Complete WGU D101 Cost and Managerial Accounting Examination for 2026/2027, Including Versions A and B, with Over 400 Questions and Fully Verified Answers Accompanied by Detailed Explanations

Complete WGU D101 Cost and Managerial Accounting Examination for 2026/2027, Including Versions A and B, with Over 400 Questions and Fully Verified Answers Accompanied by Detailed Explanations 1. What is a price taker? - ANSWER A company that has to accept the price that the market sets for a good. They have no influence over setting the price. 2. What is a price maker? - ANSWER a firm possessing the power to set the price within the market. They still need to track all costs in order to make sure they are making an adequate return. 3. What is the major purpose and use of job order costing? a. To create a system that tracks both manufacturing and period costs and assigns both to products b. To create a system in which manufacturing costs are tracked by period instead of by products c. To create a system in which manufacturing costs are accumulated by separate product orders or batches d. To create a system that is exclusively used by price makers and not by price takers - ANSWER c. 4. Which statement is true? a. Having accurate product or service cost information is important for both price takers and price makers. b. Having accurate product or service cost information is important for price takers, but not price makers. c. Having accurate produce or service cost information is not important for either price takers or price makers. d. Having accurate product or service cost information is important for price makers, but not price takers. - ANSWER a. 5. Two competitors exist in the same industry. The first company has accurate product cost information while the second company does not. 6. What is the reason behind why the first company is more successful than the second? a. With accurate job cost information, the first company can undercut the second company's prices, thus driving the second company out of business. b. With accurate job cost information, the first company can set prices that guarantee making a profit, can understand which costs need to be worked on, and can determine which actions can be taken to make the company more efficient and profitable. c. With accurate job cost information, the first company can pay higher wages to employees, thus motivating them more than the employees of the second company. d. With accurate job cost information, the first company can set prices higher than the second company, thus earning higher profits. - ANSWER b. 7. Job order costing is appropriate when which two conditions exist? a. Products produced are all the same, and the manufacturing processes used to produce them are the same. b. Products produced are distinct from each other, and the manufacturing processes used are different for different products. c. Products produced are distinct, but the manufacturing processes used are the same for different products. d. Products produced are all the same, but the manufacturing processes used to produce them are different for different products. - ANSWER b. 8. Why is having accurate product cost information important? a. So manufacturers can charge a price based on costs and a reasonable markup b. So companies can minimize the profits they are earning c. So manufacturers can charge a price based on estimated product costs, not including a reasonable markup d. So companies can grow faster than all competitors in their industry - ANSWER a. 9. Which type of company should use job order costing? a. Air filter manufacturer b. Soda bottler c. Paper towel manufacturer d. Commercial aircraft manufacturer - ANSWER d. 10. What is a condition to using job order costing? a. Tracking total direct materials for a given period of time b. Having no manufacturing overhead assigned to the product cost c. Tracking total direct labor costs for a period of time d. Identifying each specific job or product manufactured - ANSWER d. 11. Which costs should be assigned to each product under a job order costing system? a. Direct materials, direct labor, and manufacturing overhead b. Direct labor, manufacturing overhead, and administrative expenses c. Direct materials, direct labor, and administrative expenses d. Manufacturing overhead, administrative expenses, and depreciation of office buildings - ANSWER a. 12. Which company should use a job ordering costing system? a. Manufacturer of custom furniture b. Manufacturer of paint c. Food processing plant d. Loan processing firm - ANSWER a. 13. The profitability of each separate job or product can only be tracked using which product costing system? a. Process costing b. Average unit costing c. Profitability costing d. Job order costing - ANSWER d. 14. In completing its job order costing journal entries, ABC Company's accountants made a credit entry to finished goods inventory. 15. When is this entry made? a. When work-in-process inventory is transferred to finished goods inventory b. When finished goods inventory is sold c. When the cost of goods manufactured is being calculated d. When manufacturing overhead costs are applied to products being made - ANSWER b. 16. Which account are the costs of the raw materials, direct labor, and miscellaneous manufacturing overhead transferred to when the product is being manufactured? a. Finished goods inventory b. Cost of goods sold c. Work-in-process inventory d. Direct materials - ANSWER c. 17. When manufacturing is completed on specific products, their costs are transferred to which account? a. Cost of goods sold b. Work-in-process inventory c. Finished goods inventory d. Direct materials - ANSWER c. 18. The cost of which items should be included as a manufacturing overhead cost? a. The wages of employees who work on production lines b. The raw materials used in the finishing department c. The direct materials used to make a product d. The wages of factory custodians - ANSWER d. 19. The glue and nails used in a manufacturing process should be included in which cost? a. Administrative costs b. Manufacturing overhead costs c. Prepaid supplies d. Direct materials costs - ANSWER b. 20. Data for an auto company for the year are as follows: Total manufacturing costs $400,000 Finished goods inventory, beginning balance 240,000 Work-in-process inventory, ending balance 100,000 Overapplied manufacturing overhead 30,000 Finished goods inventory, ending balance 200,000 Work-in-process inventory, beginning balance 115,000 What is the auto company's computed cost of goods manufactured? $445,000 $415,000 $385,000 $355,000 - ANSWER $415,000 21. An entrepreneur identifies a business opportunity to produce and market custom-printed T-shirts to local organizations. The entrepreneur plans to use activity-based costing. Which type of costs should be associated to the production of each custom-printed T-shirt in the future using cost drivers? Direct labor costs only Direct materials costs only All the manufacturing costs including direct materials and direct labor All the manufacturing costs except for direct materials and direct labor - ANSWER All the manufacturing costs except for direct materials and direct labor 22. Implementation of an activity-based costing (ABC) system requires an analysis of the percentage of time employees spend on each overhead cost activity. Through which activity can these data be gathered? General ledger posting Employee wage ranking Employee interviews Equivalent unit analysis - ANSWER Employee interviews 23. Product-line Activities - ANSWER Activities that take place to support a product line, regardless of the number of batches or individual units produced 24. Production Budget - ANSWER A schedule of production requirements for the budget period 25. Profit Graph - ANSWER A graph that shows how profits vary with changes in volume 26. Raw Materials - ANSWER The raw materials required to produce one unit of product being manufactured in the manufacturing department of the company 27. Raw Materials Inventory - ANSWER Inventory of raw materials that have not yet begun the production process 28. Relevant Costs - ANSWER Costs that differ based on the decision that is made 29. Relevant Range - ANSWER The range of operating level, or volume of activity, over which the relationship between total costs (variable plus fixed) and activity level is approximately linear 30. Responsibility Accounting - ANSWER A system of evaluating performance; managers are held accountable for the costs, revenues, assets, or other elements over which they have control 31. Return On Sales Revenue - ANSWER A measure of operating performance; computed by dividing net income by total sales revenue. Similar to profit margin 32. Sales Budget - ANSWER A schedule of projected sales over the budget period, which often includes a measure of revenue earned and cash collected from customers. 