CHAPTER ORGANIZATIONAL COST FLOWS MULTIPLE CHOICE The term “relevant range” as used in cost accounting means the range over which a b c d costs may fluctuate cost relationships are valid production may vary relevant costs are incurred ANSWER: Total cost reaction to increase in activity remains constant remains constant increases increases ANSWER: d Cost per unit reaction to increase in activity remains constant increases increases remains constant EASY When cost relationships are linear, total variable prime costs will vary in proportion to changes in a b c d direct labor hours total material cost total overhead cost production volume ANSWER: EASY Which of the following defines variable cost behavior? a b c d b d EASY Which of the following would not generally be considered a fixed overhead cost? a b c d Straight-line depreciation no yes yes no ANSWER: c Factory insurance no no yes yes Units-of-production depreciation no yes no no EASY 3–1 3–2 Chapter An example of a fixed cost is a b c d total indirect material cost total hourly wages cost of electricity straight-line depreciation ANSWER: EASY expired cost fixed cost variable cost mixed cost ANSWER: b EASY A(n) cost increases or decreases in intervals as activity changes a b c d historical cost fixed cost step cost budgeted cost ANSWER: d A cost that remains constant in total but varies on a per-unit basis with changes in activity is called a(n) a b c d Organizational Cost Flows c EASY When the number of units manufactured increases, the most significant change in unit cost will be reflected as a(n) a b c d increase in the fixed element decrease in the variable element increase in the mixed element decrease in the fixed element ANSWER: d EASY Chapter Organizational Cost Flows Which of the following always has a direct cause-effect relationship to a cost? a b c d Predictor yes yes no no ANSWER: 10 causes fixed costs to rise because of production changes has a direct cause-effect relationship to a cost can predict the cost behavior of a variable, but not a fixed, cost is an overhead cost that causes distribution costs to change in distinct increments with changes in production volume ANSWER: b EASY Product costs are deducted from revenue a b c d as expenditures are made when production is completed as goods are sold to minimize taxable income ANSWER: 12 MEDIUM A cost driver a b c d 11 c Cost driver yes no yes no c EASY A selling cost is a(n) a b c d product cost yes yes no no ANSWER: c period cost yes no yes yes EASY inventoriable cost no no no yes 3–4 13 Chapter Which of the following is not a product cost component? a b c d rent on a factory building indirect production labor wages janitorial supplies used in a factory commission on the sale of a product ANSWER: 14 EASY are generally expensed in the same period in which they are incurred are always variable costs remain unchanged over a given period of time are associated with the periodic inventory method ANSWER: a EASY Period costs include a b c d distribution costs yes no no yes ANSWER: 16 d Period costs a b c d 15 Organizational Cost Flows a outside processing costs no yes no yes sales commissions yes yes no yes EASY The three primary inventory accounts in a manufacturing company are a b c d Merchandise Inventory, Supplies Inventory, and Finished Goods Inventory Merchandise Inventory, Work in Process Inventory, and Finished Goods Inventory Supplies Inventory, Work in Process Inventory, and Finished Goods Inventory Raw Material Inventory, Work in Process Inventory, and Finished Goods Inventory ANSWER: d EASY Chapter 17 Organizational Cost Flows Cost of Goods Sold is an a b c d unexpired product cost expired product cost unexpired period cost expired period cost ANSWER: 18 period costs prime costs overhead costs conversion costs ANSWER: b EASY Conversion of inputs to outputs is recorded in the a b c d Work in Process Inventory account Finished Goods Inventory account Raw Material Inventory account both a and b ANSWER: a EASY The distinction between direct and indirect costs depends on whether a cost a b c d is controllable or non-controllable is variable or fixed can be conveniently and physically traced to a cost object under consideration will increase with changes in levels of activity ANSWER: 22 EASY direct labor direct material factory depreciation supervisors’ salaries ANSWER: 21 c Conversion cost does not include a b c d 20 EASY The indirect costs of converting raw material into finished goods are called a b c d 19 b c MEDIUM GSWS is a construction company that builds houses on special request What is the proper classification of the carpenters’ wages? 