Question 1

Indicate whether each of the following statements is true or false.
Under variable costing,the cost of inventory includes variable product costs and variable selling and administrative expenses.______
Under absorption costing,the income statement is prepared using a contribution margin approach.______
Variable costing is not allowed for external financial reporting,but many companies find it useful for internal managerial reports.______
Under absorption costing,fixed manufacturing costs are expensed in the period incurred.______
Under variable costing,fluctuations in sales influence net income,but fluctuations in production do not.______

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Question 2

Select the term from the list that best matches the description or definition.Enter the number of the best answer in the "Your Answer" column.

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Question 3

Winken,Blinken,and Nod is a law firm specializing in real estate litigation.In addition to the three partners,the firm employs nine associates who work directly with clients.The average budgeted compensation for the twelve professionals is $240,000.Each lawyer is budgeted at 1,500 billable hours per year.All professional labor costs are included in a single direct cost pool and are traced to jobs on a per-hour basis.All non-professional labor costs are included in a single overhead cost pool and are allocated to jobs using professional labor hours as the allocation base.Budgeted overhead costs total $1,800,000.The firm is considering bidding on some work with a local university.The job is expected to require 100 hours of professional labor.
Required:
1)Compute the budgeted direct cost rate per hour of professional labor.
2)Compute the budgeted (that is,predetermined)overhead cost rate per hour of professional labor.
3)Compute the budgeted cost for the university job.

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Question 4

Indicate whether each of the following statements is true or false.
Estimated overhead costs are applied to work in process at the time the goods are produced.______
Overhead is applied to work in process by debiting Manufacturing Overhead and crediting Finished Goods Inventory.______
Recognizing estimated overhead is an asset exchange transaction.______
Actual overhead costs are recorded with a credit to Manufacturing Overhead.______
During a company's accounting period,manufacturing overhead is likely to be either overapplied or underapplied.______

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Question 5

Indicate whether each of the following statements is true or false.
A restaurant or dry cleaner is considered to be a manufacturing company.______
Service companies cannot have an inventory of raw materials.______
Service companies accumulate cost information for the services they provide to customers.______
Information about the cost of services provided is useful in budgeting,and budgeting is important for service companies.______
A service company typically reports finished goods on its balance sheet.______

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Question 6

Indicate whether each of the following statements is true or false.
Wages paid to production workers are classified as wages expense.______
Wages paid to production workers represent an asset exchange transaction.______
Supplies used in production are considered an indirect input and are accounted for as part of manufacturing overhead.______
Raw materials are indirect inputs to the production process.______

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Question 7

The Hamilton Company planned to produce 150,000 units during the current year.At that production volume,the company estimated that its overhead costs would amount to $637,500.
Required:
1)Calculate the predetermined overhead rate per unit based on expected production.
2)Assume that actual output totaled only 145,000 units but the actual overhead cost incurred was $637,500,as expected.How much overhead cost was allocated to work in process? By how much was overhead overapplied or underapplied during the period? (Be sure to indicate whether over- or underapplied.)
3)Assume that actual output totaled 150,000 units,as expected,but actual overhead costs amounted to $600,000.How much overhead cost was allocated to work in process? By how much was overhead overapplied or underapplied during the period? (Be sure to indicate whether over- or underapplied.)
4)Summarize the conditions that lead to over- or underapplied overhead.

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Question 8

Which is required for preparation of a company's external financial statements: absorption costing or variable costing? Which is frequently used for internal decision making?

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Question 9

Indicate whether each of the following statements is true or false.
The direct costs for a manufacturing company are direct materials and direct labor.______
To assign direct costs to its products,a manufacturer uses a predetermined overhead rate.______
To calculate a predetermined overhead rate,a company must select an appropriate allocation base.______
The predetermined overhead rate is calculated by dividing the expected level of the allocation base by the expected amount of manufacturing overhead costs.______
Calculation and use of a predetermined overhead rate is applicable to service companies as well as manufacturing companies.______

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Question 10

Lake Manufacturing estimated its product costs and production volume for the upcoming year by quarter as follows:
  The company expects a significant increase in volume in the fourth quarter due to holiday sales.The company does not expect overhead costs,which are predominately fixed,to vary with production volume or to vary significantly from previous years.Selling prices are established using a cost-plus pricing strategy where cost is the product's estimated quarterly cost.However,the company finds the wide variations in short-term unit cost difficult to use.Specifically,unit cost fluctuations complicate pricing decisions and many other decisions where cost is a consideration.
Required:
1)Compute the company's expected cost per unit for each quarter of the year.
2)How would you suggest that overhead costs be estimated to solve the company's unit cost problem? Calculate the unit cost per quarter based on your recommendation.

