Passaic County Community College

AC 205 (Managerial Accounting) Quiz #1 Chapters 19, 20 & 21

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True / False 1. T 2. T 3. T 4. T 5. T 6. T 7. T 8. T 9. T 10. T 11. T 12. T 13. T 14. T 15. T F F F F F F F F F F F F F F F

October, 2011

Finished goods inventory for a manufacturing company is equivalent to merchandise inventory for a merchandising company. When the physical association of raw materials with the finished product is too small to trace in terms of cost, they are usually classified as indirect materials. The sum of the direct materials costs, direct labor costs, and beginning work in process is the total manufacturing costs for the year. In calculating gross profit for a manufacturing company, the cost of goods manufactured is deducted from net sales. A job order cost system identifies costs with a particular job rather than with a set time period. A company may use either a job order cost system or a process cost system, but not both. Recording the acquisition of raw materials is a part of accumulating manufacturing costs. There should be a separate job cost sheet for each job. Overapplied overhead means that actual manufacturing overhead costs were greater than the manufacturing overhead costs applied to jobs. At the end of the year, underapplied overhead is usually credited to Cost of Goods Sold. Process cost accounting focuses on the process involved in mass-producing products that are very similar in nature. In a process cost system, total costs are determined at the end of a month or year. Equivalent units of production measure the work done during a period, expressed in fully completed units. Equivalent units of production is the sum of units completed and transferred out plus equivalent units of beginning work in process. The flow of costs in a process costing system requires that materials be added in one department, labor added in another department and manufacturing overhead in a third department.

Instructions: Designate the best answer for each of the following multiple choice questions. 1. One cost which is part of both manufacturing overhead and total manufacturing costs is a. direct labor. b. direct materials. c. selling and administrative costs. d. factory utilities. 2. Manufacturing costs are typically classified as a. product costs or period costs. b. direct materials or direct labor. c. direct materials, direct labor, or manufacturing overhead. d. direct materials, direct labor, or selling and administrative. 3. A credit balance in the Manufacturing Overhead account at the end of an interim month means that a. the balance should be reported as a prepaid expense in the monthly balance sheet. b. corrective action by management is necessary. c. overhead has been overapplied. d. cost of goods sold should be debited on the monthly income statement. 4. In the current asset section of the balance sheet, manufacturing inventories are listed in the following order: a. raw materials, work in process, finished goods. b. finished goods, work in process, raw materials. c. work in process, finished goods, raw materials. d. finished goods, raw materials, work in process. 5. The functions of management in an organization are a. planning, controlling, and decision making. b. planning, directing and motivating, and controlling. c. directing and motivating, controlling, and decision making. d. directing and motivating, planning, and decision making. 6. The major activities of managerial accounting include all of the following except a. providing a basis for controlling costs by comparing actual results with planned objectives. b. preparing financial statements designed primarily for stockholders and creditors. c. preparing internal reports for management. d. determining the behavior of costs as activity levels change. 7. A job order cost system would most likely be used by a(n) a. cement manufacturer. b. paint manufacturer. c. specialty printing company. d. automobile manufacturer. 8. The formula for computing a predetermined overhead rate is a. estimated annual overhead costs estimated annual operating activity. b. estimated annual overhead costs actual annual operating activity. c. actual annual overhead costs actual annual operating activity. d. actual annual overhead costs estimated annual operating activity.

9. An example of a period cost, as opposed to a product cost, is a. factory utilities. b. wages of factory workers. c. salesmen's commissions. d. depreciation on the factory building. 10. When production costs are debited to Work in Process Inventory, accounts that may be credited are a. Raw Materials Inventory, Factory Labor, and Manufacturing Overhead. b. Accounts Payable, Factory Wages Payable, and Accumulated Depreciation. c. Raw Materials Inventory, Factory Labor, and Finished Goods Inventory. d. Manufacturing Overhead, Factory Labor, and Cost of Goods Sold. 11. Given the following data, compute equivalent units of production for conversion costs: Beginning Work in Process8,000 units, 40% complete Units Started into Production60,000 units Ending Work in Process6,000 units, 20% complete. a. 58,000 b. 63,200 c. 64,400 d. 66,000 12. A production cost report contains sections for a. units to be accounted for. b. costs accounted for. c. unit costs. d. all of the above. 13. Which of the following does not describe a characteristic of process costing? a. Job cost sheets must pass from one production department to the next on a daily basis. b. Once production begins, it continues until the finished product emerges. c. All units of production receive precisely the same amount of material, labor, and overhead. d. Work in process accounts are maintained for each production department. 14. Raw materials that can be physically and directly associated with the finished product are called a. indirect materials. b. conversion costs. c. direct materials. d. finished materials. 15. Which one of the following would not be classified as a component of conversion costs? a. Direct materials b. Direct labor c. Indirect labor d. Indirect materials 16. In process cost accounting, equivalent units of production are the a. work done on physical units expressed in terms of fully completed units. b. units that are transferred to the next processing department. c. units completed and transferred to finished goods. d. units that are incomplete at the end of a period.