3–6 Chapter a b c d Product yes yes no no ANSWER: 23 Direct no no yes yes ANSWER: EASY Fixed no yes yes no d EASY Which of the following costs would be considered overhead in the production of chocolate chip cookies? a b c d flour chocolate chips sugar oven electricity ANSWER: 25 Direct no yes no yes GSWS is a construction company that builds houses on special request What is the proper classification of the cost of the cement building slab used? a b c d 24 b Period yes no no yes Organizational Cost Flows d EASY All costs related to the manufacturing function in a company are a b c d prime costs direct costs product costs conversion costs ANSWER: c EASY Chapter 26 Organizational Cost Flows Prime cost consists of a b c d direct material no yes yes no ANSWER: 27 prime cost no yes yes yes ANSWER: EASY d product cost yes no yes yes direct cost yes yes no yes fixed cost yes no yes no EASY GSWS is a construction company that builds houses on special request What is the proper classification of indirect material used? a b c d Prime no no yes yes ANSWER: 29 overhead no no yes yes Plastic used to manufacture dolls is a a b c d 28 b direct labor yes yes no yes Conversion no yes yes no b Variable no yes yes no EASY The term “prime cost” refers to a b c d all manufacturing costs incurred to produce units of output all manufacturing costs other than direct labor and raw material costs raw material purchased and direct labor costs the raw material used and direct labor costs ANSWER: d EASY 3–8 30 Chapter In a perpetual inventory system, the sale of items for cash consists of two entries One entry is a debit to Cash and a credit to Sales The other entry is a debit to a b c d Work in Process Inventory and a credit to Finished Goods Inventory Finished Goods Inventory and a credit to Cost of Goods Sold Cost of Goods Sold and a credit to Finished Goods Inventory Finished Goods Inventory and a credit to Work in Process Inventory ANSWER: 31 b c d EASY beginning Work in Process Inventory plus purchases of raw material minus ending Work in Process Inventory beginning Work in Process Inventory plus direct labor plus direct material used plus overhead incurred minus ending Work in Process Inventory direct material used plus direct labor plus overhead incurred direct material used plus direct labor plus overhead incurred plus beginning Work in Process Inventory ANSWER: b EASY The final figure in the Schedule of Cost of Goods Manufactured represents the a b c d cost of goods sold for the period total cost of manufacturing for the period total cost of goods started and completed this period total cost of goods completed for the period ANSWER: 33 c The formula to compute cost of goods manufactured is a 32 Organizational Cost Flows d EASY The formula for cost of goods sold for a manufacturer is a b c d beginning Finished Goods Inventory plus Cost of Goods Manufactured minus ending Finished Goods Inventory beginning Work in Process Inventory plus Cost of Goods Manufactured minus ending Work in Process Inventory direct material plus direct labor plus applied overhead direct material plus direct labor plus overhead incurred plus beginning Work in Process Inventory ANSWER: a EASY Chapter 34 Organizational Cost Flows Which of the following replaces the retailing component “Purchases” in computing Cost of Goods Sold for a manufacturing company? a b c d direct material used cost of goods manufactured total prime cost cost of goods available for sale ANSWER: 35 EASY Which of the following would need to be allocated to a cost object? a b c d direct material direct labor direct production costs indirect production costs ANSWER: 36 b d EASY Sonja Svenson earns $8 per hour and is paid time-and-a-half for work in excess of 40 hours per week During a given week, she works 45 hours How much of her week’s wages should be charged to overhead? a b c d $0 $20 $40 $60 ANSWER: b EASY Use the following information for questions 37–40 The following