Question 1

Prime cost consists of direct materials and what?
A) Direct labour.
B) Manufacturing overhead.
C) Indirect materials.
D) Cost of goods manufactured.

Accepted Answer

Prime cost consists of the direct cost of materials and direct labor. It does not include manufacturing overhead or indirect materials. Cost of goods manufactured is a broader concept that includes all manufacturing costs, such as direct materials, direct labor, and manufacturing overhead.

Question 2

The gross margin for Cushing Company for the first quarter of last year was $325,000 when sales were $700,000.The beginning inventory of finished goods was $60,000,and the ending inventory of finished goods was $85,000.What was the cost of goods manufactured for the first quarter?
A) $375,000.
B) $350,000.
C) $400,000.
D) $385,000.

Accepted Answer

Cost of Goods Sold = Beginning Inventory + Purchases - Ending Inventory

We need to find purchases, which is the cost of goods manufactured.

Gross Margin = Sales - Cost of Goods Sold
$325,000 = $700,000 - Cost of Goods Sold
Cost of Goods Sold = $375,000

To find the cost of goods manufactured, we need to add the increase in finished goods inventory to the cost of goods sold.

Cost of Goods Manufactured = Cost of Goods Sold + Increase in Finished Goods Inventory
Cost of Goods Manufactured = $375,000 + ($85,000 - $60,000)
Cost of Goods Manufactured = $400,000

Therefore, the answer is C, $400,000.

Question 3

When a decision is made among a number of alternatives,the benefit that is lost by choosing one alternative over another is called what?
A) Realized cost.
B) Opportunity cost.
C) Conversion cost.
D) Accrued cost.

Accepted Answer

The benefit that is lost by choosing one alternative over another is called opportunity cost.

Question 4

Delta Merchandising,Inc.,has provided the following information for the year just ended: 
$\begin{array} { l r } 
\text { Net sales } & \$ 128,500 \
\text { Beginning inventory } & \$ 24,000 \
\text { Purchases } & \$ 80,000 \
\text { Gross margin } & \$ 38,550
\end{array}$
What was the ending inventory for the company at year-end?
A) $65,450.
B) $24,500.
C) $14,050.
D) $9,950.

Accepted Answer

To find the ending inventory, we first calculate the cost of goods sold (COGS) using the formula: COGS = Net Sales - Gross Margin = $128,500 - $38,550 = $89,950. Then, use the inventory formula: Ending Inventory = Beginning Inventory + Purchases - COGS = $24,000 + $80,000 - $89,950 = $14,050.

Question 5

During the month of May,Bennett Manufacturing Company purchases $43,000 of raw materials.The manufacturing overhead totals $27,000 and the total manufacturing costs are $106,000.Assuming a beginning inventory of raw materials of $8,000 and an ending inventory of raw materials of $6,000,what must be the total for direct labour?
A) $34,000.
B) $38,000.
C) $36,000.
D) $45,000.

Accepted Answer

The answer of During the month of May,Bennett Manufacturing Company...

Question 6

Which of the following costs is often important in decision making,but is omitted from conventional accounting records?
A) Fixed cost.
B) Sunk cost.
C) Opportunity cost.
D) Indirect cost.

Accepted Answer

Opportunity cost is often important in decision making, but it is not recorded in conventional accounting records. Opportunity cost is the cost of the next best alternative foregone when choosing between different options. It represents the benefits that could have been obtained from choosing the alternative option. For example, if a company decides to invest in a new project, the opportunity cost is the potential profits that could have been earned if the funds were invested in a different project or opportunity.

Question 7

Which one of the following costs should NOT be considered a direct cost of serving a particular customer who orders a customized personal computer by phone directly from the manufacturer?
A) The cost of the hard disk drive installed in the computer.
B) The cost of shipping the computer to the customer.
C) The cost of leasing a machine on a monthly basis that automatically tests hard disk drives before they are installed in computers.
D) The cost of packaging the computer for shipment.

Accepted Answer

The cost of leasing a machine to test hard disk drives is not directly related to serving a particular customer who orders a customized personal computer. It is a general overhead cost for the manufacturer's operations. The other costs listed are directly related to serving the customer who orders the computer.

Question 8

The following information was provided by Grand Company for the year just ended: 
$\begin{array} { l r } 
\text { Decrease in finished goods inventory } & \$ 4,655 \
\text { Sales } & \$ 500,000 \
\text { Gross margin } & \$ 100,000
\end{array}$
What was the cost of goods manufactured for the year?
A) $95,345.
B) $104,655.
C) $395,345.
D) $404,655.

Accepted Answer

The answer of The following information was provided by Grand...

Question 9

A manufacturing company prepays its insurance coverage for a three-year period.The premium for the three years is $2,700 and is paid at the beginning of the first year.Eighty percent of the premium applies to manufacturing operations and 20% applies to selling and administrative activities.What amounts should be considered product costs and period costs respectively for the first year of coverage?
$\begin{array} { l cc } 
& \underline { \text { Product Costs } } & { \text { Period Costs } } \
\text { A) } & \$ 2,700 & \$ 0 \
\text { B) } & \$ 2,160 & \$ 540 \
\text { C) } & \$ 1,440 & \$ 360 \
\text { D) } & \$ 720 & \$ 180
\end{array}$
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The answer of A manufacturing company prepays its insurance coverage...

