ACG 4361

CHAPTER 2 STUDY PROBES SOLUTION

1.  Fabulous Surf Boards makes custom boards for professional surfers. The boards vary according to the types of materials requested by customers, the size of each board, and the amount of direct labor required for the finishing process.

The following costs are estimated for 2016:

 Number of surf boards 3,000 Direct labor hours 45,000 Direct material cost \$175,000 Direct labor cost \$855,000 Overhead cost \$675,000

During 2016 actual costs were:

 Number of surfboards 3,300 Direct labor hours 46,300 Direct materials \$185,000 Direct labor \$833,400 Overhead cost \$664,000

At the end of 2016, the balance of raw materials is \$50,000, work in process is \$125,000, finished goods is \$75,000, and cost of goods sold is \$800,000.

Explain why job costing, and not process costing, should be used for this organization.

Each surfboard is uniquely customized to a customer's specification. As such, each surfboard's cost will differ depending on the nature of the customization.

2.  Osprey Audio, Inc. manufactures speakers and employs a normal costing system, and maintains both direct and indirect materials in its materials storeroom. Manufacturing over and underapplied is deemed to be immaterial. During June, Osprey’s transactions and accounts included the following:

 Raw materials purchased for cash \$84,000 Raw materials inventory, beginning \$13,100 Raw materials received on account 22,000 Raw materials inventory, ending 11,600 Costs to ship materials to Osprey 1,500 Finished goods inventory, beginning 9,000 Total manufacturing overhead applied 35,800 Direct labor cost incurred 42,000 Indirect materials issued to production 2,300 Cash discounts taken on material purchases 900 Cost to ship products to customers 3,100 Work in process inventory, beginning 13,000 Finished goods inventory, ending 8,200 Sales 286,000 *Total manufacturing overhead incurred 36,900 Work in process inventory, ending 14,100

*Includes all respective costs required under GAAP.

A.    How much is the cost of direct materials issued to production during June?

B.    Calculate the cost of goods manufactured for June.

C.    How much is cost of goods sold for June ?

 RM WIP FG 13,100 13,000 9,000 84,000 900 35,800 22,000 2,300 42,000 182,500 1,500 105,800 A 105,800 182,500 B 183,300 11,600 14,100 8,200 MOH CGS 36,900 35,800 183,300 1,100 underapplied 1,100 183,300        1,100 0 184,400 C

D.  How much is gross profit for June?

Over or underapplied MOH must be closed to cost of goods sold because it is deemed to be immaterial.

Sales - CGS = GP

\$286,000 - \$184,400 = \$101,600

3. For each of the following costs incurred in a manufacturing company, classify each cost according to each of the cost classifications to which it belongs.

1.   Annual audit fee to be paid to external auditors

2.   Pickles used on burgers at McDonald's

3.   Salaries of clerical staff in corporate office

4.   Depreciation of factory machines - DDB

5.   Property taxes on the factory

6.   Insurance on delivery vans

7.   Factory janitor wages

8.   Sales personnel salaries

9.   Monthly corporate jet rent

10. Shipping cost to acquire materials for production

 Fixed Variable Product Period Prime Conversion Indirect 1 X X 2 X X X 3 X X 4 X X X X 5 X X X X 6 X X 7 X X X X 8 X X 9 X X 10 X X X

4. Listed below are selected changes due to various transactions in the manufacturing process using a normal costing system. Identify which account is changed as a result of each action listed in items 1 through 12 below by printing the code of the account(s) in the space provided.

One transaction requires 3 accounts, two of which are not listed in the accounts section. Which transaction is this, and How much are the other two accounts?

Transaction #10: Accounts receivable and Sales revenue

 Accounts RM - Raw Materials Inventory FG - Finished Goods Inventory WIP - Work-in-Process Inventory MOH - Manufacturing Overhead CGS - Cost of Goods Sold

Changes

MOH

1. Increases when manufacturing overhead is incurred

MOH

2. Increases when indirect materials are transferred to production

RM

3. Increases when raw materials are purchased on account

RM

4. Decreases when direct materials are used in production

WIP

5. Increases when direct labor costs are incurred

FG

6. Increases when goods are completed.

WIP

7. Decreases when goods are completed.

MOH

8. Increases when indirect labor costs are incurred

FG

9. Decreases when goods are sold.

CGS

10. Increases when goods are sold.

WIP

11. Increases when manufacturing overhead is applied

MOH

12. Decreases when manufacturing overhead is applied

5. Information for CarMax appears below. Identify each cost as: product or period, fixed or variable, and whether each cost is a direct cost using the codes specified below.

