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Cornerstones Cost Management 2nd Edition By Hansen Mowen Test Bank

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Cornerstones Cost Management 2nd Edition By Hansen Mowen Test Bank

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COMPLETE TEST BANK WITH ANSWERS
Cornerstones Cost Management 2nd Edition By Hansen Mowen Test Bank
 
SAMPLE QUESTIONS

 

Chapter 2Basic Cost Management Concepts

Student: ___________________________________________________________________________

  1. The cost management information system is primarily concerned with producing outputs for internal users using inputs and processes needed to satisfy management objectives.
    True    False

 

  1. The Financial accounting information system provides information for three broad objectives: costing services and products, planning and control, and decision making.
    True    False

 

  1. The value chain is the set of activities required to design, develop, produce, market, deliver and provide post-sales service for the products and services sold to customers.
    True    False

 

  1. Cost management information benefits production, marketing, and customer service systems as well as being a crucial part of managerial decision making.
    True    False

 

  1. An integrated cost management system receives information from and provides information to only the controller of a company.
    True    False

 

  1. Cost assignment is one of the key processes of the cost accounting system.
    True    False

 

  1. Cost is the cash or cash equivalent value sacrificed for goods and services that are expected to bring a current or future loss to the company.
    True    False

 

  1. The three methods of cost assignment are direct tracing, driver tracing, and allocation.
    True    False

 

  1. Assigning costs accurately to cost objects is of low priority. Accuracy is not evaluated based on knowledge of some underlying true cost.
    True    False

 

  1. The most precise of the three methods of cost assignment is direct tracing since it relies on observable causal relationships.
    True    False

 

  1. Services differ from tangible products on three dimension: intangibility, perishability, and inseparability.
    True    False

 

  1. Intangible products are goods produced by converting raw material into finished products through the use of labor and capital inputs.
    True    False

 

  1. Production costs are costs associated with manufacturing goods or providing services and are classified as direct materials, direct labor, and overhead.
    True    False

 

  1. Conversion cost is the sum of direct materials and direct labor cost and prime cost is the sum of direct labor and overhead cost.
    True    False

 

  1. Product costs include production, marketing, and customer service, and are used for strategic design decisions and tactical profitability analysis.
    True    False

 

  1. The income statement prepared for external parties is frequently referred to as absorption-costing income, or full costing income.
    True    False

 

  1. The cost of goods sold is the cost of direct materials, direct labor and overhead attached to the units sold.
    True    False

 

  1. The cost of goods manufactured represents the total manufacturing cost of goods completed during the current period.
    True    False

 

  1. Work in process consists of all partially completed units found in production at a given point in time.
    True    False

 

  1. Gross margin, also called gross profit, is the difference between sales and costs of finished products.
    True    False

 

  1. Cost management systems can be broadly classified as traditional or activity based.
    True    False

 

  1. A traditional cost accounting system assumes that all costs can be classified as fixed with respect to changes in the units or volume produced.
    True    False

 

  1. The overall objective of an activity-based cost management system is to manage activities to reduce costs and improve customer value.
    True    False

 

  1. The cost accounting system that emphasizes tracing over allocation is called an activity-based accounting system.
    True    False

 

  1. Error costs are costs associated with measurements required by the cost management system and measurement costs are the costs associated with making poor decisions.
    True    False

 

  1. A subsystem of the accounting information system designed to satisfy costing, controlling and decision making objectives is called the __________ system.
    ________________________________________

 

  1. The cost management subsystem designed to provide accurate and timely feedback concerning the performance of managers relative to their control of activities is the __________ information system.
    ________________________________________

 

  1. The overall objective of accounting information is to provide information to __________.
    ________________________________________

 

  1. The resources given up that are expected to bring a current or future benefit to the organization are called __________ .
    ________________________________________

 

  1. Expired costs used up in the generation of revenues are called __________ .
    ________________________________________

 

  1. The least accurate but easiest to apply method of cost assignment is the __________ method.
    ________________________________________

 

  1. __________ means the consumer cannot see, hear, feel, or taste a service before it is bought.
    ________________________________________

 

  1. __________ are generally materials necessary for production that do not become part of the finished product or are not used to provide a service.
    ________________________________________

 

  1. Costs necessary to market and distribute a product or service are often referred to as order- __________  and order- __________ costs.
    ________________________________________

 

  1. In preparing an income statement, __________ and __________ costs are separated.
    ________________________________________

 

  1. Gross margin is the difference between __________ and the cost of goods or services sold.
    ________________________________________

 

  1. __________ income is the difference between gross margin and selling and administrative expenses.
    ________________________________________

 

  1. Cost management systems are made up of two subsystems: the __________ accounting system and the __________ control system.
    ________________________________________

 

  1. Generally, more managerial objectives can be met with an activity-based system than with a _________ system.
    ________________________________________

 

  1. In deciding whether to implement a(n) __________ cost management system, managers must evaluate the trade-off between costs of measurement and cost of errors.
    ________________________________________

 

  1. The set of interrelated parts that performs one or more processes to accomplish specific objectives is called a(n):
    A. cost objective
    B. system
    C. activity
    D. cost driver

 

  1. The overall objective of accounting information systems is to
    A. provide information to users.
    B. manage the organization.
    C. prepare financial reports.
    D. report to the government.

