ACCT 2401 QUESTIONS AND ANSWERS AVAILABLE Test #1 Chapters 1 & 2 Test Prep (Solutions are at the end)

ACCT 2401 QUESTIONS AND ANSWERS AVAILABLE Test #1 Chapters 1 & 2 Test Prep (Solutions are at the end) 1. Which of the following is a period cost: a. raw materials costs. b. manufacturing plant maintenance. c. wages for production line workers. d. salary for the vice president of finance. 2. The inventory accounts of a manufacturing firm include: a. raw materials. b. finished goods. c. work in process d. all of the above. 3. The beginning balance of Finished Goods is $50,000, the ending balance in Finished Goods is $100,000, and Cost of Goods Manufactured is $200,000. What is Cost of Goods Sold? a. $100,000 b. $250,000 c. $150,000 d. None of the above 4. The costs of all work not yet completed is in a. raw materials. b. manufacturing overhead. c. work in process. d. accounts payable. 5. The costs of all work completed but not yet sold is in a. raw materials. b. manufacturing overhead. c. work in process. d. finished goods. 6. To make one unit of Product No. 145, it takes $30 of direct material, $40 of direct labor, and $10 of manufacturing overhead. Each unit sells for $120. If 10 units are produced in 2005 and 8 units are sold in that year (and there was no beginning inventory), how much expense is recognized in 2005 for the manufacture of the units? a. $560 b. $640 c. $800 d. $1,200 Questions 7 and 8 refer to the following: The manufacturing operations of Barton, Inc. had the following inventory balances for the month of March 2004: Beginning Ending Raw Materials $10,000 $12,000 Work in process $6,000 $7,000 Finished Goods $30,000 $22,000 7. If Barton purchased $18,000 of raw materials during March, the cost of raw materials used in production would be: a. $16,000 b. $20,000 c. $41,000 d. $19,000 8. If Barton transferred $38,000 of completed goods from work in process to finished goods during March, what was the amount of the cost of goods sold? a. $38,000 b. $43,000 c. $30,000 d. $46,000 9. The cost of lubricants used to grease a machine used in the production process of a manufacturing company is an example of a a. prime cost. b. direct material cost. c. an indirect material cost. d. period cost. 10. The depreciation on equipment in a company’s headquarters can be classified as a(n) a. non-manufacturing cost. b. opportunity cost. c. inventoriable cost. d. incremental cost. 11. The nursing station on the fourth floor of Parkview Hospital is responsible for the care of patients who have undergone orthopedic surgery. The costs of drugs administered by the nursing station to patients would be classified as a. direct costs. b. indirect costs. c. overhead costs. d. period costs. 12. Minal Company’s direct material costs are $100,000. If Minal’s prime costs total $160,000 and its conversion costs total $140,000, what is Minal’s manufacturing overhead? a. $300,000 b. $260,000 c. $240,000 d. $80,000 Using the following data (in thousands), calculate answers for questions 13-17. Sales $870 Purchases of raw materials $110 Direct labor $130 Manufacturing overhead $200 Administrative expenses $160 Selling expenses $140 Raw materials inventory, beginning $ 30 Raw materials inventory, ending $ 60 Work in process inventory, beginning $ 50 Work in process inventory, ending $ 10 Finished goods inventory, beginning $150 Finished good inventory, ending $140 13. The cost of the raw materials used in production during the year was: a. $80 b. $30 c. $50 d. $60 14. The cost of goods manufactured was: a. $800 b. $450 c. $500 d. $600 15. The cost of goods sold was: a. $800 b. $330 c. $550 d. $460 16. Net income for the period was: a. $800 b. $300 c. $110 d. $600 17. Prime costs and conversion costs were (respectively): a. $800 and $600 b. $210 and $330 c. $600 and $800 d. $330 and $210 18. Green Company's costs