Deck 2: Product Costing: Manufacturing Processes, Cost Terminology, and Cost Flows

Question 1

Which of the following statements is false regarding nonmanufacturing costs?

A) They are incurred outside the factory.
B) They include selling and administrative costs.
C) They are not directly incurred to make a product.
D) They include indirect materials and indirect labor costs.

Answer 1

D

Question 2

Which of the following is a disadvantage of lean production and just-in-time (JIT) manufacturing systems?

A) Increased customer delivery time
B) Increased product defects
C) Decreased flexibility of manufacturing facilities
D) Increased reliance on fewer suppliers

Answer 2

D

Question 3

Which of the following statements regarding the traditional manufacturing environment is not true?

A) Machines are often put into "manufacturing cells" whereby dissimilar machines are grouped together.
B) Raw material is "pushed" to the next production area in anticipation of customer demand.
C) Manufacturers often have raw material, work in process, and finished goods inventory on hand.
D) Buffers of inventory may result in workers being less efficient.

Answer 3

A

Question 4

Which of the following is an advantage of lean production and just-in-time (JIT) manufacturing systems?

A) Deliver the product to the customer on time, even if the workers go on a strike.
B) Improved product quality and reduced processing time.
C) Reduced reliance on highly skilled employees
D) Increased reliance on more suppliers.

Question 5

Which of the following is a risk that would more likely be seen in a lean production and just-in-time (JIT) manufacturing environment than in a traditional production environment?

A) Reduced customer satisfaction due to product quality.
B) Reduced raw material supply bringing the production process to a halt.
C) Increased inventory storage costs.
D) Increased production time resulting in lost sales.

Question 6

Which of the following statements is true regarding the lean production and just-in-time (JIT) manufacturing systems?

A) Customers are often less satisfied with the purchased product.
B) The number of product defects often increases.
C) The number of suppliers the company can purchase raw materials from, often increases.
D) The factory is often restructured where dissimilar machines are grouped together.

Question 7

Which of the following statements is true about manufacturing companies over the past 20 years?

A) The grouping of machines into "manufacturing cells" has increased.
B) Carrying large amounts of inventory is often less costly than carrying small amounts of inventory.
C) They have moved from a "pull" approach to more of a "push" approach.
D) The basic production process has changed very little over the past 20 years.

Question 8

Companies that operate in a lean production and just-in-time manufacturing environment are more likely to experience which of the following?

A) Reduced manufacturing flexibility.
B) Increased levels of raw materials inventory.
C) Increased production time.
D) Increased product quality.

Question 9

Which of the following types of employees would most likely have their wage be classified as direct labor?

A) Factory maintenance worker
B) Factory supervisor
C) Managerial accountant
D) Assembly-line factory worker

Question 10

Under ideal conditions, companies operating in a ____ environment would reduce inventories of raw materials, work in process and finished goods to very low levels or even zero.

A) volatile
B) just-in-time
C) traditional manufacturing
D) favorable

Question 11

A "manufacturing cell" is defined as:

A) grouping of all the machinery and equipment that are needed to make a product being available in one area of the factory.
B) restructuring of the factory so that the companies are able to manufacture products quickly.
C) an area in the warehouse where similar raw materials are grouped together.
D) grouping of all the factories that are engaged in manufacturing similar products.

Question 12

Which of the following types of organizations is most likely to have a raw materials inventory account?

A) A retailer.
B) A manufacturer.
C) A service provider.
D) A wholesaler.

Question 13

In a just-in-time environment, the production process often begins when:

A) products are moved from raw materials to work in process.
B) a customer places an order.
C) the product is delivered to a customer.
D) products are moved from work in process to finished goods.

Question 14

A traditional manufacturing environment does not have which of the following?

A) An automated production process.
B) Trained employees.
C) Extremely low levels of work in process inventory.
D) Product cost information available.

Question 15

Which of the following is a characteristic of a lean production and just-in-time (JIT) manufacturing environment but not of a traditional manufacturing environment?

