1 Exam Study Questions (Chapters 1 4)
Additional Multiple choice questions are provided on the text website at: www.mhhe.com/garrison14e
Chapter 1
1.
How does managerial accounting differ from financial accounting?
2.
Pick any major TV network and describe some planning and control activities that its managers would
engage in.
3.
If you had to decide whether to continue making a component part or to begin buying the part from an
overseas supplier, what quantitative and qualitative factors would influence your decision?
4.
Why do companies prepare budgets?
5.
Why is managerial accounting relevant to business majors and their future careers?
6.
Why do management accountants need to understand their company strategy?
7.
Why do companies that implement Lean Production tend to have minimal inventories?
8.
Why are leadership skills important to managers?
9.
Why is ethics important to business?
10
.
Where does the Theory of Constraints recommend that improvement efforts be
11
.
Briefly describe what is meant by enterprise risk management.
12
.
Which of the following is not one of the three basic activities of a manager?
A) Planning
B) Controlling
C) Directing and motivating
D) Compiling management accounting reports
13
.
Large work in process inventories:
A)
are essential for efficient operations.
B)
reduce defect rates.
C)
increase throughput time.
D)
are a key part of Just-In-Time systems.
14
.
Ideally, how many units should be produced in a just-in-time manufacturing system?
A)
budgeted customer demand for the current week.
B)
budgeted customer demand for the following week.
C)
enough to satisfy actual customer demand for the current week.
D)
maximum production capacity for the current week.
Exam 1
Page 1
15
.
If ending inventory is $2,500; cost of goods sold were $94,300 and beginning inventory was $4,100;
determine purchases.
16
.
Sales were $805,400; cost of goods sold were $515,200; operating expenses were $213,100; determine
gross profit.
17
.
Sales were $805,400; cost of goods sold were $515,200; operating expenses were $213,100; determine
net operating income.
18
.
Sales were $805,400; cost of goods sold were $515,200; operating expenses were $213,100; determine
gross profit ratio.
Exam 1
Page 2
Chapter 2
1.
What are the three major elements of product cost in a manufacturing company?
2.
Define the following: (a) direct materials, (b) indirect materials, (c) direct labor, (d) indirect labor,
and (e) manufacturing overhead.
3.
Explain the difference between product cost and period cost.
4.
Distinguish between (a) a variable cost, (b) a fixed cost, and (c) a mixed cost.
5.
What effect does an increase in volume have on:
(a) unit fixed costs?
(b) unit variable costs
(c) total fixed costs?
(d) total variable costs?
6.
Define the following terms (a) cost behavior and (b) relevant range.
7.
What is meant by an activity base when dealing with variable costs? Give several examples of
activity bases.
8.
Managers often assume a strictly linear relationship between cost and volume. How can this
practice be defended in light of the fact that many costs are curvilinear?
9.
Distinguish between discretionary fixed costs and committed fixed costs.
10.
Does the concept of the relevant range apply to fixed costs? Explain.
11.
What is the major disadvantage of the high-low method?
12.
Give the general formula for a mixed cost. Which term represents the variable cost? The fixed
costs?
13.
What is the difference between a contribution format income statement and a traditional format
income statement?
14.
What is the contribution margin?
15.
Define the following terms: differential cost, opportunity cost and sunk cost.
16.
Only variable costs can be differential costs. Do you agree? Explain.
17.
Fixed costs expressed on a per unit basis:
A) will increase with increases in activity.
B) will decrease with increases in activity.
C) are not affected by activity.
D) should be ignored in making decisions since they cannot change.
Exam 1
Page 3
18.
The costs of staffing and operating the accounting department at Central Hospital would be
considered by the Department of Surgery to be:
A) direct costs.
B) indirect costs.
C) incremental costs.
D) opportunity costs.
19.
A cost incurred in the past that is not relevant to any current decision is classified as a(n):
A) period cost.
B) opportunity cost.
C) sunk cost.
D) differential cost.
20.