33. Sales Mix - ANSWER The relative proportion of total sales dollars (or total units sold) that is represented by each of a company's products 34. Selling and Administrative Expense Budget - ANSWER A schedule of all nonproduction spending expected to occur during the budget period 35. Service Organizations - ANSWER Any organization whose main economic activity involves producing a nonphysical product that provides value to a customer 36. Special Order - ANSWER An order that may be priced below the normal selling price to utilize excess capacity and thereby contribute to company profits 37. Standard Cost System - ANSWER A cost‑accumulation system in which standard costs are used as product costs instead of actual costs. The standard costs are then adjusted to actual costs when financial reports are created. This adjustment creates variances that are reported to management 38. Standard Costing System - ANSWER A cost-accumulation system in which standard costs are used as product costs instead of actual costs. The standard costs are then adjusted to actual costs when financial reports are created. This adjustment creates variances that are reported to management 39. Standard Quantity Allowed - ANSWER Amount of materials that should have been used to manufacture products in a specific time period 40. Stepped Costs - ANSWER Costs that change in total in a stairstep fashion (in large amounts) with changes in volume of activity 41. Sunk Cost - ANSWER Either past costs or unchangeable future costs that do not change as the result of a future decision 42. Target Income - ANSWER A profit level desired by management 43. Underapplied Manufacturing Overhead - ANSWER The excess of actual manufacturing overhead costs over the applied overhead costs for a period (based on a predetermined application rate) 44. Unit Sales Price - ANSWER The expected or average sales price each product is expected to be sold for in the next budget cycle or budget period of time. Generally based on projections from past experience and the estimated impact of future competition on the unit sales price for each product 45. Unit-level Activities - ANSWER Activities that take place each time a unit of product is produced 46. Variable Costs - ANSWER Costs that change in total in direct proportion to changes in activity level 47. Variable Manufacturing Overhead - ANSWER Expenses needed to produce a product that vary with the amount of the levels of budgeted or actual production, including supervisor costs and maintenance costs 48. Variable Manufacturing Overhead Efficiency Variance - ANSWER The difference between the standard variable manufacturing overhead allowed for (1) the standard activity level and (2) the amount predicted based on the actual activity level multiplied by the standard variable overhead cost rate; measures the efficiency of the underlying activity used to assign variable manufacturing overhead costs 49. Variable Manufacturing Overhead Spending Variance - ANSWER The difference between the variable overhead manufacturing costs as predicted by the activity cost driver and the variable manufacturing overhead costs actually incurred 50. Variance - ANSWER Any deviation from standard 51. Work-in-process Inventory - ANSWER Inventory that is partly completed in the production process, but not yet ready for sale to customers 52. Batch-level Activities - ANSWER Activities that take place to support a batch or production run, regardless of the size of the batch 53. The purchase of raw materials on open account is recorded by which journal entry? a. Debit to accounts payable b. Credit to raw materials inventory c. Credit to work-in-process inventory d. Debit to raw materials inventory - ANSWER d. Which journal entry is used to record payment of factory rent in cash? a. Debit to finished goods inventory b. Debit to cost of goods sold c. Debit to work-in-process inventory d. Debit to manufacturing overhead - ANSWER d. What is the manufacturing overhead rate that is applied to work-in-process during the manufacturing of products? a. An estimate of what the total overhead will be for the product being made based on how much the completed products should cost to earn a normal profit b. The actual costs of manufacturing overhead computed by adding together each of the expected manufacturing overhead components c. An estimate of what the total overhead will be for the product being made based on some allocation method such as machine hours or direct labor hours d. The actual costs of the manufacturing overhead divided by the number of products expected to be made - ANSWER c. In using a job order costing system, the cost accountant for Paradigm Toys made an entry debiting work-in-process inventory and crediting salaries and wages payable. What was the purpose of this entry? a. To recognize total labor costs, regardless of whether the labor was directly or indirectly related to products b. To apply the indirect labor costs to work-in-process inventory c. To assign direct labor costs to the products being manufactured d. To pay for the salaries of factory employees - ANSWER c. The cost accountant for Bullzai, Inc., made a journal entry debiting manufacturing overhead and crediting salaries and wages payable. What was the purpose of the entry? a. To record indirect labor costs to manufacturing overhead b. To pay for the salaries of the indirect laborers associated with manufacturing but not working directly on products c. To record direct labor costs on products being made d. To pay for the salaries of direct laborers working in manufacturing - ANSWER a. Quiet Flag Industries has decided that direct labor hours are a good basis on which to apply overhead costs to production. Budgeted manufacturing overhead costs for the coming year are $500,000. Budgeted direct materials purchases are $400,000. The budgeted direct labor cost is $720,000, and budgeted direct labor hours for the coming year are 20,000 hours. What is Quiet Flag Industries' predetermined overhead rate? a. $36 per direct labor hour b. $20 per direct labor hour c. $25 per direct labor hour d. $61 per direct labor hour - ANSWER c What is the order of the steps followed in accounting for manufacturing overhead costs? a. Budget the estimated manufacturing overhead, eliminate overapplied or underapplied overhead, record actual manufacturing overhead, and apply manufacturing overhead to work-in-process b. Budget the estimated manufacturing overhead, record actual manufacturing overhead, apply manufacturing overhead to work-in-process, and eliminate overapplied or underapplied overhead c. Apply manufacturing overhead, budget the estimated manufacturing overhead, eliminate overapplied or underapplied overhead, and record actual manufacturing overhead costs d. Record actual manufacturing overhead, apply manufacturing overhead, budget the estimated manufacturing overhead, and eliminate overapplied or underapplied overhead - ANSWER b. How are actual manufacturing overhead costs incurred throughout the year journalized? a. As debits to the work-in-process account b. As debits