Test Bank Fundamental Managerial Accounting Concepts 9th Edition By Thomas Edmonds A+

$35.00
Test Bank Fundamental Managerial Accounting Concepts 9th Edition By Thomas Edmonds A+

Test Bank Fundamental Managerial Accounting Concepts 9th Edition By Thomas Edmonds A+

$35.00
Test Bank Fundamental Managerial Accounting Concepts 9th Edition By Thomas Edmonds A+

1) Ashley Bradshaw is the manager of one department in a large store. In this capacity, which of the following kinds of information would she be interested in?

A) Economic data

B) Financial data

C) Nonfinancial data

D) Financial, economic, and nonfinancial data

Answer: D

Explanation: Managers rely on financial, economic, and nonfinancial data to make decisions and evaluate performance.

Difficulty: 1 Easy

Topic: Users and Types of Information

Learning Objective: 01-01 Distinguish between managerial and financial accounting.

Bloom's: Remember

AACSB: Knowledge Application

AICPA: FN Decision Making; BB Industry

2) All of the following are features of managerial accounting except:

A) information is provided primarily to insiders such as managers.

B) information includes economic and non-financial data as well as financial data.

C) information is characterized by objectivity, reliability, consistency, and accuracy.

D) information is reported continuously with a present or future orientation.

Answer: C

Explanation: Managerial accounting is concerned with unregulated financial, economic, and nonfinancial data, which pertains more to the sub-units of the organization, that is current and future oriented, and that is designed primarily to meet the information needs of insiders. Financial accounting information is characterized by objectivity, reliability, consistency, and accuracy.

Difficulty: 1 Easy

Topic: Information Characteristics

Learning Objective: 01-01 Distinguish between managerial and financial accounting.

Bloom's: Remember

AACSB: Knowledge Application

AICPA: FN Decision Making; BB Industry

3) Choose the answer that is not a distinguishing characteristic of financial accounting information.

A) It is global information that reflects the performance of the whole company.

B) It is focused primarily on the future.

C) It is more concerned with financial data than physical or economic data.

D) It is more highly regulated than managerial accounting information.

Answer: B

Explanation: Financial accounting deals with regulated, historical financial information that pertains to the whole company and is designed primarily to meet the information needs of outsiders.

Difficulty: 1 Easy

Topic: Information Characteristics

Learning Objective: 01-01 Distinguish between managerial and financial accounting.

Bloom's: Remember

AACSB: Knowledge Application

AICPA: FN Decision Making; BB Industry

4) Managerial accounting information is limited or restricted by which of the following authorities or principles?

A) Securities and Exchange Commission

B) Generally Accepted Accounting Principles

C) Managerial Accounting Standards Board

D) Value-Added Principle

Answer: D

Explanation: The value-added principle means that management accountants are free to engage in any information gathering and reporting activity so long as the activity adds value in excess of its cost.

Difficulty: 1 Easy

Topic: Regulation

Learning Objective: 01-01 Distinguish between managerial and financial accounting.

Bloom's: Remember

AACSB: Knowledge Application

AICPA: FN Decision Making; BB Industry

5) Select the incorrect statement regarding the relationship between type of user and type of information.

A) Middle managers need more nonfinancial, or operational data than do senior executives.

B) Assembly line supervisors need more immediate feedback on performance than do senior executives.

C) Senior executives need less aggregated information than do lower-level managers.

D) Senior executives use general economic information as well as financial information.

Answer: C

Explanation: Senior executives need more aggregated information than do lower-level managers.

Difficulty: 1 Easy

Topic: Users and Types of Information

Learning Objective: 01-01 Distinguish between managerial and financial accounting.

Bloom's: Remember

AACSB: Knowledge Application

AICPA: FN Decision Making; BB Industry

6) Select the correct statement regarding managerial and financial accounting.

A) Users of managerial accounting information desire greater aggregation than do users of financial accounting information.

B) Both managerial and financial accounting use economic and physical data in addition to financial data.

C) Financial accounting is more highly regulated than managerial accounting.

D) Timeliness is more important in financial accounting than in managerial accounting.