information has been taken from the cost records of T Co for the past year: Raw material used in production Total manufacturing costs charged to production during the year (includes direct material, direct labor, and overhead equal to 60% of direct labor cost) Cost of goods available for sale Selling and Administrative expenses Inventories Raw Material Work in Process Finished Goods Beginning $75 80 90 Ending $ 85 30 110 $326 686 826 25 3–10 37 Chapter The cost of raw material purchased during the year was a b c d $316 $336 $360 $411 ANSWER: 38 $135 $216 $225 $360 ANSWER: c EASY Cost of Goods Manufactured was a b c d $636 $716 $736 $766 ANSWER: 40 MEDIUM Direct labor cost charged to production during the year was a b c d 39 b c MEDIUM Cost of Goods Sold was a b c d $691 $716 $736 $801 ANSWER: b MEDIUM Organizational Cost Flows 3–34 13 Chapter Organizational Cost Flows The Warren Co has the following data for 2001: Direct Labor Direct Material Actual Overhead Applied Overhead Raw Material Work in Process Finished Goods Cost of Goods Sold $220,000 137,800 320,000 395,000 51,394 101,926 111,192 250,182 What is the amount of under- or overapplied overhead? Prepare the necessary journal entry to dispose of under- or overapplied overhead ANSWER: Applied Overhead Actual Overhead $395,000 320,000 $ 75,000 overapplied WIP $101,926/$463,300=.22 × $75,000 = $16,500 FG $111,192/$463,300=.24 × $75,000 = $18,000 CGS $250,182/$463,300=.54 × $75,000 = $40,500 Manufacturing Overhead Work in Process Finished Goods Cost of Goods Sold MEDIUM $75,000 $16,500 18,000 40,500 Chapter 14 Organizational Cost Flows 3– The Ames Corp has the following data relating to its power usage for the first six months of the current year Month Jan Feb Mar Apr May June Usage 500 550 475 425 450 725 (Kw)Cost $450 455 395 310 380 484 Assume usage is within the relevant range of activity Using the high-low method, compute the cost formula Ames Corp estimates its power usage for July at 660 watts; compute the total power cost for July ANSWER: High Low Usage 725 425 300 Cost $484 310 $174 $174/300 = $.58 × 425 = $246.50 Total variable cost $310 (TC) – $246.50 (TVC) = $63.50 Fixed cost At 660 kw, the total cost would be $.58 × 660 = $382.80 (VC) + $63.50 (FC) = $446.30 MEDIUM 3–36 15 Chapter Organizational Cost Flows The Volkers Co applies overhead at the rate of 70 percent of direct labor Volkers Co incurred $450,000 of direct labor during 2001 Volkers incurred actual overhead of $367,000 (a) Compute the amount of under- or overapplied overhead for Volkers Co for 2001 (b) Prepare the necessary journal entry to dispose of the under- or overapplied overhead (assuming that the amount is immaterial) ANSWER: a $450,000 × 70% = $315,000 applied overhead 367,000 actual overhead $ 52,000 underapplied overhead b Cost of Goods Sold Manufacturing Overhead EASY $52,000 $52,000 Chapter 16 Organizational Cost Flows 3– Temporary Training, Inc., provides a personalized training program that is popular with many companies The number of programs offered over the last five months, and the costs of offering these programs are as follows: June July Aug Sept Oct a b Programs Offered 55 45 60 50 75 Costs Incurred $15,400 14,050 18,000 14,700 19,000 Using the high-low method, compute the variable cost per program and the total fixed cost per month (Appendix) Using the least squares regression method, compute the variable cost per program and the total fixed cost per month ANSWER: a Variable cost per program: Change in costs Change in activity $19,000 – $14,050 = $165 per program 75 – 45 Fixed cost: At high activity = $19,000 – (75 × $165) = $6,625 per month At low activity = $14,050 – (45 × $165) = $6,625 per month b x 55 45 60 50 75 285 y $15,400 14,050 18,000 14,700 19,000 $81,150 xy $ 847,000 632,250 1,080,000 735,000 1,425,000 $4,719,250 x2 3,025 2,025 3,600 2,500 5,625 16,775 x bar = 57 y bar = 16,230 b = 4,719,250 – 5(57)($16,230) divided by 16,775 – 5(57)(57) b = 176.79 a = 16,230 – (176.79)(57) a = 6,152.97 MEDIUM 17 (Appendix) The facility manager asked for information to help in forecasting handling costs The following printout was generated using the least squares regression method 3–38 Chapter Fixed cost Variable cost per unit Activity variable a b Organizational Cost Flows $2550 1.85 