 

  1. In an accounting information system, which of the following is NOT a transformation process?
    A. collecting data
    B. performance reports
    C. analyzing data
    D. summarizing data

 

  1. Which of the following is a cost management subsystem designed to assign costs to individual products and services and other objects, as specified by management?
    A. financial accounting information system
    B. operational control information system
    C. cost accounting information system
    D. all of the above

 

  1. In a company that supplies muffins to bakeries, which of the following would be considered an input?
    A. delivered muffins
    B. flour
    C. baking
    D. none of these

 

  1. In a company that supplies muffins to bakeries, which of the following would NOT be considered an input?
    A. delivered muffins
    B. flour
    C. egg
    D. oil

 

  1. In a company that supplies muffins to bakeries, which of the following would NOT be considered a transforming process?
    A. delivered muffins
    B. baking
    C. packaging
    D. mixing

 

  1. In a company that supplies muffins to bakeries, which of the following would be considered a transforming process?
    A. delivered muffins
    B. baking
    C. egg
    D. oil

 

  1. In a company that supplies muffins to bakeries, delivered muffins to bakeries would be a(n)
    A. interrelated part.
    B. input.
    C. output.
    D. process.

 

  1. In an accounting information system, the inputs are usually
    A. financial statements.
    B. analyzing data.
    C. economic events.
    D. performance reports.

 

  1. Which of the following is a cost management subsystem designed to provide accurate and timely feedback concerning the performance of managers and others relative to their planning and control of activities?
    A. financial accounting information system
    B. operational control information system
    C. cost accounting information system
    D. all of the above

 

  1. The accounting information subsystem that is primarily concerned with producing outputs for external users is called:
    A. cost management information system
    B. computer system
    C. internal accounting system
    D. financial accounting information system

 

  1. High quality cost management systems should have an organization-wide perspective. Which of the following would NOT be a benefit of a cost management system?
    A. increases speed by ignoring non-financial information
    B. reduces duplicate data storage and use of data
    C. improves timeliness of reports
    D. increases the efficiency of generating reliable and accurate information

 

  1. Which of the following is a major subsystem of the cost accounting information system?
    A. ERP
    B. operational control information system
    C. OLAP
    D. EDI

 

  1. A computerized information system that strives to input data once and to make it available to people across the company for different purposes is called a:
    A. cost management information system
    B. enterprise resource planning system
    C. internal accounting system
    D. financial accounting information system

 

  1. A cost management subsystem designed to provide accurate and timely feedback concerning the performance of managers and others relative to their planning and control activities is called the:
    A. cost accounting information system
    B. financial accounting system
    C. operational control information system
    D. tax reporting system

 

  1. Which of the following is NOT one of the features of an operational control information system?
    A. to assist in continuous improvement of all aspects of the business
    B. to improve the value received by customers
    C. to provide product cost information needed by management
    D. to improve profits by improving value

 

  1. Which of the following is NOT an objective of the operational control system?
    A. increasing value to customers
    B. increasing profit by providing value
    C. Increasing post purchase costs
    D. all of the above

 

  1. The resources given up that are expected to bring a current or future benefit to the organization are represented by:
    A. Costs
    B. Expired costs
    C. Expenses
    D. Losses

 

  1. The cash or cash equivalent value sacrificed for goods and services that are expected to bring a current or future benefit to the organization is/are called:
    A. Expenses
    B. Cost
    C. An activity
    D. A loss

 

  1. A cost used up in the production of revenues is a(n)
    A. unexpired cost.
    B. loss.
    C. expense.
    D. asset.

 

  1. Which of the following is an example of a loss?
    A. the cost of a product delivered to a customer
    B. the cost of a delivered advertising campaign
    C. the cost of the purchase of equipment
    D. the write-off of an obsolete product

 

  1. Which of the following is an example of an expense?
    A. the cost of a proposed advertising campaign
    B. the cost of a product delivered to a customer
    C. the cost of the purchase of equipment
    D. the write-off of an obsolete product

 

  1. Which of the following is an example of a possible cost object?
    A. a product
    B. a customer
    C. a department
    D. all of the above

 

  1. Traceability is a function of
    A. an indirect relationship to the cost object.
    B. distortion.
    C. a causal relationship.
    D. none of these.

 

  1. Factors that cause changes in resource usage, activity usage, costs and revenues are called
    A. indirect costs.
    B. drivers.
    C. assignments.
    D. cost objects.

