1) Cost objects include:

A) products
B) customers
C) departments
D) All of these answers are correct.

2) Actual costs are:

A) the costs incurred
B) budgeted costs
C) estimated costs
D) forecasted costs

3) The general term used to identify both the tracing and the allocation of accumulated
costs to a cost object is:
A) cost accumulation
B) cost assignment
C) cost tracing
D) conversion costing

4) Lucas Manufacturing has three cost objects that it uses to accumulate costs for its
manufacturing plants. They are:

Cost object #1: The physical buildings and equipment

Cost object #2: The use of buildings and equipment
Cost object #3: The availability and use of manufacturing labor

The following manufacturing overhead cost categories are found in the accounting
records:
a. Depreciation on buildings and equipment
b. Lubricants for machines
c. Property insurance
d. Supervisors salaries
e. Fringe benefits
f. Property taxes
g. Utilities

Required:
Assign each of the above costs to the most appropriate cost object.

5) Which of the following does NOT affect the direct/indirect classification of a cost?
A) the level of budgeted profit for the next year
B) the materiality of the cost in question
C) available technology to gather information about the cost
D) the design of the operation

6) A manufacturing plant produces two product lines: golf equipment and soccer
equipment. An example of direct costs for the golf equipment line are:
A) beverages provided daily in the plant break room
B) monthly lease payments for a specialized piece of equipment needed to manufacture
the golf driver
C) salaries of the clerical staff that work in the company administrative offices
D) utilities paid for the manufacturing plant

7) Fixed costs:
A) may include either direct or indirect costs
B) vary with production or sales volumes
C) include parts and materials used to manufacture a product
D) can be adjusted in the short run to meet actual demands

The Singer Company manufactures several different products. Unit costs associated
with Product ICT101 are as follows:
Direct materials $ 60
Direct manufacturing labor 10
Variable manufacturing overhead 18
Fixed manufacturing overhead 32
Sales commissions (2% of sales) 4
Administrative salaries 16
Total $140

8) What are the variable costs per unit associated with Product ICT101?
A) $18
B) $22
C) $88
D) $92

9) What are the fixed costs per unit associated with Product ICT101?

A) $102
B) $48
C) $52
D) $32

10) The list of representative cost drivers in the right column below are randomized
with respect to the list of functions in the left column. That is, they do not match.

Function Representative Cost Driver

1. Purchasing A. Number of employees
2. Billing B. Number of shipments
3. Shipping C. Number of customers
4. Computer Support D. Number of invoices
5. Personnel E. Number of desktop computers
6. Customer Service F. Number of purchase orders

Required:
Match each business function with its representative cost driver.

Function Insert letter of appropriate driver (A through F)

1. Purchasing
2. Billing
3. Shipping
4. Computer Support
5. Personnel
6. Customer Service

11) Kym Manufacturing provided the following information for last month:

Sales $12,000
Variable costs 4,000
Fixed costs 1,000
Operating income $7,000

If sales double next month, what is the projected operating income?

A) $14,000
B) $15,000
C) $18,000
D) $19,000

12) Wheel and Tire Manufacturing currently produces 1,000 tires per month. The
following per unit data apply for sales to regular customers:

Direct materials $20

Direct manufacturing labor 3
Variable manufacturing overhead 6
Fixed manufacturing overhead 10
Total manufacturing costs $39

The plant has capacity for 3,000 tires and is considering expanding production to 2,000
tires. What is the total cost of producing 2,000 tires?
A) $39,000
B) $78,000
C) $68,000
D) $62,000

Pederson Company reported the following:

Manufacturing costs $2,000,000

Units manufactured 50,000
Units sold 47,000 units sold for $75 per unit
Beginning inventory 0 units

13) What is the average manufacturing cost per unit?

A) $40.00
B) $42.55
C) $0.025
D) $75.00

14) What is the amount of ending finished goods inventory?

A) $1,880,000
B) $120,000
C) $225,000
D) $105,000

15) Which of the following formulas determine cost of goods sold in a merchandising
entity?
A) Beginning inventory + Purchases + Ending inventory = Cost of goods sold
B) Beginning inventory + Purchases - Ending inventory = Costs of goods sold
C) Beginning inventory - Purchases + Ending inventory = Cost of goods sold
D) Beginning inventory - Ending inventory - Purchases = Cost of goods sold

Answer the following questions using the information below:

Beginning finished goods, 1/1/20X5 $ 40,000

Ending finished goods, 12/31/20X5 33,000
Cost of goods sold 250,000
Sales revenue 600,000
Operating expenses 120,000

16) What is cost of goods manufactured for 20X5?

A) $257,000
B) $350,000
C) $243,000
D) $250,000

17) What is gross margin for 20X5?

A) $243,000
B) $527,000
C) $357,000
D) $350,000

18) What is operating income for 20X5?

A) $230,000
B) $123,000
C) $107,000
D) $157,000

19) A ________ is a grouping of individual indirect cost items.

A) cost allocation base
B) cost assignment
C) cost pool
D) job-costing system

20) Each indirect-cost pool of a manufacturing firm:

A) utilizes a separate cost-allocation rate
B) is a subset of total indirect costs
C) relates to one cost object
D) All of these answers are correct.