A) Increased inventory levels
B) Increased product defects
C) Increased reliance on a select number of suppliers
D) Increased production time

Question 16

Lean production is focused on eliminating waste associated with all of the following except:

A) moving products farther than required.
B) down time caused by people waiting for work to do.
C) providing excessive customer service.
D) over-processing a product.

Question 17

Which of the following types of employees would most likely have their wage be classified as indirect labor?

A) Factory supervisor
B) Managerial accountant
C) Salesperson
D) Machine operator

Question 18

Which of the following statements about manufacturing in a traditional environment is true?

A) Factories are organized so that machines that are dissimilar are grouped together.
B) It is not desirable to accumulate raw materials inventory to serve as buffers in case of unexpected demand for products.
C) The process begins with a customer order and products are "pulled" through the manufacturing process.
D) Partially completed inventory is accumulated in a work in process inventory account.

Question 19

Which of the following is a effect of using a traditional production environment but not of a lean production and just-in-time (JIT) manufacturing environment?

A) Increase in the need for highly skilled labor.
B) Increase in the need for highly reliable suppliers.
C) Reduction in the motivation of the work force.
D) Reduction in the processing time.

Question 20

Which of the following statements is true regarding manufacturing costs?

A) They will be appear on the income statement as the product is made.
B) They will not appear on the income statement or the balance sheet until the product is completed.
C) They will appear on the balance sheet as an inventory cost until the product is sold.
D) They will appear on the balance sheet as an inventory cost after the product is sold.

Question 21

Michael's Manufacturing, Inc. Michael's Manufacturing, Inc. has the following information available for the month of July:
Refer to the Michael's Manufacturing, Inc. information above. Cost of goods manufactured for July is:

A) $183,000
B) $206,000
C) $263,000
D) $223,000

Question 22

Nate's Novelties, Inc. Nate's Novelties, Inc. has the following information available for July:
Refer to the Nate's Novelties, Inc. information above. Cost of goods manufactured for July is:

A) $153,000.
B) $103,000.
C) $130,000.
D) $133,000.

Question 23

Products and their costs flow through a production facility in the following order:

A) work in process, finished goods, cost of goods sold
B) raw materials, work in process, finished goods, cost of goods sold
C) work in process, raw materials, cost of goods sold, finished goods
D) work-in-process, cost of goods manufactured, cost of goods sold

Question 24

Jasper Corporation Jasper Corporation incurred the following costs which includes salaries and wages in April:
Refer to the Jasper Corporation information above. Total product costs are:

A) $132,500
B) $154,500
C) $122,500
D) $127,500

Question 25

Michael's Manufacturing, Inc. Michael's Manufacturing, Inc. has the following information available for the month of July:
Refer to the Michael's Manufacturing, Inc. information above. Cost of goods sold for July is:

A) $246,000
B) $206,000
C) $280,000
D) $263,000

Question 26

Which of the following is a product cost?

A) Insurance on factory machinery
B) Insurance on delivery trucks
C) Lease expense on office computer
D) Advertising costs

Question 27

When nonmanufacturing costs are subtracted from gross margin, the result is called:

A) cost of goods sold.
B) net operating income.
C) sales.
D) nonmanufacturing income.

Question 28

Which of the following is not an example of a manufacturing overhead cost?

A) Shipping charges on finished products
B) Indirect materials
C) Indirect labor
D) Depreciation on factory equipment

Question 29

Thompson Inc. has the following selected information available for 2011: Manufacturing overhead costs in 2011 amounted to:

A) $67,000.
B) $55,000.
C) $43,000.
D) $53,000.

Question 30

Michael's Manufacturing, Inc. Michael's Manufacturing, Inc. has the following information available for the month of July:
Refer to the Michael's Manufacturing, Inc. information above. Raw materials used for July is:

A) $150,000
B) $128,000
C) $190,000
D) $172,000

Question 31

Materials that can be directly traced to a particular product and become an integral part of the finished product are called:

A) indirect materials.
B) direct materials.
C) supplies.
D) product materials.