Answer: C

Explanation: Financial accounting deals with regulated, historical, financial information that pertains to the whole company and is designed primarily to meet the information needs of outsiders. Managerial accounting is concerned with unregulated financial, economic, and nonfinancial data, which pertains more to the sub-units of the organization, that is current and future oriented, and that is designed primarily to meet the information needs of insiders.

Difficulty: 1 Easy

Topic: Regulation

Learning Objective: 01-01 Distinguish between managerial and financial accounting.

Bloom's: Remember

AACSB: Knowledge Application

AICPA: FN Decision Making; BB Industry

7) Which of the following most exemplifies the value-added principle?

A) An ongoing process where continuous improvement is the goal.

B) A competitive management program that emphasizes quality.

C) Information gathering and reporting activities should be restricted to those activities that add value in excess of their cost.

D) Managerial accounting information is measured in economic, physical, and financial terms.

Answer: C

Explanation: The value-added principle means that management accountants are free to engage in any information gathering and reporting activity so long as the activity adds value in excess of its cost.

Difficulty: 1 Easy

Topic: Regulation

Learning Objective: 01-01 Distinguish between managerial and financial accounting.

Bloom's: Remember

AACSB: Knowledge Application

AICPA: FN Decision Making; BB Industry

8) Which of the following costs would be classified as a direct cost for a company that produces motorcycles?

A) Rent of manufacturing facility that produces motorcycles.

B) Seats used in the motorcycles.

C) Wages of motorcycle assembly workers.

D) Both seats used in the motorcycles and wages of motorcycle assembly workers are correct.

Answer: D

Explanation: Direct costs can be traced to a specific product. The costs of the seats used in the motorcycles and wages of motorcycle assembly workers are direct costs. An indirect cost cannot be easily or economically traced to a specific product. The rent of the manufacturing facility that produces motorcycles is an indirect cost.

Difficulty: 2 Medium

Topic: Manufacturing Product Costs on Financial Statements

Learning Objective: 01-03 Show how manufacturing product costs affect financial statements.

Bloom's: Understand

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

9) Which of the following is a product cost for a construction company?

A) Cost of transporting raw materials to the job site

B) Wages paid to the company's payroll clerk

C) Rent of the company's main office

D) All of these.

Answer: A

Explanation: Product costs are all costs incurred to obtain a product or provide a service. Period costs are associated with the general, selling, and administrative functions of the business. Wages paid to the company's payroll clerk and rent of the company's main office would be categorized as period costs.

Difficulty: 2 Medium

Topic: Components of Product Cost

Learning Objective: 01-02 Identify the cost of manufacturing a product.

Bloom's: Understand

AACSB: Knowledge Application

AICPA: FN Decision Making; BB Industry; FN Measurement; BB Resource Management

10) For a manufacturing company, product costs include all of the following except:

A) indirect material costs.

B) warehousing costs of finished goods.

C) direct labor costs.

D) All of these are product costs.

Answer: B

Explanation: Product costs are all costs incurred to obtain a product or provide a service. Period costs are associated with the general, selling, and administrative functions of the business. The cost of storing finished goods is considered a period cost.

Difficulty: 2 Medium

Topic: Components of Product Cost

Learning Objective: 01-02 Identify the cost of manufacturing a product.

Bloom's: Understand

AACSB: Knowledge Application

AICPA: FN Decision Making; BB Industry; FN Measurement; BB Resource Management

11) During its first year of operations, Connor Company paid $50,000 for direct materials and $36,000 in wages for production workers. Lease payments and utilities on the production facilities amounted to $14,000. General, selling, and administrative expenses were $16,000. The company produced 5,000 units and sold 4,000 units for $30.00 a unit. The average cost to produce one unit is which of the following amounts?

A) $20.00

B) $16.00

C) $18.40

D) $25.00

Answer: A

Explanation: Average cost per unit = (Materials cost + Labor costs + Overhead costs) ÷ Number of units produced

Average cost per unit = ($50,000 + $36,000 + $14,000) ÷ 5,000 units = $20.00 per unit

Difficulty: 3 Hard

Topic: Components of Product Cost; Average Cost per Unit

Learning Objective: 01-02 Identify the cost of manufacturing a product.