21) ________ costing is used by a business to price unique products for different jobs.
A) Actual
B) Job
C) Process
D) Traditional

22) The actual indirect-cost rate is calculated by

A) dividing actual total indirect costs by the actual total quantity of the cost-allocation
base.
B) multiplying actual total indirect costs by the actual total quantity of the cost-
allocation base.
C) dividing the actual total quantity of the cost allocation base by actual total indirect
costs.
D) multiplying the actual total quantity of the cost allocation base by actual total
indirect costs.

For 2010, Jake's Dog Supply Manufacturing uses machine-hours as the only overhead
cost-allocation base. The accounting records contain the following information:

Estimated Actual
Manufacturing overhead costs $200,000 $240,000
Machine-hours 40,000 50,000

23) Using job costing, the 2010 actual indirect-cost rate is:
A) $4.00 per machine-hour
B) $4.80 per machine-hour
C) $5.00 per machine-hour
D) $6.00 per machine-hour

24) Using actual costing, the amount of manufacturing overhead costs allocated to jobs
during 2010 is:
A) $300,000
B) $250,000
C) $240,000.
D) $200,000

Rhett Company has two departments, Machining and Assembly. The following
estimates are for the coming year:

Machining Assembly
Direct manufacturing labor-hours 10,000 50,000
Machine-hours 40,000 20,000
Manufacturing overhead $200,000 $400,000

25) A single indirect-cost rate based on direct manufacturing labor-hours for the entire
plant is:
A) $ 8 per direct labor-hour
B) $10 per direct labor-hour
C) $20 per direct labor-hour
D) None of these answers is correct.
26) The budgeted indirect-cost driver rate for the Machining Department based on the
number of machine-hours in that department is:
A) $5 per machine-hour
B) $10 per machine-hour
C) $20 per machine-hour
D) None of these answers is correct.

Gibson Manufacturing is a small textile manufacturer using machine-hours as the single

indirect-cost rate to allocate manufacturing overhead costs to the various jobs contracted
during the year. The following estimates are provided for the coming year for the
company and for the Winfield High School band jacket job.

Company Winfield High School Job

Direct materials $40,000 $1,000
Direct labor $10,000 $200
Manufacturing overhead costs $30,000
Machine-hours 100,000 mh 900 mh

27) For Gibson Manufacturing, what is the annual manufacturing overhead cost-
allocation rate?
A) $0.50
B) $0.80
C) $0.30
D) $33.33

28) What amount of manufacturing overhead costs will be allocated to this job?
A) $270
B) $720
C) $450
D) $30,000

29) What are the total manufacturing costs of this job?

A) $1,200
B) $1,470
C) $1,650
D) $1,920

30) What is the bid price for the Winfield High School job if the company uses a 40%
markup of total manufacturing costs?
A) $2,310
B) $588
C) $1,680
D) $2,058

31) Overcosting a particular product may result in:

A) loss of market share
B) pricing the product too low
C) operating efficiencies
D) understating total product costs
32) Undercosting of a product is most likely to result from:
A) misallocating direct labor costs
B) underpricing the product
C) overcosting another product
D) overstating total product costs

33) ABC systems:

A) highlight the different levels of activities
B) limit cost drivers to units of output
C) allocate costs based on the overall level of activity
D) generally undercost complex products

34) Activity-based costing (ABC) can eliminate cost distortions because ABC:
A) develops cost drivers that have a cause-and-effect relationship with the activities
performed
B) establishes multiple cost pools
C) eliminates product variations
D) recognizes interactions between different departments in assigning support costs

Mertens Company provides the following ABC costing information:

Activities Total Costs Activity-cost drivers

Account inquiry hours $200,000 10,000 hours
Account billing lines $140,000 4,000,000 lines
Account verification accounts $75,000 40,000 accounts
Correspondence letters $ 25,000 4,000 letters
Total costs $440,000

The above activities are used by Departments A and B as follows:

Department A Department B
Account inquiry hours 2,000 hours 4,000 hours
Account billing lines 400,000 lines 200,000 lines
Account verification accounts 10,000 accounts 8,000 accounts
Correspondence letters 1,000 letters 1,600 letters

35) How much of the account inquiry cost will be assigned to Department A?
A) $40,000
B) $200,000
C) $80,000
D) None of these answers are correct.

36) How much of the account billing cost will be assigned to Department B?
A) $14,000
B) $140,000
C) $7,000
D) None of these answers are correct.

37) How much of account verification costs will be assigned to Department A?

A) $15,000
B) $18,750
C) $75,000
D) $5,000

38) How much of correspondence costs will be assigned to Department B?

A) $800
B) $6,250
C) $25,000
D) $10,000

39) How much of the total costs will be assigned to Department A?

A) $79,000
B) $40,000
C) $112,000
D) $440,000

40) Each of the following statements is true EXCEPT:

A) traditional product costing systems seek to assign all manufacturing costs to products
B) ABC product costing systems seek to assign all manufacturing costs to products
C) traditional product costing systems are more refined than an ABC system
D) cost distortions occur when a mismatch (incorrect association) occurs between the
way indirect costs are incurred and the basis for their assignment to individual products