 

  1. The most likely method to assign the cost of an assembly-line supervisor when the assembly line is the cost object is the:
    A. driver tracing method
    B. arbitration method
    C. allocation method
    D. direct tracing method

 

  1. Which cost assignment method would likely assign the cost of heating in a plant that makes beds and dressers when the bed product line is the cost object?
    A. driver tracing
    B. direct tracing
    C. allocation
    D. arbitration

 

  1. Which cost assignment method would likely assign the cost of maintenance for machines in a department that does cutting when the cutting activity is the cost object?
    A. driver tracing
    B. direct tracing
    C. allocation
    D. arbitration

 

  1. Which of the following expenses incurred by a department store is a direct cost for the womens shoe department?
    A. the salespersons commissions in the womens shoe department
    B. the salaries for individuals working in the accounting department
    C. the advertising expense for the service department
    D. the allocated rent expense for the clothing department

 

  1. Which of the following costs incurred by a chair manufacturer would be traced to the product cost through direct tracing?
    A. the depreciation on factory equipment
    B. the supervisors salary
    C. the insurance on the factory building
    D. the woodworkers salary

 

  1. Direct costs
    A. are incurred for the benefit of the business as a whole.
    B. would continue even if a particular product were discontinued.
    C. are those costs that can be easily and accurately traced to a cost object.
    D. can be assigned to products only by a process of allocation.

 

  1. The direct costs of operating a college computer center would NOT include
    A. rent paid for computers.
    B. a fair share of college utilities.
    C. paper used by the center.
    D. computer consultants salaries.

 

  1. Which of the following methods of assigning costs is based on convenience or some assumed linkage, and reduces the overall accuracy of the cost assignments?
    A. direct tracing
    B. driver tracing
    C. allocation
    D. all of the above

 

  1. Which of the following costs incurred by a bus manufacturer would NOT be directly attributable to the finished product?
    A. the wages paid to assembly-line production workers
    B. the tires for buses
    C. the windshields for buses
    D. the depreciation on factory building

 

  1. The assignment of indirect costs to cost objects is referred to as:
    A. Allocation
    B. Direct tracing
    C. Physical observation
    D. Cost management

 

  1. What is a disadvantage of assigning costs evenly over all cost objects?
    A. not all costs will be assigned
    B. total costs will be distorted
    C. costs may be distorted by consumption patterns of other cost objects
    D. none of these

 

  1. The insurance paid on the factory is
    A. a direct cost if the cost object is the factory.
    B. an indirect cost if the cost object is the product produced.
    C. could be either a direct cost or an indirect cost, depending on the cost object.
    D. all of the above.

 

  1. Which of the following would NOT be a cost that could be directly traced to a custom piece of furniture based upon physical observation?
    A. the wood and upholstery materials that are in the final piece
    B. the depreciation paid on factory equipment t
    C. he labor of the worker assembling the piece of furniture
    D. the labor of the woodworker who finishes the wood of the piece

 

  1. The precision of driver tracing depends upon
    A. physically observable relationships.
    B. the strength of causal relationships described by the driver.
    C. allocation estimations.
    D. both b and c.

 

  1. If physical observation can NOT be used to identify the exact amount of resources consumed by a cost object, the next best approach is
    A. driver tracing.
    B. allocation.
    C. estimation.
    D. none of these.

 

  1. Services differ from tangible products in which of the following dimensions?
    A. intangibility
    B. inseparability
    C. perishability
    D. all of the above

 

  1. With regards to products, perishability can be defined as
    A. buyers of products who can not see, feel, hear or taste the product before it is bought.
    B. services that cannot be stored.
    C. buyers and sellers who must be in direct contact for the sale to take place.
    D. buyers of the product who do not need direct contact with the manufacturer of the product.

 

  1. Intangibility of services means that
    A. products cannot be seen, tasted, heard or felt before the purchase.
    B. products cannot be stored.
    C. exchange takes place in direct contact.
    D. both a and c.

 

  1. An example of a tangible product, rather than a service, would be
    A. housekeeping.
    B. insurance coverage.
    C. paper.
    D. medical exam.

 

  1. With regard to services, inseparability means that
    A. products cannot be stored.
    B. direct contact must take place for an exchange.
    C. products have a physical presence.
    D. none of the above apply to inseparability.

 

  1. An example of a service, rather than a tangible product, would be
    A. medical exams.
    B. cloths.
    C. trucks.
    D. radios.