Bloom's: Apply

AACSB: Knowledge Application

AICPA: FN Decision Making; BB Industry; FN Measurement; BB Resource Management

12) During its first year of operations, Forrest Company paid $30,000 for direct materials and $50,000 in wages for production workers. Lease payments, utility costs, and depreciation on factory equipment totaled $15,000. General, selling, and administrative expenses were $20,000. The average cost to produce one unit was $2.50. How many units were produced during the period?

A) 40,000

B) 46,000

C) 38,000

D) None of these.

Answer: C

Explanation: Average cost per unit = (Materials cost + Labor costs + Overhead costs) ÷ Number of units produced

$2.50 per unit = ($30,000 + $50,000 + $15,000) ÷ Number of units produced

$2.50 per unit = $95,000 ÷ Number of units produced

Number of units produced = $95,000 ÷ $2.50 = 38,000 units

Difficulty: 3 Hard

Topic: Components of Product Cost; Average Cost per Unit

Learning Objective: 01-02 Identify the cost of manufacturing a product.

Bloom's: Apply

AACSB: Knowledge Application

AICPA: FN Decision Making; BB Industry; FN Measurement; BB Resource Management

13) Why do accountants normally calculate cost per unit as an average?

A) Determining the exact cost of a product is virtually impossible.

B) Some manufacturing-related costs cannot be accurately traced to specific units of product.

C) Even when producing multiple units of the same product, normal variations occur in the amount of materials and labor used.

D) All of these are justifications for computing average unit costs.

Answer: D

Difficulty: 2 Medium

Topic: Components of Product Cost; Average Cost per Unit

Learning Objective: 01-02 Identify the cost of manufacturing a product.

Bloom's: Understand

AACSB: Knowledge Application

AICPA: FN Decision Making; BB Industry; FN Measurement; BB Resource Management

14) Which of the following costs is not considered a period cost?

A) Warehousing costs

B) Depreciation of delivery vehicles

C) Salaries paid to company executives

D) Freight paid on a purchase of raw materials

Answer: D

Explanation: Period costs are associated with the general, selling, and administrative functions of the business. Product costs are all costs incurred to obtain a product or provide a service. Freight paid on a purchase of raw materials is considered a product cost.

Difficulty: 2 Medium

Topic: Manufacturing Product Costs on Financial Statements

Learning Objective: 01-03 Show how manufacturing product costs affect financial statements.

Bloom's: Understand

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

15) Select the incorrect statement regarding costs and expenses.

A) Some costs are initially recorded as expenses while others are initially recorded as assets.

B) Expenses are incurred when assets are used to generate revenue.

C) Manufacturing-related costs are initially recorded as expenses.

D) Non-manufacturing costs should be expensed in the period in which they are incurred.

Answer: C

Explanation: Product costs (i.e. manufacturing costs) are all costs incurred to obtain a product or provide a service. These costs are treated as assets, recorded in inventory, and expensed when the associated products are sold. Period costs (i.e. non-manufacturing costs) are all costs not associated with a product. They are associated with the general, selling, and administrative functions of the business and most are expensed in the period in which the associated economic sacrifice is made.

Difficulty: 1 Easy

Topic: Costs Can Be Assets or Expenses

Learning Objective: 01-02 Identify the cost of manufacturing a product.

Bloom's: Remember

AACSB: Knowledge Application

AICPA: FN Decision Making; BB Industry; FN Measurement

16) Which of the following costs should be recorded as an expense?

A) Salary of administrative employee

B) Depreciation of manufacturing equipment

C) Insurance for the factory building

D) All of these are expenses.

Answer: A

Explanation: Product costs (i.e. manufacturing costs) are all costs incurred to obtain a product or provide a service. These costs are treated as assets, recorded in inventory, and expensed when the associated products are sold. Period costs (i.e. non-manufacturing costs) are all costs not associated with a product. They are associated with the general, selling, and administrative functions of the business and most are expensed in the period in which the associated economic sacrifice is made.

Difficulty: 2 Medium

Topic: Costs Can Be Assets or Expenses

Learning Objective: 01-02 Identify the cost of manufacturing a product.

