2.

On a trial balance, there is difference between total debits and total credits divisible by 9. If this is the only error, you can track it down and make the correction if this is: a. an omission error b. a slide error c. a doubling error d. a misclassification error Which of the following errors would not be revealed by the trial balance? a. Receipt of a payment debited to Accounts Receivable for $2,000 and credited to Cash for $2,000 b. Payment of a utility bill debited to Utilities Expense for $890 and credited to Cash for $980 c. A sale debited to Accounts Receivable for $80 and credited to Sales for $800 d. Receipt of a $1,200 check for sublet office space debited to Cash for $2,100 and credited to Accounts Receivable for $1,200 Actual costs that vary from standard costs always indicate inefficiencies. Normal standards incorporate normal contingencies of production into the standards. Standard cost cards are the subsidiary ledger for the Work in Process account in a standard cost system Standard cost + price variance + quantity variance = Budgeted cost. The overhead controllable variance relates primarily to fixed overhead costs. The overhead volume variance relates only to fixed overhead costs.

3.

F. T. F. F. F. T.

35. Budget data are not journalized in cost accounting systems with the exception of a. the application of manufacturing overhead. b. direct labor budgets. c. direct materials budgets. d. cash budget data. The labor time requirements for standards may be determined by the a. sales manager. b. product manager. c. industrial engineers. d. payroll department manager. A company purchases 15,000 pounds of materials. The materials price variance is $3,000 favorable. What is the difference between the standard and actual price paid for the materials? a. $1.00. b. $.20. c. $5.00. d. Cannot be determined. The matrix approach to variance analysis a. will yield slightly different variances than the formula approach. b. is more accurate than the formula approach. c. does not separate the price and quantity variance calculations. d. provides a convenient structure for determining each variance. An overhead volume variance is calculated as the difference between normal capacity hours and standard hours allowed

a. times the total predetermined overhead rate. b. times the predetermined variable overhead rate. c. times the predetermined fixed overhead rate. d. divided by actual number of hours worked. Which of the following statements is false? a. The overhead volume variance indicates whether plant facilities were used efficiently during the period. b. The costs that cause the overhead volume variance are usually controllable costs. c. The overhead volume variance relates solely to fixed costs. d. The overhead volume variance is favorable if standard hours allowed for output is greater than the standard hours at normal capacity. Which of the following statements about overhead variances is false? a. Standard hours allowed are used in calculating the controllable variance. b. Standard hours allowed are used in calculating the volume variance. c. The controllable variance pertains solely to fixed costs. d. The total overhead variance pertains to both variable and fixed costs. The overhead controllable variance is calculated as the difference between actual overhead costs incurred and the budgeted a. overhead costs for the standard hours allowed. b. overhead costs applied to the product. c. overhead costs at the normal level of activity. d. fixed overhead costs. The budgeted overhead costs for standard hours allowed and the overhead costs applied to product are the same amount a. for both variable and fixed overhead costs. b. only when standard hours allowed is less than normal capacity. c. for variable overhead costs. d. for fixed overhead costs. The difference between overhead budgeted and overhead applied is the a. budget variance. b. controllable variance. c. total overhead variance. d. volume variance. Each of the following may cause an unfavorable controllable variance except a. higher than expected use of indirect materials. b. greater than expected use of indirect labor. c. increases in indirect manufacturing costs. d. inefficient use of direct labor. All of the following variances are reported to the production department except the a. labor price variance. b. materials price variance. c. overhead controllable variance. d. labor price and materials price variances.

In income statements prepared for management under a standard cost accounting system, each of the following are reported at actual amounts except a. sales. b. selling expenses. c. gross profit. d. cost of goods sold. Betty Short manufactures and sells a nutrition drink for children. She wants to develop a standard cost per gallon. The following are required for production of a 100-gallon batch:
1,960 ounces of lime Kool-Drink at $.15 per ounce 40 pounds of granulated sugar $.60 per pound 63 kiwi fruit at $.80 each 100 protein tablets at $.90 each 4,000 ounces of water at $.0025 per ounce

Betty estimates that 2% of the lime Kool-Drink is wasted, 20% of the sugar is lost, and 10% of the kiwis cannot be used. Instructions Compute the standard cost of the ingredients for one gallon of the nutrition drink. Ingredient
Lime Kool-Drink Sugar Kiwis Protein Tablets Water

Amount Per Gallon

19.6 oz. .40 lb. .63 1 40 oz.

