costs at the break-even point?
- $1,344,000
26. The Blue Saints Band is holding a concert in Toronto. Fixed costs relating to staging
a concert are $350,000. Variable costs per patron are $10.00. The selling price for a
tickets $30.00. The blue Saints band has sold 23,000 tickets so far.
How many tickets does the blue saints band need to sell to break-even?
- 17,500
27. Ayo Corporation has sales of $200,000, a contribution margin of 20%, and a margin
of sagety of $80,000. What is Ayo’s fixed cost?
- $24,000
28. Queen, Ltd. has one product. Its sales price and variable cost per unit are $25 and
$20, respectively. Last year, Queen sold 25,000 units, which was 5,000 more than the
break-even point. What were Queen’s fixed expenses?
-$100,000
29. Kehler Corporation wished to market a new product for $2.00 a unit. Fixed costs to
manufacture this product are $100,000. The contribution margin is 40 percent. How
many units must be sold to realize net income of $140,000 from this product?
- 300,000
30. Consider the income statement for Pickbury Farm:
What is the margin of safety ratio (to nearest percentage point)?
-47%
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31.Consider the following information about the Gumm Company:
Budgeted fixed costs are $550,000. Compute the break-even units for bubble gum.
-100, 000 cases
32. The following production date from the records of Olympic Enterprises for the year
ended Decmeber 31,2019
much is the inventories costs of the 35,000 units sold using variable costing.
- $686,000
33. Mobile, Inc., manufactured 700 units of Product A, a new product, during the year.
Product A’s variable and manufacturing costs per unit were $6.00 ad $2.00,
respectively. The inventory of Product A on December 31 of the year consisted of 100
units. There was no inventory of Product A on January 1 of the year. What would be the
change in the dollar amount of inventory on December 31 if variable costing were used
instead of absorption costing?
- $200 decrease
34. Using the following data as follow:
$700,000. How much is the net income using absorption costing?’
- $152,500
35. Using the following data as follows:
$700,000. How much is the contribution margin?
- $463,750
36 The following production data come from the records of Olympic enterprises for the
year ended December 31,2019
During the year, 40, 000 units were manufactured but only 35,000 units were sold for
$25 each. How much is the gross profit?
- $156,800
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37. Banwood Company has the following for 2019:
What is the mark up based on cost of goods sold?
- 100%
38. Jester company had unit contribution margin of $3.60 and fixed costs of $29,664.
Income was $2,520. What was the margin of safety in units?
- 700 units
39 . Franklin company is a medium-sized manufacturer of bicycles. During the year a

new line called “Radical” was made available to Franklin’s customers. The break-even
point for sales of radical is $200,000 with a contribution margin ratio of 40 percent.
Assuming that the profit for the radical line during the year amounted to $80,000 total
sales during the year would have amounted to:
- $400,000
40. Giggles Company produces a product that has the following data per year;
If sales increased by 500,000 how much would you expect profit to increase?
- 175,000
41. A company had income of 50,000 using variable costing a given period. Beginning
and ending inventories for the
TRUE OR FALSE
alternatives – TRUE
The imputed interest rate used is ordinarily the target return on investment set by the
company’s management and should be equal to the weighted-average cost of capital or
discount rate - TRUE
alternatives – TRUE
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Depreciation of an existing assets is always irrelevant - FALSE
A decentralized organization is one which decision making is confined to top

management – FALSE
If a firm has unused production capacity and sufficient unused activity capacity, a one-
time special order may bring in more revenues even if it will sold at lower than the
regular selling price – TRUE
One disadvantage of decentralization is that lower-level employees will develop less

rapidly than in a centralized organization – FALSE
A center that incurs costs and expenses, generates revenues but does not have control
over idle funds for investment purposes is called a profit center – TRUE
The manager of an investment center cannot improve ROI by decreasing the amount of
inventory – TRUE
Past cost can be used to help predict future costs – TRUE
The manager of an investment center is responsible for generating revenue as well as

controlling expenses – FALSE
MC THEORY
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$0.78 for direct materials, $0.34 for direct labor. $0.13 for variable overhead and $2.75
for fixed overhead. What is the relevant cost of making the part? – DIRECT
MATERIALS, DIRECT LABOR AND VARIABLE OVERHEAD
$0.78 for direct materials, $0.34 for direct labor. $0.13 for variable overhead and $2.75
for fixed overhead. What is the relevant cost of buying the part? –PURCHASE PRICE
The following cost may be considered as relevant in tactical decision making, except:
RENT
Given the two alternatives of either to sell a product at split-off or process it further into
another product. What is normally the relevant cost of processing it further? – JOINT
COST? FURTHER PROCESSING COST?
The criteria used for evaluating performance – SHOULD BE DESIGNED TO HELP

ACHIEVE GOAL CONGRUENCE
A company has WACC equal to 8.96%. If the company pays off mortgage bonds with
an interest rate of 4%and issues and equal amount of new stock considered to be
relatively by the market, which of the following is true? – WAAC WILL INCREASE
Transfer prices – SHOULD ENCOURAGE THE KIND OF BEHAVIOR THAT UPPER

LEVEL MANAGEMENT WANTS
A transfer price is – THE PRICE CHARGED BY ONE SEGMENT OF THE COMPANY

FOR GOODS OR SERVICES PROVIDED TO ANOTHER SEGMENT
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With two autonomous division managers, the price of goods transferred between the
divisions needs to be approved by – BOTH DIVISIONAL MANAGERS
Future costs that differ across alternatives are: OPPORTUNITY COSTS
CHAPTER 1
Service entities may have inventory accounts. True
Cost accounting is not needed in financial accounting because cost accounting is used
only for internal purposes. False
IMAs overarching ethical principles include: Honesty, fairness, objectivity, and

responsibility. True
Glue used in the manufacture of wooden table is an example of indirect material. True
The salaries and wages of factory supervisior and the maintenance, security, and
custodial personnel, who do not work directly on the product, are charged to factory
overhead. True
All three elements of manufacturing cost flow through the work in process account. True
When the company uses the perpetual inventory system, the purchases account is
Effective planning is facilitated by clearly defined objectives and a production plan. True
Factory overhead excludes indirect materials and indirect labor. False
Usually a manufacturer has greater investment in merchandise inventory. False
A budget is a plan. True
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The key to proper control involves the use of responsibility accounting and cost
centers. True
From the view point of the manufacturing concern, control is the process of monitoring
the company's operations and determining whether the objectives identified in the
planning process are being accomplished. True
The sum of direct materials and factory overhead in prime cost. False
Cleaning solvent for the factory floor may be classified as direct material. False
The performance report should not be prepared just once a year. True
The total cost of goods completed is recorded and the debit is finished goods. True
Financial accounting focuses on gathering historical financial information to be used in

preparing financial statements that meet the needs of internal users. False
Cost accounting procedures provide the means to determine product costs that enable
the preparation of meaningful financial statements but not with other reports. False
It is equally important that the internal accounting reports prepared by management

accountants be as accurate and unbiased as possible. True
A favorable expense variance is a strength. True
Unit costs are used in making important marketing decisions to selling prices,
competition, and bidding. True
Inventoriable costs and product costs are synonymous terms in a manufacturing

firm. True
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In many ways, the activities of a manufacturer are similar to those of a merchandiser;
both purchase, store and sell goods, have efficient management and adequate sources
of capital, and they may employ thousands of workers. True
Overtime premium should be charged to the specific jobs worked on during overtime
periods. False
A cost center is a unit of activity within the factory to which costs maybe practically and
equitably assigned it maybe a department or group of workers. True
Property taxes and insurance on a factory building are examples of manufacturing

overhead. True
Cost accounting provides historical cost information that is used as the basis for
planning and control. True
Total variable cost will change in proportion to changes in the level of activity. True
When labor cost are distributed the payroll account is credited. True
Sunk costs can be either variable or fixed. True
Manufacturing overhead is an indirect cost with respect to units of product. True
Indirect materials would be part of manufacturing overhead, thus it would be a period

cost. False
If the activity level increases; one would expect the fixed cost per unit to decrease True
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A manufacturer usually has a greater investment in inventories. False
By definition, total variable cost changes in proportion to change in the activity

level. True
Raw material consist of basic natural resources, such as iron ore. False
Manufacturing and merchandising but not service entities require cost accounting
information systems to track their activities. False
Goods that are completed and ready for sale move out of work in process and into
finished goods. The cost of such goods is termed cost of goods manufactured. True
Cost accounting includes those parts of financial and management accounting that
collect and analyze cost information. True
CHAPTER 2
In the formula for ECQ, N stands for the annual demand. True
The revenue from scrap sales is usually recorded as ‘’Other income’’. True
The received columns in the stock cards are used every time purchases are made.
True
One of the assigned functions of a production department supervisor is to prepare or

approve the requisitions designating the quantities and kinds of material needed for the
work to be done in the department. True
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LIFO inventory method matches current costs with revenue. True
Corre
Factory overhead account is debited for indirect materials issued to production. True
It may be difficult or impossible to identify the issuance of materials with a specific

purchase when determining what unit cost should be assigned to the materials being
issued. True
Correct!
The entry to record direct materials returned from factory to storeroom is to debit work in
process and credit materials. False
The role of computer system in materials control will be addressed separately. True
The purpose of materials accounting is to provide a summary for the general ledges of
the cost of materials purchased and used in manufacturing. True
Safety stock is the estimated minimum level of inventory needed to protect stock outs
during the lead time only. False
You Answered
Enterprise Resource planning (ERP) systems are employed by many organizations to

aid in controlling materials, through sophisticated cannot coordinate sales and
production. False
Scrap materials may result naturally from the production process, or they may be
spoiled or defective units that result from avoidable but not unavoidable mistake during
production. False
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The FIFO, LIFO and weighted average methods maybe used under periodic inventory
system. False
The receiving clerk is responsible for supervising the receipt of incoming shipments.
True
The purchasing agent completes a purchase order, and addresses it to the chosen
vendor, describing the materials wanted stating the price and terms, and fixing the date
and method of delivery. True
When the scrap value is small, no entry is made for it until the scrap is sold. True
If the amount of materials on hand is more than the balance in the materials control
account there is shortage. False
The factors to be considered in determining order and carrying costs for a particular
company vary with the nature of operations and the organizational structure. True
The issued columns in the materials stock cards are used when sales are made. False
EXERCISE 4 Chapter 5
Indirect materials however, such as custodial supplies for the factory, and indirect labor,
such as salary of the plant manager, that cannot be directly associated with a particular
department are charged to factory overhead. True
Process costing is used in industries that produce homogenous products such as

bricks, flour, and cement. True
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representing equivalent production would be understated and, therefore, the unit cost
for the month would be too low. False
In a multiple-department factory, the units transferred out of the first department are
treated as if they are raw materials that will be added at the beginning of a second
departments processing operations. True
It is not necessary to estimate the stage of completed of work in process at the end of
the accountancy period so that the costs incurred during the period maybe properly
allocated. False
X Co. had 400 units in work in process at the beginning of the month. During the month,
14,600 units were started in production, 13,400 of which, along with the beginning
work in process, were completed by the end of the month. The uncompleted units were
in ending inventory, 1/4 complete. The equivalent production is 14,100 units. True
Equivalent units of production means completed units. False
If the units completed is 5,000 units and the units in the inventory end is 2,000 units, 1/2
completed, the total no.of units to be accounted for is 6,000 units. False
A job may consist of any number of units. True
In job order cost system, a single product is produced on a continuous basis, each unit
is identical. False
Under a process cost system, the costs of materials and labor are charged directly to
the departments in which they are incurred. True
Correct!
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A basic principle established in comparing the two cost systems is that in a job order
cost system, all costs of manufacturing are charged to production department, either
directly or indirectly. False
If 51,000 units are started during the period, 49,000 units are completed, and the 2,000
units are in the work in process end, 1/4 completed the equivalent production is 49,500
units. True
Costs are accounted for as being either (a) transferred out during the period or (b)
assigned to the ending work in process inventory. True
In a job order cost system costs are accumulated by specific jobs and unit costs are
calculated at the time the job or order is finished. True
Correct!
Units to be accounted for is the sum of the units in the beginning inventory and the units
completed during the period. False
The process cost system maybe used when goods are produced in lots of
predetermined quantity usually based on customers specifications. False
Unit cost refers to the average cost of producing each unit manufactured during a given
period. True
The job order cost system may be used when goods are produced continuously as in
the case of mass production industries. False
Goods that are finished but still on hand in a department at the end of the month are
accounted for as “goods completed and on hand” on the cost of production report. True
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EXERCISE 5 Chapter 6
The total number of units completed during a month plus the number of units in process
at the end of the month may be less than the total number in process at the beginning of
the month plus the number placed in process during the month because of a loss of
units during the process through such occurrences as spoilage and evaporation. True
Correct!
The FIFO method assumes that units are finished in the order started in process and
unit costs are assigned accordingly. The units in process at the beginning of the period
and their related costs are kept separate from units received or started during the
current period and their related costs. These units in process at the start of the period
are valued at the cost carried over from the prior period plus a portion of the current
period’s cost necessary to complete them. Units started and finished during the current
period are handled separately and charged with the current period’s unit cost. True
The usual method of handling the cost of normal processing losses is to exclude the
cost of lost units in the cost of all units finished or still in process. With this approach,
the units lost are ignored in the calculation of equivalent production. False
The estimated sales value of the by-products should be treated as a reduction in the
cost of the main products by debiting By-Product Inventory and crediting Work in
Process for this value. Any difference between the estimated and the actual sales value
would be recorded in an account such as Gain or Loss on Sale of By-Product. True
In the cost of production summaries presented in Chapter 6, the equivalent units are
computed separately for materials and for labor and factory overhead, while in Chapter
5, only one equivalent unit figure had to be determined. The reason for this difference is
that in Chapter 6 the discussion concerning the accounting for materials is based on the
assumption that materials are not added to the manufacturing process at the same rate
as are labor and factory overhead. In Chapter 5, it was assumed that all three cost
elements were uniformly added to production. True
The calculation of equivalent production for the ending work in process is the same
under FIFO and weighted average methods. True
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Correct!
Joint costs include the costs of materials, labor, and overhead incurred during a
common process that produces one or more products. False
If the beginning work in process inventory contains 500 units that are 60% complete,
then the inventory contains 300 equipment units. True
Some companies further refine the sales value at split-off method by subtracting the
estimated expenses incurred after split-off on a joint product from its ultimate sales
value to determine the sales value at split-off. This is called the net realizable value
method. True
The assumption is reasonable in a manufacturing process where direct labor is

significant because the incurrence of overhead costs such as supplies, electricity to run
the machines, and janitorial clean-up is closely linked to the activities of the direct labor
ers. True
Separate equivalent production figures must be used in computing the unit costs of
materials, labor, and overhead when these three elements are not put into process
uniformly during production. True
The total manufacturing costs for the month will include those costs applicable to the
units that were lost. The equivalent units will be based only on units actually completed
or still in process, thereby excluding the units lost. When manufacturing costs for the
period are divided by equivalent units for the period, the resulting unit cost will include
the cost relating to the lost units. True
Under the FIFO method, units transferred out are treated in separate blocks- one block
consisting of the units in the beginning inventory and the other block consisting of the
units started and completed during the period. True
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In determining the cost of the ending work in process, the cost accountant must not
consider the stage of completion of the labor and factory overhead and the point at
which materials are added in order to make the proper allocation of cost. False
If materials added to the process increase the number of units being manufactured, the
unit cost from the prior department must be adjusted. The total cost of the units
transferred would be divided by the new total of units being processed to determine the
new “adjusted unit cost,” which will be more than the original unit cost in the preceding
department(s). False
Under the FIFO method, units is beginning work in process, inventory are treated as if
they were completed before any new units are completed. True
By-products are those products with relatively little value that are obtained from a
common process that also produces products of similar value. False
Units accounted for is 10,000 units, units to be accounted for is 9,000, units lost is 1000
units. False
If some units are normally lost in the manufacturing process and all good units are to
absorb the cost, the effect is to decrease the unit cost of the goods completed during
the period as well as those still in process at the end of the period False
Under the FIFO method of computing equivalent production units, costs in the beginning
work in process inventory are kept separate from costs of the current period. True
than direct labor hours. False
In budgeting, goals- must be realistic; however, it may not be attained. False
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planning horizon. True
control. True
attaining the highest volume of sales at the lowest possible cost. True
favorable. False

measuring cost control. True
facilities and personnel but allows for some idle capacity due to operating interruptions.
False
The usual starting point in budgeting is to make a forecast of sales. True

important to ensure that enough of the right kind of labor is available to meet production.
True
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variance. True
A budget prepared for a single level of activity is called a static budget. True
volume variance will be favorable. False
Usually, factory activity will be exactly at the normal capacity level. False
Budget are essentially planning devices, rather than control devices. False
those used for production departments. True
controlled. False
the future. False

well as price differentials. True

overhead costs of the current period to future periods. True
income tax purposes. True
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expensed in incurred (i.e., treated as period costs since fixed manufacturing overhead
costs have no future service potential. True
costing and absorption costing methods. False
False
profits than will a low CM ratio. True
can be expected to increase by 12 percent. False
will generally be less than the net income reported under variable costing. True
the larger segments may become common to the smaller segments. True
If product A has a higher unit contribution margin than product B, then product A will
always have a higher CM ratio than product B. False

management. . False
Under variable costing, variable selling and administrative expenses are treated as
product costs. False
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One of the assumptions of break-even analysis is that there is no change in inventories.
True
producing any particular unit. True
costing and absorption costing methods. True

organization. True
Variable costing focuses on cost behavior in computing unit product costs. True
If the product mix changes, the break-even point may change. True
labor, and both variable and fixed manufacturing overhead. True
segment. True
producing any particular unit. True

management. False
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costing False
generally be greater than the net income reported under variable costing. True

promotional strategy. True
The terms "traceable cost" and "variable cost" are synonymous. False
method. True
Common costs should be allocated to product line segments on a basis of sales dollars.
False
The break-even point can be expressed either in terms of units sold or in terms of total
sales dollars. True
Only manufacturing companies use JIT purchasing. False
term perspective rather than just concentrating on the next or month quarter. True
typically prepared for a one to five year time horizon. False
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False
planned to sell during a period. False
never contains fixed costs. False
A self- imposed budget is one prepared by top management and imposed on other
management levels as it is passed downward through an organization. . False
TRUE/FALSE
1. Joint costs occur after the split-off point in a production process
ANS: F DIF: Easy OBJ: 11-1
2. Joint costs occur before the split-off point in a production process
ANS: T DIF: Easy OBJ: 11-1
3. Joint costs are allocated to by-products as well as primary products.
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4. The primary distinction between by-products and scrap is the difference in

sales value.
5. The primary distinction between by-products and scrap is the difference in

volume produced.
6. The point at which individual products are first identifiable in a joint

process is referred to as the split-off point
7. Joint costs include all materials, labor and overhead that are incurred
before the split-off point.
8. Two methods of allocating joint costs to products are physical measure

allocation and monetary allocation.
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9. A decision that must be made at split-off is to sell a product or process it

further.
10. Allocating joint costs based upon a physical measure ignores the revenue-
generating ability of individual products.
ANS: T DIF: Moderate OBJ: 11-4
11. Allocating joint costs based upon a physical measure considers the
revenue-generating ability of individual products.
ANS: F DIF: Moderate OBJ: 11-4
12. Monetary allocation measures recognize the revenue generating ability of

each product in a joint process.
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13. The relative sales value method requires a common physical unit for
measuring the output of each product.
14. Joint costs are allocated to main products, but not to by-products
15. Net realizable value equals product sales revenue at split-off plus any
costs necessary to prepare and dispose of the product.
16. Net realizable value equals product sales revenue at split-off minus any
costs necessary to prepare and dispose of the product.
17. If incremental revenues beyond split-off are less than incremental costs, a
product should be sold at the split-off point.
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18. If incremental revenues beyond split-off exceed incremental costs, a
product should be processed further.
19. The net realizable value approach requires that the net realizable value of
by-products and scrap be treated as a reduction in joint costs allocated to primary
products.
20. Net realizable value is considered to be the best measure of the expected
contribution of each product to the coverage of joint costs.
21. The net realizable value approach is used to account for scrap and by-
products when the net realizable value is insignificant.
22. The net realizable value approach is used to account for scrap and by-
products when the net realizable value is significant.
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23. Under the realized value approach, no value is recognized for by-products
or scrap until they are actually sold.
24. Under the net realizable value approach, no value is recognized for by-
products or scrap until they are actually sold.
25. Not-for-profit entities are required to allocate joint costs among fund-
raising, program, and administrative functions.
COMPLETION
1. A single process in which one product cannot be manufactured without

producing others is referred to as a __________________________.
ANS: joint process
DIF: Easy OBJ: 11-1
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2. Costs that are incurred in the manufacture of two or more products from a
common process are referred to as ___________________________.
ANS: joint costs
DIF: Easy OBJ: 11-1
3. Costs that are incurred after the split-off point in a production process are
referred to as ______________________________.
ANS: separate costs
DIF: Easy OBJ: 11-1
4. Three types of products that result from a joint process are

_______________,______________, and ____________________.
ANS: joint products, byproducts, scrap
DIF: Easy OBJ: 11-1
5. Two incidental products of a joint process are _____________________

and ____________________.
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ANS: by-products; scrap
DIF: Easy OBJ: 11-1
6. The point at which individual products are first identifiable in a joint

process is referred to as the _____________________________.
ANS: split-off point
DIF: Easy OBJ: 11-2
7. Two methods of allocating joint costs to individual products are

______________________ and ___________________________.
ANS: physical measurement allocation; monetary unit allocation
DIF: Moderate OBJ: 11-4
8. Three monetary measures used to allocate joint costs to products are

____________________________, _____________________________________, and
____________________________________________.
ANS: sales value at split-off; net realizable value at split-off; approximated net
realizable value at split-off
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9. Sales revenue at split-off less disposal costs equals