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Question 11

Indicate whether each of the following statements is true or false.
Calculation of a predetermined overhead rate is based on estimates and can be done at the beginning of a period.______
A spending variance is the difference between applied overhead costs and estimated overhead costs.______
A difference between the actual and estimated volume of activity causes a volume variance.______
A volume variance is unfavorable if actual volume is greater than expected.______
For an accounting period,the volume variance is the amount by which overhead was over- or underapplied.______

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Question 12

Indicate whether each of the following statements is true or false.
In a period when finished goods decreases,use of absorption costing results in higher net income than variable costing.______
Direct materials and direct labor usually behave as variable costs.______
Generally accepted accounting principles allow a company to use either variable or absorption costing for external financial reporting.______
Under absorption costing,fixed manufacturing costs are expensed in the period incurred.______
Increasing the number of units produced during a period increases net income under absorption costing because the cost of goods sold decreases.______

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Question 13

Indicate whether each of the following statements is true or false.
Purchase of raw materials on account is an asset exchange transaction.______
Placing raw materials into production is an asset use transaction.______
When raw materials are placed into production,total assets are not affected.______
When raw materials are placed into production,the balance in the Work in Process Inventory account increases.______
Purchasing manufacturing supplies for cash is an asset use transaction.______

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Question 14

Describe the basic differences between absorption and variable costing.Why are managers sometimes motivated to produce too much inventory when income is computed under an absorption costing system?

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Question 15

For the month of January,Year 1,Ghent Corporation had a beginning balance of $103,200 in work in process.During the month,the company added the following costs to work in process: direct materials,$90,900; direct labor,$54,000; and manufacturing overhead,$81,000.The ending amount of work in process was $37,400.What was the cost of goods manufactured for the period? Prepare a schedule that shows the calculation of the cost of goods manufactured.

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Question 16

Indicate whether each of the following statements is true or false.
The schedule of cost of goods manufactured and sold is included as part of a company's income statement.______
The schedule of cost of goods manufactured and sold indicates the amount of direct raw materials used during the period.______
Direct raw materials used + direct labor + applied manufacturing overhead = cost of goods manufactured.______
Cost of goods manufactured + ending finished goods - beginning finished goods = cost of goods sold.______
Cost of goods manufactured is calculated on the schedule of cost of goods manufactured and sold and is reported on the income statement.______

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Question 17

Indicate whether each of the following statements is true or false:
Service and product cost information is used for both financial reporting and managerial accounting.______
Companies report service costs but not product costs in their financial statements.______
Service companies are required to match the costs of providing services with the revenues generated from the services.______
Information about the cost of providing services or products is essential for decision making.______
For a hospital or electric utility,service and product costing information is useful in contract negotiations and in setting rates.______

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Question 18

Indicate whether each of the following statements is true or false.
Most manufacturers use three accounts to report inventory on the balance sheet.______
The Work in Process Inventory account includes completed units that are ready for sale.______
For a manufacturer,the cost of materials received is recorded in the Work in Process Inventory account.______
For a manufacturer,the costs of materials,labor,and estimated overhead are recorded in the Work in Process Inventory account.______
At the end of the period,the balances that remain in the Raw Materials Inventory,Work in Process Inventory,and Finished Goods Inventory accounts are reported on the balance sheet.______

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Question 19

Indicate whether each of the following statements is true or false.
Overapplied overhead means the amount of estimated overhead cost applied to products exceeded the actual overhead cost incurred.______
If the amount of overapplied or underapplied overhead is significant,it must be assigned to work in process.______
If the amount of overapplied or underapplied overhead is fairly small,it should be assigned to work in process.______
Using estimated overhead costs during an accounting period reduces the distortions that would occur if actual monthly costs were used.______
Actual overhead costs are recorded as debits to the manufacturing overhead account.______

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Question 20

Describe the schedule of cost of goods manufactured and sold.What information does it include,and how is it used?

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Quiz 11: Product Costing in Service and Manufacturing Entities

Select the term from the list that best matches the description or definition.Enter the number of the best answer in the "Your Answer" column.

Which is required for preparation of a company's external financial statements: absorption costing or variable costing? Which is frequently used for internal decision making?

Describe the basic differences between absorption and variable costing.Why are managers sometimes motivated to produce too much inventory when income is computed under an absorption costing system?

Describe the schedule of cost of goods manufactured and sold.What information does it include,and how is it used?