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.