Sample Exam Questions Cost Terms, Concepts, and Classifications

Multiple Choice
16. C Easy The corporate controllers salary would be considered a(n): a. manufacturing cost. b. product cost. c. administrative cost. d. selling expense. The cost of fire insurance for a manufacturing plant is generally considered to be a: a. product cost. b. period cost. c. variable cost. d. all of the above. For a manufacturing company, which of the following is an example of a period rather than a product cost? a. Depreciation of factory equipment. b. Wages of salespersons. c. Wages of machine operators. d. Insurance on factory equipment. Which of the following would be considered a product cost for external financial reporting purposes? a. Cost of a warehouse used to store finished goods. b. Cost of guided public tours through the company's facilities. c. Cost of travel necessary to sell the manufactured product. d. Cost of sand spread on the factory floor to absorb oil from manufacturing machines. Which of the following would NOT be treated as a product cost for external financial reporting purposes? a. Depreciation on a factory building. b. Salaries of factory workers. c. Indirect labor in the factory. d. Advertising expenses. The salary of the president of a manufacturing company would be classified as which of the following? a. Product cost b. Period cost c. Manufacturing overhead d. Direct labor Micro Computer Company has set up a toll-free telephone line for

17. A Medium

20. B Easy CPA adapted 21. D Medium

22. D Easy

24. B Easy

25.

D Easy

customer inquiries regarding computer hardware produced by the company. The cost of this toll-free line would be classified as which of the following? a. Product cost b. Manufacturing overhead c. Direct labor d. Period cost The wages of factory maintenance personnel would usually be considered to be: a. b. c. d. Indirect labor No Yes Yes No Manufacturing overhead Yes No Yes No

26. C Medium

27. C Medium CPA adapted

Direct materials are a part of: a. b. c. d. Conversion cost Yes Yes No No Manufacturing cost Yes Yes Yes No Prime cost No Yes Yes No

28. B Medium CPA adapted 29. A Medium

Manufacturing overhead consists of: a. all manufacturing costs. b. all manufacturing costs, except direct materials and direct labor. c. indirect materials but not indirect labor. d. indirect labor but not indirect materials. Which of the following should NOT be included as part of manufacturing overhead at a company that makes office furniture? a. sheet steel in a file cabinet made by the company. b. manufacturing equipment depreciation. c. idle time for direct labor. d. taxes on a factory building.

32. D Medium

Last month, when 10,000 units of a product were manufactured, the cost per unit was $60. At this level of activity, variable costs are 50% of total unit costs. If 10,500 units are manufactured next month and cost behavior patterns remain unchanged the: a. total variable cost will remain unchanged. b. fixed costs will increase in total. c. variable cost per unit will increase. d. total cost per unit will decrease. Variable cost: a. increases on a per unit basis as the number of units produced increases. b. remains constant on a per unit basis as the number of units produced increases.

33. B Easy

c. remains the same in total as production increases. d. decreases on a per unit basis as the number of units produced increases. 34. B Medium Within the relevant range, the difference between variable costs and fixed costs is: a. variable costs per unit fluctuate and fixed costs per unit remain constant. b. variable costs per unit are constant and fixed costs per unit fluctuate. c. both total variable costs and total fixed costs are constant. d. both total variable costs and total fixed costs fluctuate.

35. A Medium

Which of the following statements regarding fixed costs is incorrect? a. Expressing fixed costs on a per unit basis usually is the best approach for decision making. b. Fixed costs expressed on a per unit basis will react inversely with changes in activity. c. Assumptions by accountants regarding the behavior of fixed costs rest heavily on the concept of the relevant range. d. Fixed costs frequently represent long-term investments in property, plant, and equipment. An opportunity cost is: a. the difference in total costs which results from selecting one alternative instead of another. b. the benefit forgone by selecting one alternative instead of another. c. a cost which may be saved by not adopting an alternative. d. a cost which may be shifted to the future with little or no effect on current operations. Conversion cost consists of which of the following? a. Manufacturing overhead cost. b. Direct materials and direct labor cost. c. Direct labor cost. d. Direct labor and manufacturing overhead cost. Prime cost consists of direct materials combined with: a. direct labor. b. manufacturing overhead. c. indirect materials. d. cost of goods manufactured.