______________________________.
ANS: net realizable value.
DIF: Easy OBJ: 11-4
MULTIPLE CHOICE
1. If a company obtains two salable products from the refining of one ore, the
refining process should be accounted for as a(n)
a. mixed cost process.
b. joint process.
c. extractive process.
d. reduction process.
ANS: B DIF: Easy OBJ: 11-1
2. Joint costs are allocated to joint products to
a. obtain a cost per unit for financial statement purposes.
b. provide accurate management information on production costs of each type of

product.
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c. compute variances from expected costs for each joint product.
d. allow the use of high-low analysis by the company.
ANS: A DIF: Easy OBJ: 11-1
3. Joint costs are allocated to which of the following products?
By-products Scrap
a. yes yes
b. yes no
c. no no
d. no yes
ANS: C DIF: Easy OBJ: 11-1
4. Joint cost allocation is useful for
a. decision making.
b. product costing.
c. control.
d. evaluating managers' performance.
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5. Joint costs are useful for
a. setting the selling price of a product.
b. determining whether to continue producing an item.
c. evaluating management by means of a responsibility reporting system.
d. determining inventory cost for accounting purposes.
ANS: D DIF: Easy OBJ: 11-1
6. Which of the following components of production are allocable as joint

costs when a single manufacturing process produces several salable products?
a. direct material, direct labor, and overhead
b. direct material and direct labor only
c. direct labor and overhead only
d. overhead and direct material only
7. Each of the following is a method to allocate joint costs except
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a. relative sales value.
b. relative net realizable value.
c. relative weight, volume, or linear measure.
d. average unit cost.
8. Joint costs are most frequently allocated based upon relative
a. profitability.
b. conversion costs.
c. prime costs.
d. sales value.
9. When allocating joint process cost based on tons of output, all products
will
a. be salable at split-off.
b. have the same joint cost per ton.
c. have a sales value greater than their costs.
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d. have no disposal costs at the split-off point.
10. If two or more products share a common process before they are
separated, the joint costs should be assigned in a manner that
a. assigns a proportionate amount of the total cost to each product on a quantitative

basis.
b. maximizes total earnings.
c. minimizes variations in unit production costs.
d. does not introduce an element of estimation into the process of accumulating

costs for each product.
11. Scrap is defined as a
a. finished unit of product that has no sales value.
b. residual of the production process that has limited sales value.
c. residual of the production process that can be reworked for sale as an irregular
unit of product.
d. residual of the production process that has no sales value.
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12. Waste created by a production process is
a. accounted for in the same manner as defective units.
b. accounted for as an abnormal loss.
c. material that can be sold as an irregular product.
d. discarded rather than sold.
13. While preparing a salad, you remove the core of a head of lettuce. This
core would be classified as
a. defective.
b. shrinkage.
c. waste.
d. scrap.
14. Which of the following is/are synonyms for joint products?
Main products Co-products
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a. no no
b. yes yes
c. yes no
d. no yes
15. In a lumber mill, which of the following would most likely be considered a
primary product?
a. 2  4 studs
b. sawdust
c. wood chips
d. tree bark
16. Fisher Company produces three products from a joint process. The
products can be sold at split-off or processed further. In deciding whether to sell at split-
off or process further, management should
a. allocate the joint cost to the products based on relative sales value prior to
making the decision.
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b. allocate the joint cost to the products based on a physical quantity measure prior
to making the decision.
c. subtract the joint cost from the total sales value of the products before
determining relative sales value and making the decision.
d. ignore the joint cost in making the decision.
17. By-products are
a. allocated a portion of joint production cost.
b. not sufficient alone, in terms of sales value, for management to justify

undertaking the joint process.
c. also known as scrap.
d. the primary reason management undertook the production process.
18. Which of the following statements is true regarding by-products or scrap?
a. Process costing is the only method that should result in by-products or scrap.
b. Job order costing systems will never have by-products or scrap.
c. Job order costing systems may have instances where by-products or scrap result
from the production process.
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d. Process costing will never have by-products or scrap from the production
process.
ANS: C DIF: Moderate OBJ: 11-5
19. Which of the following has sales value?
By-products Waste
a. no no
b. yes no
c. yes yes
d. no yes
20. Under an acceptable method of costing by-products, inventory costs of the

by-product are based on the portion of the joint production cost allocated to the by-
product
a. but any subsequent processing cost is debited to the cost of the main product.
b. but any subsequent processing cost is debited to revenue of the main product.
c. plus any subsequent processing cost.
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d. minus any subsequent processing cost.
21. Which of the following is a false statement about scrap and by-products?
a. Both by-products and scrap are salable.
b. A by-product has a higher sales value than does scrap.
c. By-products and scrap are the primary reason that management undertakes the
joint process.
d. Both scrap and by-products are incidental outputs to the joint process.
22. The split-off point is the point at which
a. output is first identifiable as individual products.
b. joint costs are allocated to joint products.
c. some products may first be sold.
d. all of the above.
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23. A product may be processed beyond the split-off point if management
believes that
a. its marketability will be enhanced.
b. the incremental cost of further processing will be less than the incremental
revenue of further processing.
c. the joint cost assigned to it is not already greater than its prospective selling
price.
d. both a and b.
24. Which of the following would not be considered a sunk cost?
a. direct material cost
b. direct labor cost
c. joint cost
d. building cost
25. The definition of a sunk cost is
a. a cost that cannot be recovered regardless of what happens.
b. a cost that relates to money poured into the ground.
c. considered the original cost of an item.
d. also known as an opportunity cost
26. The net realizable value approach mandates that the NRV of the by-
products/scrap be treated as
a. an increase in joint costs.
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b. a sunk cost.
c. a reduction of joint costs.
d. a cost that can be ignored totally.
27. The net realizable value approach is normally used when the NRV is
expected to be insignificant significant
a. yes yes
b. no yes
c. no no
d. yes no
28. Approximated net realizable value at split-off for joint products is

computed as
a. selling price at split-off minus further processing and disposal costs.
b. final selling price minus further processing and disposal costs.
c. selling price at split-off minus allocated joint processing costs.
d. final selling price minus a normal profit margin.
ANS: B DIF: Easy OBJ: 11-
29. Which of the following is a commonly used joint cost allocation method?
a. high-low method
b. regression analysis
c. approximated sales value at split-off method
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d. weighted average quantity technique
30. Incremental separate costs are defined as all costs incurred between
___________ and the point of sale.
a. inception
b. split-off point
c. transfer to finished goods inventory
d. point of addition of disposal costs
31. All costs that are incurred between the split-off point and the point of sale
are known as
a. sunk costs.
b. incremental separate costs.
c. joint cost.
d. committed costs.
32. Incremental revenues and costs need to be considered when using which
allocation method?
Physical measures Sales value at split-off
a. yes yes
b. yes no
c. no no
d. no yes
ANS: C DIF: Moderate OBJ: 11-4
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33. The method of pricing by-products/scrap where no value is assigned to
these items until they are sold is known as the
a. net realizable value at split-off point method.
b. sales value at split-off method.
c. realized value approach.
d. approximated net realizable value at split-off method.
ANS C DIF: Moderate OBJ: 11-5
34. Relative sales value at split-off is used to allocate costs beyond split-off
joint costs
a. yes yes
b. yes no
c. no yes
d. no no
35. For purposes of allocating joint costs to joint products using the relative
sales value at split-off method, the costs beyond split-off
a. are allocated in the same manner as the joint costs.
b. are deducted from the relative sales value at split-off.
c. are deducted from the sales value at the point of sale.
d. do not affect the allocation of the joint costs.
36. Not-for-profit organizations are required by the _______ to allocate joint

costs.
a. AICPA
b. FASB
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c. CASB
d. GASB
ANS: A DIF: Difficult OBJ: 11-6
Ratcliff Company
Ratcliff Company produces two products from a joint process: X and Z. Joint processing
costs for this production cycle are $8,000.
Yards
Sales price
per yard at
split-off Disposal
cost per
yard at
split-off
Further
processing
per yard
Final sale
price per
yard
X 1,500 $6.00 $3.50 $1.00 $ 7.50
Z 2,200 9.00 5.00 3.00 11.25
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If X and Z are processed further, no disposal costs will be incurred or such costs will be
borne by the buyer.
37. Refer to Ratcliff Company. Using a physical measure, what amount of joint
processing cost is allocated to X (round to the nearest dollar)?
a. $4,000
b. $4,757
c. $5,500
d. $3,243
ANS: D
1,500/3,700 * $8,000 = $3,243
DIF: Easy OBJ: 11-4
38. Refer to Ratcliff Company. Using a physical measure, what amount of joint
processing cost is allocated to Z (round to the nearest dollar)?
a. $4,000
b. $3,243
c. $5,500
d. $4,757
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ANS: D
2,200/3,700 * $8,000 = $4,757
DIF: Easy OBJ: 11-4
39. Refer to Ratcliff Company. Using sales value at split-off, what amount of
joint processing cost is allocated to X (round to the nearest dollar)?
a. $5,500
b. $2,500
c. $4,000
d. $3,243
ANS: B
Yards Sales price
at Split-off
Total
X 1,500 $6.00 $ 9,000
Y 2,200 $9.00 $19,800
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$28,800
$(9,000/28,800) * $8,000 = $2,500
40. Refer to Ratcliff Company. Using sales value at split-off, what amount of
joint processing cost is allocated to Z (round to the nearest dollar)?
a. $5,500
b. $4,000
c. $2,500
d. $4,757
ANS: A
Yards Sales price
at Split-off
Total
X 1,500 $6.00 $ 9,000
Y 2,200 $9.00 $19,800
$28,800
$(19,800/28,800) * $8,000 = $5,500
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41. Refer to Ratcliff Company. Using net realizable value at split-off, what
amount of joint processing cost is allocated to X (round to the nearest dollar)?
a. $4,000
b. $5,610
c. $2,390
d. $5,500
ANS: C
Yards Sales price
at Split-off Disposal
Cost/Yard NRV/
Splitoff
Total NRV
X 1,500 $6.00 $3.50 $2.50 $ 3,750
Y 2,200 $9.00 $5.00 $4.00 $ 8,800
$12,550
$(3,750/12,550) * $8,000 = $2,390
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42. Refer to Ratcliff Company. Using net realizable value at split-off, what
amount of joint processing cost is allocated to Z (round to the nearest dollar)?
a. $5,500
b. $4,000
c. $2,390
d. $5,610
ANS: D
Yards Sales price
at Split-off Disposal
Cost/Yard NRV/
Splitoff
Total NRV
X 1,500 $6.00 $3.50 $2.50 $ 3,750
Y 2,200 $9.00 $5.00 $4.00 $ 8,800
$12,550
$(8,800/12,550) * $8,000 = $5,610
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43. Refer to Ratcliff Company. Using approximated net realizable value at
split-off, what amount of joint processing cost is allocated to X (round to the nearest
dollar)?
a. $3,090
b. $5,204
c. $4,000
d. $2,390
ANS: A
Yards
Final
Sales Price Separate
Cost per Yard
Net Sales Price
Approximated NRV
X 1,500 $ 7.50 $4.50 $3.00 $ 4,500
Y 2,200 $11.25 $8.50 $3.25 $ 7,150
$11,650
$(4,500/11,650) * $8,000 = $3,090
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44. Refer to Ratcliff Company. Using approximated net realizable value at

split-off, what amount of joint processing cost is allocated to Z (round to the nearest
dollar)?
a. $2,796
b. $4,910
c. $4,000
d. $2,390
ANS: B
Yards
Final
Sales Price Separate
Cost per Yard
Net Sales Price
Approximated NRV
X 1,500 $ 7.50 $4.50 $3.00 $ 4,500
Y 2,200 $11.25 $8.50 $3.25 $ 7,150
$11,650
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$(7,150/11,650) * $8,000 = $4,910
45. Refer to Ratcliff Company. Which products would be processed further?
a. only X
b. only Z
c. both X and Z
d. neither X or Z
ANS: A
Yards
Incremental
Revenues
Incremental
Costs
Net
Difference
X 1,500 $ 1.50 $1.00 $ 0.50
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Y 2,200 $ 2.25 $3.00 $(0.75)
Gordon Company
Gordon Company produces three products: A, B, and C from the same process. Joint
costs for this production run are $2,100.
If the products are processed further, Gordon Company will incur the following disposal
costs upon sale: A, $3.00; B, $2.00; and C, $1.00.
46. Refer to Gordon Company. Using a physical measurement method, what

amount of joint processing cost is allocated to Product A (round to the nearest dollar)?
a. $700
b. $679
c. $927
d. $494
ANS: D
(800/3,400) * $2,100 = $494
DIF: Easy OBJ: 11-4
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47. Refer to Gordon Company. Using a physical measurement method, what
amount of joint processing cost is allocated to Product B (round to the nearest dollar)?
a. $494
b. $679
c. $927
d. $700
ANS: B
(1,100/3,400) * $2,100 = $679
DIF: Easy OBJ: 11-4
48. Refer to Gordon Company. Using sales value at split-off, what amount of
joint processing cost is allocated to Product B (round to the nearest dollar)?
a. $700
b. $416
c. $725
d. $959
ANS: C
Yards Sales price
at Split-off
Total
X 800 $6.50 $ 5,200
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Y 1,100 $8.25 $ 9,075
Z 1,500 $8.00 $12,000
$26,275
$(9,075/26,275) * $2,100 = $725
49. Refer to Gordon Company. Using sales value at split-off, what amount of
joint processing cost is allocated to Product C (round to the nearest dollar)?
a. $959
b. $725
c. $700
d. $416
ANS: A
Yards Sales price
at Split-off
Total
X 800 $6.50 $ 5,200
Y 1,100 $8.25 $ 9,075
Z 1,500 $8.00 $12,000
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$26,275
$(12,000/26,275) * $2,100 = $959
50. Refer to Gordon Company. Using net realizable value at split-off, what
amount of joint processing cost is allocated to Product A (round to the nearest dollar)?
a. $706
b. $951
c. $700
d. $444
ANS: D
Yards
Sales price
at Split-off
Disposal
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Costs at
Split-Off Net Realizable
Value at Splitoff
Total
X 800 $6.50 $3.00 $3.50 $ 2,800
Y 1,100 $8.25 $4.20 $4.05 $ 4,455
Z 1,500 $8.00 $4.00 $4.00 $ 6,000
$13,255
$(2,800/13,255) * $2,100 = $444
51. Refer to Gordon Company. Using net realizable value at split-off, what
amount of joint processing cost is allocated to Product C (round to the nearest dollar)?
a. $706
b. $951
c. $444
d. $700
ANS: B
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Yards
Sales price
at Split-off
Disposal
Costs at
Split-Off Net Realizable
Value at Splitoff
Total
X 800 $6.50 $3.00 $3.50 $ 2,800
Y 1,100 $8.25 $4.20 $4.05 $ 4,455
Z 1,500 $8.00 $4.00 $4.00 $ 6,000
$13,255
$(6,000/13,255) * $2,100 = $951
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Sabrina Company
Sabrina Company is placing an ad in the local paper to advertise its products. The ad
will run for one week at a total cost of $5,500. Sabrina Company has four categories of
products as follows:
% of floor space
occupied Expected sales
value
Hardware 20% $35,000
Hand Tools 15 15,000
Lawn Furniture 45 64,500
Light Fixtures 20 25,500
52. Refer to Sabrina Company. What amount of advertising cost should be

allocated to hardware, assuming Sabrina allocates based on percent of floor space
occupied?
a. $1,375
b. $1,100
c. $2,475
d. $ 825
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ANS: B
$5,500 * 0.20 = $1,100
DIF: Easy OBJ: 11-4
53. Refer to Sabrina Company. Assume that Sabrina decides to allocate

based on expected sales value. What amount of advertising cost should be allocated to
light fixtures (round to the nearest dollar)?
a. $1,375
b. $589
c. $1,002
d. $2,534
ANS: C
$(25,500/140,000) * $5,500 = $1,002
Versatile Company
Versatile Company produces four solvents from the same process: C, D, E, and G. Joint
product costs are $9,000. (Round all answers to the nearest dollar.)
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Barrels
Sales price
per barrel
at split-off Disposal
cost
per barrel
at split-off
Further
processing
costs Final
sales
price
per barrel
C 750 $10.00 $6.50 $2.00 $13.50
D 1,000 8.00 4.00 2.50 10.00
E 1,400 11.00 7.00 4.00 15.50
G 2,000 15.00 9.50 4.50 19.50
If Versatile sells the products after further processing, the following disposal costs will
be incurred: C, $2.50; D, $1.00; E, $3.50; G, $6.00.
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54. Refer to Versatile Company. Using a physical measurement method, what
amount of joint processing cost is allocated to Product D?
a. $1,748
b. $2,447
c. $1,311
d. $3,495
ANS: A
(1,000/5,150) * $9,000 = $1,748

amount of joint processing cost is allocated to Product E?
a. $3,495
b. $2,447
c. $1,748
d. $1,311
ANS: B
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(1,400/5,150) * $9,000 = $2,447

amount of joint processing cost is allocated to Product C?
a. $3,495
b. $2,447
c. $1,748
d. $1,311
ANS: D
(750/5,150) * $9,000 = $1,311

amount of joint processing cost is allocated to Product G?
a. $3,495
b. $2,447
c. $1,748
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d. $1,311
ANS: A
(2,000/5,150) * $9,000 = $3,495
58. Refer to Versatile Company. Using sales value at split-off, what amount of
joint processing cost is allocated to Product D?
a. $4,433
b. $2,276
c. $1,108
d. $1,182
ANS: D
Product
Barrels Sales Price
at Split-Off
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Total
C 750 $10.00 $ 7,500
D 1,000 $ 8.00 $ 8,000
E 1,400 $11.00 $ 15,400
G 2,000 $15.00 $30,000
$60,900
$(8,000/60,900) * $9,000 = $1,182
joint processing cost is allocated to Product C?
a. $4,433
b. $2,276
c. $1,108
d. $1,182
ANS: C
Product
Barrels Sales Price
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at Split-Off
Total
C 750 $10.00 $ 7,500
D 1,000 $ 8.00 $ 8,000
E 1,400 $11.00 $ 15,400
G 2,000 $15.00 $30,000
$60,900
$(7,500/60,900) * $9,000 = $1,108
joint processing cost is allocated to Product G?
a. $4,433
b. $1,182
c. $1,108
d. $2,276
ANS: A
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Product
Barrels Sales Price
at Split-Off
Total
C 750 $10.00 $ 7,500
D 1,000 $ 8.00 $ 8,000
E 1,400 $11.00 $ 15,400
G 2,000 $15.00 $30,000
$60,900
$(30,000/60,900) * $9,000 = $4,433
joint processing cost is allocated to Product E?
a. $4,433
b. $1,182
c. $1,108
d. $2,276
ANS: D
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Product
Barrels Sales Price
at Split-Off
Total
C 750 $10.00 $ 7,500
D 1,000 $ 8.00 $ 8,000
E 1,400 $11.00 $ 15,400
G 2,000 $15.00 $30,000
$60,900
$(15,400/60,900) * $9,000 = $2,276
62. Refer to Versatile Company. Using net realizable value at split-off, what
amount of joint processing cost is allocated to Product C?
a. $1,550
b. $1,017
c. $4,263
d. $2,170
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ANS: B
Product
Barrels
Sales Price
at Split-Off
Disposal Cost at
Split-Off Net Realizable Value at Split-Off
Total
C 750 $10.00 $6.50 $3.50 $ 2,625
D 1,000 $ 8.00 $4.00 $4.00 $ 4,000
E 1,400 $11.00 $7.00 $4.00 $ 5,600
G 2,000 $15.00 $9.50 $5.50 $11,000
$23,225
$(2,625/23,225) * $9,000 = $1,017
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amount of joint processing cost is allocated to Product D?
a. $1,550
b. $1,017
c. $4,263
d. $2,170
ANS: A
Product
Barrels
Sales Price
at Split-Off
Disposal Cost at
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Total
C 750 $10.00 $6.50 $3.50 $ 2,625
D 1,000 $ 8.00 $4.00 $4.00 $ 4,000
E 1,400 $11.00 $7.00 $4.00 $ 5,600
G 2,000 $15.00 $9.50 $5.50 $11,000
$23,225
$(4,000/23,225) * $9,000 = $1,550
amount of joint processing cost is allocated to Product E?
a. $1,017
b. $1,550
c. $2,170
d. $4,263
ANS: C
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Product
Barrels
Sales Price
at Split-Off
Disposal Cost at
Total
C 750 $10.00 $6.50 $3.50 $ 2,625
D 1,000 $ 8.00 $4.00 $4.00 $ 4,000
E 1,400 $11.00 $7.00 $4.00 $ 5,600
G 2,000 $15.00 $9.50 $5.50 $11,000
$23,225
$(5,600/23,225) * $9,000 = $2,170
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amount of joint processing cost is allocated to Product G?
a. $1,017
b. $1,550
c. $2,170
d. $4,263
ANS: D
Product
Barrels
Sales Price
at Split-Off
Disposal Cost at
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Total
C 750 $10.00 $6.50 $3.50 $ 2,625
D 1,000 $ 8.00 $4.00 $4.00 $ 4,000
E 1,400 $11.00 $7.00 $4.00 $ 5,600
G 2,000 $15.00 $9.50 $5.50 $11,000
$23,225
$(11,000/23,225) * $9,000 = $4,263
Uniflo Company
Uniflo Company produces three products from the same process that has joint
processing costs of $4,100. Products R, S, and T are produced in the following
quantities: 250 gallons, 400 gallons, and 750 gallons. Uniflo Company also incurred
advertising costs of $60,000. The ad was used to run sales for all three products. The
three products occupy floor space in the following ratio: 5:4:9. (Round all answers to the
nearest dollar.)
66. Refer to Uniflo Company. Using gallons as the physical measurement,

what amount of joint processing cost is allocated to Product R?
a. $2,196
b. $1,171
c. $1,367
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d. $ 732
ANS: D
(250/1,400) * $4,100 = $732
DIF: Easy OBJ: 11-4

what amount of joint processing cost is allocated to Product S?
a. $2,196
b. $1,171
c. $1,367
d. $ 732
ANS: B
(400/1,400) * $4,100 = $1,171
DIF: Easy OBJ: 11-4
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what amount of joint processing cost is allocated to Product T?
a. $2,196
b. $732
c. $1,367
d. $1,171
ANS: A
(750/1,400) * $4,100 = $2,196
DIF: Easy OBJ: 11-4
69. Refer to Uniflo Company. Assume that Uniflo chooses to allocate its
advertising cost among the three products. What amount of advertising cost is allocated
to Product R using the floor space ratio?
a. $30,000
b. $17,806
c. $1,139
d. $16,667
ANS: D
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$60,000 * 5/18 = $16,667
DIF: Easy OBJ: 11-4
to Product S using the floor space ratio?
a. $911
b. $14,244
c. $13,333
d. $30,000
ANS: C
4/18 * $60,000 = $13,333
DIF: Easy OBJ: 11-4
to Product T using the floor space ratio?
a. $911
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b. $14,244
c. $13,333
d. $30,000
ANS: D
9/18 * $60,000 = $30,000
DIF: Easy OBJ: 11-4
72. Courtney Company manufactures products A and B from a joint process.