 Period cost (PE) or Product (PR) ? Fixed Cost (FC) or Variable Cost (VC) Direct Cost? YES or NO Salesperson’s commissions PE VC No Cost to ship new vehicles to CarMax PR VC Yes Costs of free oil changes offered to customers for one year after a new car is purchased PE VC No Product advertising costs PE FC No Rent on the new car showroom PE FC No

6. Norris, Inc. manufactures calculators and uses normal costing. During May, Norris’s transactions and account balances include the following:

 Work in process inventory, beg. \$180 Sales \$23,000 Factory equipment depreciation exp. 2,800 Selling expenses 2,100 Work in process inventory, ending 240 Factory supervision salaries 2,300 Direct materials purchased 11,500 Indirect labor cost incurred 400 Raw materials inventory, beginning 160 Factory utilities expense 900 Raw materials inventory, ending 280 Direct labor cost incurred 5,400 Finished goods inventory, ending 950 Mfg. overhead applied 6,750 Finished goods inventory, beginning 700 Indirect materials used in production 200

A.  How much is the cost of direct materials issued to production during May?

\$160 + \$11,500 - \$280 - \$200 = \$11,180

B.   Prior to adjusting for under/overapplied overhead, What amount of conversion costs was added to production during May? Prime costs?

CC = DL + MOH = \$5,400 + \$6,750 = \$12,150

PC = DL + DM = \$5,400 + \$11,180 = \$16,580

C.  How much is cost of goods manufactured for May?

WIP = \$180 + \$5,400 + \$11,180 + \$6,750 - \$240 = \$23,270

7. Howard Manufacturing applies manufacturing overhead to production at a rate of \$15 per direct labor hour. The following information is provided for March, 2016:

 Direct materials \$196,000 Direct labor Product delivery cost (shipped to customers) Factory janitor salary 57,000 13,000 31,000 Indirect labor wages 10,000 Depreciation on factory building 32,000 Factory rental expense 21,000 Indirect materials 2,600 Sales commissions 20,000 Administrative expenses 54,000

A.   Circle the account name of all period costs. Highlighted in yellow.

How does the identification of product costs differ from period costs? (i.e., What criteria do you use to identify?)

Product costs include all cost necessary to get the inventory ready to sell. Any cost that does not fall into this category is a period cost.

B.   Show the calculation of the actual manufacturing overhead costs for March.

\$31,000 + \$10,000 + \$32,000 + \$21,000 + \$2,600 = \$96,600

8. The estimated unit costs for a company to produce and sell a product at a level of 12,000 units of product per month are estimated as follows:
 Direct materials \$32 Direct labor 20 Variable manufacturing overhead 15 Variable selling expenses 3

The selling price per unit is \$120. Total fixed manufacturing overhead for the month is \$72,000, while fixed selling costs total \$48,000 for the month. Calculate the following costs:

Cost per unit for fixed costs:

Fixed MOH per unit = \$72,000/12,000 = \$6 per unit

1.  How much are the estimated conversion costs per unit?

\$20 + \$15 + \$6 = \$41

2. How much are the estimated prime costs per unit?

\$32 + 20 = \$52

3. How much are the estimated variable inventoriable costs per unit?

\$32 + \$20 + \$15 = \$67

4. How much is the product cost per unit for GAAP reporting purposes?

\$32 + \$20 + \$15 + \$6 = \$73

5. How much is cost of goods sold when selling 8 units?

(\$32 + \$20 + \$15 + \$6)*8 = \$584

6. How much is the gross profit per unit?

\$120 - \$32 - \$20 - \$15 - \$6 = \$47

7. How much out of every sales dollar is available to cover operating costs and contribute to profit?

This question asks for the gross margin ratio: \$47 / \$120 = 39.17 cents

9. Culvyhouse Company uses an normal costing system. Under or overapplied overhead is deemed to be immaterial. Culvyhouse reported the following amounts for 2016:

 Raw materials purchased \$72,000 Beginning work-in-process inventory \$21,000 Direct materials used 70,000 Ending work-in-process inventory 16,000 Indirect materials incurred 4,000 Selling and administrative expenses incurred 23,000 Direct labor incurred 66,000 Other factory overhead costs incurred 18,000 Indirect direct labor incurred 7,000 Beginning finished goods inventory 6,000 Factory overhead applied 30,000 Ending finished goods inventory 9,000

A. Calculate the cost of goods manufactured.

 Cost of direct materials used \$70,000 Cost of direct labor incurred 66,000 *MOH applied 30,000 Total manufacturing costs \$166,000 Add beginning WIP 21,000 Less ending WIP (16,000) Cost of goods manufactured \$171,000

If actual costing had been used, the amount of MOH applied would be equal to the amount of MOH incurred because the rate is determined at yearend when the actual MOH cost is known.