Standard Waste
2% 20% 10% 0% 0%

Ingredient Lime Kool-Drink Sugar Kiwis Protein Tablets Water

Standard Usage (a) 20.00 oz (b) .50 lb (c) .70 1 40 oz.

Standard Price $ .15 .60 .80 .90 .0025 Standard Cost per Gallon

Standard Cost $3.00 .30 .56 .90 .10 $4.86

(a) .98X = 19.6 ounces X = 20.00 (b) .80X = .40 pounds X = .50 (c) .90X = .63 kiwis X = .70

T. A cost reconciliation schedule is prepared to assign total costs to units transferred out and in ending work in process. F. The first step in activity-based costing is to identify the cost driver that has a strong correlation to the activity pool. F. Product-level activities are required to support or sustain an entire production process.

2-36 p.123 The 10% note payable is classified as noncurrent. PAS 1, paragraph 64, provides that if an entity has the discretion to refinance or roll over an obligation for at least twelve months after the balance sheet date under an existing loan facility, the obligation shall be classified as noncurrent, even if it would otherwise be due within a shorter period.

The 12% note payable is also classified as noncurrent. PAS 1, paragraph 67, provides that if the refinancing occurs between the balance sheet date and date of issue of the statements, the refinancing is a nonadjusting event, meaning, the obligation is classified as current. However, if the refinancing occurs on or before the balance sheet date, the refinancing is an adjusting event, meaning, the obligation is classified as noncurrent liability. In this case, the 12% note payable is refinanced on December 31, 2008. 2-41 p.126 The 11% bank note payable is refinanced on balance sheet date, December 31, 2008. PAS 1, paragraph 12, provides that if an obligation is refinanced on a long-term basis on or before balance sheet date, the refinancing qualifies as an adjusting event. Therefore, the 11% bank note payable is classified as noncurrent. *Estimating the degree of completion for the calculation of equivalent units is usually easier for conversion costs than it is for direct materials. Answer: False The weighted-average process costing method does not distinguish between units started in the previous period but completed during the current period and units started and completed during the current period. Answer: True F. F. F. T. Financial budgets must be completed before the operating budgets can be prepared. The direct materials budget must be completed before the production budget because the quantity of materials available for production must be known. A production budget should be prepared before the sales budget. The starting point when budgeting for a not-for-profit organization is generally to budget expenditures first.

A common starting point in the budgeting process is a. expected future net income. b. past performance. c. to motivate the sales force. d. a clean slate, with no expectations. If budgets are to be effective, there must be a. a history of successful operations. b. independent verification of budget goals. c. an organizational structure with clearly defined lines of authority and responsibility. d. excess plant capacity. The direct materials and direct labor budgets provide information for preparing the a. sales budget. b. production budget. c. manufacturing overhead budget. d. cash budget. Which of the following is not a financial budget? a. Capital expenditure budget b. Cash budget c. Manufacturing overhead budget

d. Budgeted balance sheet Which of the following is done to improve the reliability of the sales forecast? a. Employ financial planning models b. Lengthen the planning horizon to more than a year c. Rely solely on outside consultants d. Use the sales forecasts from the previous year Which one of the following is not needed in preparing a production budget? a. Budgeted unit sales b. Budgeted raw materials c. Beginning finished goods units d. Ending finished goods units Of the following items, which one is not obtained from an individual operating budget? a. Selling and administrative expenses b. Interest expense c. Cost of goods sold d. Sales Which of the following statements about a budgeted income statement is not true? a. The budgeted income statement is prepared after the financial budgets are prepared. b. The budgeted income statement is prepared on the accrual basis of accounting. c. The budgeted income statement can be prepared in a multiple-step format. d. The budgeted income statement is prepared using the individual operating budgets. Which one of the following sections would not appear on a cash budget? a. Cash receipts b. Financing c. Investing d. Cash disbursements Which one of the following items would never appear on a cash budget? a. Office salaries expense b. Interest expense c. Depreciation expense d. Travel expense An appropriate activity index for a college or university for budgeting faculty positions would be a. faculty hours worked. b. the number of administrators. c. the credit hours taught by a department. d. the number of days in the school term. A critical factor in budgeting for a service firm is a. hiring professional staff to perform the budgeting work. b. coordinating professional staff needs with anticipated services. c. classifying all personnel as either variable or fixed. d. budgeting expenditures before anticipated receipts.

