Question

1.Which of the following statements is CORRECT?
A. Prime costs are those costs that are expensed in the accounting period in which they are

incurred.
B. Conversion costs include the costs of raw material, direct labour, and manufacturing

overhead.
C. The costs incurred in relation to both overtime premiums and idle time are classified as

manufacturing overhead.
D. The cost of factory lighting would be classified as a period cost.

2. Which of the following costs would NOT be classified as a product cost for a golf club manufacturer?
   A. Metal used in golf clubs
   B. The salary of the plant manager

   C. Wages paid to employees who assemble golf bags
   D. The salary of the engineer who is working on a prototype of a new solar-powered golf

   cart.

3. Barrett Industries began the month of June with a finished goods inventory of $15,000. The finished goods inventory at the end of June was $10,000 and the cost of goods sold during the month was $20,000. The cost of goods manufactured during the month of June was:

   A. $15,000 B. $25,000 C. $20,000 D. $5,000

4. When evaluating a make-or-buy decision, which of the following does NOT need to be considered?

   A. Alternative uses of the production capacity.
   B. The original cost of the production equipment.
   C. The quality of the supplier's product.
   D. The reliability of the supplier's delivery schedule.

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5.The fixed costs per unit are $10 when a company makes 10,000 units. What are the per unit fixed costs when 12,500 units are produced?

A. $6.00 B. $12.00 C. $10.00 D. $ 8.00

6. Which of the following statements is NOT correct?

A. Volume based cost drivers assume that all costs are driven by the volume of production or sales.
B. Product level costs are the costs incurred to support the business as a whole and are not caused by any particular product or service.

C. A fixed cost is a cost which remains unchanged in total as the level of activity varies. D. A semi-variable cost has a fixed element.

7. Harvey Chemicals Pty Ltd manufactures a product called Hartik. Direct materials are added at the beginning of the process and conversion activity occurs uniformly throughout the process. The following data pertains to the month of October.

Using the weighted average method of process costing, calculate the equivalent units of direct materials and conversion costs for the month of October.

A. Direct Material 75 000; Conversion Cost 69,400 B. Direct Material 75 000; Conversion Cost 60,400 C. Direct Material 60 000; Conversion Cost 60,400 D. Direct Material 68 000; Conversion Cost 69,400

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Questions 8 and 9 relate to the following information.

The Singleton Boot Company has four departments in its factory with two service departments, S1 and S2, and two production departments Assembly and Finishing.

The current costs of each department are:

Service Departments

S1 S2

$308 000 $256 000

Production Departments

Assembly $505 000 Finishing $495 000

The distribution and consumption of services is given in the following table:
Services provided to:	S1	S2	Assembly	Finishing
Services provided by:
S1	-	35%	45%	20%
S2	15%	-	60%	25%

8.Using direct method how much overhead costs will be allocated from S1 to Assembly:

A. $138,600 B. $213,231 C. $115,200 D. $177,231

9.Using step-down method how much overhead costs will be allocated from S2 to Assembly:

A. $153,600 B. $218,280 C. $256,800 D. $180,706

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10. Nala Corporation uses direct labour-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labour-hours were 14,400 hours and the total estimated manufacturing overhead was $355,680. At the end of the year, actual direct labour hours for the year were 15,200 hours and the actual manufacturing overhead for the year was $350,680.

Overhead at the end of the year was:

1. $24,760 underapplied

2. $24,760 overapplied

3. $19,760 underapplied

4. $19,760 overapplied

11. A collection of costs that are to be allocated to cost objects is referred to as a:

    A. Cost pool
    B. Costallocation C. Directcost
    D. Indirect cost

12. A special order generally should be accepted if:

    A. Its revenue exceeds allocated fixed costs, regardless of the variable costs associated with the order
    B. Excess capacity exists and the revenue exceeds all variable costs associated with the order.

    C. Excess capacity exists and the revenue exceeds allocated fixed costs D. The revenue exceeds variable costs, regardless of available capacity

13. For a manufacturing company, the cost of factory insurance is classified as a:

    A. Direct material cost.

B. Direct manufacturing labour cost. C. Manufacturing overhead cost.
D. Period cost.

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14. Kaiser Ltd. uses the high-low method to estimate the cost function. The information for 2018 is provided below.

