chapter 021.doc

Chapter 2 Cost Terms, Concepts, and Classifications

True/False Questions

1. The sum of all costs of manufacturing costs except direct materials is called manufacturing overhead.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

2. Conversion cost is the sum of direct labor and manufacturing overhead.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

3. Prime cost is the sum of direct labor and manufacturing overhead.


4. Thread used in the production of mattresses, an indirect material, is classified as manufacturing overhead.


5. Period costs are also known as inventoriable costs.


6. All costs in a merchandising company are period costs.


7. The cost of goods sold of a manufacturing company equals beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition 2-7


8. A variable cost is constant if expressed on a per unit basis but the total dollar amount changes as the number of units increases or decreases.


9. As activity increases within the relevant range, fixed costs remain constant on a per unit basis.


10. Direct costs are often difficult to trace to the specific cost object under consideration.


11. All of the following are examples of opportunity costs: salary given up to start a business; rental income given up when you live in a house you own; interest income that could be earned on money spent for a car.

Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Medium

12. The amount that was paid by a company for a building to house its operations is an example of a sunk cost.


13. The most effective way to minimize quality costs while maintaining high quality is to avoid having quality problems in the first place. This is the reason for incurring appraisal costs.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9 Level: Medium

14. External failure costs are limited to the costs of repairing defective products that are under warranty.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9 Level: Hard

2-8 Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition


15. The costs of lost sales arising from poor quality are always included in quality cost reports.

Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 10 Level: Medium

Multiple Choice Questions

16. The cost of the cushions that are used to manufacture sofas is best described as a: A) manufacturing overhead cost. B) period cost. C) variable cost. D) conversion cost.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2,5 Level: Medium

17. Chezpere Company manufactures and sells washing machines. In order to make assembly of the machines faster and easier, some of the metal parts in the machines are coated with grease. How should the cost of this grease be classified?

Direct Material Cost Fixed CostA) Yes YesB) Yes NoC) No YesD) No No

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,5,6 Level: Hard



18. A security guard's wages at a factory would be an example of:

Indirect labor Fixed manufacturing overheadA) No NoB) Yes YesC) Yes NoD) No Yes

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,5 Level: Medium Source: CPA, adapted

19. Manufacturing overhead includes: A) all direct material, direct labor and administrative costs. B) all manufacturing costs except direct labor. C) all manufacturing costs except direct labor and direct materials. D) all selling and administrative costs.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

20. Materials used in the operation of a factory, such as cleaning supplies, that are not an integral part of the final product should be classified as: A) direct materials. B) a period cost. C) administrative expense. D) manufacturing overhead.

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy

21. The one cost that would be classified as part of both prime cost and conversion cost would be: A) indirect material. B) direct labor. C) direct material. D) indirect labor.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy



22. Direct costs: A) are incurred to benefit a particular accounting period. B) are incurred due to a specific decision. C) can be easily traced to a particular cost object. D) are the variable costs of producing a product.


23. Prime costs consist of: A) direct materials and the variable portion of manufacturing overhead. B) direct labor and indirect labor. C) indirect labor and the fixed portion of manufacturing overhead. D) direct labor and direct materials.

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy Source: CMA, adapted

24. Which of the following is NOT a period cost? A) Monthly depreciation of the equipment in a fitness room used by factory

workers. B) Salary of a billing clerk. C) Insurance on a company showroom, where current and potential customers can

view new products. D) Cost of a seminar concerning tax law updates that was attended by the

company's controller.

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium

25. The annual insurance premium for the factory building would be a: A) fixed cost, period cost, and indirect cost with regard to units of product. B) fixed cost, product cost, and direct cost with regard to units of product. C) variable cost, product cost, direct cost with regard to units of product. D) fixed cost, product cost, indirect cost with regard to units of product.

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,5,6 Level: Medium



26. Factory supplies in a manufacturing plant are most likely: A) sunk costs. B) period costs. C) variable costs. D) excluded from product costs.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,5,7 Level: Medium

27. All of the following are examples of product costs except: A) depreciation on the company's retail outlets. B) salary of the plant manager. C) insurance on the factory equipment. D) rental costs of the factory facility.

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy

28. Inventoriable (i.e., product) costs that have become expenses can be found in: A) period costs. B) selling expenses. C) cost of goods sold. D) administrative expenses.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium

29. The fixed portion of the cost of electricity for a manufacturing plant is a:

Period cost Product costA) Yes NoB) Yes YesC) No YesD) No No

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium Source: CPA, adapted



30. Which of the following statements about product costs is true? A) Product costs are deducted from revenue when the production process is

completed. B) Product costs are deducted from revenue as expenditures are made. C) Product costs associated with unsold finished goods and work in process appear

on the balance sheet as assets. D) Product costs appear on financial statements only when products are sold.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium

31. Conversion costs consist of: A) direct and indirect labor. B) direct labor and direct materials. C) direct labor and manufacturing overhead. D) prime costs and manufacturing overhead.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy Source: CMA, adapted

32. Which of the following is an example of a period cost? A) Fabric used to produce men's pants. B) Advertising cost for a new product campaign. C) Factory supervisor's salary. D) Monthly depreciation of production equipment.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy

33. In the preparation of the schedule of Cost of Goods Manufactured, the accountant incorrectly included as part of manufacturing overhead the rental expense on the firm's retail facilities. This inclusion would: A) overstate period expenses on the income statement. B) overstate the cost of goods sold on the income statement. C) understate the cost of goods manufactured. D) have no effect on the cost of goods manufactured.

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Hard



34. Desco Electronics, Inc. manufactures car radios. The direct material cost assigned to car radios that Desco started during the period but did not fully complete would be found in the ending balance of: A) raw materials inventory. B) work in process inventory. C) finished goods inventory. D) both raw materials inventory and work in process inventory.

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 4 Level: Easy

35. Rotonga Manufacturing Company leases a vehicle that it uses to deliver its finished products to customers. Which of the following terms could be used to correctly describe the monthly lease payments made on the delivery vehicle?

Direct Cost Fixed CostA) Yes YesB) Yes NoC) No YesD) No No

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5,6 Level: Medium

36. Within the relevant range, as the number of units produced increases: A) the variable cost per unit remains the same. B) fixed costs in total remain the same. C) variable costs increase in total. D) all of the above.


37. Which of the following production costs, if expressed on a per unit basis, would be most likely to change significantly as the production level varies? A) Direct materials. B) Direct labor. C) Fixed manufacturing overhead. D) Responses A and B are both correct.

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium



38. When the level of activity decreases within the relevant range, the fixed cost per unit will: A) decrease. B) increase. C) remain the same. D) The effect cannot be predicted.

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Medium

39. Which of the following is correct concerning reactions to INCREASES in activity?

Total Variable Cost Variable Cost Per UnitA) Increases DecreasesB) Constant DecreasesC) Decreases ConstantD) Increases Constant


40. The distinction between indirect and direct costs depends on: A) whether a cost differs between alternatives. B) whether a cost is variable or fixed. C) whether a cost is a product or a period cost. D) whether a cost can be easily traced to the cost object under consideration.


41. An example of a fixed cost that would be considered a direct cost is: A) a cost accountant's salary when the cost object is a unit of product. B) the rental cost of a warehouse to store finished goods when the cost object is the

Purchasing Department. C) a production supervisor's salary when the cost objective is the Production

Department. D) Board of Directors' fees when the cost object is the Marketing Department.

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Hard Source: CMA, adapted



42. Which of the following statements concerning direct and indirect costs is NOT true? A) Whether a particular cost is classified as direct or indirect does not depend on

the cost object. B) A direct cost is one that can be easily traced to the particular cost object. C) The factory manager's salary would be classified as an indirect cost of producing

one unit of product. D) A particular cost may be direct or indirect, depending on the cost object.

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Medium

43. All of the cost categories listed below are usually found in a company's accounting records, except for: A) sunk costs. B) inventoriable costs. C) opportunity costs. D) marketing costs.


44. Cobra Mining Company spent $200 million five years ago to develop underground mining and milling operations in a remote area of a western state. Metals prices have since declined precipitously and the company is considering abandoning the operation. The term that would best describe the $200 million expenditure when considering the abandonment decision is: A) sunk cost. B) variable cost. C) differential cost. D) opportunity cost.

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Medium



45. In a decision-making situation involving an asset, which of the following costs is generally NOT considered relevant to the decision and should be ignored? A) Incremental cost of selecting one alternative over another. B) Opportunity cost of using the asset in an alternative. C) Differential cost between two alternatives. D) The original cost of the asset.

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy Source: CMA, adapted

46. A sunk cost is: A) a cost that is planned to be incurred in the near future. B) irrelevant for decision making. C) a cost connected with drilling for oil. D) affected by changes in the level of activity.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy

47. The potential benefit that is given up when one alternative is selected over another is called: A) A sunk cost. B) An opportunity cost. C) Both a sunk cost and an opportunity cost. D) Neither a sunk cost nor an opportunity cost.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy

48. A direct labor overtime premium should be charged to a specific job when the overtime is caused by the: A) increased overall level of activity in the factory. B) customer's requirement for early completion of the job. C) management's failure to include the job in the production schedule. D) management's requirement that the job be completed before the annual factory

closure due to vacation.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Medium Source: CPA, adapted



49. The idle time cost of assembly line workers in a manufacturing company is usually included as a part of: A) selling cost. B) direct labor cost. C) administrative cost. D) manufacturing overhead cost.

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Medium

50. In preparing a quality cost report, the cost of employee's time spent in quality circles is part of: A) prevention costs. B) appraisal costs. C) internal failure costs. D) external failure costs.

Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9,10 Level: Medium

51. Which of the following would be classified as a prevention cost on a quality cost report? A) Net cost of spoilage. B) Supervision of testing and inspection activities. C) Liability arising from defective products. D) Technical support provided to suppliers.

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9,10 Level: Medium

52. Which of the following would be classified as an internal failure cost on a quality cost report? A) Systems development. B) Returns and allowances arising from quality problems. C) Net cost of scrap. D) Final product testing and inspection.

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9,10 Level: Medium



53. Which of the following would be classified as an external failure cost on a quality cost report? A) Depreciation of test equipment. B) Repairs and replacements beyond the warranty period. C) Supplies used in testing and inspection. D) Re-entering data because of keying errors.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9,10 Level: Medium

54. An increase in appraisal costs in a quality improvement program would usually have the following initial effects on internal and external failure costs:

Internal failure costs External failure costsA) Increase IncreaseB) Increase DecreaseC) Decrease IncreaseD) Decrease Decrease

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9 Level: Hard

55. The cost of testing incoming materials received from suppliers would be classified as a(n): A) prevention cost. B) appraisal cost. C) internal failure cost. D) external failure cost.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9 Level: Easy



56. In classifying the costs of quality at a company that manufactures sonar equipment, which of the following is considered an external failure cost? A) the net cost of scrap and spoilage incurred during production. B) the cost of repairs and replacements made during the warranty period. C) the cost of debugging software errors found in the sonar equipment during

inspection at the plant. D) both B and C above. E) none of the above.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9 Level: Medium

57. The four categories of quality costs in a quality cost report are: A) external failure, product liability, prevention, and carrying. B) external failure, internal failure, prevention, and appraisal. C) warranty, product liability, prevention, and appraisal. D) warranty, product liability, training, and appraisal.

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2B LO: 9 Level: Easy Source: CMA, adapted

58. The following costs were incurred in July:

Direct materials.............................. $35,000Direct labor.................................... $13,000Manufacturing overhead................ $15,000Selling expenses............................. $14,000Administrative expenses................ $30,000

Prime costs during the month totaled: A) $48,000 B) $28,000 C) $107,000 D) $63,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2 Level: Medium



Solution:

Direct materials....... $35,000Direct labor............. 13,000 Total........................ $48,000

59. Abel Company's manufacturing overhead is 20% of its total conversion costs. If direct labor is $38,000 and if direct materials are $47,000, the manufacturing overhead is: A) $152,000 B) $11,750 C) $21,250 D) $9,500

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard

Solution:

Conversion costs = Direct labor + Manufacturing overheadConversion costs = $38,000 + Manufacturing overhead

0.20 × Conversion costs = Manufacturing overhead0.20 × ($38,000 + Manufacturing overhead) = Manufacturing overhead

$7,600 + 0.20 × Manufacturing overhead = Manufacturing overhead $7,600 = 0.80 × Manufacturing overhead

Manufacturing overhead = $9,500

60. During the month of July, direct labor cost totaled $12,000 and direct labor cost was 30% of prime cost. If total manufacturing costs during July were $86,000, the manufacturing overhead was: A) $46,000 B) $40,000 C) $28,000 D) $74,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Hard



Solution:

0.30 × Prime cost = Direct labor0.30 × Prime cost = $12,000

Prime cost = $40,000Prime cost = Direct materials + Direct labor

$40,000 = Direct materials + $12,000Direct materials = $28,000

Total manufacturing costs

= Direct materials + Direct labor +Manufacturing

Overhead

$86,000 = $28,000 + $12,000 +Manufacturing

OverheadManufacturing overhead = $46,000

61. In July direct labor was 40% of conversion cost. If the manufacturing overhead cost for the month was $34,000 and the direct materials cost was $23,000, the direct labor cost was: A) $22,667 B) $15,333 C) $51,000 D) $34,500


Solution:

0.40 × Conversion costs = Direct labor0.60 × Conversion costs = Manufacturing overhead0.60 × Conversion costs = $34,000

Conversion costs = $56,667Conversion costs = Direct labor + Manufacturing overhead

$56,667 = Direct labor + $34,000Direct labor = $22,667



62. Shown below are a number of costs incurred last year at Mecca Publishing Co., a manufacturer of elementary school textbooks:

Solvents and cleaners used by the custodians to clean the textbook printing presses........................................... $500Depreciation on the automobiles used by sales representatives................................................................. $4,200Fire insurance on factory building................................... $2,000Shipping costs on textbooks sold..................................... $3,700

What is the total of the manufacturing overhead costs above? A) $500 B) $2,500 C) $6,200 D) $6,700


Solution:

Solvents and cleaners used by the custodians to clean the textbook printing presses..................................

