Cost Accounting Test 2

A cost driver is defined as: (CMA adapted)

Multiple Choice

• the largest cost in a manufacturing process.

• a fixed cost that cannot be avoided.

• the significant factor in developing a new product.

• a causal factor that increases the total cost of a cost object.

• a causal factor that increases the total cost of a cost object.

Which cost estimation method does not use the company's cost information as its primary source of information about the relationship between total costs and activity levels?

Multiple Choice

• Scattergraph

• High-low

• Account analysis

• Engineering estimates

  
  

Engineering estimates

A manager is trying to estimate the manufacturing costs of a new product. The company makes several other products that utilize some of the same manufacturing procedures as the new product. Which cost estimation method would be the best method to determine the total cost of manufacturing the new product?

Multiple Choice

Engineering estimates

Regression analysis

Account analysis

Scattergraph

Engineering estimates

Engineering cost estimates are often based on operating conditions that are considered:

optimal.

practical.

attainable.

historical.

optimal.

A method that calls for a review of each account making up the total cost is which of the following cost estimation methods?

Scattergraph

High-low method

Account analysis

Linear regression

Account analysis

The term "relevant range," as used in cost accounting, means the range over which:

relevant costs are incurred.

costs may fluctuate.

a cost estimate may be valid.

cost data is available.

a cost estimate may be valid.

Which of the following cost estimation methods is based on two cost observations?

Engineering approach

High-low method

Account analysis

Linear regression

High-low method

A disadvantage of the high-low method of cost analysis is that it:

typically results in a totally inaccurate cost formula.

is too time consuming to apply.

uses only two data points, which may not be representative of normal conditions.

relies totally on the judgment of the person performing the cost analysis.

uses only two data points, which may not be representative of normal conditions.

Which of the following is not true of regression techniques for estimating costs?

They permit the inclusion of more than one predictor.

They typically use the highest and lowest activity points to estimate the relation between cost and activity.

They help develop estimates that have a broader base than those based on a few select points.

They are designed to generate a line that best fits a set of data points.

They typically use the highest and lowest activity points to estimate the relation between cost and activity.

The correlation coefficient is:

the range of values over which the probability may be estimated based upon the regression equation results.

the proportion of the total variance in the dependent variable explained by the independent variable.

the measure of the linear relation between two or more variables.

the relative degree that changes in one variable can be used to estimate changes in another variable.

the measure of the linear relation between two or more variables.

Which of the following is false regarding the selection of an estimation method?

In general, the more sophisticated estimation methods yield more accurate cost estimates.

The most informative estimate of cost behavior results from using the high-low method.

All cost estimation methods make assumptions to simplify the analysis.

All cost estimation methods yield imperfect estimates of an unknown cost behavior pattern.

The most informative estimate of cost behavior results from using the high-low method.

Which of the following is a common assumption of cost estimation?

Cost behavior depends on many cost drivers.

Cost behavior patterns are nonlinear outside of the relevant range.

Cost behavior patterns are linear within the relevant range.

Costs are curvilinear.

Cost behavior patterns are linear within the relevant range.

For which of the following businesses would a job costing system be appropriate?

Auto repair shop

Crude oil refinery

Drug manufacturer

Root beer producer

Auto repair shop

Which of the following documents would be used as the basis for posting to the direct labor section of the job cost sheet?

Purchase requisition

Purchase order

Receiving report

Time card

Time card

Which of the following accounts is used to accumulate the actual manufacturing overhead costs incurred during a period?

Applied Manufacturing Overhead

Work-in-Process Inventory

Manufacturing Overhead Control

Cost of Goods Sold

Manufacturing Overhead Control

Pigot Corporation uses job costing, and the budgeted manufacturing costs for the year are as follows:

Direct materials	$ 714,000
Direct labor	203,500
Factory overhead	610,500

The actual direct materials and direct labor costs charged to Job Number 432 during the year were as follows:

Direct materials	$26,400
Direct labor	14,100

Pigot applies manufacturing overhead to production orders on the basis of direct labor cost using rates predetermined at the beginning of the year based on the annual budget. What is the total cost associated with Job Number 432 for the year?