As the level of activity increases, how will a mixed cost in total and per unit behave?
21.
22.
23.
In Total
Per Unit
A)
Increase
Decrease
B)
Increase
Increase
C)
Increase
No effect
D)
Decrease
Increase
E)
Decrease
No effect
Since Anytime Pizza is open 24 hours a day, its pizza oven is constantly on and is, therefore,
always using natural gas. However, when there is no pizza in the oven, the oven automatically
lowers its flame and reduces its natural gas usage by 70%. The cost of natural gas would best be
described as a:
A) fixed cost.
B) mixed cost.
C) step-variable cost.
D) true variable cost.
When the activity level is expected to decline within the relevant range, what effects would be
anticipated with respect to each of the following?
Fixed
Variable
costs per
costs per
unit
unit
A)
Increase
Increase
B)
Increase
No change
C)
No
No change
change
D)
No
Increase
change
The following data have been collected for four different cost items.
Cost
Item
W
X
Y
Z
Cost at 100
units
$8,000
$5,000
$6,500
$6,700
Cost at 140
units
$10,560
$5,000
$9,100
$8,580
Which of the following classifications of these cost items by cost behavior is correct?
A)
B)
C)
D)
Exam 1
Cost W
variable
mixed
variable
mixed
Cost X
fixed
fixed
fixed
fixed
Cost Y
mixed
variable
variable
mixed
Cost Z
variable
mixed
variable
mixed
Page 4
24 .
25.
Which of the following methods of analyzing mixed costs can be used to estimate an equation for
the mixed cost?
High-Low
Least Squares
A)
Yes
Yes
B)
Yes
No
C)
No
Yes
D)
No
No
Use the high-low method to determine the cost equation for selling expenses:
Month
Units Sold
January
February
March
5,200
5,500
5,000
Total selling
expense
$91,550
91,875
91,250
The cost equation is: Y = ______________
26.
Use the high-low method to determine the cost equation for truck expense:
Year
20A
20B
20C
20D
Miles driven
18,000
17,200
16,500
15,000
Cost per mile
$1.15
1.16
1.17
1.20
The cost equation is: Y = ______________
27.
Determine the estimate of total cost of operating the truck in 20E if the estimated miles the truck is
to be driven is 16,000 miles. $_________
28.
KELR manufactures steering gear boxes for all Chevy Trucks. Following is the income statement
for KELR for the last quarter:
KELR, Inc.
Income Statement
For the Quarter Ended June 30th
Sales
$1,820,000
Less Cost of Goods Sold
1,000,000
Gross profit
820,000
Less operating expenses
Selling expense
355,000
Administrative expenses
300,000
Net operating income
165,000
The average price for a gear box is $182. The variable selling expenses are $3.00 per unit sold.
The remaining selling expenses are fixed. The administrative expenses are 10% variable and 90%
fixed. The cost to manufacture a gear box is all variable and is $100 per unit.
Exam 1
Page 5
Convert the traditional income statement into a contribution income statement (showing cost per
unit).
KELR, Inc.
Income Statement
For the Quarter Ended June 30th
Unit
29.
If KELR could sell 100 more gear boxes; how would that affect net operating income?
Exam 1
Page 6
Chapter 3
1.
Why arent actual overhead costs traced to jobs just as direct materials and direct labor costs are traced
to jobs?
2.
What is the purpose of the job cost sheet in a job-order costing system?
3.
What is a predetermined overhead rate, and how is it computed?
4.
Why do companies use predetermined overhead rates rather than actual manufacturing overhead costs
to apply overhead to jobs?
5.
What factors should be considered in selecting a base to be used in computing the predetermined
overhead rate?
6.
What account is credited when overhead cost is applied to WIP? Would you expect the amount applied
for a period to equal the actual overhead cost of the period? Why or why not?
7.
What is underapplied overhead? Overapplied overhead? What disposition is made of these amounts at
the end of the period?
8.
