Question 1

Electricity costs that were incurred by a company's production processes should be debited to Utilities Expense.

Accepted Answer

Electricity costs incurred by a company's production processes should be debited to Manufacturing Overhead, not Utilities Expense, as they are part of the costs of producing the products.

Question 2

The term "normal costing" refers to the use of job-costing systems.

Accepted Answer

Normal costing is a costing system that assigns overhead costs to products based on a predetermined overhead rate. Job costing is a costing system that assigns overhead costs to products based on the actual overhead costs incurred for each job.

Question 3

A predetermined overhead rate is calculated by dividing actual overhead cost by the actual amount of a cost driver used in the process.

Accepted Answer

A predetermined overhead rate is calculated by dividing estimated overhead costs by the estimated amount of the cost driver (such as labor hours, machine hours, etc.) for the period.

Question 4

Two-stage cost allocation uses a first stage to assign all product costs to production departments and then a second stage to apply different cost drivers to improve efficiency.

Accepted Answer

Two-stage cost allocation first assigns costs to pools or departments (not directly to products) and then allocates these costs to products or services using cost drivers in the second stage.

Question 5

Which of the following statements is true?

Accepted Answer

Service companies, like those in manufacturing, require cost information for effective planning, budgeting, and management. This information helps in making strategic decisions, pricing services, and controlling operations.

Question 6

In traditional product-costing systems, the measure of productive activity is usually some volume-based cost driver, like direct-labor hours.

Accepted Answer

Traditional product-costing systems often use volume-based cost drivers, such as direct-labor hours or machine hours, to allocate overhead costs to products. This is because these systems typically assume that there is a direct correlation between the use of these cost drivers and the generation of overhead costs.

Question 7

The two-stage cost allocation actually has three types of allocation involved.

Accepted Answer

The two-stage cost allocation involves three types of allocation: direct costs, indirect costs, and overhead costs.

Question 8

A production order for a job authorizes the release of material to production.

Accepted Answer

The answer of A production order for a job authorizes...

Question 9

Product or service cost is a very objective number that anyone could agree on.

Accepted Answer

Product or service cost can vary due to factors like production methods, material costs, labor costs, and overheads, making it subjective and open to interpretation or negotiation.

Question 10

The final step in recognizing the completion of production requires a company to debit Finished-Goods Inventory and credit Work-in-Process Inventory.

Accepted Answer

This accounting entry transfers the cost of completed goods from Work-in-Process Inventory to Finished-Goods Inventory, reflecting the completion of production.

Question 11

Manufacturing overhead is a pool of indirect production costs that must somehow be attached to each unit manufactured.

Accepted Answer

Manufacturing overhead includes all the indirect costs associated with the production process, such as utilities, maintenance, and factory management salaries, which are allocated to each unit produced to determine its total manufacturing cost.

Question 12

Actual costing avoids the profitability of cyclicality.

Accepted Answer

Actual costing does not avoid the profitability of cyclicality; it records costs as they occur, which means it reflects the cyclical nature of costs and revenues as they happen, without smoothing or adjustments for cyclicality.

Question 13

As soon as products are completed, their product costs are transferred from Raw Materials Inventory to Finished-Goods Inventory.

Accepted Answer

When products are completed, their product costs are transferred from Work-in-Process Inventory to Finished-Goods Inventory, not directly from Raw Materials Inventory. Raw materials first move to Work-in-Process Inventory as they are used in production.

Question 14

In a public accounting firm, for example, costs are assigned to an audit engagement in much the same way they are assigned to a single batch of tables by a furniture manufacturer.

Accepted Answer

In both cases, costs are allocated to specific projects or jobs, whether it's an audit engagement or a batch of tables, using job costing methods to track expenses and resources used.

Question 15

Product costs provide crucial data for a variety of managerial purposes.

Accepted Answer

Product costs are essential for pricing, budgeting, decision making, and financial reporting, helping managers to make informed decisions regarding the production and marketing of goods or services.

Question 16

Under- or overapplied manufacturing overhead at year-end is most commonly charged or credited to Work-in-Process Inventory.

Accepted Answer

Under- or overapplied manufacturing overhead at year-end is most commonly adjusted in the Cost of Goods Sold account, although some companies might choose to allocate it among Work-in-Process Inventory, Finished Goods Inventory, and Cost of Goods Sold based on their accounting policies.

Question 17

If a company sells goods that cost $80,000 for $92,000, the firm will:

Accepted Answer

When a company sells goods, it reduces its Finished-Goods Inventory by the cost of the goods sold, which in this case is $80,000.

Question 18

Job-order costing methods are used in a variety of service industry firms and nonprofit organizations.

Accepted Answer

Job-order costing methods are applicable not only in manufacturing but also in service industries and nonprofit organizations, where costs are assigned to specific jobs or projects to better understand and manage them.

Question 19

As production takes place, all manufacturing costs are added to the:

Accepted Answer

During production, all manufacturing costs (direct materials, direct labor, and manufacturing overhead) are added to the Work-in-Process (WIP) Inventory account. This account tracks the costs associated with products that are in the process of being manufactured but are not yet complete.

Question 20

Which of the following statements is true?

Accepted Answer

Product costing methods and the allocation of indirect costs can significantly influence the perceived profitability of products or services. Different costing methods can allocate costs in various ways, leading to different conclusions about the relative profitability of products. This is because the way costs are assigned and outputs are defined can change the cost structure of a product, thus affecting its profitability analysis.

Quiz 3: Product Costing and Cost Accumulation in a Batch Production Environment

Electricity costs that were incurred by a company's production processes should be debited to Utilities Expense.

The term "normal costing" refers to the use of job-costing systems.

A predetermined overhead rate is calculated by dividing actual overhead cost by the actual amount of a cost driver used in the process.

Two-stage cost allocation uses a first stage to assign all product costs to production departments and then a second stage to apply different cost drivers to improve efficiency.

Which of the following statements is true?

In traditional product-costing systems, the measure of productive activity is usually some volume-based cost driver, like direct-labor hours.

The two-stage cost allocation actually has three types of allocation involved.

A production order for a job authorizes the release of material to production.

Product or service cost is a very objective number that anyone could agree on.

The final step in recognizing the completion of production requires a company to debit Finished-Goods Inventory and credit Work-in-Process Inventory.

Manufacturing overhead is a pool of indirect production costs that must somehow be attached to each unit manufactured.

Actual costing avoids the profitability of cyclicality.

As soon as products are completed, their product costs are transferred from Raw Materials Inventory to Finished-Goods Inventory.

In a public accounting firm, for example, costs are assigned to an audit engagement in much the same way they are assigned to a single batch of tables by a furniture manufacturer.

Product costs provide crucial data for a variety of managerial purposes.

Under- or overapplied manufacturing overhead at year-end is most commonly charged or credited to Work-in-Process Inventory.

If a company sells goods that cost $80,000 for $92,000, the firm will:

Job-order costing methods are used in a variety of service industry firms and nonprofit organizations.

As production takes place, all manufacturing costs are added to the:

Which of the following statements is true?