WGU D101 Cost and Managerial Accounting Exam with Complete Solutions

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. 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. 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. 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. Two competitors exist in the same industry. The first company has accurate product cost information while the second company does not. 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. 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. 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. 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. 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. 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. 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. 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. In completing its job order costing journal entries, ABC Company's accountants made a credit entry to finished goods inventory. 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. 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. 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. 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. 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. 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. 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 units in beginning inventory plus the number of units started and completed during the period. - 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. 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.