Bloom's: Understand

AACSB: Knowledge Application

AICPA: FN Decision Making; BB Industry; FN Measurement

17) Which of the following costs should not be recorded as an expense?

A) Insurance on factory building

B) Sales commissions

C) Product shipping costs

D) Product advertising

Answer: A

Explanation: Product costs (i.e. manufacturing costs) are all costs incurred to obtain a product or provide a service. These costs are treated as assets, recorded in inventory, and expensed when the associated products are sold. Period costs (i.e. non-manufacturing costs) are all costs not associated with a product. They are associated with the general, selling, and administrative functions of the business and most are expensed in the period in which the associated economic sacrifice is made. The insurance on the factory building is a product cost and should be recorded in inventory.

Difficulty: 2 Medium

Topic: Costs Can Be Assets or Expenses

Learning Objective: 01-02 Identify the cost of manufacturing a product.

Bloom's: Understand

AACSB: Knowledge Application

AICPA: FN Decision Making; BB Industry; FN Measurement

18) Which of the following transactions would cause net income for the period to decrease?

A) Paid $2,500 cash for raw material cost

B) Purchased $8,000 of merchandise inventory

C) Recorded $5,000 of depreciation on production equipment

D) Used $2,000 of office supplies

Answer: D

Explanation: Costs that are not classified as product costs are normally expensed in the period in which they are incurred and, as such, decrease net income. These costs include general operating costs, selling and administrative costs (such as the use of office supplies), interest costs, and the cost of income taxes.

Difficulty: 2 Medium

Topic: Manufacturing Product Costs on Financial Statements

Learning Objective: 01-03 Show how manufacturing product costs affect financial statements.

Bloom's: Understand

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

19) Which of the following statements is true with regard to product costs versus general, selling, and administrative costs?

A) Product costs associated with unsold units appear on the income statement as general expenses.

B) General, selling, and administrative costs appear on the balance sheet.

C) Product costs associated with units sold appear on the income statement as cost of goods sold.

D) None of these are true.

Answer: C

Explanation: Product costs are all costs incurred to obtain a product or provide a service. These costs are treated as assets, recorded in inventory, and expensed (as cost of goods sold) when the associated products are sold. Period costs are all costs not associated with a product. They are associated with the general, selling, and administrative functions of the business and most are expensed in the period in which the associated economic sacrifice is made. A product cost would be the cost of direct materials used in the production of a product. A period cost would be rent on administrative facilities.

Difficulty: 2 Medium

Topic: Manufacturing Product Costs on Financial Statements

Learning Objective: 01-03 Show how manufacturing product costs affect financial statements.

Bloom's: Understand

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

20) Which of the following statements concerning product costs versus general, selling, and administrative costs is false?

A) Product costs incurred during the period will initially appear as inventory on the balance sheet.

B) General, selling, and administrative costs are always expensed when paid.

C) Product costs may be divided between the balance sheet and income statement.

D) General, selling, and administrative costs never appear as inventory on the balance sheet.

Answer: B

Explanation: Product costs are all costs incurred to obtain a product or provide a service. These costs are treated as assets, recorded in inventory, and expensed (as cost of goods sold) when the associated products are sold. Period costs are all costs not associated with a product. They are associated with the general, selling, and administrative functions of the business and most are expensed in the period in which the associated economic sacrifice is made. The cost of purchasing a building to be used for administration would not be expensed when paid. The administration building would be considered an asset and depreciated over its useful life.

Difficulty: 1 Easy

Topic: Manufacturing Product Costs on Financial Statements

Learning Objective: 01-03 Show how manufacturing product costs affect financial statements.

Bloom's: Remember

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

21) During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit.

What is Silverman's cost of goods sold for the year?

A) $50,000

B) $24,600

C) $30,000

D) $41,000

Answer: C

Explanation: Average cost per unit = (Materials cost + Labor costs + Overhead costs) ÷ Number of units produced

Average cost per unit = ($14,000 + $19,000 + $17,000) ÷ 5,000 units = $10.00 per unit

Cost of goods sold = Number of units sold × Average cost per unit

Cost of goods sold = 3,000 units sold × $10.00 per unit = $30,000

Difficulty: 3 Hard

Topic: Components of Product Cost; Average Cost per Unit; Costs Can Be Assets or Expenses

Learning Objective: 01-02 Identify the cost of manufacturing a product.

