EXERCISES – CHAPTERS 1/2

I. TRUE OR FALSE CONCEPTS

1. Measuring the performance of managers and subunits is not an objective of managerial accounting.
2. Controlling involves the coordination of daily business functions within an organization.
3. Middle-level managers would likely be considered internal users of accounting information rather
than external users.
4. Inventoriable costs are expensed when incurred.
5. Indirect labor is not a component of manufacturing overhead.
6. A suitable cost driver for the amount of direct materials used is the number of direct labor hours
worked.
7. The following equation -- Beginning finished goods + cost of goods manufactured - ending finished
goods -- is used to calculate cost of goods sold during the period.
8. Finished goods inventory is ordinarily held for sale by a manufacturing company.
9. A variable cost is one that does not increase in total as output increase and does not decrease in total
as output decreases.
10. A fixed cost is a cost that does not increase in total as output increases and does not decrease in total
as output decreases.

II. MULTIPLE CHOICE CONCEPTS

11. Which of the following statements about managerial accountants is false?
A. Managerial accountants more and more are considered "business partners."
B. Managerial accountants often are part of cross-functional teams.
C. An increasing number of organizations are segregating managerial accountants in separate
managerial-accounting departments.
D. In a number of companies, managerial accountants make significant business decisions and resolve
operating problems.
E. The role of managerial accountants has changed considerably over the past decade.

12. Which of the following managerial functions involves a detailed financial and operational description
of anticipated operations?
A. Decision making.
B. Planning.
C. Directing operational activities.
D. Controlling.
E. Measuring.

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13. Taurus Company has set various goals, and management is now taking appropriate action to ensure
that the firm achieves these goals. One such action is to reduce outlays for overhead, which have
exceeded budgeted amounts. Which of the following functions best describes this process?
A. Decision making.
B. Planning.
C. Coordinating.
D. Controlling.
E. Organizing.

14. Managerial accounting:

A. focuses only on historical data.
B. is governed by GAAP.
C. focuses primarily on the needs of personnel within the organization.
D. provides information for parties external to the organization.
E. focuses on financial statements and other financial reports.

15. Managerial accounting:

A. is unregulated.
B. produces information that is useful only for manufacturing organizations.
C. is based exclusively on historical data.
D. is regulated by the Securities and Exchange Commission (SEC).
E. generally focuses on reporting information about the enterprise in its entirety rather than by
subunits.

16. Product costs are:

A. expensed when incurred.
B. inventoried.
C. treated in the same manner as period costs.
D. treated in the same manner as advertising costs.
E. subtracted from cost of goods sold.

17. Which of the following would not be classified as a product cost?

A. Direct materials.
B. Direct labor.
C. Indirect materials.
D. Insurance on a manufacturing plant.
E. Sales commissions.

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 18. Costs that are expensed when incurred are called:
A. product costs.
B. direct costs.
C. inventoriable costs.
D. period costs.
E. indirect costs.

19. Which of the following inventories would a discount retailer such as Wal-Mart report as an asset?
A. Raw materials.
B. Work in process.
C. Finished goods.
D. Merchandise inventory.
E. All of these.

20. Which of the following is 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."

III. MULTIPLE CHOICE PROBLEMS

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.

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22. 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.

23. Carolina Plating Company reported a cost of goods manufactured of $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 production of $80,000,
direct labor of $140,000, and manufacturing overhead of $240,000, the company's beginning work in
process must have been:
A. $130,000.
B. $10,000.
C. $66,000.
D. $390,000.
E. some other amount.

24. The variable costs per unit are $6 when a company produces 12,000 units of product. What are the
variable costs per unit when 14,000 units are produced?
A. $4.50.
B. $5.00.
C. $5.50.
D. $6.00.
E. Some other amount.

25. 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.

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26. 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.

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.

USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT THREE QUESTIONS:

28. If direct materials used during the year were $135,000, what was cost of goods manufactured?
A. $140,500.
B. $539,000.
C. $409,500.
D. $544,500.
E. some other amount.

29. If the cost of goods manufactured for the year was $565,000, what was the amount of direct
materials used during the year?
A. $155,500.
B. $140,500.
C. $150,000.
D. $145,500.
E. some other amount.

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 30. If the cost of goods manufactured for the year was $385,000, what was the cost of goods sold for the
year?
A. $395,400.
B. $385,000.
C. $390,200.
D. $400,600.
E. some other amount.