into the manufacturing overhead account c. As credits into the manufacturing overhead account d. As credits to the work-in-process account - ANSWER b. What would least likely be assigned to manufacturing overhead? a. Repairs on factory equipment b. Rent on the factory warehouse c. Insurance on the factory where goods are made d. Materials that are a key component to making manufactured goods - ANSWER d. Applied manufacturing overhead is directly recorded as a credit to which account? a. Cost of goods sold b. Work-in-process inventory c. Manufacturing overhead d. Finished goods inventory - ANSWER c. Actual Manufacturing Overhead - ANSWER Manufacturing costs other than direct materials and direct labor Applied Manufacturing Overhead - ANSWER The amount of the manufacturing overhead that is assigned to the goods produced; this is usually done by using a predetermined annual overhead rate Batch-level Activities - ANSWER Activities that take place to support a batch or production run, regardless of the size of the batch Beginning Work-in-process Inventory - ANSWER The ending-work-in-process inventory that is carried over from the last accounting period to the current accounting period Break-even Point - ANSWER The amount of sales at which total costs of the number of units sold equal total revenues; the point at which there is no profit or loss Budgeted Production in Units - ANSWER The budgeted number of units to be produced in a period, taking into consideration the sales volume, the number of units in beginning inventory, and the number of units required to be in ending inventory Budgeted Sales in Dollars - ANSWER The result when the budgeted sales in units is multiplied by the unit sales prices for each product budgeted to be sold in the budget for the next year or the next period Budgeted Sales in Units - ANSWER Information in the sales budget that feeds directly into the production budget, from which the direct materials and direct labor budgets are created Common Costs - ANSWER Overhead costs like executive salaries or property taxes that cannot be attributed to and are not the responsibility of specific products, departments, or business segments Contribution Margin - ANSWER The difference between total sales and variable costs; the portion of sales revenue available to cover fixed costs and provide a profit Contribution Margin Ratio - ANSWER The percentage of net sales revenue left after variable costs are deducted; the contribution margin divided by net sales revenue Conversion Costs - ANSWER The costs of converting raw materials to finished products; these include direct labor and manufacturing overhead costs Cost Behavior - ANSWER The way a cost is affected by changes in activity levels Cost Driver - ANSWER Numerical measure used to reflect the amount of a specific cost associated with a particular activity Cost Objects - ANSWER A product or division for which costs are accumulated and tracked Cost Pool - ANSWER Total cost being generated by a specific overhead cost activity Cost of Goods Manufactured - ANSWER Total of all manufacturing costs Cost of Goods Manufactured Schedule - ANSWER A schedule supporting the income statement that summarizes the total cost of goods manufactured and transferred out of the work-inprocess inventory account during a period; these costs include direct materials, direct labor, and applied manufacturing overhead Cost of Goods Sold - ANSWER Cost of products sold in a company, including costs of materials used to create product and labor costs Cost-volume-profit (CVP) Analysis - ANSWER Techniques for determining how changes in revenues, costs, and level of activity affect the profitability of an organization Critical Resource Factor - ANSWER The resource that limits operating capacity by its availability Differential Cost - ANSWER Future costs that change as a result of a decision; also called incremental or relevant costs Direct Materials Budget - ANSWER A schedule of direct materials to be used during the budget period and direct materials to be purchased during that period Economies of Scale - ANSWER A proportionate saving in costs gained by an increased level of production Ending Work-in-process Inventory - ANSWER Cost of partially completed work at the end of an accounting period Equivalent Units of Production - ANSWER A method used in a process costing system to measure the production output during a period; essentially the "work done" by the center or department in terms of units of output Estimated Manufacturing Overhead - ANSWER Budgeted manufacturing overhead costs that are used to establish the predetermined overhead rate Facility Support Activities - ANSWER Activities necessary to have a facility to participate in the development and production of products or services; activities are not related to any particular line of products or services Finished Goods Inventory - ANSWER Inventory that has completed the production process and is ready for sale to customers Fixed Costs - ANSWER Costs that remain constant in total, regardless of activity level, at least over a certain range of activity Fixed Manufacturing Overhead Expenses - ANSWER Expenses that do not vary with the amount or the level of budgeted or actual production within the relevant range that are needed to produce a product, including factory depreciation or rent Gross Margin - ANSWER The excess of net sales revenue over the cost of goods sold Job Order Costing - ANSWER A method of product costing whereby each job, product, or batch of products is costed seperately Joint Manufacturing Process - ANSWER When one material input is used to produce more than one product Joint Product Costs - ANSWER The costs that a firm incurs before the point at which the different products are separated for further processing or immediate sale Labor Efficiency Variance - ANSWER The extent to which the actual labor used varies from the standard quantity; equal to the difference between the actual quantity of labor used and the standard quantity of labor allowed multiplied by the standard rate Labor Rate Variance - ANSWER The extent to which the standard labor rate varies from the actual rate for the quantity of labor used; equal to the difference between the standard rate and the actual rate multiplied by the quantity of labor used Management By Exception - ANSWER The strategy of focusing attention on significant deviations from standard costs or expectations Manufacturing Organizations - ANSWER Any organization whose main economic activity involves using components or raw materials to make finished goods for sale to customers Manufacturing Overhead Budget - ANSWER A schedule of production costs other than those for direct labor and direct materials Manufacturing Overhead Rate - ANSWER The rate at which manufacturing overhead costs are assigned to products; equals estimated manufacturing overhead costs for the period divided by the number of units of the activity base being used Master Budget - ANSWER A network of many separate schedules and budgets that together constitute the overall operating and financing plan for the coming operating period. Materials Price Variance - ANSWER The extent to which the standard price varies from the actual price for the quantity of materials purchased or used; equal to the difference between the standard and actual prices multiplied by the quantity purchased or used When manufacturing overhead is underapplied, which entry is included in closing the manufacturing overhead account? a. A debit to cost of goods sold b. A debit to finished goods inventory c. A debit to work-in-process inventory d. A debit to manufacturing overhead - ANSWER a At the end of an accounting period, the manufacturing overhead account has debits totaling $25,000 and credits totaling $28,000. In this case, which statement is true? a. Actual manufacturing costs were $28,000. b. Manufacturing overhead is underapplied by $3,000. c. Manufacturing overhead is overapplied by $3,000. d. Applied