Bloom's: Apply

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

22) During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit.

What is the amount of gross margin for the first year?

A) $15,000

B) $24,000

C) $20,000

D) $45,000

Answer: A

Explanation: Average cost per unit = (Materials cost + Labor costs + Overhead costs) ÷ Number of units produced

Average cost per unit = ($14,000 + $19,000 + $17,000) ÷ 5,000 units = $10.00 per unit

Cost of goods sold = Number of units sold × Average cost per unit

Cost of goods sold = 3,000 units sold × $10.00 per unit = $30,000

Gross margin = Revenue − Cost of goods sold

Gross margin = (3,000 units × $15.00 per unit) − $30,000 = $15,000

Difficulty: 3 Hard

Topic: Components of Product Cost; Average Cost per Unit; Costs Can Be Assets or Expenses

Learning Objective: 01-02 Identify the cost of manufacturing a product.

Bloom's: Apply

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

23) During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit.

What is the amount of finished goods inventory on the balance sheet at year-end?

A) $10,000

B) $20,000

C) $4,000

D) $15,000

Answer: B

Explanation: Average cost per unit = (Materials cost + Labor costs + Overhead costs) ÷ Number of units produced

Average cost per unit = ($14,000 + $19,000 + $17,000) ÷ 5,000 units = $10.00 per unit

Finished goods inventory = Unsold units × Average cost per unit

Finished goods inventory = (5,000 units produced − 3,000 units sold) × $10.00 per unit = $20,000

Difficulty: 3 Hard

Topic: Manufacturing Product Costs on Financial Statements; Components of Product Cost; Average Cost per Unit; Tabor Manufacturing Company

Learning Objective: 01-03 Show how manufacturing product costs affect financial statements.; 01-02 Identify the cost of manufacturing a product.

Bloom's: Apply

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

24) During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit.

What was Silverman's net income for the first year in operation?

A) $7,000

B) $12,000

C) $28,000

D) $37,000

Answer: A

Explanation: Average cost per unit = (Materials cost + Labor costs + Overhead costs) ÷ Number of units produced

Average cost per unit = ($14,000 + $19,000 + $17,000) ÷ 5,000 units = $10.00 per unit

Cost of goods sold = Number of units sold × Average cost per unit

Cost of goods sold = 3,000 units sold × $10.00 per unit = $30,000

Net income = Revenue − Cost of goods sold − Selling and administrative expenses

Net income = (3,000 units × $15 per unit) − (3,000 units sold × $10.00 per unit) − $8,000 = $7,000

Difficulty: 3 Hard

Topic: Manufacturing Product Costs on Financial Statements; Components of Product Cost; Average Cost per Unit; Costs Can Be Assets or Expenses

Learning Objective: 01-03 Show how manufacturing product costs affect financial statements.; 01-02 Identify the cost of manufacturing a product.

Bloom's: Apply

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

25) Manufacturing costs that cannot be traced to specific units of product in a cost-effective manner include:

A) depreciation on production equipment.

B) direct material.

C) indirect labor.

D) both depreciation on production equipment and indirect labor.

Answer: D

Explanation: An indirect product cost (i.e. indirect manufacturing cost) cannot be easily or economically traced to a specific product. Both depreciation on production equipment and indirect labor cannot be traced to specific units of product in a cost-effective manner.

Difficulty: 1 Easy

Topic: Manufacturing Product Costs on Financial Statements

Learning Objective: 01-03 Show how manufacturing product costs affect financial statements.

Bloom's: Remember

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

26) What is the effect on the balance sheet of recording a $200 cash purchase of raw materials?

A) Assets decrease by $200 and stockholders' equity decreases by $200.

B) Assets and stockholders' equity do not change.

C) Assets increase by $200 and stockholders' equity increases by $200.

D) Assets increase by $200 and stockholders' equity does not change.

Answer: B

Explanation: Purchasing raw materials for cash decreases Cash by $200 and increases Raw Materials by $200. This is an asset exchange transaction and does not affect total assets.