• $40,500

• $56,400

• $68,700

• $82,800

$82,800

Compute the Work-in-Process transferred to the finished goods warehouse on March 31 using the following information:

Work-In-Process Inventory, March 31	$ 375
Direct materials purchased during March	350
Work-In-Process Inventory, March 1	400
Direct labor costs incurred	500
Manufacturing overhead costs	450
Direct materials used in production	325

$1,250

$1,275

$1,300

$1,350

$1,300

Which of the following is not a characteristic of job costing?

Each job is distinguishable from other jobs.

Identical units are produced on an ongoing basis.

Job cost data are used for setting prices and bids.

It is possible to compare actual costs with estimated costs.

Identical units are produced on an ongoing basis.

Underapplied overhead occurs when the balance in the Manufacturing Overhead Control account is:

greater than the balance in the Applied Manufacturing Overhead account.

equal to the balance in the Applied Manufacturing Overhead account.

less than the balance in the Applied Manufacturing Overhead account.

less than the balance in the Finished Goods Inventory account.

greater than the balance in the Applied Manufacturing Overhead account.

The journal entry to write off an underapplied overhead balance at the end of an accounting period is:

A.	Applied Manufacturing Overhead	xxx
A.	Cost of Goods Sold	xxx
A.	Manufacturing Overhead Control		xxx

B.	Applied Manufacturing Overhead	xxx
B.	Cost of Goods Sold		xxx
B.	Manufacturing Overhead Control		xxx

C.	Manufacturing Overhead Control	xxx
C.	Work-In-Process Inventory	xxx
C.	Finished Goods Inventory	xxx
C.	Cost of Goods Sold	xxx
C.	Applied Manufacturing Overhead		xxx

D.	Applied Manufacturing Overhead	xxx
D.	Work-In-Process Inventory		xxx
D.	Finished Goods Inventory		xxx
D.	Cost of Goods Sold		xxx
D.	Manufacturing Overhead Control		xxx

Option A

Option B

Option C

Option D

Option A

Which of the following actions do not cause an impropriety in job costing?

Misstating the stage of completion

Choosing to use normal costing rather than actual costing

Charging costs to the wrong job

Choosing an allocation method based on the results rather than choosing the method based on resource usage

Choosing to use normal costing rather than actual costing

In a traditional job costing system, the use of indirect labor in the production department increases: (CPA adapted)

Stores Control.

Work-in-Process Control.

Manufacturing Overhead Control.

Manufacturing Overhead Applied.

Manufacturing Overhead Control.

Which of the following is false regarding predetermined overhead rates?

Predetermined overhead rates are computed in advance so that the cost of jobs can be calculated as they are completed.

Estimates are used in the calculation of predetermined overhead rates.

Predetermined overhead rates are used to assign manufacturing overhead to jobs.

Predetermined overhead rates can only be calculated at the end of the period.

Predetermined overhead rates can only be calculated at the end of the period.

Which of the following is true with respect to writing off an overapplied manufacturing overhead to Cost of Goods Sold?

Work-in-Process Inventory will be lower after writing off the overapplied manufacturing overhead.

Finished Goods Inventory will be higher after writing off the overapplied manufacturing overhead.

Cost of Goods Sold will be lower after writing off the overapplied manufacturing overhead.

Operating income will be lower after writing off the overapplied manufacturing overhead.

Cost of Goods Sold will be lower after writing off the overapplied manufacturing overhead.

Which of the following characteristics applies to process costing, but does not apply to job order costing?

The need for averaging

The use of equivalent units of production

Separate, identifiable jobs

The use of predetermined overhead rates

The use of equivalent units of production

Sigman Company's inventories in process were at the following stages of completion at April 30:

Number of Units	Percent Complete
240	80
190	60
340	20

Equivalent units of production in ending inventory amounted to: (CPA adapted)

374.

