Question

a. Which of the following statements about managerial accounting is true?

1) Managerial accounting information is prepared for external users.

2) Managerial accounting information is a legal requirement.

3) The structure of managerial accounting practice is relatively flexible.

4) There are structured standards of acceptability for managerial accounting.

b. Which of the following statements is incorrect with regard to a manufacturing firm?

1) Inventoriable costs include only prime costs.

2) Inventoriable costs include prime costs and manufacturing overhead costs.

3) Inventoriable costs include both variable manufacturing and fixed manufacturing costs.

4) Inventoriable costs will never include any period costs.

c. Crandall Company manufactures a variety of products. The controller is considering how to account for labour fringe benefits. Which of the following methods provides the best measure of the relative cost of manufacturing Crandall’s different products?

1) Treat all labour fringe benefits as indirect labour by adding the total to manufacturing overhead.

2) Treat all labour fringe benefits as direct labour.

3) Treat labour fringe benefits that relate to direct labour as additional direct labour cost and treat fringe benefits that relate to indirect labour as part of manufacturing overhead.

4) Treat labour fringe benefits as period expenses and expense these costs as incurred.

d. In the context of making a decision, which of the following statements regarding relevant costs is incorrect?

1) An opportunity cost is a relevant cost.

2) A traceable fixed cost is a relevant cost.

3) A variable cost is a relevant cost.

4) A sunk cost is a relevant cost.

e. Which of the following functions of management compares planned results with actual results?

1) Planning

2) Directing and motivating

3) Controlling

4) Decision making

f. When distinguishing between fixed costs and variable costs, which of the following statements is true?

1) As production rises, variable costs per unit will fall.

2) As production rises, total fixed costs will rise.

3) As production falls, fixed costs per unit will rise.

4) As production falls, variable costs per unit will fall.

g. Which of the following are included in manufacturing overhead?

1) All direct material, direct labour, and administrative costs

2) All manufacturing costs except direct labour

3) All manufacturing costs except direct labour and direct materials

4) All selling and administrative costs

h. Which of the following statements describes the treatment of period costs?

1) They will never constitute part of the cost of goods manufactured statement but will always be part of the income statement.

2) They will always be part of the cost of goods manufactured statement.

3) They will never constitute part of the cost of goods manufactured statement or be part of the income statement.

4) They will only be incurred if the product is made in the current period.

i. What criterion is used in making the distinction between indirect and direct costs?

1) Whether a cost differs between alternatives

2) Whether a cost is variable or fixed

3) Whether a cost is a product or a period cost

4) Whether a cost can be easily traced to the cost object under consideration

j. Buford Company rents out a small unused portion of its factory to another company for €1,000 per month. The rental agreement will expire next month, and rather than renew the agreement, Buford Company is thinking about using the space itself to store materials. What term is used to describe the €1,000 per month?

1) Sunk cost

2) Period cost

3) Variable cost

4) Opportunity cost

k. A machine was purchased in 20X6 to make experimental boards. The machine is still being used in the manufacture of the new board. What term is used to describe the cost of this machine in 20X9?

1) Opportunity cost

2) Sunk cost

3) Differential cost

4) Period cost

Note:

Questions (l) through (n) are based on the following information pertaining to Hailey’s manufacturing operations:

Inventories January 1, 2019 December 31, 2020

Direct materials € 30,000 € 20,000

Work in progress 30,000 25,000

Finished goods 28,000 35,000

Additional information for 2019:

Direct materials purchased € 110,000

Direct manufacturing labour payroll 90,000

Direct manufacturing labour rate per hour 10

Factory overhead rate per direct manufacturing labour-hour 7

l. For 2019, what was the prime cost?

1) € 90,000

2) €120,000

3) €170,000

4) €210,000

m. For 2020, what was the conversion cost?

1) € 90,000

2) €153,000

3) €183,000

4) €200,000

n. For 2019, what was the cost of goods manufactured?

1) € 35,000

2) €268,000

3) €273,000

4) €278,000

o. In the preparation of the schedule of cost of goods manufactured, the accountant incorrectly excluded as part of manufacturing overhead the janitorial expense of the firm’s factory. What impact will this error have on the financial statements?

1) It will overstate period expenses on the income statement.

2) It will overstate the cost of goods sold on the income statement.

3) It will understate the cost of goods manufactured.

4) It will have no effect on the cost of goods manufactured.

Note:

Answer Questions (p) and (q) using the following selected data for March, taken from Ryker Company’s financial statements:

Cost of goods available for sale € 61,000

Manufacturing overhead 25,000

Cost of goods manufactured 51,000

Finished goods inventory — ending 10,000

Direct materials used 20,000

Sales 115,000

Selling and administrative expenses 30,000

Direct labour 15,000

Work-in-progress inventory — beginning 8,000

p. What was the gross margin for March?

1) €20,000

2) €34,000

3) €50,000

4) €64,000

q. What was the work-in-progress inventory at the end of March?

1) € 0

2) € 9,000

3) € 17,000

4) € 60,000

r. Done and Bradsweet, LLC, is a professional accounting services company. In 2019, the firm incurred $76,000 in promotion expenses. Of this, $61,000 was for activities related to entertaining potential clients and included charges for hotel stays and transportation for clients and management to corporate head office to promote the firm and its services. Some, but not all, of these clients subsequently engaged the services of the company during the year. The remaining $15,000 was spent on advertising the firm in print and television media in Europe.

 

Which of the following statements is correct?

1) $76,000 represents a period cost.

2) $76,000 represents a product cost.

3) $61,000 is a product cost and $15,000 is a period cost.

4) $61,000 is a direct cost and $15,000 is an indirect cost.

Note:

Answer Questions (s) and (t) using the following data from the Bonnie Company for the month of November 2019:

Inventories 11/1/2019 11/30/2019

Raw materials € 19,000 € ?

Work in progress 12,000 14,000

Finished goods ? 9,000

Additional data:

Sales revenue € 106,000

Direct labour costs 10,000

Manufacturing overhead costs 11,000

Selling expenses 12,000

Administrative expenses 18,000

s. If the cost of raw materials purchased in November was €14,000 and the cost of goods manufactured was €40,000, what was the inventory of raw materials on November 30?

1) €12,000

2) €14,000

3) €16,000

4) €19,000

t. If the cost of goods manufactured for November was €40,000 and net income was €41,000, what was the finished goods inventory on November 1?

1) € 1,000

2) € 4,000

3) €32,000

4) €35,000

Answer 1

Solutions:

A). 3) The structure of managerial accounting practice is relatively flexible.

B). 4) Inventoriable costs will never include any period costs.

C). 3) Treat labour fringe benefits that relate to direct labour as additional direct labour cost and treat fringe benefits that relate to indirect labour as part of manufacturing overhead.

D). 4) A sunk cost is a relevant cost.

E). 3) Controlling.

F). 3) As production falls, fixed costs per unit will rise.