Test Bank 10th-Ed Accounting The Managerial Chapters Nobles by Horngren’s

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Test Bank 10th-Ed Accounting The Managerial Chapters Nobles by Horngren’s

Sample Chapter No 1                                                          

Horngren’s Accounting, The Managerial Chapters, 10e (Nobles/Mattison/Matsumura)

Chapter 18   Introduction to Managerial Accounting

 

Learning Objective 18-1

 

1) Managerial accounting focuses on providing information for internal planning and control.

Answer:  TRUE

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

2) Financial accounting prepares reports for internal purposes, whereas managerial accounting provides information to external stakeholders.

Answer:  FALSE

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

3) The IMA standards of ethical practice require managerial accountants to maintain their professional competence.

Answer:  TRUE

Diff: 1

LO:  18-1

AACSB:  Ethical Understanding

AICPA Functional:  Reporting

 

4) The accountant for Myra Lido deliberately deferred cash payments for business expenses in order to record a higher operating cash flow for the company. As long as the amount was not material, this would not be considered unethical behavior.

Answer:  FALSE

Diff: 1

LO:  18-1

AACSB:  Ethical Understanding

AICPA Functional:  Reporting

 

5) Financial statements prepared for investors and creditors often include forward-looking information because they make decisions based on a company’s future prospects.

Answer:  FALSE

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

6) Management accounting reporting by a public firm is required to follow the rules of GAAP and guidelines of the Securities Exchange Commission.

Answer:  FALSE

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

7) A budget is a managerial accounting tool used in the planning process.

Answer:  TRUE

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

8) Financial reporting is typically much more detailed than managerial accounting.

Answer:  FALSE

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

9) The IMA Standards of Ethical Practice include confidentiality, competence, credibility, and integrity.

Answer:  TRUE

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

10) ERP systems can integrate all of a company’s functions, departments, and data into a single system.

Answer:  TRUE

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

11) Which of the following is an objective of management accounting?

  1. A) to generate financial statements of a company for tax reporting
  2. B) to provide information to business managers to assist them in controlling their business
  3. C) to provide information to shareholders to assist them with their investment decisions
  4. D) to ensure that the reports produced for internal and external business purposes are GAAP compliant

Answer:  B

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

12) Which of the following statements is true of management accounting?

  1. A) The primary users of management accounting are the external stakeholders of a company.
  2. B) Management accounting information is used to help managers plan and control their operations.
  3. C) Management accounting information requires an external audit by an independent CPA.
  4. D) Management accounting information must comply with Generally Accepted Accounting Principles.

Answer:  B

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

13) Management accounting information of a company is primarily used by:

  1. A) its customers to understand the pricing of the product.
  2. B) its creditors to understand the credibility of the business.
  3. C) its employees to plan and control operations.
  4. D) its investors to make their investment decisions.

Answer:  C

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

14) Which of the following statements is true of financial accounting?

  1. A) It provides information to investors needed for their investment decisions.
  2. B) It provides forward-looking information needed for managing and delegating operations.
  3. C) It focuses on detailed reports for parts of the company rather than the whole company.
  4. D) It focuses on planning and controlling day-to-day operations.

Answer:  A

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

15) Management’s accountability to its suppliers and vendors is to:

  1. A) provide products to customers that are safe and free of defects.
  2. B) obey laws and pay taxes timely.
  3. C) provide a return on shareholders’ investment.
  4. D) make timely payments and comply with contract terms.

Answer:  D

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

16) How is the management of a company accountable to its employees?

  1. A) The management must provide products that are safe and free of defects.
  2. B) The management must provide a safe workplace.
  3. C) The management must ensure that it earns a net positive return on its investments.
  4. D) The management must ensure the business is environmentally responsible to its community.

Answer:  B

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

17) Management of a company is accountable to ________ for obeying laws and paying taxes.

  1. A) the natural environment
  2. B) its asset vendors
  3. C) the securities exchange
  4. D) the government

Answer:  D

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

18) In which of the following ways is the management of a company accountable to its communities?

  1. A) making timely interest payments to creditors and dividend payments to investors
  2. B) ensuring the company’s environmental impact is not harmful to its area of operations
  3. C) providing a capital return on the shareholders’ investment
  4. D) repaying principal and interest to the suppliers

Answer:  B

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

19) Managerial accounting includes the planning function. Which of the following items would be part of the planning function of a business’s managerial accounting?

  1. A) comparing actual performance to previously budgeted amounts
  2. B) creating detailed budgets
  3. C) implementing operational plans
  4. D) evaluating results of operations

Answer:  B

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

20) Comparing actual performance to previously budgeted amounts is part of the:

  1. A) controlling function of managerial accounting.
  2. B) planning function of managerial accounting.
  3. C) reporting function of managerial accounting.
  4. D) organizing function of managerial accounting.

Answer:  A

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

21) Which of the following is the primary objective of managerial accounting?

  1. A) providing information that managers need to make operational decisions
  2. B) providing historical data to investors and creditors
  3. C) providing summarized results of operations
  4. D) providing information to comply with laws and regulations of government bodies

Answer:  A

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

22) Which of the following is the primary focus of financial accounting?

  1. A) providing information that managers need to make operational decisions
  2. B) providing summarized information on operational results to investors and creditors
  3. C) providing budgets for future periods
  4. D) providing highly detailed information on product lines, regions, divisions, etc.

Answer:  B

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

23) ________ is a philosophy of continuous improvement of products and processes.

  1. A) Just-in-time (JIT) management
  2. B) Enterprise resource planning (ERP)
  3. C) Supply chain management
  4. D) Total quality management (TQM)

Answer:  D

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

24) Which of the following describes a system in which suppliers deliver materials at the time they are needed and finished units are completed when customer orders need to be filled?

  1. A) Supply chain management
  2. B) Just-in-time (JIT) management
  3. C) Enterprise resource planning (ERP)
  4. D) Total quality management (TQM)

Answer:  B

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

25) What is total quality management (TQM)?

  1. A) a philosophy of supplying customers with superior products and services
  2. B) an exchange of information with suppliers and customers to create efficient and effective processes
  3. C) a software system that integrates a company’s functions, departments and data into a single system
  4. D) a system which speeds the transformation of raw materials into finished products

Answer:  A

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

26) An enterprise resource planning system (ERP):

  1. A) is a cost management system in which a company produces products just in time to satisfy needs.
  2. B) requires the implementation of total quality management.
  3. C) integrates all worldwide functions, departments and data of a company into a single system.
  4. D) cannot be implemented in service companies.

Answer:  C

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

27) Which of the following correctly describes just-in-time (JIT) inventory management?

  1. A) It is a production approach that maintains surplus goods at each stage of manufacture.
  2. B) It is an inventory purchase approach that seeks purchase discounts on buying large quantities.
  3. C) It is a cost management approach that focuses on maintaining lean inventory levels.
  4. D) It is an inventory approach which stockpiles raw materials to protect against supply interruptions.

Answer:  C

Diff: 2

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

28) Which of the following is true of just-in-time (JIT) inventory management?

  1. A) It results in more storage and insurance cost.
  2. B) It is a system in which the company produces product only after receiving an order.
  3. C) It promotes surplus inventory to prevent production shut-down in case of supply interruptions.
  4. D) It requires a surplus inventory of finished goods to ensure timely, or just-in-time, delivery to customers.

Answer:  B

Diff: 2

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

29) Which of the following is a philosophy designed to integrate all organizational areas in order to provide customers with superior products and services, while meeting organizational goals throughout the value chain?

  1. A) Supply chain management
  2. B) Just-in-time (JIT) management
  3. C) Enterprise resource planning (ERP)
  4. D) Total quality management (TQM)

Answer:  D

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

30) The whole sequence of activities that add value to a company’s products and services is called:

  1. A) the value chain.
  2. B) the planning process.
  3. C) TQM production chain.
  4. D) enterprise resource planning (ERP).

Answer:  A

Diff: 1

LO:  18-1

AACSB:  Concept

AICPA Functional:  Reporting

 

31) Which of the following is one of the key standards of ethical practice published by the IMA?

  1. A) Objectivity
  2. B) Environmental sensitivity
  3. C) Technicality
  4. D) Confidentiality

Answer:  D

Diff: 1

LO:  18-1

AACSB:  Ethical Understanding

AICPA Functional:  Reporting

 

32) Joshua is the accountant of Seria Inc. Seria has received a bulk order from an overseas client. As a result, the reported earnings of this year will be significantly higher than the estimates of financial analysts. Joshua tells this to one of his friends. Which of the IMA standards has Joshua violated?

  1. A) Objectivity
  2. B) Competence
  3. C) Confidentiality
  4. D) Technicality

Answer:  C

Diff: 1

LO:  18-1

AACSB:  Reflective Thinking

AICPA Functional:  Reporting

 

33) You did not understand what the term accrual meant and failed to accrue the interest due at the end of the year on the company’s bonds. Which of the IMA standards appears to have been violated here?

  1. A) Integrity
  2. B) Confidentiality
  3. C) Competence
  4. D) Objectivity

Answer:  C

Diff: 1

LO:  18-1

AACSB:  Reflective Thinking

AICPA Functional:  Reporting

 

Learning Objective 18-2

 

1) Product costs, such as direct materials, are expensed in the period they were paid.

Answer:  FALSE

Diff: 1

LO:  18-2

AACSB:  Application

AICPA Functional:  Reporting

 

2) Unlike merchandising companies, income statements of service companies include cost of goods sold as a line item.

Answer:  FALSE

Diff: 1

LO:  18-2

AACSB:  Application

AICPA Functional:  Reporting

 

3) Manufacturing businesses have inventory accounts, but merchandising businesses do not.

Answer:  FALSE

Diff: 1

LO:  18-2

AACSB:  Concept

AICPA Functional:  Reporting

4) Manufacturing businesses produce their own products, but merchandising businesses do not.

Answer:  TRUE

Diff: 1

LO:  18-2

AACSB:  Concept

AICPA Functional:  Reporting

 

5) If Royal Ltd. purchases each unit of product X for $100 and can sell it in the market for $135, the selling price of the product for Royal would be $100.