 

  1. Which of the following is a service organization?
    A. grocery store
    B. CPA firm
    C. cattle ranch
    D. department store

 

  1. Which of the following costs would be included in value-chain product costs?
    A. research and development
    B. production
    C. customer service
    D. all of the above

 

  1. Product value-chain costs assist managers in meeting which of the following objectives?
    A. product mix decisions
    B. tactical profitability analysis
    C. external financial reporting
    D. strategic design decisions

 

  1. Value-chain product costs include which of the following?
    A. customer service costs
    B. marketing costs
    C. research and development
    D. all of the above

 

  1. Which of the following costs would NOT be included in operating product costs?
    A. production
    B. marketing
    C. research and development
    D. all of the above

 

  1. Which of the following costs would be included in traditional product costs used for external reporting?
    A. research and development
    B. production
    C. marketing
    D. all of the above

 

  1. Which of the following costs is NOT a product cost?
    A. rent on an office building
    B. indirect labor
    C. repairs on manufacturing equipment
    D. steel used in inventory items produced

 

  1. Which of the following costs is an example of product costs?
    A. selling commissions
    B. nonfactory office salaries
    C. direct materials
    D. advertising expense

 

  1. Which of the following costs incurred by a furniture manufacturer would be a product cost?
    A. office salaries
    B. lumber
    C. commissions paid to sales staff
    D. controllers salary

 

  1. Which of the following costs is a product cost?
    A. lease payments on cars used by salespersons
    B. presidents salary
    C. property taxes on factory building
    D. depreciation on office equipment

 

  1. Which of the following costs is a period cost for a manufacturing company?
    A. controllers salary
    B. wages of machine operators
    C. insurance on factory equipment
    D. fringe benefits for factory employees

 

  1. In a traditional manufacturing company, product costs include
    A. direct materials only.
    B. direct materials, direct labor, and factory overhead.
    C. direct materials and direct labor only.
    D. direct labor only.

 

  1. Which of the following costs is an indirect product cost?
    A. presidents salary
    B. wages of assembly workers
    C. materials used
    D. property taxes on plant facilities

 

  1. If the total warehousing cost for the year amounts to $450,000, and 40 percent of the warehousing activity is associated with finished goods and 60 percent with direct materials, how much of the cost would be charged as a product cost?
    A. $90,000
    B. $180,000
    C. $270,000
    D. $450,000

 

  1. Which of the following costs would be included as part of direct materials in the production of an automobile?
    A. glue for a sticker applied to the automobile
    B. steel
    C. gasoline used to fuel machines in production
    D. none of these

 

  1. All of Eva Enterprises operations are housed in one building with the costs of occupying the building accumulated in a separate account. The total costs incurred in July amounted to $48,000. The company allocates these costs on the basis of square feet of floor space occupied. Administrative offices, sales offices, and factory operations occupy 9,000, 6,000, and 30,000 square feet, respectively. How much will be classified as a product cost for July?
    A. $9,600
    B. $6,400
    C. $16,000
    D. $32,000

 

  1. Which of the following costs would be considered a direct material?
    A. glue in the production of automobiles
    B. labor used to finish product
    C. paper used in the production of books
    D. depreciation on the corporations office building

 

  1. The difference between a supply and an indirect material is that
    A. supplies are not necessary for production.
    B. indirect materials are not physically part of the product.
    C. supplies are not necessary for production and are not physically part of the product.
    D. supplies are necessary for production and are not physically part of the product.

 

  1. Which of the following costs would be included as part of direct labor?
    A. a materials handler
    B. a cutter in the production of shelving
    C. an assembly-line supervisor
    D. a janitor

 

  1. Which of the following costs would be included as part of factory overhead?
    A. depreciation of plant equipment
    B. direct labor
    C. depreciation on the corporations office building
    D. paper used in the production of books

 

  1. Which of the following items would NOT be classified as part of factory overhead of a firm that makes sailboats?
    A. factory supplies used
    B. depreciation of factory buildings
    C. canvas used in sail
    D. indirect materials

 

  1. Wages paid to a janitor in the factory would be classified as
    A. direct labor.
    B. direct janitor salaries.
    C. supervisor salaries.
    D. factory overhead.

 

  1. All of the following costs are included in factory overhead EXCEPT
    A. factory supplies.
    B. indirect labor.
    C. plant foremans salary.
    D. direct labor.

 

  1. Selling and administrative costs are classified as
    A. product costs.
    B. conversion costs.
    C. period costs.
    D. factory overhead.

 

  1. Which of the following costs is NOT a period cost?
    A. receptionists salary
    B. steel used in steel railings
    C. depreciation on sales staffs cars
    D. sales commission

 

  1. Which of the following costs is a period cost?
    A. depreciation of factory equipment
    B. transportation-in for material shipments
    C. amortization of a patent for the companys product
    D. depreciation of office computers

 

  1. An example of a period cost is
    A. presidents salary.
    B. insurance on factory equipment.
    C. property taxes on factory building.
    D. wages of factory custodians.

 

  1. An example of a nonproduction cost is
    A. wages paid to assembly-line employees.
    B. manufacturing supplies.
    C. insurance on manufacturing facilities.
    D. the treasurers salary.