IV. PROBLEM SOLVING/CASES

1. Consider the following costs that were incurred during the current year.
1. Tire costs incurred by Ford Motor Company
2. Sales commissions paid to the sales force of Dell, Inc.
3. Wood glue consumed in the manufacture of Thomasville furniture.
4. Hourly wages of refinery security guards employed by Exxon Mobil Corporation
5. The salary of a financial vice president of Hewlett Packard.
6. Advertising costs of Coca-Cola.
7. Straight-line depreciation on factory machinery of Boeing Corporation.
8. Wages of assembly-line personnel of Whirlpool Corporation.
9. Delivery costs on customer shipments of Ben & Jerry’s ice cream.
10. Newsprint consumed in printing, The New York Times.
11. Plant insurance costs of Texas Instruments
12. Glass costs incurred in light-bulb manufacturing of General Electric.

Required: Evaluate each of the preceding and determine whether the cost is
a. A product cost or a period cost
b. Variable or fixed in terms of behavior, and
c. For the product costs only, whether the cost is properly classified as direct material, direct labor, or
manufacturing overhead. Item 1 is done as an example:
e.g., 1. Tire costs: Product cost, variable, direct materials

2. Alexandria Aluminum Company, a manufacturer of recyclable soda cans, had the following inventory balances
at the beginning and end of 20x1.
Inventory Classification January 1, 20x1 December 31, 20x1
Raw materials $50,000 $70,000
Work in process 120,000 115,000
Finished Goods 100,000 165,000

During 20x1, the company purchased $250,000 of raw materials and spent $400,000 on direct labor.
Manufacturing overhead costs were as follows:
Indirect materials $10,000
Indirect labor 25,000
Depreciation on plant and equipment 100,000
Utilities 25,000
Other 30,000

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 Sales revenue was $1,105,000 for the year. Selling and administrative expenses for the year amounted to
$110,000. The firm’s tax rate is 40 percent.
Required:
1. Prepare a schedule of cost of goods manufactured.
2. Prepare a schedule of cost of goods sold
3. Prepare an income statement.
4. Show how both cost schedules and the income statement will change if the following data change: direct
labor is $390,000 and utilities cost $35,000.

3. Mighty Muffler, Inc. operates an automobile service facility that specializes in replacing mufflers on compact
cars. The following table shows the costs incurred during a month when 600 mufflers were replaced.
Muffler Replacements
500 600 700
Total Costs
Fixed Costs a $42,000 b
Variable Costs c 30,000 d
Total Costs e $72,000 f

Cost per muffler replacement

Fixed Cost g h i
Variable Cost j k l
Total cost per muffler replacement m n m

Required: Fill in the missing amounts, labeled (a) through (o), in the table.

4. On April 12, after the close of business, Singh & Sons had a devastating fire that destroyed the company’s
work- in process and finished-goods inventories. Fortunately, all raw materials escaped damage because
materials owned by the firm were stored in another warehouse. The following information is available:

Sales revenue through April 12 $330,000

Income before taxes through April 12 68,000
Direct labor through April 12 120,000
Cost of goods available for sale, April 12 275,000
Work-in-process inventory, January 1 21,000
Finished goods inventory, January 1 37,000
Gross margin 30% of sales

The firm’s accountants determined that the cost of direct materials used normally averages 25% of prime costs
(i.e., direct material + direct labor). In addition, manufacturing overhead is 50% of the firm’s total production
costs.

Required: Singh & Sons is in the process of negotiating a settlement with its insurance company. Prepare an
estimated of the cost of work-in-process and finished-goods inventories that were destroyed by the fire.

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5. Heathrow Corporation sold 12,500 units of its single product during the year, reporting a cost of
good sold that totaled $250,000. A review of the company's accounting records disclosed the
following information:

Cost of goods sold as a percentage of sales revenue 40%

Finished-goods inventory, 1/1 $87,000
Work-in-process inventory, 12/31 55,000
Cost of goods manufactured 241,000
Raw materials used 40,000
Direct Labor 74,000
Manufacturing overhead 122,000
Selling and administrative expenses 310,000

Heathrow is subject to a 30% income tax rate.

Required:
A. Determine the selling price per unit.
B. Management established a goal at the beginning of the year to reduce the company's investment
in finished-goods inventory and work-in-process inventory.
1. Analyze cost of goods sold and determine if management's goal was achieved with respect to
finished-goods inventory. Show computations.
2. Analyze the firm's manufacturing costs and determine if management's goal was achieved
with respect to work-in-process inventory. Show computations.
C. Is the company profitable? Show calculations.
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