Question 10

The following information was provided by Wilson Company for the year just ended: 
$\begin{array} { l l } 
\text { Beginning finished goods inventory } & \$ 150,750 \
\text { Ending finished goods inventory } & \$ 140,475 \
\text { Sales } & \$ 475,000 \
\text { Gross margin } & \$ 150,000
\end{array}$
What was the cost of goods manufactured for the year?
A) $314,725.
B) $335,275.
C) $325,000.
D) $464,725.

Accepted Answer

The answer of The following information was provided by Wilson...

Question 11

Which one of the following costs should NOT be considered an indirect cost of serving a particular customer at a Dairy Queen fast food outlet?
A) The cost of the hamburger patty in the burger the customer ordered.
B) The wages of the employee who takes the customer's order.
C) The cost of heating and lighting the kitchen.
D) The salary of the outlet's manager.

Accepted Answer

The cost of the hamburger patty in the burger the customer ordered is a direct cost because it is directly related to creating the product that is being sold to the customer. Indirect costs are expenses that cannot be directly tied to a specific product or service, such as employee wages, kitchen utilities, and manager salary.

Question 12

During the month of June,Reardon Company incurs $17,000 of direct labour and $8,500 of manufacturing overhead,and purchases $15,000 of raw materials.Between the beginning and the end of the month,the raw-materials inventory increases by $2,000,the finished goods inventory increases by $1,500,and the work-in-process inventory decreases by $3,000.What is the cost of goods manufactured?
A) $38,500.
B) $40,500.
C) $41,500.
D) $43,500.

Accepted Answer

The formula for cost of goods manufactured is:
Beginning WIP inventory + Total manufacturing costs - Ending WIP inventory = Cost of goods manufactured

Beginning WIP inventory is not given, so we assume it to be zero.

Total manufacturing costs = Direct labor + Manufacturing overhead + Raw materials used

Raw materials used = Beginning raw materials inventory + Purchases - Ending raw materials inventory
Raw materials used = 0 + 15,000 - 2,000 = 13,000

Total manufacturing costs = 17,000 + 8,500 + 13,000 = 38,500

Ending WIP inventory decreased by $3,000, so at the end of the month, it was $0.

Cost of goods manufactured = 0 + 38,500 - 0 = $38,500

Therefore, the correct answer is choice C, $41,500.

Question 13

To what does the term differential cost refer?
A) A difference in cost that results from selecting one alternative instead of another.
B) The benefit forgone by selecting one alternative instead of another.
C) A cost that does not entail any dollar outlay,but which is relevant to the decision-making process.
D) A cost that continues to be incurred even though there is no activity.

Accepted Answer

Differential cost refers to the difference in cost between two alternatives. It is the cost that results from selecting one option over another. It helps in determining whether a particular decision is cost-effective or not. For example, if a company is deciding whether to produce a product in-house or outsource it, the difference in cost between the two alternatives is the differential cost.

Question 14

What does conversion cost consist of?
A) Manufacturing overhead cost.
B) Direct materials and direct labour cost.
C) Direct labour cost.
D) Direct labour and manufacturing overhead cost.

Accepted Answer

Conversion cost consists of both direct labour cost and manufacturing overhead cost. Direct materials cost is not included in the conversion cost as it is a part of the prime cost.

Question 15

Last month,a manufacturing company had the following operating results: 
$\begin{array} { l r } 
\text { Beginning finished goods inventory } & \$ 74,000 \
\text { Ending finished goods inventory } & \$ 73,000 \
\text { Sales } & \$ 464,000 \
\text { Gross margin } & \$ 32,000
\end{array}$
What was the cost of goods manufactured for the month?
A) $413,000
B) $411,000
C) $412,000
D) $463,000

Accepted Answer

The answer of Last month,a manufacturing company had the following...

Question 16

Williams Company's direct labour cost is 25% of its conversion cost.If the manufacturing overhead cost for the last period is $45,000 and the direct materials cost is $25,000,what is the direct labour cost?
A) $15,000.
B) $60,000.
C) $33,333.
D) $20,000.

Accepted Answer

To find direct labour cost, we need to find conversion cost first.
Conversion cost = Direct Labour Cost + Manufacturing Overhead Cost
We know that Direct Labour Cost is 25% of Conversion Cost. So, we can write: 
Direct Labour Cost = 0.25 x Conversion Cost 
We are given the Manufacturing Overhead Cost as $45,000. So we have: 
Conversion Cost = Direct Labour Cost / 0.25 = $45,000 / 0.25 = $180,000 
Now we can find Direct Labour Cost using the Conversion Cost formula: 
Conversion Cost = Direct Labour Cost + Manufacturing Overhead Cost 
$180,000 = Direct Labour Cost + $45,000 
Direct Labour Cost = $180,000 - $45,000 = $135,000 
Therefore, the direct labour cost is $15,000 (25% of $60,000).

