New Era University

College of Accountancy

Assignment 1
Introduction to Cost Management,
Cost behaviours, and Cost classifications

1. In comparing financial and management accounting, which of the following more accurately describes management
accounting information?
a. historical, precise, useful
b. required, estimated, internal
c. budgeted, informative, adaptable
d. comparable, verifiable, monetary

2. One major difference between financial and management accounting is that

a. financial accounting reports are prepared primarily for users external to the company.
b. management accounting is not under the jurisdiction of the Securities and Exchange Commission.
c. government regulations do not apply to management accounting.
d. all of the above are true.

3. Management accounting
a. is more concerned with the future than is financial accounting.
b. is less concerned with segments of a company than is financial accounting.
c. is more constrained by rules and regulations than is financial accounting.
d. all of the above are true.

4. Which of the following is not a valid method for determining product cost?
a. arbitrary assignment
b. direct measurement
c. systematic allocation
d. cost-benefit measurement

5. Cost accounting is directed toward the needs of

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

6. The process of ___________ causes the need for cost accounting.

a. Conversion
b. Sales
c. Controlling
d. Allocating

7. Financial accounting and cost accounting are both highly concerned with
a. preparing budgets.
b. determining product cost.
c. providing managers with information necessary for control purposes.
d. determining performance standards.

8. Cost and management accounting

a. require an entirely separate group of accounts than financial accounting uses.
b. focus solely on determining how much it costs to manufacture a product or provide a service.
c. provide product/service cost information as well as information for internal decision making.
d. are required for business recordkeeping as are financial and tax accounting.

9. Which of the following statements is false?

a. A primary purpose of cost accounting is to determine valuations needed for external financial
statements.
b. A primary purpose of management accounting is to provide information to managers for use in
planning, controlling, and decision making.
c. The act of converting production inputs into finished products or services necessitates cost
accounting.
d. Two primary hallmarks of cost and management accounting are standardization of procedures and
use of generally accepted accounting principles.

10. Core competencies are not

a. internal functions crucial to the success and survival of a company.
 b. attributes that keep a firm from competing.
c. different for every organization.
d. considered influences on corporate strategies.

11. The balanced scorecard perspective that focuses on using a firm’s intellectual capital to adapt to customer needs
through product or service innovations is the:
a. learning and growth perspective c. customer value perspective
b. internal business perspective d. financial perspective

12. The balanced scorecard perspective that addresses how well the organization is meeting specific customer-based
criteria is the:
a. learning and growth perspective c. customer value perspective
b. internal business perspective d. financial perspective

13. The world has essentially become smaller because of

a. improved technology.
b. trade agreements.
c. better communications systems.
d. all of the above.

14. The Institute of Management Accountants' Code of Ethics

a. is a legally enforceable contract with all management accountants.
b. should be viewed as a goal for professional behavior.
c. is a legally enforceable contract with all CPAs.
d. provides ways to measure departures from ethical behavior.

15. A managerial accountant who prepares clear reports and recommendations after analyzing relevant facts is
exercising which of the following standards?
a. Objectivity c. competence
b. Integrity d. confidentiality

16. The term "relevant range" as used in cost accounting means the range over which
a. costs may fluctuate.
b. cost relationships are valid.
c. production may vary.
d. relevant costs are incurred.

17. When cost relationships are linear, total variable prime costs will vary in proportion to changes in
a. direct labor hours.
b. total material cost.
c. total overhead cost.
d. production volume.

18. An example of a fixed cost is

a. total indirect material cost.
b. total hourly wages.
c. cost of electricity.
d. straight-line depreciation.

19. A(n) ________ cost increases or decreases in intervals as activity changes.

a. historical cost
b. fixed cost
c. step cost
d. budgeted cost

20. Which of the following always has a direct cause-effect relationship to a cost?

Predictor Cost driver

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

21. Product costs are deducted from revenue

a. as expenditures are made.
b. when production is completed.
c. as goods are sold.
 d. to minimize taxable income.

22. Which of the following is not a product cost component?

a. rent on a factory building
b. indirect production labor wages
c. janitorial supplies used in a factory
d. commission on the sale of a product

23. Period costs include

distribution costs outside processing costs sales commissions

a. yes no yes
b. no yes yes
c. no nono
d. yes yesyes

24. Cost of Goods Sold is an

a. unexpired product cost.
b. expired product cost.
c. unexpired period cost.
d. expired period cost.

25. Which of the following would need to be allocated to a cost object?

a. direct material
b. direct labor
c. direct production costs
d. indirect production costs

26. The distinction between direct and indirect costs depends on whether a cost
a. is controllable or non-controllable.
b. is variable or fixed.
c. can be conveniently and physically traced to a cost object under consideration.
d. will increase with changes in levels of activity.