Benchmarking is a. relatively easy to do with the amount of available financial information about companies. b. best done with the best in their field regardless of type of company. c. simply reporting the magnitude of differences in costs or revenues across companies. d. making comparisons to direct attention to why differences in costs exist across companies. The basic principles and concepts of variance analysis can be applied to activity-based costing a. by application as to the levels of cost hierarchy. b. through careful classification of costs as direct and indirect as applied to the product or job. c. with use of standard costing systems only. d. only through those activities related to individual units of product or service.

Performance evaluation using variance analysis should guard against a. emphasis on a single performance measure. b. emphasis on total company objectives. c. basing effect of a managers action on total costs of the company as a whole. d. highlighting individual aspects of performance.

Which of the following is not a factor in cost-volume-profit analysis? a. Units sold b. Selling price c. Total variable costs d. Fixed costs of a product Which of the following is not an assumption of cost-volume-profit analysis? a. The time value of money is incorporated in the analysis. b. Costs can be classified into variable and fixed components. c. The behavior of revenues and expenses is accurately portrayed as linear over the relevant range. d. The number of output units is the only driver. In the situation of multiple cost drivers, CVP analysis can a. be modified so that the various simple formulas can be used by applying them separately to each cost driver. b. apply the same formulas as that used for a single-cost driver. c. be changed by incorporating all of the cost drivers into the breakeven formula to calculate the unique point of output at which the company would break even. d. be adapted by incorporating the cost drivers into the calculation of the variable costs. Twin Products Company produces and sells two products. Product M sells for $12 and has variable costs of $6. Product W sells for $15 and has variable costs of $10. Twin predicted sales of 25,000 units of M and 20,000 of W. Fixed costs are $60,000 per month. Assume that Twin achieved its sales goal of $600,000 for September, but fell short of its expected operating income of $190,000. Which of the following descriptions best describes the actual results reported of revenue of $600,000 and operating income of less than $190,000? a. Twin sold 50,000 of M and no product W. b. Twin sold more of both products M and W than expected. c. Twin sold more of product W and less of product M than expected. d. Twin sold more of product M and less of product W than expected. A cost-allocation base may be any of the following except a a. cost driver. b. cost pool. c. way to link indirect costs to a cost object. d. nonfinancial quantity. Which of the following accounts is not classified as an asset? a. Manufacturing Overhead Control b. Materials Control c. Work-in-Process Control d. Finished Goods Control

1. The Precision Widget Company had the following balances in their accounts at the end of the accounting period: Work-in-Process $ 5,000 Finished Goods 20,000 Cost of Goods Sold 200,000 If their manufacturing overhead was overallocated by $8,000 and Precision Widget adjusts their accounts using a proration based on total ending balances, the revised ending balance for Cost of Goods Sold would be a. $192,880. b. $200,00. c. $207,120. d. $208,000. Work in Process Finished Goods Cost of Goods Sold $5,000 / 225,000 2.2% $8,000 = 176 $20,000 /225,000 8.9% $8,000 = 712 $200,000 / 225,000 88.9% $8,000 = 7,120 200,000 7,120 = $192,880

