COST ACCOUNTING AND COST MANAGEMENT

1. Which of the following costing methods of valuation are acceptable in a job order costing
system?

Actual Standard Actual Predetermined

Material Material Labor Overhead
Cost Cost Cost Cost
a. yes yes no yes
b. yes no yes no
c. no yes yes yes
d. yes yes yes yes

2. Which of the following organizations would be most likely to use a job order costing
system?

a. the loan department of a bank

b. the check clearing department of a bank
c. a manufacturer of processed cheese food
d. a manufacturer of video cassette tapes

3. Equivalent units of production are equal to the

a. units completed by a production department in the period.

b. number of units worked on during the period by a production department.
c. number of whole units that could have been completed if all work of the period
had been used to produce whole units.
d. identifiable units existing at the end of the period in a production department.

4. The weighted average method is thought by some accountants to be inferior to the FIFO
method because it

a. is more difficult to apply.

b. only considers the last units worked on.
c. ignores work performed in subsequent periods.
d. commingles costs of two periods.

5. If abnormal spoilage occurs in a job order costing system, has a material dollar value, and
is related to a specific job, the recovery value of the spoiled goods should be

debited to credited to
a. a scrap inventory account the specific job in process
b. the specific job in process overhead
c. a loss account the specific job in process
d. factory overhead sales
6. The net cost of normal spoilage in a job order costing system in which spoilage is
common to all jobs should be

a. assigned directly to the jobs that caused the spoilage.

b. charged to manufacturing overhead during the period of the spoilage.
c. charged to a loss account during the period of the spoilage.
d. allocated only to jobs that are completed during the period.

7. Company Q produces three products from a joint process. The products can be sold at
split-off or processed further. In deciding whether to sell at split-off or process further,
management should

a. allocate the joint cost to the products based on relative sales value prior to making
the decision.
b. allocate the joint cost to the products based on a physical quantity measure prior
to making the decision.
c. subtract the joint cost from the total sales value of the products before
determining relative sales value and making the decision.
d. ignore the joint cost in making the decision.

8. Which of the following statements is true regarding by-products or scrap?

a. Process costing is the only method that should result in by-products or scrap.
b. Job order costing systems will never have by-products or scrap.
c. Job order costing systems may have instances where by-products or scrap result
from the production process.
d. Process costing will never have by-products or scrap from the production process.

9. A primary purpose of using a standard cost system is

a. to make things easier for managers in the production facility.

b. to provide a distinct measure of cost control.
c. to minimize the cost per unit of production.
d. b and c are correct.

10. Which of the following factors should not be considered when deciding whether to
investigate a variance?

a. magnitude of the variance

b. trend of the variances over time
c. likelihood that an investigation will reduce or eliminate future occurrences of the
variance
d. whether the variance is favorable or unfavorable
11. Which of the following is/are part of activity-based management?

Activity analysis Cost driver analysis

a. yes yes
b. no yes
c. no no
d. yes no

12. Which of the following falls under the Activity-Based Management umbrella?

Continuous Business process Activity-based

improvement reengineering costing
a. no no yes
b. yes no no
c. yes yes yes
d. no yes no

13. The following items are used in tracing costs in an ABC system. In which order are they
used?

(1) cost object

(2) cost driver
(3) activity driver
(4) cost pool

a. 1, 2, 3, 4
b. 2, 3, 4, 1
c. 2, 4, 3, 1
d. 4, 3, 1, 2

14. Broadly speaking, cost accounting can be defined as a(n)

a. external reporting system that is based on activity-based costs.

b. system used for providing the government and creditors with information about a
company’s internal operations.
c. internal reporting system that provides product costing and other information used
by managers in performing their functions.
d. internal reporting system needed by manufacturers to be in compliance with Cost
Accounting Standards Board pronouncements.
 15. Cost accounting is directed toward the needs of

a. regulatory agencies.
b. external users.
c. internal users.
d. stockholders.

