Deck 6: Fundamentals of Product and Service Costing

Question 1

The selection of an appropriate cost allocation base is more important for single-stage cost allocation systems than for two-stage cost allocation systems.A correctly chosen allocation base is equally important for any allocation system.

Answer 1

False

Question 2

If the Beginning Balance (BB)equals the Ending Balance (EB),then the Transfers In (TI)equal the Transfers Out (TO).No change in the beginning and ending inventory balances,so the outputs (TO)will equal the inputs (TI).

Answer 2

True

Question 3

Individual product costs are relevant for managerial decision-making but irrelevant for preparing the financial statements.The individual product costs are relevant for both financial statement purposes and the purpose of decision-making.

Answer 3

False

Question 4

In general,indirect costs are allocated,while direct costs are assigned.This is a definition of allocated and assigned costs.

Question 5

The basic cost flow model applies only to physical units and not to costs.This inventory equation applies to both physical units and the costs associated with the physical units.

Question 6

Operation costing is a hybrid system used in manufacturing goods that have some common characteristics and some individual characteristics.This is a definition of operations costing.

Question 7

The only purpose of cost information is to determine the individual product cost on a per unit basis in order to value inventory.Product costing is one purpose of many for determining individual product cost on a per unit basis.

Question 8

The two-stage cost allocation process allocates costs to multiple cost pools and then to individual cost objects using different allocation bases.This is the definition of two-stage allocation.

Question 9

Hospitals are more likely to use a process costing system than a job order costing system.Each procedure/patient will use different resources.

Question 10

The term "product" often refers to an organization's output and includes both tangible items (e.g. ,chair,desk,etc. )and intangible items (e.g. ,services provided).This is a definition of product.

Question 11

Regression analysis can be used to estimate the strength of the relationship between a cost and potential allocation bases for that cost.This is one possible method of estimating the strength of the relationship.

Question 12

Overestimating a period's allocation base will understate the predetermined overhead rate.The denominator of the rate will be too high,causing the rate to be too low.

Question 13

One of the most common decisions facing managers is determining the price at which to sell one of their products or to provide their services.Accountant needs to provide the individual product costs to the various product managers so they can make decisions regarding pricing,production,promotion,and so on.

Question 14

"Beginning Balance (BB)plus Transfers Out (TO)equals Ending Balance (EB)plus Transfers In (TI)".BB + TI = EB + TO

Question 15

If a company has three cost pools,it should have three different cost allocation bases.This would be the case if there was a need for information on a departmental basis and if differences exist in hours or rates,or whatever the allocation base is.

Question 16

It is important that cost management systems are designed using the cost-benefit principle so that the costs of gathering additional information are balanced against the benefits of that information.Cost-benefit analysis is a fundamental theme.

Question 17

Cost management systems should be designed to report the same costs to each decision-maker.The system should be designed to report the cost needed by each decision maker.This cost is not necessarily the same for each.

Question 18

The Transfers In (TI)costs in the basic cost flow model of a manufacturing firm are direct materials,direct labor,and manufacturing overhead.These are the three main categories of manufacturing inputs.

Question 19

The predetermined overhead rate is calculated by dividing the prior period's overhead cost by the prior period's allocation base (i.e. ,activity level).The formula uses the current period or a future period for both overhead and activity level.Absent this,historic relationship can be used.

Question 20

Process costing systems do not separate and record direct material and direct labor costs for each individual unit of product.Process costing does not separate and record costs for each unit.

Question 21

Which of the following would be the least appropriate allocation base for allocating overhead in a highly automated (i.e. ,capital-intensive)manufacturing company?

A)Electricity used.
B)Machine hours.
C)Direct labor hours.
D)Material consumeD.Direct labor hours would be the least related allocation base to use in an automated environment between the alternatives provideD.

Question 22

Which of the following statements is (are)false regarding cost allocations and product costing? (A)It is easier to determine the individual product cost for a manufacturer than it is for a wholesaler.(B)In general,indirect costs are assigned,while direct costs are allocated.

A)Only A is false.
B)Only B is false.
C)Both A and B are false.
D)Neither A nor B is false.

Question 23

A system that mass-produces a single,homogenous output in a continuous process is a(n):

A)continuous flow process.
B)cost management system.
C)two-stage allocation system.
D)operations cost.

Question 24

Cost pools are:

A)costs that are accumulated before being allocated to cost objects on some common basis.
B)costs that are relevant to decision-making but irrelevant to financial reporting.
C)product costs that are assigned to cost objects using direct labor or machine hours.
D)accounts in the product life cycle from research and development to customer service.