B. Calculate cost of goods sold.

Overapplied overhead = \$30,000 - \$4,000 - \$7,000 - \$18,000 = \$1,000

 Beginning FG inventory \$6,000 Add CGM (part A) 171,000 Less ending FG inventory (9,000) Overapplied overhead (1,000) = Cost of goods sold \$167,000

10. Earl, Inc. manufactures baseballs uses a normal costing system and allocates overhead based on direct labor cost. During June, Earl’s accounts included the following balances and transactions:

 Manufacturing overhead cost applied \$33,300 Raw materials, beginning \$11,500 Marketing expenses 27,000 Finished goods beginning 8,400 Administrative expenses 24,000 Finished goods, ending 9,600 Cash discount taken on acquired materials 3,000 Cost to deliver products to customers 1,600 Direct labor cost incurred 32,000 Work in process, beginning 21,500 Cost of materials purchased 141,600 Work in process, ending 18,900 Direct materials used in production 143,000 Sales 285,000

A. How much is ending raw materials at June 30?

 Raw materials inventory, beginning \$ 11,500 Direct materials purchased 141,600 Discount taken (3,000) Less cost of direct materials issued to production (143,000) Raw materials inventory, ending \$ 7,100

B. How much is cost of goods manufactured for June?

 Direct materials used in production \$143,000 Direct labor cost incurred 32,000 Manufacturing overhead cost applied 33,300 Total manufacturing costs 208,300 Add: Work in process inventory, beginning 21,500 Less: Work in process inventory, ending (18,900) Cost of Goods Manufactured \$210,900

C. How much is cost of good sold for June?

 Beginning finished goods \$8,400 Cost of goods manufactured (part B) 210,900 Less ending finished goods inventory (9,600) Cost of goods sold \$209,700

11. The manufacturing operations of Darden, Inc. had the following balances for the month of March:

 Inventories 3/1/13 3/31/13 Raw Materials \$10,000 \$12,000 Work in process 6,000 7,000 Finished goods 30,000 22,000

If Darden reported cost of goods sold totaling \$146,000 in March, how much did it transfer out of work in process as completed goods?

Amounts transferred out of work in process are moved into finished goods as 'cost of goods manufactured'. Beginning finished goods plus cost of goods manufactured less ending finished goods = cost of goods sold

\$30,000 + CGM - \$22,000 = \$146,000

CGM = \$138,000

12. Mitchell, Inc. manufactures calculators and employs a noromal costing system. During March, Mitchell’s transactions and accounts included the following:

 Sales \$320,000 Raw materials inventory, beginning \$6,500 Raw materials acquired (cash paid) 135,000 Raw materials inventory, ending 5,800 Raw materials received on account 30,000 Finished goods inventory, beginning 11,200 Direct labor cost incurred 42,000 Finished goods inventory, ending 12,400 Cost to deliver products to customers 800 Work in process inventory, beg. 18,700 Total manufacturing overhead applied 72,000 Work in process inventory, ending 19,700

A. How much is the cost of direct materials transferred to production during June?

 Raw materials inventory, beginning \$ 6,500 Raw materials purchased (\$135,000 + \$30,000) 165,000 Goods available 171,500 Less raw materials inventory, ending (5,800) Cost of direct materials issued to production \$165,700

B. Calculate the cost of goods manufactured.

 Direct materials used in production (from part A) \$165,700 Direct labor cost incurred 42,000 *Manufacturing overhead cost 72,000 Total manufacturing costs 279,700 Add: Work in process inventory, beginning 18,700 Less: Work in process inventory, ending (19,700) Cost of Goods Manufactured \$278,700

13.  CT, Inc. reported \$22,000 in work in process at June 1 and \$21,300 at June 30. Finished goods was \$4,500 on June 1 and \$5,100 on June 30. Direct material used in June totaled \$88,000. CT incurred \$46,000 for June’s manufacturing overhead. Cost of goods manufactured totaled \$199,000. How much are total manufacturing costs for June?