272.

702.

770.

374.

Of the following process costing steps, which must be done last?

Compute the equivalent units of production

Compute the costs per equivalent unit of production

Measure the physical flow of resources

Identify the product costs to account for

Compute the costs per equivalent unit of production

The Phantom Corporation started 4,900 units in February. Phantom started the month with 710 units in process (45% complete) and ended the month with 410 units in process (45% complete). How many units were transferred to the Finished Goods Inventory during February?

5,610 units

5,520 units

5,200 units

4,490 units

5,200 units

If the units in the beginning Work-in-Process Inventory are greater than the units in the ending Work-in-Process Inventory, then the units transferred out are:

more than the units started during the period.

equal to the equivalent units of production.

less than the units started during the period.

equal to the actual work done during the period.

more than the units started during the period.

A process costing system:

uses a separate Work-in-Process account for each processing department.

uses a single Work-in-Process account for the entire company.

uses a separate Work-in-Process account for each type of product produced.

does not use a Work-in-Process account in any form.

uses a separate Work-in-Process account for each processing department.

Parkway Company incurred $128,000 in material costs during July. Additionally, the 12,200 units in the Work-in-Process Inventory on July 1 had materials assigned to them of $34,000, even though they were only 5% complete as to materials. No additional units were started during July, and there were no unfinished units on hand on July 31. What is the material cost per equivalent unit for July, assuming Parkway uses weighted-average process costing?

$10.49

$11.69

$13.28

$15.49

$13.28

The FIFO method provides a major advantage over the weighted-average method in that:

the calculation of equivalent units is less complex under the FIFO method.

the FIFO method treats units in the beginning inventory as if they were started and completed during the current period.

the FIFO method provides measurements of work done during the current period.

the weighted-average method ignores units in the beginning and ending work-in-process inventories.

the FIFO method provides measurements of work done during the current period.

The computation of equivalent units under the FIFO method:

treats units in the beginning work-in-process inventory as if they were started and completed during the current period.

treats units in the beginning work-in-process inventory as if they represent a batch of goods separate and distinct from goods started and completed during the current period.

treats units in the ending work-in-process inventory as if they were started and completed during the current period.

ignores units in the beginning and ending work-in-process inventories.

treats units in the beginning work-in-process inventory as if they represent a batch of goods separate and distinct from goods started and completed during the current period.

Which of the following statements regarding first-in, first-out (FIFO) process costing is false?

A disadvantage of FIFO is that it mixes current period costs with the costs of products in beginning inventory.

FIFO assumes that the first units worked on are the first units transferred out of a production department.

FIFO transfers out the costs in beginning inventory in a lump sum.

FIFO gives managers better information about the work done in the current period.

A disadvantage of FIFO is that it mixes current period costs with the costs of products in beginning inventory.

Which of the following statements is false?

FIFO costing bases unit costs on prior period activity only.

Weighted-average costing does not separate beginning inventory from current period activity.

The FIFO method results in unit costs that better reflect current costs.

The difference in costs from weighted-average and FIFO will be larger when price changes from period to period are large.

FIFO costing bases unit costs on prior period activity only.

Which of the following is an example of a company that would likely use process costing?

CPA firm

Cereal manufacturer

Custom home builder

Airplane manufacturer

Cereal manufacturer

A company should use process costing, rather than job costing, if:

production is only partially completed during the accounting period.

the product is manufactured in batches only as orders are received.

the product is composed of mass-produced homogeneous units.

the product goes through several steps of production.

the product is composed of mass-produced homogeneous units.

Which of the following organizations would most likely use a process costing system?

Gasoline refinery

Automobile retailer

Airplane manufacturer

Public accounting firm

Gasoline refinery

Which of the following statements is false?

Operations costing accounts for material costs like job costing and conversion costs like process costing.

An automobile manufacturer is more likely to use an operations costing system than a process costing system.

Operations costing combines aspects of job and process costing.

A custom furniture maker is more likely to use a process costing system than a job costing system.