manufacturing overhead costs were $25,000. - ANSWER c. Smartistry Company uses a job order costing system and closes all underapplied and overapplied manufacturing overhead to cost of goods sold. The company accountant made the following entry at the end of the accounting period: debit to cost of goods sold and credit to manufacturing overhead. What is the purpose of this entry? a. To record underapplied manufacturing overhead b. To transfer the manufacturing overhead costs to work-in-process c. To record overapplied manufacturing overhead d. To record actual manufacturing overhead costs for the period - ANSWER a The most common way to eliminate overapplied and underapplied manufacturing overhead is to record the amount to cost of goods sold. What is an alternative way to eliminate these overapplications or underapplications of manufacturing overhead? a. Allocate overapplied or underapplied manufacturing overhead to finished goods inventory only b. Allocate overapplied or underapplied manufacturing overhead to work-in-process inventory, finished goods inventory, and cost of goods sold on the basis of ending balances in these accounts c. Allocate overapplied or underapplied manufacturing overhead to work-in-process inventory only d. Allocate overapplied or underapplied manufacturing overhead to manufacturing overhead payable - ANSWER b. An overapplication of manufacturing overhead would be corrected by which entry? a. Debiting cost of goods sold and crediting manufacturing overhead b. Debiting manufacturing overhead and crediting cost of goods sold c. Debiting work-in-process inventory and crediting manufacturing overhead d. Debiting finished goods inventory and crediting manufacturing overhead - ANSWER b. In which case is it appropriate to use job costing? a. When a company supports more than one product line b. When the costs of outsourcing exceed the benefits c. When the activities performed in each process center are different for all units produced d. When rental costs are allocated among various product lines - ANSWER c. A company has accrued but has not paid direct labor wages in cash. What is part of the journal entry to record the amount of direct labor wages earned? a. Debit finished goods inventory b. Debit work-in-process inventory c. Debit manufacturing overhead d. Credit work-in-process inventory - ANSWER b. What is process costing? a. A method of product costing in which all costs are accumulated and assigned to selling, general, and administrative expenses b. A method of product costing in which costs are accumulated and tracked by process and averaged over all products made during the period c. A method of product costing in which costs are accumulated and tracked by specific jobs or products d. A method of product costing in which all costs are accumulated and assigned to manufacturing overhead - ANSWER b. Which products would be produced using the process costing method? a. Manufacturing jets for use by commercial airlines b. Making custom boats for sale, each with different features c. Preparing tax returns for individuals of extremely high net worth d. Manufacturing bottles of ketchup for sale in grocery stores - ANSWER d. Which is a true statement regarding process costing? a. Process costing includes only direct materials and direct labor costs and excludes manufacturing overhead costs when computing the cost of finished goods. b. The focus of the cost computations in process costing is on the unique job being worked on. c. Process costing assigns costs equally to each unit produced during a period. d. In process costing, even though manufacturing companies can specifically identify costs for each product being produced, they find it easier to calculate the average cost of all products. - ANSWER c. Which manufacturing company should use process costing? a. A gasoline refinery b. A passenger airline manufacturing division c. A manufacturer of custom furniture d. A manufacturer of engraved t-shirts - ANSWER a. A company is using process costing, which cost step should be followed? a. Calculate the manufacturing overhead costs for each product b. Calculate the direct labor costs for each product c. Calculate the direct materials costs for each product d. Calculate the average cost using total manufacturing costs for each product - ANSWER d. When is it appropriate to use process costing? a. When a company produces a large volume of unique items using a series of item-specific processes b. When a company produces a large volume of products using a series of uniform processes c. When a company produces custom-made products only when an order is received from a customer d. When a company produces a small volume of unique items using a series of item-specific processes - ANSWER b. What is a unique feature of process costing? a. The presence of manufacturing overhead costs b. The units go through process centers when being produced. c. The ability to attach specific costs to specific products d. The presence of direct materials in the finished goods - ANSWER b. Why would a soda company and a gasoline company both primarily use process costing? a. Because they are two of the largest companies in the United States, and all big companies use process costing b. Because each of their products consume direct labor and direct materials but no manufacturing overhead c. Because each unit of product produced by the two companies is identical to other products of the same type d. Because they each only make one product, so process costing is applicable to both companies - ANSWER c. What is true about process costing? a. It allows specific product costs to be applied to each product that is made differently. b. It can only be used in manufacturing firms and not in-service firms. c. It is appropriate when the work performed on each product that goes through various work centers is the same. d. It is always more accurate than job order costing. - ANSWER c Process costing would work best when making which products? a. Manufacturing a brand of trucks b. Producing chewing gum c. Constructing a highway bridge d. Completing the corporate tax return for a corporation - ANSWER b In a process costing system, production costs are accumulated in the process centers. Where do the costs go when all production work is completed in the process centers? a. Finished goods inventory b. Selling, general, and administrative expenses c. Manufacturing overhead d. Raw materials inventory - ANSWER a Which is a measure of the amount of work done during the production period under process costing? a. Direct materials b. Conversion costs c. Equivalent units of production d. Equivalent units in beginning inventory - ANSWER c. What are the sum of direct labor and manufacturing overhead costs referred to in a process costing system? a. Total manufacturing costs b. Conversion costs c. Finished goods inventory d. Manufacturing costs - ANSWER b. Assume a production process using process costing starts with a certain number of units in beginning inventory that are partially completed, a certain number of units are started and completed during the period, and the ending inventory at the end of the period is partially complete. How would you determine the equivalent units of production in this situation for the period? a. You would add the work required to complete the units in beginning inventory plus the degree of completion of the ending inventory units. b. You would add the work required to start and complete the units started during the period plus the degree of completion of the ending inventory units. c. You would add the work required to complete the units in beginning inventory to the number of units started and completed during the period to the degree of completion of the ending inventory units. d. You would add the work required to complete the - ANSWER c. Correct! To determine the equivalent units of production in this situation in this period, you would add the work required to