What adjustment is made for underapplied overhead on the schedule of cost of goods sold (COGS)?
What adjustment is made for overapplied overhead?
9.
A company assigns overhead cost to completed jobs on the basis of 125% of direct labor cost. The job
cost sheet for Job 313 show that $10,000 in direct material has been used on the job and that $12,000
in direct labor cost has been incurred. If 1,000 units were produced in Job 313, what is the unit product
cost?
10
.
Which of the following statements is true?
I.
II.
III.
A.
B.
C.
D.
Exam 1
Overhead application may be made slowly as a job is worked on.
Overhead application may be made in a single application at the time of completion of
the job.
Overhead application should be made to any job not completed at year-end in order to
properly value the work in process inventory.
Only statement I is true.
Only statement II is true.
Both statements I and II are I, true.
Statements II, and III are all true.
Page 7
11
.
On the Schedule of Cost of Goods Manufactured, the final Cost of Goods Manufactured figure
represents:
A. the amount of cost charged to Work in Process during the period.
B. the amount of cost transferred from Finished Goods to Cost of Goods Sold during the period.
C. the amount of cost placed into production during the period.
D. the amount of cost of goods completed during the current year whether they were started before
or during the current year.
12
.
Under a job-order costing system, the dollar amount transferred from Work in Process to Finished
Goods is the sum of the costs charged to all jobs:
A. started in process during the period.
B. in process during the period.
C. completed and sold during the period.
D. completed during the period.
13
.
Wall Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing
overhead to jobs. The company's estimated costs for the next year are:
Direct materials.............................................
Direct labor....................................................
Depreciation on factory equipment..............
Rent on factory..............................................
Sales salaries................................................
Factory utilities..............................................
Indirect labor.................................................
$3,000
$20,00
0
$6,000
$12,00
0
$29,00
0
$15,00
0
$6,000
It is estimated that 10,000 direct labor hours will be worked during the year. The predetermined
overhead rate will be:
A) $3.90
B) $5.90
C) $6.80
D) $9.10
14
.
The following information relates to THE Manufacturing Company:
Total estimated manufacturing overhead at beginning of year.....
Total manufacturing overhead applied to production during the
year..............................................................................................
Total manufacturing overhead incurred during the year................
$620,00
0
$625,00
0
$618,00
0
The company closes out the balance in the Manufacturing Overhead to Cost of Goods Sold at the
end of the year. In the journal entry to close out the balance, the company would:
A) debit cost of goods sold for $2,000
B) credit cost of goods sold for $2,000
C) credit cost of goods sold for $7,000
D) debit cost of goods sold for $7,000
Exam 1
Page 8
Use the following to answer 15 20
The following cost data relate to the manufacturing activities of a Company during the just completed
year:
Manufacturing overhead costs incurred:
Indirect materials
Indirect labor
Property taxes, factory
Utilities, factory
Depreciation, factory
Insurance, factory
Total actual manufacturing overhead costs
incurred:
Other costs incurred:
Purchases of raw materials (both direct and indirect)
Direct labor costs
Inventory
Raw material
Work in process
Finished goods
Beginning
$6,800
12,800
8,900
$ 33,500
12,900
15,000
102,500
54,000
14,500
$232,400
$286,500
189,000
Ending
$10,600
11,450
16,500
The company uses a predetermined overhead rate to apply overhead cost to production. The rate for
the year was $14.00 per machine hour (MH). A total of 16,400 MH was recorded for the year.
15
.
How much cost was taken out of Raw Materials (raw materials used in production)?
16
.
How much direct material (DM) was added to work in process (WIP)?
17
.
How much manufacturing overhead (MOH) was added to work in process (WIP)?
18
.
What were the total manufacturing costs for the year?
19
.
How much was subtracted from WIP over the year?
20
.
How much was COGS for the year (before MOH was closed)?
21
.
How much was MOH overapplied or underapplied for the year?
22
.
When MOH is closed out to COGS how will that affect COGS? Gross profit? Net operating income?