Difficulty: 3 Hard

Topic: Manufacturing Product Costs on Financial Statements

Learning Objective: 01-03 Show how manufacturing product costs affect financial statements.

Bloom's: Apply

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

27) What is the effect on the balance sheet of making cash sales of inventory to customers for profit?

A) Assets and stockholders' equity increase.

B) Assets and stockholders' equity decrease.

C) Assets decrease and stockholders' equity increases.

D) Assets increase and stockholders' equity decreases.

Answer: A

Explanation: The first part of the transaction is recording revenue from the sale. Recording cash revenue increases the asset account, Cash, and increases the stockholders' equity account, Retained Earnings. The second part of the transaction is removing the inventory that has been sold which decreases the asset account, Inventory, and decreases the stockholders' equity account, Retained Earnings. Overall, since the inventory was sold at a profit, the transaction will increase assets and stockholders' equity.

Difficulty: 2 Medium

Topic: Manufacturing Product Costs on Financial Statements

Learning Objective: 01-03 Show how manufacturing product costs affect financial statements.

Bloom's: Understand

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

28) Which of the following types of labor costs will never flow through the balance sheet?

A) Plant supervision

B) Sales commissions

C) Material handling

D) Assembly labor

Answer: B

Explanation: Product costs are all costs incurred to obtain a product or provide a service. These costs are treated as assets, recorded in inventory, and expensed when the associated products are sold. Period costs are all costs not associated with a product. They are associated with the general, selling, and administrative functions of the business and most are expensed in the period in which the associated economic sacrifice is made. Sales commissions are a period cost. Therefore, the sales commissions will be expensed when incurred and will never flow through the balance sheet.

Difficulty: 2 Medium

Topic: Costs Can Be Assets or Expenses

Learning Objective: 01-02 Identify the cost of manufacturing a product.

Bloom's: Understand

AACSB: Knowledge Application

AICPA: FN Decision Making; BB Industry; FN Measurement; BB Resource Management

29) Which of the following is not classified as manufacturing overhead?

A) Product delivery costs

B) Salary of factory supervisor

C) Factory insurance

D) Production supplies

Answer: A

Explanation: Downstream costs are costs incurred after the manufacturing process including marketing, distribution, and customer services. Distribution costs include product delivery costs. Downstream costs are classified as general, selling, and administrative expenses and are expensed in the period they are incurred.

Difficulty: 2 Medium

Topic: Cost Classification in Manufacturing Companies

Learning Objective: 01-04 Compare the treatment of upstream, midstream, and downstream costs in manufacturing, service, and merchandising companies.

Bloom's: Understand

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

30) Kirsten believes her company's overhead costs are driven (affected) by the number of direct labor hours because the production process is very labor intensive. During the period, the company produced 5,000 units of Product A requiring a total of 1,600 labor hours and 2,500 units of Product B requiring a total of 400 labor hours. What allocation rate should be used if the company incurs overhead costs of $20,000?

A) $10 per labor hour

B) $2.67 per unit

C) $12.50 per labor hour for Product A and $50 per labor hour for Product B

D) None of these

Answer: A

Explanation: The company's overhead costs are driven (affected) by the number of direct labor hours because the production process is very labor intensive. As a result, the allocation rate should be based on labor hours.

Allocation rate = Overhead cost ÷ Allocation base

Allocation rate = $20,000 ÷ (1,600 labor hours + 400 labor hours) = $10.00 per labor hour

Difficulty: 3 Hard

Topic: Overhead Costs: A Closer Look

Learning Objective: 01-03 Show how manufacturing product costs affect financial statements.

Bloom's: Apply

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

31) Anton believes his company's overhead costs are driven (affected) by the number of machine hours because the production process is heavily automated. During the period, the company produced 3,000 units of Product A requiring a total of 100 machine hours and 2,000 units of Product B requiring a total of 25 machine hours. What allocation rate should be used if the company incurs overhead costs of $10,000?

A) $2 per unit

B) $2 per machine hour

C) $80 per unit

D) $80 per machine hour

Answer: D

Explanation: The company's overhead costs are driven (affected) by the number of machine hours because the production process is heavily automated. As a result, the allocation rate should be based on machine hours.

