Part 1 : Cost Concepts & Costing Systems

Question 1 - CMA 697 3.3 - Variable and Absorption Costing

Which method of inventory costing treats direct manufacturing costs and manufacturing overhead costs, both
variable and fixed, as inventoriable costs?

A. Variable costing.
B. Absorption costing.
C. Direct costing.
D. Conversion costing.

Question 2 - CMA 695 3.8 - Process Costing

Kimbeth Manufacturing uses a process cost system to manufacture Dust Density Sensors for the mining industry.
The following information pertains to operations for the month of May.
Units
Beginning work-in-process inventory, May 1 16,000
Started in production during May 100,000
Completed production during May 92,000
Ending work-in-process inventory, May 31 24,000

The beginning inventory was 60% complete for materials and 20% complete for conversion costs. The ending
inventory was 90% complete for materials and 40% complete for conversion costs.

Costs pertaining to the month of May are as follows:

Beginning inventory costs are materials, $54,560; direct labor, $20,320; and factory overhead, $15,240.
Costs incurred during May are materials used, $468,000; direct labor, $182,880; and factory overhead,
$391,160.

Using the weighted-average method, the total cost of the units in the ending work-in-process inventory at May 31 is

A. $156,960
B. $154,800
C. $99,360
D. $153,168

Question 3 - CMA 678 4.9 - Classifications of Costs

Variable costs are all costs

A. That are associated with marketing, shipping, warehousing, and billing activities.
B. Of manufacturing incurred to produce units of output.
C. That fluctuate in total in response to small changes in the rate of utilization of capacity.
D. That do not change in total for a given period and relevant range but become progressively smaller on a per
unit basis as volume increases.

Question 4 - ICMA 10.P1.150 - Classifications of Costs

Fowler Co. provides the following summary of its total budgeted production costs at three production levels.
Volume in Units
1,000 1,500 2,000
Cost A $1,420$2,130$2,840
Cost B 1,550 2,200 2,900
 Part 1 : Cost Concepts & Costing Systems

Cost C 1,000 1,000 1,000

Cost D 1,630 2,445 3,260

The cost behavior of each of the Costs A through D, respectively, is

A. variable, semi-variable, fixed, and variable.

B. semi-variable, variable, fixed, and variable.
C. variable, fixed, fixed, and variable.
D. variable, semi-variable, fixed, and semi-variable.

Question 5 - CMA 1273 4.1 - Variable and Absorption Costing

Which of the following statements is true for a firm that uses variable costing?

A. The cost of a unit of product changes because of changes in number of units manufactured.
B. Product costs include variable administrative costs.
C. An idle facility variation is calculated.
D. Profits fluctuate with sales.

Question 6 - ICMA 10.P1.188 - Overhead Allocation

John Sheng, cost accountant at Starlet Company, is developing departmental factory overhead application rates
for the company's tooling and fabricating departments. The budgeted overhead for each department and the data
for one job are shown below.
Departments
ToolingFabricating
Supplies $ 850 $ 200
Supervisors' salaries 1,500 2,000
Indirect labor 1,200 4,880
Depreciation 1,000 5,500
Repairs 4,075 3,540
Total budgeted overhead $8,625 $16,120
Total direct labor hours 460 620
Direct labor hours on Job #231 12 3

Using the departmental overhead application rates, total overhead applied to Job #231 in the Tooling and
Fabricating Departments will be

A. $303.
B. $537.
C. $225.
D. $671.

Question 7 - ICMA 10.P1.167 - Variable and Absorption Costing

When comparing absorption costing with variable costing, the difference in operating income can be explained by
the difference between the

A. ending inventory in units and the beginning inventory in units, multiplied by the budgeted fixed manufacturing
cost per unit.
B. ending inventory in units and the beginning inventory in units, multiplied by the unit sales price.
C. units sold and the units produced, multiplied by the budgeted variable manufacturing cost per unit.
 Part 1 : Cost Concepts & Costing Systems

D. units sold and the units produced, multiplied by the unit sales price.

Question 8 - ICMA 10.P1.205 - Activity-Based and Life-Cycle Costing

The Chocolate Baker specializes in chocolate baked goods. The firm has long assessed the profitability of a
product line by comparing revenues to the cost of goods sold. However, Barry White, the firm’s new accountant,
wants to use an activity-based costing system that takes into consideration the cost of the delivery person. Listed
below are activity and cost information relating to two of Chocolate Baker’s major products.
Muffins Cheesecake
Revenue $53,000 $46,000
Cost of goods sold 26,000 21,000

Delivery Activity
Number of deliveries 150 85
Average length of delivery10 minutes 15 minutes
Cost per hour for delivery $20.00 $20.00

Using activity-based costing, which one of the following statements iscorrect?

A. The cheesecakes are $75 more profitable.

B. The muffins are $1,925 more profitable.
C. The muffins are $2,000 more profitable.
D. The muffins have a higher profitability as a percentage of sales and, therefore, are more advantageous.