 

  1. Which of the following costs are expensed in the period in which they are incurred?
    A. Direct materials costs
    B. Product costs
    C. Factory overhead costs
    D. Nonproduction costs

 

  1. Order-getting costs would NOT include
    A. marketing costs.
    B. customer service costs.
    C. advertising.
    D. salaries of sales personnel.

 

  1. Period costs do NOT include
    A. order-getting costs.
    B. order-filling costs.
    C. order-making costs.
    D. all of the above are period costs.

 

  1. Prime product costs include
    A. only factory overhead.
    B. only direct labor.
    C. direct labor and factory overhead.
    D. direct materials and direct labor.

 

  1. The sum of direct labor and factory overhead is referred to as
    A. period costs.
    B. conversion costs.
    C. prime costs.
    D. direct product costs.

 

  1. Conversion costs do NOT include
    A. direct materials.
    B. direct labor.
    C. factory overhead.
    D. any of these costs.

 

  1. Which of the following would NOT be included in the conversion cost of an automobile?
    A. screws used in assembly
    B. assembly worker wages
    C. depreciation on machinery
    D. steel

 

  1. Costs that are expensed in the period in which they are incurred are called:
    A. Direct materials costs
    B. Product costs
    C. Noninventoriable costs
    D. Inventoriable costsChapter 4Activity-Based Costing

    Student: ___________________________________________________________________________

    1. Unit based costing first assigns overhead costs to departmental pools and then assigns these costs to products using predetermined overhead rates.
      True    False

     

    1. Management information systems can be divided into a unit-based type and activity-based type.
      True    False

     

    1. Predetermined overhead rates are calculated at the end of each year using the formula: overhead rate = budgeted annual driver level/budgeted annual driver level.
      True    False

     

    1. Unit-level drivers are factors that measure the demands placed on unit-level activities by products.
      True    False

     

    1. If applied overhead is greater than actual overhead it is called overapplied overhead.
      True    False

     

    1. Unit-based product costing assigns manufacturing and selling costs to products.
      True    False

     

    1. The difference between actual overhead and applied overhead is an underapplied overhead.
      True    False

     

    1. Overhead assignments should reflect the amount of overhead demanded by each product.
      True    False

     

    1. The justification for not using a departmental rate for overhead cost assignment is that it increases accuracy.
      True    False

     

    1. Non-unit-based drivers are factors that measure the demands that cost objects place on activities.
      True    False

     

    1. If overhead is a significant proportion of the unit manufacturing costs, the distortion caused by using multi-level drivers can be serious.
      True    False

     

    1. Activity-based costing uses only unit-level drivers for costing.
      True    False

     

    1. The activity-based cost assignment is the most accurate method of costing because it follows a cause-and-effect pattern of overhead consumption.
      True    False

     

    1. An activity-based costing system traces costs to activities and then to products and other cost objects.
      True    False

     

    1. The first step in designing an activity-based costing system is to identify activities.
      True    False

     

    1. A list of the activities identified in the design of an activity-based system is called an activity inventory.
      True    False

     

    1. Activity attributes are nonfinancial and financial information items that describe individual activities.
      True    False

     

    1. Product classification attributes define and describe activities and are the basis for product classification.
      True    False

     

    1. After identifying and describing activities, the next step is to determine the cost of the performance of each activity.
      True    False

     

    1. Classifying activities into four general categories facilitates product costing by associating the response to different types of activity drivers.
      True    False

     

    1. Efforts to simplify activity-based costing systems (ABC) involve either before-the-fact simplification or after-the-fact simplification.
      True    False

     

    1. Time driven activity-based costing (TDABC) requires the need to identify resource drivers to assign costs to activities.
      True    False

     

    1. Using the before-the-fact simplification method TDABC eliminates the need for detailed interviewing and surveying to determine resource drivers.
      True    False

     

    1. After-the-fact simplification includes two approaches: the approximately relevant reduced ABC system and the equally accurate enhanced ABC system.
      True    False

     

    1. There are many two-driver combinations that may be used to reduce the ABC system without sacrificing accuracy.
      True    False

     

    1. A(n) __________ method first traces costs to a department and then to products.
      ________________________________________

     

    1. Offering greater product accuracy than an activity-based costing system is not a characteristic of a __________ costing system.
      ________________________________________

     

    1. The formula Budgeted annual overhead/Budgeted annual driver level is used to calculate a __________ rate.
      ________________________________________

     

    1. For labor-intensive operations, the most appropriate activity driver would be the __________ hours.
      ________________________________________

     

    1. The proportion of an overhead activity consumed by a product is the __________ ratio.
      ________________________________________

     

    1. __________ drivers create distortions when different products utilize resources differently.
      ________________________________________

     

    1. The use of __________ activity drivers to assign costs tends to __________ high-volume products.
      ________________________________________

     