 WIP Beginning 22,000 199,000 CGM Mfg. costs X Ending 21,300

Beginning WIP + Total manufacturing costs - CGM = Ending WIP

\$22,000 + X - \$199,000 = \$21,300; so Total manufacturing costs = \$198,300

14. Hernandez, Inc. manufactures calculators. The company uses a normal costing system. The company allocates overhead at \$25 per direct labor hour. Over or underapplied overhead is not material. During May, Hernandez’s transactions included the following:

 Direct labor cost incurred @ \$20 an hour \$5,400 *Total manufacturing overhead cost incurred 6,800 Direct materials purchased 11,500 Indirect materials issued to production 1,100 Raw materials inventory, beginning 160 Raw materials inventory, ending 280 Sales 23,000 Selling expenses 2,100 Work in process inventory, beginning 220 Work in process inventory, ending 250

*Includes are respective MOH under GAAP.

A. Briefly list any additional information you need to calculate cost of goods sold for this company. (Be specific.)

Beginning finished goods inventory and ending finished goods inventory (You have enough information to calculate cost of goods manufactured so you do not need to be given that amount.)

B. How much is the cost of direct materials issued to production during May?

 Raw materials inventory, beginning \$ 160 Direct materials purchased 11,500 Indirect materials issued (1,100) Less Raw materials inventory, ending (280) Cost of direct materials issued to production \$10,280

C. How much overhead will be applied during May?

Direct labor cost/Cost per hour = number of direct labor hours incurred

\$5,400/\$20 = 270 hours

Applied = 270 hours x \$25 = \$6,750

D. How much is over or underapplied overhead for May?

\$6,750 - \$6,800 = \$50 underapplied

Multiple Choice

1.  How much is the nature of ‘costs of goods manufactured’?

A. It is the total manufacturing cost of materials, labor, and overhead incurred during the period.

B. It is the total manufacturing cost of materials, labor, and overhead completed during the period.

C. It is the total manufacturing cost of materials, labors, and overhead completed and sold during the period.

D. It is the total manufacturing cost of materials, labor, and overhead related to work in process inventories at the end of a period.

Answer A describes total manufacturing costs. Answer D describes ending WIP. Answer C describes a portion of the amount that would be in CGS.

2. How would a 5% sales commission paid to sales personnel be classified in a manufacturing company?

A. Fixed, period cost.

B. Fixed, product cost.
C. Variable, period cost.

D. Variable, product cost.

Percentage implies a variable cost: Selling costs are always period costs.

3. How would miscellaneous supplies used in assembling a product be classified for a manufacturing company?

A. Fixed, period cost.

B. Fixed, product cost.

C. Variable, period cost.
D. Variable, product cost

Supplies are variable because the total supplies cost increases as production increases. Assembling = direct labor = product

4. The term "gross margin" for a manufacturing firm refers to the excess of sales over:

A. cost of goods sold, excluding fixed indirect manufacturing costs.

B. all variable costs, including variable marketing and administrative costs.
C. cost of goods sold, including fixed indirect manufacturing costs.

D. variable costs, excluding variable marketing and administrative costs.

E. total manufacturing costs, including fixed indirect manufacturing costs.

5. A product cost is deducted from revenue when
A. the finished goods are sold.

B. the expenditure is incurred.

C. the production process takes place.

D. the production process is completed.

E. the finished goods are transferred to the Finished Goods Inventory.

Matching of cost with sales

6. Inventoriable costs:

A. include only the prime costs of manufacturing a product.

B. include only the conversion costs of providing a service.

C. exclude fixed manufacturing costs.
D. are regarded as assets until the units are sold.

E. are regarded as expenses when the costs are incurred.

7. Classifying a cost as either direct or indirect depends upon

A. whether an expenditure is unavoidable because it cannot be changed regardless of any action taken.

B. whether the cost is expensed in the period in which it is incurred.

C. the behavior of the cost in response to volume changes.
D. the cost object to which the cost is being related.

8. Products include three major classes of costs. Which one of the following is not one of the three cost classes?

B. Selling costs.

C. Direct materials

D. Direct labor

Selling costs are period costs.

9. Work-in-process, cost of goods sold, and finished goods

A. all consist of product costs.

B. are all reported as inventory accounts in the financial statements.

C. are sunk costs.

D. are examples of manufacturing overhead costs.

Only work-in-process and finished goods are inventory accounts. While all of these accounts include manufacturing overhead as one component, none of these accounts represent manufacturing overhead costs.

