Managerial Account
Multiple Choice Questions
1. Which of the following statements is true?
- A. The word “cost” has the same meaning in all situations in which it is used.
- B. Cost data, once classified and recorded for a specific application, are appropriate for use in any application.
- C. Different cost concepts and classifications are used for different purposes.
- D. All organizations incur the same types of costs.
- E. Costs incurred in one year are always meaningful in the following year.
2. Which of the following does a product cost?
- A. Glass in an automobile.
- B. Advertising.
- C. The salary of the vice president-finance.
- D. Rent on a factory.
- E. Both “A” and “D. “
3. The accounting records of Georgia Company revealed the following costs: direct materials used, $250,000; direct labor, $425,000; manufacturing overhead, $375,000; and selling and administrative expenses, $220,000. Georgia’s product costs total:
- A. $1,050,000.
- B. $830,000.
- C. $895,000.
- D. $1,270,000.
- E. some other amount.
4. Costs that are expensed when incurred are called:
- A. product costs.
- B. direct costs.
- C. inventoriable costs.
- D. period costs.
- E. indirect costs.
5. Which of the following is not a period cost?
- A. Legal costs.
- B. Public relations costs.
- C. Sales commissions.
- D. Wages of assembly-line workers.
- E. The salary of a company’s chief financial officer (CFO).
6. The accounting records of Reynolds Corporation revealed the following selected costs: Sales commissions, $65,000; plant supervision, $190,000; and administrative expenses, $185,000. Reynolds’s period costs total:
- A. $250,000.
- B. $440,000.
- C. $375,000.
- D. $255,000.
- E. $185,000.
7. Yang Corporation recently computed total production costs of $567,000 and total period costs of $420,000, excluding $35,000 of sales commissions that were overlooked by the company’s administrative assistant. On the basis of this information, Yang’s income statement should reveal the operating expenses of:
- A. 35,000.
- B. $420,000.
- C. $455,000.
- D. $567,000.
- E. $602,000.
8. Which of the following entities would most likely have raw materials, work in process, and finished goods?
- A. Exxon Corporation.
- B. Macy’s Department Store.
- C. Wendy’s.
- D. Southwest Airlines.
- E. Columbia University.
9. Selling and administrative expenses would likely appear on the balance sheet of:
- A. The Gap.
- B. Texas Instruments.
- C. Turner Broadcasting System.
- D. All of these firms.
- E. None of these firms.
10. Mideast Motors manufactures automobiles. Which of the following would not be classified as direct materials by the company?
- A. Wheel lubricant.
- B. Tires.
- C. Interior leather.
- D. CD player.
- E. Sheet metal used in the automobile’s body.
11. Which of the following employees of a commercial printer/publisher would be classified as direct labor?
- A. Bookbinder.
- B. Plant security guard.
- C. Sales representative.
- D. Plant supervisor.
- E. Payroll supervisor.
12. Lake Appliance produces washers and dryers in an assembly-line process. Labor costs incurred during a recent period were: corporate executives, $500,000; assembly-line workers, $180,000; security guards, $45,000; and plant supervisor, $110,000. The total of Lake’s direct labor cost was:
- A. $110,000.
- B. $180,000.
- C. $155,000.
- D. $235,000.
- E. $735,000.
13. Depreciation of factory equipment would be classified as:
- A. operating cost.
- B. “other” cost.
- C. manufacturing overhead.
- D. period cost.
- E. administrative cost.
14. Which of the following costs is not a component of manufacturing overhead?
- A. Indirect materials.
- B. Factory utilities.
- C. Factory equipment.
- D. Indirect labor.
- E. Property taxes on the manufacturing plant.
15. The accounting records of Diego Company revealed the following costs, among others: Costs that would be considered in the calculation of manufacturing overhead total:
- A. $149,000.
- B. $171,000.
- C. $186,000.
- D. $442,000.
- E. some other amount.
16. Which of the following statements is true?
- A. Product costs affect only the balance sheet.
- B. Product costs affect only the income statement.
- C. Period costs affect only the balance sheet.
- D. Neither product costs nor period costs affect the Statement of Retained Earnings. This can also be a true statement if the period costs were prepaid (i. e. , prepaid advertising, depreciation).
- E. Product costs eventually affect both the balance sheet and the income statement.
17. In a manufacturing company, the cost of goods completed during the period would include which of the following elements?
- A. Raw materials used.
- B. Beginning finished goods inventory.
- C. Marketing costs.
- D. Depreciation of delivery trucks.
- E. All of the above.
18. Which of the following equations is used to calculate the cost of goods sold during the period?
- A. Beginning finished goods + cost of goods manufactured + ending finished goods.
- B. Beginning finished goods – ending finished goods.
- C. Beginning finished goods + cost of goods manufactured.
- D. Beginning finished goods + cost of goods manufactured – ending finished goods.
- E. Beginning finished goods + ending finished goods – the cost of goods manufactured.
19. Holden Industries began July with a finished-goods inventory of $48,000. The finished-goods inventory at the end of July was $56,000 and the cost of goods sold during the month was $125,000. The cost of goods manufactured during July was:
- A. $104,000.
- B. $125,000.
- C. $117,000.
- D. $133,000.
- E. some other amount.
20. Carolina Plating Company reported a cost of goods manufactured at $520,000, with the firm’s year-end balance sheet revealing work in process and finished goods of $70,000 and $134,000, respectively.If supplemental information disclosed raw materials used in the production of $80,000, direct labor of $140,000, and manufacturing overhead of $240,000, the company’s beginning work in the process must have been:
- A. $130,000.
- B. $10,000.
- C. $66,000.
- D. $390,000.
- E. some other amount.