27. Broussard Company is a construction company that builds houses on special request. What is the proper
classification of the cost of the cement building slab used?

Direct Fixed

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

28. Which of the following costs would be considered overhead in the production of chocolate chip cookies?
a. flour
b. chocolate chips
c. sugar
d. oven electricity

29. Prime cost consists of

direct material direct labor overhead

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

30. The term "prime cost" refers to

a. all manufacturing costs incurred to produce units of output.
b. all manufacturing costs other than direct labor and raw material costs.
c. raw material purchased and direct labor costs.
d. the raw material used and direct labor costs.

31. In a perpetual inventory system, the sale of items for cash consists of two entries. One entry is a debit to Cash and
a credit to Sales. The other entry is a debit to
 a. Work in Process Inventory and a credit to Finished Goods Inventory.
b. Finished Goods Inventory and a credit to Cost of Goods Sold.
c. Cost of Goods Sold and a credit to Finished Goods Inventory.
d. Finished Goods Inventory and a credit to Work in Process Inventory.

32. The final figure in the Schedule of Cost of Goods Manufactured represents the
a. cost of goods sold for the period.
b. total cost of manufacturing for the period.
c. total cost of goods started and completed this period.
d. total cost of goods completed for the period.

33. Which of the following replaces the retailing component "Purchases" in computing Cost of Goods Sold for a
manufacturing company?
a. direct material used
b. cost of goods manufactured
c. total prime cost
d. cost of goods available for sale

34. Costs that are incurred for monitoring and inspecting are:
a. prevention costs c. appraisal costs
b. detection costs d. failure costs

Wilson Company
The following information has been taken from the cost records of Wilson Company for the past year:

Raw material used in production $326

Total manufacturing costs charged to production during the year (includes direct material, 686
direct labor, and overhead equal to 60% of direct labor cost)
Cost of goods available for sale 826
Selling and Administrative expenses 25

Inventories Beginning Ending

Raw Material $75 $ 85
Work in Process 80 30
Finished Goods 90 110

35. Refer to Wilson Company. The cost of raw material purchased during the year was
a. $316.
b. $336.
c. $360.
d. $411.

36. Refer to Wilson Company. Direct labor cost charged to production during the year was
a. $135.
b. $216.
c. $225.
d. $360.

37. Refer to Wilson Company. Cost of Goods Manufactured was

a. $636.
b. $716.
c. $736.
d. $766.

38. Refer to Wilson Company. Cost of Goods Sold was

a. $691.
b. $716.
c. $736.
d. $801.

Brandt Company.
Brandt Company manufactures wood file cabinets. The following information is available for June 2001:
 Beginning Ending
Raw Material Inventory $ 6,000 $ 7,500
Work in Process Inventory 17,300 11,700
Finished Goods Inventory 21,000 16,300

39. Refer to Brandt Company. Direct labor is $9.60 per hour and overhead for the month was $9,600. Compute total
manufacturing costs for June, if there were 1,500 direct labor hours and $21,000 of raw material was purchased.
a. $58,500
b. $46,500
c. $43,500
d. $43,100

40. Refer to Brandt Company. Direct labor is paid $9.60 per hour and overhead for the month was $9,600. What are
prime costs and conversion costs, respectively if there were 1,500 direct labor hours and $21,000 of raw material
was purchased?
a. $29,100 and $33,900
b. $33,900 and $24,000
c. $33,900 and $29,100
d. $24,000 and $33,900

41. Refer to Brandt Company. Direct labor is paid $9.60 per hour and overhead for the month was $9,600. If there
were 1,500 direct labor hours and $21,000 of raw material purchased, Cost of Goods Manufactured is:
a. $49,100.
b. $45,000.
c. $51,000.
d. $49,500.

42. Refer to Brandt Company. Direct labor is paid $9.60 per hour and overhead for the month was $9,600. If there
were 1,500 direct labor hours and $21,000 of raw material purchased, how much is Cost of Goods Sold?
a. $64,500.
b. $59,800.
c. $38,800.
d. $53,800.

43. Since overhead costs are indirect costs,

a. they require some process of allocation.
b. they can be easily traced to production.
c. a predetermined overhead rate is not advantageous.
d. they cannot be allocated.

44. An actual cost system differs from a normal cost system in that an actual cost system
a. assigns overhead as it occurs during the manufacturing cycle.
b. assigns overhead at the end of the manufacturing process.
c. does not assign overhead at all.
d. does not use an Overhead Control account.