Answer:  FALSE

Diff: 1

LO:  18-2

AACSB:  Application

AICPA Functional:  Reporting

 

6) Merchandising companies, like service companies, do not have a Cost of Goods Sold account.

Answer:  FALSE

Diff: 1

LO:  18-2

AACSB:  Application

AICPA Functional:  Reporting

 

7) Selling and administrative expenses are subtracted from the cost of goods sold to obtain operating profit.

Answer:  TRUE

Diff: 1

LO:  18-2

AACSB:  Concept

AICPA Functional:  Reporting

 

8) For external reporting purposes, GAAP requires companies to treat period costs as assets.

Answer:  FALSE

Diff: 1

LO:  18-2

AACSB:  Application

AICPA Functional:  Reporting

 

9) The primary activity of manufacturing businesses is to purchase goods from a wholesaler and resell them.

Answer:  FALSE

Diff: 1

LO:  18-2

AACSB:  Concept

AICPA Functional:  Reporting

 

10) Service companies include companies that provide health care, communication, banking, and other important benefits to society.

Answer:  TRUE

Diff: 1

LO:  18-2

AACSB:  Concept

AICPA Functional:  Reporting

 

11) The income statement of a service company will most likely include:

  1. A) salary expense.
  2. B) factory overhead.
  3. C) cost of goods sold.
  4. D) direct materials.

Answer:  A

Diff: 1

LO:  18-2

AACSB:  Application

AICPA Functional:  Reporting

 

12) Which of the following is true of service companies?

  1. A) All of service companies’ costs are product costs.
  2. B) Service companies modify and resell products they buy from manufacturers.
  3. C) Revenues of service companies are only recorded on cash receipt.
  4. D) Service companies carry no inventories of products for sale.

Answer:  D

Diff: 1

LO:  18-2

AACSB:  Concept

AICPA Functional:  Reporting

 

13) For a manufacturing company, which of the following is a period cost?

  1. A) Direct materials
  2. B) Office rent
  3. C) Wages expense of factory workers
  4. D) Indirect materials

Answer:  B

Diff: 1

LO:  18-2

AACSB:  Application

AICPA Functional:  Reporting

 

14) One of the primary activities of Rex Inc. is to purchase hats from Viva Inc. in Texas and sell them to its customers in Washington for a profit. It is likely that Rex is a:

  1. A) manufacturing company.
  2. B) hybrid company.
  3. C) service company.
  4. D) merchandising company.

Answer:  D

Diff: 1

LO:  18-2

AACSB:  Application

AICPA Functional:  Reporting

 

15) Which of the following is most likely a service company?

  1. A) a law firm
  2. B) a car manufacturer
  3. C) a fruit seller
  4. D) a baker

Answer:  A

Diff: 1

LO:  18-2

AACSB:  Application

AICPA Functional:  Reporting

 

16) A company that uses labor, equipment, supplies, and facilities to convert raw materials into finished products is a:

  1. A) merchandising company.
  2. B) manufacturing company.
  3. C) service company.
  4. D) trading company.

Answer:  B

Diff: 1

LO:  18-2

AACSB:  Concept

AICPA Functional:  Reporting

 

17) Goods that have been started in the manufacturing process but are not yet complete are included in:

  1. A) the Finished Goods Inventory account.
  2. B) the Work-in-Process Inventory account.
  3. C) the Raw Materials Inventory account.
  4. D) the Cost of Goods Sold account.

Answer:  B

Diff: 1

LO:  18-2

AACSB:  Concept

AICPA Functional:  Reporting

 

18) Which of the following would appear as a line item on the income statements of both, a merchandiser and a manufacturer?

  1. A) Direct Labor
  2. B) Cost of Goods Manufactured
  3. C) Direct Materials
  4. D) Cost of Goods Sold

Answer:  D

Diff: 1

LO:  18-2

AACSB:  Concept

AICPA Functional:  Reporting

 

19) Damsel Inc. is a large manufacturer of auto tires. Damsel has provided the following information:

 

Sales Revenue $45,500
Beginning Finished Goods Inventory 1,500
Cost of Goods Sold 32,500
Cost of Goods Manufactured 35,000

 

Calculate the amount of ending finished goods inventory reported in Damsel’s balance sheet.

  1. A) $10,500
  2. B) $36,500
  3. C) $4,000
  4. D) $3,500

Answer:  C

Explanation:  C)

Beginning Finished Goods Inventory            $1,500

+ Cost of Goods Manufactured                         35,000

= Cost of Goods Available for Sale                  36,500

– Cost of Goods Sold                                             32,500

Ending Finished Goods Inventory                  $4,000

Diff: 2

LO:  18-2

AACSB:  Concept

AICPA Functional:  Reporting

 

20) The balance sheet of a ________ company will show Work-in-Process Inventory as a line item.

  1. A) manufacturing
  2. B) merchandising
  3. C) service
  4. D) trading

Answer:  A

Diff: 1

LO:  18-2

AACSB:  Concept

AICPA Functional:  Reporting

 

21) Partial income statements of Company A and Company B are provided below:

 

 

Which of the following statements is true?

  1. A) Company A is a merchandising company.
  2. B) Company B is a manufacturing company.
  3. C) Company A is a manufacturing company.
  4. D) Company A is a service company.

Answer:  D

Diff: 1

LO:  18-2

AACSB:  Application

AICPA Functional:  Reporting

 

22) Product costs are expensed:

  1. A) when the products are consumed or sold.
  2. B) at the end of the accounting period they are incurred in.
  3. C) when the products are transferred to Work-in-Process Inventory account.
  4. D) when the market value of products goes above the recorded value.

Answer:  A

Diff: 1

LO:  18-2

AACSB:  Concept

AICPA Functional:  Reporting

 

23) The Work-in-Process Inventory account includes the:

  1. A) goods that are ready to be sold.
  2. B) goods that are partially completed.
  3. C) goods that have been sold in the market.
  4. D) goods that are damaged during production.

Answer:  B

Diff: 1

LO:  18-2

AACSB:  Concept

AICPA Functional:  Reporting

 

24) Which of the following is true of finished goods inventory?

  1. A) Finished Goods Inventory is an account used by a manufacturer and includes completed goods that have not yet been sold.
  2. B) Finished Goods Inventory is an account used by a merchandiser and includes completed goods that have not yet been sold.
  3. C) Finished Goods Inventory is an account used by service companies in lieu of raw materials inventory.
  4. D) Finished Goods Inventory is an account used by a manufacturer in lieu of raw materials inventory.

Answer:  A

Diff: 1

LO:  18-2

AACSB:  Concept

AICPA Functional:  Reporting

 

25) Which of the following is true of product costs?

  1. A) They are expensed in the period they are paid.
  2. B) For external reporting, GAAP requires that they be expensed before the products are sold.
  3. C) They are first recorded in an inventory account.
  4. D) For merchandising companies, product costs do not include freight costs.

Answer:  C

Diff: 1

LO:  18-2

AACSB:  Concept

AICPA Functional:  Reporting

 

26) Crystal Inc. is a merchandiser of stone ornaments. It sold 15,000 units in 2015. The company has provided the following information:

 

Sales Revenue $557,000
Purchases (excluding freight in) 300,000
Selling and Administrative Expenses 69,000
Freight In 15,000
Beginning Merchandise Inventory 45,000
Ending Merchandise Inventory 55,700

 

How much is the gross profit for 2015?

  1. A) $183,700
  2. B) $304,300
  3. C) $252,700
  4. D) $257,000

Answer:  C

Explanation:  C)

$304,300 (Cost of Goods Sold) = $45,000 (Beginning Merchandise Inventory) + $300,000 (Purchases) + $15,000 (Freight In) – $55,700 (Ending Merchandise Inventory)

$557,000 (Sales Revenue) – $304,300 (Cost of Goods Sold) = $252,700 (Gross Profit)

Diff: 2

LO:  18-2

AACSB:  Application

AICPA Functional:  Measurement

27) Which of the following formulas represents cost of goods sold for a merchandising business?

  1. A) Beginning Inventory – Ending Inventory = Cost of Goods Sold
  2. B) Purchases and Freight In – Ending Inventory = Cost of Goods Sold
  3. C) Ending Inventory + Purchases and Freight In – Beginning Inventory = Cost of Goods Sold
  4. D) Beginning Inventory + Purchases and Freight In – Ending Inventory = Cost of Goods Sold

Answer:  D

Diff: 1

LO:  18-2

AACSB:  Application

AICPA Functional:  Reporting

 

 

28) Amber Corporation has provided the following information of its operating activities for 2015:

 

Merchandise Inventory, January 1, 2015 $150,000
Merchandise Inventory, December 31, 2015 75,000
Purchases 854,000
Selling and Administrative Expenses 65,000
Sales Revenue 1,000,000

 

Required: Prepare Amber’s income statement for the year ended December 31, 2015. Use the format provided below:

 

Sales Revenue
Cost of Goods Sold
    Beginning Inventory
    Purchases
    Cost of Goods Available for Sale
    Ending Inventory
Cost of Goods Sold
Gross Profit
Selling and Administrative Expenses
Operating Income

 

Answer:                           AMBER CORPORATION

Income Statement

Year Ended December 31, 2015

Sales Revenue                                                                                       $1,000,000

Cost of Goods Sold

Beginning Inventory                                               $150,000

Purchases                                                                     854,000

Cost of Goods Available for Sale                     $1,004,000

Ending Inventory                                                        –75,000

Cost of Goods Sold                                                                                    929,000

Gross Profit                                                                                                    71,000

Selling and Administrative Expenses                                                   65,000

Operating Income                                                                                        $6,000

Diff: 2

LO:  18-2

AACSB:  Application

AICPA Functional:  Measurement

 

29) Excellent Company sells accounting textbooks. The following information summarizes Excellent’s operating activities for 2015:

 

Merchandise Inventory, January 1, 2015 $10,000
Merchandise Inventory, December 31, 2015 7,000
Purchases 95,000
Selling and Administrative Expenses 65,000
Sales Revenue 180,000

 

Required: Prepare Excellent Company’s income statement for the year ended December 31, 2015.