Question 25

The Cost Flow Diagram for product costing includes all of the following costs except:

A)selling expenses.
B)direct materials.
C)direct labor.
D)fixed manufacturing overheaD.

Question 26

Beal Company uses direct labor cost as a basis for computing its predetermined overhead rate.In computing the predetermined overhead rate for 2012,the company misclassified a portion of direct labor cost as indirect labor.The effect of this misclassification will be to:

A)understate the predetermined overhead rate.
B)overstate the predetermined overhead rate.
C)there will be no effect on the predetermined overhead rate.
D)Can't tell from the information provideD.Misclassifying the direct labor will cause the numerator to be larger and the denominator to be smaller,thus overstating the rate.

Question 27

A hybrid costing system that is often used when manufacturing goods that have some common characteristics plus some individual characteristics is called:

A)continuous flow process.
B)cost management system.
C)two-stage allocation system.
D)operations cost.

Question 28

When a manufacturing company has a highly automated manufacturing plant producing many different products,what is probably the most appropriate basis of applying overhead costs to work-in-process?

A)Direct labor hours.
B)Direct labor dollars.
C)Machine hours.
D)Cost of materials useD.Machine hours would more closely reflect the usage of the automated equipment.

Question 29

Which of the following statements is (are)true regarding product costing? (A)Individual product costs are relevant for managerial decision-making but irrelevant for preparing the financial statements.(B)A common decision facing managers is determining the price at which to sell their products or provide their services.

A)Only A is true.
B)Only B is true.
C)Both A and B are true.
D)Neither A nor B is true.

Question 30

The process of first allocating costs to intermediate cost pools and then to the individual cost objects using different allocation bases is a(n):

A)continuous flow process.
B)cost management system.
C)two-stage allocation system.
D)operations cost.

Question 31

In a labor intensive company in which more overhead is used by the more highly skilled and paid employees,which activity base would be most appropriate for applying overhead to production?

A)Direct labor cost.
B)Direct material cost.
C)Direct labor hours.
D)Machine hours.

Question 32

The basic cost flow model is:

A)BB + TO = TI + EB.
B)BB + TO - TI = EB.
C)EB = BB + TI - TO.
D)EB - BB = TO - TI.

Question 33

A system that provides information about the costs of processes,products,and services used and produced by an organization is a:

A)continuous flow process.
B)cost management system.
C)two-stage allocation system.
D)operations cost.

Question 34

A company is considering the use of a single-stage cost allocation process.Under what conditions would this choice be justified?

A)The company has many service departments but only one production department.
B)The company produces a few products with similar characteristics in a few departments.
C)The company has no service departments but many production departments.
D)The company produces a wide selection of differing products.

Question 35

The basic cost flow model is:

A)EB + TO = TI + BB.
B)BB + TO - TI = EB.
C)EB = BB - TI + TO.
D)EB - BB = TO - TI.

Question 36

The basic cost flow model is:

A)EB + BB = TI + TO.
B)BB + EB = TI + TO.
C)EB - BB = TI - TO.
D)EB - BB = TO - TI.

Question 37

Which of the following statements regarding the two-stage cost allocation process is (are)false? (A)If a company has three cost pools,then it should also have three different cost allocation bases.(B)The selection of an appropriate cost allocation base is more important for single-stage cost allocation systems than for two-stage cost allocation systems.

A)Only A is false.
B)Only B is false.
C)Both A and B are false.
D)Neither A nor B is false.

Question 38

The basic cost flow model is:

A)BB + TO - TI = EB.
B)BB + EB - TO = TI.
C)BB - TI - TO = EB.
D)BB + TI - TO = EB.

Question 39

For which of the following businesses would the job order cost system be appropriate?

A)Law office.
B)Crude oil refinery.
C)Baby formula manufacturer.
D)Soft drink producer.

Question 40

Which of the following statements is true?

A)Job costing can only be used when a single unit is produced rather than a batch.
B)Process costing is used when products are customized.
C)Job costing must be used in a continuous flow processing environment.
D)Process costing does not separately record the costs for each unit.

Question 41

For Case (A)above,what is the Ending Balance (EB)?

A)$36,920.
B)$36,520.
C)$34,720.
D)$38,320.

Question 42

For Case (C)above,what is the amount Transferred In (TI)?

A)$12,800.
B)$20,700.
C)$21,500.
D)$29,400.

Question 43

The predetermined manufacturing overhead rate for 2012 was $4.00 per direct labor hour;employees were paid $5.00 per hour.If the estimated direct labor cost was $75,000,what was the estimated manufacturing overhead?

A)$15,000.
B)$60,000.
C)$75,000.
D)$93,750.