Use the following information for questions 16-21

Adams Co. uses a job order costing system and the following information is available from its
records. The company has 3 jobs in process: #5, #8, and #12.

Raw material used $120,000

Direct labor per hour $8.50
Overhead applied based on
direct labor cost 120%

Direct material was requisitioned as follows for each job respectively: 30 percent, 25 percent,
and 25 percent; the balance of the requisitions was considered indirect. Direct labor hours per job
are 2,500; 3,100; and 4,200; respectively. Indirect labor is $33,000. Other actual overhead costs
totaled $36,000.

16. What is the prime cost of Job #5?

a. $42,250
b. $57,250
c. $73,250
d. $82,750

17. What is the total amount of overhead applied to Job #8?

a. $18,250
b. $26,350
c. $30,000
d. $31,620
 18. What is the total amount of actual overhead?

a. $36,000
b. $69,000
c. $93,000
d. $99,960

19. How much overhead is applied to Work in Process?

a. $69,000
b. $99,960
c. $132,960
d. $144,000

20. If Job #12 is completed and transferred, what is the balance in Work in Process Inventory
at the end of the period if overhead is applied at the end of the period?

a. $96,700
b. $99,020
c. $170,720
d. $139,540

21. Assume the balance in Work in Process Inventory was $18,500 on June 1 and $25,297 on
June 30. The balance on June 30 represents one job that contains direct material of
$11,250. How many direct labor hours have been worked on this job (rounded to the
nearest hour)?

a. 751
b. 1,324
c. 1,653
d. 2,976

Use the following information for questions 22-26

BCW Co. adds material at the start to its production process and has the following information
available for November:

Beginning Work in Process Inventory

(40% complete as to conversion) 7,000 units
Started this period 32,000 units
Ending Work in Process Inventory
(25% complete as to conversion) 2,500 units
Transferred out ?
 22. Compute the number of units started and completed in November.

a. 29,500
b. 39,000
c. 36,500
d. 34,500

23. Calculate equivalent units of production for material using FIFO.

a. 36,800
b. 32,000
c. 39,000
d. 37,125

24. Calculate equivalent units of production for conversion using FIFO.

a. 34,325
b. 30,125
c. 37,125
d. 39,000

25. Calculate equivalent units of production for material using weighted average.

a. 34,325
b. 32,000
c. 37,125
d. 39,000

26. Calculate equivalent units of production for conversion using weighted average.

a. 39,925
b. 37,125
c. 34,325
d. 38,375

The following information is available for K Co. for June:

Started this month 80,000 units

Beginning WIP
(40% complete) 7,500 units
Normal spoilage (discrete) 1,100 units
Abnormal spoilage 900 units
Ending WIP
(70% complete) 13,000 units
Transferred out 72,500 units
 Beginning Work in Process Costs:
Material $10,400
Conversion 13,800
Current Costs:
Material $120,000
Conversion 350,000

All materials are added at the start of production and the inspection point is at the end of the
process.

27. What are equivalent units of production for material using FIFO?

a. 80,000
b. 79,100
c. 78,900
d. 87,500

28. What are equivalent units of production for conversion costs using FIFO?

a. 79,700
b. 79,500
c. 81,100
d. 80,600

29. What are equivalent units of production for material using weighted average?

a. 86,600
b. 87,500
c. 86,400
d. 85,500

30. What are equivalent units of production for conversion costs using weighted average?

a. 83,600
b. 82,700
c. 82,500
d. 81,600

31. What is cost per equivalent unit for material using FIFO?

a. $1.63
b. $1.37
c. $1.50
d. $1.56
32. What is cost per equivalent unit for conversion costs using FIFO?