10. Which one of the following correctly represents the inventory accounts that appear on the balance sheet?

A. Raw Materials, Work in Process, Manufacturing Overhead
B. Cost of Goods Sold, Work in Process Inventory, Raw Materials Inventory,
C. Direct Materials, Work in Process Inventory, Finished Goods
D. Direct Materials, Direct Labor, Manufacturing Overhead

E. Work in Process, Finished Goods, Raw Materials

Note that manufacturing overhead, direct labor, and direct materials are costs of inventories and not a separate inventory account.

11. When factory janitorial labor is incurred in an actual cost system is used, which account increases?

A. Work-in-process

C. Supplies expense

D. Raw materials

Janitorial labor is an indirect manufacturing overhead cost, as such is not easily traced to products. Regardless if normal or actual costing is used, MOH costs are stored up in the MOH account. OH is applied at the end of the period with an actual cost system.

12. In an actual costing system, work in process inventory is decreased when

A. Manufactured goods are sold

B. Manufactured goods are completed

C. Manufactured goods are sold.

D. Raw materials are used in production

This is the reason that work in process decreases regardless of using an actual or normal costing system.

13. Product costs appear on the balance sheet

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

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

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

D. only in merchandising firms.

Goods partially completed are work in process. Goods completed and unsold are finished goods. Both are part of inventory on the balance sheet. Raw materials appear on the balance sheet as inventory as well, though since production has not begun, they are not considered 'goods'.

14. In a manufacturing company, advertising costs will best be classified as (a)

A. Indirect cost

C. Period expense

D. Product expense

Period expenses are not a cost of products.

15. The total manufacturing cost of materials, labor, and overhead incurred during the period is referred to as

A. total manufacturing costs.

B. work in process

C. costs of goods manufactured

D. the cost of goods transferred into production

This is the total cost added during the period.

16. Which statement is true?

A. All overhead costs are period costs.

B. Sunk costs are the same as period costs.

C. Product costs can be found in three inventory accounts and cost of goods sold.

D. Cost of goods sold contains product and period costs.

Answer A is wrong because some overhead costs are manufacturing and some are non-manufacturing. Only non-manufacturing costs are period costs. Some product costs and some period costs are sunk, while others are not. Only product costs are reported as cost of goods sold.

17. The cost of lubricating oil for maintenance of the factory machines is considered a(n)

A.  a period cost.

B.  manufacturing overhead cost and product cost.

C. operating expense.

D. indirect operating cost.

This is part of manufacturing overhead, which consists of indirect product costs. Note that operating expenses and period costs are the same.

18. Which of the following are considered the three inventory accounts for a manufacturer?

A. Raw materials, work in process, finished goods

B. Word in process, finished goods, and cost of goods sold

C. Direct materials, direct labor, and manufacturing overhead

D. Raw materials, direct and indirect labor, and factory overhead costs

Answer C lists the three costs of products for manufacturers.

19. Which one of following describes one difference that appears on an income statement for a manufacturing company as compared to an income statement for a merchandising company?

A. Work in process, raw materials, and finished goods are used in the cost of goods section to calculate cost of goods sold.

B. The work in process account replaces the Inventory account.

C. Cost of goods manufactured replaces purchases.

D. Cost of good manufactured is subtracted from sales to get gross profit on a manufacturing income statement.

Only finished goods is used to calculate CGS. WIP and RM are used to calculate CGM which is shown on the CGM statement. Answer B is wrong because Finished goods replaces the 'Inventory' account used in merchandising companies. Answer D is wrong because sales revenue less CGS equals gross profit (this concept is the same as financial accounting.

20. What must occur for product costs to become expenses under the matching principle?

A. All of the costs associated with manufacturing a product must be incurred.

B. The product must have incurred labor.

C. The product must be sold.

D. The product must be completed and ready to sell.

The fact that all costs relating to a product have been incurred tells us the product is finished goods. Completed and ready to sell items stay in finished goods until sold.

21. What is work in process inventory generally described as?

a. Costs applicable to units that have been started in production but are only partially completed

b. Costs associated with the end stage of manufacturing that are ready for customers

c. Costs strictly associated with manufacturing overhead

d. Production costs associated with acquiring materials to be used in manufacturing

Answer B describes finished goods. Direct material, direct labor and work in process are all costs found in WIP.

