Accounting Ch 14

Front 1

Managerial accounting applies to all types of businesses, including service, merchandising, and manufacturing, as well as to all forms of business organizations.

Back 1

True

Front 2

Which of the following statements is not true about managerial accounting?

Back 2

It is highly aggregated.

Front 3

Which of the following statements is true about managerial accounting?

Back 3

It provides more detailed information than financial accounting does

Front 4

Managerial accounting

Back 4

places emphasis on special-purpose information.

Front 5

All of the following are distinguishing features of managerial accounting except

Back 5

independent audits.
Managerial accounting does not involve independent audits (“Illustration 14-1”).

Front 6

Planning is the process of keeping the company’s activities on track.

Back 6

False

Front 7

Which of the following are considered to be management’s three broad functions?

Back 7

Planning, directing, and controlling
Managers’ activities and responsibilities fall into three functions: planning, directing, and controlling.

Front 8

Which of the following is considered part of the controlling process?

Back 8

Keeping the company’s activities on track
This is part of the controlling aspect of management.

Front 9

The management of an organization performs several broad functions. They are

Back 9

planning, directing, and controlling.
These are the broad functions performed by the management of an organization.

Front 10

After passage of the Sarbanes-Oxley Act of 2002

Back 10

CEOs and CFOs must certify that financial statements give a fair presentation of the company’s operating results.
CEOs and CFOs must certify that financial statements give a fair presentation of the company’s operating results.

Front 11

the management function that requires management to look ahead and establish objectives is

Back 11

planning.

planning requires management to look ahead and establish objectives ("Management Functions").

Front 12

The process of keeping the company’s activities on track is

Back 12

controlling.

Front 13

Indirect material costs are easily traced to products because of their physical association with the finished product.

Back 13

False
Indirect materials have one of two characteristics: (1) They do not physically become part of the finished product or (2) they cannot be traced because their physical association with the finished product is too small in terms of cost ("Direct Materials").

Front 14

Manufacturing overhead consists of costs that are indirectly associated with the manufacture of the finished product.

Back 14

True

Front 15

Which one of the following is not a manufacturing cost?

Back 15

Advertising cost
This is a nonmanufacturing cost and is often called a period cost or operating expense. Advertising is not part of the cost of getting the products ready to sell. Instead, it is a cost relating to selling the product after it is ready for sale.

Front 16

Which of the following answer choices lists the three manufacturing costs?

Back 16

Direct materials, direct labor, and manufacturing overhead
Within the product accounts, we find direct materials, direct labor, and manufacturing overhead.

Front 17

Which of the following costs would a computer manufacturer include in manufacturing overhead?

Back 17

Depreciation on testing equipment.
Depreciation on testing equipment would be included in manufacturing overhead because it is indirectly associated with the finished product.

Front 18

Which of the following is not an element of manufacturing overhead?

Back 18

Sales manager’s salary.
The sales manager's salary is not directly or indirectly associated with the manufacture of the finished product.

Front 19

Manufacturing overhead includes all of the following except

Back 19

direct materials.
Manufacturing overhead includes all of the options except direct materials ("Manufacturing Overhead").

Front 20

On average, studies have shown that the smallest component of total manufacturing cost is

Back 20

direct labor.
Direct labor is the smallest component of total manufacturing cost ("Manufacturing Overhead").

Front 21

Product costs are costs that are a necessary and integral part of producing the finished product.

Back 21

True
("Product versus Period Costs").

Front 22

Barry’s BarBQue incurred the following costs: $1,400 for ribs, 45 hours of labor to cook the ribs at $10 per hour, $50 for seasoning and sauce, $300 for signs to advertise the ribs, $150 to clean the grill after cooking the ribs, and $100 of administrative costs. How much are total product costs?

Back 22

$2,050
Only manufacturing costs are included as product costs. Advertising and administrative are period costs which are not part of the cost of getting the product ready to sell.
$1,400 + (45*$10) + $50 + $150 = $2,050.

Front 23

Which group of costs consists of only product costs?

Back 23

Direct labor, indirect labor, factory utilities


All of these are considered product costs. Product costs are related to manufacturing products.

Front 24

Direct materials are a
Product
Manufacturing
Period
Cost
Overhead
Cost

Back 24

Yes No No
Direct materials are a product cost only.

Front 25

Indirect labor is a

Back 25

product cost.
Indirect labor is a product cost because it is part of the effort required to produce a product.

Front 26

Which of the following costs are classified as a period cost?

Back 26

Wages paid to a cost accountant department supervisor
Wages paid to a cost accountant department supervisor would be included in administrative expenses and classified as a period cost.

Front 27

Product costs include each of the following except

Back 27

selling and administrative expenses.
Selling and administrative expenses are period costs, not product costs ("Product versus Period Costs").

Front 28

Each of the following is a period cost except

Back 28

indirect labor.
Indirect labor is a product cost, not a period cost ("Product versus Period Costs”).