Question 44

The following information has been gathered for the GHI Manufacturing Company for its fiscal year ending December 31: What is the predetermined manufacturing overhead rate,assuming direct labor cost is used as the activity base?

A)48.4%.
B)47.2%.
C)49.0%.
D)47.8%.

Question 45

The loan department of a financial corporation makes loans to businesses.The costs of processing these loans are often several thousand dollars.All loans are initially evaluated using the same financial analysis software,but some require outside services such as appraisals and legal services.Which is the most appropriate costing system for the loan department?

A)Job-order costing.
B)Process costing.
C)Operation costing.
D)Batch costing.

Question 46

The following direct labor information pertains to the manufacture of product Frez: What is the standard direct labor cost per unit of product Frez? (CPA adapted)

A)$19.44.
B)$25.28.
C)$58.33.
D)$75.83.

Question 47

Techniques,Inc.uses a predetermined manufacturing overhead rate based on direct labor hours to apply its indirect product costs to jobs.The following information has been collected for the previous year: Techniques used 25,000 direct labor hours and 50,000 machine hours during the previous year.What is the predetermined overhead rate per direct labor hour?

A)$24.00.
B)$15.00.
C)$14.00.
D)$10.00.

Question 48

The Super Supply Company manufactures cleaning spray for public schools.During 2012,the company spent $600,000 on prime costs and $800,000 on conversion costs.Overhead is applied at a rate of 150% of direct labor costs.How much did the company allocate (apply)for manufacturing overhead during 2012?

A)$480,000.
B)$360,000.
C)$320,000.
D)$300,000.

Question 49

For Case (B)above,what is the amount Transferred Out (TO)?

A)$93,900.
B)$101,500.
C)$116,900.
D)$120,700.

Question 50

The cost per unit of the allocation base used to charge overhead to products is the:

A)job cost.
B)predetermined overhead rate.
C)operational cost.
D)process cost.

Question 51

Lexie Lou Industries applies manufacturing overhead to its cost objects on the basis of 75% of direct material cost.If Job 17X had $72,000 of manufacturing overhead applied to it during May,the direct materials assigned to Job 17X was:

A)$54,000.
B)$72,000.
C)$96,000.
D)$126,000.

Question 52

Acme,Inc.had overhead of $310,000 during the year when $260,000 in labor costs were incurred.Estimates at the start of the year for overhead and labor costs were $300,000 for overhead and $250,000 for labor costs.The predetermined overhead rate would be:

A)101.67%.
B)104.00%.
C)120.00%.
D)83.33%.

Question 53

Fab Co.manufactures textiles.Among Fab's 2012 manufacturing costs were the following salaries and wages: What was the amount of Fab's 2012 direct labor? (CPA adapted)

A)$195,000.
B)$165,000.
C)$150,000.
D)$120,000.

Question 54

The UVW Manufacturing Company produces a single uniform product throughout the year.Which of the following product costing systems should be used by UVW?

A)Job-order costing.
B)Process costing.
C)Operation costing.
D)Batch costing.

Question 55

For Case (A)above,what is the Beginning Balance (BB)?

A)$52,000.
B)$82,000.
C)$67,000.
D)$97,600.

Question 56

Fab Co.manufactures textiles.Among Fab's 2012 manufacturing costs were the following salaries and wages: What was the amount of Fab's 2012 indirect labor? (CPA adapted)

A)$75,000
B)$165,000
C)$150,000
D)$120,000

Question 57

The following information has been gathered for the GHI Manufacturing Company for its fiscal year ending December 31: What is the predetermined manufacturing overhead rate per direct labor hour?

A)$3.87.
B)$3.79.
C)$3.83.
D)$3.75.

Question 58

Acme,Inc.has estimated overhead to be $300,000 and labor hours to be 30,000.Actual overhead turned out to be $310,000 when 30,500 labor hours were worked.The predetermined overhead rate would be:

A)101.67%.
B)$10.00.
C)$10.16.
D)$10.33.

Question 59

The following direct labor information pertains to the manufacture of product Glu: What is the standard direct labor cost per unit of product Glu? (CPA adapted)

A)$30.
B)$24.
C)$15.
D)$12.

Question 60

For Case (B)above,what is the Transferred-In (TI)?

A)$96,900.
B)$119,700.
C)$89,500.
D)$66,700.

Question 61

Slurpy produces soft drinks and sodas.Production of 100,000 liters was started in February,85,000 liters were completed.Material costs were $38,220 for the month while conversion costs were $16,380.There was no beginning work-in-process;the ending work-in-process was 40% complete.What is the cost of the product that was completed and transferred to finished goods?

A)$54,600.
B)$51,000.
C)$46,410.
D)$38,220.