for the month of August were as follows: direct materials used, $27,000; direct labor, $34,000; sales salaries, $14,000; indirect labor, $10,000; indirect materials, $15,000; general corporate administrative cost, $12,000; taxes on manufacturing facility, $2,000; and rent on factory, $17,000. The beginning work in process inventory was $16,000 and the ending work in process inventory was $9,000. What was the cost of goods manufactured for the month? a. $105,000 b. $132,000 c. $138,000 d. $112,000 19. During the month of June, Reardon Company incurred $17,000 of direct labor, $8,500 of manufacturing overhead and purchased $15,000 of raw materials. Between the beginning and the end of the month, the raw materials inventory increased from $10,000 to $12,000, the finished goods inventory increased from $11,000 to $12,500, and the work in process inventory decreased from $10,000 to $7,000. The cost of goods manufactured would be: a. $38,500. b. $40,500. c. $41,500. d. $43,500. 20. Which entity below would most likely use a job-order costing system? a. Textile manufacturer b. Concrete block producer c. Petroleum refiner d. Antique automobile restorer 21. The predetermined overhead rate is determined as: a. Estimated overhead costs divided by estimated allocation base b. Actual overhead costs divided by estimated allocation base c. Estimated overhead costs divided by actual allocation base d. Actual overhead costs divided by actual allocation base 22. Overhead is over applied if: a. The actual overhead rate is greater than the budgeted overhead rate b. The Manufacturing Overhead account has a credit balance at the end of the period c. The actual overhead rate is greater than the rate used in prior periods d. The overhead rate is material 23. Suppose jobs are completed whose job costs sheets total to $120,000. What account will be debited? a. Manufacturing Overhead $120,000. b. Cost of Goods Sold $120,000. c. Work in Process $120,000. d. Finished Goods $120,000. 24. Owings Co. uses a predetermined factory overhead rate based on direct labor hours. For October, Owings’ budgeted overhead was $600,000 based on a budgeted volume of 100,000 direct labor hours. Actual overhead amounted to $650,000 with actual direct labor hours totaling 110,000. How much was overhead over applied or under applied? a. $10,000 over applied. b. $10,000 under applied. c. $60,000 over applied. d. $60,000 under applied. 25. Suppose $20,000 of raw materials are withdrawn from the storeroom to be used in production. Of this amount, $15,000 consists of direct materials and $5,000 consists of indirect materials. What account or accounts will be debited? a. Work in Process $15,000 and Raw Materials $5,000 b. Raw Materials $15,000 and Manufacturing Overhead $5,000. c. Manufacturing Overhead $15,000 and Work in Process $5,000. d. Work in Process $15,000 and Manufacturing Overhead $5,000. 26. Suppose a total of $30,000 of overhead is applied to jobs. What account will be debited? a. Manufacturing Overhead $30,000. b. Cost of Goods Sold $30,000. c. Work in Process $30,000. d. Finished Goods $30,000. 27. Last year, a company reported estimated overhead, $100,000; actual overhead, $90,000; and applied overhead, $92,000. The company’s overhead cost for the year would be: a. under applied, $10,0000. b. under applied, $8,000. c. over applied, $2,000. d. over applied, $10,000. 28. Jorden Company bases its predetermined overhead rates on machine hours. At the beginning of the year, the company estimated its manufacturing overhead for the year would be $60,000 and there would be a total of 40,000 machine hours. Actual manufacturing overhead for the year amounted to $65,100 and the actual machine hours totaled 42,000. Manufacturing overhead for the year would be: a. under applied, $2,100. b. over applied, $3,000. c. under applied, $3,000. d. over applied, $5,100. 