Question 9 - CMA 1295 3.20 - Overhead Allocation

Madtack Company's beginning and ending inventories for the month of November are:
November 1 November 30
Direct materials $ 67,000 $ 62,000
Work-in-process 145,000 171,000
Finished goods 85,000 78,000

Production data for the month of November:

Direct labor $200,000
Actual factory overhead 132,000
Direct materials purchased 163,000
Transportation in 4,000
Purchase returns and allowances 2,000

Madtack uses one factory overhead control account and charges factory overhead to production at 70% of direct
labor cost. The company does not formally recognize over/underapplied overhead until year-end.

Madtack Company's total manufacturing cost for November is

A. $503,000.
B. $502,000.
C. $363,000.
D. $510,000.

Question 10 - ICMA 08.P2.128 - Job-Order and Operation Costing

Fashion Inc. manufactures women's dresses using cotton and polyester. Since the same style dresses are made
 Part 1 : Cost Concepts & Costing Systems

out of both fabrics, Fashion uses operation costing. During June, 1,000 cotton dresses were completely produced.
Also during June, 1,500 polyester dresses were started by adding all materials at the beginning of the process. Of
these 1,500 dresses, 700 were completely finished and the remainder were 25 percent complete by the end of the
month. There was no work-in-process inventory at the beginning of June. Costs incurred during June were as
follows.
Cotton $10,000
Polyester 22,500
Conversion costs 13,300

The cost per unit to manufacture one polyester dress during June was

A. $32.00.
B. $20.32.
C. $22.00.
D. $18.32.

Question 11 - CIA 587 IV.5 - Process Costing

Assume 550 units were worked on during a period in which a total of 500 good units were completed. Normal
spoilage consisted of 30 units; abnormal spoilage, 20 units. Total production costs were $2,200. The company
accounts for abnormal spoilage separately on the income statement as loss due to abnormal spoilage. Normal
spoilage is not accounted for separately. What is the cost of the good units produced?

A. $2,080.
B. $2,332.
C. $2,120.
D. $2,200.

Question 12 - CMA 1295 3.29 H1 - Joint Products and Byproducts

Petro-Chem Inc. is a small company that acquires high-grade crude oil from low-volume production wells owned
by individuals and small partnerships. The crude oil is processed in a single refinery into Two Oil, Six Oil, and
impure distillates. Petro-Chem does not have the technology or capacity to process these products further and
sells most of its output each month to major refineries. There were no beginning inventories of finished goods or
work-in-process on November 1. The production costs and output of Petro-Chem for November are as follows:

Crude oil acquired and placed in production: $5,000,000

Direct labor and related costs: $2,000,000
Factory overhead: $3,000,000

Production and sales:

Two Oil, 300,000 barrels produced; 80,000 barrels sold at $20 each.
Six Oil, 240,000 barrels produced; 120,000 barrels sold at $30 each.
Distillates, 120,000 barrels produced and sold at $15 per barrel.

The portion of the joint production costs assigned to Two Oil based upon the relative sales value of output would
be

A. $4,800,000
B. $4,000,000
C. $2,500,000
D. $2,286,000
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Question 13 - ICMA 10.P1.152 - Classifications of Costs

The marketing manager of Ames Company has learned the following about a new product that is being introduced
by Ames. Sales of this product are planned at $100,000 for the first year. Sales commission expense is budgeted
at 8% of sales plus the marketing manager's incentive budgeted at an additional 1/2%. The preparation of a
product brochure will require 20 hours of marketing salaried staff time at an average rate of $100 per hour, and 10
hours, at $150 per hour, for an outside illustrator's effort. The variable marketing cost for this new product will be

A. $10,000
B. $8,000
C. $8,500
D. $10,500

Question 14 - CIA 1190 IV.12 - Variable and Absorption Costing

During its first year of operations, a company produced 275,000 units and sold 250,000 units. The following costs
were incurred during the year:
Variable costs
per unit
Direct materials $15.00
Direct labor 10.00
Manufacturing overhead 12.50
Selling and administrative 2.50
Total fixed costs
Manufacturing overhead $2,200,000
Selling and administrative 1,375,000

What is the difference between operating income calculated on the absorption costing basis and on the variable
costing basis?

A. Absorption costing operating income is greater than variable costing operating income by $220,000.
B. Absorption costing operating income is greater than variable costing operating income by $325,000.
C. Variable costing operating income is greater than absorption costing operating income by $62,500.
D. Absorption costing operating income is greater than variable costing operating income by $200,000.

Question 15 - ICMA 10.P1.171 - Variable and Absorption Costing

If a manufacturing company uses variable costing to cost inventories, which of the following costs are considered
inventoriable costs?

A. Only raw material and direct labor costs.

B. Only raw material, direct labor, variable and fixed manufacturing overhead costs.
C. Only raw material, direct labor, and variable manufacturing overhead costs.
D. Only raw material, direct labor, variable manufacturing overhead and variable selling and administrative costs.

Question 16 - ICMA 10.P1.164 - Variable and Absorption Costing

Dremmon Corporation uses a standard cost accounting system. Data for the last fiscal year are as follows.
Units
Beginning inventory of finished goods 100
Production during the year 700
Sales 750
 Part 1 : Cost Concepts & Costing Systems

Ending inventory of finished goods 50

Per Unit
Product selling price $200
Standard variable manufacturing cost 90
Standard fixed manufacturing cost 20*

Budgeted selling and administrative costs (all fixed) $45,000

*Denominator level of activity is 750 units for the year.