Fire insurance on factory building................................Total..............................................................................

‘



63. Mammoser Manufacturing Corporation rents a building for $8,000 per month and uses it for a number of different purposes. The building space is utilized by the various activities as follows:

Receiving and storing raw materials.......... 5%Production operations................................ 70%Sales offices............................................... 15%Administrative offices................................ 10%

How much of the $8,000 monthly rent cost should be classified as manufacturing overhead? A) $5,600 B) $6,000 C) $6,800 D) $7,200


Solution:

Receiving and storing raw materials (5% × $8,000)........ $ 400Production operations (70% × $8,000)............................ 5,600

$6,000



64. Consider the following costs:

Direct materials.......................................... $33,000Depreciation on factory equipment............ $12,000Factory janitor’s salary.............................. $23,000Direct labor................................................ $28,000Utilities for factory..................................... $9,000Selling expenses......................................... $16,000Production supervisor’s salary................... $34,000Administrative expenses............................ $21,000

What is the total amount of manufacturing overhead included above? A) $78,000 B) $139,000 C) $44,000 D) $37,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Medium

Solution:

Depreciation on factory equipment............ $12,000Factory janitor’s salary.............................. 23,000Utilities for factory..................................... 9,000Production supervisor’s salary................... 34,000 Total........................................................... $78,000



65. The information below relates to Derby Manufacturing Company's operations for a recent month. (Assume that all raw materials are direct materials.):

Purchases of raw materials......................... $91,000Direct labor cost......................................... $122,000Selling costs (total).................................... $42,000Administrative costs (total)........................ $56,000Manufacturing overhead costs (total)........ $340,000Raw materials inventory, beginning.......... $22,000Work in process inventory, beginning....... $27,000Finished goods inventory, beginning......... $42,000Raw materials inventory, ending............... $7,000Work in process inventory, ending............ $35,000Finished goods inventory, ending.............. $15,000

What was Derby's cost of goods manufactured for the month? A) $545,000 B) $560,000 C) $568,000 D) $587,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement LO: 2,4 Level: Hard

Solution:

Derby Manufacturing CompanySchedule of Cost of Goods Manufactured

Direct materials:Beginning raw materials inventory................. $ 22,000Add: Purchases of raw materials.................... 91,000 Raw materials available for use...................... 113,000Deduct: Ending raw materials inventory........ 7,000 Raw materials used in production................... $106,000

Direct labor......................................................... 122,000Manufacturing overhead..................................... 340,000 Total manufacturing costs.................................. 568,000Add: Beginning work in process inventory........ 27,000

595,000Deduct: Ending work in process inventory........ 35,000 Cost of goods manufactured............................... $560,000



66. Consider the following costs incurred in a recent period:

Direct materials.......................................... $33,000Depreciation on factory equipment............ $12,000Factory janitor’s salary.............................. $23,000Direct labor................................................ $28,000Utilities for factory..................................... $9,000Selling expenses......................................... $16,000Production supervisor’s salary................... $34,000Administrative expenses............................ $21,000

What was the total amount of the period costs listed above for the period? A) $78,000 B) $71,000 C) $46,000 D) $37,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium

Solution:

Selling expenses......................................... $16,000Administrative expenses............................ 21,000 Total........................................................... $37,000



67. Using the following data for a recent period, calculate the beginning finished goods inventory:

Sales........................................................... $40,000Beginning finished goods inventory.......... ?Cost of goods manufactured...................... $16,000Ending finished goods inventory............... $5,000Cost of goods sold...................................... ?Gross margin.............................................. $17,000Administrative and selling expenses.......... ?Net operating income................................. $10,000

The beginning finished goods inventory was: A) $24,000 B) $23,000 C) $7,000 D) $12,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard

Solution:

Cost of goods sold = Sales − Gross marginCost of goods sold = $40,000 − $17,000Cost of goods sold = $23,000

Beginning finished goods inventory

+Cost of goods manufactured

−Ending finished goods inventory

=Cost of goods

soldBeginning finished

goods inventory+ $16,000 − $5,000 = $23,000

Beginning finished goods inventory = $12,000



68. The following data are for a recent period's operations:

Beginning finished goods inventory.......... $150,475Ending finished goods inventory............... $145,750Sales........................................................... $400,000Gross margin.............................................. $120,000

The cost of goods manufactured was: A) $115,275 B) $284,725 C) $275,275 D) $124,725

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard

Solution:

Sales − Cost of goods sold = Gross margin$400,000 − Cost of goods sold = $120,000

Cost of goods sold = $280,000




=Cost of goods

sold

$150,475 +Cost of goods manufactured

− $145,750 = $280,000

Cost of goods manufactured = $275,275



69. Last month a manufacturing company had the following operating results:

Beginning finished goods inventory.......... $77,000Ending finished goods inventory............... $72,000Sales........................................................... $593,000Gross margin.............................................. $67,000

What was the cost of goods manufactured for the month? A) $588,000 B) $526,000 C) $521,000 D) $531,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard

Solution:

Sales − Cost of goods sold = Gross margin$593,000 − Cost of goods sold = $67,000





=Cost of goods

sold


− $72,000 = $526,000




70. The following data pertain to a recent period's operations:

Sales........................................................... ?Beginning finished goods inventory.......... $12,000Cost of goods manufactured...................... $36,000Ending finished goods inventory............... $6,000Cost of goods sold...................................... ?Gross margin.............................................. 40% of SalesAdministrative and selling expenses.......... $10,000Net operating income................................. ?

Net operating income was: A) $18,000 B) $10,000 C) $14,000 D) $46,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard

Solution:

Cost of goods sold

=Beginning finished

goods inventory+

Cost of goods manufactured


Cost of goods sold

= $12,000 + $36,000 − $6,000


Sales − Cost of goods sold = Gross marginSales − $42,000 = Gross margin

Gross margin = 40% × SalesSales − $42,000 = 40% × Sales

60% × Sales = $42,000Sales = $70,000

Gross margin − Administrative and selling expenses = Net operating incomeGross margin = 40% × SalesGross margin = $28,000

$28,000 − $10,000 = Net operating incomeNet operating income = $18,000



71. The following inventory balances have been provided for the most recent year:

Beginning EndingRaw materials..................... $21,000 $15,000Work in process................. $18,000 $29,000Finished goods................... $57,000 $33,000

The cost of goods manufactured was $714,000. What was the cost of goods sold? A) $738,000 B) $693,000 C) $714,000 D) $733,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Medium

Solution:

Finished goods inventory, beginning..................................$ 57,000Add: Cost of goods manufactured...................................... 714,000 Goods available for sale...................................................... 771,000Deduct: Finished goods inventory, ending......................... 33,000 Cost of goods sold...............................................................$738,000



72. The cost of goods manufactured for October at Toule Manufacturing Corporation was $907,000. The following changes occurred in Toule inventory accounts during October:

Decrease in raw materials inventory.......... $24,000Decrease in work in process inventory...... $17,000Increase in finished goods inventory......... $38,000

What was Toule's cost of goods sold for October? A) $869,000 B) $886,000 C) $928,000 D) $945,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard

Solution:



73. Gabrio Inc. is a merchandising company. Last month the company's merchandise purchases totaled $87,000. The company's beginning merchandise inventory was $19,000 and its ending merchandise inventory was $11,000. What was the company's cost of goods sold for the month? A) $79,000 B) $87,000 C) $95,000 D) $117,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy

Solution:

Merchandise inventory, beginning......................................$ 19,000Add: Merchandise purchased.............................................. 87,000 Goods available for sale...................................................... 106,000Deduct: Finished goods inventory, ending......................... 11,000Cost of goods sold...............................................................$ 95,000

74. Haala Inc. is a merchandising company. Last month the company's cost of goods sold was $68,000. The company's beginning merchandise inventory was $11,000 and its ending merchandise inventory was $17,000. What was the total amount of the company's merchandise purchases for the month? A) $96,000 B) $62,000 C) $68,000 D) $74,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium



Solution:

Merchandise inventory, beginning...................................... $11,000Add: Merchandise purchased.............................................. ?Goods available for sale...................................................... ?Deduct: Finished goods inventory, ending......................... 17,000 Cost of goods sold............................................................... $68,000

Goods available for sale = $68,000 + $17,000Goods available for sale = $85,000

Merchandise purchased = $85,000 − Merchandise inventory, beginningMerchandise purchased = $85,000 − $11,000Merchandise purchased = $74,000

75. During July, the cost of goods manufactured at Xxis Corporation was $70,000. The beginning finished goods inventory was $19,000 and the ending finished goods inventory was $15,000. What was the cost of goods sold for the month? A) $104,000 B) $74,000 C) $70,000 D) $66,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy

Solution:

Finished goods inventory, beginning.................................. $19,000Add: Cost of goods manufactured...................................... 70,000Goods available for sale...................................................... 89,000Deduct: Finished goods inventory, ending......................... 15,000Cost of goods sold............................................................... $74,000



76. At the beginning of the most recent month's operations, finished goods inventory was $30,000. The cost of goods manufactured was $326,000 and ending finished goods inventory was $42,000. What was the cost of goods sold for the month? A) $320,000 B) $338,000 C) $314,000 D) Cannot be calculated.


Solution:

Finished goods inventory, beginning..................................$ 30,000Add: Cost of goods manufactured...................................... 326,000Goods available for sale...................................................... 356,000Deduct: Finished goods inventory, ending......................... 42,000Cost of goods sold...............................................................$314,000



77. Given the following information, calculate the company's manufacturing overhead:

Work in process, ending................ $8,000Work in process, beginning........... $11,000Cost of goods manufactured.......... $70,000Direct labor.................................... $25,000Direct materials.............................. $20,000

The manufacturing overhead is: A) $22,000 B) $25,000 C) $28,000 D) $36,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Hard

Solution:

Schedule of Cost of Goods Manufactured

Direct materials.............................................................................$20,000Direct labor...................................................................................25,000Manufacturing overhead...............................................................22,000*Total manufacturing costs............................................................67,000*Add: Work in process, beginning................................................. 11,000

78,000*Deduct: Work in process, ending................................................. 8,000Cost of goods manufactured.........................................................$70,000

* These items must be calculated by working backwards upward through the statements.



78. The following data have been provided for the most recent month's operations:

Direct materials.......................................... $8,000Direct labor................................................ $25,000Manufacturing overhead............................ $9,000Total manufacturing costs.......................... ?Beginning work in process inventory........ ?Ending work in process inventory............. $8,000Cost of goods manufactured...................... $45,000

The beginning work in process inventory is: A) $11,000 B) $42,000 C) $53,000 D) $37,000


Solution:


Direct materials.............................................................................$ 8,000Direct labor...................................................................................25,000Manufacturing overhead...............................................................9,000Total manufacturing costs............................................................42,000Add: Work in process, beginning................................................. 11,000*

53,000*Deduct: Work in process, ending................................................. 8,000Cost of goods manufactured.........................................................$45,000




79. Using the following data for July, calculate the cost of goods manufactured:

Direct materials.......................................... $31,000Direct labor................................................ $22,000Manufacturing overhead............................ $29,000Beginning work in process inventory........ $14,000Ending work in process inventory............. $15,000

The cost of goods manufactured was: A) $83,000 B) $96,000 C) $81,000 D) $82,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium

Solution:


Direct materials.............................................................................$31,000Direct labor...................................................................................22,000Manufacturing overhead...............................................................29,000Total manufacturing costs............................................................82,000Add: Work in process, beginning................................................. 14,000

96,000 Deduct: Work in process, ending................................................. 15,000Cost of goods manufactured.........................................................$81,000



80. During the month of April, LTP Company incurred $30,000 of manufacturing overhead, $40,000 of direct labor, and purchased $25,000 of raw materials. Between the beginning and the end of the month, the raw materials and work in process inventories decreased by $4,000 and $3,000, respectively. The total manufacturing costs used in the computation of cost of goods manufactured during the month of April was: A) $88,000 B) $91,000 C) $99,000 D) $102,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Hard

Solution:

First calculate raw materials used:Beginning inventory

raw materials+ Purchases −

Ending inventory raw materials

=Raw materials

used

By rearranging:

Purchases + (Beginning

inventory raw materials

−Ending

inventory raw materials

) =Raw materials

used

Since raw material inventory decreased by $4,000, we know that:Beginning inventory raw materials − Ending inventory raw materials = $4,000

Substituting into equation:$25,000 + $4,000 = Raw materials used

$29,000 = Raw materials used

Next, solve for total manufacturing costs:Raw materials

used+ Direct labor +

Manufacturing overhead

=Total

manufacturing costs$29,000 + $40,000 + $30,000 = $99,000



81. The following information relates to Mako Manufacturing Company for the month of August:

Cost of goods manufactured...................... $78,000Cost of goods sold...................................... $82,000Total manufacturing costs.......................... $90,000Cost of goods available for sale................. $95,000