Question 32

Nate's Novelties, Inc. Nate's Novelties, Inc. has the following information available for July:
Refer to the Nate's Novelties, Inc. information above. Cost of goods sold for July is:

A) $106,000.
B) $157,000.
C) $129,000.
D) $109,000.

Question 33

Manufacturing costs typically consist of:

A) direct materials, direct labor, and administrative costs.
B) production and shipping costs.
C) direct materials, direct labor, and manufacturing overhead.
D) manufacturing overhead and selling costs.

Question 34

Jasper Corporation Jasper Corporation incurred the following costs which includes salaries and wages in April:
Refer to the Jasper Corporation information above. Total period costs are:

A) $65,000
B) $60,000
C) $38,000
D) $70,000

Question 35

Nate's Novelties, Inc. Nate's Novelties, Inc. has the following information available for July:
Refer to the Nate's Novelties, Inc. information above. Raw materials used for July is:

A) $21,000.
B) $22,000.
C) $25,000.
D) $28,000.

Question 36

Manufacturing overhead includes:

A) advertising costs.
B) indirect materials.
C) sales commissions.
D) shipping charges for finished goods.

Question 37

Which of the following is an example of a manufacturing overhead cost?

A) Supplies used by administrative staff.
B) Supplies used by a salesperson.
C) Materials easily traced to a specific product.
D) Lubricants used by factory maintenance workers.

Question 38

Which of the following is not an example of manufacturing overhead costs?

A) Fringe benefits paid to assembly-line workers
B) Depreciation of factory machinery
C) Overtime pay to factory supervisors
D) Insurance on factory machinery

Question 39

Which of the following is not a manufacturing cost?

A) Direct material costs
B) Administrative costs
C) Factory overhead costs
D) Direct labor costs

Question 40

In general, costs incurred in the factory those do not qualify as either direct material or direct labor are called:

A) manufacturing costs.
B) manufacturing overhead.
C) nonmanufacturing costs.
D) selling and administrative costs.

Question 41

Franklin Street Manufacturing Franklin Street Manufacturing has the following cost information available for 2011:
20,000 units were produced during the year out of which 19,000 units were sold for $10 each.
Refer to the Franklin Street Manufacturing information above. What is cost of goods sold for 2011?

A) $55,000
B) $52,250
C) $61,750
D) $65,000

Question 42

Jones Manufacturing Inc. Jones Manufacturing Inc. incurred the following costs in November:
In addition, the following information is also available:
Refer to the Jones Manufacturing Inc. information above. Cost of goods manufactured in November is:

A) $ 91,000.
B) $115,000.
C) $155,000.
D) $143,000.

Question 43

Which of the following types of companies would not have the following cost pattern? Raw materials ® Work-in-process ® Finished goods ® Cost of goods sold

A) Tire manufacturer
B) Automotive manufacturer
C) Retailer / merchandiser
D) Construction company

Question 44

Franklin Street Manufacturing Franklin Street Manufacturing has the following cost information available for 2011:
20,000 units were produced during the year out of which 19,000 units were sold for $10 each.
Refer to the Franklin Street Manufacturing information above. What is net operating income for 2011? (Ignore taxes)

A) $127,750
B) $137,750
C) $125,000
D) $128,250

Question 45

Clyde Retailers is a local merchandiser which buys vintage clothing and sells it to local college students. Clyde began the year with inventory costing $60,000. During the year inventory costing $300,000 was purchased. At the end of the year, inventory costing $45,000 still remained. What was Clyde's cost of goods sold for the year?

A) $255,000
B) $285,000
C) $300,000
D) $315,000

Question 46

In the books of a manufacturing company, the journal entry to record raw materials used would include a:

A) debit to finished goods.
B) debit to raw materials.
C) debit to work in process.
D) debit to cost of goods sold.