There were no price, efficiency, or spending variances for the year, and actual selling and administrative expenses
equaled the budget amount. The standard costs for the last fiscal year were the same as the standard costs for
the previous fiscal year. Any volume variance is written off to cost of goods sold in the year incurred. There are no
work-in-process inventories.

Assuming that Dremmon used absorption costing, the amount of operating income earned in the last fiscal year
was

A. $27,000.
B. $30,000.
C. $28,000.
D. 21,500.

Question 17 - CIA 586 IV.6 - Process Costing

A company that manufactures baseballs begins operations on January 1. Each baseball requires three elements:
a hard plastic core, several yards of twine that are wrapped around the plastic core, and a piece of leather to cover
the baseball. The plastic core is started down a conveyor belt and is automatically wrapped with twine to the
approximate size of a baseball at which time the leather cover is sewn to the wrapped twine. Finished baseballs
are inspected and defective ones are pulled out. Defective baseballs cannot be economically salvaged and are
destroyed. Normal spoilage is 3% of the number of baseballs that pass inspection. Cost and production reports for
the first week of operations are:
Raw materials cost $840
Conversion cost 315
$1,155

During the week 2,100 baseballs were completed and 2,000 passed inspection. There was no ending
work-in-process. Calculate abnormal spoilage.

A. $1,100
B. $33
C. $22
D. $20.35

Question 18 - CMA 685 5.1 - Classifications of Costs

A cost that always can be physically traced to a cost object is

A. A variable cost.
B. An indirect cost.
C. A prime cost.
D. A conversion cost.
 Part 1 : Cost Concepts & Costing Systems

Question 19 - ICMA 1603.P1.048 - Variable and Absorption Costing

In which one of the following situations will ending inventory on the balance sheet computed under absorption
costing be exactly equal to ending inventory computed under variable costing?

A. When there is no variable overhead cost.

B. When the number of units produced equals the number of units sold.
C. When the denominator variance is zero.
D. When there is no fixed factory overhead cost.

Question 20 - CMA 695 3.7 - Process Costing

Kimbeth Manufacturing uses a process cost system to manufacture Dust Density Sensors for the mining industry.
The following information pertains to operations for the month of May.
Units
Beginning work-in-process inventory, May 1 16,000
Started in production during May 100,000
Completed production during May 92,000
Ending work-in-process inventory, May 31 24,000

The beginning inventory was 60% complete for materials and 20% complete for conversion costs. The ending
inventory was 90% complete for materials and 40% complete for conversion costs.

Costs pertaining to the month of May are as follows:

Beginning inventory costs are materials, $54,560; direct labor, $20,320; and factory overhead, $15,240.
Costs incurred during May are materials used, $468,000; direct labor, $182,880; and factory overhead,
$391,160.

Using the weighted-average method, the cost per equivalent unit for conversion costs for May is

A. $6.20
B. $5.83
C. $6.00
D. $5.65

Question 21 - ICMA 10.P1.176 - Variable and Absorption Costing

Which one of the following is the best reason for using variable costing?

A. Variable costing usually results in higher operating income than if a company uses absorption costing.
B. Fixed factory overhead is more closely related to the capacity to produce than to the production of specific units.
C. All costs are variable in the long term.
D. Variable costing is acceptable for income tax reporting purposes.

Question 22 - CMA 1293 3.3 H3 - Joint Products and Byproducts

Atlas Foods produces the following three supplemental food products simultaneously through a refining process
costing $93,000.
Alfa: 10,000 pounds of Alfa, a popular but relatively rare grain supplement having a caloric value of 4,400
calories per pound.
Betters: 5,000 pounds of Betters, a flavoring material high in carbohydrates with a caloric value of 11,200
 Part 1 : Cost Concepts & Costing Systems

calories per pound.

Morefeed: 1,000 pounds of Morefeed, used as a cattle feed supplement with a caloric value of 1,000
calories per pound.

The joint products, Alfa and Betters, have a final selling price of $4 per pound and $10 per pound, respectively,
after additional processing costs of $2 per pound of each product are incurred after the split-off point. Morefeed, a
by-product, is sold at the split-off point for $3 per pound.

Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Alfa, using the
physical quantity method is

A. $3,000
B. $31,000
C. $30,000
D. $60,000

Question 23 - CIA 590 IV.3 - Job-Order and Operation Costing

The loan department of a financial corporation makes loans to businesses. The costs of processing these loans
are often several thousand dollars. The costs for each loan, which include labor, telephone, and travel, are
significantly different across loans. Some loans require the use of outside services such as appraisals, legal
services, and consulting services, whereas other loans do not require these services. The most appropriate cost
accumulation method for the loan department of the corporation is

A. Differential costing.
B. Joint product costing.
C. Process costing.
D. Job-order costing.

Question 24 - CMA 1286 H1 - Variable and Absorption Costing

Presented are Valenz Company's records for the current fiscal year ended November 30:
Direct materials used $300,000
Direct labor 100,000
Variable factory overhead 50,000
Fixed factory overhead 80,000
Selling and admin. costs-variable 40,000
Selling and admin. costs-fixed 20,000

Using absorption (full) costing, inventoriable costs are

A. $400,000
B. $450,000
C. $590,000
D. $530,000

Question 25 - CMA 1292 3.1 - Overhead Allocation

Costs are allocated to cost objects in many ways and for many reasons. Which one of the following is a purpose of
cost allocation?

