Part 1:

True / False Questions
Select the correct answer

1. A single plant-wide overhead rate generally provides more accurate product costs than multiple departmental overhead rates.

True False

2. The use of a predetermined overhead rate in a job-order cost system makes it possible to compute the total cost of a job before production is begun.

True False

3. Predetermined overhead rates are based on estimated cost and activity data.

True False

4. Use of a single, plant-wide overhead rate is generally appropriate only for very large manufacturing companies.

True False

5. Even though a job is not completed at year end, manufacturing overhead cost may be applied to that job when a predetermined overhead rate is used.

True False

6. When the predetermined overhead rate is based on direct labor-hours, the amount of overhead applied to a job is proportional to the estimated amount of direct labor-hours for the job.

True False

7. If direct labor-hours is used as the allocation base in a job-order costing system, but overhead costs are not caused by direct-labor hours, then jobs with high direct labor requirements will tend to be under-costed relative to jobs with low direct labor requirements.

True False

8. The cost of a completed job in a job-order costing system typically consists of the actual direct materials cost of the job, the actual direct labor cost of the job, and the manufacturing overhead cost applied to the job.

True False

9. The cost categories that appear on a job cost sheet include selling expense, manufacturing expense, and administrative expense.

True False

10. The salary of the company's president should be charged to the Manufacturing Overhead Incurred account.

True False

11. If a company closes any under-applied or over-applied overhead to the Cost of Goods Sold account, then Cost of Goods Sold will be increased if manufacturing overhead is over-applied for the period.

True False

12. Manufacturing overhead is over-applied if actual manufacturing overhead costs for a period are greater than the amount of manufacturing overhead cost that was charged to Work in Process.

True False

13. Two of the reasons why manufacturing overhead may be under-applied are: (1) the estimated total manufacturing overhead cost may have been too high; and (2) the estimated total amount of the allocation base may have been too low.

True False

14. The most common accounting treatment of under-applied manufacturing overhead is to transfer it to the Manufacturing Overhead Incurred account.

True False

15. If the actual manufacturing overhead cost for a period exceeds the manufacturing overhead cost applied, then manufacturing overhead would be considered to be under-applied.

True False

16. The cost of goods sold in a single product company is equal to the number of units sold multiplied by their unit product cost, plus any over-applied overhead or less any under-applied overhead.

True False

17. The cost of goods manufactured for a period includes only the costs of units that are completed during the period.

True False

18. Ending finished goods inventory in a single product company equals the number of units in ending inventory less the number of units in beginning inventory, multiplied by their unit product cost.

True False

19. The cost of goods manufactured equals ending work in process inventory, plus the total manufacturing cost charged to jobs, less beginning work in process inventory.

True False

20. Cost of goods sold equals beginning finished goods inventory, plus cost of goods manufactured, less ending finished goods inventory.

True False

21. If a company uses predetermined overhead rates, actual manufacturing overhead costs of a period will be recorded in the Manufacturing Overhead Incurred account, but they will not be recorded on the job cost sheets for the period.

True False

22. The labor time ticket contains a detailed summary of the direct and the indirect labor hours of an employee.

True False

Multiple Choice Questions

23. Which of the following would probably be the least appropriate allocation base for allocating overhead in a highly automated manufacturer of specialty valves?

A. machine-hours

B. power consumption

C. direct labor-hours

D. machine setups

24. Departmental overhead rates are generally preferred to plant-wide overhead rates when:

A. the activities of the various departments in the plant are not homogeneous.

B. the activities of the various departments in the plant are homogeneous.

C. most of the overhead costs are fixed.

D. all departments in the plant are heavily automated.

25. In a job-order costing system, the amount of overhead cost that has been applied to a job that remains incomplete at the end of a period:

A. is deducted on the Income Statement as over-applied overhead.

B. is closed to Cost of Goods Sold.

C. is transferred to Finished Goods at the end of the period.

D. is part of the ending balance of the Work in Process inventory account.

Part 2

Chapter 05

True / False Questions

1. Under variable costing, product costs consist of direct materials, direct labor, and variable manufacturing overhead.

True False

2. Under absorption costing, fixed manufacturing overhead is treated as a product cost.

True False

3. Under variable costing, variable production costs are not treated as product costs.

True False

4. Under variable costing, fixed manufacturing overhead cost is not treated as a product cost.

True False

5. The costs assigned to units in inventory are typically lower under variable costing than under absorption costing.

True False

6. Direct materials is considered to be a product cost under variable costing but not absorption costing.

True False

7. Under absorption costing, fixed manufacturing overhead cost is not included in product cost.

True False

8. Under variable costing, product cost does not contain any fixed manufacturing overhead cost.

True False

9. Under conventional absorption costing, the fixed costs associated with idle production capacity are not included as part of the product cost.