Sales value at split-off was $700,000 for 10,000 units of A, and $300,000 for 15,000
units of B. Using the sales value at split-off approach, joint costs properly allocated to A
were $140,000. Total joint costs were
a. $ 98,000.
b. $200,000.
c. $233,333.
d. $350,000.
ANS: B
$(700,000/1,000,000) * X = $140,000
.70X = $140,000
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X = $200,000
DIF: Easy OBJ: 11-4
Whalen Company manufactures products X and Y from a joint process that also yields a
by-product, Z. Revenue from sales of Z is treated as a reduction of joint costs.
Additional information is as follows:
Products
X Y Z Total
Units produced 20,000 20,000 10,000 50,000
Joint costs ? ? ? $262,000
Sales value at
split-off $300,000 $150,000 $10,000 $460,000
Joint costs were allocated using the sales value at split-off approach.
73. Refer to Whalen Company. The joint costs allocated to product X were
a. $ 84,000
b. $100,800.
c. $150,000.
d. $168,000.
-COST of Death-
ANS: D
$262,000 * $(300,000/450,000) = $174,667 preliminary allocation to Product X
$10,000 * $(300,000/450,000) = $6,667 reduction in joint cost from sales of Product Z
$(174,667 - 6,667) = $168,000
DIF: Easy OBJ: 11-5
74. Refer to Whalen Company. The joint costs allocated to product Y were
a. $ 84,000
b. $100,800.
c. $150,000.
d. $168,000.
ANS: A
$262,000 * $(150,000/450,000) = $87,333 preliminary allocation to Product X
$10,000 * $(150,000/450,000) = $3,333 reduction in joint cost from sales of Product Z
$(87,333 - 3,333) = $84,000
DIF: Easy OBJ: 11-5
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75. In joint-product costing and analysis, which of the following costs is
relevant in the decision when a product should be sold to maximize profits?
a. Separable costs after the split-off point
b. Joint costs to the split-off point
c. Sales salaries for the production period
d. Costs of raw materials purchased for the joint process.
Tropical Company
Tropical Company manufactures three products in a joint process which costs $25,000.
Each product can be sold at split-off or processed further and then sold. 10,000 units of
each product are manufactured. The following information is available for the three
products:
Product Sales Value
at Split-off Separable Processing
Costs after Split-off
Sales Value
at Completion
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A $12 $9 $21
B 10 4 17
C 15 6 19
76. Refer to Tropical Company. If Product A is processed beyond the split-off

point, profit will:
a. increase by $210,000 c. increase by $ 90,000
b. increase by $120,000 d. remain unchanged
ANS: D
Increase in value: $9 per unit
Separable processing costs: $9 per unit
No increase in profit
DIF: Easy OBJ: 11-4
77. Refer to Tropical Company. To maximize profits, which products should

Tropical process further?
a. Product A only c. Product C only
b. Product B only d. Products A, B, and C
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ANS: B
Product
Incremental
Revenues Separable Processing
Costs after Split-off
Incremental
profit Increase
A $9 $9 $0
B 7 4 3
C 4 6 (2)
SHORT ANSWER
1. Briefly discuss the four decisions that management must make concerning
joint processes.
ANS:
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The four decisions that managers must make regarding joint processes are as follows.
They must try to determine what joint costs, selling costs, and separate processing
costs are expected to occur when certain products are manufactured. Next,
management must decide on the best use of resources that are available. Managers
must next classify, as joint products and/or by-products/scrap, the output of production.
The last decision that must be made is whether some or all of the products will be
processed further or sold at split-off. This decision is made based on the incremental
costs that would be incurred to process further and the incremental revenue if
processed further. Joint production costs are irrelevant to this decision.
2. Briefly discuss the six steps in the allocation process.
ANS:
The six steps are as follows:
1. Choose the basis on which to allocate joint cost.
2. List all values that comprise the basis.
3. Add up all the values in the list (#2).
4. Determine the percentage of the total each item in #2 is.
5. Multiply the percentage by the cost being allocated.
6. For valuation purposes, divide the prorated cost by equivalent units of

production.
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3. Discuss briefly the three monetary measurement techniques of joint cost
allocation.
ANS:
The sales value at split-off method assigns costs based only on the weighted
proportions of the total sales values of the joint products without consideration of
disposal costs at the split-off point. To use this method, all products must be salable at
the split-off point. The net realizable value method assigns costs based on the product's
proportional net realizable value at the split-off point. Net realizable value is equal to
product sales revenue at split-off minus any costs necessary to prepare and dispose of
the product.
Approximated net realizable value at split-off method requires that a simulated net
realizable value at split-off be calculated. This is equal to final sales price minus
incremental separate costs. Incremental separate costs refer to all costs that are
incurred between split-off and the point of sale.
4. Briefly discuss the restrictions and requirements on service organizations

and not for-profits that relate to joint cost allocation.
ANS:
Service and not-for-profit organizations incur costs that may be considered joint in
nature, such as advertising and printing of multipurpose documents. Service
organizations are not required to allocate these costs to the items worked on, delivered,
or advertised but may choose to do so for a better matching of revenues and expenses.
Not-for-profits are required by the AICPA to allocate these costs among the activities of
fundraising, accomplishing an organizational program, or conducting an administrative
function.
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5. Briefly discuss the net realizable value at split-off point method of

allocating joint costs.
ANS:
The net realizable value at split-off method assigns joint costs based on each product's
proportional NRV at the split-off point. NRV is equal to sales price minus costs that are
necessary to prepare and dispose of the product. To use this method, all products must
be salable at the split-off point.
6. Why is the net realizable value of scrap used to lower estimated overhead
costs in setting a predetermined overhead rate in a job order costing situation in which
scrap is expected on most jobs?
ANS:
The net realizable value of scrap is used in this way because the amount received from
the sale of scrap is considered to be a reduction of the total cost incurred in the
production process. This process is similar to the treatment of sales values of assets
purchased and then sold in a "basket" of goods. The estimated cost of scrap is used in
setting overhead rates; therefore, when the scrap is sold the amount received should be
a reduction of total overhead.
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PROBLEM
Wallace Company
Wallace Company produces only two products and incurs joint processing costs that
total $3,750. Products Alpha and Beta are produced in the following quantities during
each month: 4,500 and 6,000 gallons, respectively. Wallace Company also runs one ad
each month that advertises both products at a cost of $1,500. The selling price per
gallon for the two products are $20 and $17.50, respectively.
1. Refer to Wallace Company. What amount of joint processing costs is

allocated to each product based on gallons produced?
ANS:
A = 4,500/10,500  $3,750 = $1,607
I = 6,000/10,500  $3,750 = $2,143
DIF: Easy OBJ: 11-4
2. Refer to Wallace Company. What amount of advertising cost is allocated

to each product based on sales value?
ANS:
A = 4,500  $20.00 = $ 90,000/$195,000  $1,500 = $692
I = 6,000  $17.50 = 105,000/$195,000  $1,500 = $808
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$195,000
Wyman Company
Wyman Company produces three products from the same process and incurs joint
processing costs of $3,000.
Gallons
Sales price
per gallon
at split-off Disposal
cost per
gallon at
split-off
Further
processing
costs
Final sales
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price per
gallon
M 2,300 $ 4.50 $1.25 $1.00 $ 7.00
N 1,100 6.00 3.00 2.00 10.00
Q 500 10.00 8.00 2.00 15.00
Disposal costs for the products if they are processed further are:
M, $3.00; N, $5.50; Q, $1.00.
3. Refer to Wyman Company. What amount of joint processing cost is

allocated to the three products using sales value at split-off?
ANS:
M = 2,300  $ 4.50 = $10,350/$21,950  $3,000 = $1,415
N = 1,100  $ 6.00 = $ 6,600/$21,950  $3,000 = $902
Q = 500  $10.00 = $ 5,000/$21,950  $3,000 = $683
$21,950
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4. Refer to Wyman Company. What amount of joint processing cost is
allocated to the three products using net realizable value at split-off?
ANS:
Sales price minus disposal cost*
$4.50 - $1.25 = $3.25
$6.00 - $3.00 = 3.00
$10.00 - $8.00 = 2.00
M = 2,300  $ 3.25* = $ 7,475/$11,775  $3,000 = $1,904
N = 1,100  $ 3.00* = $ 3,300/$11,775  $3,000 = $ 841
Q = 500  $ 2.00* =$ 1,000/$11,775  $3,000 = $ 255
$11,775
5. Gable Company produces two main products jointly, A and B, and C,

which is a by-product of B. A and B are produced form the same raw material. C is
manufactured from the residue of the process creating B.
Costs before separation are apportioned between the two main products by the net
realizable value method. The net revenue realized from the sale of C is deducted from
the cost of B. Data for April were as follows:
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Costs before separation $200,000
Costs after separation:
A 50,000
B 32,000
C 4,000
Production for April, in pounds:
A 800,000
B 200,000
C 20,000
Sales for April:
A 640,000 pounds @ $.4375
B 180,000 pounds @ .65
C 20,000 pounds @ .30
Required: Determine the gross profit for April.
ANS:
NRV C REVENUE 20,000  .30 = $6,000
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COST (4,000)
NRV$2,000
NRV:
A (800,000  $.4375) = $350,000 - $50,000 = $300,000
B (200,000  $.65) = $130,000 - ($32,000 - $2,000) = 100,000
$400,000
ALLOCATION:
A ($300,000/$400,000  $200,000 = $150,000
B ($100,000/$400,000  $200,000 = 50,000
UNIT COST:
A ($150,000 + $50,000)/800,000 = $ .25
B ($50,000 + $30,000)/200,000 = $ .40
GROSS PROFIT:
A ($ .4375 - $.25)  640,000 = $120,000
B ($ .65 - $.40)  180,000 = 45,000
$165,000
DIF: Difficult OBJ: 11-4
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6. Leigh Manufacturers produces three products from a common
manufacturing process. The total joint cost of producing 2,000 pounds of Product A;
1,000 pounds of Product B; and 1,000 pounds of Product C is $7,500. Selling price per
pound of the three products are $15 for Product A; $10 for Product B; and $5 for
Product C. Joint cost is allocated using the sales value method.
Required:
a. Compute the unit cost of Product A if all three products are main products.
b. Compute the unit cost of Product A if Products A and B are main products and
Product C is a by-product for which the cost reduction method is used.
ANS:
a. SALES VALUE UNIT COST
A 2,000  $15 = $30,000/$45,000  $7,500 = $5,000/2,000 =

$2.50
B 1,000  $10 = $10,000/$45,000  $7,500 = $1,667/1,000 =

$1.67
C 1,000  $5 = $ 5,000/$45,000  $7,500 = $ 833/1,000 = $ .83
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$45,000 $7,500
b. TO ALLOCATE: $7,500 - $5,000 = $2,500
SALES VALUE UNIT COST
A 2,000  $15 = $30,000/$40,000  $2,500 = $1,875/2,000 =

$.9375
B 1,000  $10 = $10,000/$40,000  $2,500 = $ 625/1,000 =

$.625
$40,000 $2,500
DIF: Easy OBJ: 11-4
7. Butler Manufacturing Company makes three products: A and B are

considered main products and C a by-product.
Production and sales for the year were:
220,000 lbs. of Product A, salable at $6.00
180,000 lbs. of Product B, salable at $3.00
50,000 lbs. of Product C, salable at $.90
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Production costs for the year:
Joint costs $276,600
Costs after separation:
Product A 320,000
Product B 190,000
Product C 6,900
Required: Using the by-product revenue as a cost reduction and net realizable value
method of assigning joint costs, compute unit costs (a) if C is a by-product of the
process and (b) if C is a by-product of B.
ANS: a. JOINT COST $276,600
- NRV C (38,100) (50,000 - $.90) - $ 6,900
TO ALLOCATE $238,500
SALES VALUE - COST AFTER SEPARATION = NRV
220,000  $6 = $1,320,000 - $320,000 = $1,000,000
180,000  $3 = $ 540,000 - $190,000 = 350,000
$1,350,000
ALLOCATION
$1,000,000/$1,350,000  $238,500 = $176,667
$ 350,000/$1,350,000  $238,500 = 61,833
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$238,500
UNIT COST:
A ($176,667 + $320,000)/220,000 = $2.26
B ($61,833 + $190,000)/180,000 = $1.40
b. NRV
A $1,000,000 = $1,000,000/$1,388,100  $276,600 = $199,265
B $350,000 + $38,100 = 388,100/$1,388,100  $276,600 = $ 77,335
$1,388,100
UNIT COST
A ($199,265 + $320,000)/220,000 = $2.36
B ($77,335 + $151,900)/180,000 = $1.27
8. McQueen Company processes raw material in Department 1 from which

come two main products, A and B, and a by-product, C. A is further processed in
Department 2, B in Department 3, and C in Department 4. The value of the by-product
reduces the cost of the main products, and sales value is used to allocate joint costs.
Dept 1Dept 2Dept 3Dept 4
Cost Incurred: $90,000 $10,000 $8,000 $10,000
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Production:
A 10,000 lbs.
B 20,000 lbs.
C 10,000 lbs.
Selling Price:
A $10/lb.
B $5/lb.
C $2/lb.
Required:
a. Compute unit costs for A and B.
b. Ending inventory consists of 5,000 lbs. of B and 1,000 lbs. of C. What is the
value of the inventory?
c. Recompute a and b allocating cost based on net realizable value.
ANS:
a. JOINT COST$90,000
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- SALES VALUE (20,000) (10,000  $2)
$70,000
SALES VALUE
A 10,000  $10 = $100,000/$200,000  $70,000 = $35,000
B 20,000  $ 5 = 100,000/$200,000  $70,000 = $35,000
$200,000
UNIT COST
A ($35,000 + $10,000)/10,000 = $4.50
B ($35,000 + $8,000)/20,000 = $2.15
b. ENDING INVENTORY
B 5,000  $2.15 = $10,750
C 1,000  $2.00 = 2,000
$12,750
c. NRV
A $100,000 - $10,000 = $ 90,000/$182,000  $70,000 = $34,615
B $100,000 - $8,000 = 92,000/$182,000  $70,000 = 35,385
$182,000 $70,000
UNIT COST
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A ($34,615 + $10,000)/10,000 = $4.46
B ($35,385 + $8,000)/20,000 = $2.17
ENDING INVENTORY
B 5,000  $2.17 = $10,850
C 1,000  $2.00 = 2,000
$12,850
9. Gibson Corporation manufactures three identifiable product lines,

Products A, B, and C, from a basic processing operation. The cost of the basic
operation is $320,000 for a yield of 5,000 tons of Product A; 2,000 tons of Product B;
and 1,000 tons of Product C. The basic processing cost is allocated to the product lines
in proportion to the relative weight produced.
Gibson Corporation does both the basic processing work and the further refinement of
the three product lines. After the basic operation, the products can be sold at the
following prices per metric ton:
Product A—$60
Product B—$53
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Product C—$35
Costs to refine each of the three product lines follow:
Product Lines
A B C
Variable cost per metric ton $8 $7 $4
Total fixed cost $20,000 $16,000 $6,000
The fixed cost of the refining operation will not be incurred if the product line is not
refined.
The refined products can be sold at the following prices per metric ton:
Product A—$75
Product B—$65
Product C—$40
Required:
a. Determine the total unit cost of each product line in a refined state.
b. Which of the three product lines, if any, should be refined and which should be
sold after the basic processing operation? Show computations.
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ANS:
WT ALLOCATION
a. A 5,000 5,000/8,000  $320,000 = $200,000
B 2,000 2,000/8,000  $320,000 = 80,000
C 1,000 1,000/8,000  $320,000 = 40,000
8,000 $320,000
UNIT COST
A ($200,000 + $20,000)/5,000 + $8 = $52
B ($80,000 + $16,000)/2,000 + $7 =$55
C ($40000 + $6,000)/1,000 + $4 = $50
b. CHANGE IN REVENUE - CHANGE IN COST = CHANGE IN PROFIT
A $75-$60 = $15 - ($20,000/5,000) + $8 = + $3
B $65-$53 = $12 - ($16,000/2,000) + $7 = – $3
C $40-$35 = $5 - ($6,000/1,000) + $4 = – $5
Therefore, process only Product A.
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10. Reed Company produced three joint products at a joint cost of $100,000.
These products were processed further and sold as follows:
Product Sales Additional Processing Costs
A $245,000 $200,000
B 330,000 300,000
C 175,000 100,000
The company has had an opportunity to sell at split-off directly to other processors. If
that alternative had been selected, sales would have been: A, $56,000; B, $28,000; and
C, $56,000.
The company expects to operate at the same level of production and sales in the
forthcoming year.
Required: Consider all the available information and assume that all costs incurred
after split-off are variable.
a. Could the company increase net income by altering its processing decisions? If
so, what would be the expected overall net income?
b. Which products should be processed further and which should be sold at split-
off?
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ANS:
a. Currently NI is Sales $750,000
Additional Processing Costs (600,000)
$150,000
- JC (100,000)
$ 50,000
NI can be increased by $11,000 if A is not processed.
A B C
b.  Sales $189,000 $302,000 $119,000
-  Cost (200,000) (300,000) (100,000)
NI/(LOSS) $(11,000) $ 2,000 $ 19,000
DIF: Easy OBJ: 11-4
1. An favorable labor efficiency variance is the:
- Number of actual hours worked below the standard hours allowed multiplied by the
standard labor rate
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2. In a four-variance method analyzing factory overhead, the variable factory overhead
efficiency variance measures:
- The difference between budgeted fixed factory overhead and the amount of fixed
factory overhead to production
3. A manufacturer generally wants to set a standard that:
- Is high enough to provide motivation and promote efficiency, but still attainable.
4. The actual hourly rate paid above or below the standard hourly rate, multiplied by the
actual number of hours worked is the:
- Labor rate variance
5. 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 production-volume variance will be:
- Zero
6. An unfavourable labor efficiency variance is the:
- Number of actual hours worked in excess of the standard hours allowed multiplied by
the standard labor rate
7. What is the normal year-end treatment of immaterial variances recognized in a cost

accounting system utilizing standards?
- Closed to cost of goods sold in the period in which they arose
8. Factors to be considered in setting materials standards include all of the following

except:
- Time necessary to assemble parts
9. 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?
- Qty. – Unfavorable; Price-Favorable
10. The purpose of standard costing is to:
- Control costs and promote efficiency
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11. The following information------ the Braun Company for ---- Using four – variance
method of factory overhead variance analysis, what is the variable overhead spending
variance?
- $1,200 unfavorable
12. Compute the materials price variance.
- $36,000
13. Andrews Corporation purchased 3,000 gallons 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, what is the materials purchase price variance?
- $200
14. Baker Company has a standard flexible budgeting system and uses a two-variance
analysis of factory overhead. Selected data for the June production activity follows:------
The flexible budget variance for June is:
15. The direct labor costs for ---- Company follow: ----- What was Boundary’s actual
direct labor rate?
- $12.00
16. Thomas Company uses a standard cost system. Information ------- materials for
Product RBI for the month of October follows:----------- What is the material price
variance?
- $600 favorable
17. Alyssa Corporation uses a standard cost system. Direct labor information for
Product CER for the month of October is as follows: ------------------ The labor rate
variance is:
- 1,500 unfavorable
18. Information relating to direct ------- for Brussels, Inc. Follow: ---------------- The labor
efficiency variance is:
- $1,100 favorable
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19. Assuming that Aragula uses a three-variance analysis of overhead variances =,
what is the production-volume variance?
- $500 unfavourable
20. What was Monroe’s production-volume variance for April?
- $4,250 favorable
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 net factory overhead variance?
- $4,500 favorable
21. Information relating to direct labor for Brussels, Inc follows:
- Actual direct labor hours 8,100
- Standard direct labor hours 8,200
- Total direct labor per payroll $101,000
- Standard lanor rate per hour $11.00
The labor efficiency variance is:
- 1,100 favorable
PROBLEM
An employee regularly earns $12 per hour for an 8-hour day with time-and-a-half for
overtime hours. Assuming that the employee works a 12-hour day, the total amount of
overtime premium is: $24
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Under a modified wage plan, an employee working an eight-hour day earns $.50 for
each finished unit and is guaranteed $20 per hour as a minimum wage. At what level
should the daily quota be set? 320 units
Joel Williams works at Allentown Company where he assembles components for small
appliances and earns $6 per hour ----------------The amount of Joel’s wages that will be
charged to Factory Overhead assuming the overtime is due to client’s request to
specific job: $128
Western Industries pays employees on a weekly basis on Tuesday for the week ended
the previous Friday.-----------------------------Excluding payroll taxes, how much of the
accrued payroll at April 30 should be charged to Work in process assuming that the
overtime premium should be charged to specific job? $26,000
John Elton, who is classified as direct labor, earns $1,000 per week and is entitled to
three weeks of vacation and 5 holidays each year. How much should be accrued for his
holiday pay each week? $20,41
At the end of the year, Jenkins Corporation had $120,000 in the Factory Overhead
account and applied factory overhead of $100,000. Mark Gibbs, the controller, has
decided that the difference is to large to close Cost of Goods Sold. Work in process
inventories were $30,000, finished goods inventories were $60,000 and cost of goods
sold during the year was $210,000. How should the entry to dispose of the difference in
overhead incurred and overhead applied affect Cost of Goods Sold? $14,000 debit
Job 607 was recently completed. The following data have been recorded on its job cost
sheet:-------------------- The company applies manufacturing overhead on the basis of
machine-hours. The predetermined overhead rate is $14 per machine-hour. The total
cost that would be recorded on the job cost sheet for Job 607 would be: $6,319
Dale Company, which applies overhead at the rate of 190% of direct labor cost, began
work on job no. 101 during June. The job was completed in July and sold during August,
having accumulated direct material and labor charges of $27,000 and $15,000,
respectively. On the basis of this information, the total overhead applied to job no. 101
amounted to: $28,500
Wiggins Company’s flexible budget for 25,000 units shows $75,000 and $25,000 in
variable and fixed costs, respectively. At 35,000 units the flexible budget would show:
Variable costs of $105,000 and fixed costs of $25,000
The Gerald Company budgeted overhead ad $480,000 for the period for Department A
based on a budgeted volume of 60,000 direct labor hours. At the end of the period, the
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factory overhead control account for Department A had a debit balance of $475,000;
actual
direct labor hours were 58,000. What was the under- or over applied factory overhead
for the period? $11,000 underapplied
The fixed costs per unit are $10 when a company produces 10,000 units of product.
What are the fixed costs per unit when 12,500 units are produced? $8
The Work in Process inventory account of a manufacturing company shows a balance