What was the balance in Mako's Finished Goods Inventory account at the end of August? A) $4,000 B) $5,000 C) $8,000 D) $13,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Hard

Solution:

Goods available for sale - Ending finished goods inventory = Cost of goods soldEnding finished goods inventory = Goods available for sale - Cost of goods soldEnding finished goods inventory = $95,000 - $82,000Ending finished goods inventory = $13,000



82. The following inventory balances relate to Komiza Manufacturing Corporation at the beginning and end of the year:


Komiza's cost of goods available for sale was $622,000. What was Komiza's cost of goods manufactured? A) $581,000 B) $615,000 C) $629,000 D) $663,000


Solution:



=Goods available

for sale


= $622,000




83. Last year there was no change in either the raw materials or the work in process beginning and ending inventories. However, finished goods, which had a beginning balance of $25,000, increased by $15,000. If the manufacturing costs incurred totaled $600,000 during the year, the cost of goods available for sale must have been: A) $585,000 B) $600,000 C) $610,000 D) $625,000


Solution:

Cost of goods available for sale

=

Beginning finished goods

inventory


Cost of goods available for sale

= $25,000 + $600,000

Cost of goods available for sale = $625,000



84. A company has provided the following cost data for its most recent accounting period:

Direct labor.................................... $98,000Administrative expenses................ $15,000Manufacturing overhead................ $25,000Direct materials.............................. $200,000Selling expenses............................. $22,000

What was the cost of goods manufactured for the period? Assume there were no beginning or ending inventories. A) $303,000 B) $323,000 C) $338,000 D) $360,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Easy Source: CMA, adapted

Solution:

Direct labor.................................... $ 98,000Manufacturing overhead................ 25,000Direct materials.............................. 200,000 Cost of goods manufactured.......... $323,000



85. Beginning work in process was $145,000. Manufacturing cost incurred for the month was $810,000. The ending work in process was $200,000. What was the cost of goods manufactured during the month? A) $900,000 B) $810,000 C) $755,000 D) $1,155,000


Solution:

Beginning work in process inventory................. $145,000 Add: Manufacturing costs................................... 810,000 Deduct: Ending work in process inventory......... (200,000 )Cost of goods manufactured............................... $755,000

86. Last year, Vashanda Corporation incurred the following costs to produce 18,000 units:

Cost of raw materials used......................... $86,400Property taxes on factory building............. $9,000

What should be the cost per unit for the above costs if 20,000 units of product are produced next year?

Raw materials Property taxesA) $4.32 $0.45B) $4.32 $0.50C) $4.80 $0.45D) $4.80 $0.50


Solution:

Variable manufacturing costs:$86,400 18,000 = $4.80

Property taxes are a fixed cost: $9,000At 20,000 units, fixed cost per unit = $9,000 20,000 units = $0.45 per unit



87. At a sales volume of 20,000 units, total costs are $55,000. The company's variable cost per unit is $1.50. What should be the total fixed cost at a sales volume of 30,000 units, assuming that is within the relevant range. A) $25,000 B) $30,000 C) $45,000 D) Cannot be determined.


Solution:

88. A mattress manufacturer has provided the following cost data. The cost of fabric, foam, springs, and lumber is $68,000. The cost of indirect materials is $21,000. Labor cost of assembly workers is $52,000 and for production supervisors is $14,000. How much indirect cost is included in the above costs? A) $21,000 B) $35,000 C) $89,000 D) $103,000


Solution:

Indirect materials........................... $21,000Production supervisors................... 14,000 Total indirect costs......................... $35,000



89. How much sunk cost is represented in the following list?

Annual operating cost............................................ $80,000Fixed operating costs other than depreciation....... $14,000Resale value, if sold now....................................... $25,000Original cost of current machine............................ $68,000

A) $80,000 B) $14,000 C) $25,000 D) $68,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 7 Level: Easy

Solution:Only the original cost of the current machine is a sunk cost in the above list.

90. John Adams, an operator of a manufacturing machine, receives time-and-a-half for any time worked in excess of 40 hours per week. His rate of pay is $16 per hour. How much should be charged to direct labor if he worked 48 hours last week and had no idle time? A) $768 B) $640 C) $832 D) $192

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Medium

Solution:48 hours × $16 per hour = $768



91. During the last week in October, Harvey worked a total of 45 hours and had no idle time. Harvey is paid $10 per hour for regular time, and is paid time-and-a-half for all hours in excess of 35 hours per week. Given this information: A) $350 should be charged to direct labor B) $50 should be charged to manufacturing overhead C) $150 should be charged to manufacturing overhead D) $500 should be charged to direct labor.

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Medium

Solution:

Overtime premium = $5 $10 × 1.5 = $15 overtime rate $15 overtime rate − $10 regular rate = $5 overtime premium

Total hours − Regular work week hours = Overtime hours45 − 35 = 1010 hours × $5 per hour = $50 amount to be charged to manufacturing overhead

92. Sandra Pietro installs mufflers at Dethtrapp Motorcycle Company. Sandra is paid $14 per hour and an extra $7 per hour for every hour over 40 that is worked in a given week. Last week Sandra worked 50 hours with 2 of these hours correctly classified as idle time. How much of Sandra's wages last week should be included in manufacturing overhead cost? A) $28 B) $70 C) $98 D) $168

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Hard

Solution:Overtime premium charged to manufacturing overhead:(50 total hours − 40 regular hours) × $7 overtime premium = $702 hours of idle time × $14 per hour = $28Total wages to be included in manufacturing overhead = $70 + $28 = $98



Use the following to answer questions 93-96:

Mendoza, Inc. manufactures and sells aluminum dishes for camping and outdoor enthusiasts through a mail order catalog operation. Large rectangular sheets of aluminum are purchased by Mendoza. These sheets are cut down into smaller squares and are then fed into a machine where they are trimmed down into a circular shape. These aluminum circles are then fed into a stamping machine where they are formed into plates and bowls. After production, the dishes are shipped to warehouses where they are packed and then shipped to customers.

93. Which of the following terms could be used to correctly describe the cost of the aluminum sheets? A) fixed cost B) period cost C) direct cost D) conversion cost

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2,5,6 Level: Medium

94. Which of the following terms could be used to correctly describe the wages paid to the machine operator who operates the stamping machine? A) direct labor cost B) administrative cost C) opportunity cost D) manufacturing overhead cost

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2,5,6 Level: Easy

95. Which of the following terms could be used to correctly describe the cost of electricity used to run the stamping machine? A) variable cost B) indirect cost C) manufacturing overhead cost D) all of the above

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2,5,6 Level: Medium



96. Which of the following terms could be used to correctly describe the straight-line depreciation cost on the stamping machine? A) period cost B) variable cost C) inventoriable cost D) both A and C above

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,2,5,6 Level: Hard


A partial listing of costs incurred at Archut Corporation during September appears below:

Direct materials................................................... $113,000Utilities, factory.................................................. $5,000Administrative salaries........................................ $81,000Indirect labor....................................................... $25,000Sales commissions.............................................. $48,000Depreciation of production equipment............... $20,000Depreciation of administrative equipment.......... $30,000Direct labor......................................................... $129,000Advertising.......................................................... $135,000

97. The total of the manufacturing overhead costs listed above for September is: A) $586,000 B) $50,000 C) $292,000 D) $30,000


Solution:

Utilities, factory.................................................. $ 5,000Indirect labor....................................................... 25,000Depreciation of production equipment............... 20,000 Total manufacturing overhead costs................... $50,000



98. The total of the product costs listed above for September is: A) $292,000 B) $294,000 C) $50,000 D) $586,000


Solution:

Direct materials................................................... $113,000Utilities, factory.................................................. 5,000Indirect labor....................................................... 25,000Depreciation of production equipment............... 20,000Direct labor......................................................... 129,000 Total product costs.............................................. $292,000

99. The total of the period costs listed above for September is: A) $294,000 B) $344,000 C) $292,000 D) $50,000


Solution:

Administrative salaries........................................ $ 81,000Sales commissions.............................................. 48,000Depreciation of administrative equipment.......... 30,000Advertising.......................................................... 135,000 Total period costs................................................ $294,000




A partial listing of costs incurred during March at Febbo Corporation appears below:

Factory supplies............................................... $9,000Administrative wages and salaries................... $85,000Direct materials................................................ $126,000Sales staff salaries............................................ $30,000Factory depreciation......................................... $33,000Corporate headquarters building rent............... $43,000Indirect labor.................................................... $26,000Marketing......................................................... $65,000Direct labor...................................................... $99,000

100. The total of the period costs listed above for March is: A) $68,000 B) $293,000 C) $291,000 D) $223,000


Solution:

Administrative wages and salaries................... $ 85,000Sales staff salaries............................................ 30,000Corporate headquarters building rent............... 43,000Marketing......................................................... 65,000 Total period costs............................................. $223,000



101. The total of the manufacturing overhead costs listed above for March is: A) $68,000 B) $35,000 C) $516,000 D) $293,000


Solution:

Factory supplies............................................... $ 9,000Factory depreciation......................................... 33,000Indirect labor.................................................... 26,000 Total manufacturing overhead......................... $68,000

102. The total of the product costs listed above for March is: A) $516,000 B) $68,000 C) $293,000 D) $223,000


Solution:

Factory supplies............................................... $ 9,000Direct materials................................................ 126,000Factory depreciation......................................... 33,000Indirect labor.................................................... 26,000Direct labor...................................................... 99,000 Total product costs........................................... $293,000




The following data pertain to Graham Company's operations in May:

May 1 May 31Work in process inventory............. $7,000 $12,000Raw materials inventory................ $15,000 ?Finished goods inventory............... ? $20,000

Other data:Raw materials used........................ $40,000Sales............................................... $200,000Cost of goods manufactured.......... $135,000Manufacturing overhead cost......... $60,000Raw materials purchases................ $30,000Gross Margin................................. $60,000

103. The ending materials inventory was: A) $5,000 B) $10,000 C) $15,000 D) $20,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,3,4 Level: Medium

Solution:

Beginning raw materials inventory................ $15,000Add: Raw materials purchases....................... 30,000Raw materials available for use..................... 45,000Deduct: Ending raw materials inventory........ 5,000 *Raw materials used........................................ $40,000

*Calculate this item by working backwards, as shown:Raw materials used = Raw materials available − Ending raw materials inventory

$40,000 = $45,000 − Ending raw materials inventoryEnding raw materials inventory = $5,000



104. The beginning finished goods inventory was: A) $5,000 B) $15,000 C) $25,000 D) $30,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,3,4 Level: Hard

Solution:Sales − Cost of goods sold = Gross margin

Cost of goods sold = Sales − Gross marginCost of goods sold = $200,000 − $60,000Cost of goods sold = $140,000

Next, solve backwards for beginning finished goods inventory:Beginning raw materials inventory...................... $ 25,000 *Add: Cost of goods manufactured........................ 135,000Cost of goods available for sale........................... 160,000 *Deduct: Ending finished goods inventory............ 20,000Cost of goods sold................................................ $140,000




105. The direct labor cost for May was: A) $35,000 B) $40,000 C) $30,000 D) $25,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1,3,4 Level: Hard

Solution:Graham Company


Direct materials.............................................................................$40,000Direct labor...................................................................................40,000*Manufacturing overhead...............................................................60,000Total manufacturing costs............................................................140,000*Add: Work in process, beginning................................................. 7,000

147,000* Deduct: Work in process, ending................................................. 12,000Cost of goods manufactured.........................................................$135,000



Demeglio Corporation reported the following data for the month of September:

Inventories: Beginning EndingRaw materials..................... $30,000 $34,000Work in process................. $23,000 $22,000Finished goods................... $32,000 $35,000



106. If the raw materials purchased during September totaled $63,000, what was the cost of the raw materials used in production for the month? A) $67,000 B) $63,000 C) $59,000 D) $64,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,3 Level: Easy

Solution:

Beginning raw materials inventory...................... $30,000Add: Raw materials purchased............................. 63,000Raw materials available for use........................... 93,000Deduct: Ending raw material inventory............... 34,000Raw materials used in production........................ $59,000

107. If the company transferred $222,000 of completed goods from work in process to finished goods inventory during September, what was the cost of goods sold for the month? A) $219,000 B) $225,000 C) $222,000 D) $221,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,3 Level: Easy

Solution:

Beginning finished goods inventory.................... $ 32,000Add: Cost of goods manufactured........................ 222,000Goods available for sale....................................... 254,000Deduct: Ending finished inventory....................... 35,000Cost of goods sold................................................ $219,000




Boardman Company reported the following data for the month of January:

Inventories: 1/1 1/31Raw materials..................... $32,000 $31,000Work in process................. $18,000 $12,000Finished goods................... $30,000 $35,000

Additional information:Sales revenue................................. $210,000Direct labor costs........................... $40,000Manufacturing overhead costs....... $70,000Selling expenses............................. $25,000Administrative expenses................ $35,000

108. If raw materials costing $35,000 were purchased during January, the total manufacturing costs for the month would be: A) $145,000 B) $144,000 C) $151,000 D) $146,000


Solution:

Beginning raw materials inventory...................... $ 32,000Add: Raw materials purchased............................. 35,000Raw materials available for use........................... 67,000Deduct: Ending raw materials inventory.............. 31,000Raw materials used.............................................. 36,000Direct labor........................................................... 40,000Manufacturing overhead....................................... 70,000Total manufacturing costs.................................... $146,000



109. Boardman Company's total conversion cost for January would be: A) $110,000 B) $170,000 C) $135,000 D) $130,000


Solution:

Direct labor.................................... $ 40,000Manufacturing overhead................ 70,000Total conversion costs.................... $110,000


Fassino Corporation reported the following data for the month of November:


Additional information:Raw materials purchases................ $58,000Direct labor cost............................. $54,000Manufacturing overhead cost......... $82,000Selling expense.............................. $18,000Administrative expense.................. $42,000



110. The conversion cost for November was: A) $187,000 B) $112,000 C) $136,000 D) $140,000


Solution:

Direct labor.................................... $ 54,000Manufacturing overhead................ 82,000Total conversion costs.................... $136,000

111. The prime cost for November was: A) $136,000 B) $60,000 C) $105,000 D) $112,000


Solution:

Beginning raw materials inventory...................... $ 23,000Add: Raw materials purchased............................. 58,000Raw materials available for use........................... 81,000Deduct: Ending raw materials inventory.............. 30,000Raw materials used.............................................. 51,000Direct labor........................................................... 54,000Total prime cost.................................................... $105,000




Management of Mcgibboney Corporation has asked your help as an intern in preparing some key reports for November. The beginning balance in the raw materials inventory account was $25,000. During the month, the company made raw materials purchases amounting to $54,000. At the end of the month, the balance in the raw materials inventory account was $37,000. Direct labor cost was $25,000 and manufacturing overhead cost was $62,000. The beginning balance in the work in process account was $22,000 and the ending balance was $23,000. The beginning balance in the finished goods account was $44,000 and the ending balance was $50,000. Selling expense was $21,000 and administrative expense was $38,000.