Month	Machine hours	Labour costs ($)
January	130	5,124
February	250	7,611
March	180	6,208
April	165	6,300
May	240	9,800
June	80	3,200
July	155	6326
August	190	7,200
September	230	8,138
October	250	8,600
November	260	10,004
December	190	7,400

What is the estimate of Kaiser’s cost function when 120 machine hours are used (to the nearest dollar)?

A. $4,347 B. $4,712 C. $4,744 D. $4,797

15. Crimson Quilters makes decorative comforters, quilted garments, and other products in a small sewing factory. In 2018, the company expects to make 2,000 comforters. With respect to the comforters how would the fabric used to make the comforters be classified?

A. Direct and variable costs B. Direct and fixed costs
C. Indirect and variable costs D. Indirect and fixed costs

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16. McDonnell Industries estimated manufacturing overhead for the year at $290,000. Manufacturing overhead for the year was underapplied by $12,000. The company applied $235,000 to Work in Process. The amount of actual overhead would have been:

A. $278,000.
B. $247,000.
C. $223,000.
D. None of these

17. The benefits arising from the introduction of activity-based costing are likely to be greater where:

i. Overhead is a large proportion of total cost.
ii. Implementation costs are not high due to the support of advanced IT systems. iii. Batches are of a similar size.

A. i and ii
B. i and iii
C. ii and iii
D. None of the above

18. Lawler Manufacturing Co. has three divisions which are in competition with each other, selling slightly different products. Annual results (including per unit sales)

show:

Sales price per unit Variable cost per unit Total Fixed costs Predicted unit sales

Division A $250
$160 $110,000 10,000

Division B $280
$210 $85,000 5,000

Division C $330

$220 $105,000

3,000

The company believes that if it drops Division B, sales of Division A will increase by
3000 units and sales of Division C will increase by 1000 units. Analysis reveals that $50,000 of fixed costs relating to Division B are avoidable for the company if Division B is closed. The incremental effect on the income of the company if it closes Division B will be:

A. An increase of $30,000 B. An increase of $50,000 C. A decrease of $70,000 D. An increase of $80,000

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19. When the step-down method is used to allocate support department costs, a common way to select the first support department in the sequence is to choose the support department which:

1. Obtains the highest yield

2. Serves no other support department

3. Serves the greatest number of other support departments

4. Obtains the highest yield AND serves no other support department

20. Franklin has received a special order for 10,000 units of its product at a special price of $15. The product normally sells for $20 and has the following manufacturing costs:

Per unit Direct materials $6

Direct labour 3 Variable manufacturing overhead 2 Fixed manufacturing overhead 6 Unit cost $17

Franklin is currently operating at full capacity and cannot fill the order without harming normal production and sales. If Franklin accepts the order, what effect will the order have on the company’s short-term profit?

A. $40,000 decrease

2. $40,000 increase

3. $50,000 decrease

D. $10,000 increase

Answer 1

Solutions

1.Which of the following statements is CORRECT?
C. The costs incurred in relation to both overtime premiums and idle time are classified as manufacturing overhead.

2) Which of the following costs would NOT be classified as a product cost for a golf club manufacturer?
D. The salary of the engineer who is working on a prototype of a new solar-powered golf cart.

3). Barrett Industries began the month of June with a finished goods inventory of $15,000. The finished goods inventory at the end of June was $10,000 and the cost of goods sold during the month was $20,000. The cost of goods manufactured during the month of June was:

A. $15,000 B. $25,000 C. $20,000 D. $5,000

Cost of Goods Manufactured for the Year Add: Beginning Finished Goods Inventory Deduct: Ending Finished Goods Inventory	$15000 $15000 ($10000)
Cost of Goods Sold	$20000

4. When evaluating a make-or-buy decision, which of the following does NOT need to be considered?

Ans : A. Alternative uses of the production capacity.

5.The fixed costs per unit are $10 when a company makes 10,000 units. What are the per unit fixed costs when 12,500 units are produced?

A. $6.00 B. $12.00 C. $10.00 D. $ 8.00 (Because fixed cost does not depend on the level of the output )

6. Which of the following statements is NOT correct?

B. Product level costs are the costs incurred to support the business as a whole and are not caused by any particular product or service.