A custom furniture maker is more likely to use a process costing system than a job costing system.

Operations costing systems are used when the products have:

used a standardized method that is repeatedly performed.

common characteristics and no individual characteristics.

individual characteristics and no common characteristics.

some common characteristics and some individual characteristics.

some common characteristics and some individual characteristics.

When a department or product line is dropped, the common fixed costs which had been allocated to that department:

are eliminated.

become variable costs.

are allocated to the remaining departments or product lines.

become sunk costs.

are allocated to the remaining departments or product lines.

A basic assumption of activity-based costing (ABC) is that:

all manufacturing costs vary directly with units of production.

products or services require the performance of activities, and activities consume resources.

only costs that respond to unit-level drivers are product costs.

only variable costs are included in the activity cost pools.

products or services require the performance of activities, and activities consume resources.

A two-stage system first allocates costs to:

products or services and then allocates costs to departments or activities.

the cost driver and then allocates costs to the cost hierarchy.

a product line and then allocates costs to the department.

departments or activities and then allocates costs to products or services.

departments or activities and then allocates costs to products or services.

First-stage cost objects do not include:

supplies.

depreciation.

maintenance and repair costs.

direct materials.

direct materials.

Which of the following should not be used as the allocation base in a company that appropriately uses a single plantwide rate?

Sales volume

Machine-hours

Material costs

Direct labor cost

Sales volume

Which of the following would be least likely to be used as an allocation base in a company that applies a single plantwide rate?

Machine-hours

Production runs

Direct material cost

Direct labor-hours

Production runs

Activity-based costing (ABC) is a costing technique that uses a two-stage allocation process. Which of the following statements best describes these two stages?

The costs are assigned to activities, and then to the products based on each product’s use of the activities.

The costs are assigned to departments, and then to the products based upon their use of activity resources.

Direct costs are allocated to the production departments based on a predetermined overhead rate.

Indirect costs are assigned to activities, and then to the products based upon the direct cost resources used by the activities.

The costs are assigned to activities, and then to the products based on each product’s use of the activities.

The classification of cost drivers into general levels of activity, volume, batch, product, and so on is known as:

cost allocation.

value-added costing.

a cost hierarchy.

cost driver management.

a cost hierarchy.

The electricity used for production machinery would be classified as a:

volume-related activity.

batch-related activity.

product-related activity.

facility-related activity.

volume-related activity.

Which of the following costs is not related to a batch-related activity?

Material handling

Machine setups

Shipping costs

Compliance costs

Compliance costs

Plant administration is an example of a:

volume-related activity.

batch-related activity.

product-related activity.

facility-related activity.

facility-related activity.

Which of the following activities would be classified as a batch-level activity?

Setting up equipment

Designing a new product

Training employees

Milling a part required for the final product

Setting up equipment

Plant property taxes are an example of a cost that would be considered to be:

volume related.

batch related.

product related.

facility related.

facility related.

Product costs are computed by:

dividing the cost driver rate by the number of units of the cost driver in each product.

multiplying the cost driver rate by the number of units of the cost driver in each product.

adding the cost driver rates of all products.

averaging the plantwide cost driver rate with the cost driver for each product.

multiplying the cost driver rate by the number of units of the cost driver in each product.

Which of the following is not a step involved in activity-based costing?

Identify the activities that consume resources and assign costs to those activities.

Determine how to reduce the costs of making products by cutting activities.

Assign costs to products by multiplying the cost driver rate by the volume of cost driver units consumed by the product.

Compute a cost rate per cost driver unit or transaction.

Determine how to reduce the costs of making products by cutting activities.

Activity-based costing provides:

more detailed measures of costs than do plantwide or department allocation methods.

less detailed measures of costs than do plantwide or department allocation methods.

more detailed measures of costs than do plantwide allocations but less than department allocation methods.

less detailed measures of costs than do plantwide allocations but more than department allocation methods.

more detailed measures of costs than do plantwide or department allocation methods.