112. The conversion cost for November was: A) $116,000 B) $79,000 C) $87,000 D) $129,000


Solution:

Direct labor.................................... $25,000Manufacturing overhead................ 62,000Total conversion costs.................... $87,000

113. The prime cost for November was: A) $79,000 B) $59,000 C) $67,000 D) $87,000




Solution:

Beginning raw materials inventory...................... $25,000Add: Raw materials purchased............................. 54,000Raw materials available for use........................... 79,000Deduct: Ending raw materials inventory.............. 37,000Raw materials used.............................................. 42,000Direct labor........................................................... 25,000Total prime cost.................................................... $67,000


Yokum Company has provided the following data for the month of August:

August 1 August 31Raw materials inventory................ $8,000 ? Work in process inventory............. ? $14,000Finished goods inventory............... $25,000 $35,000

Other Data:Sales........................................................... $350,000Manufacturing overhead costs................... $44,000Direct labor................................................ $80,000Purchase of raw materials.......................... $94,000Administrative expenses............................ $40,000Cost of goods manufactured...................... $206,000Raw materials used in production.............. $87,000Selling expenses......................................... $15,000



114. The ending raw materials inventory was: A) $3,000 B) $11,000 C) $15,000 D) $7,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Hard

Solution:

Beginning raw materials inventory...................... $ 8,000Add: Raw materials purchased............................. 94,000Raw materials available for use........................... 102,000Deduct: Ending raw materials inventory.............. 15,000 *Raw materials used.............................................. $87,000

* This item must be calculated by working backwards upward through the statements.

115. The beginning work in process inventory was: A) $6,000 B) $9,000 C) $15,000 D) $2,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Hard



Solution:

Beginning raw materials inventory...................... $ 8,000Add: Raw materials purchased............................. 94,000Raw materials available for use........................... 102,000Deduct: Ending raw materials inventory.............. 15,000 *Raw materials used.............................................. $87,000

Raw materials used.............................................. $ 87,000Direct labor........................................................... 80,000Manufacturing overhead....................................... 44,000Total manufacturing costs.................................... 211,000Add: Beginning work in process inventory......... 9,000 *Subtotal................................................................ 220,000 *Deduct: Ending work in process inventory.......... 14,000Cost of goods manufactured................................. $206,000




116. The cost of goods sold was: A) $196,000 B) $206,000 C) $211,000 D) $190,000


Solution:

Beginning raw materials inventory...................... $ 8,000Add: Raw materials purchased............................. 94,000Raw materials available for use........................... 102,000Deduct: Ending raw materials inventory.............. 15,000 *Raw materials used.............................................. $ 87,000

Raw materials used.............................................. $ 87,000Direct labor........................................................... 80,000Manufacturing overhead....................................... 44,000Total manufacturing costs.................................... 211,000Add: Beginning work in process inventory......... 9,000 *Subtotal................................................................ 220,000 *Deduct: Ending work in process inventory.......... 14,000Cost of goods manufactured................................. $206,000


Beginning finished goods inventory.................... $ 25,000Add: Cost of goods manufactured........................ 206,000Goods available for sale....................................... 231,000Deduct: Ending finished goods inventory............ 35,000Cost of goods sold................................................ $196,000




The following data (in thousands of dollars) have been taken from the accounting records of Karling Corporation for the just completed year.

Sales........................................................... $990Raw materials inventory, beginning.......... $40Raw materials inventory, ending............... $70Purchases of raw materials......................... $120Direct labor................................................ $200Manufacturing overhead............................ $230Administrative expenses............................ $150Selling expenses......................................... $140Work in process inventory, beginning....... $70Work in process inventory, ending............ $50Finished goods inventory, beginning......... $120Finished goods inventory, ending.............. $160

117. The cost of the raw materials used in production during the year (in thousands of dollars) was: A) $190 B) $90 C) $150 D) $160

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Medium

Solution:

Beginning raw materials inventory......................$

40Add: Raw materials purchased............................. 120Raw materials available for use........................... 160Deduct: Ending raw materials inventory.............. 70Raw materials used.............................................. $90



118. The cost of goods manufactured (finished) for the year (in thousands of dollars) was: A) $540 B) $500 C) $570 D) $590


Solution:

Beginning raw materials inventory...................... $ 40Add: Raw materials purchased............................. 120 Raw materials available for use........................... 160Deduct: Ending raw materials inventory.............. 70 Raw materials used.............................................. $ 90

Raw materials used.............................................. $ 90Direct labor........................................................... 200Manufacturing overhead....................................... 230 Total manufacturing costs.................................... 520Add: Beginning work in process inventory......... 70 Subtotal................................................................ 590Deduct: Ending work in process inventory.......... 50 Cost of goods manufactured................................. $540



119. The cost of goods sold for the year (in thousands of dollars) was: A) $700 B) $500 C) $660 D) $580


Solution:

Beginning raw materials inventory...................... $ 40Add: Raw materials purchased............................. 120Raw materials available for use........................... 160Deduct: Ending raw materials inventory.............. 70Raw materials used.............................................. $90

Raw materials used.............................................. $ 90Direct labor........................................................... 200Manufacturing overhead....................................... 230Total manufacturing costs.................................... 520Add: Beginning work in process inventory......... 70Subtotal................................................................ 590Deduct: Ending work in process inventory.......... 50Cost of goods manufactured................................. $540

Beginning finished goods inventory.................... $120Add: Cost of goods manufactured........................ 540Goods available for sale....................................... 660Deduct: Ending finished goods inventory............ 160Cost of goods sold................................................ $500



120. The net operating income for the year (in thousands of dollars) was: A) $150 B) $200 C) $490 D) $250


Solution:

Beginning raw materials inventory...................... $ 40Add: Raw materials purchased............................. 120Raw materials available for use........................... 160Deduct: Ending raw materials inventory.............. 70Raw materials used.............................................. $90

Raw materials used.............................................. $ 90Direct labor........................................................... 200Manufacturing overhead....................................... 230Total manufacturing costs.................................... 520Add: Beginning work in process inventory......... 70Subtotal................................................................ 590Deduct: Ending work in process inventory.......... 50Cost of goods manufactured................................. $540

Beginning finished goods inventory.................... $120Add: Cost of goods manufactured........................ 540Goods available for sale....................................... 660Deduct: Ending finished goods inventory............ 160Cost of goods sold................................................ $500

Sales............................................................. $990Cost of goods sold........................................ 500Gross margin................................................ 490Selling and administrative expenses:

Administrative expense.............................$150Selling expense......................................... 140 290

Net operating income................................... $200




Mark is an engineer who has designed a telecommunications device. He is convinced that there is a big potential market for the device. Accordingly, he has decided to quit his present job and start a company to manufacture and market the device.

121. The salary that Mark earns at his present employ is: A) a variable cost B) a fixed cost C) a product cost D) an opportunity cost


122. Mark purchased a machine two years ago to make experimental boards. The machine will be used to manufacture the new board. The cost of this machine is: A) an opportunity cost B) a sunk cost C) a differential cost D) a period cost


123. The cost of the raw materials that will be used in manufacturing the computer board is: A) a sunk cost B) a fixed cost C) a period cost D) a variable cost

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,5 Level: Easy

124. Rent on the administrative office space is: A) a variable cost B) an opportunity cost C) a period cost D) a product cost

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,5 Level: Easy



125. Property taxes on the building that will be purchased to house the manufacturing facility are: A) a product cost B) a variable cost C) an opportunity cost D) a period cost

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2,5 Level: Easy


Vignana Corporation manufactures and sells hand-painted clay figurines of popular sports heroes. Shown below are some of the costs incurred by Vignana for last year:

Cost of clay used in production....................................... $65,000Wages paid to the workers who paint the figurines......... $90,000Wages paid to the sales manager’s secretary................... $22,000Cost of junk mail advertising........................................... $47,000

126. What is the total of the direct costs above? A) $65,000 B) $112,000 C) $155,000 D) $202,000


Solution:

Cost of clay used in production....................................... $ 65,000Wages paid to the workers who paint the figurines......... 90,000Total direct costs.............................................................. $155,000



127. What is the total of the inventoriable (product) costs above? A) $0 B) $69,000 C) $155,000 D) $159,000


Solution:

Cost of clay used in production....................................... $ 65,000Wages paid to the workers who paint the figurines......... 90,000Total product costs........................................................... $155,000

128. What is the total of the conversion costs above? A) $65,000 B) $69,000 C) $90,000 D) $155,000


Solution:Only the wages paid to the works who paint the figurines ($90,000) are considered to be conversion costs.




Gaeddert Corporation reported the following data for the month of July:


Additional information:Sales..................................................... $250,000Raw materials purchases...................... $76,000Direct labor cost................................... $33,000Manufacturing overhead cost............... $81,000Selling expense.................................... $24,000Administrative expense........................ $29,000

129. The total manufacturing cost for July was: A) $190,000 B) $114,000 C) $199,000 D) $81,000


Solution:

Beginning raw materials inventory...................... $ 36,000Add: Raw materials purchased............................. 76,000Raw materials available for use............................ 112,000Deduct: Ending raw materials inventory.............. 27,000Raw materials used.............................................. 85,000Add: Direct labor costs......................................... 33,000Add: Manufacturing overhead............................. 81,000Total manufacturing costs.................................... $199,000



130. The cost of goods manufactured for July was: A) $196,000 B) $190,000 C) $202,000 D) $199,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Level: Medium

Solution:


Total manufacturing costs.................................... $199,000Add: Beginning work in process inventory.......... 13,000Subtotal................................................................ 212,000Deduct: Ending work in process inventory.......... 16,000Cost of goods manufactured................................. $196,000



131. The cost of goods sold for July was: A) $244,000 B) $138,000 C) $190,000 D) $202,000


Solution:



Beginning finished goods inventory.................... $ 36,000Add: Cost of goods manufactured........................ 196,000Cost of goods available for sale........................... 232,000Deduct: Ending finished goods inventory............ 42,000Cost of goods sold................................................ $190,000



132. The net operating income for July was: A) $7,000 B) $60,000 C) $83,000 D) $9,000

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium

Solution:

Beginning raw materials inventory...................... $36,000Add: Raw materials purchased............................. 76,000Raw materials available for use........................... 112,000Deduct: Ending raw materials inventory.............. 27,000Raw materials used.............................................. $85,000

Raw materials used.............................................. $ 85,000Direct labor........................................................... 33,000Manufacturing overhead....................................... 81,000Total manufacturing costs.................................... 199,000Add: Beginning work in process inventory......... 13,000Subtotal................................................................ 212,000Deduct: Ending work in process inventory.......... 16,000Cost of goods manufactured................................. $196,000


Sales........................................................ $250,000Cost of goods sold................................... 190,000Gross margin........................................... 60,000Selling and administrative expenses:

Administrative expenses......................$29,000Selling expenses................................... 24,000 53,000

Net operating income.............................. $ 7,000




Management of Jarva Corporation has asked your help as an intern in preparing some key reports for May. The company started the month with raw materials inventories of $29,000. During the month, the company made raw materials purchases amounting to $72,000. At the end of the month, raw materials inventories totaled $33,000. Direct labor cost was $36,000 and manufacturing overhead cost was $57,000. The beginning balance in the work in process account was $24,000 and the ending balance was $16,000. The beginning balance in the finished goods account was $35,000 and the ending balance was $46,000. Sales totaled $220,000. Selling expense was $14,000 and administrative expense was $36,000.

