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Testbank
to accompany
Accounting
9th Edition
by
Prepared by
Peter Hall
Multiple-choice questions
1. Which of these statements is not correct?
Correct answer: c
Learning objective 8.1 ~ explain three ways in which costs are used by management for decision
making.
Correct answer: a
Learning objective 8.1 ~ explain three ways in which costs are used by management for decision
making.
3. How many of the following are reasons why managers need information on
manufacturing costs?
• Inventory valuation
• Profit determination
• Evaluation of past performance
• Pricing
a. 1
b. 2
*c. 3
d. 4
Correct answer: c
Learning objective 8.1 ~ explain three ways in which costs are used by management for decision
making.
4. Although the terms cost and expense are often used synonymously there is a
difference between them. A cost can be an asset or an expense whereas an expense is:
*a. the consumption or loss of resources that will result in a decrease in equity.
b. where the future economic benefits have not expired.
c. used to run the business.
d. paid out in cash.
Correct answer: a
Learning objective 8.1 ~ explain three ways in which costs are used by management for decision
making.
Correct answer: b
Learning objective 8.1 ~ explain three ways in which costs are used by management for decision
making.
a. Manufacturing overhead costs are treated as period costs rather than product
cost.
*b. Product costs are included in inventory until the product is sold.
c. For a retailer all costs and expenses are treated as period costs.
d. Finished goods inventory includes also includes the cost of raw materials.
Correct answer: b
Learning objective 8.2 ~ explain the nature of manufacturing operations.
7. Costs which are not directly required to produce a product but are expensed in the
income statement in the period in which they are incurred are called:
a. product costs.
b. other costs.
*c. period costs.
d. fixed costs.
Correct answer: c
Learning objective 8.2 ~ explain the nature of manufacturing operations.
8. Product costs are integral to the production of a product and are expensed in the period
in which the:
Correct answer: a
Learning objective 8.2 ~ explain the nature of manufacturing operations.
a. Direct materials
b. Production supervisor’s salary
*c. Sales salaries
d. Factory rent
Correct answer: c
Learning objective 8.2 ~ explain the nature of manufacturing operations.
a. factory power.
b. wages of factory workers.
c. material used in production.
*d. advertising of a new product.
Correct answer: d
Learning objective 8.2 ~ explain the nature of manufacturing operations.
a. Telephone expense
*b. Assembly line worker’s wages
c. Depreciation of office furniture
d. Interest expense
Correct answer: b
Learning objective 8.2 ~ explain the nature of manufacturing operations.
a. 0
b. 1
c. 2
*d. 3
Correct answer: d
Learning objective 8.2 ~ explain the nature of manufacturing operations.
Correct answer: a
Learning objective 8.2 ~ explain the nature of manufacturing operations.
14. Which of the following statements concerning product and period costs is incorrect?
a. The basis of the distinction between product and period costs is the timing of
the recognition of an expense in the income statement.
*b. Service businesses have both period and product costs.
c. Product costs are included in the cost of inventories until the products are sold.
d. Period costs are not directly required to produce the product.
Correct answer: b
Feedback: Service businesses have period costs but no product costs.
Learning objective 8.2 ~ explain the nature of manufacturing operations.
Correct answer: b
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
*a. Items such as glue, nails and screws become part of the finished product but are
usually classified as factory overhead.
b. The cost of collecting debts from customers is classified as part of factory
overhead.
c. Power used for factory lighting and heating is classified as a period cost.
d. Absorption costing splits up factory costs into product and period costs.
Correct answer: a
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
17. Issues that must be resolved in accounting for factory overhead are all of the following
except:
Correct answer: b
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
Correct answer: d
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
19. If projected factory overhead is $360 000 p.a. and projected direct labour hours are 60
000 hours p.a., the overhead application rate is:
a. $60 000.
*b. $6 per direct labour hour.
c. $360 000.
d. $0.60 per direct labour hour.
Correct answer: b
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
20. What is the correct order in which the flow of costs in a manufacturing organisation
occurs?
i. Charge raw materials, direct labour and factory overhead to work in process
ii. Purchase stocks of raw materials
iii. Transfer finished goods to cost of sales
iv. Transfer finished goods to stock of finished goods
a. i, ii, iii, iv
b. ii, i, iii, iv
*c. ii, i, iv, iii
d. ii, iii, i, iv
Correct answer: c
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
21. Direct material costs plus direct labour costs are known as:
Correct answer: a
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
Correct answer: b
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
23. If expected factory overhead costs are $600 000 and expected direct labour hours are
40 000, what is the overhead application rate per direct labour hour?
*a. $15
b. $150
c. $0.66
d. $66
Correct answer: a
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
24. Direct labour costs plus factory overhead costs are known as:
a. prime costs.
*b. conversion costs.
c. direct costs.
d. variable costs.
Correct answer: b
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
25. A clothing manufacturer has a production department where the clothing is produced
and two other departments, a warehouse and a general office, which are known as:
a. auxiliary departments.
b. minor departments.
*c. service departments.
d. training departments.