Liberty Box Company calculated an indirect-cost rate of $12.50 per labor hour for fringe benefits for use in their normal costing system. At the end of the year, the actual cost of fringe benefits was $980,000. The total of labor hours worked for the year was the same amount as budgeted, 70,000 hours. If Job #640 required the use of 15 labor hours and the company used the adjusted allocation rate approach, by what amount would the cost of Job #640 change? a. $560.00 b. $281.25 c. $22.50 d. $20.50 980.000/70,000 = $14.00 (actual rate) $14,000 $12.50 = $1.50 excess of actual over budget 15 hours $22.50 additional cost If each professional in a service company is paid on an annual salary basis, why might the firm want to use a predetermined or budgeted rate for direct or professional labor? a. A predetermined or budgeted rate is easier to justify to a client who might question a billing rate. b. Professional staff persons do not keep accurate records of the jobs on which they work. c. Professional staff incurs more client costs, such as travel, lodging, and out-of-town meals, while working on a job. d. Year-end bonuses paid to the professional staff are difficult to trace to individual jobs. Production-cost cross-subsidization results from a. allocating indirect costs to multiple products. b. assigning traced costs to each product. c. assigning costs to different products using varied costing systems within the same organization. d. assigning broadly averaged costs across multiple products without recognizing amounts of resources used by which products In refining a cost system a. total direct costs are unchanged because they can be traced in an economically feasible way to the product and traced costs are more accurate. b. the costs are grouped in homogeneous pools of the same or similar amounts.

c. the criterion of cause and effect is used to relate indirect costs to a factor that systematically links to a cost object. d. the organization looks for cost-allocation bases that will provide a uniform spreading of indirect costs to each product. The allocation of indirect costs in an activity-based costing system a. may require other costs to be allocated to activities before the costs of the activities can be allocated to the products. b. is simplified because more costs are identified as direct costs. c. requires the use of heterogeneous cost pools. d. is simplified because a limited number of activities are identified as cost objects. Jackson Enterprises manufactures two productsA basic gizmo and an advanced model gizmo. The company is using an activity-based costing system. They have identified three activities for allocation of indirect costs. Activity Cost Driver Cost-Allocation Rate Materials receiving Number of parts $2.00 per part Production setup Number of setups $500.00 per setup Quality inspection Inspection time $90 per hour A production run for the basic model is 250 units, for the advanced model, 100 units. Each unit of product consumes the following activities: Number of Parts Number of Setups Inspection Time Basic Gizmo 10 50 10 minutes Advanced Gizmo 15 25 20 minutes Direct costs for the two products are as follows: Direct Materials Direct Labor Basic Gizmo $50.00 $ 75.00 Advanced Gizmo $95.00 $125.00 1. The amount of overhead allocated to one unit of the basic model would be a. $592. b. $37. c. $162. d. $65. 2. The total cost of an advanced model would be a. $162. b. $65. c. $200. d. $265. (2 10) + ($500/250) + ($90/60 10) = $37 $75 + $125 + ($2 15) + ($500/100) + ($90/60 20) 1. Information for Garner Companys direct-labor costs for the month of September 2005 was as follows: 34,500 hours 35,000 hours $241,500 $ 3,200

Actual direct-labor hours Standard direct-labor hours Total direct-labor payroll Direct-labor efficiency variancefavorable

[CPA Adapted] What is Garners direct-labor price (or rate) variance? a. $21,000 favorable b. $21,000 unfavorable c. $17,250 unfavorable d. $20,700 unfavorable Information on Pruitt Companys direct-material costs for the month of July 2005 was as follows: Actual quantity purchased 30,000 units Actual unit purchase price Materials purchase-price variance unfavorable (based on purchases) Standard quantity allowed for actual production Actual quantity used $1,500 24,000 units 22,000 units $2.75

[CPA Adapted] For July 2005 there was a favorable direct-materials efficiency variance of a. b. c. d. $7,950. $5,500. $5,400. $5,600. 82,500 1,500 81,000

Actual price 30,000 2.75

Minus unfavorable price variance Materials at standard

81,000/30,000 = $2.70 standard price per unit

Actual quantity Standard quantity Efficiency variance

22,000 units 24,000 units 2,000 1.70 = $5,400 F

FLEXIBLE-BUDGET AND SALES-VOLUME VARIANCE ANALYSIS

Actual Results: Actual Units Sold

Flexible Budget: Actual Units Sold

Static Budget: Budgeted Units Sold

X Actual Sales Mix X Actual Sales Mix X Actual CM/unit X Budgeted CM/unit

X Budgeted Sales Mix X Budgeted CM/unit

| - - - - Flexible budget variance - - - - | - - - - Sales-volume variance - - - - | | - - - - - - - - - - - - - - - - - - - Static budget variance - - - - - -- - - - - - - - - - |