A. Aiding in variable costing for internal reporting.

B. Evaluating revenue center performance.
 Part 1 : Cost Concepts & Costing Systems

C. Budgeting cash and controlling expenditures.

D. Measuring income and assets for external reporting.

Question 26 - ICMA 10.P1.206 - Activity-Based and Life-Cycle Costing

Atmel Inc. manufactures and sells two products. Data with regard to these products are given below.
Product A Product B
Units produced and sold 30,000 12,000
Machine hours required per unit 2 3
Receiving orders per product line 50 150
Production orders per product line 12 18
Production runs 8 12
Inspections 20 30

Total budgeted machine hours are 100,000. The budgeted overhead costs are shown below.
Receiving costs $450,000
Engineering costs 300,000
Machine setup costs 25,000
Inspection costs 200,000
Total budgeted overhead costs $975,000

Using activity-based costing, the per unit overhead cost allocation of receiving costs for product A is

A. $28.13.
B. $10.75.
C. $3.75.
D. $19.50.

Question 27 - CMA 1293 3.3 H4 - Joint Products and Byproducts

Atlas Foods produces the following three supplemental food products simultaneously through a refining process
costing $93,000.
Alfa: 10,000 pounds of Alfa, a popular but relatively rare grain supplement having a caloric value of 4,400
calories per pound.
Betters: 5,000 pounds of Betters, a flavoring material high in carbohydrates with a caloric value of 11,200
calories per pound.
Morefeed: 1,000 pounds of Morefeed, used as a cattle feed supplement with a caloric value of 1,000
calories per pound.

The joint products, Alfa and Betters, have a final selling price of $4 per pound and $10 per pound, respectively,
after additional processing costs of $2 per pound of each product are incurred after the split-off point. Morefeed, a
by-product, is sold at the split-off point for $3 per pound.

Assuming Atlas Foods does not inventory Morefeed, the by-product, the joint cost to be allocated to Betters using
the net realizable value method is

A. $52,080.
B. $31,000.
C. $62,000.
D. $30,000.

Question 28 - CMA 1293 3.15 - Overhead Allocation

 Part 1 : Cost Concepts & Costing Systems

Multiple or departmental overhead rates are considered preferable to a single or plantwide overhead rate when

A. Various products are manufactured that do not pass through the same departments or use the same
manufacturing techniques.
B. Manufacturing is limited to a single product flowing through identical departments in a fixed sequence.
C. Cost drivers, such as direct labor, are the same over all processes.
D. Individual cost drivers cannot accurately be determined with respect to cause-and-effect relationships.

Question 29 - ICMA 10.P1.154 - Classifications of Costs

The relevant range refers to the range of activity levels within which

A. costs fluctuate.
B. relevant costs are incurred.
C. cost relationships hold constant.
D. production varies.

Question 30 - ICMA 10.P1.182 - Joint Products and Byproducts

Tucariz Company processes Duo into two joint products, Big and Mini. Duo is purchased in 1,000 gallon drums for
$2,000. Processing costs are $3,000 to process the 1,000 gallons of Duo into 800 gallons of Big and 200 gallons
of Mini. The selling price is $9 per gallon for Big and $4 per gallon for Mini. Big can be processed further into 600
gallons of Giant if $1,000 of additional processing costs are incurred. Giant can be sold for $17 per gallon. If the
net realizable value method were used to allocate costs to the joint products, the total cost of producing Giant
would be

A. $5,564.
B. $4,600.
C. $5,600.
D. $5,520.

Question 31 - ICMA 10.P1.202 - Activity-Based and Life-Cycle Costing

A company is considering the implementation of an activity-based costing and management program. The
company

A. would probably find a lack of software in the marketplace to assist with the related recordkeeping.
B. would likely use fewer cost pools than it did under more traditional accounting methods.
C. would normally gain added insights into causes of cost.
D. should focus on manufacturing activities and avoid implementation with service-type functions.

Question 32 - CIA 1190 IV.6 - Overhead Allocation

Overhead costs usually include

A. Prime costs.
B. Abnormal spoilage.
C. Overtime premiums.
D. Materials price variances.
 Part 1 : Cost Concepts & Costing Systems

Question 33 - CIA 593 IV.3 - Activity-Based and Life-Cycle Costing

A manufacturing firm produces multiple families of products requiring various combinations of different types of
parts. The manufacturer has identified various cost pools, one of which consists of materials handling costs. This
cost pool includes the wages and employee benefits of the workers involved in receiving materials, inspecting
materials, storing materials in inventory, and moving materials to the workstations; depreciation and maintenance
of materials handling equipment (e.g., forklift trucks); and costs of supplies used as well as other related costs. Of
the following, the most appropriate cost driver for assigning materials handling costs to the various products most
likely is:

A. Number of units produced.

B. Number of parts used.
C. Number of vendors involved.
D. Direct labor hours.

Question 34 - CMA 689 4.10 - Classifications of Costs

Hitchcock Industries has developed two new products but has only enough plant capacity to introduce one of
these products this year. The company controller has gathered the following data to assist management in
deciding which product should be selected for production.