Correct answer: c
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
26. Costs can be classified into those that are traceable to products and those that are non-
traceable. The costs of raw materials that are directly and economically traceable as
an integral part of a product, are called:
Correct answer: a
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
27. For a manufacturer all factory costs that are not directly traceable to products are
classed as:
a. indirect materials.
b. period costs.
*c. factory overhead.
d. variable costs.
Correct answer: c
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
28. In calculating product costs the wages paid to employees whose time can be directly
traced to products are classified as:
Correct answer: b
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
29. Indirect materials and indirect labour incurred by the factory are classed as:
Correct answer: a
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
30. Direct material costs do not include small items that it is uneconomical to trace to
products. Which of the following would not be included as a direct materials cost for
a furniture manufacturer?
a. Wood
b. Materials
*c. Glue
d. Handles
Correct answer: c
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
31. The costs of the two service departments, maintenance and quality control, that
provide support for the production departments are classed as:
Correct answer: a
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
32. If the overhead application rate is $10 per direct labour hour and 120 direct labour
hours are used in printing a text book how much overhead is included in the total
production cost of the book?
a. $10
b. $120
*c. $1200
d. $12 000
Correct answer: c
Feedback: $1200 of overhead will be included in the total production cost of the book = 120
hours x $10 per hour.
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
33. If total fixed costs are $25 000 what is the per unit overhead cost for R Co if 5000
units are produced? Assume units of production are used as the basis for applying
overhead to product.
a. $50
*b. $5
c. $0.50
d. $0.05
Correct answer: b
Feedback: $5 = $25 000/5000 units.
Learning objective 8.3 ~ define and identify the three manufacturing cost elements — direct
materials, direct labour and factory overhead.
Correct answer: d
Learning objective 8.4 ~ explain the basic nature of absorption costing and a cost allocation
based on cost behaviour.
a. only allows the use of direct costing for external financial reporting purposes.
b. allows the use of direct costing and absorption costing for external financial
reporting purposes.
*c. only allows the use of absorption costing for external financial reporting
purposes.
d. does not allow the use of either direct costing or absorption costing for external
financial reporting purposes.
Correct answer: c
Learning objective 8.4 ~ explain the basic nature of absorption costing and a cost allocation
based on cost behaviour.
Correct answer: d
Learning objective 8.4 ~ explain the basic nature of absorption costing and a cost allocation
based on cost behaviour.
Correct answer: a
Learning objective 8.4 ~ explain the basic nature of absorption costing and a cost allocation
based on cost behaviour.
38. Costs that remain constant in total (over the relevant range) as the volume of
production changes are known as:
a. indirect costs.
b. direct costs.
c. variable costs.
*d. fixed costs.
Correct answer: d
Learning objective 8.4 ~ explain the basic nature of absorption costing and a cost allocation
based on cost behaviour.
Correct answer: d
Learning objective 8.4 ~ explain the basic nature of absorption costing and a cost allocation
based on cost behaviour.
40. If total fixed costs are $250 000 what is the per unit overhead cost for Maxima Ltd if
50 000 units are produced? Assume units of production are used as the basis for
applying overhead to product.
a. $50
*b. $5
c. $0.50
d. $0.05
Correct answer: b
Learning objective 8.4 ~ explain the basic nature of absorption costing and a cost allocation
based on cost behaviour.
Correct answer: b
Learning objective 8.4 ~ explain the basic nature of absorption costing and a cost allocation
based on cost behaviour.
42. What type of business would calculate cost of sales in the income statement as stock
of finished goods at start + purchases – stock of finished goods at end?
a. A carpet factory
b. manufacturer private school
c. A lawyer
*d. A shoe shop
Correct answer: d
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
43. What type of business would calculate cost of sales in the income statement as stock
of finished goods at start + purchases – stock of finished goods at end?
a. A service business
b. A manufacturer
*c. A retailer
d. A non-profit organisation
Correct answer: c
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
44. What is the statement prepared by a manufacturer to calculate the cost of the goods
manufactured called?
Correct answer: d
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
45. In a manufacturing organisation the transfer from the work in process inventory account
to the finished goods inventory account represents:
Correct answer: c
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
46. Assume direct materials, direct labour and factory overhead for the period total $700
000. If work in process at the start is $55 000 and work in process at the end is $40
000, what is the cost of goods manufactured?
a. $700 000
b. $735 000
c. $685 000
*d. $715 000
Correct answer: d
Feedback: $715 000 = $700 000 + $55 000 – $40 000.
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
47. The format for the cost of goods manufactured statement is direct materials + direct
labour + factory overhead + __________ – work in process at end.
a. Indirect materials
*b. Work in process at start
c. Indirect materials
d. Indirect labour
Correct answer: b
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
48. Assume Coburg Heaters issued $50 500 of direct materials to production, total direct
labour costs were $30 000 and total overhead costs were $30 000. If work in process
at the start was $10 000 and work in process at the end was $12 000, what is the total
cost of goods manufactured for the period?
a. $50 500
b. $80 500
c. $110 500
*d. $108 500
Correct answer: d
Fedback: $108 500 = $50 500 + $30 000 + $30 000 + $10 000 - $12 000.