a. $4.00
b. $4.19
c. $4.34
d. $4.38

33. What is cost per equivalent unit for material using weighted average?

a. $1.49
b. $1.63
c. $1.56
d. $1.44

34. What is cost per equivalent unit for conversion costs using weighted average?

a. $4.19
b. $4.41
c. $4.55
d. $4.35

35. What is the cost assigned to ending inventory using FIFO?

a. $75,920
b. $58,994
c. $56,420
d. $53,144

36. What is the cost assigned to abnormal spoilage using FIFO?

a. $1,350
b. $3,906
c. $5,256
d. $6,424

37. What is the cost assigned to normal spoilage and how is it classified using weighted
average?

a. $6,193 allocated between WIP and Transferred Out

b. $6,424 assigned to units Transferred Out
c. $6,193 assigned to loss account
d. $6,424 assigned to units Transferred Out
 38. What is the total cost assigned to goods transferred out using weighted average?

a. $435,080
b. $429,824
c. $428,656
d. $423,400

Use the following information for questions 39-47

P.O.P. Co. produces two products from a joint process: X and Z. Joint processing costs for this
production cycle are $8,000.

Disposal
Sales price cost per Further Final sale
per yard at yard at processing price per
Yards split-off split-off per yard yard
X 1,500 $6.00 $3.50 $1.00 $ 7.50
Z 2,200 9.00 5.00 3.00 11.25

If X and Z are processed further, no disposal costs will be incurred or such costs will be borne by
the buyer.

39. Using a physical measure, what amount of joint processing cost is allocated to X (round
to the nearest dollar)?

a. $4,000
b. $4,757
c. $5,500
d. $3,243

40. Using a physical measure, what amount of joint processing cost is allocated to Z (round
to the nearest dollar)?

a. $4,000
b. $3,243
c. $5,500
d. $4,757

41. Using sales value at split-off, what amount of joint processing cost is allocated to X
(round to the nearest dollar)?

a. $5,500
b. $2,500
c. $4,000
d. $3,243
 42. Using sales value at split-off, what amount of joint processing cost is allocated to Z
(round to the nearest dollar)?

a. $5,500
b. $4,000
c. $2,500
d. $4,757

Use the following information for questions 43-46

Sun Co. produces three products from the same process that has joint processing costs of $4,100.
Products RR, SS, and TT are produced in the following gallons per month, respectively: 250,
400, and 750. Sun also incurred advertising costs of $60,000; the ad was used to run sales for all
three products. They occupy floor space in the following ratio: 5:4:9. (Round all answers to the
nearest dollar.)

43. Using gallons as the physical measurement, what amount of joint processing cost is
allocated to SS?

a. $2,196
b. $1,171
c. $1,367
d. $732

44. Using gallons as the physical measurement, what amount of joint processing cost is
allocated to TT?

a. $2,196
b. $732
c. $1,367
d. $1,171

45. Assume that Sun chooses to allocate its advertising cost among the three products. What
amount of advertising cost is allocated to RR using the floor space ratio?

a. $20,000
b. $17,806
c. $1,139
d. $16,667
 46. Assume that Sun chooses to allocate its advertising cost among the three products. What
amount of advertising cost is allocated to SS using the floor space ratio?

a. $911
b. $14,244
c. $13,333
d. $20,000

Use the following information for questions 47-51

Timothy Company has the following information available for October when 3,500 units were
produced (round answers to the nearest dollar).

Standards:
Material 3.5 pounds per unit @ $4.50 per pound
Labor 5.0 hours per unit @ $10.25 per hour

Actual:
Material purchased 12,300 pounds @ $4.25
Material used 11,750 pounds
17,300 direct labor hours @ $10.20 per hour

47. What is the labor rate variance?

a. $875 F
b. $865 F
c. $865 U
d. $875 U

48. What is the labor efficiency variance?

a. $2,050 F
b. $2,050 U
c. $2,040 U
d. $2,040 F

49. What is the material price variance (based on quantity purchased)?

a. $3,075 U
b. $2,938 U
c. $2,938 F
d. $3,075 F
 50. What is the material quantity variance?

a. $2,250 F
b. $2,250 U
c. $225 F
d. $2,475 U

51. Assume that the company computes the material price variance on the basis of material
issued to production. What is the total material variance?