133. The total manufacturing cost for May was: A) $93,000 B) $57,000 C) $165,000 D) $161,000


Solution:




134. The cost of goods manufactured for May was: A) $161,000 B) $165,000 C) $169,000 D) $153,000


Solution:





135. The cost of goods sold for May was: A) $107,000 B) $180,000 C) $158,000 D) $209,000


Solution:






136. The net operating income for May was: A) $77,000 B) $12,000 C) $62,000 D) $5,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Medium

Solution:

Beginning raw materials inventory...................... $ 29,000Add: Raw materials purchased............................. 72,000Raw materials available for use........................... 101,000Deduct: Ending raw materials inventory.............. 33,000Raw materials used.............................................. $ 68,000









The following selected data for March were taken from Rubenstein Company's financial statements:

Cost of goods available for sale.................... $65,000Manufacturing overhead............................... $20,000Cost of goods manufactured......................... $51,000Finished goods inventory, ending................. $10,000Direct materials used..................................... $15,000Sales.............................................................. $105,000Selling and administrative expenses............. $30,000Direct labor................................................... $20,000Work in process inventory, beginning.......... $0

137. The gross margin was: A) $55,000 B) $54,000 C) $50,000 D) $40,000


Solution:

Step #1:Cost of goods available for sale........................... $65,000Less: Finished goods inventory, ending............... 10,000Cost of goods sold................................................ $55,000

Step #2:Sales..................................................................... $105,000Cost of goods sold................................................ 55,000Gross margin........................................................ $ 50,000



138. The beginning finished goods inventory was: A) $24,000 B) $9,000 C) $10,000 D) $14,000


Solution:

Finished goods inventory, beginning................... $14,000*Add: Cost of goods manufactured........................ 51,000 Cost of goods available for sale........................... $65,000


139. The ending work in process inventory was: A) $4,000 B) $8,000 C) $10,000 D) $0


Solution:

Beginning work in process inventory.................. $ 0Add: Direct materials........................................... 15,000Add: Direct labor.................................................. 20,000Add: Manufacturing overhead............................. 20,000

55,000Deduct: Ending work in process inventory.......... 4,000 *Cost of goods manufactured................................. $51,000





Dauenhauer Corporation reported the following data for the month of April:


Additional information:Sales........................................................... $230,000Raw materials purchases............................ $76,000Direct labor cost......................................... $30,000Manufacturing overhead cost..................... $61,000Selling expense.......................................... $22,000Administrative expense.............................. $26,000

140. The total manufacturing cost for April was: A) $61,000 B) $167,000 C) $91,000 D) $174,000


Solution:




141. The cost of goods manufactured for April was: A) $160,000 B) $174,000 C) $167,000 D) $188,000


Solution:





142. The cost of goods sold for April was: A) $240,000 B) $170,000 C) $150,000 D) $113,000


Solution:






143. The net operating income for April was: A) $60,000 B) $15,000 C) $12,000 D) $91,000


Solution:

Beginning raw materials inventory...................... $27,000Add: Raw materials purchased............................. 76,000Raw materials available for use........................... 103,000Deduct: Ending raw materials inventory.............. 20,000Raw materials used.............................................. $83,000









Juart Corporation reported the following data for the month of December:


Additional information:Sales............................................... $230,000Raw materials purchases................ $78,000Direct labor cost............................. $24,000Manufacturing overhead cost......... $58,000Selling expense.............................. $15,000Administrative expense.................. $45,000

144. The cost of goods sold for December was: A) $147,000 B) $97,000 C) $228,000 D) $151,000




Solution:






145. The net operating income for December was: A) $23,000 B) $83,000 C) $88,000 D) $10,000


Solution:










Steenbergen Corporation reported the following data for the month of June:


Additional information:Sales............................................... $250,000Raw materials purchases................ $50,000Direct labor cost............................. $44,000Manufacturing overhead cost......... $71,000Selling expense.............................. $21,000Administrative expense.................. $27,000

146. The total manufacturing cost for June was: A) $165,000 B) $71,000 C) $115,000 D) $172,000


Solution:




147. The net operating income for June was: A) $37,000 B) $87,000 C) $79,000 D) $31,000


Solution:







Management of Thede Corporation has asked your help as an intern in preparing some key reports for July. The beginning balance in the raw materials inventory account was $29,000. During the month, the company made raw materials purchases amounting to $55,000. At the end of the month, the balance in the raw materials inventory account was $37,000. Direct labor cost was $41,000 and manufacturing overhead cost was $61,000. The beginning balance in the work in process account was $22,000 and the ending balance was $23,000. The beginning balance in the finished goods account was $42,000 and the ending balance was $55,000. Sales totaled $230,000. Selling expense was $13,000 and administrative expense was $32,000.



Solution:






Solution:





150. The cost of goods sold for July was: A) $217,000 B) $135,000 C) $161,000 D) $115,000


Solution:






151. The net operating income for July was: A) $28,000 B) $95,000 C) $50,000 D) $83,000


Solution:










The CFO of Claussen Corporation has provided the following data for June. The beginning balance in the raw materials inventory account was $38,000. During the month, the company made raw materials purchases amounting to $53,000. At the end of the month, the balance in the raw materials inventory account was $27,000. Direct labor cost was $33,000 and manufacturing overhead cost was $74,000. The beginning balance in the work in process account was $24,000 and the ending balance was $23,000. The beginning balance in the finished goods account was $57,000 and the ending balance was $55,000. Sales totaled $290,000. Selling expense was $17,000 and administrative expense was $43,000.

152. The cost of goods sold for June was: A) $174,000 B) $170,000 C) $292,000 D) $124,000


Solution:








Solution:










Downin Corporation has provided the following data for May. The beginning balance in the raw materials inventory account was $34,000. During the month, the company made raw materials purchases amounting to $65,000. At the end of the month, the balance in the raw materials inventory account was $29,000. Direct labor cost was $30,000 and manufacturing overhead cost was $56,000. The beginning balance in the work in process account was $15,000 and the ending balance was $16,000. The beginning balance in the finished goods account was $41,000 and the ending balance was $57,000. Sales totaled $220,000. Selling expense was $21,000 and administrative expense was $42,000.

154. The total manufacturing cost for May was: A) $156,000 B) $86,000 C) $151,000 D) $56,000


Solution:




155. The net operating income for May was: A) $71,000 B) $81,000 C) $6,000 D) $18,000


Solution:










Yore Corporation has provided the following data for the month of June. The beginning balance in the finished goods inventory account was $35,000 and the ending balance was $26,000. Sales totaled $220,000. Cost of goods manufactured was $99,000, selling expense was $15,000, and administrative expense was $46,000.


Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy

Solution:



Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy



Solution:






Streif Inc., a local retailer, has provided the following data for the month of June:

Merchandise inventory, beginning balance..................... $46,000Merchandise inventory, ending balance.......................... $52,000Sales................................................................................. $260,000Purchases of merchandise inventory............................... $128,000Selling expense................................................................ $13,000Administrative expense................................................... $40,000





Solution:




Solution:








Mcclean Corporation reported the following data for the month of October:


Additional information:Raw materials purchases................ $75,000Direct labor cost............................. $45,000Manufacturing overhead cost......... $64,000Selling expense.............................. $16,000Administrative expense.................. $44,000

160. The total manufacturing cost for October was: A) $177,000 B) $184,000 C) $64,000 D) $109,000


Solution:




161. The cost of goods manufactured for October was: A) $177,000 B) $175,000 C) $184,000 D) $179,000


Solution:




Vives Corporation reported the following data for the month of April:


Additional information:Raw materials purchases................ $79,000Direct labor cost............................. $27,000Manufacturing overhead cost......... $89,000



162. The cost of goods manufactured for April was: A) $212,000 B) $190,000 C) $201,000 D) $195,000


Solution:



163. The cost of goods sold for April was: A) $267,000 B) $205,000 C) $219,000 D) $132,000




Solution:





Server Corporation has provided the following data for July. The beginning balance in the raw materials inventory account was $22,000. During the month, the company made raw materials purchases amounting to $76,000. At the end of the month, the balance in the raw materials inventory account was $36,000. Direct labor cost was $25,000 and manufacturing overhead cost was $79,000. The beginning balance in the work in process account was $11,000 and the ending balance was $20,000. The beginning balance in the finished goods account was $43,000 and the ending balance was $39,000.





Solution:






Solution:




At a sales volume of 20,000 units, Choice Corporation's sales commissions (a cost that is variable with respect to sales volume) total $132,000.

166. To the nearest whole dollar, what should be the total sales commissions at a sales volume of 18,400 units? (Assume that this sales volume is within the relevant range.) A) $126,720 B) $132,000 C) $121,440 D) $143,478

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy

Solution:$132,000 ÷ 20,000 = $6.60 per unit18,400 units × $6.60 = $121,440



167. To the nearest whole cent, what should be the average sales commission per unit at a sales volume of 18,500 units? (Assume that this sales volume is within the relevant range.) A) $6.60 B) $6.87 C) $7.17 D) $7.14

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy

Solution:$132,000 ÷ 20,000 = $6.60 per unit average cost


At a sales volume of 38,000 units, Tirri Corporation's property taxes (a cost that is fixed with respect to sales volume) total $733,400.

168. To the nearest whole dollar, what should be the total property taxes at a sales volume of 37,200 units? (Assume that this sales volume is within the relevant range.) A) $725,680 B) $733,400 C) $749,172 D) $717,960


Solution:Fixed costs do not change with changes in volume; therefore, fixed costs will total $733,400 at a sales volume of 37,200 units.



169. To the nearest whole cent, what should be the average property tax per unit at a sales volume of 37,300 units? (Assume that this sales volume is within the relevant range.) A) $19.30 B) $19.66 C) $19.72 D) $19.48


Solution:$733,400 ÷ 37,300 units = $19.66 per unit (rounded)


Leas Corporation staffs a helpline to answer questions from customers. The costs of operating the helpline are variable with respect to the number of calls in a month. At a volume of 25,000 calls in a month, the costs of operating the helpline total $452,500.

170. To the nearest whole dollar, what should be the total cost of operating the helpline costs at a volume of 23,900 calls in a month? (Assume that this call volume is within the relevant range.) A) $442,545 B) $452,500 C) $473,326 D) $432,590


Solution:$452,500 ÷ 25,000 calls = $18.10 per call$18.10 per call × 23,900 calls = $432,590



171. To the nearest whole cent, what should be the average cost of operating the helpline per call at a volume of 25,300 calls in a month? (Assume that this call volume is within the relevant range.) A) $18.93 B) $18.00 C) $17.89 D) $18.10


Solution:$452,500 ÷ 25,000 calls = $18.10 per call (average)


Batterson Corporation leases its corporate headquarters building. This lease cost is fixed with respect to the company's sales volume. In a recent month in which the sales volume was 28,000 units, the lease cost was $697,200.

172. To the nearest whole dollar, what should be the total lease cost at a sales volume of 29,200 units in a month? (Assume that this sales volume is within the relevant range.) A) $712,140 B) $697,200 C) $727,080 D) $668,548


Solution:Fixed costs do not change with changes in volume; therefore, fixed costs will total $697,200 at all sales levels within the relevant range.



173. To the nearest whole cent, what should be the average lease cost per unit at a sales volume of 26,400 units in a month? (Assume that this sales volume is within the relevant range.) A) $25.66 B) $24.90 C) $23.88 D) $26.41


Solution:$697,200 ÷ 26,400 units = $26.41 (rounded)


The following cost data pertain to the operations of Ladwig Department Stores, Inc., for the month of December.

Corporate legal office salaries.............................................. $68,000Shoe Department cost of sales--Brentwood Store................ $66,000Corporate headquarters building lease.................................. $86,000Store manager’s salary--Brentwood Store............................ $10,000Shoe Department sales commissions--Brentwood Store...... $5,000Store utilities--Brentwood Store........................................... $11,000Shoe Department manager’s salary--Brentwood Store......... $3,000Central warehouse lease cost................................................ $3,000Janitorial costs--Brentwood Store......................................... $11,000

The Brentwood Store is just one of many stores owned and operated by the company. The Shoe Department is one of many departments at the Brentwood Store. The central warehouse serves all of the company's stores.



174. What is the total amount of the costs listed above that are direct costs of the Shoe Department? A) $66,000 B) $74,000 C) $106,000 D) $71,000


Solution:

Shoe Department cost of sales–Brentwood Store................. $66,000Shoe Department sales commissions–Brentwood Store....... 5,000Shoe Department Manager’s Salary–Brentwood Store........ 3,000Total direct costs................................................................... $74,000

175. What is the total amount of the costs listed above that are NOT direct costs of the Brentwood Store? A) $74,000 B) $32,000 C) $157,000 D) $86,000


Solution:

Corporate legal office salaries................... $ 68,000Corporate headquarters building lease....... 86,000Central warehouse lease cost..................... 3,000Total........................................................... $157,000




The following cost data pertain to the operations of Quinonez Department Stores, Inc., for the month of September.

Corporate headquarters building lease.............................................. $77,000Cosmetics Department sales commissions–Northridge Store.......... $4,000Corporate legal office salaries.......................................................... $59,000Store manager’s salary–Northridge Store......................................... $11,000Heating–Northridge Store................................................................. $10,000Cosmetics Department cost of sales–Northridge Store.................... $37,000Central warehouse lease cost............................................................ $16,000Store security–Northridge Store....................................................... $12,000Cosmetics Department manager’s salary–Northridge Store............. $4,000

The Northridge Store is just one of many stores owned and operated by the company. The Cosmetics Department is one of many departments at the Northridge Store. The central warehouse serves all of the company's stores.