Answer:

EXCELLENT COMPANY

Income Statement

Year Ended December 31, 2015

Sales Revenue                                                                                           $180,000

Cost of Goods Sold

Beginning Inventory                                                  $10,000

Purchases                                                                        95,000

Cost of Goods Available for Sale                           105,000

Ending Inventory                                                           -7,000

Cost of Goods Sold                                                                                       98,000

Gross Profit                                                                                                    82,000

Selling and Administrative Expenses                                                   65,000

Operating Income                                                                                      $17,000

Diff: 2

LO:  18-2

AACSB:  Application

AICPA Functional:  Measurement

 

30) Simons Company sells plastic ware. The following information summarizes Simons’ operating activities for 2015:

 

Utilities Expense $ 65,000
Rent Expense 10,000
Sales Commissions Expense 32,500
Purchases of Merchandise 260,000
Inventory on January 1, 2015 65,000
Inventory on December 31, 2015 97,500
Sales Revenue 650,000

 

Prepare an income statement for Simons Company, a merchandiser, for the year ended December 31, 2015 using the format below:

 

Sales Revenue
Cost of Goods Sold
    Beginning Inventory
    Purchases
    Cost of Goods Available for Sale
    Ending Inventory
Cost of Goods Sold
Gross Profit
Selling Expenses
    Sales Commissions Expense
Administrative Expenses
    Rent Expense
    Utilities Expense
Total Operating Expenses
Operating Income

 

 

Answer:                            SIMONS COMPANY

Income Statement

Year Ended December 31, 2015

Sales Revenue                                                                                   $650,000

Cost of Goods Sold

Beginning Inventory                                         $65,000

Purchases                                                             260,000

Cost of Goods Available for Sale                   325,000

Ending Inventory                                                -97,500

Cost of Goods Sold                                                                             227,500

Gross Profit                                                                                          422,500

Selling Expenses

Sales Commissions Expense                                                             32,500

Administrative Expenses

Rent Expense                                                         10,000

Utilities Expense                                                   65,000                    75,000

Total Operating Expenses

107,500

Operating Income                                                                            $315,000

Diff: 2

LO:  18-2

AACSB:  Application

AICPA Functional:  Measurement

 

31) Best Company, a merchandiser, sells office supplies. The following information summarizes Best’s operating activities during 2015:

 

Utilities Expense $6,000
Rent for Store Expense 8,000
Sales Commissions Expense 4,500
Purchases of Merchandise 54,000
Inventory on January 1, 2015 30,000
Inventory on December 31, 2015 20,500
Sales Revenue 108,000

 

Required: Prepare an income statement for Best Company for the year ended December 31, 2015, using the format below.

 

Sales Revenue
Cost of Goods Sold
    Beginning Inventory
    Purchases
    Cost of Goods Available for Sale
    Ending Inventory
Cost of Goods Sold
Gross Profit
Selling Expenses
    Sales Commissions Expense
Administrative Expenses
    Rent Expense
    Utilities Expense
Total Operating Expenses
Operating Income

 

 

Answer:

Sales Revenue                                                                                   $108,000

Cost of Goods Sold

Beginning Inventory                                         $30,000

Purchases                                                               54,000

Cost of Goods Available for Sale                     84,000

Ending Inventory                                                –20,500

Cost of Goods Sold                                                                               63,500

Gross Profit                                                                                             44,500

Selling Expenses

Sales Commissions Expense                              4,500

Administrative Expenses

Rent Expense                                                           8,000

Utilities Expense                                                     6,000

Total Operating Expenses                                                                  18,500

Operating Income                                                                              $26,000

Diff: 3

LO:  18-2

AACSB:  Application

AICPA Functional:  Measurement

Learning Objective 18-3

 

1) Product costs, such as factory overhead, should be treated as an asset until the product is sold.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Reporting

 

2) Manufacturing overhead includes all manufacturing costs, such as direct labor and direct materials.

Answer:  FALSE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Reporting

 

3) Manufacturing overhead includes indirect manufacturing costs, such as insurance and depreciation on the factory building.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Reporting

 

 

4) All costs incurred in the manufacture of final products are product costs.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Reporting

 

5) The cost of direct materials cannot easily be traced to the manufactured product, and therefore it is a component of manufacturing overhead.

Answer:  FALSE

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

6) Wages and benefits of assembly line workers are period costs.

Answer:  FALSE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

7) Wages and benefits of assembly line workers are included in manufacturing overhead.

Answer:  FALSE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

8) Wages and benefits of factory managers are considered as product costs.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

9) The three categories of period costs are direct materials, direct labor, and manufacturing overhead.

Answer:  FALSE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

 

10) Salary of a factory manager will be included in manufacturing overhead.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

11) Direct costs and indirect costs can be easily traced directly to a cost object.

Answer:  FALSE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

12) In a manufacturing firm, the salary of sales staff is an example of period cost.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

13) Wages of factory janitors is considered non-manufacturing overhead, as these are not directly related to the manufacturing process.

Answer:  FALSE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

14) Indirect materials costs such as lubes and cleaning fluids are product costs.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

15) Indirect materials costs are included in manufacturing overhead.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

 

16) For a manufacturer, rent paid for an office building is an example of a period cost.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

17) Factory rent, taxes, and insurance are included in manufacturing overhead.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

18) Transportation costs paid to ship raw materials to a company warehouse are considered product costs.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

19) Sales commissions are included in manufacturing overhead.

Answer:  FALSE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

20) In a manufacturing firm, advertising and marketing costs are examples of period costs.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

21) In a manufacturing firm, advertising and marketing costs are included in manufacturing overhead.

Answer:  FALSE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

 

22) In a manufacturing firm, accounting, legal, and administrative costs are typical examples of product costs.

Answer:  FALSE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

23) In a manufacturing firm, administrative costs are included in period costs.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

24) Repair and maintenance costs for factory equipment are product costs.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

25) Repair and maintenance costs for factory equipment are included in manufacturing overhead.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

26) Repair and maintenance costs of vehicles used to deliver products to customers are product costs.

Answer:  FALSE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

27) Repair and maintenance costs of vehicles used to deliver products to the customers are included in manufacturing overhead.

Answer:  FALSE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

 

28) Direct materials and direct labor are prime costs.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

29) In manufacturing, the cost objects are often units of product.

Answer:  TRUE

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Measurement

 

30) Period costs are the:

  1. A) current assets and liabilities reported on the balance sheet.
  2. B) costs that are incurred and expensed during the same accounting period.
  3. C) costs related to production of products the company purchases and sells.
  4. D) same as manufacturing overhead costs.

Answer:  B

Diff: 2

LO:  18-3

AACSB:  Concept

AICPA Functional:  Reporting

 

31) In a manufacturing firm, which of the following is an example of a period cost?

  1. A) Advertising expense
  2. B) Depreciation on factory equipment
  3. C) Indirect materials
  4. D) Property taxes for the factory

Answer:  A

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Reporting

32) Which of the following is a part of manufacturing overhead?

  1. A) Cost of raw materials
  2. B) Wages of assembly line workers
  3. C) Factory insurance
  4. D) Depreciation on office furniture

Answer:  C

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Reporting

 

 

33) For a manufacturing firm, which of the following is a product cost?

  1. A) Salary of administrative staff
  2. B) Wages paid to factory janitor
  3. C) Commissions paid to sales staff
  4. D) Depreciation on corporate building

Answer:  B

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Reporting

 

34) For a manufacturing firm, which of the following is a period cost?

  1. A) Office rent
  2. B) Wages of factory janitor
  3. C) Insurance cost of production equipment
  4. D) Raw materials

Answer:  A

Diff: 2

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

35) Which of the following is an example of direct labor cost in a factory?

  1. A) Wages of assembly line personnel
  2. B) Salary of vice president of production
  3. C) Wages of factory security guard
  4. D) Salary of production manager

Answer:  A

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

36) Which of the following will be included in manufacturing overhead costs?

  1. A) Indirect labor and indirect materials
  2. B) Salaries of salesmen
  3. C) Direct materials and direct labor
  4. D) Delivery costs to ship goods to customers

Answer:  A

Diff: 2

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

 

37) Manufacturing overhead is also referred to as:

  1. A) indirect manufacturing costs.
  2. B) direct costs.
  3. C) prime costs.
  4. D) period costs.

Answer:  A

Diff: 2

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

38) Anything for which managers want a separate measurement of cost is called:

  1. A) a responsibility center.
  2. B) a cost object.
  3. C) a profit object.
  4. D) a conversion cost.

Answer:  B

Diff: 1

LO:  18-3

AACSB:  Concept

AICPA Functional:  Reporting

 

39) Kyanite Corporation, a manufacturer reports costs for 2015 as follows:

 

Raw Materials $50,000
Wages to Line Workers 25,000
Office Rent 14,000
Indirect Materials 30,000

 

How much is the total period costs of Kyanite?

  1. A) $30,000
  2. B) $80,000
  3. C) $39,000
  4. D) $14,000

Answer:  D

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Measurement

 

40) Kyanite Corporation reports costs for 2015 as follows:

 

Raw Materials $50,000
Wages to Line Workers 25,000
Office Rent 14,000
Indirect Materials 30,000

 

How much is the total product costs for 2015?

  1. A) $30,000
  2. B) $105,000
  3. C) $119,000
  4. D) $75,000

Answer:  B

Explanation:  B) $105,000 (Total product costs) = $50,000 (Raw Materials) + $25,000 (Wages to Line Workers) + $30,000 (Indirect Materials)

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Measurement

 

41) Which of the following is a product cost?

  1. A) Sales commissions
  2. B) CEO’s salary
  3. C) Delivery van depreciation
  4. D) Depreciation on production equipment

Answer:  D

Diff: 2

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

42) Which of the following correctly describes the accounting for indirect labor costs?

  1. A) Indirect labor costs are product costs and are expensed as incurred.
  2. B) Indirect labor costs are period costs and are expensed as incurred.
  3. C) Indirect labor costs are product costs and are expensed when the manufactured product is sold.
  4. D) Indirect labor costs are period costs and are expensed when the manufactured product is sold.