    1. A(n) __________ costing system first traces costs to activities and then to products.
      ________________________________________

     

    1. Activity __________ are nonfinancial and financial data that describe individual activities.
      ________________________________________

     

    1. The activity __________ is a simple list of activities identified in an ABC system.
      ________________________________________

     

    1. Activity __________ helps management achieve objectives such as product or customer costing and continuous improvement.
      ________________________________________

     

    1. Materials handling would be classified as a __________ activity when using activity-level costing.
      ________________________________________

     

    1. An __________costing database is the collected data sets that are organized and interrelated for use in a companys ABC information system.
      ________________________________________

     

    1. A(n) __________ is a grouping of logically related information.
      ________________________________________

     

    1. In the __________ ABC systems, managers directly estimate the resource demands imposed by each product.
      ________________________________________

     

    1. Unit-level product costing assigns
      A. direct materials and direct labor directly to products and assigns overhead to departmental pools which are assigned to products using predetermined overhead rates based on unit-level drivers.
      B. direct materials, direct labor and overhead to departmental cost pools which are assigned to products using predetermined overhead rates based on unit-level drivers.
      C. direct materials and direct labor directly to products and assigns overhead to departmental pools which are assigned to products using predetermined overhead rates based on non-unit level drivers.
      D. direct materials, direct labor and overhead to departmental cost pools which are assigned to products using predetermined overhead rates based on non-unit level drivers.

     

    1. Which is NOT a characteristic of a unit-based costing system?
      A. It uses traditional product costing definitions.
      B. It uses unit-based activity drivers to assign overhead to products.
      C. It offers greater product costing accuracy than an activity-based costing system.
      D. It is cheaper than an activity-based costing system.

     

    1. Unit-based product costing uses which of the following procedures?
      A. All overhead costs are expensed as incurred.
      B. Overhead costs are traced to departments, then costs are traced to products.
      C. Overhead costs are traced directly to products.
      D. Overhead costs are traced to activities, then costs are traced to products.

     

    1. The method that first traces costs to a department and then to products is called:
      A. direct costing
      B. absorption costing
      C. unit-based costing
      D. indirect costing

     

    1. A predetermined overhead rate is calculated using which of the following formulas?
      A. Actual annual overhead / budgeted annual driver level
      B. Budgeted annual overhead / budgeted annual driver level
      C. Budgeted annual overhead / actual annual driver level
      D. Actual annual overhead / actual annual driver level

     

    1. The overhead rates of the traditional functional-based product costing use
      A. non-unit-based activity drivers.
      B. unit-based activity drivers.
      C. process costing.
      D. job order costing.

     

    1. A costing system that uses actual costs for direct materials and labor and predetermined overhead rates to apply overhead is called a(n)
      A. actual costing system.
      B. standard costing system.
      C. normal costing system.
      D. activity-based costing system.

     

    1. Common measures of production activity include
      A. units produced.
      B. direct labor hours.
      C. machine hours.
      D. all of these.

     

    1. If unit-based product costing is used, which of the following would be traced directly to the product?
      A. setup costs
      B. direct labor
      C. maintenance of machinery
      D. inspection costs

     

    1. Product costs can be distorted if a unit-based activity driver is used and
      A. non-unit-based overhead costs are a significant proportion of total overhead.
      B. the consumption ratios differ between unit-based and non-unit-based input categories.
      C. both a and b.
      D. neither a nor b.

     

    1. All of the following are non-unit-based activity drivers EXCEPT
      A. number of direct labor hours.
      B. number of inspections.
      C. number of setups.
      D. number of material moves.

     

    1. For a labor-intensive manufacturing operation, which of the following would be the most appropriate activity driver?
      A. machine hours
      B. direct labor hours
      C. number of employees
      D. units of output

     

    1. In a department that is drilling holes in materials, which activity base is likely to be most appropriate for assigning overhead costs?
      A. units produced
      B. direct labor hours
      C. machine hours
      D. number of batches

     

    1. All of the following are unit-based activity drivers EXCEPT
      A. number of setups.
      B. machine hours.
      C. number of units.
      D. direct labor hours.

     

    1. A department that is capital-intensive most likely would use a predetermined departmental overhead rate based on which of the following activity bases?
      A. units of direct material used
      B. direct labor hours
      C. direct labor cost
      D. machine hours

     

    1. Figure 4-1

      The Foremost Company predicted factory overhead for 2013 and 2014 would be $120,000 for each year. The predicted activity for 2013 and 2014 were 30,000 and 20,000 direct labor hours, respectively. Additional data are as follows:
      2013 2014
    Sales in units 25,000 25,000
    Selling price per unit $20 $20
    Direct materials and direct labor per unit $10 $10
         

    The company assumes that the long-run normal production level is 20,000 direct labor hours per year. The actual factory overhead cost for the end of 2013 and 2014 was $120,000. Assume that it takes one direct labor hour to make one finished unit.