Allocation rate = Overhead cost ÷ Allocation base

Allocation rate = $10,000 ÷ (100 machine hours + 25 machine hours) = $80 per machine hour

Difficulty: 3 Hard

Topic: Overhead Costs: A Closer Look

Learning Objective: 01-03 Show how manufacturing product costs affect financial statements.

Bloom's: Apply

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

32) The following information relates to the operations of Cruz Manufacturing during the current year:

Raw materials used

$

20,000

Direct labor wages

60,000

Sales salaries and commissions

50,000

Depreciation on production equipment

4,000

Rent on manufacturing facilities

30,000

Packaging and shipping supplies

6,000

Sales revenue

190,000

Units produced and sold

10,000

Selling price per unit

$

20.00

Based on this information, what is the company's cost of goods sold?

A) $86,000

B) $120,000

C) $114,000

D) $170,000

Answer: C

Explanation: Average cost per unit = (Materials cost + Labor costs + Overhead costs) ÷ Number of units produced

Average cost per unit = [$20,000 + $60,000 + ($4,000 + $30,000)] ÷ 10,000 units = $11.40 per unit

Cost of goods sold = Number of units sold × Average cost per unit

Cost of goods sold = 10,000 units sold × $11.40 per unit = $114,000

Difficulty: 3 Hard

Topic: Components of Product Cost; Average Cost per Unit; Costs Can Be Assets or Expenses

Learning Objective: 01-02 Identify the cost of manufacturing a product.

Bloom's: Apply

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

33) The following information relates to Marshall Manufacturing's current accounting period:

Raw materials used

$

34,000

Direct labor wages

66,000

Sales salaries and commissions

50,000

Depreciation on production equipment

6,000

Rent on manufacturing facilities

4,000

Administrative supplies and utilities

10,000

Sales revenue

210,000

Units produced

10,000

Units sold

10,000

Based on this information, what is the company's net income?

A) $40,000

B) $70,000

C) $30,000

D) $42,000

Answer: A

Explanation: Average cost per unit = (Materials cost + Labor costs + Overhead costs) ÷ Number of units produced

Average cost per unit = [$34,000 + $66,000 + ($6,000 + $4,000)] ÷ 10,000 units = $11.00 per unit

Cost of goods sold = Number of units sold × Average cost per unit

Cost of goods sold = 10,000 units sold × $11.00 per unit = $110,000

Net income = Revenue − Cost of goods sold − Selling and administrative expenses

Net income = $210,000 − $110,000 − ($50,000 + $10,000) = $40,000

Difficulty: 3 Hard

Topic: Manufacturing Product Costs on Financial Statements; Components of Product Cost; Average Cost per Unit; Costs Can Be Assets or Expenses

Learning Objective: 01-03 Show how manufacturing product costs affect financial statements.; 01-02 Identify the cost of manufacturing a product.

Bloom's: Apply

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

34) Costs such as transportation-out, sales commissions, uncollectible accounts receivable, and advertising costs are sometimes called:

A) upstream costs.

B) downstream costs.

C) direct costs.

D) indirect costs.

Answer: B

Explanation: Downstream costs are costs incurred after the manufacturing process including marketing, distribution, and customer services.

Difficulty: 1 Easy

Topic: Cost Classification in Manufacturing Companies

Learning Objective: 01-04 Compare the treatment of upstream, midstream, and downstream costs in manufacturing, service, and merchandising companies.

Bloom's: Remember

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

35) All of the following are downstream costs except:

A) packaging costs.

B) advertising.

C) research and development.

D) sales commissions.

Answer: C

Explanation: Downstream costs are costs incurred after the manufacturing process including marketing, distribution, and customer services. Research and development is considered an upstream cost because it is incurred before the manufacturing process.

Difficulty: 1 Easy

Topic: Cost Classification in Manufacturing Companies

Learning Objective: 01-04 Compare the treatment of upstream, midstream, and downstream costs in manufacturing, service, and merchandising companies.

Bloom's: Remember

AACSB: Knowledge Application

AICPA: BB Industry; FN Measurement

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