Answer:  C

Diff: 2

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

43) Which of the following correctly describes the accounting for factory depreciation?

  1. A) Factory depreciation is a product cost and is expensed as incurred.
  2. B) Factory depreciation is a period cost and is expensed as incurred.
  3. C) Factory depreciation is a product cost and is expensed when the manufactured product is sold.
  4. D) Factory depreciation is a period cost and is expensed when the manufactured product is sold.

Answer:  C

Diff: 2

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

44) Which of the following correctly describes the accounting for administrative expenses of a manufacturing company?

  1. A) Administrative expenses are product costs and are expensed as incurred.
  2. B) Administrative expenses are period costs and are expensed as incurred.
  3. C) Administrative expenses are product costs and are expensed when the manufactured product is sold.
  4. D) Administrative expenses are period costs and are expensed when the manufactured product is sold.

Answer:  B

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

45) Which of the following correctly describes the accounting for advertising costs?

  1. A) Advertising costs are product costs and are expensed as incurred.
  2. B) Advertising costs are period costs and are expensed as incurred.
  3. C) Advertising costs are product costs and are expensed when the manufactured product is sold.
  4. D) Advertising costs are period costs and are expensed when the manufactured product is sold.

Answer:  B

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

46) The following information relates to Webster Inc.:

 

Advertising Costs $10,270
Administrative Salaries 24,700
Delivery Vehicle Depreciation 1,027
Factory Repair and Maintenance 910
Indirect Labor 11,700
Indirect Materials 9,360
Manufacturing Equipment Depreciation 2,080
Office Rent 61,100
President’s Salary 40,300
Sales Revenue 450,000
Sales Salary 4,500

 

How much were Webster’s period costs?

  1. A) $141,897
  2. B) $474,050
  3. C) $615,947
  4. D) $61,503

Answer:  A

Explanation:  A)

Advertising Costs                              $10,270

President’s Salary                                 40,300

Office Rent                                              61,100

Sales Salary                                              4,500

Delivery Vehicle Depreciation            1,027

Administrative Salaries                     24,700

Total Period Cost                             $141,897

Diff: 2

LO:  18-3

AACSB:  Application

AICPA Functional:  Measurement

 

47) The following information relates to Webster Inc.:

 

Advertising Costs $10,270
Sales Salary 4,500
Sales Revenue 450,000
President’s Salary 40,300
Office Rent 61,100
Manufacturing Equipment Depreciation 2,080
Indirect Materials 9,360
Indirect Labor 11,700
Factory Repair and Maintenance 910
Direct Materials 28,080
Direct Labor 35,100
Delivery Vehicle Depreciation 1,027
Administrative Salaries 24,700

 

How much were Webster’s product costs?

  1. A) $141,897
  2. B) $697,127
  3. C) $229,127
  4. D) $87,230

Answer:  D

Explanation:  D)

Indirect Labor                                                            $11,700

Indirect Materials                                                          9,360

Factory Repair and Maintenance                                910

Manufacturing Equipment Depreciation              2,080

Direct Materials                                                           28,080

Direct Labor                                                                  35,100

Total Product Cost                                                   $87,230

Diff: 2

LO:  18-3

AACSB:  Application

AICPA Functional:  Measurement

 

48) The following information relates to Webster Inc.:

 

Advertising Costs $10,270
Sales Salary 4,500
Sales Revenue 450,000
President’s Salary 40,300
Office Rent 61,100
Manufacturing Equipment Depreciation 2,080
Indirect Materials 9,360
Indirect Labor 11,700
Factory Repair and Maintenance 910
Direct Materials 28,080
Direct Labor 35,100
Delivery Vehicle Depreciation 1,027
Administrative Salaries 24,700

 

How much was Webster’s manufacturing overhead?

  1. A) $21,060
  2. B) $21,970
  3. C) $24,050
  4. D) $141,897

Answer:  C

Explanation:  C)

Indirect Labor                                                         $11,700

Indirect Materials                                                      9,360

Factory Repair and Maintenance                             910

Manufacturing Equipment Depreciation           2,080

Total Manufacturing Overhead                        $24,050

Diff: 2

LO:  18-3

AACSB:  Application

AICPA Functional:  Measurement

 

49) The following information was obtained from Fizz Company:

 

Advertising Costs $9,900
Indirect Labor 11,000
CEO’s Salary 49,000
Direct Labor 41,000
Indirect Materials 7,900
Direct Materials Used 61,000
Factory Utilities 700
Factory Janitorial Costs 2,300
Manufacturing Equipment Depreciation 2,100
Delivery Vehicle Depreciation 1,100
Administrative Wages and Salaries 21,000

 

How much were Fizz’s period costs?

  1. A) $60,000
  2. B) $81,000
  3. C) $92,000
  4. D) $79,900

Answer:  B

Explanation:  B)

Advertising Costs                                                 $9,900

CEO’s Salary                                                          49,000

Delivery Vehicle Depreciation                            1,100

Administrative Wages and Salaries               21,000

Total Period Costs                                              $81,000

Diff: 2

LO:  18-3

AACSB:  Application

AICPA Functional:  Measurement

 

50) The following information was obtained from Fizz Company:

 

Advertising Costs $9,900
Indirect Labor 11,000
CEO’s Salary 49,000
Direct Labor 41,000
Indirect Materials 7,900
Direct Materials Used 61,000
Factory Utilities 700
Factory Janitorial Costs 2,300
Manufacturing Equipment Depreciation 2,100
Delivery Vehicle Depreciation 1,100
Administrative Wages and Salaries 21,000

 

Calculate Fizz’s total product costs.

  1. A) $126,000
  2. B) $104,100
  3. C) $127,100
  4. D) $115,000

Answer:  A

Explanation:  A)

Indirect labor                                                               $11,000

Direct Labor                                                                   41,000

Indirect Materials                                                           7,900

Direct Materials Used                                                 61,000

Factory Utilities                                                                  700

Factory Janitorial Costs                                                 2,300

Manufacturing Equipment Depreciation                2,100

Total Product Costs                                                 $126,000

Diff: 2

LO:  18-3

AACSB:  Application

AICPA Functional:  Measurement

 

51) For a manufacturing business, which of the following would be considered a product cost?

  1. A) Research and development
  2. B) Property taxes on the factory
  3. C) Advertising
  4. D) Delivery costs

Answer:  B

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

52) For a manufacturing business, which of the following would be considered a product cost?

  1. A) Salary of the sales manager
  2. B) Salary of the CEO
  3. C) Salaries of the accounting staff
  4. D) Salary of the production manager

Answer:  D

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

53) For a manufacturing business, which of the following would be considered a product cost?

  1. A) Depreciation on delivery vehicles
  2. B) Depreciation on administrative building furniture and fixtures
  3. C) Depreciation on manufacturing equipment
  4. D) Depreciation on the accounting department’s computer equipment

Answer:  C

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

54) For a manufacturing business, which of the following would be considered a direct labor cost?

  1. A) Wages of the assembly line staff
  2. B) Wages of the factory janitors
  3. C) Wages of the factory manager
  4. D) Salaries of the internal auditors

Answer:  A

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

55) For a manufacturing business, which of the following would be included as indirect manufacturing costs?

  1. A) Sales commissions
  2. B) Fuel and maintenance for delivery vehicles
  3. C) Wages of the assembly line workers
  4. D) Wages of the factory manager

Answer:  D

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

56) For decision-making purposes, ________ costs are often divided into prime costs and conversion costs.

  1. A) fixed costs
  2. B) product costs
  3. C) period costs
  4. D) sunk costs

Answer:  B

Diff: 2

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

57) For a manufacturing business, which of the following would be included as manufacturing overhead?

  1. A) Direct materials cost
  2. B) Indirect materials cost
  3. C) Direct labor
  4. D) Advertising

Answer:  B

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

58) For a manufacturing business, which of the following would be considered a period cost?

  1. A) Indirect materials
  2. B) Factory utilities
  3. C) Direct labor
  4. D) Sales salaries

Answer:  D

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

59) Which of the following is both a prime cost and a conversion cost?

  1. A) Manufacturing overhead
  2. B) Direct materials
  3. C) Direct labor
  4. D) Selling expenses

Answer:  C

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

60) Which of the following represents the combined sum of direct labor and manufacturing overhead?

  1. A) Conversion costs
  2. B) Period costs
  3. C) Prime costs
  4. D) Fixed costs

Answer:  A

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

61) Which of the following represents the combined sum of direct materials and direct labor?

  1. A) Conversion costs
  2. B) Period costs
  3. C) Prime costs
  4. D) Fixed costs

Answer:  C

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

62) Which of the following will be classified as a conversion cost?

  1. A) Cost of raw materials
  2. B) Depreciation on factory equipment
  3. C) Salary of sales personnel
  4. D) Depreciation on office furniture

Answer:  B

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

63) Which of the following would be classified as a prime cost?

  1. A) Cost of raw materials
  2. B) Depreciation on factory equipment
  3. C) Salary of sales personnel
  4. D) Depreciation on office furniture

Answer:  A

Diff: 1

LO:  18-3

AACSB:  Application

AICPA Functional:  Reporting

 

Learning Objective 18-4

 

1) The cost of goods manufactured includes selling expenses, administrative expenses, and manufacturing overhead.

Answer:  FALSE

Diff: 1

LO:  18-4

AACSB:  Concept

AICPA Functional:  Reporting

 

2) Merchandiser’s inventory consists of raw materials inventory, work-in-process inventory, and finished goods inventory.

Answer:  FALSE

Diff: 1

LO:  18-4

AACSB:  Concept

AICPA Functional:  Reporting

 

3) Total manufacturing costs to account for during the year minus the ending work-in-process inventory equals the cost of goods manufactured.

Answer:  TRUE

Diff: 1

LO:  18-4

AACSB:  Concept

AICPA Functional:  Reporting

 

4) Which of the following statements is true of the flow of product and period costs for a manufacturer?