22. Which of the groups of accounts below includes all the product costs found on the financial statements at year end?

A. work in process, finished goods, and cost of goods sold

B. raw materials, work in process, finished goods

C. raw materials, work in process, finished goods, and cost of goods sold

D. direct materials, direct labor, manufacturing overhead

E. raw materials, work in process, finished goods, cost of goods sold, and manufacturing overhead

Answer D is wrong because it does not list accounts. Instead, these are costs of manufacturing products.

23. Which one of the following is an example of manufacturing overhead?

a. The factory manufacturing labor costs for the latest production run

b. Costs of workers wages related to products

c. Shipping cost associated with shipping goods to customers

d. The cost of maintenance on factory equipment at the local plant

Answers A and B are direct labor. Answer C is a selling expense because goods are already 'ready for sale'. Recall the theory of identifying costs go into inventory from financial accounting: "All costs necessary to get the goods ready to sell."

24. The Finished Goods account contains the cost of all units

A. Unfinished at a given point in time

B. Completed at a given point in time

C. Produced during a particular period

D. Produced and sold during a particular period

Since it is a balance sheet account, it is measured at a particular point in time.

25. Which of following describes one difference that appears on an income statement for a manufacturing company as compared to an income statement for a merchandising company?

A. Only one inventory account is reported in a merchandising company’s income statement, while three inventory accounts are reported in a manufacturing company’s income statement.

B. Manufacturing companies report manufacturing overhead on their income statements, while merchandising companies do not.

C. Cost of goods manufactured is subtracted from sales to get gross profit on a manufacturing income statement, while cost of goods sold is subtracted from sales to get gross profit for a merchandising company.

D. Cost of goods manufactured is part of the calculation of cost of goods sold for a manufacturing company, while purchases is part of the calculation of cost of goods sold for a merchandising company.

Answer A is wrong because inventory accounts are reported on the balance sheet, not the income statement. The only inventory account used in a calculation on the income statement is finished goods. Answer B is wrong because manufacturing overhead is reported on the cost of goods manufactured statement, not the income statement (for manufacturing companies.) Answer C is wrong because regardless of the type of company, gross profit is calculated by subtracting cost of goods sold from sales. Cost of goods manufactured is added to beginning finished goods inventory to determine the calculation of cost of goods sold.

26. Which group of accounts below includes all the product costs found on the financial statements at year end?

A work in process, finished goods, raw materials, and cost of goods sold

B. direct materials, direct labor, manufacturing overhead

C. raw materials, work in process, finished goods

D. raw materials, work in process, finished goods, cost of goods sold, and manufacturing overhead

E. cost of goods sold, direct labor, direct materials, manufacturing overhead

Direct materials, direct labor and manufacturing overhead are costs; they are not separate accounts.

27. Manufacturing costs are also considered

A. Variable Costs

B. Fixed Costs

C. Product Costs

D. Period Costs

Period costs are those that are not related to manufacturing. Some manufacturing costs are fixed and some are variable.

28. Which of the following would NOT usually be considered a product cost?

A. Property taxes on factory building

B. Direct materials

C. Indirect labor

29.The cost of milk for an ice cream manufacturer would be considered all of the following EXCEPT

A. Product cost

B. Manufacturing cost

C. Variable cost

D. Indirect cost

Milk is traceable to products so it is considered a direct cost.

30. Hinson, Inc. reported the following costs:

I. rent on factory

II. direct labor

III. manufacturing supervisor salaries

IV. corporate depreciation

V. factory insurance

Which costs are fixed product costs?

A. I, III, and IV

B. I, III, IV, and V

C. I, IV, and V

D. I, III, and V

E. None of these are correct.

Direct labor is a product cost, but it is variable, not fixed. Corporate depreciation is fixed, but it is not a product cost.

31. Which one of the following is an example of a period cost?

a. Glue used to affix labels to products

b. Workers’ compensation insurance on factory workers wages allocated to the factory

c. The cost of the factory janitor’s salary

d. A manager’s salary for work done in the corporate head office

Any cost labeled corporate, selling, or administrative is a period cost and not included as part of product costs. Answers A, B, and C are manufacturing overhead costs, however answer A could be considered a direct material by some companies.