    Refer to Figure 4-1. When the annual estimated factory overhead rate is used, the gross profits for 2013 and 2014, respectively, are
    A. $150,000 and $150,000.
    B. $150,000 and $100,000.
    C. $250,000 and $250,000.
    D. $100,000 and $150,000.

     

    1. Figure 4-1

      The Foremost Company predicted factory overhead for 2013 and 2014 would be $120,000 for each year. The predicted activity for 2013 and 2014 were 30,000 and 20,000 direct labor hours, respectively. Additional data are as follows:
      2013 2014
    Sales in units 25,000 25,000
    Selling price per unit $20 $20
    Direct materials and direct labor per unit $10 $10
         

    The company assumes that the long-run normal production level is 20,000 direct labor hours per year. The actual factory overhead cost for the end of 2013 and 2014 was $120,000. Assume that it takes one direct labor hour to make one finished unit.

    Refer to Figure 4-1. When the normal factory overhead rate is used, the gross profits for 2013 and 2014, respectively, are
    A. $80,000 and $80,000.
    B. $200,000 and $200,000.
    C. $120,000 and $140,000.
    D. $100,000 and $100,000.

     

    1. Figure 4-2

      The following information is provided by the Sandman Corporation for the year:

    Actual direct labor hours worked 46,000
    Budgeted overhead $300,000
    Budgeted direct labor hours 30,000
    Actual overhead costs incurred $460,000
       

    Refer to Figure 4-2. If normal costing is used, the amount of overhead applied for the year is
    A. $414,000.
    B. $400,000.
    C. $480,000.
    D. $460,000.

     

    1. Figure 4-2

      The following information is provided by the Sandman Corporation for the year:

    Actual direct labor hours worked 46,000
    Budgeted overhead $300,000
    Budgeted direct labor hours 30,000
    Actual overhead costs incurred $460,000
       

    Refer to Figure 4-2. The actual overhead rate for applying manufacturing overhead is
    A. $  7.14.
    B. $  7.50.
    C. $10.00.
    D. $10.50.

     

    1. Avatar Corporation uses a predetermined rate to apply overhead. At the beginning of the year, Avatar estimated its overhead costs at $240,000, direct labor hours at 40,000, and machine hours at 10,000. Actual overhead costs incurred were $249,280, actual direct labor hours were 41,000, and actual machine hours were 11,000.

      What is the predetermined overhead rate per machine hour for Avatar?
      A. $  6.08
      B. $  5.85
      C. $22.66
      D. $24.00

     

    1. Figure 4 3

      The records of Family Manufacturing show the following information:

    Estimated manufacturing overhead $690,000
    Estimated machine hours 46,000
    Actual machine hours worked 50,000
       
    Actual costs incurred:  
         Indirect materials $170,000
         Indirect labor 230,000
         Utilities 120,000
         Insurance 100,000
         Rent 80,000
       

    Refer to Figure 4-3. The amount of overapplied or underapplied overhead is
    A. $10,000 underapplied. .
    B. $50,000 overapplied.
    C. $60,000 overapplied.
    D. $65,200 underapplied

     

    1. Figure 4 3

      The records of Family Manufacturing show the following information:

    Estimated manufacturing overhead $690,000
    Estimated machine hours 46,000
    Actual machine hours worked 50,000
       
    Actual costs incurred:  
         Indirect materials $170,000
         Indirect labor 230,000
         Utilities 120,000
         Insurance 100,000
         Rent 80,000
       

    Refer to Figure 4-3. The company uses a predetermined overhead rate to apply overhead. Manufacturing overhead applied is
    A. $750,000.
    B. $700,000.
    C. $690,000.
    D. $648,000.

     

    1. The following information pertains to Whitestone Industries for 2014:
    Estimated total overhead costs for 2014 $37,500
    Estimated direct labor costs for 2014 25,000
    Actual direct labor costs 22,500
    Actual overhead costs 36,000
    Activity base Direct labor costs
       

    What is the predetermined overhead rate for Whitestone Industries for 2014?
    A. 66.7%
    B. 150%
    C. 160%
    D. 62.5%

     

    1. Figure 4-4

      Mannitou Company made the following predictions for 2014:
    Factory overhead costs $300,000
    Direct labor hours 50,000 hours
    Machine hours 100,000 hours
       

    Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.

    Refer to Figure 4-4. If factory overhead is applied based on machine hours, the cost of Job A2 for the Mannitou Company is
    A. $69,000.
    B. $75,000.
    C. $63,000.
    D. $66,000.

     

    1. Figure 4-4

      Mannitou Company made the following predictions for 2014:
    Factory overhead costs $300,000
    Direct labor hours 50,000 hours
    Machine hours 100,000 hours
       

    Job A2 (which was started and completed in June) used 3,000 direct labor hours, 2,000 machine hours, and $57,000 of prime costs.