176. What is the total amount of the costs listed above that are direct costs of the Cosmetics Department? A) $78,000 B) $45,000 C) $41,000 D) $37,000


Solution:

Cosmetics Department sales commissions–Northridge Store.......... $ 4,000Cosmetics Department cost of sales–Northridge Store.................... 37,000Cosmetics Department manager’s salary–Northridge Store............. 4,000Total direct costs............................................................................... $45,000



177. What is the total amount of the costs listed above that are NOT direct costs of the Northridge Store? A) $152,000 B) $33,000 C) $45,000 D) $77,000


Solution:

Corporate headquarters building lease....... $ 77,000Corporate legal office salaries................... 59,000Central warehouse lease cost..................... 16,000Total costs which are NOT direct.............. $152,000


A trucking business is considering whether to give up its local delivery routes or to expand its long haul (over 100 miles) operations.

178. In this decision, the original cost of any of the trucks that it currently owns can best be described as a(n): A) opportunity cost B) conversion cost C) sunk cost D) differential (incremental) cost

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy

179. In this decision, the wage costs of the additional drivers that will have to be hired for the long haul operations can best be described as a(n): A) opportunity cost B) administrative cost C) sunk cost D) differential (incremental) cost

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy



180. In this decision, the lost income from the local delivery routes given up can best be described as a(n): A) opportunity cost B) conversion cost C) sunk cost D) differential (incremental) cost

Ans: A AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy


Dominik Corporation purchased a machine 5 years ago for $527,000 when it launched product M08Y. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 310 machine costing $545,000 or by a new model 240 machine costing $450,000. Management has decided to buy the model 240 machine. It has less capacity than the model 310 machine, but its capacity is sufficient to continue making product M08Y. Management also considered, but rejected, the alternative of dropping product M08Y and not replacing the old machine. If that were done, the $450,000 invested in the new machine could instead have been invested in a project that would have returned a total of $532,000.

181. In making the decision to buy the model 240 machine rather than the model 310 machine, the differential cost was: A) $95,000 B) $5,000 C) $77,000 D) $18,000


Solution:

Model 310 cost............................... $545,000Model 240 cost............................... 450,000Differential cost............................. $ 95,000



182. In making the decision to buy the model 240 machine rather than the model 310 machine, the sunk cost was: A) $545,000 B) $450,000 C) $527,000 D) $532,000


Solution:The original cost of $527,000 is a sunk cost.

183. In making the decision to invest in the model 240 machine, the opportunity cost was: A) $545,000 B) $450,000 C) $532,000 D) $527,000


Solution:

The opportunity cost is the proceeds from the project that would have yielded $532,000.


Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $360,000 or a new model 220 machine costing $340,000 to replace a machine that was purchased 7 years ago for $348,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired.

Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L.

Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $340,000 in the new machine, the money could be invested in a project that would return a total of $411,000.



184. In making the decision to buy the model 220 machine rather than the model 370 machine, the sunk cost was: A) $348,000 B) $340,000 C) $360,000 D) $411,000


Solution:

The original cost of the machine purchased 7 years ago for $348,000 is a sunk cost.

185. In making the decision to buy the model 220 machine rather than the model 370 machine, the differential cost was: A) $20,000 B) $8,000 C) $12,000 D) $63,000


Solution:

Cost of model 370 machine....................... $360,000Cost of model 220 machine....................... 340,000Differential cost......................................... $ 20,000

186. In making the decision to invest in the model 220 machine, the opportunity cost was: A) $348,000 B) $340,000 C) $360,000 D) $411,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 7 Level: Easy

Solution:

The opportunity cost is the proceeds from the project that would have yielded $411,000.




(Appendix 2A) Debra works on the assembly line of a manufacturing company where she installs a component part for one of the company's products. She is paid $16 per hour for regular time and time and a half for all work in excess of 40 hours per week.

187. Debra works 42 hours during a week in which there was no idle time. The allocation of Debra's wages for the week between direct labor cost and manufacturing overhead cost would be:

Direct Labor Manufacturing OverheadA) $664 $24B) $688 $0C) $640 $48D) $672 $16


Solution:

Total wages for the week:Regular time: 40 hours × $16 per hour.................. $640Overtime: 2 hours × $24 per hour.......................... 48

Total wages................................................................ $688Allocation of total wages:

Direct labor: 42 hours × $16 per hour.................... $672Manufacturing overhead: 2 hours × $8 per hour.... 16

Total wages................................................................ $688



188. Debra works 43 hours in a given week but is idle for 4 hours during the week due to equipment breakdowns. The allocation of Debra's wages for the week between direct labor cost and manufacturing overhead cost would be:



Solution:



Direct labor: 39 hours × $16 per hour.................... $624Manufacturing overhead:

Idle time: 4 hours × $16 per hour....................... $64Overtime premium: 3 hours × $8 per hour......... 24 88

Total wages................................................................ $712



189. Debra's employer offers fringe benefits that cost the company $3 for each hour of employee time (both regular and overtime). During a given week, Debra works 42 hours but is idle for 3 hours due to material shortages. The company treats all fringe benefits as part of manufacturing overhead. The allocation of Debra's wages and fringe benefits for the week between direct labor cost and manufacturing overhead would be:



Solution:

Total wages and fringe benefits for the week:Regular time: 40 hours × $16 per hour.................. $640Overtime: 2 hours × $24 per hour.......................... 48Fringe benefits: 42 hours × $3 per hour................. 126

Total wages and fringe benefits.......................... $814Allocation of wages and fringe benefits:


Idle time: 3 hours × $16 per hour....................... $ 48Overtime premium: 2 hours × $8 per hour......... 16Fringe benefits: 42 hours × $3 per hour.............. 126 190

Total wages and fringe benefits................................. $814



190. Debra's employer offers fringe benefits that cost the company $3 for each hour of employee time (both regular and overtime). During a given week, Debra works 42 hours but is idle for 3 hours due to material shortages. The company treats all fringe benefits relating to direct labor as added direct labor cost and the remainder as part of manufacturing overhead. The allocation of Debra's wages and fringe benefits for the week between direct labor cost and manufacturing overhead would be:



Solution:

Allocation of wages and fringe benefits:Direct labor:

Wage cost: 39 hours × $16 per hour................... $624Fringe benefits: 39 hours × $3 per hour.............. 117 $741

Manufacturing overhead:Idle time: 3 hours × $16 per hour....................... 48Overtime premium: 2 hours × $8 per hour......... 16Fringe benefits: 3 hours × $3 per hour................ 9 73

Total wages and fringe benefits............................. $814


(Appendix 2A) Larry is a quality inspector on the assembly line of a manufacturing company. He is paid $16 per hour for regular time and time and a half for all work in excess of 40 hours per week. He is classified as a direct labor worker.



191. Larry works 44 hours during a week in which there was no idle time. The allocation of Larry's wages for the week between direct labor cost and manufacturing overhead cost would be:



Solution:



Direct labor: 44 hours × $16 per hour.................... $704Manufacturing overhead: 4 hours × $8 per hour.... 32

Total wages................................................................ $736



192. Larry works 45 hours in a given week but is idle for 4 hours during the week due to equipment breakdowns. The allocation of Larry's wages for the week between direct labor cost and manufacturing overhead cost would be:



Solution:




Idle time: 4 hours × $16 per hour....................... $64Overtime premium: 5 hours × $8 per hour......... 40 104

Total wages................................................................ $760



193. Larry's employer offers fringe benefits that cost the company $5 for each hour of employee time (both regular and overtime). During a given week, Larry works 45 hours but is idle for 4 hours due to material shortages. The company treats all fringe benefits as part of manufacturing overhead. The allocation of Larry's wages and fringe benefits for the week between direct labor cost and manufacturing overhead would be:



Solution:

Total wages and fringe benefits for the week:Regular time: 40 hours × $16 per hour.................. $640Overtime: 5 hours × $24 per hour.......................... 120Fringe benefits: 45 hours × $5 per hour................. 225

Total wages and fringe benefits.......................... $985Allocation of wages and fringe benefits:


Idle time: 4 hours × $16 per hour....................... $ 64Overtime premium: 5 hours × $8 per hour......... 40Fringe benefits: 45 hours × $5 per hour.............. 225 329

Total wages and fringe benefits................................. $985



194. Larry's employer offers fringe benefits that cost the company $5 for each hour of employee time (both regular and overtime). During a given week, Larry works 45 hours but is idle for 4 hours due to material shortages. The company treats all fringe benefits relating to direct labor as added direct labor cost and the remainder as part of manufacturing overhead. The allocation of Larry's wages and fringe benefits for the week between direct labor cost and manufacturing overhead would be:



Solution:

Allocation of wages and fringe benefits:Direct labor:

Wage cost: 41 hours × $16 per hour................... $656Fringe benefits: 41 hours × $5 per hour.............. 205 $861

Manufacturing overhead:Idle time: 4 hours × $16 per hour....................... 64Overtime premium: 5 hours × $8 per hour......... 40Fringe benefits: 4 hours × $5 per hour................ 20 124

Total wages and fringe benefits............................. $985




(Appendix 2B) Circle K Toys, Inc. manufactures toys and children's clothing and sells these products to retail outlets. The following costs were incurred in performing quality activities at Circle K during the year:

Product recall activities.......................................... $370,000Quality training activities....................................... $240,000Quality improvement activities.............................. $154,000Warranty claim activities....................................... $109,000Quality inspection and testing activities................ $61,000Rework activities................................................... $38,000Quality data collection and reporting activities..... $15,000

195. What is the total of the prevention costs for Circle K? A) $394,000 B) $409,000 C) $455,000 D) $470,000

Ans: B AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium

Solution:

Quality training activities....................................... $240,000Quality improvement activities.............................. 154,000Quality data collection and reporting activities..... 15,000Total prevention costs............................................ $409,000

196. What is the total of the internal failure costs for Circle K? A) $53,000 B) $99,000 C) $517,000 D) $38,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium

Solution:

Rework activities. . . $38,000




(Appendix 2B) Ean Company's quality cost report is to be based on the following data:

Quality circles.................................................................. $57,000Downtime caused by quality problems........................... $98,000Debugging software errors.............................................. $98,000Statistical process control activities................................. $68,000Test and inspection of in-process goods.......................... $24,000Final product testing and inspection................................ $66,000Cost of field servicing and handling complaints............. $87,000Product recalls................................................................. $72,000Maintenance of test equipment........................................ $75,000

197. What would be the total prevention cost appearing on the quality cost report? A) $143,000 B) $125,000 C) $81,000 D) $129,000


Solution:

Quality circles........................................................ $ 57,000Statistical process control activities....................... 68,000Total prevention costs............................................ $125,000



198. What would be the total appraisal cost appearing on the quality cost report? A) $141,000 B) $165,000 C) $90,000 D) $164,000


Solution:

Test and inspection of in-process goods................ $ 24,000Final product testing and inspection...................... 66,000Maintenance of test equipment.............................. 75,000Total appraisal cost................................................ $165,000

199. What would be the total internal failure cost appearing on the quality cost report? A) $185,000 B) $196,000 C) $173,000 D) $170,000


Solution:

Downtime caused by quality problems.................. $ 98,000Debugging software errors..................................... 98,000Total internal failure cost....................................... $196,000



200. What would be the total external failure cost appearing on the quality cost report? A) $170,000 B) $645,000 C) $159,000 D) $355,000

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 9,10 Level: Medium

Solution:

Cost of field servicing and handling complaints.... $ 87,000Product recalls........................................................ 72,000Total external failure cost...................................... $159,000


(Appendix 2B) Fagel Company's quality cost report is to be based on the following data:

Disposal of defective products........................................ $42,000Supervision of testing and inspection activities.............. $73,000Statistical process control activities................................. $78,000Cost of field servicing and handling complaints............. $53,000Re-entering data because of keying errors...................... $46,000Warranty repairs and replacements................................. $87,000Supplies used in testing and inspection........................... $89,000Quality circles.................................................................. $27,000Downtime caused by quality problems........................... $14,000



Solution:

Statistical process control activities................................. $ 78,000Quality circles.................................................................. 27,000Total prevention cost....................................................... $105,000





Solution:

Supervision of testing and inspection activities.............. $ 73,000Supplies used in testing and inspection........................... 89,000Total appraisal cost.......................................................... $162,000



Solution:

Disposal of defective products........................................ $ 42,000Re-entering data because of keying errors...................... 46,000Downtime caused by quality problems........................... 14,000Total internal failure cost................................................. $102,000





Solution:

Cost of field servicing and handling complaints............. $ 53,000Warranty repairs and replacements................................. 87,000Total external failure cost................................................ $140,000


(Appendix 2B) Faust Company's quality cost report is to be based on the following data:

Quality engineering......................................................... $68,000Quality circles.................................................................. $35,000Supervision of testing and inspection activities.............. $72,000Net cost of scrap.............................................................. $76,000Test and inspection of in-process goods.......................... $6,000Liability arising from defective products........................ $3,000Warranty repairs and replacements................................. $56,000Debugging software errors.............................................. $68,000Rework labor and overhead............................................. $19,000





Solution:

Quality engineering......................................................... $ 68,000Quality circles.................................................................. 35,000Total prevention cost....................................................... $103,000



Solution:

Supervision of testing and inspection activities.............. $72,000Test and inspection of in-process goods.......................... 6,000Total appraisal cost.......................................................... $78,000





Solution:

Net cost of scrap............................. $ 76,000Debugging software errors............. 68,000Rework labor and overhead........... 19,000Total internal failure cost............... $163,000



Solution:

Liability arising from defective products........................ $ 3,000Warranty repairs and replacements................................. 56,000Total external failure cost................................................ $59,000



Essay Questions

209. The information below relates to Guzzardi Manufacturing Company. (Assume that all raw materials are direct materials.):

Purchases of raw materials......................... $362,000Direct labor cost......................................... $207,000Selling costs (total).................................... $61,000Administrative costs (total)........................ $84,000Manufacturing overhead costs (total)........ $775,000Raw materials inventory, beginning.......... $37,000Work in process inventory, beginning....... $19,000Finished goods inventory, beginning......... $62,000Raw materials inventory, ending............... $44,000Work in process inventory, ending............ $3,000Finished goods inventory, ending.............. $77,000

Required:What is Guzzardi's cost of goods sold?