Hitchcock's fixed overhead includes proportional rent and utilities, machinery depreciation, and supervisory
salaries. Selling and administrative expenses are not allocated to products.
Cost per unit: Power DrillPower Saw
Raw materials $22.00 $18.00
Machining at $12/hr. 9.00 7.50
Assembly at $10/hr. 15.00 5.00
Variable O/H at $8/hr. 18.00 9.00
Fixed O/H at $4/hr. 9.00 4.50
Total unit cost: $73.00 $44.00
Suggested selling price $88.98 $49.95
Actual research and development costs $180,000 $95,000
Proposed advertising and promotion costs $300,000 $250,000

The total overhead cost of $13.50 for Hitchcock's power saw is a

A. Sunk cost.
B. Mixed cost.
C. Carrying cost.
D. Committed cost.

Question 35 - CMA 689 4.23 - Joint Products and Byproducts

Killian Company manufactures two skin care lotions, Liquid Skin and Silken Skin, out of a joint process. The joint
(common) costs incurred are $420,000 for a standard production run that generates 180,000 gallons of Liquid Skin
and 120,000 gallons of Silken Skin. Liquid Skin sells for $2.40 per gallon, and Silken Skin sells for $3.90 per gallon.

If additional processing costs beyond the split-off point are $1.40 per gallon for Liquid Skin and $0.90 per gallon
for Silken Skin, the amount of joint cost of each production run allocated to Silken Skin on a net realizable value
basis is

A. $280,000.
B. $140,000.
 Part 1 : Cost Concepts & Costing Systems

C. $252,000.
D. $168,000.

Question 36 - CIA 1187 IV.51 - Variable and Absorption Costing

Assuming absorption costing, which of the following columns includes only product costs?
I. II.III.IV.
Direct labor X X X
Direct materials XX X
Sales materials X
Advertising costs X
Indirect factory materials XX X
Indirect labor XX X
Sales commissions X
Factory utilities X X X
Administrative supplies expense X
Administrative labor X
Depreciation on administration building X
Cost of research on customer demographics X

A. I.
B. IV.
C. III.
D. II.

Question 37 - CIA 1193 IV.5 e - Overhead Allocation

A company experienced a machinery breakdown on one of its production lines. As a consequence of the
breakdown, manufacturing fell behind schedule, and a decision was made to schedule overtime to return
manufacturing to schedule. Which one of the following methods is the proper way to account for the overtime paid
to the direct laborers?

A. The overtime hours times the overtime premium would be charged to manufacturing overhead, and the
overtime hours times the straight-time wages would be treated as direct labor.
B. The overtime hours times the sum of the straight-time wages and overtime premium would be charged entirely
to manufacturing overhead.
C. The overtime hours times the sum of the straight-time wages and overtime premium would be treated as direct
labor.
D. The overtime hours times the overtime premium would be charged to repair and maintenance expense, and the
overtime hours times the straight-time wages would be treated as direct labor.

Question 38 - CMA 697 3.4 - Process Costing

Smile Labs develops 35mm film using a four-step process that moves progressively through four departments.
The company specializes in overnight service and has the largest drug store chain as its primary customer.
Currently, direct labor, direct materials, and overhead are accumulated by department. The cost accumulation
system that best describes the system Smile Labs is using is

A. Process costing.
B. Activity-based costing.
C. Operation costing.
D. Job-order costing.
 Part 1 : Cost Concepts & Costing Systems

Question 39 - CIA 1187 IV.5 - Process Costing

Which of the industries listed is most likely to use process costing in accounting for production costs?

A. Newspaper publisher.
B. Road builder.
C. Electrical contractor.
D. Clothing manufacturing.

Question 40 - CMA 695 3.6 - Process Costing

Kimbeth Manufacturing uses a process cost system to manufacture Dust Density Sensors for the mining industry.
The following information pertains to operations for the month of May.
Units
Beginning work-in-process inventory, May 1 16,000
Started in production during May 100,000
Completed production during May 92,000
Ending work-in-process inventory, May 31 24,000

The beginning inventory was 60% complete for materials and 20% complete for conversion costs. The ending
inventory was 90% complete for materials and 40% complete for conversion costs.

Costs pertaining to the month of May are as follows:

Beginning inventory costs are materials, $54,560; direct labor, $20,320; and factory overhead, $15,240.
Costs incurred during May are materials used, $468,000; direct labor, $182,880; and factory overhead,
$391,160.

Using the weighted-average method, the cost per equivalent unit for materials for May is

A. $4.12
B. $4.60
C. $4.50
D. $5.02

Question 41 - CMA 691 3.48a - Job-Order and Operation Costing

Gregg Industries manufactures molded chairs. The three models of molded chairs, which are all variations of the
same design, are Standard (can be stacked), Deluxe (with arms), and Executive (with arms and padding). The
company uses batch manufacturing and has an operation costing system.