    Refer to Figure 4-4. If factory overhead is applied based on direct labor hours, the cost of Job A2 for the Mannitou Company is
    A. $60,000.
    B. $75,000.
    C. $63,000.
    D. $66,000.

     

    1. The Magnanimous Company uses a predetermined overhead rate of $12 per direct labor hour to apply overhead. During the year, 30,000 direct labor hours were worked. Actual overhead costs for the year were $320,000. The overhead variance is
      A. $40,000 underapplied.
      B. $35,560 underapplied.
      C. $36,000 overapplied.
      D. none of the above.

     

    1. The following information is provided for the year:
    Actual direct labor hours worked 27,500
    Budgeted overhead $525,000
    Budgeted direct labor hours 30,000
    Actual overhead costs incurred $481,250
       

    If normal costing is used, the amount of overhead applied for the year is
    A. $568,750.00.
    B. $441,031.25.
    C. $481,250.00.
    D. $525,000.00.

     

    1. The following information is provided by the Sutton Corporation for the year:
    Actual overhead $450,000
    Actual machine hours worked 25,000
    Budgeted machine hours 27,500
    Applied overhead $487,500
       

    If normal costing is used, budgeted overhead used to calculate the predetermined rate would be
    A. $443,250.
    B. $450,000.
    C. $487,500.
    D. $536,250.

     

    1. Assume the following: Actual overhead costs equaled estimated overhead. Actual direct labor hours exceeded estimated direct labor hours used to calculate the predetermined overhead rate. If overhead is applied using the predetermined overhead rate, then overhead is
      A. $-0-.
      B. underapplied.
      C. overapplied.
      D. indeterminable from the information given.

     

    1. Bear Claw Industries uses a job-order costing system. The Molding Department applies overhead based on machine hours, while the Assembly Department applies overhead based on direct labor hours. The company made the following estimates at the beginning of the current year:
      Molding Assembly
    Manufacturing overhead cost $700,000 $400,000
    Machine hours   10,000    4,000
    Direct labor hours   12,000   16,000
         

    The following information was available for Job No. 7-29, which was started and completed during August:

      Job No. 7-29  
      Molding Assembly
    Direct materials $3,500 $ 7,500
    Direct labor $9,000 $12,500
    Direct labor hours    900   1,250
    Machine hours    500     400
         

    The predetermined overhead rate for the molding department is
    A. $100.
    B. $83.
    C. $70.
    D. $50.

     

    1. Lonestar Corporation uses a job-order costing system to account for product costs. The following information pertains to 2014:
    Materials placed into production $140,000
    Indirect labor 40,000
    Direct labor (10,000 hours) 160,000
    Depreciation of factory building 60,000
    Other factory overhead 100,000
    Increase in work-in-process inventory 30,000
       

    Factory overhead rate is $18 per direct labor hour.

    What is the amount of under- or overapplied overhead for Lonestar Corporation in 2014?
    A. $40,000 overapplied
    B. $20,000 overapplied
    C. $40,000 underapplied
    D. $20,000 underapplied

     

    1. Material amounts of underapplied or overapplied overhead should be
      A. treated as an adjustment to cost of goods sold.
      B. treated as an adjustment to work in process.
      C. allocated to direct materials, work in process, and finished goods.
      D. allocated to work in process, finished goods, and cost of goods sold.

     

    1. Account balances from the Boilermakers Company are as follows:
    Manufacturing overhead $240,000 underapplied
    Work in process  100,000
    Finished goods  300,000
    Cost of goods sold  800,000
       

    If underapplied or overapplied overhead is material and is allocated to Work in Process, Finished Goods, and Cost of Goods Sold (based on ending account balances), Cost of Goods Sold after adjustment would have a balance of
    A. $   960,000.
    B. $   640,000.
    C. $1,040,000.
    D. $1,440,000.

     

    1. Figure 4-5

      The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given:
    Actual overhead $325,000
    Estimated Overhead $350,000
    Estimated activity:  
                9 volt battery 100,000  direct labor hours
                AAA battery 400,000  direct labor hours
    Actual activity:  
                9 volt battery 125,000   direct labor hours
                AAA battery 400,000   direct labor hours
    Units produced:  
                 9 volt battery 500,000
                 AAA battery 250,000
       

    Refer to Figure 4-5. What is the predetermined overhead rate? (round to 2 decimal places)
    A. $0.62
    B. $0.65
    C. $0.67
    D. $0.70

     

    1. Figure 4-5

      The Brookstone Company produces 9 volt batteries and AAA batteries. The Brookstone Company uses a plantwide rate to apply overhead based on direct labor hours. The following data is given:
    Actual overhead $325,000
    Estimated Overhead $350,000
    Estimated activity:  
                9 volt battery 100,000  direct labor hours
                AAA battery 400,000&

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