17. Cost of goods manufactured is calculated as follows: a. Beginning WIP + direct materials used + direct labor + manufacturing overhead + ending WIP. b. Direct materials used + direct labor + manufacturing overhead beginning WIP + ending WIP. c. Beginning WIP + direct materials used + direct labor + manufacturing overhead ending WIP. d. Direct materials used + direct labor + manufacturing overhead ending WIP beginning WIP. 18. Milner Manufacturing Company reported the following year-end information: Beginning work in process inventory $720,000 Beginning raw materials inventory 200,000 Ending work in process inventory 600,000 Ending raw materials inventory 320,000 Raw materials purchased 640,000 Direct labor 600,000 Manufacturing overhead 400,000 Milner Manufacturing Company's cost of goods manufactured for the year is a. $1,520,000. b. $1,640,000. c. $1,400,000. d. $1,760,000. 19. Which one of the following does not appear on the balance sheet of a manufacturing company? a. Finished goods inventory b. Work in process inventory c. Cost of goods manufactured d. Raw materials inventory 20. For a manufacturing firm, cost of goods available for sale is computed by adding the beginning finished goods inventory to a. cost of goods purchased. b. cost of goods manufactured. c. net purchases. d. total manufacturing costs.

Instructions: Classify the following manufacturing costs and expenses by using the following code letters: A. B. C. D. Direct materials cost Direct labor cost Manufacturing overhead cost Period cost

Abel Manufacturing Company incurs the following costs and expenses in making furniture: __ C -MOH__ 1. __A-DM__ _C-MOH__ _D-PC___ _C-MOH___ _B-DL__ _ _D-PC___ __D-PC__ _C-MOH__ _C-_MOH__ 2. 3. 4. 5. 6. 7. 8. 9. 10. Insurance on factory building Oak and pine wood used in desks and chairs Lubricants, rosin, and polishing compounds used in manufacturing Advertising in trade magazines Rent on leased factory machinery Wages of assembly line workers Salesperson's commissions Depreciation on delivery equipment Depreciation on factory machinery Wages of factory maintenance workers

Exercise #1 Process Cost Accounting The Painting Department of Garner Manufacturing Company has the following production and manufacturing cost data for September. Production: Beginning inventory 8,000 units that are 100% complete as to materials and 40% complete as to conversion costs; units started into production 28,000; ending inventory of 12,000 units that are 20% complete as to conversion costs. Manufacturing Costs: Beginning work in process inventory of $40,000, comprised of $25,000 of materials and $15,000 of conversion costs. Materials added during the month, $83,000; labor and overhead applied during the month, $62,000 and $55,000, respectively. Instructions (Circle your answers) (a) Compute the equivalent units of production for materials and conversion costs for the month of September. (b) Compute the unit costs for materials and conversion costs. (c) Determine the costs to be assigned to the units transferred out and ending work in process.

Exercise #2 The ledger accounts of Larken Company are presented below, with an identification number for each. Instructions: Prepare appropriate job order cost system entries to record the data/events given below. Place the appropriate identification number(s) in the debit and credit columns provided and the dollar amount in the adjoining column. 1. Cash 9. Accumulated Depreciation 2. Accounts Receivable 10. Sales 3. Raw Materials Inventory 11. Depreciation Expense 4. Work in Process Inventory 12. Factory Labor 5. Finished Goods Inventory 13. Wages Expense 6. Manufacturing Overhead 14. Cost of Goods Sold 7. Accounts Payable 15. Other Accounts 8. Factory Wages Payable ________ Account(s) Account(s) Dollar Entry Information Debited Credited Amount ________ 1. Purchased raw materials on account $270,000 3 7 270,000 ________ 2. Incurred factory labor$100,000 12 8 100,000 ________ 3. Charged direct labor to job 152$80,000 4 12 80,000 ________ 4. Charged direct materials to job 152$55,000 4 3 55,000 ________ 5. Incurred manufacturing overhead on account$65,000 6 7 65,000 ________ 6. Recorded the remaining factory labor as indirect labor 6 12 20,000 ________ 7. Recognized depreciation on factory equipment$25,000 6 9 25,000 ________ 8. Charged overhead to job 152 at 125% of direct labor cost 4 12 100,000 ________ 9. Recorded completion of job 152 5 4 235,000 ________ 10. Recorded cost of sales for job 152 14 5 235,000 ________ 11. Recorded revenue from sale of job 152 on account $400,000 2 10 400,000 ________ 12. Assume total actual overhead was $2,260,000 and total applied 6 14 20,000 overhead was $2,280,000 for the year. Record the entry to close the manufacturing overhead account. > Actual overhead is less than the total applied - Over applied