36. B Easy

40. D Easy

41. A Easy

The following data (in thousands of dollars) have been taken from the accounting records of Karlist Corporation for the just completed year. Sales ................................... $800 Raw materials inventory, beginning ...... $ 60 Raw materials inventory, ending ......... $ 70

Purchases of raw materials .............. Direct labor ............................ Manufacturing overhead .................. Administrative expenses ................. Selling expenses ........................ Work in process inventory, beginning .... Work in process inventory, ending ....... Finished goods inventory, beginning ..... Finished goods inventory, ending ........

$180 $100 $190 $110 $150 $ 70 $ 80 $120 $160

Use these data to answer the following series of questions. 74. C Medium Refer To: 2-3 The cost of the raw materials used in production during the year (in thousands of dollars) was: a. $240. b. $190. c. $170. d. $250. The cost of goods manufactured (finished) for the year (in thousands of dollars) was: a. $450. b. $470. c. $530. d. $540. The cost of goods sold for the year (in thousands of dollars) was: a. $610. b. $410. c. $490. d. $570.

75. A Medium Refer To: 2-3 76. B Medium Refer To: 2-3

77. B Medium Refer To: 2-3

The net income for the year (in thousands of dollars) was: a. $390. b. $130. c. $70. d. $190.

Reference: 2-4 The following data pertain to Harriman Company's operations during July: July 1 Raw materials inventory ..... 0 Work in process inventory ... ? Finished goods inventory .... $12,000 July 31 $5,000 4,000 ?

Other data: Cost of goods manufactured ........ $105,000 Raw materials used ................ 40,000 Manufacturing overhead costs ...... 20,000 Direct labor costs ................ 39,000 Gross profit ...................... 100,000 Sales ............................. 210,000 78. A Hard Refer To: 2-4 79. C Hard Refer To: 2-4 The beginning work in process inventory was: a. $10,000. b. $14,000. c. $1,000. d. $4,000. The ending finished goods inventory was: a. $17,000. b. $12,000. c. $7,000. d. $2,000.

Reference: 2-5 Bergeron Inc. reported the following data for last year: Work in process inventory, beginning .. Work in process inventory, ending ..... Finished goods inventory, beginning ... Finished goods inventory, ending ...... Direct labor cost ..................... Direct materials cost ................. Manufacturing overhead cost ........... 80. B Easy Refer To: 2-5 81. A The prime cost is: a. $900. b. $800. c. $500. d. $700. The conversion cost is: a. $700. $100 $150 $180 $200 $300 $500 $400

Easy Refer To: 2-5 82. D Medium Refer To: 2-5

b. $800. c. $900. d. $500. The cost of goods manufactured is: a. $1,250. b. $1,180. c. $1,220. d. $1,150.

100. Medium

NOTE TO THE INSTRUCTOR: Questions 99, 100 and 101 are different versions of the same question. The following data (in thousands of dollars) have been taken from the accounting records of Larner Corporation for the just completed year. Sales ..................................... Purchases of raw materials ................ Direct labor .............................. Manufacturing overhead .................... Administrative expenses ................... Selling expenses .......................... Raw materials inventory, beginning ........ Raw materials inventory, ending ........... Work in process inventory, beginning ...... Work in process inventory, ending ......... Finished goods inventory, beginning ....... Finished goods inventory, ending .......... Required: a. Prepare a Schedule of Cost of Goods Manufactured in good form. b. Compute the Cost of Goods Sold. c. Using data from your answers above as needed, prepare an Income Statement in good form. $870 $110 $130 $200 $160 $140 $ 30 $ 60 $ 50 $ 10 $150 $140

Answer: a. Schedule of cost of goods manufactured Direct materials: Raw materials inventory, beginning ........ Add: Purchases of raw materials ........... Raw materials available for use ........... Deduct: Raw materials inventory, ending ... Raw materials used in production .......... Direct labor .............................. Manufacturing overhead .................... Total manufacturing cost .................. Add: Work in process inventory, beginning . $ 30 $110 $140 $ 60 $ 80 $130 $200 $410 $ 50 $460 Deduct: Work in process inventory, ending . $ 10 Cost of goods manufactured ................ $450

b. Computation of cost of goods sold Finished goods inventory, beginning ......... Add: Cost of goods manufactured ............. Goods available for sale .................... Deduct: Finished goods inventory, ending .... Cost of goods sold .......................... c. Income statement Sales ....................................... Less: Cost of goods sold .................... Gross margin ................................ Less: Administrative expenses ............... Less: Selling expenses ...................... Net income .................................. $150 $450 $600 $140 $460 $870 $460 $410 $160 $140 $110