COST ACCOUNTING (WITH SOLUTIONS)

I.
E 1. All of the following are examples of non-value-added activities except:
A. retrieving
B. handling
C. expediting
D. reworking
E. assembling
A 2. The department that uses pertinent cost data to determine products that are most
profitable and sales policies is:
A. Marketing
B. Manufacturing
C. Treasury
D. Legal
E. Cost
E 3. The measurement of performance and the control of costs is aided the most by:
A. organizational charts
B. continuous supervision
C. preparation for the future
D. planning
E. budgets and standards
A 4. The term "variable costs" refers to:
A. all costs whose total amounts change in proportion to changes in activity within a
relevant range
B. all costs that are likely to respond to the amount of attention devoted to them by a
specified manager
C. all costs that are associated with marketing, shipping, warehousing, and billing
activities
D. all costs 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
 E. all manufacturing costs incurred to produce units of output
B 5. When the number of units manufactured increases, the most significant change in
average unit cost will be reflected as:
A. a decrease in the variable element
B. a decrease in the nonvariable element
C. an increase in the semivariable element
D. an increase in the variable element
E. an increase in the nonvariable element

B 6. Lebron Company has a beginning inventory of direct materials on March 1 of P

30,000 and an ending inventory on March 31 of P 36,000. The following additional
manufacturing cost data were available for the month of March:

Direct materials purchased 84,000

Direct labor 60,000
Factory overhead 80,000

During March, prime cost added to production was:

A. 140,000
B. 138,000
C. 144,000
D. 150,000
E. none of the above

Solution:
Materials, beg 30000
Materials Purchased 84000
Materials, end (36000)
Materials used 78000
 Direct Labor 60000
Prime Cost 138000

C 7. Curry Company has a beginning inventory of direct materials on March 1 of P

30,000 and an ending inventory on March 31 of P 36,000. The following additional
manufacturing cost data were available for the month of March:

Direct materials purchased 84,000

Direct labor 60,000
Factory overhead 80,000

During March, conversion cost added to production was:

A. 80,000
B. 144,000
C. 140,000
D. 138,000
E. none of the above
Soluition:
Direct labor 60,000
Factory overhead 80,000
Conversion Cost 140000

C 8. The following relationships pertain to a year's budgeted activity for

Buckeye Company:

High Low
Direct labor hours 400,000 300,000
Total costs 154,000 129,000
 What are the budgeted fixed costs for the year?
A. 100,000
B. 25,000
C. 54,000
D. 75,000
E. none of the above
Solution:
Difference in Cost (154000-129000) 25000
Divided by: Difference in Activity(400000-300000) 100000
Variable Rate 0.25
Multiply by: High Level of Activity 400000
Variable Cost 100000
Less :Total Cost 154000
Fixed Cost 54000

II.

C 1. One feature of a standard cost system is that:

A. selection of the cost unit becomes simplified
B. predetermined amounts are ignored
C. an analysis of cost variances is facilitated
D. historical costs are recorded as they are incurred
E. reports are delayed until operations have been performed
A 2. An industry that would most likely use job order costing
procedures is:
A. road building
B. fertilizer manufacturing
C. flour milling
D. petroleum refining
 E. textile manufacturing

D 3. An industry that would most likely use process costing procedures

is:
A. musical instrument manufacturing
B. construction
C. aircraft
D. chemicals
E. office equipment

A 4. Supplies needed for use in the factory are issued on the basis of:
A. materials requisitions
B. time tickets
C. factory overhead analysis sheets
D. clock cards
E. purchase invoices

D 5. Finished Goods is debited and Work in Process is credited for a:

A. transfer of materials to the factory
B. return of unused materials from the factory
C. purchase of goods on account
D. transfer of completed production
E. transfer of completed goods out of the factory

D 6. Rose Company had the following account balances and results

from operations for the month of July: direct materials consumed, P
10,400; direct labor, 8,000; factory overhead, 8,800; July 1, work in
process inventory, 2,400; July 31, work in process inventory, 1,800;
finished goods inventory, July 1, 1,200; finished goods inventory, July 31,
1,000. The total manufacturing cost for the month of July was:
 A. 27,800
B. 28,000
C. 18,400
D. 27,200
E. none of the above

Solution:
Direct Materials 10,400
Labor 8,000
Factory Overhead 8,800
Total Manufacturing Cost 27,200
B 7. Irving Company had the following account balances and results
from operations for the month of July: direct materials consumed, P
10,400; direct labor, 8,000; factory overhead, 8,800; July 1, work in
process inventory, 2,400; July 31, work in process inventory, 1,800;
finished goods inventory, July 1, 1,200; finished goods inventory, July 31,
1,000. The cost of goods sold was:
A. 27,200
B. 28,000
C. 27,800
D. 27,600
E. none of the above
Solution: 27,800 + 1,200 - 1,000 = 28,000
A 8. Lonzo Company applies factory overhead on the basis of direct
labor hours. Budget and actual data for direct labor and overhead for the
year are as follows:

Budget Actual
Direct labor hours 600,000 650,000
Factory overhead costs 720,000 760,000
The factory overhead for Lonzo for the year is:
 A. overapplied by 20,000
B. overapplied by 40,000
C. underapplied by 20,000
D. underapplied by 40,000
E. neither underapplied nor overapplied

Solution:

720,000
= 1. 20 ∗ 650,000
600,000
= 780,000 (applied )⋅ 760,000 (actual ) = 20,000 (overapplied )

III.