Question 47

Clapton Inc. would like to prepare an income statement for March. Their production department records show that total product costs in March were $225,000 when 50,000 units were produced. Their sales department records show that 46,000 units were sold for $16 each. Monthly administrative and marketing expenses totaled $60,000. What should be net operating income for March? (Ignore taxes)

A) $529,000
B) $473,800
C) $451,000
D) $469,000

Question 48

Product costs that are transferred out of finished goods are called:

A) work in process.
B) cost of goods manufactured.
C) cost of goods sold.
D) period costs.

Question 49

Johnson Manufacturing has the following selected information available for the year: In addition, the cost of the finished goods inventory increased by $10,000 from the beginning to the end of the year. Cost of goods sold for the year is:

A) $ 80,000.
B) $170,000.
C) $ 90,000.
D) $110,000.

Question 50

Product costs that are transferred into finished goods inventory are called:

A) cost of goods manufactured.
B) cost of goods sold.
C) period costs.
D) raw materials used.

Question 51

Which of the following statements is true regarding period costs?

A) They "attach" themselves to the product.
B) They will appear the balance sheet until the product is sold.
C) They will appear on the income statement in the year they are incurred.
D) They will not impact gross margin or net operating income.

Question 52

Which of the following decreases the work in process account?

A) Transferring raw materials to work in process account.
B) Transferring cost of goods manufactured from work in process account.
C) Transferring cost of goods sold from work in process account.
D) Transferring raw materials from work in process account.

Question 53

In 2011 Bradshaw Inc. incurred $40,000 of manufacturing overhead costs which will be paid for in 2012. Which of the following would be the correct journal entry to record this transaction?

A) Cost of Goods Sold 40,000 Accounts Payable 40,000
B) Finished Goods Inventory 40,000 Accounts Payable 40,000
C) Overhead Expenses 40,000 Accounts Payable 40,000
D) Work in Process Inventory 40,000 Accounts Payable 40,000

Question 54

Chancellor Industries, a manufacturing company, prepays its insurance coverage for a two-year period. The premium for two-year's worth of coverage is $14,400 and is paid at the beginning of the first year. Two-thirds of the premium relates to factory operations and one-third relates to selling and administrative activities. The amount of premium that should be recorded as a product cost for the first year is:

A) $ 4,800.
B) $ 2,400.
C) $ 9,600.
D) $14,400.

Question 55

Jones Manufacturing Inc. Jones Manufacturing Inc. incurred the following costs in November:
In addition, the following information is also available:
Refer to the Jones Manufacturing Inc. information above. Net operating income for November is: (Ignore taxes)

A) $371,950.
B) $411,950.
C) $369,150.
D) $382,000.

Question 56

In a traditional manufacturing environment, as the cost of goods sold account increases, which account is most likely decreasing?

A) Work in process inventory
B) Finished goods inventory
C) Raw materials inventory
D) Cash

Question 57

When the cost of a product is matched with its sales revenue, the result (difference) is called:

A) net operating income.
B) gross margin.
C) cost of goods sold.
D) cost of goods manufactured.

Question 58

Which of the following increases the work in process account?

A) Cost of goods sold
B) Sales commission
C) Administrative costs
D) Raw material used

Question 59

In the books of a manufacturing company, the journal entry to record cost of goods manufactured would include a:

A) credit to work in process.
B) credit to finished goods.
C) debit to work in process.
D) debit to cost of goods sold.

Question 60

Brenda's Bakery has the following information available for October: How much raw material was purchased in October?

A) $23,000
B) $25,000
C) $26,000
D) $28,000

Question 61

Hudson Inc. Hudson Inc. has the following information available for September:
Refer to the Hudson Inc. information above. Sales revenue for September totaled $400,000. Net operating income for September is: (Ignore taxes)

A) $257,000.
B) $260,000.
C) $264,000.
D) $278,000.

Question 62

Scott Products Scott Products manufactures high-quality running shoes. The following information is available for 2011:
In addition, 42,400 pairs were produced in 2011 out of which 40,900 pairs were sold for $70 each.
Refer to the Scott Products information above. Cost of goods manufactured for 2011 is:

A) $990,000.
B) $973,000.
C) $848,000.
D) $865,000.