32. Which of the following are considered the three manufacturing costs?

A. Raw materials, work in process, finished goods

B. Direct materials, direct labor, and manufacturing overhead

C. Raw materials, direct and indirect labor, and factory overhead costs

D. Work in process, finished goods, and cost of goods sold

Note that answer A represents the three inventory accounts. Some cost go into more than one account depending on the stage of completion.

33. Which of the following is considered manufacturing overhead?

A. Depreciation on the press that molds the plastic into work in process

B. Costs of advertising newly products manufactured products

C. Lids for bottled water produced in the company’s manufacturing plant

D. The UPS charge for delivering manufactured products to customers

Answers B and D are selling costs, which are always period costs. Answer C is direct materials.

34. Which one of the following is an example of manufacturing overhead?

a. The factory manufacturing labor costs for the latest production run

b. Costs of workers wages related to products

c. Shipping cost associated with shipping goods to customers

d. The cost of maintenance on factory equipment at the local plant

Answers A and B are direct labor. Answer C is a selling expense because goods are already 'ready for sale'. Recall the theory of which costs are considered to be inventoriable from financial accounting: "All costs necessary to get the goods ready to sell."

35. Which one of the following would not be classified as manufacturing overhead?

A. Indirect labor

B. Product assembly by workers

C. Insurance on factory building

D, Indirect materials

Answer B is direct labor since the work of assembling products can be directly traced to products/jobs.

36. Which of the following correctly describes the nature of corporate office depreciation?

A. fixed cost, period cost, indirect manufacturing costs
B fixed cost, product cost, operating expense
C variable cost, period cost, indirect manufacturing costs
D variable cost, product cost, operating expense

E fixed cost, period cost, operating expense

The key here is the absence of the words, production, manufacturing or factory which signal product costs. Corporate is the key word that tells you this is not part of manufacturing. Depreciation does not change with activity, so it is considered fixed. It is an overhead cost, but since it is not related to manufacturing, it is reported

37. Which one of the following items is most likely to be an indirect material cost for McDonald’s Restaurants?

A. Store manager’s salary

B. Lubricant for onion dicing machine

C. Payroll taxes for the fry man’s salary

D. Pickles

Answer A is indirect labor--considered manufacturing overhead. Answer C is direct labor costs (fringe cost of labor is included with direct labor). Answer D is direct materials.

38. The salary of the janitor that cleans the factory workspace should be part of

A. Direct labor

B. Indirect labor

C. Direct material

Only labor directly used on products is direct labor.

39. In terms of cost behavior, direct materials costs are

A. Variable costs

B. Fixed costs

C. Sunk costs

D. Period costs

They are variable because the more products that are manufactured, the larger the cost for materials becomes.

40. In a manufacturing company, advertising expense would best be classified as a

A. Direct expense

C. Operating costs

D. Product expense

Operating costs are period costs and are not a cost of products.

41. Which of the following is not considered to be a classification of product costs?

A. Cost of wood used in making a table top

B. Cost of labor to assemble a table

C. Cost of the controller’s salary

D. Cost of electricity to operate machine used to sand wood

This is considered a period cost since it is not related to manufacturing.

42. Which one of the following items is most likely to be an indirect material cost for a cookie bakery?

A. Depreciation on the pans on which the cookies are baked

B. Baker’s salary

C. Non-stick spray for pans prior to cooking

D Walnuts added to each batch

True False questions

1.  The wages of factory janitors are usually considered indirect labor.

True

2.  The three categories of costs in manufacturing companies are raw materials, work in process, and finished goods.

False. These are the three inventory accounts. The three costs are DM, DL, and MOH.

3.  Both actual costing and normal costing systems use the actual quantity of the allocation base to assign overhead costs to jobs.

True

4.  Direct labor is traced to jobs using information found on labor requisition forms.

False. Labor time tickets are used to trace labor costs to jobs.

5.  Prime costs consist of direct labor, direct materials, and manufacturing overhead.

False. MOH is not part of prime costs.

6. Raw Materials, Work in Process, and Finished Goods are accounts that contain all 3 product costs.

False. Raw materials contains on one product cost-- materials. WIP and FG have DM, DL, and MOH.

7.  One example of a manufacturing overhead cost is the cost of onions for burgers at McDonald’s.

False. Onions are direct materials.

8.  The cost in finished goods at yearend is the total product cost incurred for units completed, but not sold.

True.

9.   The yearend balance of the Work in Process account represents the cost of goods manufactured for the year.

False. The yearend balance is the cost of products still in production. CGM are amounts that have been completed and transferred out.