Front 29

Pharmco incurred the following costs while manufacturing its product: Materials used in production, $120,000; factory depreciation, $60,000; property taxes on the administrative offices, $12,000; labor costs of assembly-line workers, $95,000; factory supplies used, $8,000; advertising expense, $13,000; property taxes on the factory, $20,000; delivery expense, $23,000; salaries of the sales staff, $53,000; and sales commissions, $17,000. The total product costs for Pharmco are

Back 29

$303,000.
Total product costs = direct materials + direct labor + manufacturing overhead = materials used in production ($120,000) + labor costs of assembly-line workers, ($95,000) + factory depreciation ($60,000) + factory supplies used ($8,000) + property taxes on the factory ($20,000). All other costs are period costs ("Illustration 14-3").

Front 30

Manufacturers compute cost of goods sold by adding the beginning finished goods inventory to the cost of goods purchased and subtracting the ending finished goods inventory.

Back 30

False
Manufacturers add beginning finished goods inventory to cost of goods manufactured and subtract ending finished goods inventory to compute the cost of goods sold (“Income Statement”).

Front 31

Which of the following would you find on the income statement of a manufacturing company, but not on the income statement of a merchandising company?

Back 31

Cost of goods manufactured
This label is used for a manufacturing company, but not a merchandising company.

Front 32

One key difference appears when comparing the income statements of a manufacturing company to a merchandising company. What is that difference?

Back 32

Manufacturing companies use cost of goods manufactured and merchandising companies use cost of goods purchased.
On the respective income statements, these amounts are added to beginning inventory in the computation of cost of goods sold.

Front 33

For the year, Redder Company has cost of goods manufactured of $600,000, beginning finished goods inventory of $200,000, and ending finished goods inventory of $250,000. The cost of goods sold is

Back 33

$550,000.
Cost of goods sold is computed as follows: Beginning finished goods inventory ($200,000) + cost of goods manufactured ($600,000) - ending finished goods inventory ($250,000), or $200,000 + $600,000 - $250,000 = $550,000.

Front 34

Cost of goods available for sale is reported on the income statement of

Back 34

a merchandising company and a manufacturing company.
Cost of goods available for sale is reported on the income statement of both a merchandising company and a manufacturing company.

Front 35

For a manufacturing firm, cost of goods available for sale is computed by adding the beginning finished goods inventory to

Back 35

cost of goods manufactured

Cost of goods available for sale is beginning finished goods inventory plus cost of goods manufactured (“Income Statement”).

Front 36

The principal difference between a merchandising and a manufacturing income statement is the

Back 36

cost of goods sold section
he principal difference between a merchandising and a manufacturing income statement is the cost of goods sold section ("Income Statement"

Front 37

Manders Corporation has $20,000 of ending finished goods inventory at December 31. If beginning finished goods inventory was $15,000 and cost of goods sold was $40,000, how much would Manders Corporation report as cost of goods manufactured?

Back 37

$45,000.
Manufacturers compute cost of goods sold by adding the beginning finished goods inventory to the cost of goods manufactured and subtracting ending finished goods inventory. To solve for the cost of goods manufactured in this equation, it can be restated as cost of goods sold ($40,000) + ending finished goods inventory ($20,000) – beginning finished goods inventory ($15,000) = $45,000 ("Income Statement").

Front 38

The costs assigned to beginning work in process inventory are based on the manufacturing costs incurred in the prior period.

Back 38

True

Front 39

The cost of the beginning work in process plus the total manufacturing costs for the current period is the cost of goods manufactured

Back 39

False
The cost of goods manufactured is the cost of the beginning work in process plus the total manufacturing costs for the current period less ending work in process ("Cost of Goods Manufactured Schedule”).

Front 40

Correct! The calculations appear below:

Work in process inventory, beginning $7,100
Direct materials used in production $27,600
Direct labor cost 20,000
Manufacturing overhead cost 28,900
Total manufacturing costs 76,500
Less: Work in process inventory, ending (6,800)
Cost of goods manufactured $76,800

Checker Clackers, Inc. manufactures clackers. Checker’s transactions and accounts included the following during June:

Raw materials inventory, beginning $1,200
Raw materials inventory, ending 1,400
Work in process inventory, beginning 7,100
Work in process inventory, ending 6,800
Raw materials acquired 27,800
Cost of direct materials used in production 27,600
Sales commissions to sell clackers 2,100
Direct labor cost 20,000
Total manufacturing overhead 28,900


How much is cost of goods manufactured for June?