Question 62

The following information has been gathered for Roswell Machining for its fiscal year ending December 31: What is the predetermined factory overhead rate per labor hour?

A)$29.01.
B)$31.25.
C)$37.01.
D)$34.36.

Question 63

For Case (B)above,what is the Ending Balance (EB)?

A)$139,300.
B)$136,260.
C)$62,950.
D)$56,730.

Question 64

Lo-crete produces quick setting concrete mix.Production of 200,000 tons was started in April,190,000 tons were completed.Material costs were $3,152,000 for the month while conversion costs were $591,000.There was no beginning work-in-process;the ending work-in-process was 70% complete.What is the cost of the product that was completed and transferred to finished goods?

A)$3,610,000.
B)$3,555,850.
C)$2,994,400.
D)$3,743,000.

Question 65

For Case (B)above,what is the Ending Balance (EB)?

A)$4,730.
B)$12,530.
C)$46,500.
D)$8,630.

Question 66

Lo-crete produces quick setting concrete mix.Production of 200,000 tons was started in April,190,000 tons were completed.Material costs were $3,152,000 for the month while conversion costs were $591,000.There was no beginning work-in-process;the ending work-in-process was 70% complete.What is the cost of the product that remains in work-in-process?

A)$591,000.
B)$131,005.
C)$187,150.
D)$133,000.

Question 67

For Case (C)above,what is the Transferred-In (TI)?

A)$146,700.
B)$178,400.
C)$190,790.
D)$185,400.

Question 68

Trans-X processes credit card receipts for local banks.Trans-X processed 1,400,000 receipts in October.All receipts are processed the same day they are received.October costs were labor of $14,000 and overhead of $28,000.What is the cost to process 1,000 receipts?

A)$10.00.
B)$30.00.
C)$20.00.
D)$42.00.

Question 69

For Case (C)above,what is the Transferred-Out (TO)?

A)$75,000.
B)$61,800.
C)$68,400.
D)$80,600.

Question 70

The following information has been gathered for Cheatham Law Offices for its fiscal year ending December 31: What is the predetermined office overhead rate per billable labor dollar?

A)118.10%.
B)25.00%.
C)32.21%.
D)400.00%.

Question 71

Slurpy produces soft drinks and sodas.Production of 100,000 liters was started in February,85,000 liters were completed.Material costs were $38,220 for the month while conversion costs were $16,380.There was no beginning work-in-process;the ending work-in-process was 40% complete.What is the cost of the product that remains in work-in-process?

A)$16,380.
B)$51,000.
C)$3,600.
D)$9,000.

Question 72

Lo-crete produces quick setting concrete mix.Production of 200,000 tons was started in April,190,000 tons were completed.Material costs were $3,152,000 for the month while conversion costs were $591,000.There was no beginning work-in-process;the ending work-in-process was 70% complete.What is the material cost of the product that remains in work-in-process?

A)$315,200.
B)$157,600.
C)$112,000.
D)$160,000.

Question 73

The following information has been gathered for Roswell Machining for its fiscal year ending December 31: What is the predetermined factory overhead rate per machine hour?

A)$15.625.
B)$14.620.
C)$18.504.
D)$17.314.

Question 74

Sweet Lu Industries applies manufacturing overhead to its products on the basis of 50% of direct material cost.If a job had $35,000 of manufacturing overhead applied to it during May,the direct materials assigned to the job was:

A)$17,500.
B)$35,000.
C)$70,000.
D)$140,000.

Question 75

The following information has been gathered for Cheatham Law Offices for its fiscal year ending December 31: What is the predetermined office overhead rate per billable labor hour?

A)$28.60.
B)$26.57.
C)$22.50.
D)$24.22.

Question 76

Mounder processes rebate requests for a large building supply firm.Mounder processed 420,000 rebates in March.All rebates are processed the same day they are received.March costs were labor of $28,000 and overhead of $14,000.What is the cost to process 1,000 rebates?

A)$66.67.
B)$100.00.
C)$10.00.
D)$42.00.

Question 77

For Case (A)above,what is the Beginning Balance (BB)?

A)$36,400.
B)$32,560.
C)$37,680.
D)$34,040.

Question 78

For Case (C)above,what is the Beginning Balance (BB)?

A)$15,900.
B)$2,100.
C)$11,700.
D)$13,800.

Question 79

The following information has been gathered for Roswell Machining for its fiscal year ending December 31: What is the predetermined factory overhead rate per labor dollar?

A)178.54%.
B)211.44%.
C)118.43%.
D)198.41%.

Question 80

For Case (A)above,what is the Transferred-Out (TO)?

A)$185,600.
B)$192,600.
C)$126,100.
D)$178,890.