Gregg has an extrusion operation and subsequent operations to form, trim, and finish the chairs. Plastic sheets
are produced by the extrusion operation, some of which are sold directly to other manufacturers. During the
forming operation, the remaining plastic sheets are molded into chair seats and the legs are added; the standard
model is sold after this operation. During the trim operation, the arms are added to the deluxe and executive
models and the chair edges are smoothed. Only the executive model enters the finish operation where the
padding is added. All of the units produced are subject to the same steps within each operation. The units of
production and direct materials costs were as follows:
Units Extrusion Form Trim Finish
Produced Materials Materials Materials Materials
Plastic sheets 5,000 $ 60,000
Standard model 6,000 72,000 $24,000
Deluxe model 3,000 36,000 12,000 $ 9,000
 Part 1 : Cost Concepts & Costing Systems

Executive model 2,000 24,000 8,000 6,000 $12,000

16,000$192,000 $44,000 $15,000 $12,000

Manufacturing costs applied during the month were:

Extrusion Form Trim Finish
Operation Operation Operation Operation
Direct labor $152,000 $60,000 $30,000 $18,000
Factory overhead 240,000 72,000 39,000 24,000

No units are in process at the end of the period. The unit cost of a standard model is

A. $52.50
B. $36.50
C. $96.30
D. $69.30

Question 42 - CMA 1295 3.23 - Overhead Allocation

Madtack Company's beginning and ending inventories for the month of November are:
November 1 November 30
Direct materials $67,000 $62,000
Work-in-process 145,000 171,000
Finished goods 85,000 78,000
Production data for the month of November:
Direct labor $200,000
Actual factory overhead 132,000
Direct materials purchased 163,000
Transportation in 4,000
Purchase returns and allowances 2,000

Madtack uses one factory overhead control account and charges factory overhead to production at 70% of direct
labor cost. The company does not formally recognize over/underapplied overhead until year-end.

Madtack Company's net charge to factory overhead control for the month of November is

A. $8,000 debit, underapplied.

B. $8,000 debit, overapplied.
C. $8,000 credit, underapplied.
D. $8,000 credit, overapplied.

Question 43 - CMA 690 4.1 - Classifications of Costs

Alex Company had the following inventories at the beginning and end of the month of January:
January 1January 31
Finished goods $125,000 $117,000
Work-in-process 235,000 251,000
Direct materials 134,000 124,000

The following additional manufacturing data were available for the month of January:

Direct materials purchased $189,000

Purchase returns and allowances 1,000
Transportation-in 3,000
Direct labor 300,000
Actual factory overhead 175,000
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Alex Company applies factory overhead at a rate of 60% of direct labor cost, and any overapplied or underapplied
factory overhead is deferred until the end of the year, December 31.

Alex Company's prime cost for January was:

A. $489,000.
B. $201,000.
C. $199,000.
D. $501,000.

Question 44 - CMA 1296 3.18 - Job-Order and Operation Costing

Which one of the following alternatives correctly classifies the business application to the appropriate costing
system?
Job Costing System Process Costing System
I. Wallpaper manufacturer Oil refinery
II. Aircraft assembly Public accounting firm
III. Paint manufacturer Retail banking
IV. Print shop Beverage drink manufacturer

A. I.
B. III.
C. IV.
D. II.

Question 45 - CIA 1195 III.94 - Activity-Based and Life-Cycle Costing

Believing that its traditional cost system may be providing misleading information, an organization is considering
an activity-based costing approach. It now employs a full cost system and has been applying its manufacturing
overhead on the basis of machine hours.

The organization plans on using 50,000 direct labor hours and 30,000 machine hours in the coming year. The
following data show the manufacturing overhead that is budgeted.
Budgeted Budgeted
Activity Cost Driver
Activity Cost
Material handling No. of parts handled 6,000,000 $720,000
Setup costs No. of setups 750 315,000
Machining costs Machine hours 30,000 540,000
Quality control No. of batches 500 225,000
Total ManufacturingOverhead Cost $1,800,000

Cost, sales and production for one of the organization's products for the coming year are as follows:
Prime Costs:
Direct material cost per unit $4.40
Direct labor cost per unit = .05 DLH @ $15/DLH .75
Total Prime Cost $5.15
Sales and Production Data:
Expected sales 2,000,000 units
Batch size 5,000 units
Setups 2 per batch
Total parts per finished unit 5 parts
Machine hours required 80 MH per batch

If the organization employs an activity based costing system, the cost per unit for the product described for the
coming year would be:
 Part 1 : Cost Concepts & Costing Systems

A. $6.30
B. $6.00
C. $6.08
D. $6.21

Question 46 - CMA 690 4.2 - Overhead Allocation

Alex Company had the following inventories at the beginning and end of the month of January:
January 1January 31
Finished goods $125,000 $117,000
Work-in-process 235,000 251,000
Direct materials 134,000 124,000

The following additional manufacturing data were available for the month of January:

Direct materials purchased $189,000

Purchase returns and allowances 1,000
Transportation-in 3,000
Direct labor 300,000
Actual factory overhead 175,000

Alex Company applies factory overhead at a rate of 60% of direct labor cost, and any overapplied or underapplied
factory overhead is deferred until the end of the year, December 31.

Alex Company's total manufacturing cost for January was:

A. $489,000.
B. $665,000.
C. $673,000.
D. $681,000.

Question 47 - ICMA 10.P1.203 - Activity-Based and Life-Cycle Costing

All of the following are likely to be used as a cost allocation base in activity-based costing except the

A. number of different materials used to manufacture the product.

B. number of vendors supplying the materials used to manufacture the product.
C. units of materials used to manufacture the product.
D. cost of materials used to manufacture the product.