complete the units in beginning inventory plus the number of units started and completed during the period plus the degree of completion of the ending inventory units. Which cost would most likely be included first in a process center? a. Direct labor b. Direct materials c. Manufacturing overhead d. Conversion costs - ANSWER b In process costing, the units completed and the units remaining in ending work-in-process inventory at the end of the period come from which of the following? a. The units in beginning inventory and the units started during the current period b. Only the units started during the current period c. The units in ending inventory and the units started during the period d. Only the units in ending inventory in the current period - ANSWER a. The units in beginning inventory and the units started make up all the units active during the current period. Those "in play" units will either be completed and transferred out or remain in ending work-in-process inventory. Which of the following are transferred from work-in-process to finished goods inventory? a. Only the actual inventory items b. Only the cost of the inventory items c. Neither the actual goods nor the cost of the finished items d. Actual inventory items and the costs of those inventory items - ANSWER d. Both the costs and the actual inventory items must be tracked through the process costing system. When the items are 100% complete, the inventory would be transferred to finished goods inventory at the costs that were expended to make the inventory. Which costs make up the work-in-process inventory costs in the processing centers? a. Direct materials and manufacturing overhead costs b. Direct labor and manufacturing overhead costs c. Direct materials and coversion costs d. Direct materials and direct labor costs - ANSWER c. Direct materials and conversion costs, which are direct labor and manufacturing overhead costs, are costs that make up the work-in-process inventory costs in processing centers. Which term is used for direct materials and conversion costs associated with items started but not finished? a. Finished goods inventory b. Work-in-process inventory c. Cost of goods sold d. Direct labor - ANSWER b Which statement accurately describes the equivalent number of units? a. The equivalent number of units is calculated by adding together the physical goods placed in process during the current period with the physical goods in ending inventory. b. The equivalent number of units is calculated by adding together the physical goods in beginning inventory to the physical goods placed in process during the current period. c. The equivalent number of units is always the same as the number of physical units transferred to finished goods. d. The equivalent number of units is not the same as the number of physical units transferred to finished goods. - ANSWER d. The equivalent number of units is a measure of work done on units and almost always differs from the actual number of units. It is a number used to calculate the cost per unit and not the transfer of actual units. The costs that are associated with units completed and transferred out this period are the sum of which components? a. The cost of beginning work-in-process inventory, both materials and conversion cost, and the cost per equivalent unit required to complete those units in beginning inventory b. The cost of beginning work-in-process inventory, both materials and conversion costs; the cost per equivalent unit required to complete those units in beginning inventory; and the cost per equivalent unit of the items started and completed this period, both materials and conversion costs c. The cost per equivalent unit required to complete the units in beginning inventory and the cost per equivalent unit of the items started and completed this period, both materials and conversion costs. d. Only the cost per equivalent unit of the items started and completed this period, both materials and conversion costs. - ANSWER b. Correct! It is these three costs that make up the costs of the units transferred out to finished goods. Master Budget - ANSWER A network of many separate schedules and budgets that together constitute the overall operating and financing plan for the coming operating period. Cost of Goods Manufactured (COGM) - ANSWER = Beginning Raw materials inventory + raw materials purchased - ending raw materials inventory + direct labor + applied overhead + beginning work in process inventory - ending work in process inventory = COGM Cost of Goods Sold (COGS) - ANSWER = cost of goods manufactured + beginning finished goods inventory - ending finished goods inventory +/- (-overhead if overapplied;+ overhead if underapplied) = COGS Materials Price Variance - ANSWER The extent to which the standard price varies from the actual price for the quantity of materials purchased or used; equal to the difference between the standard and actual prices multiplied by the quantity purchased or used Materials Quantity Variance - ANSWER The extent to which the actual quantity of materials varies from the standard quantity; equal to the difference between the standard quantity of materials allowed and actual quantity of materials used multiplied by the standard price Merchandising Organizations - ANSWER Any organization whose main economic activity involves purchasing finished goods and reselling them to customers Mixed Costs - ANSWER Costs that contain both variable and fixed costs components Operating Leverage - ANSWER The extent to which fixed costs replace variable costs as part of a company's cost structure; the higher the proportion of fixed costs to variable costs, the faster income increases or decreases with changes in sales volume Opportunity Cost - ANSWER The benefits lost or forfeited as a result of selecting one alternative course of action over another Outsourcing - ANSWER An arrangement in which one company provides services for another company that has historically performed those services for itself Overapplied Manufacturing Overhead - ANSWER The excess of applied manufacturing overhead (based on a predetermined application rate) over the actual manufacturing overhead costs for a period Per-unit Contribution Margin - ANSWER The excess of the sales price of one unit over its variable costs Sales - Variable costs = CM Period Costs - ANSWER Costs associated with activities or facilities outside the factory Predetermined Overhead Rate - ANSWER A rate at which estimated manufacturing overhead costs are assigned to products throughout the year; equals total estimated manufacturing overhead costs divided by a suitable allocation base such as a number of units produced. Price-maker - ANSWER A company that determines the price of a product based on costs and markup Price-taker - ANSWER A company that competes in a market by providing goods or services Process Costing - ANSWER A method of product costing whereby production costs for a period are accumulated and then averaged over all units manufactured during that period Which statement accurately describes the cost of goods transferred out? a. The cost of goods transferred out to finished goods is the sum of the goods in only one process but not in all periods. b. The cost of goods transferred out to finished goods is the sum of the costs to make the finished goods in all processes, both in the current or prior period. c. The cost of goods transferred out to finished goods is the sum of the costs to make the finished goods in all processes only in the prior periods. d. The cost of goods transferred out to finished goods is the sum of the costs to make the finished goods in all processes only in the current period. - ANSWER b. Correct! The costs of all work performed on the finished goods, whether in the current or prior periods. From all processes are the costs that are transferred to finished goods inventory. Which of the following statements summarizes how the cost of the ending work-in-process inventory