Question 63

Classify each of the following as either a direct material (DM), indirect material (IM), or period cost (P).

Question 64

Classify the following as either direct labor (DL), indirect labor (IL), or a period cost (P).

Question 65

Identify with an "X" the following costs as either a manufacturing (product) or nonmanufacturing (period) cost. If it is a manufacturing cost, further identify it as either direct material (DM), direct labor (DL), or overhead (OH).

Question 66

Hudson Inc. Hudson Inc. has the following information available for September:
Refer to the Hudson Inc. information above. Cost of goods sold for September is:

A) $119,000.
B) $143,000.
C) $140,000.
D) $122,000.

Question 67

Provide specific examples of why accurate product or service costing information is important for internal purposes.

Question 68

Which of the following statements accurately describes manufacturing cost flows in a just-in-time (JIT) environment?

A) Direct labor and overhead are maintained in a work in process account for long periods of time.
B) There is little need to maintain a cost of goods sold account.
C) There is little need to maintain raw materials, work in process, or finished goods accounts.
D) Manufacturing costs are maintained in the finished goods account for long periods of time.

Question 69

Hillsborough Street Manufacturing Inc. Hillsborough Street Manufacturing Inc. incurred the following costs in 2011:
45,000 units were produced during the year out of which 38,000 units were sold for $10 each. There was no beginning or ending raw materials or work in process inventory.
Refer to the Hillsborough Street Manufacturing Inc. information above. What is the net operating income for the year? (Ignore taxes)

A) $222,500
B) $244,200
C) $240,500
D) $259,400

Question 70

Jones Manufacturing Inc. Jones Manufacturing Inc. incurred the following costs in November:
In addition, the following information is also available:
Refer to the Jones Manufacturing Inc. information above. The product cost per unit in November is:

A) $4.55.
B) $7.75.
C) $5.75.
D) $5.37.

Question 71

Hudson Inc. Hudson Inc. has the following information available for September:
Refer to the Hudson Inc. information above. Total nonmanufacturing costs for September are:

A) $113,000.
B) $161,000.
C) $ 18,000.
D) $ 43,000.

Question 72

Briefly describe the difference between a manufacturing and a nonmanufacturing cost.

Question 73

Briefly compare a traditional manufacturing environment with a lean production and just-in-time (JIT) manufacturing environment.

Question 74

Identify at least two characteristics of a lean production and just-in-time (JIT) manufacturing environment.

Question 75

Hudson Inc. Hudson Inc. has the following information available for September:
Refer to the Hudson Inc. information above. Cost of goods manufactured for September is:

A) $118,000.
B) $136,000.
C) $115,000.
D) $133,000.

Question 76

Scott Products Scott Products manufactures high-quality running shoes. The following information is available for 2011:
In addition, 42,400 pairs were produced in 2011 out of which 40,900 pairs were sold for $70 each.
Refer to the Scott Products information above. What is net operating income for 2011? (ignore taxes)

A) $1,920,000.
B) $2,025,000.
C) $1,890,000.
D) $2,045,000.

Question 77

Identify some of the benefits and risks of a lean production and just-in-time (JIT) environment.

Question 78

Hillsborough Street Manufacturing Inc. Hillsborough Street Manufacturing Inc. incurred the following costs in 2011:
45,000 units were produced during the year out of which 38,000 units were sold for $10 each. There was no beginning or ending raw materials or work in process inventory.
Refer to the Hillsborough Street Manufacturing Inc. information above. What is cost of goods sold for the year?

A) $102,600
B) $121,500
C) $117,800
D) $139,500

Question 79

Describe each of the following as either a product or period cost.

Question 80

Hillsborough Street Manufacturing Inc. Hillsborough Street Manufacturing Inc. incurred the following costs in 2011:
45,000 units were produced during the year out of which 38,000 units were sold for $10 each. There was no beginning or ending raw materials or work in process inventory.
Refer to the Hillsborough Street Manufacturing Inc. information above. What is the product cost per unit?

A) $3.67
B) $3.20
C) $3.10
D) $2.70