Question 48 - ICMA 10.P1.066 - Classifications of Costs

A company that manufactures furniture is establishing its budget for the upcoming year. All of the following items
would appear in its overhead budget except for the

A. cost of glue used to secure the attachment of the legs to the tables.
B. fringe benefits paid to the production supervisor.
C. freight charges paid for the delivery of raw materials to the company.
D. overtime paid to the workers who perform production scheduling.
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Question 49 - CMA 1290 H2 - Variable and Absorption Costing

Valyn Corporation employs an absorption costing system for internal reporting purposes; however, the company is
considering using variable costing. Data regarding Valyn's planned and actual operations for the calendar year are
presented below.
Planned Actual
Activity Activity
Beginning finished goods inventory 35,000 35,000
Sales 140,000125,000
Production 140,000130,000
Planned Planned Actual
Costs Costs Incurred
Per Unit Total Costs
Direct materials $12.00$1,680,000$1,560,000
Direct labor 9.00 1,260,000 1,170,000
Variable manufacturing overhead 4.00 560,000 520,000
Fixed manufacturing overhead 5.00 700,000 715,000
Variable selling expenses 8.00 1,120,000 1,000,000
Fixed selling expenses 7.00 980,000 980,000
Variable administrative expenses 2.00 280,000 250,000
Fixed administrative expenses 3.00 420,000 425,000
Total $50.00$7,000,000$6,620,000

The planned per unit cost figures shown in the above schedule were based on Valyn producing and selling
140,000 units. Valyn uses a predetermined manufacturing overhead rate for applying manufacturing overhead to
its product; thus, a combined manufacturing overhead rate of $9.00 per unit was employed for absorption costing
purposes. Any over- or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the
end of the reporting year.

The beginning finished goods inventory for absorption costing purposes was valued at the previous year's planned
unit manufacturing cost, which was the same as the current year's planned unit manufacturing cost. There are no
work-in-process inventories at either the beginning or the end of the year. The planned and actual unit selling price
for the current year was $70.00 per unit.

The value of Valyn Corporation's actual ending finished goods inventory on the variable costing basis was

A. $750,000
B. $1,400,000
C. $1,000,000
D. $1,125,000

Question 50 - ICMA 10.P1.178 - Joint Products and Byproducts

The primary purpose for allocating common costs to joint products is to determine

A. the selling price of a by-product.

B. the inventory cost of joint products for financial reporting.
C. whether or not one of the joint products should be discontinued.
D. the variance between budgeted and actual common costs.

Question 51 - CMA 1285 4.25 - Overhead Allocation

Farber Company employs a normal (nonstandard) absorption cost system. The following information is from the
financial records of the company for the year.
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Total manufacturing costs were $2,500,000.

Cost of goods manufactured was $2,425,000.
Applied factory overhead was 30% of total manufacturing costs.
Factory overhead was applied to production at a rate of 80% of direct labor cost.
Work-in-process inventory at January 1 was 75% of work-in-process inventory at December 31.

Farber Company's total direct labor cost for the year is

A. $937,500
B. $909,375
C. $600,000
D. $750,000

Question 52 - CIA 585 IV.11 - Joint Products and Byproducts

A company produces three main joint products and one by-product. The by-product's relative sales value is quite
low compared with that of the main products. The preferable accounting for the by-product's net realizable value is
as:

A. Revenue in the period it is sold.

B. A separate net realizable value upon which to allocate some of the common costs.
C. An addition to the revenues of the other products allocated on the basis of their respective net realizable values.
D. A reduction in the common cost to be allocated to the three main products.

Question 53 - CIA 596 III.99 - Activity-Based and Life-Cycle Costing

A company with three products classifies its costs as belonging to five functions: design, production, marketing,
distribution, and customer services. For pricing purposes, all company costs are assigned to the three products.
The direct costs of each of the five functions are traced directly to the three products. The indirect costs of each of
the five business functions are collected into five separate cost pools and then assigned to the three products
using appropriate allocation bases. The allocation base that would most likely be the best for allocating the indirect
costs of the distribution function is

A. Dollar sales volume.

B. Number of customer phone calls.
C. Number of shipments.
D. Number of sales persons.

Question 54 - CMA 695 3.4 - Process Costing

Kimbeth Manufacturing uses a process cost system to manufacture Dust Density Sensors for the mining industry.
The following information pertains to operations for the month of May.
Units
Beginning work-in-process inventory, May 1 16,000
Started in production during May 100,000
Completed production during May 92,000
Ending work-in-process inventory, May 31 24,000

The beginning inventory was 60% complete for materials and 20% complete for conversion costs. The ending
inventory was 90% complete for materials and 40% complete for conversion costs.
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Costs pertaining to the month of May are as follows:

Beginning inventory costs are materials, $54,560; direct labor, $20,320; and factory overhead, $15,240.
Costs incurred during May are materials used, $468,000; direct labor, $182,880; and factory overhead,
$391,160.