a. $2,850 U
b. $5,188 U
c. $5,188 F
d. $2,850 F

Use the following information for questions 52-61

Redd Co. uses a standard cost system for its production process and applies overhead based on
direct labor hours. The following information is available for August when Redd made 4,500
units:

Standard:
DLH per unit 2.50
Variable overhead per DLH $1.75
Fixed overhead per DLH $3.10
Budgeted variable overhead $21,875
Budgeted fixed overhead $38,750

Actual:
Direct labor hours 10,000
Variable overhead $26,250
Fixed overhead $38,000

52. Using the one-variance approach, what is the total overhead variance?

a. $6,062.50 U
b. $3,625.00 U
c. $9,687.50 U
d. $6,562.50 U

53. Using the two-variance approach, what is the controllable variance?

a. $5,812.50 U
b. $5,812.50 F
c. $4,375.00 U
d. $4,375.00 F
54. Using the three-variance approach, what is the spending variance?

a. $4,375 U
b. $3,625 F
c. $8,000 U
d. $15,750 U

55. Using the two-variance approach, what is the noncontrollable variance?

a. $3,125.00 F
b. $3,875.00 U
c. $3,875.00 F
d. $6,062.50 U

56. Using the three-variance approach, what is the efficiency variance?

a. $9,937.50 F
b. $2,187.50 F
c. $2,187.50 U
d. $2,937.50 F

57. Using the three-variance approach, what is the volume variance?

a. $3,125.00 F
b. $3,875.00 F
c. $3,875.00 U
d. $6,062.50 U

58. Using the four-variance approach, what is the variable overhead spending variance?

a. $4,375.00 U
b. $4,375.00 F
c. $8,750.00 U
d. $6,562.50 U
59. Using the four-variance approach, what is the variable overhead efficiency variance?

a. $2,187.50 U
b. $9,937.50 F
c. $2,187.50 F
d. $2,937.50 F

60. Using the four-variance approach, what is the fixed overhead spending variance?

a. $7,000 U
b. $3,125 F
c. $750 U
d. $750 F

61. Using the four-variance approach, what is the volume variance?

a. $3,125 F
b. $3,875 F
c. $6,063 U
d. $3,875 U

62. One unit requires 2 direct labor hours to produce. Standard variable overhead per unit is
$1.25 and standard fixed overhead per unit is $1.75. If 330 units were produced this
month, what total amount of overhead is applied to the units produced?

a. $990
b. $1,980
c. $660
d. cannot be determined without knowing the actual hours worked

63. JJ Corp. produces 50,000 units of Product Q and 6,000 units of Product Z during a
period. In that period, four set-ups were required for color changes. All units of Product
Q are black, which is the color in the process at the beginning of the period. A set-up was
made for 1,000 blue units of Product Z; a set-up was made for 4,500 red units of Product
Z; a set-up was made for 500 green units of Product Z. A set-up was then made to return
the process to its standard black coloration and the units of Product Q were run. Each set-
up costs $500. If set-up cost is assigned on a volume basis for the department, what is the
approximate per-unit set-up cost for Product Z?

a. $.010.
b. $.036.
c. $.040.
d. none of the above.
64. JJ Corp. produces 50,000 units of Product Q and 6,000 units of Product Z during a
period. In that period, four set-ups were required for color changes. All units of Product
Q are black, which is the color in the process at the beginning of the period. A set-up was
made for 1,000 blue units of Product Z; a set-up was made for 4,500 red units of Product
Z; a set-up was made for 500 green units of Product Z. A set-up was then made to return
the process to its standard black coloration and the units of Product Q were run. Each set-
up costs $500. If set-up cost is assigned on a volume for the department, what is the
approximate per-unit set-up cost for the red units of Product Z?

a. $.036.
b. $.111.
c. $.250.
d. none of the above.

65. Use the information from #64. Assume that JJ Corp. has decided to allocate overhead
costs using levels of cost drivers. What would be the approximate per-unit set-up cost for
the blue units of Product Z?

a. $.04.
b. $.25.
c. $.50.
d. none of the above.

END