exam 1, sp07

1. In decision making, managers use:

A) financial accounting information exclusively since it is more objective and precise

due to well-established principles and conventions.

B) information regarding the organization as a whole rather than segments of the

organization in order to capture a broader perspective of the company's operations.

C) information that is as precise as humanly possible.

D) whatever information is relevant to the decision even though the information may

not conform to generally accepted accounting principles.

2. Financial accounting:

A) is required by regulatory bodies such as the SEC.

B) has its primary emphasis on the future.

C) provides data primarily for internal uses by managers.

D) is concerned primarily with the performance of segments rather than with the

performance of the entire organization.

3. The provisions of The Foreign Corrupt Practices Act of 1977 state that multinational

companies:

A) must not give nominal "tips" where such tips are common practice for the service

performed.

B) can give bribes only in countries where giving bribes is common practice in the

country in which the multinational company is doing business.

C) must devise and maintain a computerized accounting system.

D) must devise and maintain a system of internal controls sufficient to ensure that all

transactions are executed and recorded properly.

4. Management accounting primarily is concerned with providing:

A) information to managers inside the organization as well as information to

stockholders, creditors, and others outside the organization.

B) information to stockholders, creditors, and others outside the organization.

C) information to managers inside the organization.

D) information to governmental regulatory agencies.

5. The salary paid to the maintenance supervisor in a manufacturing plant is an example

of:

Product Cost Manufacturing Overhead

A) No Yes

B) Yes No

C) Yes Yes

D) No No

6. Which of the following would most likely be included as part of manufacturing

overhead in the production of a wooden table?

A) The amount paid to the individual who stains the table.

B) The commission paid to the salesperson who sold the table.

C) The cost of glue used in the table.

D) The cost of the wood used in the table.

7. Wages paid to factory machine operators of a manufacturing plant are an element of:

Prime cost Conversion cost

A) No No

B) No Yes

C) Yes No

D) Yes Yes

8. Within the relevant range:

A) variable cost per unit decreases as production decreases.

B) fixed cost per unit increases as production decreases.

C) fixed cost per unit decreases as production decreases.

D) variable cost per unit increases as production decreases.

9. All of the following can be differential costs except:

A) variable costs.

B) sunk costs.

C) opportunity costs.

D) fixed costs.

Use the following to answer question 10:

The following data (in thousands of dollars) have been taken from the accounting records of

Karmint Corporation for the just completed year.

Sales $830

Raw materials inventory, beginning $50

Raw materials inventory, ending $40

Purchases of raw materials $150

Direct labor $140

Manufacturing overhead $160

Administrative expenses $120

Selling expenses $150

Work in process inventory,

beginning

$30

Work in process inventory, ending $50

Finished goods inventory, beginning $80

Finished goods inventory, ending $100

Use these data to answer the following series of questions.

10. The net operating income for the year (in thousands of dollars) was:

A) $140.

B) $170.

C) $110.

D) $410.

11. In a job-order cost system, the application of manufacturing overhead usually would be

recorded as a debit to:

A) Cost of Goods Sold.

B) Work in Process inventory.

C) Manufacturing Overhead.

D) Finished Goods inventory.

Source: CPA, adapted

12. A proper journal entry to record issuing raw materials to be used on a job would be:

A) Finished Goods XXX

Raw Materials XXX

B)

Raw Materials XXX

Work in Process XXX

C)

Work in Process XXX

Raw Materials XXX

D)

Raw Materials XXX

Finished Goods XXX

13. Karvel Corporation uses a predetermined overhead rate based on machine-hours to

apply manufacturing overhead to jobs. For the month of August, Karvel estimated total

manufacturing overhead costs at $300,000 and total machine-hours at 75,000 hours.

Actual results for the period were manufacturing overhead costs of $290,000 and 75,000

machine-hours. As a result, Karvel would have:

A) applied more overhead to Work in Process than the actual amount of overhead cost

for the year.

B) applied less overhead to Work in Process than the actual amount of overhead cost

for the year.

C) applied an amount of overhead to Work in Process that was equal to the actual

amount of overhead.

D) found it necessary to recalculate the predetermined overhead rate.