of $2,400 at the end of an accounting period. The job cost sheets of the two
uncompleted jobs show charges of $400 and $200 for direct materials, and charges of
$300 and $500 for direct labor. From this information, it appears that the company is
using a predetermined overhead rate, as a percentage------ direct labor costs, of 125%
Simon uses a predetermined overhead application rate of $8 per direct labor hour. A
review of the company’s accounting records for the year just ended discovered the
following--------------- Simon’s actual labor hours worked totalled: 49,100
The Lorenzo Printing Company-------------------- Assuming that Lucas elects to distribute

service department costs to production departments using the direct distribution
method, the amount of human resources department costs that would be allocated to
the printing department would be (round all final calculations to the nearest dollar):
$16,000
Meger Manufacturing uses the direct labor cost method for applying factory overhead to
production. The budgeted direct labor cost and factory overhead for the previous fiscal
year were $1,000,000 and $700,000, respectively. Actual direct labor cost and factory
overhead were $1,100,00 and $825,000, respectively. What was Meger’s
predetermined factory overhead rate? 70.0%
1.How should idle time be accounted for? It should be recorded along with the reason
for it, and charged to Factory Overhead.
2. In job order costing, payroll taxes paid by the employer for the factory employees are
commonly accounted for as Manufacturing overhead cost
3. Jay Vato works at Batwing Industries from midnight until 8:00 AM. His normal wage
rate is $17 per hour, while Ben Phillips, who does the same job from 8:00 AM until 4:00
PM makes $15 per hour. Since BEN and Jay have the same seniority within the plant,
the difference in pay is due to a(n): Shift premium
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4. What is the purpose of the ----- journal entry? DR Payroll CR FICA Taxes Payable
CR Employee Income Tax Payable CR Wages Payable To record payroll for the period
5. Wages of the following personnel would be classified as direct labor except the:
Salesman
6. If a company uses a factory overhead ledger, at the end of the month, an accountant
should: Total the accounts in the factory overhead ledger and compare the total to the
balance in the Factory Overhead control account.
7. The number of workers in the departments served would most likely be the basis for
distributing the cost of which service department? Human Resources
8. Which of the following is not true about production departments? The cost of
production departments should be distributed to other production departments that
benefit from their operations.
9. Which of the following describes a part of the step method of allocation? All services
between intermediate cost centers are simultaneously allocated to final cost centers.
10. Cooper Company had underapplied Factory Overhead of $2,000 last year.
Assuming the amount was considered small enough not to materially distort net income,
the entries needed to close factory overhead will include: A debit to Cost of Goods Sold
for 2,000
11. To successfully employ an ABC system, a company must first identify: Non-volume
related activities in the factory that create costs.
12. Which of the following costs would be included in factory overhead in the
manufacture of a student’s desk? The wages of the forklift operator who moves desks
from one manufacturing station to the next.
13. When a manufacturing company has a highly automated manufacturing plant, what
is probably the most appropriate basis of applying factory overhead costs to work in
process? Machine hours
14. The report that is prepared after the posting is completed at the end of the
accounting period shows the items of expense by department and in total, and is used
to prove the balance of the Factory overhead Control account is the: Summary of
Factory Overhead
15. In a factory, all of the following would be considered service departments except:
Assembly
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16. Overapplied overhead will always result when a predetermined factory overhead
rate is employed and: Overhead incurred is more than overhead applied.
17. The number of workers in the departments served would most likely be the basis for
distributing the cost of which service department? Human resources
18. All of the following are examples of factory overhead costs that benefits the entire
factory would therefore be difficult to identify with a specific department except: Machine
depreciation
19. Underapplied overhead resulting from unanticipated and immaterial price increases
for overhead items should be written off by Increasing Cost of Goods Sold
20. The method of distributing service department costs to production departments

which makes no attempt to determine the extent to which one service department
renders its services to another department is the: Direct distribution method
1st and 2nd Quiz - Acctg 1206 - Ch1 (PART 1 - Theory and short problem)
Nonmanufacturing costs consist of selling costs and administrative costs. True
Direct material cost is a part of conversion cost. False
Although depreciation is always a period cost in a merchandising firm, it can be a

product cost in a manufacturing firm. True
Cost accounting provides historical cost information that is used as the basis for
planning and control. True
Not all material costs would be considered as direct materials. True
All selling and administrative costs are period costs. True
Advertising is a product cost as long as it promotes specific products. False
Cleaning solvent for the factory floor may be classified as manufacturing overhead,
product cost and prime cost. False
When manufacturing overhead is charged to a job, the work in process account is

debited. True
The variable cost per unit is constant and does not depend on how many units are
produced. True
The perpetual inventory method cannot be used in a job order cost system. False
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A company that manufactures custom bridal gowns will use a process costing system to
track costs. False
A company may use either a job order cost system or a process cost system, but not
both. False
When raw materials are purchased, the Work in Process Inventory account is
debited. FalseY
In a job order cost system, each entry to the Work In Process Inventory account should
be accompanied by a posting to one or more job cost sheets. True
Total manufacturing costs for a period consists of the costs of direct material used, the
cost of direct labor incurred, and the manufacturing overhead applied during the
period. True
A fixed cost is constant per unit of product. False
Prime costs plus conversion costs equals the total manufacturing cost. False
Cost accounting principles and procedures apply only to manufacturing companies, but
not to merchandising and service businesses. False
When goods are sold, the Cost of Goods Sold account is debited and the Work in
Process Inventory account is credited. False
The stock card contains an account for each material used in the manufacturing
process. Each account shows the number of units on hand and their cost. True
Under investment control there must be limited access and segregation of duties. False
The revenue from scrap sales should be credited to income account all the time. False
An effective system of cost control is designed to control the actions of people

responsible for the expenditures because costs control themselves. False
Factory overhead account is debited for indirect materials issued to production even
under backflush costing. False
The point at which an item should be ordered is called economic order quantity. False
For materials returned to vendors the books of original entry is the general ledger. False
account there is shortage. False
Storing materials in the storeroom is an example of a non-value added activity. True
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Spoiled units may be corrected, and sold at the price of good units. False
When the scrap value is small, no entry is required even if the scrap is sold due to
immateriality. False
In backflush accounting, direct materials is usually insignificant in a highly automated

system, so is not cost effective to account for it separately. False
The received columns in the stock cards are used every time purchases are made. True
Cost flows and physical flows of units are identical. False
company vary with the nature of operations and the organizational structure. True
Cost accounting differs from financial accounting in that financial accounting: Is mostly
concerned with external financial reporting.
For a manufacturer, the total cost of manufactured goods completed but still on hand is:
Finished Goods.
Taylor Logan is an accountant with the Tanner Corporation. Taylor’s duties include

preparing reports that focus on both historical and estimated data needed to conduct
ongoing operations and do long-range planning. Taylor is a(n) management accountant
In the financial statements, Materials should be categorized as: Assets
Unit cost information is important for making all of the following marketing
decisions except: Determining the amount to spend on social media to promote the
product.
Fixed overhead cost includes all of the following except: Depreciation on machinery

computed based on the units of production basis.
The primary accounting document in a job order costing system is a(n) job order cost
sheet.
For a manufacturer, manufacturing costs incurred to date for goods in various stages of
production, but not yet completed is: Work in Process.
The wages of which of the following employees would not be included in the product
cost for a manufacturer of custom-built home cooking appliances? shipping clerk
An industry that would most likely use process costing procedures is: Beverage
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What is the best cost accumulation procedure to use when many batches, each
differing as to product specifications, are produced? job order
In a perpetual inventory system, a transaction that requires two journal entries (or one
compound entry) is needed when goods are sold for either cash or on account
According to the Institute of Management Accountants (IMA) Statement of Ethical

Professional Practice, performing professional duties in accordance with relevant laws,
regulations and technical standards is a component of which standard? Competence
In a job order costing system, the subsidiary ledger for Finished Goods Inventory is
comprised of job order cost sheets for all completed jobs not yet sold.
Which of the following is most likely to be considered an indirect material in the

manufacture of a sofa? Glue
Which of the following costs would be least likely to appear on a responsibility

accounting report for the supervisor of an assembly line in a large manufacturing
situation? Supervisor's salary
Variable overhead costs include all of the following except: Rental of factory building.
Factory overhead does not include the costs of production line labor.
Effective control of a company's operations is achieved through all of the

following except: constantly monitoring employees to ensure they do exactly as they
are told.
A credit to Work in Process Inventory represents the transfer of completed items to

Finished Goods Inventory
At a certain level of operations, per unit costs and selling price are as
follows: manufacturing costs, $50; selling and administrative expenses, $10; selling
price, $80. Given this information, the mark-on percentage to manufacturing cost used
to determine selling price must have been: 60
The following data have been provided by a company:
Inventories Balance (Dec. 1) Balance (Dec. 30)
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Raw materials 4,000 3,000
Work in process 12,000 15,000
Finished goods 24,000 27,000
Compute the amount of materials used if $20,000 in raw materials were purchased
during the month. 21,000
The following data are from Levi Company, a manufacturer, for the month of January:
Machine operators’ wages $110,000
Supervisors’ salaries 3,000
Factory insurance 7,500
Secretary to the Chief Executive Officer salary 1,500
Machine depreciation 17,500
Sales office rent and utilities 11,000
Direct materials used 67,500
Total conversion costs are: 138,000
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The Shiplett Company’s payroll summary showed the following in November:
Supervisors’ salaries $50,000
Legal department salaries 10,000
Maintenance workers’ wages 30,000
Machine operators’ wages 70,000
Assembly workers’ wages 50,000
Sales department salaries 20,000
What is total factory overhead for November? 80,000
Safe Company produced 20,000 blankets in June to be sold during the holiday
season. The manufacturing costs were:
Direct labor 55,000
Factory overhead 60,000
Management 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: answer is 15.60. selling price. unit cost
+ 30% mark up
Midterm Examination I
Marley Company hired a consultant to help improve its operations. The consultant’s

report stated that Marley’s inventory levels are excessive and cited several negative
consequences to Marley as a result. Which of the following consequences
was not cited in the report? Production stoppages due to parts not being available
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Under a backflush accounting system, the following entry is made when products are
completed: Debit-Finished Goods Credit-Raw and In Process Credit-
Conversion Costs
After the completion of production, standard and actual costs are compared to
determine the ______________ of the production process. Efficiency
A law firm wanting to track the costs of serving different clients may use a: job order
cost system.
The cost sheets for incomplete jobs at the end of the period comprise the subsidiary
ledger for Work in Process Inventory.
The logical explanation for an entry that includes a debit to Manufacturing Overhead
control and a credit to Prepaid Insurance is insurance for production equipment
expired.
Expense A is a fixed cost; expense B is a variable cost. During the current year the
activity level has increased, but is still within the relevant range. In terms of cost per
unit of activity, we would expect that: expense A has decreased
If the amount of materials on hand at the end of the period is less than the control
account balance, the control account balance should be decreased by the following
entry: Debit - Factory Overhead Credit - Materials
Total manufacturing costs for the year plus beginning Work in Process Inventory cost
equals total manufacturing costs to account for
Shrinkage of product should be treated as spoiled units.
The inventory method which results in the most recent cost being assigned to cost of
goods sold is: Last-in, first-out.
The journal entry to apply overhead to production includes a credit to Manufacturing

Overhead control and a debit to Work in Process Inventory
A unit that is rejected at a quality control inspection point, but that can be reworked and
sold, is defective unit
All of the following are true about materials control personnel, except: The storeroom
keeper, who has charge of the materials after they have received, is also
responsible in preparing the materials requisition.
Witt Company maintains a continuous record of purchases, materials issued into

production and balances of all goods in stock, so that inventory valuation data is
available at any time. This is an example of a(n) perpetual inventory system.
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Joey Bruce is a cost accountant at ABC Industries. Joey told Tanner Scott, his financial
advisor, that he was working on a project to determine the feasibility of a merger of ABC
Industries with Left Guard Company, a major competitor. Which of the Institute of
Management Accountant’s (IMA) ethical standards may have been
violated? Confidentiality
Which of the following statements about job order cost sheets is true? Job order cost
sheets can serve as subsidiary ledger information for both Work in Process
Inventory and Finished Goods Inventory.
Listed below are steps of purchasing and receiving materials: 2, 4, 1, 3
The receiving clerk prepares a receiving report.
Purchase requisitions are prepared to notify the purchasing agent that additional
materials are needed.
3. The purchase of merchandise is recorded by the accounting department.
4. The purchasing agent complete a purchase order.
Which of the following is not an element of competency? To refrain from engaging in

an activity that would discredit the accounting profession.
In a job order costing system, the dollar amount of the entry that debits Finished Goods
Inventory and credits Work in Process Inventory is the sum of the costs charged to all
jobs completed during the period.
Which of the following is not true about backflush costing? Production costs are

attached to products as they move through work in process.
The statement of cost of goods manufactured includes: Deprecation of factory

building.
The wages of which of the following employees would not be included in the product
cost for a manufacturer of custom-built home cooking appliances? Shipping clerk
For a manufacturer, the total cost of manufactured goods completed but still on hand is:
Finished Goods.
The entry to record depreciation of the production equipment would be: Debit - Factory
Overhead Credit - Accumulated Depreciation - Equipment
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In job order costing, the basic document for accumulating the cost of each job is the:
Job cost sheet.
The data used to calculate the order point include all of the following except: the costs
of placing an order.
To effectively control materials, a business must maintain: Limited access.
The duties of the purchasing agent would include all of the following except: Counting
and identifying materials received
Janet is the purchasing agent at Frameco Manufacturing. Her duties include vendor

selection and ordering materials. Due to a recent economic downturn and resulting cut
backs, Janet has been assigned the additional duty of preparing receiving reports after
comparing the goods received to the purchase order. This is an example of: a lack of
segregation of duties
The accounting records of Diego Company revealed the following costs, among others:
Factory insurance $ 32,000
Raw materials used 256,000
Customer entertainment 15,000
Indirect labor 45,000
Depreciation on salesperson's cars 22,000
Production equipment rental costs 72,000
Costs that would be considered in the calculation of manufacturing overhead total:

$149,000
Jarratt Inc., a manufacturing company, has provided the following data for the month of
September. The balance in the Work in Process inventory account was $21,000 at the
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beginning of the month and $24,000 at the end of the month. During the month, the
company incurred direct materials cost of $69,000 and direct labor cost of $31,000. The
manufacturing overhead cost applied to Work in Process was $58,000. The cost of
goods manufactured for September was: $155,000
The variable costs per unit are $4 when a company produces 10,000 units of product.
What are the variable costs per unit when 8,000 units are produced? $4
Mcmackin Corporation had $35,000 of raw materials on hand on August 1. During the
month, the company purchased an additional $66,000 of raw materials. During August,
$81,000 of raw materials were requisitioned from the storeroom for use in production.
These raw materials included both direct and indirect materials. The indirect materials
totaled $7,000. The debits to the Work in Process account as a consequence of the raw
materials transactions in August total: $74,000
Masipag Company produces and sells a single item of product. Inventory at the
beginning of January was 400 units valued at P1.80 per unit. Further receipts and sales
during the month were as follows:
Units Cost per unit
Jan 8 Receipts 600 P2.10
20 receipts 500 ?
25 Sales 1,250 4.00
The Company uses FIFO method in stock valuation. Gross margin for January 25
sales was P2,500.00
What is the cost per unit of the 500 units received on January 20? $2.08
The following data are from Burton Corporation, a manufacturer, for the month of
September:
Direct materials used $145,000
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Factory Machine depreciation 35,000
Secretary to the Chief Executive

3,000
Officer salary
Total conversion costs are: $256,000
The balance in Electric Industries’ Finished Goods account at December 31 was

$325,000. Its December cost of goods manufactured was $1,500,000, its total
manufacturing costs were $1,350,000 and its cost of goods sold in December was
$1,455,000. What was the balance in Electric’s Finished Goods at December 1?
$280,000
Winter Company incurred direct materials costs of P500,000 during the year.
Manufacturing overhead applied was P90,000 and is applied at the rate of 60% of direct
labor costs. Winter Company’s total manufacturing costs for the year were? P740,000
Chacha Company uses 20,000 units of Material C in making a finished product. The
cost to place one order for material C is P8.00 and the annual cost to carry one material
C is P2.00. The economic order quantiy for material C is400 units
Umberg Merchandise Company’s cost of goods sold last month was $1,450,000.
Merchandise Inventory at the beginning of the month was $325,000 and $250,000 at
the end of the month. Umberg’s merchandise purchases were: $1,375,000
Kansas Plating Company reported a cost of goods manufactured of $260,000, with the
firm's year-end balance sheet revealing work in process and finished goods of $35,000
and $67,000, respectively. If supplemental information disclosed raw materials used in
production of $40,000, direct labor of $70,000, and manufacturing overhead of
$120,000, the company's beginning work in process must have been: $65,000
Selected data concerning the past fiscal year's operations (000's omitted) of Hercules
Mills are presented below:
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INVENTORIES
Beginning Ending
Materials $ 18 $ 17
Work in process 10 13
Finished goods 20 18
Other data:
Direct materials used $ 73
Total manufacturing costs charged to

production during
the year (includes direct materials,
direct labor, and factory 136
overhead)
Cost of goods available for sale 153
Selling and general expenses 50
The cost of goods sold during the year was: $135
The Shiplett Company’s payroll summary showed the following in November:
Supervisors’
$50,000
salaries
Legal department
10,000
salaries
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Maintenance
30,000
workers’ wages
Machine operators’
70,000
wages
Assembly workers’
50,000
wages
Sales department
20,000
salaries
What will be included in direct labor for November? $120,000
Selected data concerning the past fiscal year's operations (000's omitted) of Kraig
Fabricators are presented below:
INVENTORIES
Beginning Ending
Materials $180 $ 170
Other data:
Direct materials used $ 730
Total manufacturing costs charged to
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production during
the year (includes direct materials,
direct labor, and factory 1,360
overhead)
Cost of goods available for sale 1,530
The cost of goods manufactured during the year was: $1,390
Umberg Merchandise Company’s cost of goods sold last month was $1,525,000.
Merchandise Inventory at the beginning of the month was $250,000 and $325,000 at
the end of the month. Umberg’s merchandise purchases were: $1,600,000
The balance in Electric Industries’ Finished Goods account at December 31 was

$325,000. Its December cost of goods manufactured was $1,350,000, its total
manufacturing costs were $1,500,000 and its cost of goods sold in December was
$1,455,000. What was the balance in Electric’s Finished Goods at December 1?
$430,000
Watson Manufacturing Company employs a job order cost accounting system and
keeps perpetual inventory records. The following transactions occurred in the first
month of operations:
Direct materials requisitioned during the month:
Job 101 P22,000
Job 102 16,000
Job 103 24,000
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P62,000
Direct labor incurred and charged to jobs during the month was:
Job 101 P30,000
Job 102 26,000
Job 103 20,000
P76,000
Manufacturing overhead was applied to jobs worked on using a predetermined

overhead rate based on 75% of direct labor costs.
Job 101 consisting of 1,000 units and Job 103 consisting of 200 units were completed
during the month.
What is the balance in Work in Process Inventory at the end of the month? P61,500
The following data are from Burton Corporation, a manufacturer, for the month of
September:
Direct materials used $145,000
Machine depreciation 35,000
Secretary to the Chief Executive

3,000
Officer salary
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Total prime costs are: $354,000
Selected data concerning the past fiscal year's operations (000's omitted) of the Stanley
Manufacturing Company are presented below:
INVENTORIES
Beginning Ending
Materials $ 90 $ 85
Other data:
Direct materials used $365
Total manufacturing costs charged

to production during the year
(includes direct materials, direct labor,
680
and factory overhead)
Cost of goods available for sale 765
Assuming Stanley does not use indirect materials, the cost of materials purchased

during the year amounted to: $360
Arnold Furniture Company produced 4,000 chairs in July. The manufacturing costs

were:
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Direct labor 11,000
Selling expense 5,000
Administrative expense 6,000
The cost per tent is: $9.00
The following data were taken from Mansfield Merchandisers on January 31:
Merchandise inventory,
$ 100,000
January 1
Sales salaries 35,000
Merchandise inventory,
65,000
January 31
Purchases 530,000
What was the merchandise available for sale in January? $630,000
Murphy Company uses 2,000 yards of material each day to make hats. It usually takes
five days from the time Murphy orders the material to when it is received. If Murphy’s
desired safety stock is 5,000 yards, what is Murphy’s order point? 15,000 yards
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Silay company manufactures engine components. During the previous month, the
Company manufactured 12,000 units of Component XRB for Job 3524 and incurred the
following unit costs:
Direct labor 9.00
Factory overhead 6.00
Direct labor 3.00
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Assuming the same daily output can be achieved while reducing the work in process by
50%, with an average annual carry cost of 15%, and an average work in process
inventory of $500,000, how much will be the projected new annual carrying cost?
$37,500
Expected annual usage of a particular raw material is 180,000 units, and standard order
size is 15,000 units. The invoice cost of each unit is $300, and the cost to place one
purchase order is $80. Assuming the company does not maintain safety stock, the
average inventory is: 7,500 units
The materials account of Hetzer Industries reflected the following changes during May :
Balance, May 1 180 units @ $30
Received, May 2 60 units @ $32
Issued, May 4 80 units
Assuming that Hetzer maintains perpetual inventory records, calculate the cost of the
ending inventory at May 31 and the cost of the units issued in May using the LIFO
method. $3,300
Filmac, Inc. uses speakers when assembling computers. Information as to balances on

hand, purchases, and requisitions of speakers is given in the following table.