  1. A) When the manufacturing process is completed, the costs are transferred to the Work-in-Process Inventory account.
  2. B) The cost of the finished goods that the manufacturer sells becomes its Cost of Goods Sold on the income statement.
  3. C) Period costs remain in inventory accounts on the balance sheet until the product is sold.
  4. D) All product costs that have been paid are expensed and shown on the income statement at the end of the accounting period.

Answer:  B

Diff: 2

LO:  18-4

AACSB:  Concept

AICPA Functional:  Reporting

 

5) Goods that are produced by a manufacturing company and are ready to sell are recorded in the:

  1. A) Materials Inventory account.
  2. B) Work-in-Process Inventory account.
  3. C) Manufacturing Overhead account.
  4. D) Finished Goods Inventory account.

Answer:  D

Diff: 1

LO:  18-4

AACSB:  Concept

AICPA Functional:  Reporting

 

6) At the beginning of 2015, Swift Company’s Work-in-Process Inventory account had a balance of $120,000. During 2015, $250,000 of direct materials were used in production, and $75,000 of direct labor costs were incurred. Manufacturing overhead amounted to $850,000. The cost of goods manufactured was $675,000. What is the balance in the Work-in-Process Inventory account on December 31, 2015?

  1. A) $230,000
  2. B) $1,295,000
  3. C) $675,000
  4. D) $620,000

Answer:  D

Explanation:  D)

Beginning Work-in-Process Inventory                  $120,000

Direct Materials Used                                                   250,000

Direct Labor                                                                        75,000

Manufacturing Overhead                                            850,000

Total Manufacturing Costs To account for         1,295,000

Cost of Goods Manufactured                                    -675,000

Ending Work-in-Process Inventory                        $620,000

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

7) Selected data for Lemon Grass Company for 2015 is provided below:

 

Factory Utilities $ 1,500
Indirect Materials Used 37,500
Direct Materials Used 300,000
Property Taxes on Factory Building 6,900
Sales Commissions 85,000
Indirect Labor Incurred 25,000
Direct Labor Incurred 150,000
Depreciation on Factory Equipment 6,500

 

What is the total factory overhead?

  1. A) $450,000
  2. B) $612,000
  3. C) $77,400
  4. D) $62,400

Answer:  C

Explanation:  C)

Factory Utilities                                                     $1,500

Indirect Materials Used                                      37,500

Property Taxes on Factory Building                 6,900

Indirect Labor Incurred                                      25,000

Depreciation on Factory Equipment                 6,500

Total Factory Overhead                                    $77,400

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

8) Which of the following describes the cost of goods manufactured?

  1. A) the cost of the goods that were sold during the period
  2. B) the total cost of all goods that were completed, or partially completed during the period
  3. C) the cost of those goods which were completed during the period
  4. D) total costs in inventory at the end of the period

Answer:  C

Diff: 2

LO:  18-4

AACSB:  Concept

AICPA Functional:  Measurement

 

9) Fireox Company’s selected cost data for 2015 are shown below:

 

Cost of Goods Manufactured $145,200
Work-in-Process Inventory, Jan. 1, 2015 18,500
Work-in-Process Inventory, Dec. 31, 2015 22,500
Direct Materials Used 15,800

 

What is the total of manufacturing costs incurred by Fireox Company in 2015?

  1. A) $149,200
  2. B) $158,300
  3. C) $139,800
  4. D) $117,100

Answer:  A

Explanation:  A) $149,200 (Total manufacturing costs incurred) = $22,500 (Ending Work-in-Process Inventory) + $145,200 (Cost of Goods Manufactured) – $18,500 (Beginning Work-in-Process Inventory)

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

10) Fireox Company’s selected cost data for 2015 are shown below:

 

Work-in-Process Inventory, Jan. 1, 2015 $5,640
Direct Materials Used 105,000
Work-in-Process Inventory, Dec. 31, 2015 2,870
Cost of Goods Manufactured 193,200

 

Assuming manufacturing overhead costs of $27,850, what is the amount of direct labor incurred by Fireox Company in 2015?

  1. A) $63,120
  2. B) $190,430
  3. C) $57,580
  4. D) $79,690

Answer:  C

Explanation:  C)

$190,430 (Cost of goods sold) = $2,870 (Ending Work-in-Process Inventory) + $193,200 (Cost of Goods Manufactured) – $5,640 (Beginning Work-in-Process Inventory)

$57,580 (Direct labor costs) = $190,430 (Cost of goods sold) – $27,850 (Manufacturing overhead costs) – $105,000 (Direct Materials Used)

Diff: 3

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

11) Jasper Inc. reports the following cost information for March:

 

Cost of Goods Manufactured $75,000
Manufacturing Overhead 18,250
Finished Goods Inventory, March 1 4,500
Finished Goods Inventory, March 31 2,650
Work-in-Process Inventory, March 1 9,670
Work-in-Process Inventory, March 31 1,250
Direct Materials Used 25,300

 

What is the cost of goods sold for March?

  1. A) $83,420
  2. B) $73,150
  3. C) $76,850
  4. D) $82,150

Answer:  C

Explanation:  C)

Finished Goods Inventory, March 1               $4,500

+ Cost of Goods Manufactured                        75,000

– Finished Goods Inventory, March 31           -2,650

= Cost of Goods Sold                                         $76,850

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

12) Jasper Inc. reports the following cost information for March:

 

Cost of Goods Manufactured $75,000
Manufacturing Overhead 18,250
Finished Goods Inventory, March 1 4,500
Finished Goods Inventory, March 31 2,650
Work-in-Process Inventory, March 1 9,670
Work-in-Process Inventory, March 31 1,250
Direct Materials Used 25,300

 

What is the amount of direct labor incurred by Jasper in March?

  1. A) $29,600
  2. B) $39,870
  3. C) $126,970
  4. D) $23,030

Answer:  D

Explanation:  D)

Cost of Goods Manufactured                                 $75,000

– Direct Materials Used                                              -25,300

– Manufacturing Overhead                                      -18,250

– Work-in-Process Inventory, March 1                    -9,670

+ Work-in-Process Inventory, March 31                  1,250

= Direct Labor                                                              $23,030

Diff: 3

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

13) Jasper Corporation reports the following cost information for March:

 

Cost of Goods Manufactured $75,000
Manufacturing Overhead 18,250
Finished Goods Inventory, March 1 4,500
Finished Goods Inventory, March 31 2,650
Work-in-Process Inventory, March 1 9,670
Work-in-Process Inventory, March 31 1,250
Direct Labor 36,300

 

What is the amount of direct materials used by Jasper in March?

  1. A) $12,030
  2. B) $18,600
  3. C) $28,870
  4. D) $137,970

Answer:  A

Explanation:  A)

Cost of Goods Manufactured                                 $75,000

– Direct Labor                                                                -36,300

– Manufacturing Overhead                                      -18,250

– Work-in-Process Inventory, March 1                    -9,670

+ Work-in-Process Inventory, March 31                  1,250

= Direct Material Used                                              $12,030

Diff: 3

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

14) Jasper Corporation reports the following cost information for March:

 

Cost of Goods Manufactured $75,000
Direct Materials Used 16,850
Finished Goods Inventory, March 1 4,500
Finished Goods Inventory, March 31 2,650
Work-in-Process Inventory, March 1 9,670
Work-in-Process Inventory, March 31 1,250
Direct Labor 36,300

 

What is the amount of manufacturing overhead incurred by Jasper in March?

  1. A) $20,000
  2. B) $30,270
  3. C) $13,430
  4. D) $136,570

Answer:  C

Explanation:  C)

Cost of Goods Manufactured                                  $75,000

– Direct Labor                                                                -36,300

– Direct Material Used                                                -16,850

– Work-in-Process Inventory, March 1                     -9,670

+ Work-in-Process Inventory, March 31                   1,250

Manufacturing Overhead                                        $13,430

Diff: 3

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

15) A company used $35,000 of direct materials, incurred $73,000 in direct labor cost, and $114,000 in manufacturing overhead costs during the period. If beginning and ending Work-in-Process Inventories were $28,000 and $21,000 respectively, what is the cost of goods manufactured?

  1. A) $250,000
  2. B) $229,000
  3. C) $215,000
  4. D) $222,000

Answer:  B

Explanation:  B) $229,000 (Cost of goods manufactured) = $28,000 (Beginning Work-in-Process Inventory) + $35,000 (Direct Materials) + $73,000 (Direct Labor Cost) + $114,000 (Manufacturing Overhead Costs) – $21,000 (Ending Work-in-Process Inventory)

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

16) Given the following information, determine the cost of goods manufactured.

 

Direct Labor Incurred $63,000
Manufacturing Overhead Incurred 179,500
Direct Materials Used 150,000
Finished Goods Inventory, 1/1/2015 197,500
Finished Goods Inventory, 12/31/2015 221,000
Work-in-Process Inventory, 1/1/2015 96,500
Work-in-Process Inventory, 12/31/2015 109,000

 

  1. A) $243,000
  2. B) $380,000
  3. C) $867,000
  4. D) $160,000

Answer:  B

Explanation:  B)

Work-in-Process Inventory, 1/1/2015                          $96,500

Direct Materials Used                                                       150,000

Direct Labor Incurred                                                         63,000

Manufacturing Overhead Incurred                              179,500

Work-in-Process Inventory, 12/31/2015                    -109,000

Cost of Goods Manufactured                                         380,000

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

17) Given the following information, determine the cost of goods sold.

 

Direct Labor Incurred $63,000
Manufacturing Overhead Incurred 179,500
Direct Materials Used 150,000
Finished Goods Inventory, 1/1/2015 197,500
Finished Goods Inventory, 12/31/2015 221,000
Work-in-Process Inventory, 1/1/2015 96,500
Work-in-Process Inventory, 12/31/2015 109,000

 

  1. A) $380,000
  2. B) $1,016,500
  3. C) $356,500
  4. D) $414,000

Answer:  C

Explanation:  C)

Work-in-Process Inventory, 1/1/2015                   $96,500

Direct Materials Used                                               150,000

Direct Labor Incurred                                                  63,000

Manufacturing Overhead Incurred                      179,500

Work-in-Process Inventory, 12/31/2015             –109,000

Cost of Goods Manufactured                               $380,000

 

Finished Goods Inventory, 1/1/2015                  $197,500

Cost of Goods Manufactured                                 380,000

Finished Goods Inventory, 12/31/2015              -221,000

Cost of Goods Sold                                                  $356,500

Diff: 3

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

18) The cost of goods sold for Frye Manufacturing in 2015 was $233,000. The January 1, 2015, finished goods inventory balance was $31,600, and the December 31, 2015, finished goods inventory balance was $24,200. Calculate the cost of goods manufactured during 2015.