should be calculated? a. The sum of the material costs for only the unfinished units. b. The sum of the material costs plus the conversion costs for the units in beginning work- in-process inventory c. The sum of the material costs plus the conversion costs for the unfinished units d. The sum of the material costs plus the conversion costs for the finished units - ANSWER c. Correct! The cost of the ending work-in-process inventory is calculated by adding the material costs to the conversion costs for the unfinished units. Materials Quantity Variance - ANSWER The extent to which the actual quantity of materials varies from the standard quantity; equal to the difference between the standard quantity of materials allowed and actual quantity of materials used multiplied by the standard price Merchandising Organizations - ANSWER Any organization whose main economic activity involves purchasing finished goods and reselling them to customers Mixed Costs - ANSWER Costs that contain both variable and fixed costs components Operating Leverage - ANSWER The extent to which fixed costs replace variable costs as part of a company's cost structure; the higher the proportion of fixed costs to variable costs, the faster income increases or decreases with changes in sales volume Opportunity Cost - ANSWER The benefits lost or forfeited as a result of selecting one alternative course of action over another Outsourcing - ANSWER An arrangement in which one company provides services for another company that has historically performed those services for itself Overapplied Manufacturing Overhead - ANSWER The excess of applied manufacturing overhead (based on a predetermined application rate) over the actual manufacturing overhead costs for a period Per-unit Contribution Margin - ANSWER The excess of the sales price of one unit over its variable costs Period Costs - ANSWER Costs associated with activities or facilities outside the factory Predetermined Overhead Rate - ANSWER A rate at which estimated manufacturing overhead costs are assigned to products throughout the year; equals total estimated manufacturing overhead costs divided by a suitable allocation base such as a number of units produced. Price-maker - ANSWER A company that determines the price of a product based on costs and markup Price-taker - ANSWER A company that competes in a market by providing goods or services Process Costing - ANSWER A method of product costing whereby production costs for a period are accumulated and then averaged over all units manufactured during that period Product-line Activities - ANSWER Activities that take place to support a product line, regardless of the number of batches or individual units produced Production Budget - ANSWER A schedule of production requirements for the budget period Profit Graph - ANSWER A graph that shows how profits vary with changes in volume Which of the following statements calculates the material's costs in the ending work-in-process inventory at the end of the current period? a. The sum of the materials and the conversion cost per equivalent units during the current period multiplied by the material's equivalent units in the ending work-in-process inventory b. The sum of the materials and the conversion cost per equivalent units during the prior period multiplied by the material's equivalent units in the ending work-in-process inventory c. The materials cost per equivalent unit during the current period multiplied by the material's equivalent units in the ending work-in-process inventory d. The materials cost per equivalent unit during the prior period multiplied by the material's equivalent units in the ending work-in-process inventory - ANSWER c. Correct! The material costs in the ending work-in-process inventory at the end of the current period is calculated by taking the materials cost per equivalent unit during the period and multiplying it by the materials equivalent units in the ending work-in-process inventory. Which statement determines the conversion costs in the ending work-in-process inventory at the end of a current period? a. The sum of the materials and the conversion cost per equivalent unit during the current period multiplied by the conversion equivalent units in the ending work-in-process inventory b. The conversion cost per equivalent unit during the current period multiplied by the conversion equivalent units in the ending work-in-process inventory c. The sum of the materials and the conversion cost per equivalent unit during the prior period multiplied by the conversion equivalent units in the ending work-in-process inventory d. The conversion cost per equivalent unit during the prior period multiplied by the conversion equivalent units in the ending work-in-process inventory - ANSWER b. Correct! The conversion costs in the ending work-in-process inventory at the end of the current period is calculated by taking the conversion cost per equivalent unit during the current period and multiplying it by the conversion equivalent units in the ending work-in-process inventory. The conversion cost of ending work-in-process inventory is equal to which of the following? a. The conversion cost per equivalent unit this period multiplied by the direct materials cost number of equivalent units b. The conversion cost per actual units in beginning inventory multiplied by the conversion cost number of equivalent units c. The conversion cost per equivalent unit this period multiplied by the conversion cost number of equivalent units d. The conversion cost per actual units transferred out multiplied by the conversion cost number of equivalent units - ANSWER c. Correct! The conversion cost of ending work-in-process inventory is calculated by multiplying the conversion cost per equivalent unit this period and the conversion cost number of equivalent units. The costs of ending work-in-process inventory is calculated by which of the following formulas? a. Cost per unit for conversion costs times the number of equivalent units for conversion costs b. Cost per unit of direct materials times equivalent units for materials plus conversion costs per unit times the number of equivalent units for conversion costs c. Cost per unit for direct materials times equivalent units for materials minus conversion costs per unit times the number of equivalent units for conversion costs d. Cost for direct materials per unit times the number of equivalent units for direct materials - ANSWER b. Correct! This is the correct formula for calculating the cost of ending work-in-process inventory. What is the number of equivalent units for direct materials equal to? a. The sum of equivalent units for units started and completed and equivalent units for ending inventory b. The sum of equivalent units for beginning work-in-process inventory and ending work-in-process inventory c. The sum of the equivalent units for beginning work-in-process inventory and units started and completed during the current period d. The equivalent units for beginning work-in-process inventory plus the equivalent units for units started and completed plus the equivalent units for ending work-in-process inventory - ANSWER d. Correct! The equivalent units of production is equal to the equivalent units for beginning work-in-process inventory plus the equivalent units for units started and completed plus the equivalent units for ending work-in-process inventory. When determining the cost per unit of units produced in a processing center, which statement is true? a. Separate costs are not calculated per unit for direct materials or conversion costs for either beginning work-in-process inventory or current period costs. b. Separate costs are only calculated per unit for direct materials and conversion costs for the current period costs. c. Separate costs are only calculated per unit for direct materials and conversion costs for the beginning work-in-process inventory. d. Separate costs are calculated per unit for direct