Number Unit Balance
Transaction
Date of Units Price of Units
Jan. 1 Beginning balance 200 $15.00 200
Jan. 15 Purchased 100 $16.00 300
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Feb. 24 Issued 50 250
Mar. 8 Issued 70 180
Jun. 23 Purchased 100 $17.00 280
Aug. 8 Issued 80 200
Sep. 29 Issued 30 170
Oct. 7 Purchased 100 $19.00 270
Dec. 16 Issued 50 220
If a perpetual inventory record of speakers is maintained on a LIFO basis, the March 8

issue will consist of: 50 units @ $16.00 and 20 units @ $15.00
Expected annual usage of a particular raw material is 1,200,000 units, and standard
order size is 10,000 units. The invoice cost of each unit is $105, and the cost to place
one purchase order is $145. The estimated annual order cost is: $17,400
The Egbert Company uses an industrial chemical, XRG, in a manufacturing

process. Information as to balances on hand, purchases, and requisitions of XRG is
given in the following table.
Number Balance
Transaction Price per
of of
Date Kilogram
Kilograms Kilograms
Jan. 1 Beginning balance 1,000 $2.10 1,000
Jan. 24 Purchased 2,500 $2.25 3,500
Feb. 8 Issued 700 2,800
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Mar. 16 Issued 1,200 1,600
Jun. 11 Purchased 1,500 $2.75 3,100
Aug. 18 Issued 800 2,300
Sep. 6 Issued 1,600 700
Oct. 15 Purchased 2,000 $2.80 2,700
Dec. 29 Issued 600 2,100
If a perpetual inventory record of XRG is maintained on a FIFO basis, the March 16

issue will consist of: 300 kilograms @ $2.10 and 900 kilograms @ $2.25
Skeeter Company produces 100,000 insect repellent devices each day, and the
average number of units in work in process is 150,000, with an average value of
$300,000. The average annual carrying cost percentage is 30%. If the same daily
output can be achieved while reducing the work in process by 40%, determine the new
throughput time. .9 days
The Reddog Company predicts that 3,200 units of material will be used during the
year. The expected daily usage is 15 units, there is an expected lead time of 10 days,
and there is a safety stock of 200 units. The material is expected to cost $4 per unit. It
is estimated that it will cost $25 to place each order. The annual carrying cost is $1 per
unit. Compute the total cost of ordering and carrying at the EOQ point. $600
Wiggins, Inc. uses sulfuric acid in a manufacturing process. Information as to balances

on hand, purchases, and requisitions of acid is given in the following table.
Date Transaction Number of Price per Balance of

Gallons Gallon Gallons
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Jan. 1 Beginning balance 10,000 $.60 10,000
Feb. 24 Purchased 30,000 $.65 40,000
Mar. 8 Issued 8,000 32,000
Apr. 16 Issued 14,000 18,000
May. 11 Purchased 15,000 $.72 33,000
Jul. 18 Issued 13,000 20,000
Oct. 6 Issued 11,000 9,000
Nov. 15 Purchased 15,000 $.78 24,000
Nov. 29 Issued 14,000 10,000
If a perpetual inventory record of Raw Material A is maintained on a LIFO basis, the

20,000 units in inventory at July 18 will consist of: 2,000 units @ $.72, 8,000 units @
$.65 and 10,000 units @ $.60
Moreland Corporation manufactures bells and whistles. In June, 6,000 bells were
completed on Job Order No. BX46. On final inspection, 400 bells were rejected and
transferred to the spoiled goods inventory to be sold at $.50 each.
Costs recorded on Job Order No. BX46 follow:
Direct labor 2,100
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If the loss on spoilage is charged to all jobs worked on during the period, how much
should be charged to Finished Goods? $5,320
The materials account of the Flynn Company reflected the following changes during
May:
Balance, May 1 500 units @ $10
Assuming that Flynn Company maintains perpetual inventory records, calculate the cost
of the units issued in May using the moving average method: $7,950
Midterm Examination II - Theory
Management accounting is related to cost accounting. True
Only manufacturing entities and not the service ones require cost accounting
information systems. False

One of the most important aspects of cost accounting is the preparation of reports that
management can use to plan but not to control operations False
Total manufacturing costs for a period consists of the costs of direct material used, the
cost of direct labor incurred, and the manufacturing overhead applied during the
period. True
Direct material cost is a part of conversion cost. . False
The perpetual inventory method cannot be used in a job order cost system. . False
Not all material costs would be considered as direct materials. True
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When indirect labor is recorded for a job in process, the work in process account is
debited. False
When manufacturing overhead is charged to a job, the manufacturing overhead account

is debited. False
Overapplied overhead means that actual manufacturing overhead costs were greater
than the manufacturing overhead costs applied to jobs. False
Actual manufacturing overhead costs are assigned to each job by tracing each
overhead cost to a specific job. False
In a process costing system, the production report replaces the job cost sheet. True
In a single-department factory units transferred out are moved to the stockroom as

finished goods. True
The process cost system maybe used when goods are produced in lots
of predetermined quantity usually based on customers specifications. False
In setting labor standards the trend of prices of raw materials is considered. False
Standards can be used in a job order costing system if the products manufactured are
varied in nature. False
In a standard job order costing system, factory overhead is applied using predetermined
rates times standard input. True
Spencer Company had overapplied factory overhead of $5,000 last year. Assuming the
amount is not material enough to distort net income, Cost of Goods Sold should be
increased by this amount. False
A job order cost system and a process cost system are two alternative methods for
valuing inventories. True
Wage plans that encourage employees to work harder and earn more by producing a
high level of output are known as: Incentive wage plans.
The file for each factory employee that shows the time the employee spent on each job,
as well as time spent as indirect labor is the: labor time record.
Which of the following items relating to direct labor employees might be charged to
specific jobs in work in process rather than factory overhead? Fringe benefits
What is the purpose of the following journal entry? To record payroll for the period.
DR Payroll
CR FICA Taxes Payable
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CR Employee Income Tax Payable
CR Wages Payable
Kilowatt hours would be an appropriate basis for distributing the cost of which of the
following service departments to production departments? Power
The journal entry to record the incurrence and payment of overhead costs for factory
insurance requires a debit to Manufacturing Overhead and a credit to Cash.
Which of the following is not a duty of the cost accountant in a process cost
system? Estimating the stage of completion of in-process units at the end of the
month.
A cost object in a process cost system is usually a: Department
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? The fixed production-volume variance in the four-variance method is
equal to the production-volume variance in the two-variance method.
If a company uses a two-variance analysis for overhead variances and uses a

predetermined rate for absorbing manufacturing overhead, the production-volume
variance is the: Underapplied or overapplied fixed cost element of overhead.
Witt Company maintains a continuous record of purchases, materials issued into

production and balances of all goods in stock, so that inventory valuation data is
available at any time. This is an example of a(n) perpetual inventory system.
Marley Company hired a consultant to help improve its operations. The consultant’s

report stated that Marley’s inventory levels are excessive and cited several negative
consequences to Marley as a result. Which of the following consequences
was not cited in the report? Production stoppages due to parts not being available
The method of distributing service department costs to production departments which

makes no attempt to determine the extent to which one service department renders its
services to another department is the: Direct distribution method.
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: Include the $3,200 with the current month’s cost
to arrive at total cost for production to date.
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: Less than
the units placed in process.
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Which of the following journal entries records the accrual of the cost of indirect labor
used in production? debit Manufacturing Overhead, credit Wages Payable
Which of the following are drawbacks to applying actual overhead to production?
-Seasonality of overhead costs may cause distortions in job or product costs.
-A delay occurs in assigning costs to jobs or products.
-Fluctuations in quantities produced during a period could cause varying per-unit

charges for fixed overhead.
all answers are correct.
Which of the following costs would be least likely to appear on a responsibility

accounting report for the supervisor of an assembly line in a large manufacturing
situation? Supervisor's salary
During March, Hart Company incurred the following costs on Job 120 for the
manufacture of 200 motors:
Original cost accumulation:
Direct labor 900
$4,850
Direct costs of reworking 10 units:
Direct materials $ 100
Direct labor 180
Factory overhead 270
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Assume the rework costs are to be spread over all jobs that go through the production
cycle. The journal entry needed to record the rework costs includes A debit to Factory
Overhead amounting to $550
The general ledger entry to record the purchase of materials is: Debit-Materials
Credit-Accounts Payable
Midterm Examination II - Problem
Mr. Naruto works at the New Company where he makes $10 per hour with “time-and-a-
half” for overtime. For the week ended January 8, he worked 45 hours as follows:
Job 417 34 hours
Job 532 11 hours
Assuming the overtime was due to priority scheduling for Job 532, how much will be
charged to Job 532? $135
the previous Friday. Employees’ compensation is earned evenly each day over a 5-day
work week. This year, April 30 fell on Thursday. Payroll costs for the week ended May
1 follow:
Non Factory:
Sales $ 5,000
Administrative 10,000
$15,000
Factory:
Direct labor $25,000
Overtime premium 2,500
-COST of Death-
$42,500
$57,500
Excluding payroll taxes, how much of the accrued payroll at April 30 should be charged
to Factory Overhead? $14,000
appliances and earns $16 per hour with “time-an-a-half” for overtime. During the week
ended July 25, Joel worked 43 hours as follows:
Job XBRL 20.5 hours
Job FASB 14.5 hours
Idle time due to power outage 2.0 hours
Machine maintenance 6.0 hours
The amount of Joel’s wages that will be charged to Factory Overhead assuming the
overtime is due to the random scheduling of jobs is: $152
1 follow:
Non Factory:
Sales $ 5,000
$15,000
-COST of Death-
Factory:
$42,500
$57,500
to Work in process assuming that the overtime premium should be charged to specific
job? $26,000
holiday pay each week? $20.41
At the beginning of the year, manufacturing overhead for the year was estimated to be
$702,450. At the end of the year, actual direct labor-hours for the year were 33,100
hours, the actual manufacturing overhead for the year was $697,450, and
manufacturing overhead for the year was overapplied by $40,680. If the predetermined
overhead rate is based on direct labor-hours, then the estimated direct labor-hours at
the beginning of the year used in the predetermined overhead rate must have been:
31,500 direct labor-hour
The books of Moon Products Co. revealed that the following general journal entry had
been made at the end of the current accounting period:
Factory overhead $2,000
Under- and overapplied factory overhead $2,000
The total direct material cost for the period was $40,000. The total direct labor cost, at
an average rate of $10 per hour for direct labor, was one and one-half times the direct
materials cost. Factory overhead was applied on the basis of $4 per direct labor hour.
What was the total actual factory overhead incurred for the period? $22,000
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Venus Company has developed the following flexible budget formula for annual indirect
labor cost: Total annual cost = $12,000 + $.25 per unit Operating budgets for the
current month are based on 6,000 units. Indirect labor costs included in this monthly
planning budget are: $2,500.
If the direct labor cost method is used in applying factory overhead and the
predetermined rate is 100%, compute the total job cost assuming that the direct
materials used totaled $5,000, the direct labor cost totaled $3,200. $11,400
Factory overhead for the Praeger Company has been estimated as follows:
Fixed overhead $122,500
Variable overhead $90,000
Budgeted direct labor hours 42,500
Production for the month was 90 percent of the budget, and actual factory overhead
totaled $175,000.
Calculate the under-or overapplied factory overhead. $16,250 overapplied
The general ledger of Lawson Lumber Co. contains the following control account:
Work in Process
Dr Cr
Materials 15,000 Finished Goods 40,000
Labor 16,000
If the materials charged to the one uncompleted job still in process amounted to $3,400,
what amount of labor and factory overhead must have been charged to the job if the
factory overhead rate is 100% of direct labor cost? $1,800
-COST of Death-
If the direct labor hour method is used in applying factory overhead and the
predetermined rate is $10 an hour, what amount should be charged to Job 2010 for
factory overhead? Assume that the direct materials used totaled $5,000, the direct labor
cost totaled $3,200, and the number of direct labor hours totaled 250. $2,500

using a predetermined overhead rate, as a percentage of direct labor costs, of: 125%
sheet:
Direct labor-hours 54 labor-hours
Direct labor wage rate $13 per labor-hour
Machine-hours 158 machine-hours
The company applies manufacturing overhead on the basis of machine-hours. The

predetermined overhead rate is $14 per machine-hour. The total cost that would be
recorded on the job cost sheet for Job 607 would be: $6,319
The records of Andrews Company reflect the following data:
Work in process, beginning of the month - 4,500 units; 1 / 3 completed at a cost of

$2,900 for materials, $825 for labor, and $5,000 for overhead.
Production costs for the month - materials - $20,695; labor - $13,050; overhead -
$41,500
Units completed and transferred to finished goods - 35,000
Work in process, end of month - 3,000 units; 1 / 4 completed
What is the unit cost for material? $.66
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Daniel LLC incurred cost of $45,000 for material, $25,000 for labor, and $24,000 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: $5.00
The beginning work in process inventory is 60 percent complete, and the ending work in
process inventory is 50 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? 50%
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 80 percent complete. Using the average cost
method, the equivalent units for January were: 29,800.
-COST of Death-
MC 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

9,000 $2.00
department
Ending work in process

inventory
4,000 $2.00
70 % complete
Curing Department:
Completed and transferred

8,000 $3.00
out
Ending work in process

inventory
5,000 $3.00
30% complete
The cost of the inventory transferred from Curing to the warehouse is: $24,000
The production report for Phillips Industries, with beginning inventory of 15,000 units at
the beginning of the month, included the following information for the month:
Number of
Completion
Units
Units started in production 80,000
1/4
Ending units in process 10,000
completed
Calculate the equivalent units of production: 87,500
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The production report for Marck Company included the following information for August:
Number of
Completion
Units
Units started in production 44,500
Units transferred to finished goods 47,200
Ending units in process 3,000 60%
How many units were in process at the beginning of the month? 5,700
The following information is available from the Arugula Company:
Actual factory overhead $16,800
Actual fixed overhead expenses $ 9,200
Budgeted fixed overhead expenses $ 9,500
Actual hours 3,600
Budgeted hours 3,800
Standard hours allowed 3,500
Standard variable overhead rate per direct labor

$ 2.25
hour
Assuming that Arugula uses a three-variance analysis of overhead variances, what is

the efficiency variance? $475 unfavorable
The direct labor costs for Boundary Company follow:
Standard direct labor hours 34,000
-COST of Death-
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? $ 12.00
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 $.80 per square foot, a total cost of $7,055. If the
materials price variance was recorded when the material was issued to production, that
variance was: $830 favorable.
Yellow Co. budgets 15,000 direct labor hours for the year. The Total overhead budget is
expected to amount to $42,000. The standard cost for a unit of the company's product
estimates the variable overhead as follows:
Variable factory overhead (3 hours @ $2 per direct labor hour) - $6 per unit
The actual data for the period follow:
Actual completed units 5,500
Actual variable overhead $33,000
Actual fixed overhead 11,700
Using the four-variance method, calculate the variable spending variance. $2,000
unfavorable
Information relating to direct labor for Brussels, Inc. follow:
-COST of Death-
Total direct labor per payroll $101,000
Standard labor rate per hour $41.00
The labor efficiency variance is: $4,100 unfavorable
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? 22,000
Yellow Co. budgets 15,000 direct labor hours for the year. The Total overhead budget is
expected to amount to $42,000. The standard cost for a unit of the company's product
estimates the variable overhead as follows:
Variable factory overhead (3 hours @ $2 per direct labor hour) - $6 per unit
The actual data for the period follow:
Actual completed units 5,500
Actual variable overhead $33,000
Actual fixed overhead 11,700
-COST of Death-
Using the four-variance method, calculate the production volume variance. $1,200
favorable
Earl Company's direct labor costs for the month of January follow:
Direct labor rate variance--unfavorable $ 1,800
Total payroll $117,000
What was Earl's direct labor efficiency variance? $6,400 favorable
. The following information pertains to the Braun Company for March: (Quiz)
Standard direct labor hours per unit .5 hours
Budgeted production level 20,000 units
22,000
Actual units produced
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
-COST of Death-
Actual fixed factory overhead 31,800
Actual variable factory overhead 22,200
Using the four-variance method of factory overhead variance analysis, what is the
variable overhead efficiency variance? $1,000 favorable
The labor efficiency variance is: $1,100 favorable
overhead were $1,100,000 and $825,000, respectively.
What is the amount of under- or overapplied factory overhead? $55,000 overapplied
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 units transferred from Department A. $2.96
The Davis Corporation budgeted factory overhead at $250,000 for the period for the
Assembly Department based on a budgeted volume of 100,000 direct labor hours. At
the end of the period, the factory overhead control account for the Assembly
Department had a balance of $252,000. The actual (and allowed) direct labor hours
were 103,000.
-COST of Death-
What was the over- or underapplied factory overhead for the period? $5,500
overapplied
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

1,400 hours
production
Labor efficiency variance $ 800 unfavorable
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
-COST of Death-
accounted for be distributed using the average cost method? Goods completed
$105,000; Work-in-process $12,600
Charleston Can Inc. has 1,000 units in process in Forming at the beginning of the month
with a transferred cost of $21,200 from Blanking. During the month, 5,000 units with a
total cost of $100,000 are received from Blanking; 4,000 units are finished and
transferred to Finishing; and 2,000 units are in process in Forming at the end of the
month, one- half completed. How much is the adjusted unit cost from the prior
department in the Forming Department. $20.20
Sun Corporation uses ABC. The factory overhead budget for the coming period is
$500,000, consisting of the following:
Cost Pool Budgeted Amount
Direct labor and facility support $150,000
Machine support 200,000
Machine setups 100,000
Design changes 50,000
Total $500,000
The potential allocation bases and their estimated amounts were as follows:
Cost Pool Budgeted Amount
Number of design changes 50
Number of setups 200
Machine hours 10,000
-COST of Death-
Direct labor hours 20,000
Job 25 required $25,000 for direct materials, $10,000 for direct labor, 500 direct labor
hours, 1000 machine hours, five set ups, and three design changes. Determine the
cost of Job 25. $64,250
Pay Company has two service departments, Maintenance and Human Resources, and
two production departments, Machining and Assembly. The following data have been
estimated for next year’s operations:
Direct Square
Department: Labor Hours
Charges Footage
Human Resources $135,000 -- --
Maintenance 100,000 -- 5,000
Machining 275,000 2,000 20,000
Assembly 225,000 3,000 25,000
The Human Resources Department services all departments. If the company used the
direct distribution method, what is the predetermined factory overhead rate for the
machining department using labor hours as the basis? $18.75
Argo Manufacturing Co., had 500 units, three/fifths completed, in process at the
beginning of the month. During the month, 2,000 units were started in process and
finished. There was no work in process at the end of the month. Unit cost of production
for the month was $1.20. Costs for materials, labor, and factory overhead incurred in
the current month totaled $2,655. How much is the unit cost for the prior month? $1.15
3rd Quiz _ 1206 _ Multiple choice (problem) solving
An employee regularly earns $12 per hour for an 8-hour day with time-and-a-half for
overtime hours. Assuming that the employee works a 12-hour day, the total amount of
overtime premium is: $24
-COST of Death-
1 follow:
Non Factory:
Sales $ 5,000
$15,000
Factory:
$42,500
$57,500
to Work in process assuming that the overtime premium should be charged to specific
job? $26,000
appliances and earns $16 per hour with “time-an-a-half” for overtime. During the week
ended July 25, Joel worked 43 hours as follows:
Job XBRL 20.5 hours
Job FASB 14.5 hours
-COST of Death-
Idle time due to power outage 2.0 hours
Machine maintenance 6.0 hours
The amount of Joel’s wages that will be charged to Factory Overhead assuming the
overtime is due to client's request to specific job: $128
holiday pay each week? $20.41
Under a modified wage plan, an employee working an eight-hour day earns $.50 for
each finished unit and is guaranteed $20 per hour as a minimum wage. At what level
should the daily quota be set? 320 units
Wiggins Company’s flexible budget for 25,000 units shows $75,000 and $25,000 in
variable and fixed costs, respectively. At 35,000 units, the flexible budget would show:
Variable costs of $105,000 and fixed costs of $25,000.
The fixed costs per unit are $10 when a company produces 10,000 units of product.
What are the fixed costs per unit when 12,500 units are produced? $8

using a predetermined overhead rate, as a percentage of direct labor costs, of: 125%
The Mason Corporation budgeted overhead at $240,000 for the period for Department
A based on a budgeted volume of 60,000 direct labor hours. During the period, Mason
started and completed Job B25, which incurred 200 labor hours at a cost of $2,200, and
$5,000 of direct materials. What was the cost of Job B25? $8,000
The Gerald Company budgeted overhead at $480,000 for the period for Department A
based on a budgeted volume of 60,000 direct labor hours. At the end of the period, the
factory overhead control account for Department A had a debit balance of $475,000;
actual direct labor hours were 58,000. What was the under- or over applied factory
overhead for the period? $11,000 underapplied
-COST of Death-
At the end of the year, Jenkins Corporation had $120,000 in the Factory Overhead
account and applied factory overhead of $100,000. Mark Gibbs, the controller, has
decided that the difference is to large to close to Cost of Goods Sold. Work in process
inventories were $30,000, finished goods inventories were $60,000 and cost of goods
sold during the year was $210,000. How should the entry to dispose of the difference in
overhead incurred and overhead applied affect Cost of Goods Sold? $14,000 debit
sheet:
Direct labor-hours 54 labor-hours
Direct labor wage rate $13 per labor-hour
Machine-hours 158 machine-hours
The company applies manufacturing overhead on the basis of machine-hours. The

predetermined overhead rate is $14 per machine-hour. The total cost that would be
recorded on the job cost sheet for Job 607 would be: $6,319
The Lorenzo Printing Company has two production departments (printing and binding)
and three service departments (power generation, factory maintenance, and human
resources). A summary of costs and other data for each department, prior to allocation
of service department costs for the year ended April 30, appears below.
The costs of the power generation department, factory maintenance department, and
human resources are allocated on the basis of kilowatt hours, square footage occupied,
and number of employees, respectively.
Power Factory Human

Printing Binding Gen. Maint. Res.
Direct labor $475,00 $438,00

costs: 0 0
-COST of Death-
Direct material $632,00 $527,00
costs: 0 0
Factory overhead $750,00 $832,00