units of production volume Using the information from the printout, develop a cost function that can be used to estimate handling costs at different volume levels Estimate handling costs if expected production for next month is 20,000 units ANSWER: a Total handling costs = $2,550 + $1.85 (unit production) b Total handling costs = $2,550 + ($1.85 × 20,000) = $39,550 MEDIUM Chapter 18 Organizational Cost Flows 3– The Jason Co has the following information available regarding costs and revenues for two recent months Selling price is $20 Sales revenue Cost of goods sold Gross profit Less other expenses: Advertising Utilities Salaries and commissions Supplies (bags, cleaning supplies etc.) Depreciation Administrative costs Total Net income April $60,000 –36,000 $24,000 May $100,000 – 60,000 $ 40,000 $ $ 600 4,200 3,200 320 2,300 1,900 –12,520 $11,480 600 5,600 4,000 400 2,300 1,900 –14,800 $25,200 Required: a Identify each of the company’s expenses (including cost of goods sold) as being either variable, fixed, or mixed b By use of the high-low method, separate each mixed expense into variable and fixed elements State the cost formula for each mixed expense c What is the total cost equation? d Estimate total cost if sales = $75,000 3–40 Chapter Organizational Cost Flows ANSWER: a Cost Cogs Advertising Utilities Salaries, Etc Supplies Depreciation Administration b Utilities $1,400 $40,000 April 36,000/60,000=60% 600 4,200/60,000= 7% 3,200/60,000=5.3% 320/60,000 53% 2,300 1,900 May 60,000/100,000=60% 600 5,600/100,000=5.6% 4,000/100,000=4% 400/100,000=.4% 2,300 1,900 = 3.5% Sales FC = $4,200 – (3.5% × 60,000) = $2,100 Salaries $800/$40,000 = 2% Sales FC = $3,200 – (2% × 60,000) = $2,000 Supplies $80/$40,000 = 2% sales FC = $320 – (.2% × $60,000) = $200 c Total FC = $600 + $2,300 + $1,900 + $2,100 + $2,000 + $200 = $9,100 Total VC = 60% + 3.5% + 2% + 2% = 65.7% sales TC = $9,100 + 65.7% sales d TC = $9100 + (65.7% × $75,000) = $58,375 MEDIUM Behavior V F M M M F F Chapter 19 Organizational Cost Flows 3– The following miscellaneous data has been collected for a manufacturing company for the year ended 12/31/01 Inventories: Raw material Work in process Finished goods Beginning $50,000 40,000 60,000 Costs recorded during the year: Purchases of raw material Direct labor Cost of goods sold $195,000 150,000 595,000 Ending $55,000 45,000 50,000 Required: Prepare a cost of goods manufactured statement showing how all unknown amounts were determined ANSWER: BEGIN WIP + DM (1) + DC + OH – END WIP = COGM (2) $ 40,000 190,000 150,000 ? (45000) $585,000 (1) BEG RM + PURCHASE – END RM = DM $ 50,000 195,000 (55,000) $190,000 (2) BEGIN FG + COGM – END FG = COGS $ 60,000 ? (50,000 ) $595,000 MEDIUM = $250,000 = $585,000 3–42 20 Chapter Organizational Cost Flows (Appendix) A company owns two automobiles that are used by employees on company business, usually for short trips Mileage and expenses, excluding depreciation, by quarters were as follows during a typical year (quarters instead of months are used to simplify the arithmetic): Quarter First Second Third Fourth Mileage 3,000 3,500 2,000 3,500 12,000 Expenses $ 550 560 450 600 $2,160 Required: Determine the variable cost per mile (nearest tenth of a cent) and the fixed costs per quarter, using the method of lease squares ANSWER: ST 2ND 3RD 4TH X 3,000 3,500 2,000 3,500 12,000 Y $550 560 450 600 $2,160 XY $1,650,000 1,960,000 900,000 2,100,000 $6,610,000 _ X = 12,000/4 = 3,000/miles per quarter _ Y = $2,160/4 = $540 b = $6,610,000 – (3,000) ($540) = $130,000 = $.087/mile $37,500,000 – (3,000) (3,000) $1,500,000 a = $540 – ($.087) (3,000) = $279 TC = $279 + 087/mile MEDIUM X2 9,000,000 12,250,000 4,000,000 12,250,000 37,500,000 Chapter 21 Organizational Cost Flows 3– In cost accounting we have three inventory accounts with which to work Describe in terms of the “cost accounting cycle” how these accounts relate to each other and how the product costs flow through the accounts In your answer name the inventory accounts and the product costs ANSWER: Material purchased from outside goes to RM inventory When work is being done, costs are accumulated in WIP inventory When goods are finished but not yet sold, costs are transferred to FG inventory There are three product costs: Direct material—as material is needed