14. Jameson Company uses a predetermined overhead rate based on direct labor hours to

apply manufacturing overhead to jobs. The company has provided the following

estimated costs for the next year:

Direct materials $ 5,000

Direct labor 19,000

Rent on factory building 16,000

Sales salaries 24,000

Depreciation on factory equipment 7,000

Indirect labor 11,000

Production supervisor's salary 14,000

Jameson estimates that 24,000 direct labor hours will be worked during the year. The

predetermined overhead rate per hour will be:

A) $2.00

B) $2.79

C) $3.00

D) $4.00

15. The operations of the Kerry Company resulted in underapplied overhead of $5,000.

The entry to close out this balance to Cost of Goods Sold and the effect of the

underapplied overhead on Cost of Goods Sold would be:

Entry Effect on Cost of Goods Sold

A) Manufacturing Overhead 5,000 Deduct $5,000

Cost of Goods Sold 5,000

B) Cost of Goods Sold 5,000 Deduct $5,000

Manufacturing Overhead 5,000

C) Cost of Goods Sold 5,000 Add $5,000

Manufacturing Overhead 5,000

D) Manufacturing Overhead 5,000 Add $5,000

Cost of Goods Sold 5,000

16. The following debits (credits) appeared in Axe Company's Work in Process inventory

account for the month of March:

March Description Amount

1 Balance $ 2,000

31 Direct materials 12,000

31 Direct labor 8,000

31 Manufacturing overhead 6,400

31 To Finished Goods (24,000)

Axe applies overhead to jobs at a predetermined rate of 80% of direct labor cost. Job

No. 9, the only job still in process at the end of March, has been charged with direct

labor of $1,000. The amount of direct materials charged to Job No. 9 was:

A) $12,000.

B) $ 4,400.

C) $ 2,600.

D) $ 1,500.

17. Compute the amount of direct materials used during August if $25,000 of raw

materials were purchased during the month and the inventories were as follows:

Balance Balance

Inventories August 1 August 31

Raw materials $ 5,000 $ 3,000

Work in process 13,000 16,000

Finished goods 25,000 27,000

A) $16,000

B) $19,000

C) $23,000

D) $27,000


The following partially completed T-accounts summarize last year's transactions for Kelshaw

Company.

Raw Materials

Beg Bal 4,000 20,000 (2)

(1) 18,000

Work in Process

Beg Bal 8,000 50,000 (7)

(2) 12,000

(4) 15,000

(6) 28,000

Manufacturing Overhead

(2) 8,000 28,000 (6)

(3) 12,000

(4) 5,000

(5) 4,000

Cost of Goods Sold

Accounts Payable

18,000 (1)

4,000 (5)

Finished Goods

Beg Bal 17,000

(7) 50,000

End Bal 12,000

Wages & Salaries Payable

6,000 Beg Bal

30,000 (4)

Sales Salaries Expense

(4) 10,000

Accumulated Depreciation (Factory)

90,000 Beg Bal

12,000 (3)

At the end of the year, the company closes out the balance in the Manufacturing Overhead

account to Cost of Goods Sold.

18. The cost of direct materials used is:

A) $20,000.

B) $11,000.

C) $12,000.

D) $15,000.


The Garnet Company uses a job-order cost system. The following

data were recorded for February:

February 1 Added During February

Work in Process Direct Direct

Job Number Inventory Materials Labor

1 $1,500 $ 400 $ 300

2 $2,000 $ 600 $ 750

3 $ 500 $1,000 $1,500

4 $ 250 $1,300 $2,400

Overhead is charged to jobs at the rate of 140% of direct labor cost. Jobs 1, 2, and 3 were

completed during February and transferred to finished goods. Job 3 has been delivered to the

customer.

19. The work in process inventory on February 28 was:

A) $7,310.

B) $9,500.

C) $3,950.

D) $7,060.

20. There are two acceptable methods for closing out any balance of under- or overapplied

overhead. One method involves allocation, whereas the other closes any balance directly

to:

A) Finished Goods inventory.

B) Cost of Goods Sold.

C) Cost of Goods Manufactured.

D) Work in Process inventory.