$75,000 $50,000 $30,000
costs: 0 0
Direct labor
262,000 254,000
hours:
Number of
40 35 5 20 5
employees:
Sq. footage
36,000 24,000 5,000 3,000 1,000
occupied:
Assuming that Lucas elects to distribute service department costs to production

departments using the direct distribution method, the amount of human resources
department costs that would be allocated to the printing department would be (round all
final calculations to the nearest dollar): $16,000.
overhead were $1,100,000 and $825,000, respectively. What was Meger’s
predetermined factory overhead rate? 70.0%
1. An favorable labor efficiency variance is the:
- Number of actual hours worked below the standard hours allowed multiplied by
the standard labor rate
2. In a four-variance method analyzing factory overhead, the variable factory

overhead efficiency variance measures:
- The difference between budgeted fixed factory overhead and the amount of fixed
factory overhead to production
3. A manufacturer generally wants to set a standard that:
- Is high enough to provide motivation and promote efficiency, but still attainable.
-COST of Death-
4. The actual hourly rate paid above or below the standard hourly rate, multiplied by
the actual number of hours worked is the:
- Labor rate variance
5. 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 production-volume variance will be:
- Zero
6. An unfavourable labor efficiency variance is the:
- Number of actual hours worked in excess of the standard hours allowed

multiplied by the standard labor rate
7. What is the normal year-end treatment of immaterial variances recognized in a

cost accounting system utilizing standards?
- Closed to cost of goods sold in the period in which they arose
8. Factors to be considered in setting materials standards include all of the following

except:
- Time necessary to assemble parts
9. What type of direct material variances for price and quantity will arise if the actual
was less than standard cost?
- Qty. – Unfavorable; Price-Favorable
10. The purpose of standard costing is to:
- Control costs and promote efficiency
11. The following information------ the Braun Company for ---- Using four – variance
method of factory overhead variance analysis, what is the variable overhead spending
variance?
12. Compute the materials price variance.
- $36,000
-COST of Death-
13. Andrews Corporation purchased 3,000 gallons 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, what is the materials purchase price variance?
- $200
14. Baker Company has a standard flexible budgeting system and uses a two-
variance analysis of factory overhead. Selected data for the June production activity
follows:------ The flexible budget variance for June is:
15. The direct labor costs for ---- Company follow: ----- What was Boundary’s actual
direct labor rate?
- $12.00
16. Thomas Company uses a standard cost system. Information ------- materials for
Product RBI for the month of October follows:----------- What is the material price
variance?
- $600 favorable
17. Alyssa Corporation uses a standard cost system. Direct labor information for
Product CER for the month of October is as follows: ------------------ The labor rate
variance is:
- 1,500 unfavorable
18. Information relating to direct ------- for Brussels, Inc. Follow: ---------------- The
labor efficiency variance is:
- $1,100 favorable
19. Assuming that Aragula uses a three-variance analysis of overhead variances =,

what is the production-volume variance?
- $500 unfavourable
20. What was Monroe’s production-volume variance for April?
-COST of Death-
- $4,250 favorable
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 net factory overhead variance?
- $4,500 favorable
21. Information relating to direct labor for Brussels, Inc follows:
- Actual direct labor hours 8,100
- Standard direct labor hours 8,200
- Total direct labor per payroll $101,000
- Standard lanor rate per hour $11.00
The labor efficiency variance is:
- 1,100 favorable
4th Quiz _ Acctg 1206 _ Ch8
PHI Company began its operations on January 1 and produces a single product that
sells for $35.00 per unit. 5,000 units were produced and 4,000 units were sold during
the year.
Standard costs per unit follow:
Standard cost
Raw materials $12.50
Direct labor 6.50
-COST of Death-
The entry to record the finished goods will include a debit to Finished goods for
$115,000
What is the normal year-end treatment of immaterial variances recognized in a cost

accounting system utilizing standards? Closed to cost of goods sold in the period in
which they arose
To effectively use variances to improve operations, management should take the

following steps except: Adding variances together to determine the impact on
financial statements.
An unfavorable labor efficiency variance is the: The number of actual hours worked

below the standard hours allowed multiplied by the standard labor rate.
Which of the following is not likely to cause a labor efficiency variance? We produced

more units than were budgeted
A company uses a two-variance analysis for overhead variances, flexible-budget and

production-volume. The production-volume variance is the difference between the
factory overhead applied at standard and: Total factory overhead per the flexible
budget.
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 production-volume variance will be: Zero.
What type of direct material variances for price and quantity will arise if the actual
was less than standard cost? Qty. - Unfavorable; Price- Favorable
In a four-variance method analyzing factory overhead, the fixed factory overhead

spending variance measures: The difference between the actual fixed factory
overhead and budgeted fixed factory overhead.
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:
-COST of Death-
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

3,800 units
production
The journal entry to record the purchase of materials will include a: debit to materials
for $7,000
Question 11
2 / 2 pts
The Davis Corporation budgeted factory overhead at $250,000 for the period for the
Assembly Department based on a budgeted volume of 100,000 direct labor hours. At
the end of the period, the factory overhead control account for the Assembly
Department had a balance of $252,000. The actual (and allowed) direct labor hours
were 103,000.
What was the over- or underapplied factory overhead for the period? $5,500
overapplied
Alyssa Corporation uses a standard cost system. Direct labor information for Product
CER for the month of October is as follows:
-COST of Death-
Standard hours allowed for actual
1,400 hours
production
The labor rate variance is: 1,500 unfavorable
Hernandez Corporation uses a standard cost system and has established the following
standards for one unit of product:
Standard Standard Standard

Quantity Price Cost
10 $2.60 per
pounds pound
$10.00 per
Direct labor .25 hour 2.50
hour
$28.50
During October, the company purchased 240,000 pounds of material at a total cost of
$588,000. The total factory wages for October were $49,400. During October, 21,000
units of product were manufactured using 211,000 pounds of material and 5,200 direct
labor hours. Material quantity and price variances are recorded when materials are
used.
Compute the labor efficiency variance. $500 favorable
-COST of Death-
The labor efficiency variance is: $1,100 favorable
Thomas Company uses a standard cost system. Information for raw materials for
Product RBI for the month of October follows:
Standard unit price $1.80
Actual purchase price per unit $1.65
Actual quantity purchased 4,000 units
Actual quantity used 3,900 units
Standard quantity allowed for actual

3,800 units
production
What is the materials price variance? $600 unfavorable
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 hours used 16,500
Standard hours allowed for good output 16,250
Actual total overhead $53,200
Budgeted fixed costs $12,000
-COST of Death-
Budgeted activity in hours 16,000
Total overhead application rate per standard direct labor

$ 3.25
hour
Variable overhead rate per standard direct labor hour $ 2.50
What was Monroe's flexible-budget variance for April? $575 unfavorable
The following information is available from the Arugula Company:
Actual factory overhead $16,800
Actual fixed overhead expenses $ 9,200
Budgeted fixed overhead expenses $ 9,500
Actual hours 3,600
Budgeted hours 3,800
Standard hours allowed 3,500
Standard variable overhead rate per direct labor

$ 2.25
hour
Assuming that Arugula uses a three-variance analysis of overhead variances, what is

the production-volume variance? $500 unfavorable
-COST of Death-
Quantity Price Cost
Direct materials 10 pounds $2.60 per pound $26.00
Direct labor .25 hour $10.00 per hour 2.50
$28.50
used. Compute the materials quantity variance. $2,600 unfavorable
. The following information pertains to the Braun Company for March: (Quiz)
Standard direct labor hours per unit .5 hours
Budgeted production level 20,000 units
22,000
Actual units produced
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 fixed factory overhead 31,800
-COST of Death-
Actual variable factory overhead 22,200
Using the four-variance method of factory overhead variance analysis, what is the
variable overhead efficiency variance? $1,000 favorable
6th Quiz _ Acctg 1206 - Ch7
Expense A is a fixed cost; expense B is a variable cost. During the current year the
activity level has increased, but is still within the relevant range. In terms of cost per unit
of activity, we would expect that: expense A has decreased
Amounts from all of the following budgets feed into the pro-forma income
statement except the: Cash budget.
When using a flexible budget, what occurs to fixed costs (on a per unit basis) as
production increases? Fixed costs per unit will decrease.
Managers should consider all of the following in developing a sales

budget except: Plant manager salaries.
Which of the following is not true about budgeting? It should rely mainly to historical
data.
Consider the following budgets:

(1) Production
(2) Cost of goods sold
(3) Direct materials
(4) Income statement
In what order should these budgets be prepared? 1,3,2,4
Which of the following is not a requirement of budgeting? The budget must not be

changed under any circumstances.
The level of production that is used by most firms for budget development because it
represents a logical balance between maximum production capacity and the capacity
demanded by actual sales volume is: normal capacity.
A budget prepared for a single level of volume based on management’s best estimate of
the level of production and sales for the coming period is a: Static budget.
Participative budgeting: Motivates managers to meet budget numbers because they

set them.
-COST of Death-
How much will be the cost of goods sold budget for the S Company for the upcoming
year from the following estimates? $608,000
Inventories:
Direct Work in Finished

Materials Process Goods
January 1 $22,600 $32,500 $50,200
December 31 31,400 30,400 48,300
Totals from other budgets:
Direct materials purchased $234,500
--------------------------------------------------------------------------------
Brazil Co. plans to produce 100,000 toy cars during June. Planned production for July is
125,000 cars. Sales are forecasted at 90,000 toy cars for June and 120,000 toy cars for
July. Each toy car requires four wheels. Brazil's policy is to maintain a 10% of the next
month's production in inventory at the end of the month. How many wheels should
Brazil purchase during June. 410,000
Pinecroft Company manufactures one product that requires 4 hours of machining direct
labor and 3 hours of assembly direct labor. The standard labor rate is $20.00 per direct
labor hour in the Machining Department and $16.00 per direct labor hour in the
Assembly Department. The product has forecasted sales of 3,000 units in July. The
estimated finished goods inventory at July 1 is 300 units and the desired ending
inventory at July 31 is 400 units.
Compute for the direct labor budget for the month. $396,800
Shaw Corporation has developed the following flexible budget formula for annual
indirect labor cost:
Total costs = $9,600 + $0.50 per machine hour
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Operating budgets for the current year are based upon 30,000 hours of planned
machine time. Indirect labor costs included in this planning budget are: $24,600
O’Reilly Outfitters Inc. has forecasted sales of 32,000 tents for the upcoming year. The
anticipated finished goods inventory at January 1 is 5,000 units, but management
desires this inventory level to be reduced by 20% on December 31.
Compute the production budget for the upcoming year. 31,000
Hola Company has the following totals from its operating budgets for the month:
Cost of goods sold $1,967,000
Sales 2,530,000
Selling and administrative expenses 322,000
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Julia Industries produces cookware. The master budget called for production of 75,000
units this year. The budget at that level of production follows:
Sales $1,200,000
Direct materials 300,000
Fixed selling and administrative expense 112,500
Operating income $ 150,000
Due to the popularity of cooking shows on television, Julia Industries now estimates
sales will be 77,500 units. What is budgeted operating income at this level? $167,500
Cooper Carriers has budgeted production of 180,000 units this fiscal year. There were
18,000 units on hand in finished goods inventory on January 1 and the company’s
desired inventory at the end of the year is 15,000 units. Cooper’s sales budget in units
is: 183,000
The normal capacity of Yule Company is 5,000 units per month. At this volume,
budgeted fixed and variable factory overhead are $22,500 and $20,000, respectively. In
December, actual production was 4,500 units and actual overhead incurred was
$46,300.
What is the factory overhead application rate at the actual level of production (rounded
to the nearest penny)? $9.00
Lunchco Inc. produces picnic tables in a two-step process. Pretreated wood is cut in

the Cutting Department and then the lumber is assembled into tables in the Assembly
Department. It takes 10 minutes of direct labor time to cut the lumber and the standard
hourly labor rate in the Cutting Department is $12. The tables take one hour to
assemble and the standard hourly rate in the Assembly Department is $11. If
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Lunchco’s production budget is 20,000, what is the company’s direct labor
budget? $260,000
Exercise _ SCM - Ch9 (E9.7, E9.9, E9.16, E9.18, E9.19, E9.23)
Classify the following list of scorecard measures according to the following:
Financial or Non-financial
Quality cost
Financial

Economic value added
Financial

Ratings from customer surveys
Non-financial

First-pass yields
Non-financial

Number of patents pending
Non-financial

Strategic job coverage ratio
Non-financial

Employee turnover percentage
Non-financial

Percentage of market
Non-financial

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On-time delivery percentage
Non-financial

Revenue per employee
Financial

Subjective or Objective
When the perspective is process, identify which type of process: innovation, operations,
or post-sales service.
Quality cost
Objective

Objective

Subjective

First-pass yields
Objective

Objective

Objective

Objective

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Objective

Objective

Objective

a. - Perspective (financial / Customer / Process / Learning and Growth
When the perspective is process, identify which type of process: innovation, operations,
or post-sales service.
Quality cost
Process (operations)

Financial

Customer

First-pass yields
Process (operations)

Process (innovation)

Learning and Grow th

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Customer

Customer


Computador has a manufacturing plant in Des Moines that has the theoretical capability
to produce 243,000 laptops per quarter but currently produces 91,125 units. The
conversion cost per quarter is $7,290,000. There are 60,750 production hours available
within the plant per quarter.
In addition, to the processing minutes per unit used, the production of the laptops uses
10 minutes of move time, 20 minutes of wait time, and 5 minutes of rework time. (All
work is done by cell workers.)
Required:
a. Compute the theoretical velocity per hour 4
b. Compute the actual velocity per hour 1.50
c. Compute the theoretical cycle time (min per unit) 15
d. Compute the actual cycle time (min per unit) 40
e. Compute the ideal amount of conversion cost 30
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f. Compute the actual amount of conversion cost 80
g. Calculate MCE 0.30
The following strategic objectives have been derived from a strategy that seeks to
improve asset utilization by more careful development and use of its human assets and
internal processes.
The heart of the strategy is developing the company's human resources. Management
is convinced that empowering employees will lead to an increase in economic returns.
Studies have shown that there is a positive relationship between employee morale and
customer satisfaction. Furthermore, the more satisfied customers pay their bills more
quickly. It was hypothesized that as employees became more involved and more
productive, their morale would improve. Thus, the strategy incorporated key objectives
that would lead to an increase in productivity and involvement.
Identify the appropriate measures.
Decrease development cycle time
Cycle time/New products

Increase customer satisfaction
Satisfaction index

Increase employee productivity
Output/Hour

Decrease collection period, A/R
Average collection period

Increase employee skills
Hours of training

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Increase employee morale
Satisfaction index

Increase customer acquisition
Number of new customers

Decrease rework
Percentage units rew orked

Decrease service time
Cycle time

Improve product image and reputation

Which of the following objectives would be associated with the process

perspective? Increasing service quality
Which of the following objectives would likely be associated with the customer
perspective of the balanced scorecard? Increasing delivery reliability
Which of the following objectives would likely be associated with the learning and
growth perspective of the balanced scorecard? increasing information system
capabilities
Quiz..TRUE OR FALSE
Cost accounting systems are accounting information system used by manufacturers to
tract the costs incurred to produce and sell their diverse product lines.True
Effective planning is facilitated by clearly defined objectives and a production plan. True
All three elements of manufacturing cost flow through the work in process account. True
Cost accounting procedures provide the means to determine product costs that enable
the preparation of meaningful financial statements but not with other reports.False
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Only manufacturing entities and not the service ones require cost accounting
information systems. False
Indirect labor and indirect materials are charged to factory overhead. True
The institute of management accountants is the smallest organization of accountants in
industry in the world. False
The salaries and wages of all workers in the factory are classified as direct labor. False
Heat, light, and power in the factory is a factory overhead cost. True
A department maybe a cost center.True
From the view point of the manufacturing concern, control is the process of monitoring
the company's operations and determining whether the objectives identified in the
planning process are being accomplished.True
Factory overhead excludes indirect materials and indirect labor. False
Service entities may have inventory accounts. True
Management accounting is related to cost accounting. True
Unit cost information is also useful in making important marketing decisions such as
determining the selling price of a product. True
In applying the Standards of Ethical Professional Practice, you may encounter problems
indentifying unenthical behavior or resolving an ethical conflict. True
The performance report should not be prepared just once a year.True
preparing financial statements that meet the needs of internal users. False
When goods are completed, the total costs incurred in producing the goods are
transferred from finished goods to work in process. False

Overtime premium should be charged to the specific jobs worked on during overtime
periods. False
Nonmanufacturing costs consist of selling costs and administrative costs. True
Cost accounting principles and procedures apply only to manufacturing companies, but
not to merchandising and service businesses. False
Prime costs plus conversion costs equals the total manufacturing cost.FalseTrue
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In cost accounting, planning is important but not controlling. False
Goods that are completed and ready for sale move out of work in process and into
finished goods. The cost of such goods is termed cost of goods manufactured. True
Total variable cost will change in proportion to changes in the level of activity. True
Part of a cost such as factory depreciation can end up on the balance sheet as an asset
if goods are uncompleted or unsold at the end of a period.True
Inventoriable costs and product costs are synonymous terms in a manufacturing
firm. True
The essence of responsibility accounting is the assignment of accountability for costs or
production results to those individuals who have the most authority to influence them;
however, it does not require a cost information system that traces the date to cost
centers. False
A cost center is a unit of activity within the factory to which costs maybe practically and
equitably assigned it maybe a department or group of workers. True
Property taxes and insurance on a factory building are examples of manufacturing
overhead. True
Manufacturing overhead is an indirect cost with respect to units of product True
Unit costs are used in making important marketing decisions to selling prices,
competition, and bidding.True
A fixed cost is constant per unit of product. False
When labor cost are distributed the payroll account is credited. True
In many ways, the activities of a manufacturer are similar to those of a merchandiser;
both purchase, store and sell goods, have efficient management and adequate sources
of capital, and they may employ thousands of workers. True
By definition, total variable cost changes in proportion to change in the activity
level. True
Wages of an iron worker in the construction business is an indirect labor cost.False
Spoiled units may be corrected, and sold at the price of good units.False
The revenue from scrap sales is usually recorded as ‘’Other income’’.True
An effective system of cost control is designed to control the actions of people
responsible for the expenditures because costs control themselves.False
Enterprise Resource planning (ERP) systems are employed by many organizations to
aid in controlling materials, through sophisticated cannot coordinate sales and
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production.False
account there is shortage.False
The purpose of materials accounting is to provide a summary for the general ledges of
the cost of materials purchased and used in manufacturing.True
Safety stock is the estimated minimum level of inventory needed to protect stock outs
during the lead time only.False
The issued columns in the materials stock cards are used when sales are made.False
Scrap materials may result naturally from the production process, or they may be
spoiled or defective units that result from avoidable but not unavoidable mistake during
production.False
In many companies, the flow of costs using FIFO closely parallels, the physical flow of
materials.True
The received columns in the stock cards are used every time purchases are made.True
The stock card contains an account for each material used in the manufacturing
process. Each account shows the number of units on hand and their cost.True
Any materials returned to the original vendors should be debited to accounts payable or
cash and credited to materialsTrue
The entry to record direct materials returned from factory to storeroom is to debit work in
process and credit materials.False
company vary with the nature of operations and the organizational structure.True
In the formula for ECQ, N stands for the annual demand.True
The interest cost incurred in carrying an inventory should be considered whether or not
the funds are borrowed to purchase the inventory.True
Stock cards are used under the perpetual inventory system only.True
The FIFO, LIFO and weighted average methods maybe used under periodic inventory
system.False
LIFO inventory method matches current costs with revenue.True
Equivalent units of production means completed units.False
In a multiple-department factory, the units transferred out of the first department are
treated as if they are raw materials that will be added at the beginning of a second
departments processing operations.True
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Under a process cost system, the costs of materials and labor are charged directly to
the departments in which they are incurred.True
The purpose of the production report is to summarize all the activity that takes place in a
departments work in process for a period. True
Equivalent production represents the number of whole units that could have been
completed during the period, given the amount of work that was performed.True
If 51,000 units are started during the period, 49,000 units are completed, and the 2,000
units are in the work in process end, 1/4 completed the equivalent production is 49,500
units.True
In a job order cost system costs are accumulated by specific jobs and unit costs are
calculated at the time the job or order is finished.True
In process costing, cost incurred in a department are not transferred to the next
department.False
Construction of buildings involves job order cost system. True
representing equivalent production would be understated and, therefore, the unit cost
for the month would be too low.False
Operation costing employs aspects of both job-order and process costing systems.True
A job may consist of any number of units.True
A basic principle established in comparing the two cost systems is that in a job order
cost system, all costs of manufacturing are charged to production department, either
directly or indirectly.False
The job order cost system may be used when goods are produced continuously as in
the case of mass production industries.False
There are lost units if the units accounted for exceeds the units to be accounted
for. False

Costs are accounted for as being either (a) transferred out during the period or (b)
assigned to the ending work in process inventory. True
Since costs are accumulated by department, there is no need for a finished goods
inventory account in a process costing system.False
The entry to record cost of goods completed is to debit work in process and to credit
finished goods.False
Goods that are finished but still on hand in a department at the end of the month are
accounted for as “goods completed and on hand” on the cost of production report.True
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X Co. had 400 units in work in process at the beginning of the month. During the month,
14,600 units were started in production, 13,400 of which, along with the beginning
work in process, were completed by the end of the month. The uncompleted units were
in ending inventory, 1/4 complete. The equivalent production is 14,000 units. True
The usual method of handling the cost of normal processing losses is to exclude the
cost of lost units in the cost of all units finished or still in process. With this approach,
the units lost are ignored in the calculation of equivalent production.False
If there is no beginning inventory, equivalent production under FIFO and the weighted
average methods are the same.True
In determining the cost of the ending work in process, the cost accountant must not
consider the stage of completion of the labor and factory overhead and the point at
which materials are added in order to make the proper allocation of cost.False
The FIFO method assumes that units are finished in the order started in process and
unit costs are assigned accordingly. The units in process at the beginning of the period
and their related costs are kept separate from units received or started during the
current period and their related costs. These units in process at the start of the period
are valued at the cost carried over from the prior period plus a portion of the current
period’s cost necessary to complete them. Units started and finished during the current
period are handled separately and charged with the current period’s unit cost.True
Under the FIFO method of computing equivalent production units, costs in the beginning
work in process inventory are kept separate from costs of the current period.True
If materials added to the process increase the number of units being manufactured, the
unit cost from the prior department must be adjusted. The total cost of the units
transferred would be divided by the new total of units being processed to determine the
new “adjusted unit cost,” which will be more than the original unit cost in the preceding
department(s).False
In the cost of production summaries presented in Chapter 6, the equivalent units are
computed separately for materials and for labor and factory overhead, while in Chapter
5, only one equivalent unit figure had to be determined. The reason for this difference is
that in Chapter 6 the discussion concerning the accounting for materials is based on the
assumption that materials are not added to the manufacturing process at the same rate
as are labor and factory overhead. In Chapter 5, it was assumed that all three cost
elements were uniformly added to production.True
Joint costs include the costs of materials, labor, and overhead incurred during a
common process that produces one or more products.False
The assumption is reasonable in a manufacturing process where direct labor is
significant because the incurrence of overhead costs such as supplies, electricity to run
the machines, and janitorial clean-up is closely linked to the activities of the direct
laborers.True
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Separate equivalent production figures must be used in computing the unit costs of
materials, labor, and overhead when these three elements are not put into process
uniformly during production.True
The split-off point is that stage of a manufacturing process at which two or more
products are separated and become individually identifiableTrue
under FIFO and weighted average methods. True
Although technically all products resulting from a common process are joint products,
the term is commonly used to mean those products that are the primary objective of the
manufacturing processTrue
The estimated sales value of the by-products should be treated as a reduction in the
cost of the main products by debiting By-Product Inventory and crediting Work in
Process for this value. Any difference between the estimated and the actual sales value
would be recorded in an account such as Gain or Loss on Sale of By-Product.True
The total number of units completed during a month plus the number of units in process
at the end of the month may be less than the total number in process at the beginning of
the month plus the number placed in process during the month because of a loss of
units during the process through such occurrences as spoilage and evaporation.True
Like the weighted average costing, under FIFO costing the units and costs in the
beginning inventory maintain their separate identity from the units and costs in the
current month, thus helping to identify trends and control costs by making month-to-
month comparisons.False
Units accounted for is 10,000 units, units to be accounted for is 9,000, units lost is 1000
units.False
If the units started in process is 5,000, and finished is 3,000 units; in process end, 2000,
3/4 completed, the equivalent production is 4,500 units assume even cost
application.True