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
49. Any increase in unit product cost must result in a decreased profit margin if the
selling price of the product cannot be:
a. measured.
b. decreased.
*c. increased.
d. calculated.
Correct answer: c
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
50. For a manufacturer, if cost of goods manufactured is $652 000, stock of finished
goods at start is $40 000 and stock of finished goods at end is $36 000, calculate the
cost of sales.
a. $728 000
b. $648 000
*c. $656 000
d. Cannot be calculated with the information available
Correct answer: c
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
a. $50
b. $80
*c. $95
d. $105
Correct answer: c
Feedback: $50 + $30 + $15
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
52. When preparing a cost of goods manufactured statement from the following
information, what is the total cost of goods manufactured?
Direct materials $6
Advertising expenses 3
Indirect labour 1
Indirect materials 5
Direct labour 2
Other manufacturing overhead 3
a. $23
b. $20
*c. $17
d. $16
Correct answer: c
Feedback: $6 + $1 + $5 + $2 + $3
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
53. These figures have been extracted from the trial balance of ABC Ltd for June 2014:
Direct materials $5 000
Light and power factory 14 000
Freight outwards 2 000
Office salaries 11 000
Depreciation on factory plant 6 000
Directors' fees 7 000
Salesmen's commission 8 000
Factory wages - direct 30 000
- indirect 10 000
There was no opening or closing work in process. What are total factory overhead
expenses?
a. $35 000
*b. $30 000
c. $60 000
d. $20 000
Correct answer: b
Feedback: $14 000 + $6000 + $10 000
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
54. Kid Gloves Manufacturing reports the following information for the year. Determine the
cost of finished goods manufactured.
*a. $4000
b. $3000
c. $5000
d. $6000
Correct answer: a
55. Mega Manufacturing’s accounting records provide the following information. What is
the business direct material cost for the period?
Correct answer: a
Feedback: $35 000 + $11 500 – $12 700 – $8900 – $7500
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
*a. $8000.
b. $10 000.
c. $13 000.
d. $18 000.
Correct answer: a
Feedback: $10 000 + $13 000 – $15 000
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
57. Before the application of overhead costs Chrome & Steel Ltd has the following costs
traced to production:
Direct materials Direct labour
Charged to production $50 000 $40 000
Assuming that overhead is applied at the rate of 80% of direct labour cost what is the
amount of inventory finished for the period (assume no work in process)?
a. $50 000
b. $90 000
*c. $122 000
d. $130 000
Correct answer: c
Feedback: $50 000 + $40 000 + OH $32 000
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
a. $50 000.
b. $60 000.
*c. $55 000.
d. $45 000.
Correct answer: c
Feedback: $100 000 – [$5000 + $50 000 + $80 000 – $90 000]
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
59. In relation to the cost of goods manufactured report which is not a correct statement?
a. The ending work in process is subtracted to obtain the cost of completed goods
manufactured for the period.
*b. Cost of goods manufactured is transferred to the cost of sales account.
c. It is prepared to calculate the cost of goods completed in the period.
d. The total of direct materials, direct labour and factory overhead represent the
manufacturing costs for the period.
Correct answer: b
Learning objective 8.5 ~ identify the essential differences in the financial statements for retail
and manufacturing entities and prepare a cost of goods manufactured statement.
60. In the general ledger the accounts used to determine the cost of goods manufactured
are closed to the manufacturing summary account which is then closed to the:
Correct answer: a
Learning objective 8.6 ~ apply the additional accounts and accounting procedures required
for a manufacturing entity, including the completion of a worksheet.
61. For a manufacturer a periodic inventory system has many limitations and deficiencies.
These limitations____________ the number of products and producing departments.
a. decrease with
*b. increase with
c. are unaffected by
d. are equal to
Correct answer: b
Learning objective 8.6 ~ apply the additional accounts and accounting procedures required
for a manufacturing entity, including the completion of a worksheet.
62. Which of these is a not a limitation of the use of a periodic inventory system by a
manufacturer?
a. Costing information is not available before the end of the accounting period.
b. A physical stocktake is necessary before costing information can be
determined.
c. The costing information contains estimations and approximations.
*d. The method is more costly to implement than the perpetual method.
Correct answer: d
Learning objective 8.6 ~ apply the additional accounts and accounting procedures required
for a manufacturing entity, including the completion of a worksheet.
a. Today, with automation and computerisation, factory overhead costs are often
a higher proportion of total manufacturing costs than direct labour costs.
b. A manufacturing entity using a periodic inventory system must rely on the
judgement of the accountant and/or the production manager to estimate the
value of ending work in process.
*c. An overhead application rate is an historical rate.
d. The direct labour rate per unit of output is constant but total direct labour costs
increase with an increase in the level of production.
Correct answer: c
Learning objective 8.6 ~ apply the additional accounts and accounting procedures required
for a manufacturing entity, including the completion of a worksheet.
Correct answer: b
Learning objective 8.7 ~ explain how designing for sustainability contributes to minimising and
controlling manufacturing costs.
a. 1
b. 2
c. 3
*d. 4
Correct answer: d
Learning objective 8.7 ~ explain how designing for sustainability contributes to minimising and
controlling manufacturing costs.