Back 40

$76,800

Front 41

Work in process inventory, beginning $12,000
Direct materials used in production $81,900
Direct labor cost incurred 41,000
Manufacturing overhead cost incurred 25,000
Total manufacturing costs 147,900
Less: Work in process inventory, ending (14,200)
Cost of goods manufactured $145,700

Karmon Audio, Inc. manufactures speakers. During March, Karmon’s transactions and accounts included the following:

Raw materials acquired for cash $82,500
Cost of direct materials used in production 81,900
Costs to ship products to customers 1,000
Direct labor cost incurred 41,000
Total manufacturing overhead incurred 25,000
Raw materials inventory, beginning 3,500
Raw materials inventory, ending 3,600
Work in process inventory, beginning 12,000
Work in process inventory, ending 14,200


How much is cost of goods manufactured for March?

Back 41

$145,700

Front 42

A cost of goods manufactured schedule shows beginning and ending inventories for

Back 42

raw materials and work in process only.
A cost of goods manufactured schedule shows beginning and ending inventories for raw materials and work in process only.

Front 43

The formula to determine the cost of goods manufactured is

Back 43

beginning work in process inventory + total manufacturing costs – ending work in process inventory.
The formula to determine the cost of goods manufactured is: beginning work in process inventory + total manufacturing costs – ending work in process inventory.

Front 44

The sum of the direct materials costs, direct labor costs, and manufacturing overhead incurred is the

Back 44

total manufacturing costs.

Front 45

Companies compute cost of goods manufactured by subtracting ending work in process inventory from

Back 45

total cost of work in process.
Companies compute cost of goods manufactured by subtracting

Front 46

Model Magic Manufacturing reported the following year-end balances: Beginning work in process inventory, $35,000; beginning raw materials inventory, $18,000; ending work in process inventory, $38,000; ending raw materials inventory, $15,000; raw materials purchased, $510,000; direct labor, $180,000; and manufacturing overhead, $75,000. What is the amount of total work in process for Model Magic for the current year?

Back 46

$803,000
First, direct materials used = beginning raw materials inventory ($18,000) + raw materials purchased ($510,000) – ending raw materials inventory ($15,000) = $513,000. Then, total cost of work in process = beginning work in process inventory ($35,000) + direct materials used ($513,000) + direct labor ($180,000) + manufacturing overhead ($75,000) = $803,000 ("Illustration 19-7").

Front 47

Buxmont Manufacturing reported the following year-end balances: Beginning work in process inventory, $40,000; beginning finished goods inventory, $60,000; ending work in process inventory, $20,000; ending finished goods inventory, $30,000; direct materials used, $240,000; direct labor, $250,000; manufacturing overhead, $150,000; selling expenses, $50,000; and administrative expenses, $350,000. How much would Buxmont Manufacturing report as cost of goods manufactured at year-end?

Back 47

$660,000.
Cost of goods manufactured = beginning work in process ($40,000) + total manufacturing costs [direct materials used ($240,000) + direct labor ($250,000) + manufacturing overhead ($150,000)] or $640,000 – ending work in process ($20,000) = $660,000 ("Illustration 19-7").

Front 48

Companies generally list manufacturing inventories in the order of completion-raw materials, work in process, and finished goods.

Back 48

False
Companies usually list manufacturing inventories in the order of their liquidity?the order in which they are expected to be realized in cash (“Balance Sheet”).

Front 49

Which one of the following is true concerning manufacturing and merchandising companies’ inventories?

Back 49

Manufacturing companies report inventories in the order of liquidity.
The order in which they are expected to be sold begins with Finished Goods, then Work in Process, then Raw Materials.

Front 50

Which one of the following is true concerning manufacturing and merchandising companies’ inventories on the balance sheet?

Back 50

Finished goods is to a manufacturer what merchandise inventory is to a merchandiser.
When a merchandiser sells inventory, the merchandise inventory decreases, whereas when a manufacturer sells inventory, the finished goods account decreases.

Front 51

A manufacturer may report three inventories in its balance sheet: (1) raw materials, (2) work in process, and (3) finished goods. Indicate in what sequence these inventories generally appear on a balance sheet.

Back 51

(3), (2), (1)
On the balance sheet of a manufacturer, inventories are reported with (3) finished goods first, (2) work in process second and (1) raw materials third.

Front 52

The cost applicable to units that have been started into production but not completed is shown as

Back 52

work in process inventory
Work in process is the cost applicable to units that have been started into production but are only partially completed (“Balance Sheet”).

Front 53

Under the just-in-time inventory method, goods are manufactured or purchased just-in-time for use.

Back 53

True
This statement is correct ("Just-in-Time Inventory Methods").

Front 54

Which one of the following is a trend in industry?

Back 54

The U.S. economy has shifted toward an emphasis on providing services
The shift is away from producing goods.

Front 55

Which one of the following is a trend in managerial accounting?

Back 55

Large machines have been replaced with smaller, more flexible ones.
This is one of the efforts to enhance the value chain to increase efficiency.

Front 56

Which of the following managerial accounting techniques attempts to allocate manufacturing overhead in a more meaningful fashion?

Back 56

Activity-based costing
Activity-based costing attempts to allocate manufacturing overhead in a more meaningful fashion.