Question 1

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

Accepted Answer

The two-stage cost allocation process involves allocating service department costs to production departments and then allocating production department costs to products or services. So, there are actually three types of allocation involved in this process.

Question 2

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 is true as Finished-Goods Inventory represents the finished products that are ready for sale, while Work-in-Process Inventory represents the products that are still in the manufacturing process. Therefore, when production is complete, the cost of the products should be transferred to Finished-Goods Inventory from Work-in-Process Inventory. This is done by debiting Finished-Goods Inventory and crediting Work-in-Process Inventory.

Question 3

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 typically use direct-labor hours or machine hours as volume-based cost drivers to allocate overhead costs to products.

Question 4

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

Accepted Answer

The answer of The term "normal costing" refers to the...

Question 5

Product costing in a manufacturing ﬁrm is the process of:

Accepted Answer

Product costing in a manufacturing firm involves assigning costs to the firm's inventory, which includes the direct materials, direct labor, and manufacturing overhead costs associated with producing a product. This information is used to determine the cost of goods sold and to make pricing and production decisions. Accumulating period costs, allocating costs among departments, and placing a value on fixed assets are all important accounting processes, but they are not directly related to product costing in a manufacturing firm. Assigning costs to managers is also not part of product costing, as managers are responsible for decision-making based on the information provided by the product costing process.

Question 6

Which of the following statements is true?

Accepted Answer

Service companies, just like manufacturing companies, use cost information for planning and control purposes. They need to determine the cost of their services to determine pricing, profitability, and efficiency. A and B are false statements, while C and E are incorrect because the cost of year-end inventory appears on the balance sheet as an asset, not an expense, and mining and petroleum companies have inventoriable costs.

Question 7

Nonmanufacturing ﬁrms typically refer to their service production processes as jobs.

Accepted Answer

The answer of Nonmanufacturing ﬁrms typically refer to their service...

Question 8

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

Accepted Answer

Job-order costing methods can be used in service industry firms and non-profit organizations that provide customized services or products to clients or customers. Examples include consulting firms, law firms, healthcare providers, and universities.

Question 9

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 10

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 cost by an estimated amount of a cost driver, not actual overhead cost by actual amount of a cost driver.

Question 11

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

Accepted Answer

Product or service costs can vary depending on different factors such as the cost of raw materials, labor, transportation, and overhead expenses. These costs can sometimes be subjective as they may differ depending on the individual or company making the calculation.

Question 12

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

The answer of Two-stage cost allocation uses a ﬁrst stage...

Question 13

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 14

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

Accepted Answer

Manufacturing overhead includes indirect costs such as rent, utilities, maintenance, and depreciation that cannot be directly traced to each unit produced but must be allocated to each unit in order to determine the full cost of production.

Question 15

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

This statement is true. Just as a furniture manufacturer assigns costs to each batch of tables it produces, a public accounting firm assigns costs to each audit engagement it performs. Both types of businesses use cost accounting techniques to allocate costs to each unit of production.

Question 16

Actual costing avoids the proﬁtability of cyclicality.

Accepted Answer

Actual costing includes all costs, including those associated with cyclicality, which can affect profitability.

Question 17

Which of the following statements is true?

Accepted Answer

Relative profitability depends on how costs are assigned and outputs are defined. Different methods of indirect cost allocation may result in different profitability measures for a product or service, and the nature of costs may not always be objective, making product costing more challenging. Product costing is not limited to manufacturing firms and is used in both financial and managerial accounting. There are different ways to assign indirect costs, such as activity-based costing or traditional costing.

Question 18

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 19

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 20

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

Accepted Answer

Product costs are important for determining pricing, performance evaluation, budgeting, and decision-making related to production and inventory management.

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

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

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

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

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

Product costing in a manufacturing ﬁrm is the process of:

Which of the following statements is true?

Nonmanufacturing ﬁrms typically refer to their service production processes as jobs.

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

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

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

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

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.

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

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

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.

Actual costing avoids the proﬁtability of cyclicality.

Which of the following statements is true?

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

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

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