21. The accounting records of Bronco Company revealed the following information: Bronco’s cost of goods manufactured is:
- A. $519,000.
- B. $522,000.
- C. $568,000.
- D. $571,000.
- E. some other amount.
22. The accounting records of Brownwood Company revealed the following information: Brownwood’s cost of goods sold is:
- A. $721,000.
- B. $730,000.
- C. $778,000.
- D. $787,000.
- E. some other amount.
23. For the year just ended, Cole Corporation’s manufacturing costs (raw materials used, direct labor, and manufacturing overhead) totaled $1,500,000. Beginning and ending work-in-process inventories were $60,000 and $90,000, respectively. Cole’s balance sheet also revealed respective beginning and ending finished-goods inventories of $250,000 and $180,000. On the basis of this information, how much would the company report as cost of goods manufactured (CGM) and cost of goods sold (CGS)?
- A. CGM, $1,430,000; CGS, $1,460,000.
- B. CGM, $1,470,000; CGS, $1,540,000.
- C. CGM, $1,530,000; CGS, $1,460,000.
- D. CGM, $1,570,000; CGS, $1,540,000.
- E. Some other amounts.
24. Glass Industries reported the following data for the year just ended: sales revenue, $1,750,000; cost of goods sold, $980,000; cost of goods manufactured, $560,000; and selling and administrative expenses, $170,000. Glass’ gross margin would be:
- A. $940,000.
- B. $1,190,000.
- C. $1,020,000.
- D. $380,000.
- E. $770,000.
25. Variable costs are costs that:
- A. vary inversely with changes in activity.
- B. vary directly with changes in activity.
- C. remain constant as activity changes.
- D. decrease on a per-unit basis as activity increases.
- E. increase on a per-unit basis as activity increases.
26. Which of the following is not an example of a variable cost?
- A. Straight-line depreciation on a machine that has a five-year service life.
- B. Wages of manufacturing workers whose pay is based on hours worked.
- C. Tires used in the production of tractors.
- D. Aluminum used to make patio furniture.
- E. Commissions paid to sales personnel.
27. The fixed costs per unit are $10 when a company produces 10,000 units of product. What are the fixed costs per unit when 8,000 units are produced?
- A. $12. 50.
- B. $10. 00.
- C. $8. 00.
- D. $6. 50.
- E. $5. 50. 28.
28. Total costs are $180,000 when 10,000 units are produced; of this amount, variable costs are $64,000. What are the total costs when 13,000 units are produced?
- A. $199,200.
- B. $214,800.
- C. $234,000.
- D. Some other amount.
- E. Total costs cannot be calculated based on the information presented.
29. Baxter Company, which pays a 10% commission to its salespeople, reported sales revenues of $210,000 for the period just ended. If fixed and variable sales expenses totaled $56,000, what would these expenses total at sales of $168,000?
- A. $16,800.
- B. $35,000.
- C. $44,800.
- D. $51,800.
- E. Some other amount.
30. The salary that is sacrificed by a college student who pursues a degree full time is a(n):
- A. sunk cost.
- B. out-of-pocket cost.
- C. opportunity cost.
- D. differential cost.
- E. marginal cost.
Essay Questions
1. Consider the three firms that follow:
- (1) Southwest Airlines,
- (2) BMW, and
- (3) Target.
These firms, examples of service providers, manufacturers, and merchandisers, tend to have different characteristics with respect to costs and financial-statement disclosures.
Required: Determine which of the preceding firms (1, 2, and/or 3) would likely:
- A. Disclose operating expenses on the income statement.
- B. Have product costs.
- C. Have period costs.
- D. Disclose cost of cost good sold on the income statement
- . E. Have no meaningful investment in inventory.
- F. Maintain raw-material, work-in-process, and finished-goods inventories.
- G. Have variable and fixed costs.
2. Consider the following cost items:
- Sales commissions earned by a company’s sales force.
- Raw materials purchased during the period.
- Current year’s depreciation on a firm’s manufacturing facilities.
- Year-end completed production of a carpet manufacturer.
- The cost of products sold to customers of an apparel store.
- Wages earned by machine operators in a manufacturing plant.
- Income taxes incurred by an airline.
- Marketing costs of an electronics manufacturer.
- Indirect labor costs incurred by a manufacturer of office equipment.
Required:
- A. Evaluate the costs just cited and determine whether the associated dollar amounts would appear on the firm’s balance sheet, income statement, or schedule of cost of goods manufactured.
- B. What major asset will normally be insignificant for service enterprises and relatively substantial for retailers, wholesalers, and manufacturers? Briefly discuss.
- C. Briefly explain the similarity and difference between the merchandise inventory of a retailer and the finished-goods inventory of a manufacturer.
3. Consider the following items:
- A. Tomatoes used in the manufacture of Hunts ketchup
- B. Administrative salaries of executives employed by Jet Blue Airlines
- C. Wages of assembly-line workers at a Ford plant
- D. Marketing expenditures of the Atlanta Braves baseball club
- E. Commissions paid to Coca-Cola’s salespeople
- F. Straight-line depreciation on manufacturing equipment owned by Dell Computer
- G. Shipping charges incurred by Office Depot on out-going orders
- H. Speakers used in Sony home-theater systems
- I. Insurance costs related to a Mary Kay Cosmetics’ manufacturing plant Required: Complete the table that follows and classify each of the costs listed as (1) a product or period cost and (2) a variable or fixed cost by placing an “X” in the appropriate column.
4. In discussing the operation of her automobile, a doctor once observed that gasoline is a fixed cost because the cost per gallon is relatively stable. Insurance, on the other hand, is a variable cost because the cost per mile varies inversely with the number of miles driven. Comment on the doctor’s observation.