29. The Cost of Goods Manufactured represents: a. the amount of cost charged to work in process during the period. b. the amount transferred from Work in Process to Finished Goods during the period. c. the amount of costs placed into production during the period. d. none of these. 30. Warton, Inc. used a predetermined overhead rate during 2002 of $3 per direct labor hour, based on an estimate of 24,000 direct labor hours to be worked during the year. Actual costs and activity during 2002 were: Actual manufacturing overhead cost incurred $84,000; Actual direct labor hours worked 27,000. The under- or over applied overhead for 2002 would be a. $3,000 under applied b. $3,000 over applied c. $12,000 under applied d. $9,000 over applied 31. S&S Company planned to use 10,000 machine-hours during the year. It also planned to use $700,000 of direct material, $20,000 of indirect material, $350,000 of direct labor, $75,000 of indirect labor, $200,000 of advertising, and $120,000 of other manufacturing overhead. If S&S allocated overhead based on machine hours, what is the predetermined overhead rate? a. $21.50 per machine-hour b. $41.50 per machine-hour c. $56.50 per machine-hour d. $105.00 per machine-hour 32. Jones used the following entry to close its Manufacturing Overhead Account: Manufacturing Overhead 27,000 Cost of Goods Sold 27,000 This entry indicates: a. Manufacturing overhead applied was greater than actual manufacturing overhead. b. Net income will decrease. c. Manufacturing overhead applied was greater than conversion costs. d. Manufacturing overhead applied was less than actual manufacturing overhead. 33. Which of the following would probably not use a job-order system? a. Law office. b. Shipbuilder. c. Auto repair shop. d. Soap manufacturer 34. Which journal entry indicates that direct material is being put into production? a. Raw material 4,000 Work in Process 4,000 b. Work in Process 4,000 Manufacturing Overhead 4,000 c. Raw material 4,000 Accounts Payable 4,000 d. Work in Process 4,000 Raw material 4,000 35. To record actual manufacturing overhead: a. work in process is debited. b. manufacturing overhead is debited. c. manufacturing overhead is credited. d. work in process is credited. 36. Which journal entry indicates a transfer of goods from Work in Process inventory to Finished Goods inventory? a. Finished Goods 50,000 Work in Process 50,000 b. Work in Process 50,000 Finished Goods 50,000 c. Finished Goods 50,000 Cost of Goods Sold 50,000 d. Cost of Goods Sold 50,000 Work in Process 50,000 37. In a job order cost system, the journal entry to record the application of overhead cost to jobs would include: a. a credit to the Manufacturing Overhead account. b. a credit to the Work in Process inventory account. c. a debit to Cost of Goods Sold. d. a debit to the Manufacturing Overhead account. 38. Freeman Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs. At the beginning of the year, the company estimated manufacturing overhead would be $150,000 and direct labor hours would be 10,000. The actual figures for the year were $186,000 for manufacturing overhead and 12,000 direct labor hours. The cost records for the year will show: a. over applied overhead of $30,000. b. under applied overhead of $30,000. c. under applied overhead of $6,000. d. over applied overhead of $6,000 Applying Manufacturing Overhead Use this data for 39-41 Miller Company planned to use 10,000 machine-hours and 30,000 direct-labor hours during the year. It budgeted the follows costs: Direct materials $ 700,000 Indirect materials 20,000 Direct labor 250,000 Indirect labor 75,000 Advertising 100,000 Administrative 200,000 Utilities, factory 70,000 Rent, factory 50,000 The company actually used 32,000 direct-labor hours and 11,000 machine-hours. Its actual manufacturing overhead for the year, based on machine-hours, was $228,000 REQUIRED: (39) Calculate the POHR (Predetermine MOH Rate): (40) How much MOH over- or under-applied during the year? (41) How is income affected by your answer to #2 above? 