True False

Multiple/Choice

10. Under absorption costing, the profit for a period is affected by a change in the number of units of finished goods in inventory.

True False

11. The principal difference between variable costing and absorption costing centers on:

A. whether variable manufacturing costs should be included in product costs.

B. whether fixed manufacturing costs should be included in product costs.

C. whether fixed manufacturing costs and fixed selling and administrative costs should be included in product costs.

D. whether selling and administrative costs should be included in product costs.

12. Under absorption costing, fixed manufacturing overhead costs:

A. are deferred in inventory when production exceeds sales.

B. are always treated as period costs.

C. are released from inventory when production exceeds sales.

D. are ignored.

13. Under variable costing, fixed manufacturing overhead is:

A. carried in a liability account.

B. carried in an asset account.

C. ignored.

D. expensed as a period cost.

14. Under variable costing, which of the following is not expensed in its entirety in the period in which it is incurred?

A. fixed manufacturing overhead cost

B. fixed selling and administrative expense

C. variable selling and administrative expense

D. variable manufacturing overhead cost

15. The term gross margin is used in reports prepared using:

A. both absorption costing and variable costing.

B. absorption costing but not variable costing.

C. variable costing but not absorption costing.

D. neither variable costing nor absorption costing.

16. When sales are constant, but the number of units produced fluctuates, net operating income determined by the absorption costing method will:

A. tend to fluctuate in the same direction as fluctuations in the number of units produced.

B. tend to remain constant.

C. tend to fluctuate in the opposite direction as fluctuations in the number of units produced.

D. fluctuate without any relation to the number of units produced.

17. George Corporation has no beginning inventory and manufactures a single product. If the number of units produced exceeds the number of units sold, then net operating income under the absorption method for the year will:

A. be equal to the net operating income under variable costing.

B. be greater than the net operating income under variable costing.

C. be equal to the net operating income under variable costing plus total fixed manufacturing costs.

D. be equal to the net operating income under variable costing less total fixed manufacturing costs.

18. When production exceeds sales and the company uses the LIFO inventory flow assumption, the net operating income reported under absorption costing generally will be:

A. less than net operating income reported under variable costing.

B. greater than net operating income reported under variable costing.

C. equal to net operating income reported under variable costing.

D. higher or lower because no generalization can be made.

19. Routit Corporation had the following sales and production for the past four years:

Selling price per unit, variable cost per unit, and total fixed cost are the same each year. There were no beginning inventories in Year 1. Which of the following statements is correct?

A. Under variable costing, net operating income for Year 3 and Year 4 would be the same.

B. Under variable costing, net operating income for Year 2 and Year 3 would be the same.

C. Variable costing net income would exceed absorption costing net income in Year 1.

D. Absorption costing net income would exceed variable costing net income in Year 4.

20. If a cost is a common cost of the segments on a segmented income statement, the cost should:

A. be allocated to the segments on the basis of segment sales.

B. not be allocated to the segments.

C. excluded from the income statement.

D. treated as a product cost rather than as a period cost.

21. A national retail company has segmented its income statement by sales territories. If each sales territory statement is further segmented by individual stores, which of the following will most likely occur?

A. some common fixed expenses in the sales territory segmented statement will become traceable fixed expenses in the individual store segmented statement.

B. some traceable fixed expenses in the sales territory segmented statement will become common fixed expenses in the individual store segmented statement.

C. the sum total of the individual stores' segment margins in each sales territory will be equal to the segment margin for the sales territory.

D. the sum total of the sales territory segment margins will equal the total net operating income for the entire company.