in the production process, it is requisitioned from RM inventory and transferred to WIP inventory Direct labor—cost of converting RM to FG It is determined from an analysis of time cards and tickets OH—at the beginning of the period Estimated OH to get a predetermined Estimated Activity rate used to apply OH to production OH app = Rate × actual activity MEDIUM 3–44 22 Chapter Organizational Cost Flows The following information was taken from the records of the Ucandu Corporation for the month of January 2001 (There were no inventories of work in process or finished goods on January 1.) Sales during month Manufacturing costs for month: Direct material Direct labor Overhead costs applied Overhead costs under-applied Inventories, January 31: Work in process Finished goods Units 8,000 Cost $ ? 32,000 20,000 15,000 800 1,000 2,000 ? ? Indirect manufacturing costs are applied on a direct labor cost basis The under-applied balance is due to seasonal variations and will be carried forward The following cost estimates have been submitted for the work in process inventory of January 31: material, $3,000; direct labor, $2,000 Required: a Determine the number of units that were completed and transferred to finished goods during the month b Complete the estimate of the cost of work in process on January 31 c Prepare a manufacturing statement for the month d Determine the cost of each unit completed during the month e Determine the total amount debited to the Overhead Control accounts during the month Chapter Organizational Cost Flows 3– ANSWER: a 8,000 SOLD + 2,000 ENDING FG = 10,000 UNITS b DM DC OH $3,000 2,000 1,500 $6,500 $15,000 × $2,000 $20,000 c DM DL OH – END WIP = COGM d COGM/COMPLETE UNITS = e OH APPLIED + OH UNDERAPPLIED ACTUAL OH$15,800 MEDIUM $32,000 20,000 15,000 (6,500) $60,500 $ 60,500 = $6.05/UNIT 10,000 UNITS $15,000 800 3–46 23 Chapter Organizational Cost Flows The Jones Co had the following account balances: Raw Material Manufacturing Overhead Bal 1/1 Debits Bal 12/31 30,000 420,000 Credits ? Debits Bal 12/31 ? 70,000 320,000 110,000 400,000 Credits Factory Wages Payable 810,000 Debits 179,000 Bal.1/1 Credits Bal 12/31 10,000 175,000 6,000 ? Finished Goods Bal 1/1 Credits 60,000 Work in Process Bal 1/1 Direct material Direct labor Overhead 385,000 40,000 Cost of Goods Sold Credits Debits ? ? Debits ? Bal 12/31 130,000 Required: a What was the cost of raw material put into production during the year? b How much of the material from question consisted of indirect material? c How much of the factory labor cost for the year consisted of indirect labor? d What was the cost of goods manufactured for the year? e What was the cost of goods sold for the year (before considering under- or overapplied overhead)? f If overhead is applied to production on the basis of direct material, what rate was in effect during the year? g Was manufacturing overhead under- or overapplied? By how much? h Compute the ending balance in the Work in Process Inventory account Assume that this balance consists entirely of goods started during the year If $32,000 of this balance is direct material cost, how much of it is direct labor cost? Manufacturing overhead cost? Chapter Organizational Cost Flows 3– ANSWER: a $30,000 + $420,000 – $60,000 = $390,000 b $390,000 – $320,000 DM = $70,000 c $175,000 – $110,000 DL = $65,000 d $810,000 e $40,000 + $810,000 – $130,000 = $720,000 f $400,000/$320,000 = 125% DM Cost g OH Actual OH Applied OH Overapplied h Beginning WIP + DM + DC + OH – Ending WIP = COGM MEDIUM $385,000 400,000 $ 15,000 $ 70,000 320,000 110,000 400,000 (90000 ) $810,000 DM DL (To Balance) FOH (1) End WIP $32000 18,000 40,000 $90,000 (1) $32,000 × 125% = $40,000 ... is an a b c d unexpired product cost expired product cost unexpired period cost expired period cost ANSWER: 18 period costs prime costs overhead costs conversion costs ANSWER: b EASY Conversion... ANSWER: 60 EASY fixed costs total cost variable costs mixed costs ANSWER: b EASY In the formula y = a + bX, a represents a b c d mixed cost variable cost total cost fixed cost ANSWER: 62 b Fixed... costs increase fixed cost per unit and total variable cost increase total cost will increase and fixed cost per unit will decrease variable cost per unit and total cost increase ANSWER: 66 per unit