C 1. At the end of the year, Cousins Company had the following account
balances after applied factory overhead had been closed to Factory Overhead
Control:

Factory Overhead Control 1,000 CR

Cost of Goods Sold 980,000 DR
Work in Process 38,000 DR
Finished Goods 82,000 DR

The most common treatment of the balance in Factory Overhead Control would be to:
A. carry it as a deferred credit on the balance sheet
B. report it as miscellaneous operating revenue on the income statement
C. credit it to Cost of Goods Sold
D. prorate it between Work in Process and Finished Goods
E. prorate it among Work in Process, Finished Goods, and Cost of Goods
Sold
D 2. Howell Corporation has a job order cost system. The following debits
(credits) appeared in Work in Process for the month of July:

July 1, balance 12,000

July 31, direct materials 40,000
July 31, direct labor 30,000
July 31, factory overhead 27,000
July 31, to finished goods (100,000)
Howell applies overhead to production at a predetermined rate of 90%
based on the direct labor cost. Job 1040, the only job still in process at the end of
July, has been charged with factory overhead of 2,250. What was the amount of
direct materials charged to Job 1040?
A. 6,750
B. 2,250
C. 2,500
D. 4,250
E. 9,000

Solution:
Job 1040 = 12,000 + 40,000 + 30,000 + 27,000 - 100,000 = 9,000

$2,250
Direct materials = $9,000 ⋅ ⋅ $2,250 = 4,250
.9

A 3. Selected cost data (in thousands) concerning the past fiscal year's
operations of the Moscow Manufacturing Company are presented below.

Inventories
Beginning Ending
Materials 75 85
Work in process 80 30
Finished goods 90 110
 Materials used, 326
Total manufacturing costs charged to production during the year (including direct
materials, direct labor, and factory overhead applied at the rate of 60% of direct
labor cost), 686. Cost of goods available for sale, 826. Selling and general
expenses, 25

The cost of goods manufactured during the year was:

A. 736
B. 716
C. 636
D. 766
E. none of the above
Solution: 326 + 85 - 75 = 336
E 4. Gyro Products transferred 10,000 units to one department. An additional
3,000 units of materials were added in the department. At the end of the month,
7,000 units were transferred to the next department. There was no beginning
inventory. The costs for units transferred in would be effectively allocated over:
A. 17,000 units
B. 3,000 units
C. 10,000 units
D. 7,000 units
E. 13,000 units

Solution: 7,000 units transferred out + 6,000 units in ending inventory = 13,000
units
C 5. Read, Inc. instituted a new process in October. During October, 10,000
units were started in Department A. Of the units started, 7,000 were transferred to
Department B, and 3,000 remained in work in process at October 31. The work in
process at October 31 was 100% complete as to material costs and 50% complete
as to conversion costs. Materials costs of P 27,000 and conversion costs of P
39,950 were charged to Department A in October. What were the total costs
transferred to Department B?
 A. P 46,900
B. P 53,600
C. P 51,800
D. P 57,120
E. none of the above
Solution:
Materials unit cost = $27,000  (7,000 + 3,000) = P 2.70
Conversion unit cost = $39,950  [7,000 + 50%(3,000)] = P 4.70
Costs transferred = 7,000($2.70 + $4.70) = P51,800

D 6. In accounting for beginning inventory costs, the method that allows the
addition of beginning inventory costs with costs incurred during the period is
referred to as:
A. first-in, first-out
B. addition
C. last-in, first-out
D. average
E. first-in, last-out

C 7. Dover Corporation's production cycle starts in the Mixing Department. The

following information is available for April:

Units
Work in process, April 1 (50% complete)............................................... 40,000
Started in April......................................................................................... 240,000
Work in process, April 30 (60% complete)............................................. 25,000

Materials are added at the beginning of the process in the Mixing Department. Using
the average cost method, what are the equivalent units of production for the month of
April?
 Materials Conversion
A. 255,000 255,000
B. 270,000 280,000
C. 280,000 270,000
D. 305,000 275,000
E. 240,000 250,000
Solution:
Materials = 40,000 + 240,000 = 280,000
Conversion = (280,000 - 25,000) + .6(25,000) = 270,000

A 8. The first-in, first-out method of process costing will produce the same cost
of goods manufactured amount as the average cost method when:
A. there is no beginning inventory
B. there is no ending inventory
C. beginning and ending inventories are each 50% complete
D. beginning inventories are 100% complete as to materials
E. goods produced are homogeneous