Exam 1
Page 9
Chapter 4
1
.
Under what conditions would it be appropriate to use a process costing system?
2
.
In what ways are job-order costing and process costing similar?
3
.
How many WIP accounts are maintained in a company using process costing?
4
.
What is meant by the term equivalent units of production when the weighted-average method is used?
5
.
What is the quantity schedule, and what purpose does it serve?
6.
Under process costing, it is often suggested that a product is like a rolling snowball as it moves from
department to department. Why is this an apt comparison?
7
.
Which of the following statements about process costing system is incorrect?
A) In a process costing system, each processing department has a work in process account.
B) In a process costing system, equivalent units are separately computed for materials and for
conversion costs.
C) In a process costing system, overhead can be under- or overapplied just as in job-order costing.
D) In a process costing system, materials costs are traced to units of products.
8
.
When the weighted-average method of process costing is used, a department's equivalent units are
computed by:
A) subtracting the equivalent units in beginning inventory from the equivalent units in ending
inventory.
B) subtracting the equivalent units in beginning inventory from the equivalent units for work
performed during the period.
C) adding the units transferred out to the equivalent units in ending inventory.
D) subtracting the equivalent units in beginning inventory from the sum of the units transferred out
and the equivalent units in ending inventory.
Exam 1
Page 10
9
.
Luster Company uses the weighted-average method in its process costing system. Operating data for
the first processing department for the month of June appear below:
Beginning work in process inventory........
Started into production during June.........
Ending work in process inventory.............
Units
13,000
98,000
11,000
Percentage
complete
40%
30%
According to the company's records, the conversion cost in beginning work in process inventory was
$39,364 at the beginning of June. Additional conversion costs of $721,035 were incurred in the
department during the month.
What was the cost per equivalent unit for conversion costs for the month? (Round off to three decimal
places.)
A) $6.615
B) $7.358
C) $7.361
D) $7.570
10 .
Lumpk Company uses the weighted-average method in its process costing system. Operating data for
the first processing department for the month of June appear below:
Beginning work in process inventory............
Started into production during June..............
Ending work in process inventory.................
Units
10,000
75,000
17,000
Percentag
e
complete
90%
40%
According to the company's records, the conversion cost in beginning work in process inventory was
$77,490 at the beginning of June. Additional conversion costs of $552,062 were incurred in the
department during the month.
What was the cost per equivalent unit for conversion costs for the month? (Round off to three decimal
places.)
A) $8.610
B) $7.361
C) $6.001
D) $8.416
Use the following to answer 11 20
Work in process, beginning:
Units in process..................................................................
Stage of completion with respect to materials...................
Stage of completion with respect to conversion................
Costs in the beginning inventory:
Materials cost..................................................................
Conversion cost..............................................................
$125,600
$204,200
Units started into production during the month.....................
Units completed and transferred out.....................................
240,000
255,000
Costs added to production during the month:
Materials cost......................................................................
Conversion cost..................................................................
$1,839,400
$2,113,300
Work in process, ending:
Units in process..................................................................
Stage of completion with respect to materials...................
Stage of completion with respect to conversion................
Exam 1
Page 11
25,000
80%
30%
?
70%
25%
11.
How many units are in ending work in process inventory in the first processing department at the end of
the month?
12.
How many units needed to be accounted for in the first processing department over the month?
13.
What are the equivalent units for conversion costs for the month in the first processing department?
14.
What was the cost per equivalent unit for materials for the month in the first processing department:
15.
What was the cost per equivalent unit for conversion costs for the first department for the month:
16.
What was the cost per whole unit for the month in the first processing department:
17.
The amount of costs to be accounted for in the first processing department for the month is:
18.
The total cost transferred from the first processing department to the next processing department
during the month was:
19.
The cost of material remaining in ending work in process in the first processing department according
to the company's cost system was:
20.
The cost of conversion costs remaining in ending work in process in the first processing department
according to the company's cost system was:
Exam 1
Page 12