If some units are normally lost in the manufacturing process and all good units are to
absorb the cost, the effect is to decrease the unit cost of the goods completed during
the period as well as those still in process at the end of the periodFalse
The total manufacturing costs for the month will include those costs applicable to the
units that were lost. The equivalent units will be based only on units actually completed
or still in process, thereby excluding the units lost. When manufacturing costs for the
period are divided by equivalent units for the period, the resulting unit cost will include
the cost relating to the lost units.True
Only manufacturing companies use JIT purchasing. False
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those used for production departments.True
The usual starting point in budgeting is to make a forecast of sales.True
planning horizon. True
volume variance will be favorable. False
facilities and personnel but allows for some idle capacity due to operating
interruptions. False
A budget prepared for a single level of activity is called a static budget. True
controlled. False
important to ensure that enough of the right kind of labor is available to meet
production.True
variance. True
In budgeting, goals- must be realistic; however, it may not be attained. False
than direct labor hours. False
typically prepared for a one to five year time horizon. False

well as price differentials.True
planned to sell during a periodFalse
control. True
term perspective rather than just concentrating on the next or month quarter.True
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never contains fixed costs. False
measuring cost control. True
will generally be less than the net income reported under variable costing. True
When production exceeds sales, fixed manufacturing overhead costs are released from
inventory under absorption costing. False
income tax purposes. True
The break-even point occurs where the contribution margin is equal to total
variable False
costing. False
producing any particular unit.True
management.!False
The terms "traceable cost" and "variable cost" are synonymous False
can be expected to increase by 12 percent. False
If the product mix changes, the break-even point may change. True

segment. True
profits than will a low CM ratio. True
organization. True
costing and absorption costing methods. True
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generally be greater than the net income reported under variable costing. True
costing and absorption costing methods.False
Common costs should be allocated to product line segments on a basis of sales
dollars.False
Absorption costing data are generally better suited for cost-volume- profit analysis than
variable costing data. False
the larger segments may become common to the smaller segments. True
One of the assumptions of break-even analysis is that there is no change in
inventories. True
FINAL EXAM - PART 2 (PROBLEM)
ABC Company’s cost of goods sold last month was $1,450,000. Merchandise Inventory
at the beginning of the month was $250,000 and $325,000 at the end of the month.
ABC’s merchandise purchases were: $1,525,000
ABC Company uses the FIFO method in its process costing system. The company had
$6,000 of materials cost in its beginning work in process inventory and the company
added $75,000 in materials cost during the period. The equivalent units of production for
materials was 20,000. The unit cost per equivalent unit for materials would be: $3.75
ABC Corp. has two products, A and B, with the following total sales and total variable
costs:
Product A Product B
Totals sales $10,000 $30,000
Total variable cost $4,000 $24,000
What is the overall contribution margin ratio? 30%
A factory worker, who is classified as direct labor, earns $1,000 per week and is entitled
to three weeks of vacation and 5 holidays each year. How much should be accrued for
his holiday pay each week? $20.41
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Oscar Company has two service departments, personnel and custodial, and two
operating departments, A and B. Budgeted data for the current year appears below:
Service Department Operating Department
Personnel Custodial A B
Overhead costs $800 $600 $2,000 $5,000
Employees 2 18 30 50
Personnel costs are allocated on the basis of employees. Custodial costs are allocated
on the basis of space occupied. The company makes no distinction between fixed and
variable costs in its service department allocations. If the direct method of service
department allocation is used, how much Personnel Department cost would be
allocated back to the Personnel Department? $0
The standard capacity of a factory is 9,000 units per month. Cost and production data
follow:
Standard application rate for fixed factory overhead for 9,000 units $2.00
Standard application rate for variable factory overhead for 9,000 units .50
Actual number of units produced 8,800
Actual factory overhead incurred $22,700
What is the amount of overhead allowed for the actual volume of production? $22,400
Oscar Company has two service departments, personnel and custodial, and two
operating departments, A and B. Budgeted data for the current year appears below:
Service Department Operating Department
Personnel Custodial A B
Overhead costs $800 $600 $2,000 $5,000
Employees 2 18 30 50
Personnel costs are allocated on the basis of employees. Custodial costs are allocated
on the basis of space occupied. The company makes no distinction between fixed and
variable costs in its service department allocations. If the direct method of service
department allocation is used, how much Personnel Department cost would be
allocated to Operating Department A? $300
ABC Company, manufactured 700 units of Product A, a new product, during the year.
Product 1's variable and fixed manufacturing costs per unit were $6.00 and $2.00,
respectively. The inventory of Product 1 on December 31 of the year consisted of 100
units. There was no inventory of Product 1 on January 1 of the year. What would be
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the change in the dollar amount of inventory on December 31 if variable costing were
used instead of absorption costing? 200 decrease
ABC Company has provided the following data concerning its manufacturing costs and
work in process inventories last month:
Raw materials used in production . . . . $270,000
Direct labor . . . . . . . . . . . . . . . . . . . . . . . $140,000
Manufacturing overhead . . . . . . . . . . $190,000
Beginning work in process inventory $ 50,000
Ending work in process inventory . . . $ 80,000
The cost of goods manufactured for the month was: $570,000
The normal capacity of ABC Company is 4,000 units per month. At this volume,
budgeted fixed and variable factory overhead are $16,000 and $20,000, respectively. In
May, actual production was 4,200 units and actual overhead incurred was $37,900.
What is the variance between budgeted factory overhead per the flexible budget and
actual overhead incurred? $900 Unfavorable
ABC company has a single product. The selling price is $50 and the variable cost is $30
per unit. The company’s fixed expenses are $200,000 per month. What is the
company’s break-even in sales dollars? $500,000
ABC Company produces 2,000 parts each year that are used in one of its products. The
unit cost of producing this parts is
Variable cost $ 7.50
Fixed cost 6.00
Total cost $ 13.50
The part can be purchased from an outside supplier at $10 per unit. If the part is
purchased from the outside supplier, two-thirds of the fixed costs incurred in producing
the part can be eliminated. The effect on operating income from purchasing the part
would be a: $3,000 increase
ABC Company produces two industrial chemical compounds, Product 1 and Product 2,
from the same process, which last year cost $600,000. ABC produced 10,000 gallons
of Product 1, which sells for $40 per gallon and 40,000 gallons of Product 2, which sells
for $20 per gallon. Using the relative sales method, how much of the joint cost should
be allocated to Product 1? $200,000
ABC Co.'s Job 401 for the manufacture of 2,200 wagons was completed during August
at the unit costs presented below.
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Direct labor 18
Factory overhead ___14___
$56
Final inspection of Job 401 disclosed 200 spoiled wagons that were sold to a jobber for
$6,000.
Assume that spoilage loss is attributable to the exacting specifications of Job 401 and is
charged to this specific job. What would be the unit cost of the good wagons produced
on Job 401? $58.60
ABC Company bases its predetermined overhead rates on machine hours. At the
beginning of the year, the company estimated its manufacturing overhead for the year
would be $60,000 and there would be a total of 40,000 machine hours. Actual
manufacturing overhead for year amounted to $65,100 and the actual machine hours
totaled 42,000. Manufacturing overhead for the year would be: Underapplied by
$2,100
ABC 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? 17,000
Last year, ABC Company started 8,000 units into production. The company has 2,000
units in process on January 1 of that year, which were 60 percent complete with respect
to conversion, and 3,000 units in process on December 31 which were 50 percent
complete. 7,000 units were completed and transferred to the next department during the
year. Using the weighted-average method, the equivalent units of production for
conversion for the year would be: 8,500
White Company manufactures a single product and has the following cost structure:
Direct materials $3
Direct labor 4
Variable manufacturing overhead 1
Variable selling and admin expense 2
Fixed Costs per month:
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Fixed selling and admin 60,000
The company normally produces 20,000 units each month. The unit product cost under
absorption costing is: $13
company’s unit contribution margin? $20
ABC Company manufactures tables with vinyl tops. The standard material cost for the
vinyl used per 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 8,400 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: $360 unfavorable.
The ABC Company started the month of June with 3,000 units in process which were
60% completed. The company started 25,000 units during June, and at the end of the
month had 3,000 units on hand which were 40% completed. The number of units
transferred to finished goods during June was: 25,000
The following data were taken from ABC Co. on January 31:
Merchandise inventory, January 1 100,000
Sales salaries 35,000
Merchandise inventory, January 31 65,000
Purchases 560,000
What was the Cost of goods sold in January? $595,000
ABC Company produces two chemical compounds, Product 1 and Product 2 from a
joint process. Joint costs to produce 500 gallons of Product 1 and 300 gallons of
Product 2 were $80,000. A by-product, brand X, results from the joint process and has
a market value of $1,000. Assuming ABC accounts for the by-product as a reduction in
the costs assigned to the products, what are the joint costs assigned to Product 1?
$49,375
company’s contribution margin ratio? 0.40
ABC Corporation uses a standard cost system. Direct labor information for Product 1
for the month of October is as follows:
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Standard hours allowed for actual production 1,400 hours
What are actual hours worked? 1,500
ABC Co. has received a special order for 1,000 units of a sport fighting kite. The
customer has offered a price of $9.95 for each kite. The units costs of the kite, at its
normal sales level of 30,000 units per year, are detailed below:
Variable production cost $5.25
Fixed production costs 2.35
Variable selling costs 0.75
Fixed selling and admin. costs 3.45
There is ample idle capacity to produce the special order without any increase in total
fixed costs of any kind. The special order would involve lower variable selling costs -
$0.15 per unit instead of $0.75 per unit. The special order would have no impact on the
company's other sales. What effect would accepting this special order have on the
company's operating income? $4,550 increase
ABC Company has provided the following data concerning its raw materials inventories
last month:
Beginning raw materials inventory . . . . . . . . $80,000
Purchase of raw materials . . . . . . . . . . . . . . $420,000
Ending raw materials inventory . . . . . . . . . . $50,000
The cost of the raw materials used in production for the month was: $450,000
During March, ABC Company incurred the following costs on Job 122 for the
manufacture of 200 motors:
Original cost accumulation:
Direct labor 900
Factory overhead _____1,350___
$4,850
Direct costs of reworking 10 units:
Direct materials $ 100
Direct labor 180
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Factory overhead ______270____
$ 550
The rework costs were attributable to the exacting specifications of Job 122, and the full
rework costs were charged to this specific job. What is the cost per finished unit of Job
122? $27.00
ABC Company sells two products: X and Y. Data concerning the company for July
follow:
Product X Product Y
Sales $200,000 $300,000
Variable expenses 50,000 100,000
Traceable fixed expenses 80,000 150,000
In addition, there were common fixed expenses of $70,000 in July. What was the
segment margin for Product X? $70,000
The ABC Corporation uses the direct labor hour method of applying factory overhead to
production. The budgeted factory overhead last year was $300,000, and there were
50,000 machine hours and 40,000 direct labor hours budgeted. Job 564 was started
and completed during the period. Direct materials costing $5,400 were incurred. Thirty-
six direct labor hours were worked at a cost of $500, and 50 machine hours were
incurred. What is the amount of factory overhead applied to Job 564? $270
ABC Company is planning to sell Product Z for $20 a unit. Variable costs are $12 a
unit and fixed costs are $100,000. What must total sales be to break even? $250,000
ABC Company uses the direct labor cost method for applying factory overhead to
overhead were $1,100,000 and $825,000, respectively. What was ABC’s predetermined
factory overhead rate? 70.0%
A factory worker earns $500 per week and will receive a $2,000 bonus at year-end, a 2-
week paid vacation, and 5 paid holidays. The combined amount of the accruals for
bonus, vacation, and holiday pay in the weekly payroll would be: $70.00.
Last year, ABC Company produced 10,000 units and sold 9,000 units. Fixed
manufacturing overhead costs were $20,000 and variable manufacturing overhead cost
were $3 per unit. For the year, one would expect net income under the absorption
costing method to be: $20,000 more than net income under the variable costing
method.
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per unit. The company’s fixed expenses are $200,000 per month. How many units
would the company have to sell to attain target profits of $50,000? 12,500
Harrison Carter, who is classified as direct labor, earns $800 per week and is entitled to
three weeks of vacation and 10 holidays each year. How much should be accrued for
his vacation each week? $49.00
The books of Moon Products Co. revealed that the following general journal entry had
been made at the end of the current accounting period:
Factory overhead $2,000
Under- and overapplied factory overhead $2,000
The total direct material cost for the period was $40,000. The total direct labor cost, at
an average rate of $10 per hour for direct labor, was one and one-half times the direct
materials cost. Factory overhead was applied on the basis of $4 per direct labor hour.
What was the total actual factory overhead incurred for the period? $22,000
Howard Poster Incorporated had 12,000 units of work in process in Department B on
October 1. These units were 60 percent complete as to conversion costs. Materials are
added at the beginning of the process. During the month of October, 38,000 units were
transferred in from Department A and 40,000 units were completed. Howard had
10,000 units of work in process on October 31. These units were 75 percent complete
as to conversion costs. Compute the equivalent units for materials costs for the month
of October using the FIFO method. (Ignore units transferred in.) 38,000
The planned production for July is 120,000 cars. Sales are forecasted at 90,000 toy
cars for June and 120,000 toy cars for July. Each toy car requires four wheels. Brazil's
policy is to maintain a 10% of the next month's production in materials inventory at the
end of the month. Brazil's budgeted materials purchase of wheels during June is
552,000 units and the ending balance for the month of May was 56,000 units. Compute
the planned number of toy cars to produce for the month of June based on the given
information. 140,000
Quantity Price Cost
Direct materials 10 pounds 2.60 per pound $26.00
Direct labor .25 hour $10.00 per hour 2.50
$28.50
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used. Compute the materials quantity variance. $2,600 unfavorable
FINAL EXAM - PART 2 (THEORY)