  1. A) $288,800
  2. B) $233,000
  3. C) $225,600
  4. D) $240,400

Answer:  C

Explanation:  C) $225,600 (Cost of goods manufactured) = $233,000 (Cost of goods sold) + $24,200 (Ending finished goods inventory) – $31,600 (Beginning finished goods inventory)

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

19) Which of the following will most likely be considered an indirect material cost for a bakery?

  1. A) Spices
  2. B) Flour
  3. C) Milk
  4. D) Eggs

Answer:  A

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Reporting

 

20) The following information has been provided by Squash Corporation:

 

Direct Labor $6,500
Direct Materials Used 2,550
Raw Materials Purchased 5,000
Cost of Goods Manufactured 10,500
Ending Work-in-Process Inventory 1,200
Corporate Headquarters’ Property taxes 350
Manufacturing Overhead 510

 

The beginning balance of Work-in-Process Inventory account was:

  1. A) $2,400.
  2. B) $2,140.
  3. C) $18,860.
  4. D) $9,560.

Answer:  B

Explanation:  B)

Cost of Goods Manufactured                          $10,500

Direct Labor                                                             -6,500

Direct Materials Used                                           -2,550

Manufacturing Overhead                                       -510

Ending Work-in-Process Inventory                   1,200

Beginning Work-in-Process Inventory           $2,140

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

21) Barricades Corporation provided the following information for the year 2015:

 

Beginning Balance—Work-in-Process Inventory $24,000
Ending Balance—Work-in-Process Inventory 56,000
Beginning Balance—Raw Materials Inventory 84,000
Ending Balance—Raw Materials Inventory 60,000
Purchases—Raw Materials 360,000
Direct Labor 470,000
Indirect Materials 47,000
Indirect Labor 19,000
Depreciation on Factory Plant & Equipment 24,000
Plant Utilities & Insurance 270,000

 

What was the amount of direct materials used in production during 2015?

  1. A) $360,000
  2. B) $504,000
  3. C) $384,000
  4. D) $328,000

Answer:  C

Explanation:  C)

Beginning balance—Raw Materials Inventory         $84,000

Purchases—Raw Materials                                            360,000

Ending Balance—Raw Materials Inventory               -60,000

Direct Materials Used                                                     $384,000

Diff: 1

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

22) Barricades Corporation provided the following information for the year 2015:

 

Beginning Balance—Work-in-Process Inventory $24,000
Ending Balance—Work-in-Process Inventory 56,000
Beginning Balance—Raw Materials Inventory 84,000
Ending Balance—Raw Materials Inventory 60,000
Purchases—Raw Materials 360,000
Direct Labor 470,000
Indirect Materials 47,000
Indirect Labor 19,000
Depreciation on Factory Plant & Equipment 24,000
Plant Utilities & Insurance 270,000

 

What was the amount of manufacturing overhead costs?

  1. A) $360,000
  2. B) $313,000
  3. C) $90,000
  4. D) $336,000

Answer:  A

Explanation:  A)

Plant utilities & Insurance                                            $270,000

Depreciation on Factory Plant & Equipment               24,000

Indirect Labor                                                                        19,000

Indirect Materials                                                                 47,000

Total Manufacturing Overhead Costs                       $360,000

Diff: 1

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

23) Barricades Corporation provided the following information for the year 2015:

 

Beginning Balance—Work-in-Process Inventory $24,000
Ending Balance—Work-in-Process Inventory 56,000
Beginning Balance—Raw Materials Inventory 84,000
Ending Balance—Raw Materials Inventory 60,000
Purchases—Raw Materials 360,000
Direct Labor 470,000
Indirect Materials 47,000
Indirect Labor 19,000
Depreciation on Factory Plant & Equipment 24,000
Plant Utilities & Insurance 270,000

 

What was the total manufacturing cost incurred during the year 2015?

  1. A) $744,000
  2. B) $360,000
  3. C) $1,414,000
  4. D) $1,214,000

Answer:  D

Explanation:  D)

Beginning Balance—Raw Materials Inventory                $84,000

Purchases—Raw Materials                                                    360,000

Ending Balance—Raw Materials Inventory                       -60,000

Direct Materials Used                                                            $384,000

 

Plant Utilities & Insurance                                                   $270,000

Depreciation on Factory Plant & Equipment                      24,000

Indirect Labor                                                                                19,000

Indirect Materials                                                                         47,000

Total Manufacturing Overhead Costs                              $360,000

 

Direct Materials Used                                                            $384,000

Direct Labor                                                                                 470,000

Manufacturing Overhead                                                       360,000

Total Manufacturing Cost Incurred During Year      $1,214,000

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

24) Barricades Corporation provided the following information for the year 2015:

 

Beginning Balance—Work-in-Process Inventory $24,000
Ending Balance—Work-in-Process Inventory 56,000
Beginning Balance—Raw Materials Inventory 84,000
Ending Balance—Raw Materials Inventory 60,000
Purchases—Raw Materials 360,000
Direct Labor 470,000
Indirect Materials 47,000
Indirect Labor 19,000
Depreciation on Factory Plant & Equipment 24,000
Plant Utilities & Insurance 270,00

 

What was the amount of the cost of goods manufactured for the year 2015?

  1. A) $1,414,000
  2. B) $1,214,000
  3. C) $1,182,000
  4. D) $1,246,000

Answer:  C

Explanation:  C)

Beginning Balance—Raw Materials Inventory                    $84,000

Purchases—Raw Materials                                                        360,000

Ending Balance—Raw Materials Inventory                           -60,000

Direct Materials Used                                                                 $384,000

 

Plant Utilities & Insurance                                                       $270,000

Depreciation on Factory Plant & Equipment                           24,000

Indirect Labor                                                                                    19,000

Indirect Materials                                                                             47,000

Total Manufacturing Overhead Costs                                   $360,000

 

Direct Materials Used                                                                 $384,000

Direct Labor                                                                                     470,000

Manufacturing Overhead                                                            360,000

Total Manufacturing Cost Incurred During Year           $1,214,000

 

Beginning Balance—Work-in-Process Inventory                 $24,000

Total Manufacturing Cost Incurred During Year             1,214,000

Ending Balance—Work-in-Process Inventory                       -56,000

Cost of Goods Manufactured                                                $1,182,000

Diff: 3

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

25) Viva Inc. has provided the following information for the year 2015:

 

Cost of Goods Manufactured $1,234,000
Beginning Balance—Finished Goods Inventory 99,000
Ending Balance—Finished Goods Inventory 84,000

 

How much is the cost of goods sold?

  1. A) $183,000
  2. B) $1,249,000
  3. C) $1,234,000
  4. D) $1,219,000

Answer:  B

Explanation:  B)

Beginning Balance—Finished Goods Inventory              $99,000

Cost of Goods Manufactured                                              1,234,000

Ending Balance—Finished Goods Inventory                     -84,000

Cost of Goods Sold                                                               $1,249,000

Diff: 1

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

 

26) Amoeba Manufacturing Company provided the following information for the year 2015:

 

Purchases—Raw Materials $90,000
Plant Utilities & Insurance 67,500
Indirect Materials 11,750
Indirect Labor 4,750
Direct Materials Used in Production 96,000
Direct Labor 117,500
Depreciation on Factory Plant & Equipment 6,000

 

The inventory account balances as of January 1st 2015 are given below.

 

Raw Materials Inventory $42,000
Work-in-Process Inventory 12,000
Finished Goods Inventory 49,500

 

What is the ending balance in the Raw Materials Inventory account?

  1. A) $54,000
  2. B) $6,000
  3. C) $111,000
  4. D) $24,250

Answer:  D

Explanation:  D) $42,000 + $90,000 – $96,000 – $11,750 = $24,250

Diff: 1

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

27) Amoeba Manufacturing Company provided the following information for the year 2015:

 

Purchases—Raw Materials $90,000
Plant Utilities & Insurance 67,500
Indirect Materials 11,750
Indirect Labor 4,750
Direct Materials Used in Production 96,000
Direct Labor 117,500
Depreciation on Factory Plant & Equipment 6,000
Cost of Goods Manufactured 290,850

 

The inventory account balances as of January 1st 2015 are given below.

 

Raw Materials Inventory $42,000
Work-in-Process Inventory 12,000
Finished Goods Inventory 49,500

 

What is the ending balance in the Work-in-Process Inventory account?

  1. A) $24,650
  2. B) $12,000
  3. C) $49,500
  4. D) $65,350

Answer:  A

Explanation:  A)

Indirect Materials                                                               $11,750

Indirect Labor                                                                          4,750

Depreciation on Factory Plant & Equipment                 6,000

Plant Utilities & Insurance                                                67,500

Total Manufacturing Overhead                                     $90,000

 

Beginning—Work-in-Process Inventory                     $12,000

Direct Materials Used in Production                              96,000

Direct Labor                                                                         117,500

Manufacturing Overhead                                                  90,000

Cost of Goods Manufactured                                        -290,850

Ending—Work-in-Process Inventory                           $24,650

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

28) Amoeba Manufacturing Company provided the following information for the year 2015:

 

Purchases—Raw Materials $90,000
Plant Utilities & Insurance 67,500
Indirect Materials 11,750
Indirect Labor 4,750
Direct Materials Used in Production 96,000
Direct Labor 117,500
Depreciation on Factory Plant & Equipment 6,000
Cost of Goods Manufactured 290,850
Cost of Goods Sold 304,550

 

The inventory account balances as of January 1st 2015 are given below.

 

Raw Materials Inventory $42,000
Work-in-Process Inventory 12,000
Finished Goods Inventory 49,500

 

What is the ending balance in the finished goods inventory?