42. The cost of goods sold in a merchandising firm typically would be classified as a a. fixed cost. b. variable cost. c. step-variable cost. d. mixed cost. 43. Discretionary fixed costs a. have a planning horizon that covers many years. b. may be reduced for short periods of time with minimal damage to the long- run goals of the organization. c. cannot be reduced for even short periods of time without resulting in significant damage to the long-run goals of the organization. d. are most effectively controlled through the effective utilization of plant and organization. 44. Barton, Inc. had the following data for maintenance cost: 2002 2003 Machine hours incurred 12,000 16,000 Maintenance cost incurred $23,000 $29,000 The cost formula for maintenance within the relevant range shown above would be a. 5,000 plus $.67 per machine hour. b. 23,000 plus $1.50 per machine hour. c. 5,000 plus $1.50 per machine hour. d. 18,280 plus $.67 per machine hour. 45. Extron Minerals shipped 8,000 tons of coal for $400,000 in February and 10,000 tons for $499,000 in March. Shipping costs for 11,000 tons expected to be shipped in April would be a. $544,500 b. $548,500 c. $422,222 d. $554,000 46. A company’s cost formula for maintenance is Y = $4,000 + $3X, where X is machine hours. During a period in which 2,000 machine hours are worked, the expected maintenance cost would be: a) $12,000 b) $6,000 c) $10,000 d) $4,000 47. The costs associated with a company’s basic facilities, equipment, and organization are known as: a) committed fixed costs b) discretionary fixed costs c) mixed costs d) variable costs 48. Last year Barker Company’s sales were $240,000, its fixed costs were $50,000, and its variable costs were $2 per unit. During the year, 80,000 units were sold. The contribution margin was: a) $200,000 b) $240,000 c) $30,000 d) $80,000 49. An example of a discretionary fixed cost would be: a) depreciation on equipment b) rent on a factory building c) salaries of top management d) advertising 50. In March, Espresso Express had electrical costs of $225.00 when the total volume was 4,500 cups of coffee served. In April, electrical costs were $227.50 for 4,750 cups of coffee. Using the high-low method, what is the estimated fixed cost of electricity per month? a) $200 b) $180 c) $225 d) $150 51. Variable costs are costs that: a) vary in total directly and proportionately with changes in the activity level. b) remain the same per unit at every activity level. c) None of the above. d) Both a and b above. 52. The relevant range is : a) the range of activity in which variable costs are constant in total. b) the range of activity in which fixed costs per unit are expected to remain constant. c) the range over which total fixed costs is not expected to change. d) the range of activity in which variable cost per unit is expected to change. 53. Mixed costs consist of a: a) variable cost element and a fixed cost element. b) fixed cost element and a controllable cost element. c) relevant cost element and a controllable cost element. d) variable cost element and a relevant cost element. 54. Contribution margin: a) is revenue remaining after deducting variable costs. b) may be expressed on a per unit basis. c) is fixed cost minus variable costs. d) Both a and b above. 