21. The Collins Company uses a predetermined overhead rates to apply manufacturing

overhead to jobs. The predetermined overhead rate is based on labor cost in Dept. A

and on machine hours in Dept. B. At the beginning of the year, the company made the

following estimates:

Dept A Dept B

Direct labor cost $65,000 $42,000

Manufacturing overhead 91,000 48,000

Direct labor hours 8,000 10,000

Machine hours 3,000 12,000

What predetermined overhead rates would be used in Dept A and Dept B, respectively?

A) 71% and $4.00

B) 140% and $4.00

C) 140% and $4.80

D) 71% and $4.80

22. After careful planning, Jammu Manufacturing Corporation has decided to switch to a

just-in-time inventory system. At the beginning of this switch, Jammu has 30 units of

product in inventory. Jammu has 2,000 labor hours available in the first month of this

switch. These hours could produce 500 units of product. Customer demand for this first

month is 400 units. If just-in-time principles are correctly followed, how many units

should Jammu plan to produce in the first month of the switch?

A) 370

B) 400

C) 430

D) 470

23. Process Reengineering includes all of the following steps except:

A) constructing a diagram flowcharting the current process.

B) redesigning the process.

C) elimination of non-value-added activities.

D) elimination of all constraints.

24. The delegation of decision making to lower levels in an organization is known as:

A) the planning and control cycle.

B) controlling.

C) decentralization.

D) none of these.

25. Product costs appear on the balance sheet:

A) only if goods are partially completed at the end of the period.

B) only if goods are unsold at the end of a period.

C) only if goods are partially completed or are unsold at the end of a period.

D) only in merchandising firms.

26. The costs of staffing and operating the accounting department at Central Hospital would

be considered by the Department of Surgery to be:

A) direct costs.

B) indirect costs.

C) incremental costs.

D) opportunity costs.


Servix, Inc., produces water pumps. Each water pump contains a small valve that costs $5.

During May, 600 valves were drawn from the supply room and installed in water pumps in the

production process. Eighty percent of these units were completed and transferred into finished

goods warehouses. Of the units completed, thirty percent were still unsold at the end of the

month. There were no beginning inventories.

27. The cost of valves in work in process at the end of May would be:

A) $2,400

B) $3,000

C) $600

D) $720


The manufacturing operations of Jones Company had the following inventory balances for the

month of March:

Inventories March 1 March 31

Raw materials.................... $12,000 $14,000

Work in process ................ $8,000 $9,000

Finished goods .................. $32,000 $25,000

28. If the company transferred $40,000 of completed goods from work in process to

finished goods during March, what was the amount of the cost of goods sold?

A) $47,000

B) $40,000

C) $33,000

D) $44,000


Loraine Company applies manufacturing overhead to jobs using a predetermined overhead rate

of 70% of direct labor cost. Any under- or overapplied overhead cost is closed to Cost of Goods

Sold at the end of the month. During August, the following transactions were recorded by the

company:

Raw materials (all direct materials):

Purchased during the month $30,000

Used in production $31,000

Labor:

Direct labor hours worked during the month 3,000

Direct labor cost incurred $27,000

Indirect labor cost incurred $6,000

Manufacturing overhead costs incurred (total) $19,000

Inventories:

Raw materials (all direct) August 31 $8,000

Work in process, August 1 $7,600

Work in process, August 31 $15,000*

*contains $6,000 of direct labor cost

29. The Cost of Goods Manufactured for August was:

A) $69,600.

B) $69,500.

C) $76,900.

D) $84,500.

30. Inventoriable costs are also known as:

A) variable costs.

B) conversion costs.

C) product costs.

D) fixed costs.

31. The organization chart

A) shows lines of authority within an organization.

B) shows whether or not the organization is decentralized.

C) shows both formal and informal channels of communication between managers.

D) none of these.

Answer Key

1. D

2. A

3. D

4. C

5. C

6. C

7. D

8. B

9. B

10. A

11. B

12. C

13. A

14. A

15. C

16. C

17. D

18. C

19. A

20. B

21. B

22. A

23. D

24. C

25. C

26. B

27. C

28. A

29. B

30. C

31. A

exam 1, sp07

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