22. Managers will often allocate common fixed expenses to business segments because:

A. this is required by law.

B. not allocating these costs will lead to bad decisions.

C. they believe this practice will ensure that the company's common fixed expenses are covered.

D. they do not want the sum of the business segment margins to equal the net operating income for the company.

23. When using data from a segmented income statement, the dollar sales for a segment to break even is equal to:

A. Common fixed expenses ÷ Unit CM

B. Common fixed expenses ÷ Segment CM ratio

C. Traceable fixed expenses ÷ Unit CM

D. Traceable fixed expenses ÷ Segment CM ratio

24. When using data from a segmented income statement, the dollar sales for the company to break even overall is equal to:

A. (Allocated fixed expenses + Traceable fixed expenses) ÷ Overall CM ratio

B. (Traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratio

C. (Non-traceable fixed expenses + Common fixed expenses) ÷ Overall CM ratio

D. (Traceable fixed expenses) ÷ Overall CM ratio

25. Sharron Inc., which produces a single product, has provided the following data for its most recent month of operations:

There were no beginning or ending inventories. The variable costing unit product cost was:

A. $111 per unit

B. $190 per unit

C. $117 per unit

D. $110 per unit

Part 3:

True / False Questions

1. Activity-based management seeks to eliminate waste by allocating costs to products that waste resources.

True False

2. Direct labor-hours or direct labor cost should not be used as a measure of activity in an activity-based costing system.

True False

3. In activity-based costing, nonmanufacturing costs are not assigned to products.

True False

4. In traditional costing, some manufacturing costs may be excluded from product costs.

True False

5. Organization-sustaining overhead costs should be allocated to products just like unit-level and product-level activities.

True False

6. Activity-based costing uses a number of activity cost pools, each of which may have a different allocation base.

True False

7. In activity-based costing, organization-sustaining costs should be included in product costs for internal management reports that are used for decision-making.

True False

8. The practice of assigning the costs of idle capacity to products results in more stable unit product costs.

True False

9. In general, duration drivers are more accurate measures of the consumption of resources than transaction drivers.

True False

10. Activity-based costing is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect only variable costs.

True False

11. In traditional costing systems, manufacturing costs that are not caused by products are not assigned to products.

True False

12. When a company shifts from a traditional cost system in which manufacturing overhead is applied based on direct labor-hours to an activity-based costing system with batch-level and product-level costs, the unit product costs of low volume products typically decrease whereas the unit product costs of high volume products typically increase.

True False

13. The costs of idle capacity should be assigned to products in activity-based costing.

True False

14. In activity-based costing, some manufacturing costs can be excluded from product costs.

True False

15. Batch-level activities are performed each time a unit is produced.

True False

Multiple Choice

16.

An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles because:

A. under activity-based costing the sum of all product costs does not equal the total costs of the company.

B. under activity-based costing manufacturing costs are assigned to products.

C. activity-based costing has not been approved by the United Nation's International Accounting Board.

D. activity-based costing results in less accurate costs than more traditional costing methods based on direct labor-hours or machine-hours.

17. Assembling a product is an example of a(n):

A. Unit-level activity.

B. Batch-level activity.

C. Product-level activity.

D. Organization-sustaining.

18. If substantial batch-level or product-level costs exist, then overhead allocation based on a measure of volume such as direct labor-hours alone:

A. is a key aspect of the activity-based costing model.

B. will systematically overcost high-volume products and undercost low-volume products.

C. will systematically overcost low-volume products and undercost high-volume products.

D. must be used for external financial reporting since activity-based costing cannot be used for external reporting purposes.

19. Which terms would make the following sentence true? Manufacturing companies that benefit the most from activity-based costing are those where overhead costs are a _________ percentage of total product cost and where there is ___________ diversity among the various products that they produce.

A. low, little

B. low, considerable

C. high, little

D. high, considerable

20. Which of the following costs should not be included in product costs for internal management reports that are used for decision-making?

A. Costs of unit-level activities.

B. Costs of batch-level activities.

C. Costs of product-level activities.

D. Costs of organization-sustaining activities.

21. The plant manager's salary is an example of a(n):

A. Unit-level activity.

B. Batch-level activity.

C. Product-level activity.

D. Organization-sustaining activity.

22. Setting up a machine to change from producing one product to another is an example of a(n):

A. Unit-level activity.

B. Batch-level activity.

C. Product-level activity.

D. Organization-sustaining activity.

23. Which of the following would probably be the most accurate measure of activity to use for allocating the costs associated with a factory's purchasing department?

A. Machine-hours

B. Direct labor-hours

C. Number of orders processed

D. Cost of materials purchased

24. The labor time required to assemble a product is an example of a(n):

A. Unit-level activity.

B. Batch-level activity.

C. Product-level activity.

D. Organization-sustaining activity.

25. Which of the following levels of costs should not be allocated to products for decision-making purposes?

A. Unit-level activities.

B. Batch-level activities.

C. Product-level activities.

D. Organization-sustaining activities.