55. Cournot Company sells 100,000 wrenches for $12.00 a unit. Fixed costs are $300,000 and net income is $200,000. What should be reported as variable expenses in the contribution format income statement? a) $700,000. b) $900,000. c) $500,000. d) $1,000,000. Use the following information to solve multiple-choice 56-58 Atlanta, Inc., which uses the high-low method to analyze cost behavior, has determined that machine hours best explain the company’s utilities cost. The company’s relevant range of activity varies from a low of 600 machine hours to a high of 1,100 machine hours, with the following data being available for the first six months of the year: Month Utilities Machine Hours January $8,700 800 February 8,360 720 March 8,950 810 April 9,360 920 May 9,625 950 June 9,150 900 56. The variable utilities cost per machine hour is: a. $0.18 b. $4.50 c. $5.00 d. $5.50 e. an amount other than those listed above. 57. The fixed utilities cost per month is: a. $3,764 b. $4,400 c. $4,760 d. $5,100 e. an amount other than those listed above. 58. Using the cost formula, the utilities cost associated with 980 machine hours would be: a. $9,510 b. $9,660 c. $9,700 d. $9,790 e. an amount other than those listed above. 59. The term "relevant range" means the range over which: a. costs may fluctuate. b. a particular cost assumption is valid. c. production may vary. d. relevant costs are incurred. 60. Which of the following is not an example of a committed fixed cost? a. Property taxes. b. Depreciation on buildings. c. Salaries of management personnel. d. Contributions to charitable organizations. 61. Which of the following would not typically be classified as a discretionary fixed cost? a. Property taxes. b. Employee development (education) programs. c. Advertising. d. Charitable contributions. 62. An example of a discretionary fixed cost is: a. insurance. b. taxes on real estate. c. management training. d. depreciation of buildings and equipment. 63. The following data pertain to activity and costs for two recent months: October November Activity level in units 5,000 units 10,000 units Variable costs $10,000 ? Fixed costs 30,000 ? Mixed costs 20,000 ? Total costs $60,000 $75,000 Assuming that these activity levels are within the relevant range, the mixed costs for November were: a. $40,000. b. $35,000. c. $25,000. d. $20,000. Use the following information to answer the next two questions Gargymal Company would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the last five months of operations. Machine Hours Electrical Costs August 1,000 $1,620 September 900 1,510 October 1,500 1,870 November 2,000 1,950 December 1,300 1,730 64. Using the high-low method of analysis, the estimated variable cost per machine hour for electricity is closest to: a. $0.40. b. $0.98. c. $2.50. d. $1.68. 65. Using the high-low method of analysis, the estimated fixed cost per month for electricity is closest to: a. $870.00. b. $1,150.00. c. $1,290.00. d. $1,306.50. Chapter 1 & 2 Test Prep Solutions 1. D 2. D 3. C BI(fg) 50,000 +CGM 200,000 GAS 250,000 - EI(fg) 100,000 CGS 150,000 4. C5. D 6. B $80 x 8 = $640 Product costs expensed when goods sold Product costs = DM 30 + DL 40 + FOH 10 = 80 7. A BI(rm) 10,000 +Purch. 18,000 GA(rm) 28,000 - EI(rm) 12,000 DM used 16,000 8. D BI(fg) 30,000 +CGM 38,000 (CGM are completed items transferred from WIP) GAS 68,000 - EI(fg) 22,000 CGS 46,000 9. C 10. A 11. A 12. D PC=DM + DL  $160,000=$100,000 + DL; thus DL=$60,000 CC=DL + MOH  $140,000=$60,000 + MOH; thus, MOH = $80,000 13. A BI(rm) 30 +Purch. 110 GA(rm) 140 - EI(rm) 60 DM used 80 14. B BI(wip) 50 where, Mfg. Costs: +Mfg. Costs 410 DM 80 GAM 460 +DL 130 - EI(wip) 10 +MOH 200 CGM 450 Mfg. Costs 410 15. D BI(fg) 150 +CGM 450 GAS 600 - EI(fg) 140 CGS 460 16. C Sales 870 Operating Expenses (OE) - CGS 460 Admin = 160 GP 410 Selling = 140 OE 300 Total = 300 NI 110 17. B PC=DM + DL  $210=$80 + $130 CC=DL + MOH  $330=$130 + $200 18. D BI(wip) 16,000 Mfg. Costs: +Mfg. Costs 105,000 DM 27,000 GAM 121,000 +DL 34,000 - EI(wip) 9,000 +MOH 44,000 ** CGM 112,000 Mfg. Costs 105,000 **MOH = IL 10,000+ IM 15,000 + Tax 2,000 + Rent 17,000 = 44,000 19. C BI –RM 10,000 DM (used) 13,000 Manufacturing