SALES-MIX AND SALES-QUANTITY VARIANCE ANALYSIS

Flexible Budget: Actual Units Sold Actual Units Sold

Static Budget: Budgeted Units Sold X Budgeted Sales Mix X Budgeted CM/unit

X Actual Sales Mix X Budgeted Sales Mix X Budgeted CM/unit X Budgeted CM/unit

| - - - - - - Sales mix variance - - - - - | - - - - Sales-quantity variance - - - - | | - - - - - - - - - - - - - - - - - - - Sales-volume variance - - - - - - - - - - - - - - - |

MARKET-SHARE AND MARKET-SIZE VARIANCE ANALYSIS

Flexible Budget: Actual Market Size X Actual Market Share X Budgeted CM/unit Actual Market Size

Static Budget: Budgeted Market Size X Budgeted Market Share

X Budgeted Market Share X Budgeted CM/unit

X Budgeted CM/unit

| - - - - - - Market share variance - - - - - | - - - - Market size variance - - - - | | - - - - - - - - - - - - - - - - - - - Sales-quantity variance - - - - - - - - - - - - - - - |

INPUT PRICE AND EFFICIENCY VARIANCES

Actual Costs: Actual Input X Actual Price Actual Input X Budgeted Price

Flexible Budget: Budgeted Input (for actual output) X Budgeted Price

| - - - - - - - Price variance - - - - - - - | - - - - - - - Efficiency variance - - - - - - - |

| - - - - - - - - - - - - - - - - - - - Flexible budget variance - - - - - -- - - - - - ----- - - - |

INPUT YIELD AND MIX VARIANCES

Actual Input/Actual Mix Actual Inputs Used X Actual Input Mix X Budgeted Price

: Actual Input Used X Budgeted Input Mix X Budgeted Price

Flexible Budget: Budgeted Input (for actual output) X Budgeted Input Mix X Budgeted Price

| - - - - - - - - Mix variance - - - - - - - - | - - - - - - - - - Yield variance - - - - - - - | | - - - - - - - - - - - - - - - - - - - Efficiency variance - - - - - - - - - - - - - - - - - - - - | Under standard costing, there is no need to calculate a cost per equivalent unit. Answer: TRUE The standard-costing method: A) adds a layer of complexity to the calculation of equivalent-unit costs in a process-costing environment B) makes calculating equivalent-unit costs unnecessary C) requires an analysis of the spoilage costs in beginning inventory D) requires an analysis of the spoilage costs in ending inventory Answer: B Recognizing the value of scrap in the accounting records is always done at the time the scrap is produced. Answer: FALSE Costs are assigned to scrap only if it is normal scrap. Answer: FALSE If scrap, common to all jobs, is returned to the storeroom and the time between the scrap being inventoried and its disposal is quite lengthy, the journal entry is: A) Work-in-Process Control Materials Control B) Materials Control Work-in-Process Control C) Manufacturing Overhead Control Materials Control D) Materials Control Manufacturing Overhead Control

When the amount of scrap is immaterial, the easiest accounting entry when recording scrap sold for cash is: A) Sales of Scrap Cash B) Cash Manufacturing Overhead Control C) Cash Sales of Scrap D) Accounts Receivable Sales of scrap Robotoys Incorporated manufactures and distributes small robotic toys. Because most of its orders are via telephone or fax, numerous orders have to be reworked. The average cost of the reworked orders is $11.30: $4.15 for labor, $5.00 for more materials, and $2.15 for overhead. This ratio of costs holds for the average original order. On a recent day, the shop reworked 83 orders out of 700. The original cost of the 83 orders totaled $1,909. The average cost of all orders is $24.34, including rework, with an average selling price of $34.50. Required: Prepare the necessary journal entry to record the rework for the day if the shop charges such activities to Robo Department Overhead Control. Prepare journal entries to record all relevant rework charges as well as to transfer the reworked items finished goods to Finished Goods Inventory. Answer: Robo Department Overhead Control 937.90 Materials Control (83 $5.00) 415.00 Wages Payable Control (83 $4.15) 344.45 Shop Overhead Control (83 $2.15) 178.45 Finished Goods 1,909 Work-in-Process Control 1,909