Ans:

Purchases of raw materials.............................................. $ 362,000Add: Raw materials inventory, beginning...................... 37,000

399,000Deduct: Raw materials inventory, ending....................... 44,000 Raw materials used in production................................... 355,000Direct labor cost.............................................................. 207,000Manufacturing overhead costs (total)............................. 775,000 Total manufacturing cost................................................ 1,337,000Add: Work in process inventory, beginning................... 19,000

1,356,000Deduct: Work in process inventory, ending................... 3,000 Cost of goods manufactured........................................... $1,353,000

Finished goods inventory, beginning.............................. $ 62,000Add: Cost of goods manufactured.................................. 1,353,000 Goods available for sale.................................................. 1,415,000Deduct: Finished goods inventory, ending..................... 77,000 Cost of goods sold........................................................... $1,338,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,2,3,4 Level: Medium



210. Miyose Corporation, a manufacturing company, has provided the following data for the month of June:

Inventories: Beginning EndingRaw materials..................... $23,000 $21,000Finished goods................... $32,000 $37,000

Raw materials purchased during June totaled $67,000 and the cost of goods manufactured totaled $124,000.

Required:a. What was the cost of raw materials used in production during June? Show your

work.b. What was the cost of goods sold for June? Show your work.

Ans: a.

Beginning materials inventory......................................... $23,000Add: Purchases of raw materials...................................... 67,000 Raw materials available for use........................................ 90,000Deduct: Ending raw materials inventory.......................... 21,000 Raw materials used in production.................................... $69,000

b.Cost of goods manufactured............................................ $124,000Add: Beginning finished goods inventory....................... 32,000 Goods available for sale.................................................. 156,000Deduct: Ending finished goods inventory....................... 37,000 Cost of goods sold........................................................... $119,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 1,3 Level: Easy



211. During the month of May, Russnak Corporation, a manufacturing company, purchased raw materials costing $73,000. The cost of goods manufactured for the month was $102,000. The beginning balance in the raw materials account was $26,000 and the ending balance was $39,000. The beginning balance in the finished goods account was $42,000 and the ending balance was $46,000.

Required:a. What was the cost of raw materials used in production during May? Show your

work.b. What was the cost of goods sold for May? Show your work.

Ans:

a.Beginning materials inventory......................................... $26,000Add: Purchases of raw materials..................................... 73,000 Raw materials available for use....................................... 99,000Deduct: Ending raw materials inventory......................... 39,000 Raw materials used in production................................... $60,000

b.Cost of goods manufactured............................................ $102,000Add: Beginning finished goods inventory....................... 42,000 Goods available for sale.................................................. 144,000Deduct: Ending finished goods inventory....................... 46,000 Cost of goods sold........................................................... $ 98,000




212. Mary Tappin, an assistant Vice President at Galaxy Toys, was disturbed to find on her desk a memo from her boss, Gary Resnick, to the controller of the company. The memo appears below:

Galaxy Toys Internal Memo

Sept 15

To: Harry Wilson, ControllerFm: Gary Resnick, Executive Vice President

As you know, we won't start recording many sales until October when stores start accepting shipments from us for the Christmas season. Meanwhile, we are producing flat-out and are building up our finished goods inventories so that we will be ready to ship next month.

Unfortunately, we are in a bind right now since it looks like the net income for the quarter ending on Sept 30 is going to be pretty awful. This may get us in trouble with the bank since they always review the quarterly financial reports and may call in our loan if they don't like what they see. Is there any possibility that we could change the classification of some of our period costs to product costs--such as the rent on the finished goods warehouse?

Please let me know as soon as possible. The President is pushing for results.

Mary didn't know what to do about the memo. It wasn't intended for her, but its contents were alarming.

Required:a. Why has Gary Resnick suggested reclassifying some period costs as product costs?b. Why do you think Mary was alarmed about the memo?

Ans:

a. Gary Resnick has suggested reclassifying some period costs as product costs since the company is building up large finished goods inventories in anticipation of the Christmas selling season. Product costs are inventoried and flow through to the income statement only when products are sold. Period expenses, in contrast, flow directly to the income statement. Since most of the finished goods inventories will be held over to the next quarter, reclassifying period costs as product costs will effectively defer recognition of expenses until next quarter and therefore will improve the current quarter's net operating income.



b. Mary Tappin is probably alarmed by both the economic situation the company finds itself in and by the apparent willingness of top management to bend the rules. Improperly reclassifying costs is an indication that top management does not feel like it has to play by the rules or be honest in its dealings with the bank. With such loose ethical standards, Mary may wonder what other things they are doing that are unethical and/or illegal.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making LO: 2 Level: Medium



213. A partial listing of costs incurred at Boylen Corporation during March appears below:

Direct materials................................................................ $181,000Utilities, factory............................................................... $10,000Sales commissions........................................................... $69,000Administrative salaries.................................................... $99,000Indirect labor.................................................................... $32,000Advertising...................................................................... $75,000Depreciation of production equipment............................ $28,000Direct labor...................................................................... $120,000Depreciation of administrative equipment...................... $49,000

Required:a. What is the total amount of product cost listed above? Show your work.b. What is the total amount of period cost listed above? Show your work.

Ans:

a. Product costs consist of direct materials, direct labor, and manufacturing overhead:Direct materials...................................................... $181,000Direct labor............................................................ 120,000Manufacturing overhead:

Utilities, factory.................................................. $10,000Indirect labor....................................................... 32,000Depreciation of production equipment............... 28,000 70,000

Total product cost.................................................. $371,000

b. Period costs consist of all costs other than product costs:Administrative salaries........................................... $ 99,000Sales commissions................................................. 69,000Depreciation of administrative equipment............. 49,000Advertising............................................................. 75,000 Total period cost.................................................... $292,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium



214. Marquess Corporation has provided the following partial listing of costs incurred during May:

Marketing salaries...................................... $39,000Property taxes, factory............................... $8,000Administrative travel................................. $102,000Sales commissions..................................... $73,000Indirect labor.............................................. $31,000Direct materials.......................................... $197,000Advertising................................................. $145,000Depreciation of production equipment...... $39,000Direct labor................................................ $78,000

Required:a. What is the total amount of product cost listed above? Show your work.b. What is the total amount of period cost listed above? Show your work.

Ans:

a. Product costs consist of direct materials, direct labor, and manufacturing overhead:Direct materials...................................................... $197,000Direct labor............................................................ 78,000Manufacturing overhead:

Property taxes, factory........................................ $ 8,000Indirect labor....................................................... 31,000Depreciation of production equipment............... 39,000 78,000

Total product cost.................................................. $353,000

b. Period costs consist of all costs other than product costs:Administrative travel..................... $102,000Sales commissions......................... 73,000Marketing salaries.......................... 39,000Advertising..................................... 145,000 Total period cost............................ $359,000




215. Classify the following costs for an auto manufacturer as either direct materials, direct labor, manufacturing overhead, or period costs.

a. Steel used in automobilesb. Assembly department employee wagesc. Utility costs used in executive buildingd. Travel costs used by sales personnele. Cost of shipping goods to customersf. Property taxes on assembly plantg. Glass used in automobilesh. Maintenance suppliesi. Depreciation on assembly plantj. Plant manager's salaryk. CEO's salaryl. Depreciation on executive buildingm. Salary of marketing executiven. Tires installed on automobileso. Advertising

Required:Complete the answer sheet above by placing an “X” under each heading that identifies the cost involved.

Direct Materials Direct Labor Manufacturing Overhead Period Costa.b.c.d.e.f.g.h.i.j.k.l.m.n.o.



Ans:

Direct Materials Direct Labor Manufacturing Overhead Period Costa. Xb. Xc. Xd. Xe. Xf. Xg. Xh. Xi. Xj. Xk. Xl. Xm. Xn. Xo. X




216. The following costs relate to one month's activity in Carr Company:

Indirect labor.................................. $400Rent on factory building................ $300Maintenance of equipment............. $100Direct material used....................... $1,200Utilities on factory......................... $200Direct labor.................................... $1,500Selling expense.............................. $500Administrative expense.................. $300Work in process, beginning........... $800Work in process, ending................ $600Finished goods, beginning............. $500Finished goods, ending.................. $250

Required:a. Prepare a schedule of Cost of Goods Manufactured in good form.b. Determine the Cost of Goods Sold for the month.

Ans: a.

Direct materials.............................. $1,200Direct labor.................................... 1,500Manufacturing overhead:

Indirect labor............................... $400Rent............................................. 300Maintenance................................ 100Utilities........................................ 200 1,000

Total manufacturing cost............... 3,700Add: WIP, beginning..................... 800

4,500Deduct: WIP, ending...................... 600 Cost of goods manufactured.......... $3,900



b.Finished goods, beginning......................... $ 500Add: Cost of goods manufactured............. 3,900 Goods available for sale............................. 4,400Finished goods, ending.............................. 250 Cost of goods sold...................................... $4,150

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Medium

217. Nish Corporation has provided the following data for the month of April:

Sales............................................... $220,000Raw materials purchases................ $50,000Direct labor cost............................. $23,000Manufacturing overhead cost......... $59,000Selling expense.............................. $18,000Administrative expense.................. $43,000

Inventories: Beginning EndingRaw materials......... $26,000 $35,000Work in process..... $18,000 $22,000Finished goods....... $42,000 $29,000

Required:a. Prepare a Schedule of Cost of Goods Manufactured in good form for April.b. Prepare an Income Statement in good form for April.

Ans:

a. Schedule of Cost of Goods ManufacturedDirect materials:

Beginning materials inventory............................ $26,000Add: Purchases of raw materials........................ 50,000 Raw materials available for use.......................... 76,000Deduct: Ending raw materials inventory............ 35,000

Raw materials used in production.......................... $ 41,000Direct labor............................................................ 23,000Manufacturing overhead........................................ 59,000 Total manufacturing costs...................................... 123,000Add: Beginning work in process inventory........... 18,000

141,000



Deduct: Ending work in process inventory............ 22,000 Cost of goods manufactured.................................. $119,000

b. Income StatementSales....................................................................... $220,000Cost of goods sold:

Beginning finished goods inventory................... $ 42,000Add: Cost of goods manufactured...................... 119,000 Goods available for sale...................................... 161,000Deduct: Ending finished goods inventory.......... 29,000 132,000

Gross margin.......................................................... 88,000Selling and administrative expenses:

Selling expenses.................................................. 18,000Administrative expenses..................................... 43,000 61,000

Net operating income............................................. $ 27,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3,4 Level: Medium

218. The following data have been provided the Monster Manufacturing Company for the most recent period:

Sales................................................................................. $16,800Raw materials inventory, beginning................................ $900Raw materials inventory, ending..................................... $750Purchases of raw materials.............................................. $8,400Direct labor...................................................................... $1,240Manufacturing overhead.................................................. $2,070Administrative expenses.................................................. $1,890Selling expenses.............................................................. $1,000Work in process inventory, beginning............................. $700Work in process inventory, ending.................................. $1,050Finished goods inventory, beginning............................... $970Finished goods inventory, ending.................................... $1,120

Required:Calculate the cost of goods manufactured and prepare an income statement.



Ans:

Cost of goods manufactured:Direct materials = $900+$8,400-$750 = $8,550Total manufacturing costs = $8,550+$1,240+$2,070 = $11,860Cost of goods manufacturing = $11,860+$700-$1,050 = $11,510

Monster Manufacturing CompanyIncome Statement

Sales....................................................................... $16,800Cost of goods sold:

Beginning finished goods inventory................... $ 970Plus cost of goods manufactured........................ 11,510 Cost of goods available for sale.......................... 12,480Less ending finished goods inventory................ 1,120

Cost of goods sold.................................................. 11,360 Gross margin.......................................................... 5,440Selling and administrative expenses:

Administrative expenses..................................... 1,890Selling expenses.................................................. 1,000

Total selling and administrative expense............... 2,890 Net operating income............................................. $ 2,550




219. In December, Vollick Corporation had sales of $245,000, selling expenses of $23,000, and administrative expenses of $26,000. The cost of goods manufactured was $190,000. The beginning balance in the finished goods inventory account was $59,000 and the ending balance was $56,000.

Required:Prepare an Income Statement in good form for December.

Ans:

Income StatementSales.................................................................... $245,000Cost of goods sold:..............................................