costs BI(wip) 10,000 +Purchases 15,000 +DL 17,000 +Mfg. Costs 38,500 24. A $600,000 = $6 / DLH MOH 100,000 DLH 650,000 | 660,000 ($6 X 110,000) | BAL | 10,000 (CR BAL = OVERAPPLIED) To Close: Debit MOH, Credit CGS – expense decreases, net income increases 25. D 26. C 27. C ACTUAL OH $90,000 APPLIED OH $92,000 $ 2,000 Overapplied To Close: Debit MOH, Credit CGS – expense decreases, net income increases 28. A PMOHR = $60,000 / 40,000 MH = $1.50 per hour ACTUAL OH = $65,100 APPLIED OH = $63,000 ($1.50 X 42,000 MH) UNDERAPPLIED OH= $ 2,100 To Close: Debit CGS, Credit MOH – expense increases, net income decreases 29. B 30. A MOH applied = 27,000 (actual DL hours) x $3.00 (per DL Hour) = $81,000 Actual MOH $84,000 Applied MOH $81,000 (this represents Db MOH, Cr WIP entry) Underapplied MOH $ 3,000 To Close: Debit CGS, Credit MOH – expense increases, net income decreases 31. A Estimated MOH cost = 215,000 = $21.50 Estimated activity in allocation base 10,000 32. A 33.D 34.D 35.B 36.A 37. A 38. C PMOHR = $150,000 / 10,000 DLH = $15 per hour ACTUAL OH = $186,000 APPLIED OH = $180,000 ($15 X 12,000 DLH) UNDERAPPLIED OH= $ 6,000 To Close: Debit CGS, Credit MOH – expense increases, net income decreases (39) Calculate the POHR (Predetermine MOH Rate): Estimated MOH cost = *215,000 = $21.50 Estimated activity in base 10,000 *Est. MOH includes Indirect materials (20), Indirect labor (75), Utilities (70), Rent (50) = $215,000 (40) How much MOH over- or under-applied during the year? Applied MOH = Rate x actual machine hours = $21.50 x 11,000 = $236,500 Actual MOH – given $228,000 $ 8,500 overapplied (41) How is income affected by your answer to #2 above? Before closing the overhead to CGS, net income would be understated (CGS was too high making net income too low). Because overapplied means credit balance, to close the account you would have to debit MOH and credit CGS. This would decrease expense (CGS) and increase net income 42. B 43. B 44. C Var cost per unit = Change in cost $6,000 = $1.50 vc per unit Change in activity 4,000 TC = FC + (vc/u * units) 29,000 = FC + ($1.50 * 16,000) 29,000 = FC + 24,000 FC = 5,000 45. B Var cost per unit = Change in cost $99,000 = $49.50 vc per unit Change in activity 2,000 TC = FC + (vc/u * units) So, at 11,000 tons: TC = FC + (vc/u * units) 499,000 = FC + ($49.50 * 10,000) TC = 4,000 + ($49.50 * 11,000) 499,000 = FC + 495,000 TC = 548,500 FC = 4,000 46. C Fixed cost $4,000 Variable cost:$3 x 2,000 hours $6,000 Total cost $10,000 47. A 48. D Sales $240,000 Less variable costs: $2 x 80,000 units $160,000 Contribution margin……….. $ 80,000 49. D 50. B High activity level……….. $227.50 4,750 Low activity level……….. $225.00 4,500 Change………………… $ 2.50 250 Change in cost/Change in activity = $2.50/250 = $.01 per cup Total cost at the high activity $227.50 Less variable cost element: 4,750 cups x $.01 per cup… $47.50 Fixed cost element $180.00 51. D 52. C 53. A 54. D 55. A Sales $1,200,000 -variable cost $700,000 (PLUG) Contribution Margin $500,000 -fixed cost $300,000 Net Income $200,000 56. D 57. B 58. D Detail for 56-58 Act Cost Hi 950 9,625 Lo 720 8,360 230 1,265 Var cost per unit = Change in cost Change in activity $1,265 = $5.50 vc per unit 230 TC = FC + (vc/u * units) So, at 980 hours:TC = FC + (vc/u * units) 9,625 = FC + ($5.50 * 950) TC = 4,400 + ($5.50 * 980) 9,625 = FC + 5,225 TC = 9,790 FC = 4,400 59. B 60. D 61. A 62. C 63. C Oct (5,000 units) per unit/cost Nov (10,000 units) Variable costs $10,000 $2 (10,000/5000) $20,000 ($2*10,000) Fixed costs $30,000 $30,000 (constant) Mixed costs $20,000 $25,000 (PLUG) $60,000 $75,000(given) 64. A 65. B Detail for 64 & 65 Act Cost Hi 2,000 1,950 Lo 900 1,510 1,100 440 Var cost per unit = Change in cost $440 = $.40 vc per unit Change in activity 1,100 TC = FC + (vc/u * units) 1,950 = FC + ($.40 * 2000) 1,950 = FC + 800 FC = 1,150