materials and conversion costs for both beginning work-in-process inventory and current period costs. - ANSWER a. Correct! Separate unit costs are calculated for direct materials and conversion costs for both beginning work-in-process inventory and conversion costs. What are the total processing dollars spent during a period in a process center equal to? a. The sum of the cost of goods transferred out and the cost of ending work-in-process inventory b. Only the cost of goods transferred out c. The sum of costs in beginning inventory, the cost of goods transferred out, and the cost of ending work-in-process inventory d. Only the cost of ending work-in-process - ANSWER a. Correct! The total dollars in, or total processing dollars spent during a period, is equal to the cost of goods transferred out and the cost of ending work-in-process inventory. Goods worked on were either not finished and are in ending inventory, or they are finished and transferred out. The ending inventory of one period becomes the beginning inventory of the next period and cannot be double counted. When computing the costs transferred out of a department or processing center, which of the following is true? a. Only the costs to complete direct materials and the costs to complete conversion of the beginning work-in-process inventory are added to the direct materials costs of the started and completed units. b. Only the costs to complete direct materials and the costs to complete conversion of the beginning work-in-process inventory are added to the conversion costs of the started and completed units. c. The costs to complete direct materials in beginning work-in-process inventory are added to the costs to complete conversion of the beginning work-in-process, and the total is added to the costs of the started and completed inventory for the period. d. Only the conversion cost of the beginning inventory is added to all costs of the started and completed units to determine the total costs transferred out of the - ANSWER a. Correct! It is always the direct materials and conversion costs to complete beginning work-in-process inventory that are added to the total costs of the started and completed units that are the total cost of units transferred out. Which of the following are always considered 100% complete when calculating equivalent units? a. Units in ending work-in-process conversion costs. b. Units started during the period. c. Units started and completed during the period. d. Units in work-in-process for material costs. - ANSWER c. Correct! Units started and completed during the period are always considered 100% completed and are 100% completed all the time. You cannot call them completed units if they are not completed during the period. Using a traditional overhead allocation method, what is a common measure of activity? a. Amount spent on research and development b. CEO salary c. Forecasted sales increase d. Direct labor hours - ANSWER d. Correct! With a traditional overhead allocation method, all overhead is allocated based on one common measure of activity, such as direct labor hours. Using an ABC overhead allocation method, overhead is allocated based on several different measures of activity. What are these measures of activity called? a. Total manufacturing costs b. Direct labor c. Direct materials d. Cost drivers - ANSWER d. Correct! Overhead is allocated based on several different measures of activity, which are called cost drivers. Raw Materials - ANSWER The raw materials required to produce one unit of product being manufactured in the manufacturing department of the company Raw Materials Inventory - ANSWER Inventory of raw materials that have not yet begun the production process Relevant Costs - ANSWER Costs that differ based on the decision that is made Relevant Range - ANSWER The range of operating level, or volume of activity, over which the relationship between total costs (variable plus fixed) and activity level is approximately linear Responsibility Accounting - ANSWER A system of evaluating performance; managers are held accountable for the costs, revenues, assets, or other elements over which they have control Return On Sales Revenue - ANSWER A measure of operating performance; computed by dividing net income by total sales revenue. Similar to profit margin Sales Budget - ANSWER A schedule of projected sales over the budget period, which often includes a measure of revenue earned and cash collected from customers Sales Mix - ANSWER The relative proportion of total sales dollars (or total units sold) that is represented by each of a company's products Selling and Administrative Expense Budget - ANSWER A schedule of all nonproduction spending expected to occur during the budget period Service Organizations - ANSWER Any organization whose main economic activity involves producing a nonphysical product that provides value to a customer Special Order - ANSWER An order that may be priced below the normal selling price to utilize excess capacity and thereby contribute to company profits Standard Cost System - ANSWER A cost accumulation system in which standard costs are used as product costs instead of actual costs. The standard costs are then adjusted to actual costs when financial reports are created. This adjustment creates variances that are reported to management Standard Costing System - ANSWER A cost-accumulation system in which standard costs are used as product costs instead of actual costs. The standard costs are then adjusted to actual costs when financial reports are created. This adjustment creates variances that are reported to management Standard Quantity Allowed - ANSWER Amount of materials that should have been used to manufacture products in a specific time period Stepped Costs - ANSWER Costs that change in total in a stairstep fashion (in large amounts) with changes in volume of activity Sunk Cost - ANSWER Either past costs or unchangeable future costs that do not change as the result of a future decision Target Income - ANSWER A profit level desired by management Underapplied Manufacturing Overhead - ANSWER The excess of actual manufacturing overhead costs over the applied overhead costs for a period (based on a predetermined application rate) Unit Sales Price - ANSWER The expected or average sales price each product is expected to be sold for in the next budget cycle or budget period of time. Generally based on projections from past experience and the estimated impact of future competition on the unit sales price for each product Unit-level Activities - ANSWER Activities that take place each time a unit of product is produced Variable Costs - ANSWER Costs that change in total in direct proportion to changes in activity level Variable Manufacturing Overhead - ANSWER Expenses needed to produce a product that vary with the amount of the levels of budgeted or actual production, including supervisor costs and maintenance costs Variable Manufacturing Overhead Efficiency Variance - ANSWER The difference between the standard variable manufacturing overhead allowed for (1) the standard activity level and (2) the amount predicted based on the actual activity level multiplied by the standard variable overhead cost rate; measures the efficiency of the underlying activity used to assign variable manufacturing overhead costs Variable Manufacturing Overhead Spending Variance - ANSWER The difference between the variable overhead manufacturing costs as predicted by the activity cost driver and the variable manufacturing overhead costs actually incurred Variance - ANSWER Any deviation from standard Work-in-process Inventory - ANSWER Inventory that is partly completed in the production process, but not yet ready for sale to customers The traditional approach to allocating overhead involves assigning all the overhead costs to products according to which approach? a. Multiple measures of activity b. Using a direct approach c. One simple measure of activity d. Using multiple cost drivers - ANSWER c. Correct! The traditional approach to allocating overhead involves assigning all the overhead costs to products according to one simple measure of activity, such as direct labor or machine hours. What is important to consider when determining how to allocate overhead costs to a product or a production process? a. Determining what factors are causing direct labor costs to be incurred b. Determining what factors are causing all manufacturing costs to be incurred c. Determining what factors are causing direct materials costs to be incurred d. Determining what factors are causing overhead costs to be incurred - ANSWER d. Correct! It is important when determining how to allocate overhead costs to a product or production process to consider what factors are causing overhead costs to be incurred in the manufacturing process in the first place. What is a change, or measurable factor, directly related to the amount of overhead cost associated with the production of a specific item? a. A design change b. A change in direct materials used c. A change in the union contract d. A change in direct labor pay rates - ANSWER a. Correct! A design change is a measurable factor directly related to the amount of overhead cost associated with the production of a specific item. Implementing an activity-based costing system requires a more careful analysis of which services? a. The services creating the material costs b. The services creating a single measure of activity c. The services creating the overhead costs d. The services creating the direct labor costs - ANSWER c. Correct! Implementing an activity-based system requires a more careful analysis of the services creating the overhead costs in the first place. Implementing an activity-based costing system requires a careful analysis of the products, projects, or services that create which cost? a. Direct materials costs b. Direct labor costs c. Total costs d. Overhead costs - ANSWER d. Correct! Implementing an activity-based costing system requires a careful analysis of the products, projects, or services that create the overhead costs in the first place. Which statement describes activity-based costing (ABC)? a. ABC includes only manufacturing costs in calculating product costs. b. ABC includes only costs related to selling and distributing the product. c. ABC considers nonmanufacturing and manufacturing costs. d. ABC considers only manufacturing costs in evaluating product costs. - ANSWER c. Correct! ABC considers both nonmanufacturing and manufacturing costs, which can be associated, both directly and indirectly, in the manufacturing of a product. What is different about allocating overhead costs using the activity-based costing method versus the traditional method? a. Overhead is ignored when using the activity-based costing method. b. Overhead is ignored when using the traditional method of overhead allocation. c. Overhead is allocated based on a variety of activity measures when using activity-based costing. d. Overhead is allocated based on a single measure of activity when using activity-based costing. - ANSWER c. Correct! Overhead is allocated based on a variety of activity measures when using activity-based costing. Smartistry is producing a custom-made airplane for Alliah Airlines. In particular, one part of the production process for each plane includes custom-made passenger seats, which differ in both comfort and size in first class, business class, and economy class. Which overhead allocation method should Smartistry use to determine the total cost of each passenger seat in each class of these airplanes? a. Traditional costing b. Indirect costing c. Activity-based costing d. Direct costing - ANSWER c. Correct! Because the comfort, size, and complexity of the installation of these seats differ between first, business, and economy class, using activity-based costing would be the most appropriate method to allocate overhead costs in this situation. In which setting is the use of an ABC overhead allocation system appropriate? a. Operations involve a variety of different products and processes. b. Products are different, but the processes are roughly the same. c. All products being manufactured are the same. d. All projects and processes in the manufacturing process are the same. - ANSWER a. Correct! With an activity-based costing (ABC) overhead allocation method, overhead is allocated based on several different measures of activity, which are called cost drivers. Overhead is not allocated based on any particular single measure of activity or single cost driver. Operations involving a variety of different products and processes are well suited to apply the ABC overhead allocation system to allocate overhead. In which setting is the use of a traditional overhead allocation system most appropriate for allocating manufacturing overhead costs? a. When multiple processes have been identified as generating the nonmanufacturing overhead costs b. When multiple products being manufactured require different manufacturing processes c. When multiple processes have been identified as generating the manufacturing overhead costs d. When multiple products being manufactured require similar manufacturing processes - ANSWER d. Correct! When multiple products being manufactured require similar manufacturing processes, the use of a traditional overhead allocation system is most appropriate for allocating manufacturing overhead costs. Which statement correctly describes the traditional approach of allocating overhead services for products having special design requirements? a. The traditional approach overstates the amount of overhead services being consumed for products that have special design requirements, are associated with additional inspections, or which necessitate careful monitoring by a supervisor. b. The traditional approach eliminates the amount of overhead services being consumed for products that have special design requirements, are associated with additional inspections, or which necessitate careful monitoring by a supervisor. c. The traditional approach reclassifies (as part of gross profit) the amount of overhead services being consumed for products that have special design requirements, are associated with additional inspections, or which necessitate careful monitoring by a supervisor. d. The traditional approach understates - ANSWER d. Correct! Allocating overhead based on the number of direct labor hours, as is done with a traditional approach, understates the amount of overhead services being consumed in the creation of products, projects, or process with special needs, such as careful monitoring or inspections as the product is being manufactured. Why is a traditional overhead allocation system of using direct labor hours to allocate overhead to products, projects, or processes simple to implement? a. Because maintenance, supervisor, and training costs are ignored in the allocation to each product, project, and process b. Because the same dollar amount of overhead is allocated to each product, project, and process c. Because direct labor hours are routinely tracked as part of tracing direct labor costs to products, projects, and processes d. Because direct materials costs are ignored in the allocation to each product, project, and process - ANSWER c. Correct! A traditional overhead allocation system is simple to implement because direct labor hours are routinely tracked as part of tracing direct labor costs to products, projects, and processes. In addition to better cost allocation, what benefit comes from creating and using an ABC overhead allocation system? a. Reduction in both sales and income taxes b. Better understanding of the underlying business processes c. Increase in selling prices through demand management maximization d. Reduction in direct labor costs - ANSWER b. Correct! In the right setting, when a company's operations involve a variety of different products and processes, ABC analysis not only results