A difference between job costing and process costing is that: A) job-costing systems usually do not distinguish between normal spoilage attributable to all jobs and normal spoilage attributable to a specific job B) job-costing systems usually distinguish between normal spoilage attributable to a specific job and spoilage common to all jobs C) process costing normally does not distinguish between normal spoilage attributable to a specific job and spoilage common to all jobs D) Both B and C are correct. Answer: D A difference between job costing and process costing is that: A) job-costing systems usually do not distinguish between normal spoilage attributable to all jobs and normal spoilage attributable to a specific job B) job-costing systems usually distinguish between normal spoilage attributable to a specific job and spoilage common to all jobs C) process costing normally does not distinguish between normal spoilage attributable to a specific job and spoilage common to all jobs D) Both B and C are correct. Answer: D

The Harleysville Manufacturing Shop produces motorcycle parts. Typically, 10 pieces out of a job lot of 1,000 parts are spoiled. Costs are assigned at the inspection point, $50.00 per unit. Spoiled pieces may be disposed at $10.00 per unit. The spoiled goods must be inventoried appropriately when the normal spoilage is detected. The current job requires the production of 2,500 good parts. Which of the following journal entries properly reflects the recording of spoiled goods? A) Materials Control 200 Manufacturing Overhead Control 800 Work-in-Process Control 1,000 B) Materials Control 250 Manufacturing Overhead Control 1,000 Work-in-Process Control 1,250 C) Work-in-Process Control 1,250 Materials Control 250 Manufacturing Overhead Control 1,000 D) Manufacturing Overhead Control 1,000 Materials Control 200 Work-in-Process Control 800 Answer: B Explanation: B) Materials Control: 25 pieces $10.00 = $250 Manufacturing Overhead Control: 25 pieces ($50.00 - $10.00) = $1,000 WIP Control: 25 pieces $50.00 = $1,250 All accounting systems must assume that the inspection point occurs when a process is 100% complete. Answer: FALSE

In general, it is presumed that normal spoilage occurs halfway between the beginning of the production process and the inspection point in the production cycle. This is because there is no easy way to determine where the spoilage has happened until the inspection has occurred. Answer: FALSE
Which of the following INCORRECTLY reflects what units passed inspection this period? Assume beginning work in process was completed and ending work in process was started during the period.

Inspection Point at Completion Level

10% No Yes Yes Yes 50% Yes Yes No No 100% Yes Yes No No

A) Beginning work in process (30% complete) B) Started and completed C) Ending work in process (40% complete) D) Beginning work in process (5% complete) Answer: D

Under the FIFO method, all spoilage costs are assumed to be related to the units: A) in beginning inventory, plus the units completed during the period B) completed during the period C) in ending inventory D) in both beginning and ending inventory plus the units completed during the period Answer: B The net realizable value approach requires that the net realizable value of by-products and scrap be treated as a reduction in joint costs allocated to primary products. ANS: T Net realizable value is considered to be the best measure of the expected contribution of each product to the coverage of joint costs. ANS: T

In joint costing: A) costs are assigned to individual products as assembly of the product occurs B) costs are assigned to individual products as disassembly of the product occurs C) a single production process yields two or more products D) Both B and C are correct. Which of the following methods of allocating costs use market-based data? A) Sales value at splitoff method B) Estimated net realizable value method C) The constant gross-margin percentage method D) All of these answers are correct. All of the following changes may indicate a change in product classification of a manufacturing process which has a splitoff point EXCEPT a: A) byproduct increases in sales value due to a new application B) main product becomes a joint product C) main product becomes technologically obsolete D) byproduct loses its market due to a new invention Products with a relatively low sales value are known as: A) scrap B) main products C) joint products D) byproducts Outputs with a negative sales value are: A) added to cost of goods sold B) added to joint production costs and allocated to joint or main products C) added to joint production costs and allocated to byproducts and scrap D) subtracted from product revenue At or beyond the splitoff point, decisions relating to the sale or further processing of each identifiable product can be made independently of decisions about the other products. Answer: TRUE

Which of the following is a reason to allocate joint costs? A) rate regulation requirements, if applicable B) cost of goods sold computations C) insurance settlement cost information requirements D) All of these answers are correct.