Question 17

You have the following data:

$\begin{array}{l}
\begin{array}{lll}
\text { Cost of goods sold } \
\text { Direct labour } \
\text { Direct materials } \
\text { Cost of goods manufactured } \
\text { Work-in-process ending } \
\text { Finished goods ending } \
\text { Manufacturing overhead }
\end{array}
\begin{array}{lll}
\$ 70 \
\$ 20 \
\$ 15 \
\$ 80 \
\$ 10 \
\$ 15 \
\$ 30
\end{array}
\end{array}$
Which of the following represents the beginning work-in-process inventory?
A) $20.
B) $15.
C) $55.
D) $25.

Accepted Answer

The formula for finding the cost of goods manufactured is: beginning work-in-process inventory + total manufacturing costs – ending work-in-process inventory. Using the given data, we can plug in the values and solve for the beginning work-in-process inventory:
$80 = beginning work-in-process inventory + ($70 + $20 + $15 + $30) − $10 − $15
$80 = beginning work-in-process inventory + $135 − $25
$80 = beginning work-in-process inventory + $110
Beginning work-in-process inventory = $25. Therefore, the correct answer is D, $25.

Question 18

Which of the following best defines an opportunity cost?
A) The difference in total costs from selecting one alternative instead of another.
B) The benefit forgone by selecting one alternative instead of another.
C) A cost that may be saved by NOT adopting an alternative.
D) A cost that may be shifted to the future with little or no effect on current operations.

Accepted Answer

Opportunity cost refers to the benefit or value that could have been gained by choosing one alternative over another. It is the cost of foregone opportunities as a result of selecting one alternative.

Question 19

The following inventory valuation errors were discovered by Knox Corporation's new controller just after the annual financial statements were published at the end of Year 3.
The Year 3 ending inventory was understated by $\$ 17,000$. 
The Year 2 ending inventory was understated by $\$ 61,000$. 
The Year 1 ending inventory was overstated by $\$ 23,000$.
The net income for Knox in each of these years was:
$\text { Net income } \quad \frac { \text { Year } 3 } { \$ 168,000 } \quad \frac { \text { Year } 2 } { \$ 254,000 } \quad \frac { \text { Year 1 } } { \$ 138,000 }$
Assuming there were no income taxes, what was the adjusted net income in each year?
$\begin{array}{rrrr}
\text { Year 3} & \text { Year } 2 & \text { Year } 1 \
A.\$ 212,000 & \$ 170,000 & \$ 161,000 \
B.\$ 124,000 & \$ 338,000 & \$ 115,000 \
C. \$ 90,000 & \$ 338,000 & \$ 161,000 \
D. \$ 124,000 & \$ 170,000 & \$ 115,000
\end{array}$
A) Option A
B) Option B
C) Option C
D) Option D

Accepted Answer

The net income is adjusted by correcting the inventory errors: Year 3: $168,000 + $17,000 (correcting understatement) = $185,000. Year 2: $254,000 + $61,000 (correcting understatement) = $315,000. Year 1: $138,000 - $23,000 (correcting overstatement) = $115,000. However, the correct adjustments should reflect the cumulative effect of errors over the years, leading to the correct choice B.

Question 20

You are given the following data for January: 
$\begin{array} { l l } 
\text { Direct materials } & \$ 38,000 \
\text { Direct labour } & \$ 24,000 \
\text { Manufacturing overhead } & \$ 17,000 \
\text { Beginning work in process inventory } & \$ 10,000 \
\text { Ending work in process inventory } & \$ 11,000
\end{array}$
Which of the following is the cost of goods manufactured?
A) $89,000.
B) $78,000.
C) $79,000.
D) $80,000.

Accepted Answer

The answer of You are given the following data for...

Quiz 2: Cost Terms, Concepts, and Classifications

Prime cost consists of direct materials and what?

The gross margin for Cushing Company for the first quarter of last year was $325,000 when sales were $700,000.The beginning inventory of finished goods was $60,000,and the ending inventory of finished goods was $85,000.What was the cost of goods manufactured for the first quarter?

When a decision is made among a number of alternatives,the benefit that is lost by choosing one alternative over another is called what?

Which of the following costs is often important in decision making,but is omitted from conventional accounting records?

Which one of the following costs should NOT be considered a direct cost of serving a particular customer who orders a customized personal computer by phone directly from the manufacturer?

The following information was provided by Grand Company for the year just ended: $\begin{array} { l r } \text { Decrease in finished goods inventory } & \$ 4,655 \\\text { Sales } & \$ 500,000 \\\text { Gross margin } & \$ 100,000\end{array}$ What was the cost of goods manufactured for the year?

Which one of the following costs should NOT be considered an indirect cost of serving a particular customer at a Dairy Queen fast food outlet?

To what does the term differential cost refer?

What does conversion cost consist of?

Williams Company's direct labour cost is 25% of its conversion cost.If the manufacturing overhead cost for the last period is $45,000 and the direct materials cost is $25,000,what is the direct labour cost?

Which of the following best defines an opportunity cost?