In a process costing system, a work in process account is maintained for each
department. True
Variable costs vary in total amount in proportion to any change in production on sales
volume. True
An unfavorable variance would be recorded as a debit in the general ledger. True
A budget is a detailed plan designed to guide the company to reach its objectives that
includes a description of the manufacturing operations to be performed, a projection of
human resource needs for the period, and the coordination of the timely acquisition of
materials and facilities False
Absorption costing data are generally better suited for cost-volume profit analysis than
variable costing data. False
A company will typically have fewer suppliers under JIT than under a conventional
system. True
The timekeeping, but not the payroll department has the responsibility of maintaining
labor records. False
The master budget includes operating and financial budgets. Operating budgets are
stated in units and dollars; financial budgets include the budgeted balance sheet,
budgeted retained earnings statement and budgeted cash flows statement. True
With respect to materials control, the purchasing, receiving, storage, use and recording
functions should be segregated. True
The revenue budget for a service is the firm starting point for the annual budget
because the amount of client business must be projected before estimating the labor
hours and overhead required. True
At economic order quantity, usually, the ordering and carrying costs are equal. True
Factory departments are divided into two classes: service departments and production
departments but the service department is not an essential part of the organization.
False
Some companies identifying the fringe benefits of direct laborers with the specific job
being worked on (debit to work in process) while others allocate the fringe benefits to all
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jobs worked on during the period (Factory overhead). True
An objective of a JIT inventory system is to complete products just in time to ship to
customers. True
Applied factory overhead is credited for factory overhead charged to work in process.
True
In comparing FIFO and weighted average costing, FIFO provides that units started
within the current period are valued at the current period’s costs and are distorted by the
merging of the current costs with costs from the proceeding period which could be
considerably different. False
Any materials returned to vendors should be debited to cash or accounts payable and
credited to work in-process account. False
“Bottom up” budgeting gives full authority to top management to make decisions. False
The comparison of actual results with the budget to see if the planned objectives are
being met leads to the use of fixed budget. False
Raw materials price variances are best isolated when materials are placed into
production. False
When the financial statements date does not coincide with the ending date for a payroll
period, an accrued payroll should be recorded. True
In determining the material price standard, invoice cost should be included but any
freight or handling cost should be excluded. False
The usual starting point in budgeting is to make a sales forecast. True
Labor rate variances are largely out of the control of management. False
The variable costing method is not generally acceptable for external reporting. True
The average method and FIFO methods will typically produced widely different unit
costs - particularly when there are no beginning work in process inventories. False
Raw materials usually represent a significant portion of a manufacturer’s current assets
and often make up more than 90% of the products manufacturing cost. False
Only manufacturing companies use JIT system. False
Materials handling cost is normally added to direct materials cost. False
under FIFO and weighted average costing. True
preparing financial statements to meet the needs of management. True
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Under the FIFO method units transferred out are, treated in separate blocks - one block
consisting of the units in the beginning inventory, and the other block consisting of the
units started and completed during the period. True
Managerial accounting focuses more on the segments of an organization than on the
organization as a whole. True
Budgets are essentially planning devices, rather than control devices. False
the future. False
Actual manufacturing overhead costs are assigned to each job by tracing each
overhead cost to a specific job. False
The units gained in the production under a process cost system will causes a decrease
in the preceding department's unit cost but does not necessitate an adjustment of the
transferred-in unit cost. False
False
In a company that uses process costing, the cost of goods manufactured is equal to:
the cost of goods completed in the period.
Which of the following is a characteristic of a service organization? Service is consumed
at time it is provided
At a plant where car doors are manufactured, the salaries of all of the following would
be classified as direct labor except: Supervisor.
Normal losses that occur in the manufacturing process are properly classified as:
Product costs.
Which of the following is generally not considered a service organization? Autoparts
stores
The purpose of standard costing is to: Control costs and promote efficiency.
What costs are treated as product costs under direct costing? Only variable
manufacturing costs
Which of the following costs are treated as period costs under the variable costing
method? Fixed manufacturing overhead and both variable and fixed selling and
administrative expenses
Issuing a purchase order is a: Batch-level activity
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When production exceeds sales, fixed manufacturing overhead cost: Are deferred in
inventory under absorption costing
When a manufacturing company has a highly automated manufacturing plant, what is
probably the most appropriate basis of applying factory overhead costs to work in
process? Machine hours
Manufacturing cost is synonymous with all of the following terms except: Period cost
When preparing the flexible budget for factory overhead, variable costs may include all
but the following: insurance
A predetermined factory overhead rate is computed by dividing Budgeted overhead by
budgeted production.
The statement of cost of goods manufactured includes: Deprecation of factory building.
The term used to describe the cost of goods transferred from work in process inventory
to finished goods inventory is: Cost of goods manufactured
If the activity level drops by 5 percent, one would expect the variable cost: To drop in
total by 5 percent
All of the following costs are relevant in a make or buy decision except: All of the above
costs are relevant.
All of the following methods may be used to account for the revenue from scrap sales
except: Credit Materials, if the scrap would have been able to be recycled.
In a decentralized organization, decisions are made: At the lowest managerial level
possible in the organization
When sales are constant but production fluctuates: Net income will be erratic under
absorption costing.
For a factory worker, all of the following are charged to Factory Overhead except: the
overtime premium paid as a result of a “rush” job stipulated by the customer contract.
The cost of an equivalent unit is equal to: The cost necessary to complete one unit of
production
Armco, Inc., produces and sells five products lines. Which of the following costs would
typically be a traceable fixed cost of a product line? Advertising cost of the product line
Which of the following is not true about budgeting? All of the answers are true.
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In a job-order cost system, the basic document for accumulating costs by individual job
is: The job cost sheet
Which of the following is not a cost that is accumulated in Work in Process?
Administrative expense
The most common treatment of under- or overapplied overhead is to close it out to:
Cost of Goods Sold
Managerial accounting: Is not mandatory
Costs in the beginning work in process inventory are added to the costs of the current
period when making unit cost calculations by: The weighted- average cost method
Which of the following costs would not be a period cost? Indirect materials
Financial and managerial accounting are similar in that: Both rely on the same
accounting database
In a backflush accounting system, a single account is used for the following: Labor and
overhead.
What losses should not affect the recorded cost of inventories? Abnormal losses
Testing the prototype of a new product is a: Product-level activity
All of the following would be product costs except: Advertising
The file for each factory employee that shows the time the employee spent on each job,
as well as time spent as indirect labor is the: labor time record.
Which of the following costs would not be included in factory overhead in the
manufacture of a student’s desk? The wood used to form the top of the desk.
Which of the following is not included in departmental product costs? Cost of sales and
administrative departments that have been allocated to the production department
When preparing the flexible budget for factory overhead, variable costs may include all
but the following: insurance
In a standard cost system, when the materials price variance is recorded at the time the
material is purchased, the materials purchase price variance is obtained by multiplying
the: Actual quantity purchased by the difference between actual price and standard
price
II. MULTIPLPE CHOICE – THEORY 4. B
1. A 5. B
2. D 6. C
3. C 7. D
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8. B 9. A
1. Cost classifications are based on the relationship of costs to all of the following
except:
a. Ledger accounts
b. Accounting periods
c. Products
d. Volume of production
2. Depreciation on factory buildings and equipment is classified as:
a. Selling expense
b. Administrative expense
c. Indirect Materials
d. Factory Overhead
3. An expense that is likely to contain both fixed and variable components is:
a. Security guard wages
b. Supplies
c. Heat, light and power
d. Small tools
4. An equivalent unit of material or conversion cost is equal to:
a. The prime cost
b. The amount of material or conversion cost necessary to complete one unit of
production
c. A unit of work in process inventory
d. The amount of material or conversion cost necessary to start a unit of production into
work in process
5. The product flow format where certain portions of the work are done simultaneously
and then brought together for completion is called:
a. Applied
b. Parallel
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c. Standard
d. Selective
6. An item that does not appear on a cost of production report is:
a. Work in process, beginning inventory
b. Cumulative costs through the end of departmental production
c. Finished goods ending inventory
d. Materials used in the department
7. A characteristic of a process costing system is that:
a. Costs are accumulated by order
b. It is used by company manufacturing custom machinery
c. Standard costs are not applicable
d. Work in process inventory is restated in terms of completed units
8. The general model for calculating a quantity variance is:
a. Actual quantity of inputs used x (actual price – standard price)
b. Standard price x (actual quantity of inputs used – standard quality allowed for output)
c. (actual quantity of inputs used at actual price) - (standard quantity allowed for output
at a standard
price)
d. Actual price x (actual quantity of inputs used – standard quality allowed for output.)
9. An unfavorable materials quantity variance indicates that:
a. Actual usage of material exceeds the standard material allowed for output.
b. Standard material allowed for output exceeds the actual usage of material.
c. Actual material price exceeds standard price.
d. Standard material price exceeds actual price.
10. If the actual labor hours worked exceed the standard labor hours allowed, what type
of variance will occur?
a. Favorable labor efficiency variance
b. Favorable labor rate variance
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c. Unfavorable labor efficiency variance
d. Unfavorable labor rate variance
11. The materials price variance should be computed:
a. When materials are purchased
b. When materials are used in production.
c. Based upon the amount of materials used in production when only a portion of
materials purchased is actually used.
d. Based upon the difference between the actual quantity of inputs and the standard
quantity allowed for output times the standard price.
12. A favorable materials Price variance coupled with an unfavorable material usage
variance would most likely result from:
a. Labor efficiency problems
b. Machine efficiency problems
c. The purchase and use of higher than standard quality material
d. The purchase and use of lower than standard quality material
13. Costs to be incurred after the split-off point are most useful for:
a. Adjusting inequities in the joint cost allocation procedure
b. Determining the levels of joint production
c. Assessing the desirability of further processing
d. Setting the mix of output products
14. The following statement that best describes a by-product is:
a. A product that usually produces a small amount of revenue when compared to the
main product’s revenue
b. A product that does not bear any portion of the joint processing costs.
c. A product that is produced from material that would otherwise be scrap
d. A product that has a lower unit selling price than the main product
e. A product created along with the main product whose sales value does not cover its
cost of production
15. Relative sales value at split-off used to allocate:
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COST BEYOND SPLIT-OFF JOINT COSTS
a. yes no c. no no
b. no yes d. yes yeS
16. If a company obtains two salable products from the refining of one ore, the refining
process should be accounted for as a(n):
a. Mixed cost process c. Extractive process
b. Joint process d. Reduction process
17. Which of the following is a commonly used joint cost allocation method?
a. High-low method
b. Regression analysis
c. Approximated sales value at split-off method
d. Weighted average quantity technique
18. A primary purpose of using a standard cost system is
a. To make things easier for managers in the production facility.
b. To provide a distinct measure of cost control.
c. To minimize the cost per unit of production.
d. B and c are correct
19. The standard cost card contains quantities and costs for
a. Direct material only
b. Direct labor only
c. Direct material and direct labor only
d. Direct material, direct labor, and overhead
20. Which of the following statements regarding standard cost system is true?
a. Favorable variances are not necessarily good variances
b. Managers will investigate all variances from standard.
c. The production supervisor is generally responsible for material price variances.
d. Standard costs cannot be used for planning purposes since costs normal change in
the future.
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Items 1 –3 are based on the following information:
Lozada, Bondoc, Ebido Corporation uses the weighted-average method in its process
costing system. This month, the beginning inventory is the first processing department
consisted of 600 units. The costs and percentage completion of these units in beginning
inventory were:
COST PERCENT COMPLETE
Materials P10,900 65%
Conversion Cost P4,000 15%
A total of 5,700 units were started and 4,900 units were transferred to the second
processing department during the month. The following costs were incurred in the first
processing department during the month:
Materials Cost P127,400
Conversion Cost P201,400
The ending inventory was 85% complete with respect to materials and 70% complete
with respect to conversion costs.
1. How many units are in ending work in process inventory in the first processing
department at the end of the month?
a. 5,100 b. 800 c. 1,400 d. 900
2. What are the equivalent units for conversion costs for the month in the first
processing department?
a. 4,900 b. 5,880 c. 6,300 d. 980
3. The cost per equivalent unit for materials for the month in the first processing
department is closest to:
a. P20.92 b. P21.95 c. P20.22 d. P22.71
4. Gaboy Company computed the flow of physical units completed for Department M for
the month of March as follows:
Units completed:
From work in Process on March 1 15,000
From March Production 45,000
Total ----------------------------------------------------------------------------- 60,000
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Materials are added at the beginning of the process. The 12,000 units of work in
Process at March 31 were 80%
complete as to conversion costs. The work in process at March 1 was 60% complete as
to conversion costs. Using the fifo method, the equivalent units for March conversion
costs were:
a. 60,600 b. 55,200 c. 57,000 d. 54,600
5. Suficiencia Company computed the physical flow of units for Department for the
month of April as follows:
Units completed:
From work in process on April 1 10,000
From April production 30,000
Total ----------------------------------------------------------------------------- 40,000
Materials are added at the beginning of the process. Units of work in process at April 30
were 8,000. The work in process at April 1 was 80% complete as to conversion costs,
and the work in process at April 30 was 60% complete as to conversion costs. What are
the equivalent units of production for the month of April using the fifo method?
Materials Conversion Costs
a. 48,000 48,000 c. 36,800 38,000
b. 40,000 47,600 d. 38,000 36,800
6. Department A is the first stage of Bascoguin Company’s production cycle. The
following information is available for conversion costs for the month of April:
UNITS
Beginning work in process (60% complete) 20,000
Started in April 340,000
Completed in April and transferred to Dept B 320,000
Ending work in Process (40% complete) 40,000
Using the fifo method, the equivalent units for the conversion cost calculation are:
a. 336,000 b. 360,000 c. 328,000 d. 324,000
7. Information on Galve Company’s direct labor costs is as follows:
Standard direct labor rate P3.75
Actual direct labor rate P3.50
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Direct labor usage (efficiency) variance unfavorable P4,200
What were the actual hours worked, rounded to the nearest hour?
a. 11,914 b. 10,714 c. 11,120 d. 11,200
8. Each unit of Product Gascon requires two direct labor hours. Employee benefit costs
are treated as direct labor costs. Data on direct labor are as follows:
Number of direct labor employees 25
Weekly productive hours per employee 30
Estimated weekly wages per employee P240
Employee benefits (related to weekly wages) 25%
The standard direct labor cost per unit of Product Gascon is:
a. P8.00 b. P10.00 c. P12.00 d. P20.00
Items 9 – 10 are based on the following information:
Pudadera and Fernandez Company employs a standard absorption system for product
costing. The standard cost of its product is as follows:
Direct materials P14.50
Direct labor (2 direct labor hours x P8) P16.00
Manufacturing overhead (2 direct labor hours x P11) P22.00
Total Standard Cost P52.50
The manufacturing overhead rate is based upon a normal activity level of 600,000 direct
labor hours. Pudadera planned to produce 25,000 units each month during the year.
The budgeted annual manufacturing overhead is:
Variable P3,600,000
Fixed P3,000,000
During November, Pudadera produced 26,000 units. Pudadera used 53,500 direct labor
hours in November at a cost of P433,350. Actual manufacturing overhead for the month
was P250,000 fixed and P325,000 variable.
9. The manufacturing overhead controllable variance for November is
a. P9,000 U b. P13,000 U c. P9,000 F d. P4,000
10. The manufacturing overhead volume variance for November is:
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a. P12,000 U b. P10,000 F c. P3,000 U d. P9,000 U
Items 11 – 13 are based on the following information:
Guinabo, Gabanto, and Resol Company has established standards as follows:
Direct Material 3 Pounds @ P4/pound = P12 per unit
Direct labor 2 hours @ P8/ hour = P16 per unit
Variable Overhead 2 hours @ P5/hour = P10 per unit
Actual production figures for the past year were as follows:
Units Produced 500
Direct Materials Used 1,600 pounds
Direct Material Purchases (3,000 pounds) P12,300
Direct labor cost (950 hours) P7,790
Variable overhead cost incurred P4,655
11. The materials price variance is
a. P160 U b. P6,300 U c. P300 U d. P150 U
12. The materials quantity variance is
a. P400 U b. P410 F c. P410 U d. P6,000 U
13. The labor rate variance is:
a. P210 F b. P190 F c. P399 F d. P190 U
14. Vito Company manufactures products S and T from a joint process. The market
value at Split-Off was P50,000 for 6,000 units of product S and P50,000 for 2,000 units
of product T. Assuming that the portion of the total joint cost properly allocated to
product S using the market value method was P30,000, the total joint cost was:
a. P40,000 b. P42,500 c. P45,000 d. P60,000
15. Reyes Corporation manufactures liquid chemicals A and B from a joint process.
Joint costs are allocated on the basis of relative market value at split-off. It costs P4,560
to process 500 gallons of product A and 1,000 gallons of product B to the split-off point.
The market value at split-off is P10 per gallon for product A and P14 for product B.
Product B requires an additional process beyond split-off at a cost of P2 per gallon
before it can be sold. What is Reyes’ cost to produce 1,000 gallons of product B?
a. P5,040 b. P4,360 c. P4,860 d. P5,360
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Items 16 – 18 are based on the following information
Tadiaque, Anduque, and Alonzaga Corp. Manufactures Products J, K, L, and M from a
joint process. Additional information is as follows:
IF PROECSSED FURTHER
UNITS MV AT ADDITIONAL MARKET
PRODUCT PRODUCED SPLIT-OFF COSTS VALUE
J 6,000 P 80,000 P 7,500 P 90,000
K 5,000 60,000 6,000 70,000
L 4,000 40,000 4,000 50,000
M 3,000 20,000 2,500 30,000
18,000 P 200,000 P 20,000 P 240,000
16. Assuming that total joint costs of P160,000 were allocated using the market value at
split-off approach, what joint costs were allocated to product J?
a. P40,000 b. P53,333 c. P60,000 d. P64,000
split-off approach, what joint costs were allocated to product K?
a. P40,000 b. P44,444 c. P46,667 d. P48,000
split-off approach, what joint costs were allocated to product L?
a. P16,000 b. P32,000 c. P46,667 d. P48,000
19. Lozada Company manufactures three main products U, N, and O, from a joint
process. Joint costs are allocated on the basis of relative market value at split-off.
Additional info for June Production activity follows:
U N O TOTAL
Units Produced 50,000 40,000 10,000 100,000
Joint Costs ? ? ? P450,000
MV at Split-Off P420,000 P270,000 P60,000 P750,000
Add’nal Costs if Processed Further P88,000 P30,000 P12,000 P130,000
MV if Processed Further P538,000 P320,000 P87,000 P945,000
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Assuming that the 10,000 units of O were processed further and sold for P87,000, what
was Lozada’s Gross Profit on this sale?
a. P28,500 b. P39,000 c. P51,000 d. P75,000
20. Bondoc Co. Manufactures products A and B from a joint process. Market value at
split-off was P700,000 for 10,000 units of A, and P300,000 for 15,000 units of B. Using
the market value at split-off approach, joint costs properly allocated to A were P140,000.
Total joint costs were:
a. P98,000 b. P200,000 c. P233,333 d. P350,000
4. The following information is available for the month of August from the First department of the Twigg
Corporation:
Units
Work in process, August 1 (60% complete) 50,000
Started in August 190,000
Work in process, August 30 (40% complete) 80,000
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 August?
a. 192,000 240,000
b. 190,000 192,000
c. 240,000 208,000
d. 240,000 192,000
ANSWER: d
RATIONALE: Work in process, August 1 50,000
Started in August 190,000
Total processed during August 240,000
Work in process, August 30 80,000
Finished and transferred during August 160,000
Equivalent production:
Materials:
Finished and transferred during month 160,000
Equivalent units of work in process, end of month
(80,000 units,
all materials) 80,000
Total 240,000
Labor and factory overhead:
Finished and transferred during August 160,000
Work in process, end of August (80,000 units, 32,000
40% completed)
Total 192,000
POINTS: 1
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DIFFICULTY: Challenging
LEARNING OBJECTIVES: PRIN.EDWA.16.38 - LO 6:1
ACCREDITING STANDARDS: AACSB Analytic
ACCT.AICPA.FN.03 - Measurement
BUSPROG.03 - Analytic
IMA-Cost Management
OTHER: Bloom's: Applying
5. 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 $14,550
Started in June 85,000 $66,300
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 for June is:
a. $0.74
.
b. $0.90
.
c. $0.77
.
d. $0.78
.
ANSWER: c
RATIONALE: 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 $14,550
Added during June 66,300
Total materials cost $80,850
$80,850 / 105,000 units = cost per equivalent unit $ .77

POINTS: 1
DIFFICULTY: Moderate
IMA-Cost Management
6. Plemmon Company adds materials at the beginning of the process in the forming department, which is
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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
Units completed and transferred to next department
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. $7,15
4
b. $6,20
0
c. $7,75
0
d. $6,41
7
ANSWER: b
RATIONALE: 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
Total materials cost for period $46,500
$46,500 / 75,000 units = cost per equivalent unit $ .62

POINTS: 1
IMA-Cost Management
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7. The following information is available for the month of April from the Second department of the
Armque Corporation:
Units
Transferred out of Second Department in April 280,000
Materials are added at the end of the process in the Second department. Using the average cost method,
what are the equivalent units of production for materials and conversion costs 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
ANSWER: d
RATIONALE: Equivalent production:
Materials:
Finished and transferred during month 280,000
Equivalent units of work in process, end of month
(60,000 units,
no materials) 0
Total 280,000
Finished and transferred during April 280,000
Work in process, end of April (60,000 units, 40% 24,000
completed)
Total 304,000
POINTS: 1
IMA-Cost Management
11. 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
-COST of Death-
What are the equivalent units for:
Materials Conversion Costs
a. 5,650 5,450
b. 5,450 5,275
c. 4,850 4,400
d. 5,400 5,220
ANSWER: b
RATIONALE: Conversion
Material
Costs
Completed and transferred to packing 4,800 4,800
department
Ending work-in-process: 700 x 75% - 525 350
Material 700 x 50% - Conversion costs
500 x 25% - Material 500 x 25% - Conversion 125 125
costs
5,450 5,275
POINTS: 1
IMA-Cost Management
15. Boron Refiners had 50,000 gallons started in its process in June. At June 30, 35,000 gallons were
completed and transferred to finished goods and 10,000 gallons were still in process, one-fourth
completed as to materials, labor and overhead. The remaining 5,000 units were lost to evaporation, a
normal result of the process. Costs of production during the month were $75,000, $50,000, and $25,000
for material, labor and overhead, respectively. What is the cost per equivalent unit in June?
a. $4.0
0
b. $3.3
3
c. $3.5
3
d. $3.7
5
ANSWER: a
RATIONALE: Units started 50,000
Units completed and transferred 35,000
to finished goods
Units still in process, 25% 10,000 45,000
completed
-COST of Death-
Units lost in production 5,000
Equivalent units:
Started and completed 35,000
In process, end of month (10,000 2,500 37,500
x 25%)
Costs:
Material $ 75,000
Labor 50,000
Overhead 25,000
$150,000
Cost per equivalent unit $4.00

($150,000 / 37,500)
POINTS: 1
IMA-Cost Management
29. Klug Industries adds materials at the beginning of the process in the molding department, which is the
first of two stages of its production cycle. Information concerning the materials used in the molding
department in August follows:
Materials
Units Costs
Units completed and transferred to next department
during August 21,000
Using the FIFO method, what is the materials cost of the work in process at August 31 (rounded to
nearest dollar)?
a. $28,00
0
b. $29,40
0
c. $29,63
9
d. $25,35
8
ANSWER: d
-COST of Death-
RATIONALE: Units
Beginning work in process 8,000
Started 20,000
Total 28,000
Less completed 21,000
Ending work in process (complete as to material) 7,000
Unit cost (See calculation below) $3.6225
Materials cost in ending work in process $25,358
To complete beginning in process units (materials -0-
all 100%)
Units started and finished during month (60,000 13,000
started - 10,000 in ending WIP)
Units in process, April 30 with all materials 10,000
Materials cost:
Costs added during June $72,450
Total materials cost for period $72,450
$72,450 / 20,000 units = cost per equivalent unit $3.6225

POINTS: 1
IMA-Cost Management
31. The following information is available for the month of April from the Second department of the
Armque Corporation:
Units
Transferred to Finished Goods in April 280,000
Materials are added at the end of the process in the Second department. Using the first-in, first-out
method, what are the equivalent units of production for materials and conversion costs for the month of
April?
a. 250,000 271,000
b. 280,000 271,000
c. 340,000 259,000
d. 280,000 259,000
ANSWER: b
-COST of Death-
RATIONALE: Equivalent production:
Materials:
To complete beginning units in process (materials were 0% 90,000
complete)
Units started and finished during the month (250,000 started - 190,000
60,000 in end. WIP)
Equivalent units of work in process, end of month (60,000 0
units, no materials
Total 280,000
To complete beginning units in process (conversion costs 45,000
were 50% complete)
Units started and finished during the month (250,000 started - 190,000
60,000 in end. WIP)
Work in process, end of April (60,000 units, 60% completed) 36,000
Total 271,000
POINTS: 1
IMA-Cost Management
42. Braun Company produces two chemical compounds, Herzog and Lomax from a joint process. Joint
costs to produce 500 gallons of Herzog and 300 gallons of Lomax were $80,000. A by-product, Horst,
results from the joint process and has a market value of $1,000. Assuming Braun accounts for the by-
product as a reduction in the costs assigned to the products, what are the joint costs assigned to Herzog?
a. $39,50
0
b. $49,37
5
c. $50,00
0
d. $40,00
0
ANSWER: b
RATIONALE: Joint costs $80,000
Less: market value of by-product 1,000
$79,000
Portion allocable to Herzog (500 / 62.5%
(500+800))
$49,375
POINTS: 1
-COST of Death-
IMA-Cost Management
43. Anderson Compounds produces two industrial chemical compounds, Gorp and Gumm, from the same
process, which last year, cost $240,000. Anderson produced 20,000 pounds of Gorp, which sells for $60
per gallon and 60,000 gallons of Gumm, which sells for $30 per gallon. After the split-off point, Gorp
required additional processing costing $300,000 to make it salable. Using the adjusted sales method, what
is the completed cost of Gorp?
a. $300,00
0
b. $380,00
0
c. $520,00
0
d. $540,00
0
ANSWER: b
RATIONALE: Costs Percent Assignmen
Produc Pric Ultimate Sales value
Pounds after split- sales t of joint
t e sales value at split-off
off value costs
20,00 $1,200,00 $300,00 33.33
Gorp $60 $ 900,000 $ 80,000
0 0 0 %
60,00 66.67
Gumm 0 $30 1,800,000 0 1,800,000
%
160,000
$3,000,00 $300,00 $2,700,00
$240,000
0 0 0
The total cost of Gorp would be $80,000 + $300,000 = $300,000
POINTS: 1
IMA-Cost Management
-COST of Death-

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FINAL EXAM - PART 1 (THEORY)

Losses from abnormal spoilage due to unexpected circumstances such as

The usual starting point in budgeting is to make a forecast of sales. TRUE

A budgeted balance sheet is part of a master budget; it is also an operating

The basic idea behind responsibility accounting is that each manager's

A budget prepared for a single level of activity is called a static budget. TRUE

Fixed costs should never be included in the flexible budget. False

Budget are essentially planning devices, rather than control devices. False

At break-even point, fixed cost is equal to contribution margin. TRUE

What losses should not affect the recorded cost of inventories? Abnormal

In process costing system, the materials can be added in any department

The normal or standard loss in processing departments is generally considered:

Flexible budgeting is a reporting system wherein the: Planned level of activity

Which of the following is an operating budget? Selling and Administrative

Consider the following budgets:

(1) Direct labor (2) Income statement

In what order should these budgets be prepared? 4,3,1,2

Quinn Company’s master budget called for 30,000 units of production. Budgeted

At the break-even-point, fixed cost is always equal to the contribution margin

A manager can increase income under absorption costing by increasing

Which of the following does not appear on an income statement prepared using

Which of the following does not appear on an income statement prepared using

Under variable costing, fixed manufacturing overhead is: expensed

FINAL EXAM - PART 1 (PROBLEM))

Calico Corporation makes the following products:

Cotton cloth 1,500,000 yds. $.80

Wool cloth 1,000,000 yds. $.75

The production of a new product required Ayab Manufacturing Co. to lease

Amount Per Unit

Materials $150,000 $5.00

Direct labor 69,000 2.30

Factory overhead 30,000 1.00

Total $285,000 9.50

Variable costs 350,000

Contribution margin 150,000

Fixed costs 80,000

Net income $ 70,000

Franklin Company is a medium-sized manufacturer of bicycles. During the year a new

Unit Sales Unit Variable CM per

Compute the weighted-average contribution margin per unit. $3.1429

Selling price $86

Units in beginning inventory 0

Units produced 6,600

Units sold 6,500

Units in ending inventory 100

Variable costs per unit:

Direct materials $22

Direct labor $12

Variable selling and

Fixed manufacturing overhead $231,000

Fixed selling and administrative $32,500

Selling price $86

Units in beginning inventory 0

Units produced 6,600

Units sold 6,500

Units in ending inventory 100

Variable costs per unit:

Direct materials $22

Direct labor $12

Variable selling and

Fixed manufacturing overhead $231,000

Using the following data as follows:

Direct labor 120,000