  1. A) $49,500
  2. B) $63,200
  3. C) $35,800
  4. D) $24,650

Answer:  C

Explanation:  C)

Beginning Balance—Finished Goods Inventory      $49,500

Cost of Goods Manufactured                                         290,850

Cost of Goods Sold                                                           –304,550

Ending Balance—Finished Goods Inventory           $35,800

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

29) The following information has been provided by Nugget Company:

 

Direct Labor $25,000
Direct Materials Used 10,000
Raw Materials Purchased 16,750
Cost of Goods Manufactured 49,750
Ending Work-in-Process Inventory 11,500
Corporate Headquarters’ Property Taxes 1,500
Manufacturing Overhead 19,750

 

Calculate the beginning balance of the Work-in-Process Inventory account.

  1. A) $5,000
  2. B) $10,500
  3. C) $6,500
  4. D) $16,500

Answer:  C

Explanation:  C)

Cost of Goods Manufactured                                  $49,750

Direct Materials Used                                                -10,000

Direct Labor                                                                  -25,000

Manufacturing Overhead                                         -19,750

Ending Work-in-Process Inventory                         11,500

Beginning Work-in-Process Inventory                   $6,500

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

30) Reed Production has provided the following information for the year 2015:

 

Direct Labor $153,000
Beginning Work-in-Process Inventory 62,500
Direct Materials Used 271,000
Ending Work-in-Process Inventory 53,850
Manufacturing Overhead 135,500

 

During the year, Reed produced 71,020 units of product. Calculate the unit product cost.

  1. A) $8.00
  2. B) $10.00
  3. C) $9.52
  4. D) $7.88

Answer:  A

Explanation:  A)

Cost of Goods Manufactured

Beginning Work-in-Process Inventory                                                $62,500

Direct Materials Used:                                            $271,000

Direct Labor                                                                 153,000

Manufacturing Overhead                                        135,500

Total mfg. Costs Incurred                                                                        559,500

Total mfg. Costs to Account For                                                            622,000

Ending Work-in-Process Inventory                                                       -53,850

Cost of Goods Manufactured                                                               $568,150

 

Unit product cost = $568,150 ÷ 71,020 = $8.00 per unit

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Reporting

 

31) Evanston Manufacturing Company reported the following information for the year 2015:

 

Number of Units Produced 4,800
Number of Units Sold 5,250
Cost of Goods Manufactured $460,800
Cost of Goods Sold $488,250
Sales Revenue $1,260,000
Gross Profit $771,750
Operating Expense $724,900

 

What was the unit product cost?

  1. A) $87.77
  2. B) $262.50
  3. C) $93.00
  4. D) $96.00

Answer:  D

Explanation:  D) $96.00 (Unit product cost) = $460,800 (Cost of goods manufactured) ÷ 4,800 units

Diff: 1

LO:  18-4

AACSB:  Application

AICPA Functional:  Reporting

 

32) South State Company used $71,000 of direct materials and incurred $37,000 of direct labor costs during 2015. Indirect labor amounted to $2,700 while indirect materials used totaled $1,600. Other operating costs pertaining to the factory included utilities of $3,100; maintenance of $4,500; repairs of $1,800; depreciation of $7,900; and property taxes of $2,600. There was no beginning or ending finished goods inventory, but Work-in-Process inventory began the year with a $5,500 balance and ended the year with a $7,500 balance.

 

How much is the cost of goods manufactured?

  1. A) $124,700
  2. B) $130,200
  3. C) $137,700
  4. D) $132,200

Answer:  B

Explanation:  B)

Beginning Work-in-Process Inventory                                                       $5,500

Direct Materials Used                                                                71,000

Direct Labor                                                                                  37,000

Manufacturing Overhead                                                        24,200

Total Manufacturing Costs Incurred during the Year                        132,200

Total Manufacturing Costs to Account For                                            137,700

Ending Work-in-Process Inventory                                                              -7,500

Cost of Goods Manufactured                                                                   $130,200

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

33) Arturo Manufacturing Company provided the following information for the year 2015:

 

Beginning Balance—Work-in-Process Inventory $12,000
Ending Balance—Work-in-Process Inventory 28,000
Beginning Balance—Raw Materials Inventory 42,000
Ending Balance—Raw Materials Inventory 30,000
Purchases—Raw Materials 180,000
Direct Labor 235,000
Indirect Materials 23,500
Indirect Labor 9,500
Depreciation on Factory Plant & Equipment 12,000
Plant Utilities & Insurance 135,000

 

How much is the cost of goods manufactured?

  1. A) $591,000
  2. B) $607,000
  3. C) $619,000
  4. D) $579,000

Answer:  A

Explanation:  A)

Beginning Balance—Work-in-Process Inventory                                                 $12,000

Direct Materials Used:

Beginning Balance—Raw Materials Inventory            42,000

Purchases—Raw Materials                                             180,000

Raw Materials Available for Use                                   222,000

Ending Balance—Raw Materials Inventory                -30,000

Direct Materials Used                                                                              192,000

Direct Labor                                                                                                235,000

Manufacturing Overhead                                                                      180,000

Total Manufacturing Costs Incurred during the Year                                        607,000

Total Manufacturing Costs to Account For                                                            619,000

Ending Work-in-Process Inventory                                                                           -28,000

Cost of Goods Manufactured                                                                                   $591,000

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

34) Opal Company used $213,000 of direct materials and incurred $111,000 of direct labor costs during 2015. Indirect labor amounted to $8,100 while indirect materials used totaled $4,800. Other operating costs pertaining to the factory included utilities of $9,300; maintenance of $13,500; repairs of $5,400; depreciation of $23,700; and property taxes of $7,800. There was no beginning or ending finished goods inventory. The Work-in-Process Inventory account reflected a balance of $16,500 at the beginning of the period and $22,500 at the end of the period.

 

Required: Prepare a schedule of cost of goods manufactured for Opal Company using the format below.

 

COST OF GOODS MFGD

Beginning Work-in-Process Inventory
Direct Materials Used
Direct Labor
Manufacturing Overhead:
   Indirect Labor
   Indirect Materials
   Utility Expenses
   Maintenance
   Repairs
   Depreciation
   Property Taxes
Total Manufacturing Overhead
Total Manufacturing Costs Incurred during the Year
Total Manufacturing Costs to Account For
Ending Work-in-Process Inventory
Cost of Goods Manufactured

 

Answer:

Schedule of Cost of Goods Manufactured

Beginning Work-in-Process Inventory                                                                        $16,500

Direct Materials Used                                                                            $213,000

Direct Labor                                                                                                 111,000

Manufacturing Overhead:

Indirect Labor                                                                      $8,100

Indirect Materials                                                                  4,800

Utility Expenses                                                                    9,300

Maintenance                                                                        13,500

Repairs                                                                                     5,400

Depreciation                                                                         23,700

Property Taxes                                                                       7,800

Total Manufacturing Overhead                                                               72,600

Total Manufacturing Costs Incurred

during the Year                                                                                                                   396,600

Total Manufacturing Costs to Account For                                                                413,100

Ending Work-in-Process Inventory                                                                               -22,500

Cost of Goods Manufactured                                                                                       $390,600

Diff: 2

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

35) Dreams Manufacturing Company provided the following information for the year 2015:

 

Purchases—Raw Materials $270,000
Plant Utilities & Insurance 202,500
Indirect Materials 35,250
Indirect Labor 14,250
Ending Balance—Work-in-Process Inventory 42,000
Ending Balance—Raw Materials Inventory 45,000
Direct Labor 352,500
Depreciation on Factory Plant & Equipment 18,000
Beginning Balance—Work-in-Process Inventory 18,000
Beginning Balance—Raw Materials Inventory 63,000

 

Required: Prepare a statement of the cost of goods manufactured using the following format:

 

COST OF GOODS MFGD
Beginning Work-in-Process Inventory
Direct Materials Used:
   Beginning Raw Materials Inventory
   Purchases of Raw Materials
   Raw Materials Available for Use
   Ending Raw Materials Inventory
Direct Materials Used
Direct Labor
Manufacturing Overhead:
   Indirect Materials
   Indirect Labor
   Depreciation—Plant & Equip.
   Plant utilities & Insurance
Total Manufacturing Overhead
Total Manufacturing Costs Incurred During the Year
Total Manufacturing Costs to Account For
Ending Work-in-Process Inventory
Cost of Goods Manufactured

 

 

Answer:

                                       Schedule of Cost of Goods Manufactured

Beginning Work-in-Process Inventory                                                                        $18,000

Direct Materials Used

Beginning Raw Materials Inventory                            $63,000

Purchases of Raw Materials                                           270,000

Raw Materials Available for Use                                  333,000

Ending Raw Materials Inventory                                   -45,000

Direct Materials Used                                                                             $288,000

Direct Labor                                                                                                 352,500

Manufacturing Overhead

Indirect Materials                                                                 35,250

Indirect Labor                                                                        14,250

Depreciation on Factory Plant & Equipment               18,000

Plant Utilities & Insurance                                              202,500

Total Manufacturing Overhead                                                             270,000

Total Manufacturing Costs Incurred During

the Year                                                                                                                                 910,500

Total Manufacturing Costs to Account For                                                               928,500

Ending Work-in-Process Inventory                                                                              – 42,000

Cost of Goods Manufactured                                                                                       $886,500

Diff: 3

LO:  18-4

AACSB:  Application

AICPA Functional:  Measurement

 

Learning Objective 18-5

 

1) Managerial accounting is used in manufacturing and merchandising companies, but not in service companies.

Answer:  FALSE

Diff: 1

LO:  18-5

AACSB:  Concept

AICPA Functional:  Measurement

 

2) Service companies do not have product costs so they often consider all operating expenses as part of their cost of service.

Answer:  TRUE

Diff: 1

LO:  18-5

AACSB:  Concept

AICPA Functional:  Measurement

 

 

3) Managerial accounting can be used to calculate costs for service and merchandising companies.

Answer:  TRUE

Diff: 1

LO:  18-5

AACSB:  Concept

AICPA Functional:  Measurement

 

4) A merchandiser need not calculate cost per unit as it resells goods that are already manufactured.