Using the FIFO method, the cost per equivalent unit for conversion costs for May is

A. $6.00
B. $5.83
C. $5.65
D. $6.20

Question 55 - ICMA 10.P1.185 - Joint Products and Byproducts

Fitzpatrick Corporation uses a joint manufacturing process in the production of two products, Gummo and Xylo.
Each batch in the joint manufacturing process yields 5,000 pounds of an intermediate material, Valdene, at a cost
of $20,000. Each batch of Gummo uses 60% of the Valdene and incurs $10,000 of separate costs. The resulting
3,000 pounds of Gummo sells for $10 per pound. The remaining Valdene is used in the production of Xylo which
incurs $12,000 of separable costs per batch. Each batch of Xylo yields 2,000 pounds and sells for $12 per pound.
Fitzpatrick uses the net realizable value method to allocate the joint material costs. The company is debating
whether or not to process Xylo further into a new product, Zinten, which would incur an additional $4,000 in costs
and sell for $15 per pound. If Zinten is produced, income would increase by

A. $2,000 per batch produced.

B. $26,000 per batch produced.
C. $5,760 per batch produced.
D. $14,000 per batch produced.

Question 56 - ICMA 10.P1.179 - Joint Products and Byproducts

The distinction between joint products and by-products is largely dependent on

A. market value.
B. prime costs.
C. salvage value.
D. historical costs.

Question 57 - ICMA 10.P1.158 - Classifications of Costs

Kimber Company has the following unit cost for the current year.
Raw material $20.00
Direct labor 25.00
Variable manufacturing overhead 10.00
Fixed manufacturing overhead 15.00
Total unit cost $70.00

Fixed manufacturing cost is based on an annual activity level of 8,000 units. Based on this data, the total
manufacturing cost expected to be incurred to manufacture 9,000 units in the current year is

A. $575,000.
B. $630.000.
C. $615,000.
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D. $560,000.

Question 58 - CIA 1193 IV.7 - Process Costing

A manufacturing firm has a normal spoilage rate of 4% of the units inspected; anything over this rate is considered
abnormal spoilage. Final inspection occurs at the end of the manufacturing process. The firm employs the first-in,
first-out (FIFO) method of inventory flow. The processing for the current month was as follows:
Beginning work-in-process inventory 24,600 units
Units entered into production 470,400 units
Units completed and passing inspection(460,800) units
Units failing final inspection (22,600) units
Ending work-in-process inventory 11,600 units

The equivalent units assigned to normal and abnormal spoilage for the current month would be:

A. Normal Spoilage - 18,432 units, Abnormal Spoilage - 4,168 units

B. Normal Spoilage - 18,816 units, Abnormal Spoilage - 3,784 units
C. Normal Spoilage - 904 units, Abnormal Spoilage - 21,696 units
D. Normal Spoilage - 19,336 units, Abnormal Spoilage - 3,264 units

Question 59 - CMA 1290 H3 - Variable and Absorption Costing

Valyn Corporation employs an absorption costing system for internal reporting purposes; however, the company is
considering using variable costing. Data regarding Valyn's planned and actual operations for the calendar year are
presented below.
Planned Actual
Activity Activity
Beginning finished goods inventory 35,000 35,000
Sales 140,000125,000
Production 140,000130,000
Planned Planned Actual
Costs Costs Incurred
Per Unit Total Costs
Direct materials $12.00$1,680,000$1,560,000
Direct labor 9.00 1,260,000 1,170,000
Variable manufacturing overhead 4.00 560,000 520,000
Fixed manufacturing overhead 5.00 700,000 715,000
Variable selling expenses 8.00 1,120,000 1,000,000
Fixed selling expenses 7.00 980,000 980,000
Variable administrative expenses 2.00 280,000 250,000
Fixed administrative expenses 3.00 420,000 425,000
Total $50.00$7,000,000$6,620,000

The planned per unit cost figures shown in the above schedule were based on Valyn producing and selling
140,000 units. Valyn uses a predetermined manufacturing overhead rate for applying manufacturing overhead to
its product; thus, a combined manufacturing overhead rate of $9.00 per unit was employed for absorption costing
purposes. Any over- or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the
end of the reporting year.

The beginning finished goods inventory for absorption costing purposes was valued at the previous year's planned
unit manufacturing cost, which was the same as the current year's planned unit manufacturing cost. There are no
work-in-process inventories at either the beginning or the end of the year. The planned and actual unit selling price
for the current year was $70.00 per unit.

Valyn Corporation's absorption costing operating income was

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A. Lower than variable costing operating income because actual production was less than planned production.
B. Higher than variable costing operating income because actual production exceeded actual sales.
C. Lower than variable costing operating income because actual sales were less than planned sales.
D. Lower than variable costing operating income because actual production exceeded actual sales.

Question 60 - CIA 591 IV.14 - Variable and Absorption Costing

Product sales: 1,000 units at $10 each

Variable manufacturing costs: $5.50 per unit
Fixed manufacturing overhead (planned and actual): $1,200
Variable selling and administrative costs: $.50 per unit sold
Fixed selling and administrative costs: $1,000
No beginning inventory
Units produced (planned and actual): 1,200

Assuming operating income under variable costing is $1,800, operating income under absorption costing is

A. $2,167
B. $2,000
C. $1,800
D. $1,967