Beginning finished goods inventory................ $ 59,000Add: Cost of goods manufactured................... 190,000 Goods available for sale................................... 249,000Deduct: Ending finished goods inventory....... 56,000 193,000

Gross margin....................................................... 52,000Selling and administrative expenses:Selling expenses.................................................. 23,000Administrative expenses..................................... 26,000 49,000 Net operating income.......................................... $ 3,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy

220. In April, Holderness Inc., a merchandising company, had sales of $221,000, selling expenses of $14,000, and administrative expenses of $25,000. The cost of merchandise purchased during the month was $155,000. The beginning balance in the merchandise inventory account was $34,000 and the ending balance was $48,000.

Required:Prepare an Income Statement in good form for April.



Ans: Income Statement

Sales................................................................. $221,000Cost of goods sold:

Beginning merchandise inventory................ $ 34,000Add: Purchases............................................. 155,000 Goods available for sale................................ 189,000Deduct: Ending merchandise inventory........ 48,000 141,000

Gross margin.................................................... 80,000Selling and administrative expenses:

Selling expenses............................................ 14,000Administrative expenses............................... 25,000 39,000

Net operating income....................................... $ 41,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 3 Level: Easy



221. The following data were taken from the cost records of Morrey Company for last year:

Depreciation, factory...................... $60,000Indirect labor.................................. $100,000Utilities, factory............................. $40,000Insurance, factory........................... $10,000Lubricants for machines................. $15,000Direct labor.................................... $200,000Purchases of raw materials............. $150,000

Inventories at the beginning and at the end of the year were as follows:


Required:Prepare a schedule of cost of goods manufactured in good form.

Ans:

Morrey CompanySchedule of Cost of Goods Manufactured

Direct materials:Raw materials inventory, beginning................ $ 10,000Add: Purchases of raw materials..................... 150,000 Raw materials available for use....................... 160,000Deduct: Raw materials inventory, ending........ 20,000 Raw materials used in production.................... $140,000

Direct labor......................................................... 200,000Manufacturing overhead:

Depreciation, factory....................................... 60,000Indirect labor.................................................... 100,000Utilities, factory............................................... 40,000Insurance, factory............................................. 10,000Lubricants for machines................................... 15,000



Total manufacturing overhead cost..................... 225,000 Total manufacturing costs................................... 565,000Add: Work in process inventory, beginning....... 25,000

590,000Deduct: Work in process inventory, ending....... 5,000 Cost of Goods Manufactured.............................. $585,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium

222. Pamer Corporation has provided the following data for the month of September:

Raw materials purchases................ $60,000Direct labor cost............................. $27,000Manufacturing overhead cost......... $76,000


Required:Prepare a Schedule of Cost of Goods Manufactured in good form for September.

Ans: Schedule of Cost of Goods Manufactured

Direct materials:Beginning materials inventory............................ $20,000Add: Purchases of raw materials........................ 60,000 Raw materials available for use.......................... 80,000Deduct: Ending raw materials inventory............ 23,000

Raw materials used in production.......................... $ 57,000Direct labor............................................................ 27,000Manufacturing overhead........................................ 76,000 Total manufacturing costs...................................... 160,000Add: Beginning work in process inventory........... 24,000

184,000Deduct: Ending work in process inventory............ 18,000 Cost of goods manufactured.................................. $166,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement LO: 4 Level: Medium



223. A number of costs and measures of activity are listed below.

Cost DescriptionPossible Measure of

Activity1. Cost of vaccine used at a clinic Vaccines administered2. Building rent at a taco shop Dollar sales3. Salary of production manager at a snowboard manufacturer Snowboards produced4. Cost of electricity for production equipment at a snowboard

manufacturer Snowboards produced5. Ferry captain’s salary on a regularly scheduled passenger

ferry Number of passengers6. Cost of glue used in furniture production Units produced7. Janitorial wages at a snowboard manufacturer Snowboards produced8. Depreciation on factory building at a snowboard

manufacturer Snowboards produced9. Cost of advertising at a snowboard company Snowboards sold

10. Cost of shipping bags of fertilizer to a customer at a chemical plant Bags shipped



Required:For each item above, indicate whether the cost is MAINLY fixed or variable with respect to the possible measure of activity listed next to it.

Ans:

1. Cost of vaccine used at a clinic; Vaccines administered; Variable2. Building rent at a taco shop; Dollar sales; Fixed3. Salary of production manager at a snowboard manufacturer; Snowboards

produced; Fixed4. Cost of electricity for production equipment at a snowboard manufacturer;

Snowboards produced; Variable5. Ferry captain's salary on a regularly scheduled passenger ferry; Number of

passengers; Fixed6. Cost of glue used in furniture production; Units produced; Variable7. Janitorial wages at a snowboard manufacturer; Snowboards produced;

Fixed8. Depreciation on factory building at a snowboard manufacturer;

Snowboards produced; Fixed9. Cost of advertising at a snowboard company; Snowboards sold; Fixed10. Cost of shipping bags of fertilizer to a customer at a chemical plant; Bags

shipped; Variable

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 5 Level: Easy



224. A number of costs are listed below.

Cost Description Cost Object1. Wages of carpenters on a home building site A particular home2. Cost of wiring used in making a personal computer A particular personal

computer3. Manager’s salary at a hotel run by a chain of hotels A particular hotel guest4. Manager’s salary at a hotel run by a chain of hotels The particular hotel5. Cost of aluminum mast installed in a yacht at a yacht

manufacturer A particular yacht6. Monthly lease cost of X-ray equipment at a hospital The Radiology (X-Ray)

Department7. Cost of screws used to secure wood trim in a yacht at a

yacht manufacturer A particular yacht8. Cost of electronic navigation system installed in a yacht at a

yacht manufacturer A particular yacht9. Cost of a replacement battery installed in a car at the auto

repair shop of an automobile dealer The auto repair shop10. Cost of a measles vaccine administered at an outpatient

clinic at a hospital A particular patient

Required:For each item above, indicate whether the cost is direct or indirect with respect to the cost object listed next to it.

Ans:

1. Wages of carpenters on a home building site; A particular home; Direct2. Cost of wiring used in making a personal computer; A particular personal

computer; Indirect3. Manager's salary at a hotel run by a chain of hotels; A particular hotel guest;

Indirect4. Manager's salary at a hotel run by a chain of hotels; The particular hotel; Direct5. Cost of aluminum mast installed in a yacht at a yacht manufacturer; A particular

yacht; Direct6. Monthly lease cost of X-ray equipment at a hospital; The Radiology (X-Ray)

Department; Direct7. Cost of screws used to secure wood trim in a yacht at a yacht manufacturer; A

particular yacht; Indirect8. Cost of electronic navigation system installed in a yacht at a yacht manufacturer; A

particular yacht; Direct



9. Cost of a replacement battery installed in a car at the auto repair shop of an automobile dealer; The auto repair shop; Direct

10. Cost of a measles vaccine administered at an outpatient clinic at a hospital; A particular patient; Direct

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting LO: 6 Level: Easy

225. A direct labor worker at Ude Corporation is paid $24 per hour for regular time and time and a half for all work in excess of 40 hours per week. This employee works 44 hours during a week in which there was no idle time.

Required:Determine how much of the worker's wages for the week would be classified as direct labor cost and how much would be classified as manufacturing overhead cost. Show your work.

Ans:

Direct labor: $24 per hour × 44 hour = $1,056Manufacturing overhead:Overtime premium: $12 per hour × 4 hours = $48

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Easy

226. A direct labor worker at Bodreau Corporation is paid $14 per hour for regular time and time and a half for all work in excess of 40 hours per week. This employee works 48 hours in a given week but is idle for 4 hours during the week due to equipment breakdowns.




Ans:

Direct labor:$14 per hour × 44 hours...................................... $616

Manufacturing overhead:Idle time: $14 per hour × 4 hours....................... $ 56Overtime premium: $7 per hour × 8 hours......... 56

Total manufacturing overhead............................... $112

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Easy

227. A direct labor worker at Chiarini Corporation is paid $14 per hour for regular time and time and a half for all work in excess of 40 hours per week. The company's fringe benefits cost $4 for each hour of employee time (both regular and overtime). Last week this employee worked 45 hours but was idle for 3 hours due to material shortages. The company treats all fringe benefits as part of manufacturing overhead.


Ans:

Direct labor:$14 per hour × 42 hours...................................... $588

Manufacturing overhead:Idle time: $14 per hour × 3 hours....................... $ 42Overtime premium: $7 per hour × 5 hours......... 35Fringe benefits: $4 per hour × 45 hours.............. 180


AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Medium



228. A direct labor worker at Kimmer Corporation is paid $18 per hour for regular time and time and a half for all work in excess of 40 hours per week. The company's fringe benefits cost $4 for each hour of employee time (both regular and overtime). Last week this employee worked 42 hours but was idle for 4 hours due to material shortages. The company treats all fringe benefits relating to direct labor as added direct labor cost and the remainder as part of manufacturing overhead.


Ans:

Direct labor:Wages: $18 per hour × 38 hours......................... $684Fringe benefits: $4 per hour ×38 hours............... 152

Total direct labor.................................................... $836Manufacturing overhead:

Idle time: $18 per hour ×4 hours........................ $ 72Overtime premium: $9 per hour × 2 hours......... 18Fringe benefits: $4 per hour × 4 hours................ 16


AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Appendix: 2A LO: 8 Level: Medium



229. Toole Manufacturing Company manufactures and sells ceiling fans. Toole incurred the following costs related to quality for the year:

Cost of warranty repairs............................. $35,000Cost of employee quality training.............. $27,000Cost incurred to rework fans...................... $18,000Spoilage cost (net)...................................... $15,000Cost of handling customer complaints....... $11,000Depreciation cost of test equipment........... $6,000Cost of quality circles................................ $5,000Maintenance cost of test equipment........... $3,000Cost of retesting reworked fans................. $2,000Cost of final testing of fans........................ $1,000

Required:Prepare a Quality Cost Report for Toole Manufacturing Company showing both dollars and percents. Assume that sales were $2,000,000.

Ans: Toole Manufacturing Company

Quality Cost Report

Amount PercentPrevention costs:

Cost of employee quality training........... $ 27,000 1.35Cost of quality circles............................. 5,000 0.25

Total prevention cost.................................. 32,000 1.60Appraisal costs:

Depreciation cost of test equipment........ 6,000 0.30Maintenance cost of test equipment........ 3,000 0.15Cost of final testing of fans..................... 1,000 0.05

Total appraisal cost.................................... 10,000 0.50Internal failure costs:

Cost incurred to rework fans................... 18,000 0.90Spoilage cost (net).................................. 15,000 0.75Cost of retesting reworked fans.............. 2,000 0.10

Total internal failure cost........................... 35,000 1.75



External failure costs:Cost of warranty repairs.......................... 35,000 1.75Cost of handling customer complaints.... 11,000 0.55

Total external failure cost.......................... 46,000 2.30Total quality cost........................................ $123,000 6.15

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Appendix: 2B LO: 9,10 Level: Easy

230. Gad Company's quality cost report is to be based on the following data:

Re-entering data because of keying errors............. $17,000Net cost of spoilage................................................ $88,000Supervision of testing and inspection activities..... $78,000Lost sales due to poor quality................................ $17,000Warranty repairs and replacements........................ $92,000Depreciation of test equipment.............................. $12,000Maintenance of test equipment.............................. $75,000Systems development............................................. $79,000Quality training...................................................... $19,000

Required:

Prepare a Quality Cost Report in good form with separate sections for prevention costs, appraisal costs, internal failure costs, and external failure costs.

Ans:

Prevention costsQuality training............................................................. $ 19,000Systems development................................................... 79,000

Total prevention cost....................................................... 98,000 Appraisal costs

Depreciation of test equipment..................................... 12,000Supervision of testing and inspection activities........... 78,000Maintenance of test equipment..................................... 75,000

Total appraisal cost.......................................................... 165,000 Internal failure costs

Re-entering data because of keying errors................... 17,000Net cost of spoilage...................................................... 88,000

Total internal failure cost................................................. 105,000



External failure costsLost sales due to poor quality....................................... 17,000Warranty repairs and replacements.............................. 92,000

Total external failure cost................................................ 109,000 Total quality cost............................................................. $477,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Appendix: 2B LO: 9,10 Level: Medium

231. Hartz Company's quality cost report is to be based on the following data:

Lost sales due to poor quality.......................................... $86,000Net cost of spoilage......................................................... $35,000Final product testing and inspection................................ $19,000Net cost of scrap.............................................................. $88,000Systems development...................................................... $83,000Supplies used in testing and inspection........................... $94,000Rework labor and overhead............................................. $72,000Quality data gathering, analysis, and reporting............... $43,000Product recalls................................................................. $53,000

Required:Prepare a Quality Cost Report in good form with separate sections for prevention costs, appraisal costs, internal failure costs, and external failure costs.

Ans:

Prevention costsSystems development................................................... $ 83,000Quality data gathering, analysis, and reporting............ 43,000

Total prevention cost....................................................... 126,000 Appraisal costs

Final product testing and inspection............................. 19,000Supplies used in testing and inspection........................ 94,000

Total appraisal cost.......................................................... 113,000 Internal failure costs

Rework labor and overhead.......................................... 72,000Net cost of scrap........................................................... 88,000Net cost of spoilage...................................................... 35,000

Total internal failure cost................................................. 195,000



External failure costsLost sales due to poor quality....................................... 86,000Product recalls.............................................................. 53,000

Total external failure cost................................................ 139,000 Total quality cost............................................................. $573,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting, Measurement Appendix: 2B LO: 9,10 Level: Medium


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