Answer:  FALSE

Diff: 1

LO:  18-5

AACSB:  Concept

AICPA Functional:  Measurement

 

5) Cost per service is calculated by dividing total costs by total number of services provided.

Answer:  TRUE

Diff: 1

LO:  18-5

AACSB:  Concept

AICPA Functional:  Measurement

6) Nurix Inc. is a business consulting firm. During the month of February, Nurix earned $55,400 of revenues by providing services to 45 clients. Operating expenses for February were $8,500 and non-operating expenses were $4,500.

What is the cost per service?

  1. A) $100.00
  2. B) $188.88
  3. C) $942.22
  4. D) $288.00

Answer:  B

Explanation:  B) $188.88 (Cost per service) = $8,500 (Operating expenses) ÷ 45 Clients

Diff: 1

LO:  18-5

AACSB:  Application

AICPA Functional:  Reporting

 

 

7) Samson Inc. reported the following information for the year 2015:

 

Service Revenue $40,000
Operating Expenses $23,625
Net Income $16,375
Number of Services Provided for the Year 10,500

 

How much was the unit cost per service?

  1. A) $1.56
  2. B) $3.20
  3. C) $2.25
  4. D) $3.81

Answer:  C

Explanation:  C) $2.25 (Cost per service) = $23,625(Operating Expenses) ÷ 10,500 Services

Diff: 1

LO:  18-5

AACSB:  Application

AICPA Functional:  Reporting

8) Crystal Inc. is a merchandiser of stone ornaments. The company sold 15,000 units in 2015. The company has provided the following information:

 

Sales Revenue $557,000
Purchases (excluding freight in) 300,000
Selling and Administrative Expenses 69,000
Freight In 15,000
Beginning Merchandise Inventory 45,000
Ending Merchandise Inventory 55,700

 

What is the cost per unit sold?

  1. A) $20.29
  2. B) $15.00
  3. C) $23.88
  4. D) $12.25

Answer:  A

Explanation:  A)

Purchases (excluding freight in)                 $300,000

Freight In                                                                15,000

Beginning Merchandise Inventory                 45,000

Ending Merchandise Inventory                     -55,700

Cost of Goods Sold                                          $304,300

 

Cost per unit sold = $304,300 ÷ 15,000 units = $20.29

Diff: 2

LO:  18-5

AACSB:  Application

AICPA Functional:  Measurement

 

9) Five Seasons is a merchandiser of packed foods. The company provides the following information for the year 2015:

 

Sales Revenue $140,000
Cost of Goods Sold $63,000
Operating Expenses $67,500
Net Income $9,500
Number of Units Sold 27,000

 

How much was the unit cost per unit of product sold?

  1. A) $3.14
  2. B) $5.18
  3. C) $2.33
  4. D) $0.82

Answer:  C

Explanation:  C) $2.33 (Cost per unit of product sold) = $63,000 (Cost of Goods Sold) ÷ 27,000 units

Diff: 1

LO:  18-5

AACSB:  Application

AICPA Functional:  Reporting

10) Fuchsia Inc. provides automobile services in the local community. The company provides the following information for the month of March:

 

Building Rent Expense $5,000
Depreciation Expense—Equipment 1,700
Supplies Expense 8,500
Utilities Expense 2,450

 

Fuchsia provided services to 1,500 clients in the month of March and generated $20,500 as revenue.

How much is the cost per service?

  1. A) $11.77
  2. B) $5.18
  3. C) $13.67
  4. D) $10.63

Answer:  A

Explanation:  A) $11.77 (Cost per service) = $17,650 (Total costs) ÷ 1,500 services

Diff: 2

LO:  18-5

AACSB:  Application

AICPA Functional:  Reporting

 

11) Star Health Inc. is a fitness center in Oklahoma City. In October, the company earned

$550,000 in revenues and incurred the following operating costs from 340 customers:

 

Manager’s salary $50,000
Gym Rent 60,000
Depreciation Expense—Equipment 25,000
Office Supplies 30,000
Utilities Expense 89,700
Trainer’s Salary 25,000

 

How much is the unit cost per customer service?

  1. A) $795.00
  2. B) $749.12
  3. C) $1,617.65
  4. D) $822.65

Answer:  D

Explanation:  D)

Manager’s salary                                               $50,000

Gym Rent                                                               60,000

Depreciation Expense—Equipment               25,000

Office Supplies                                                      30,000

Utilities Expense                                                  89,700

Trainer’s Salary                                                    25,000

Total Operating Expenses                            $279,700

 

$822.65 (Cost per service) = $279,700 ÷ 340 customers

Diff: 1

LO:  18-5

AACSB:  Application

AICPA Functional:  Reporting

 

12) Kentucky purchases and sells widgets. The following information summarizes Kentucky’s operating activities for 2015:

 

Selling and Administrative Expenses $4,500
Purchases 157,000
Sales Revenue 785,000
Merchandise Inventory, January 1, 2015 38,250
Merchandise Inventory, December 31, 2015 79,000

 

If Kentucky sold 7,500 units of widgets during 2015, how much is the cost for one widget?

  1. A) $50.00
  2. B) $15.50
  3. C) $26.36
  4. D) $16.10

Answer:  B

Explanation:  B)

Merchandise Inventory, January 1, 2015                    $38,250

Purchases                                                                             157,000

Merchandise Inventory, December 31, 2015               -79,000

Total cost of goods sold                                                 $116,250

 

Per unit cost = $116,250 ÷ 7,500 units = $15.50

Diff: 2

LO:  18-5

AACSB:  Application

AICPA Functional:  Reporting

 

 

13) Crystal Inc. is a merchandiser of stone ornaments. The company sold 15,000 units in 2015. The company has provided the following information:

 

Sales Revenue $557,000
Purchases (excluding freight in) 300,000
Selling and Administrative Expenses 69,000
Freight In 15,000
Beginning Merchandise Inventory 45,000
Ending Merchandise Inventory 55,700

 

What is the cost of goods available for sale for 2015?

  1. A) $360,000
  2. B) $304,300
  3. C) $345,000
  4. D) $330,000

Answer:  A

Explanation:  A)

$360,000 (Cost of goods available for sale) = $45,000 (Beginning Merchandise Inventory) + $300,000 (Purchases) + $15,000 (Freight In)

Diff: 2

LO:  18-5

AACSB:  Application

AICPA Functional:  Measurement

14) Crystal Inc. is a merchandiser of stone ornaments. The company sold 15,000 units in 2015. The company has provided the following information:

 

Sales Revenue $557,000
Purchases (excluding freight in) 300,000
Selling and Administrative Expenses 69,000
Freight In 15,000
Beginning Merchandise Inventory 45,000
Ending Merchandise Inventory 55,700

 

What is the cost of goods sold for 2015?

  1. A) $360,000
  2. B) $304,300
  3. C) $358,300
  4. D) $330,000

Answer:  B

Explanation:  B)

$304,300 (Cost of goods sold) = $45,000 (Beginning Merchandise Inventory) + $300,000 (Purchases) + $15,000 (Freight In) – $55,700 (Ending Merchandise Inventory)

Diff: 2

LO:  18-5

AACSB:  Application

AICPA Functional:  Measurement

15) Crabapples Inc. purchases and sells dry fruit boxes. The following information summarizes its operating activities for 2015:

 

Selling Expenses $9,375
Inventory on December 31, 2015 32,500
Inventory on January 1, 2015 46,875
Purchases of merchandise 84,375
Rent for store 12,500
Sales commissions 7,031
Sales revenue 168,750

 

If Crabapples sold 5,000 boxes of dry fruits during the year, what is the cost per box of dry fruits?

  1. A) $72.28
  2. B) $32.75
  3. C) $10.55
  4. D) $19.75

Answer:  D

Explanation:  D)

Inventory on January 1, 2015                          $46,875

Purchases of Merchandise                                 84,375

Inventory on December 31, 2015                    -32,500

Cost of Goods Sold                                             $98,750

 

Cost per box = $98,750 ÷ 5,000 boxes = $19.75

Diff: 2

LO:  18-5

AACSB:  Application

AICPA Functional:  Measurement

 

16) Crystal Inc. is a merchandiser of stone ornaments. The company sold 15,000 units in 2015. The company has provided the following information:

 

Sales Revenue $557,000
Purchases (excluding freight in) 300,000
Selling and Administrative Expenses 69,000
Freight In 15,000
Beginning Merchandise Inventory 45,000
Ending Merchandise Inventory 55,700

 

What is the operating income for 2015?

  1. A) $183,700
  2. B) $304,300
  3. C) $252,700
  4. D) $257,000

Answer:  A

Explanation:  A)

$304,300 (Cost of Goods Sold) = $45,000 (Beginning Merchandise Inventory) + $300,000 (Purchases) + $15,000 (Freight In) – $55,700 (Ending Merchandise Inventory)

$183,700 (Operating Income) = $557,000 (Sales Revenue) – $304,300 (Cost of Goods Sold) – $69,000

Diff: 2

LO:  18-5

AACSB:  Application

AICPA Functional:  Measurement

 

17) Star Health Inc. is a fitness center in Oklahoma City. In October, the company earned

$550,000 in revenues and incurred the following operating costs from 340 customers:

 

Manager’s salary $50,000
Gym Rent 60,000
Depreciation Expense—Equipment 25,000
Office Supplies 30,000
Utilities Expense 89,700
Trainer’s Salary 25,000

 

Required: Prepare Star Health’s income statement for the month of October.

Answer:

Revenue

Service Revenue                                                                        $550,000

Expenses

Manager’s salary                                        $50,000

Gym Rent                                                        60,000

Depreciation Expense—Equipment       25,000

Office Supplies                                              30,000

Utilities Expense                                           89,700

Trainer’s Salary                                             25,000

Total Expenses                                                                             279,700

Operating Income                                                                     $270,300

Diff: 2

LO:  18-5

AACSB:  Application

AICPA Functional:  Reporting

Test Bank 10th-Ed Accounting The Managerial Chapters Nobles by Horngren’s

Test Bank 10th-Ed Accounting The Managerial Chapters Nobles by Horngren’s