45. Predetermined overhead rates are computed based on

estimated overhead costs estimated level of activity

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

46. Which of the following is not a reason to use predetermined overhead rates?
a. to overcome the problems of assigning overhead to diverse types of products
b. to compensate for fluctuations in monthly overhead costs
c. to provide a means for assigning overhead during the period rather than at the end of the period
 d. to smooth out the amount of overhead cost assigned to products when monthly production activity
differs

47. A mixed cost has which of the following components?

Variable component Fixed component

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

48. In the formula y = a + bX, a represents

a. mixed cost.
b. variable cost.
c. total cost.
d. fixed cost.

49. In relationship to changes in activity, fixed overhead changes

in total per unit

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

50. Weaknesses of the high-low method include all of the following except
a. only two observations are used to develop the cost function.
b. the high and low activity levels may not be representative.
c. the method does not detect if the cost behavior is nonlinear.
d. the mathematical calculations are relatively complex.

51. An outlier is
a. something that happens outside the organization that does not affect production.
b. always used in analyzing a mixed cost.
c. something that happens inside the organization that does not affect production.
d. never used in analyzing a mixed cost.

52. If a company used two overhead accounts (actual overhead and applied overhead), the one that would receive the
most debits would be
a. actual overhead.
b. applied overhead.
c. both would receive an equal number of debits.
d. impossible to determine without additional information.

53. All other things being equal, if actual cost per unit is greater than budgeted cost per unit, variable overhead will be
a. overapplied.
b. the same as fixed overhead.
c. underapplied.
d. applied to Finished Goods.

54. Actual overhead exceeds applied overhead and the amount is immaterial. Which of the following will be true?
Upon closing,

Overhead is Cost of Goods Sold will

a. underapplied increase
b. overapplied decrease
c. overapplied increase
 d. underapplied decrease

55. The estimated maximum potential activity for a specified time is:
a. theoretical capacity c. normal capacity
b. practical capacity d. expected capacity

56. The measure of production that considers historical and estimated future production levels and cyclical
fluctuations is referred to as:
a. theoretical capacity c. normal capacity
b. practical capacity d. expected capacity

57. An item or event that has a cause-effect relationship with the incurrence of a variable cost is called a
a. mixed cost.
b. predictor.
c. direct cost.
d. cost driver.

58. Reno Corporation uses a predetermined overhead application rate of $.30 per direct labor hour. During the year it
incurred $345,000 dollars of actual overhead, but it planned to incur $360,000 of overhead. The company applied
$363,000 of overhead during the year. How many direct labor hours did the company plan to incur?
a. 1,150,000
b. 1,190,000
c. 1,200,000
d. 1,210,000

59. Birmingham Machine Works had the following data regarding monthly power costs:

Month Machine hours Power cost

Jun 300 $680
Jul 600 720
Aug 400 695
Sept. 200 640

Assume that management expects 500 machine hours in October. Using the high-low method, calculate October’s
power cost using machine hours as the basis for prediction.
a. $700
b. $705
c. $710
d. $1,320

Zenith Corporation
The records of Zenith Corporation revealed the following data for the current year.

Work in Process $ 73,150

Finished Goods 115,000
Cost of Goods Sold 133,650
Direct Labor 111,600
Direct Material 84,200

60. Refer to Zenith Corporation. Assume, for this question only, actual overhead is $98,700 and applied overhead is
$93,250. Manufacturing overhead is:
a. overapplied by $12,900.
b. underapplied by $18,350.
c. overapplied by $5,450.
d. underapplied by $5,450.

61. Refer to Zenith Corporation. Assume that Zenith has underapplied overhead of $37,200 and that this amount is
material. What journal entry is needed to close the overhead account? (Round decimals to nearest whole percent.)
a. Debit Work in Process $8,456; Finished Goods $13,294; Cost of Goods Sold $15,450 and credit
Overhead $37,200
 b. Debit Overhead $37,200 and credit Work in Process $8,456; Finished Goods $13,294; Cost of
Goods Sold $15,450
c. Debit Work in Process $37,200 and credit Overhead $37,200
d. Debit Cost of Goods Sold $37,200 and credit Overhead $37,200

62. Refer to Zenith Corporation. Assume that Zenith has underapplied overhead of $10,000 and that this amount is
immaterial. What is the balance in Cost of Goods Sold after the underapplied overhead is closed?
a. $133,650
b. $123,650
c. $143,650
d. $137,803

63. Refer to Zenith Corporation. Assume that Zenith has overapplied overhead of $25,000 and that this amount is
material. What is the balance in Cost of Goods Sold after the overapplied overhead is closed?
a. $123,267
b. $144,033
c. $158,650
d. $108,650

64. Aztec Company is relocating its facilities. The company estimates that it will take three trucks to move office
contents. If the per truck rental charge is $1,000 plus 25 cents per mile, what is the expected cost to move 800
miles?
a. $1,000
b. $1,200
c. $2,400
d. $3,600