MANAGEMENT ACCOUNTING

MIDTERM TEST_Version A
(Allowed time: 60 minutes)
Choose ONE of the most appropriate answer
1. If the amount of “Cost of goods manufactured” during a period exceeds the amount of “Total
manufacturing costs” for the period, then
a) ending work in process inventory is greater than or equal to the amount of the beginning work in process
inventory.
b) ending work in process is greater than the amount of the beginning work in process inventory
c) ending work in process is equal to the cost of goods manufactured.
d) ending work in process is less than the amount of the beginning work in process inventory.
2. Cloudy Comfort Company’s accounting records reflect the following inventories:
Dec.31, 2012 Dec.31, 2011
Raw materials inventory $310,000 $260,000
Work in process inventory 300,000 160,000
Finished goods inventory 190,000 150,000
During 2012, $400,000 of raw materials were purchased, direct labor costs amounted to $500,000, and
manufacturing overhead incurred was $480,000.
The total raw materials available for use during 2012 for Cloudy Comfort is
a) $710,000 b) $260,000 c) $350,000 d) $660,000
3. The increased use of automation and less use of the work force in companies has caused a trend
towards an increase in
a.both variable and fixed costs.
b. fixed costs and a decrease in variable costs.
c.variable costs and a decrease in fixed costs.
d. variable costs and no change in fixed costs
4. A mixed cost contains
a) a variable element and a fixed element.
b) both selling and administrative costs.
c) both retailing and manufacturing costs.
d) both operating and non-operating costs.
5. When using machine hours for allocating manufacturing overhead (instead of activity-based costing),
a low-volume item requiring a significant amount of special handling will be assigned too __________
manufacturing overhead.
a) little b) much
6. Manufacturing cost is synonymous with all of the following terms except:
a. Product cost b. Inventoriable cost
c. Period cost d. Direct materials, direct labor and manufacturing overhead.
7. All of the following are product cost except:
a. Indirect materials b. Advertising
c. Rent on factory space d. Idle time
8. Which of the following is an example of a discretional fixed cost?
a. Depreciation on equipment b. Rent on facility building
c. Both a and b d. None of the above
9. Last year, a company reported estimated overhead of $100,000, actual overhead of $90,000, and applied
overhead of $92,000. The company’s manufacturing overhead cost for the year was:
a. Under-applied $10,000 b. Under-applied $8,000
c. Over-applied $2,000 d. Over-applied $10,000
10. Refer to the data of question above, the year-end adjustment would make the Cost of goods sold:
a. Increased by $10,000 b. Decreased by $10,000
c. Increased by $2,000 d. Decreased by $2,000
11. Which would be the most favorable basis for allocating manufacturing overhead for a factory with
automated equipment and a significant variation of services by its indirect labor?
a. ABC b. Direct labor hours c. Machine hours
12. Which would be the least favorable basis for allocating manufacturing overhead for a factory with
automated equipment and a significant variation of services by its indirect labor?
a. ABC b. Direct labor hours c. Machine hours
13. Managerial accounting:
a. is governed by Generally Accepted Accounting Principles
b. places more emphasis on data than does financial accounting
c. is not mandatory
d. is geared primarily to the past rather than to the future.
14. Which of the following costs are variable?
Cost: 10,000 Units 30,000 Units
1. $100,000 $300,000
2. 40,000 240,000
3. 90,000 90,000
4. 50,000 150,000
a) 1 and 2 b) 1 and 4 c) only 1 d) only 2
15. Which of the following is not a fixed cost?
a) Direct materials b) Depreciation c) Lease charge d) Property taxes
16. Which one of the following is a name for the range over which a company expects to operate?
a) Mixed range b) Fixed range c) Variable range d) Relevant range
17. Assembling a product is an example of a:
A) Facility-level activity.
B) Unit-level activity.
C) Batch-level activity.
D) Product-level activity.
18. Gabat Inc. is a merchandising company. Last month the company's merchandise purchases totaled $67,000.
The company's beginning merchandise inventory was $19,000 and its ending merchandise inventory was
$22,000. What was the company's cost of goods sold for the month?
A) $108,000
B) $67,000
C) $70,000
D) $64,000
19. Randolph, Inc., manufactures and sells two products: Product T5 and Product Y7. Data concerning the
expected production of each product and the expected total direct labor-hours (DLHs) required to produce that
output appear below:
 Expected Direct Labor-Hours Total Direct Labor-
 
Production Per Unit Hours
Product T5          500 9.0 4,500
Product Y7          500 12.0 6,000
Total direct labor-
10,500
hours

The company is considering adopting an activity-based costing system with the following activity cost pools,
activity measures, and expected activity:
Expected Activity
Activity Cost Activity Estimated Product Product
Pools Measures Overhead Cost T5 Y7 Total
Labor-related    DLHs $510,405 4,500 6,000 10,500
Machine
setups 37,510 300 200      500
setups               
General
MHs 273,180 3,100 2,900 6,000
factory               
    $821,095      

The total overhead applied to Product Y7 under activity-based costing is closest to:
A) $410,550
B) $132,035
C) $438,701
D) $469,200

20. Maintenance costs at a Whetsel Corporation factory are listed below:

Maintenance
  Machine-Hours
Cost
March 3,135 $48,340
April 3,095 $47,993
May 3,133 $48,345
June 3,157 $48,548
July 3,065 $47,733
August 3,076 $47,830
September 3,084 $47,880
October 3,125 $48,247
November 3,098 $48,014

Management believes that maintenance cost is a mixed cost that depends on machine-hours. Use the high-low
method to estimate the variable and fixed components of this cost. Compute the variable component first and
round off to the nearest whole cent. Compute the fixed component second and round off to the nearest whole
dollar. These estimates would be closest to:
A) $15.48 per machine-hour; $48,103 per month
B) $0.11 per machine-hour; $48,192 per month
C) $8.81 per machine-hour; $20,718 per month
D) $8.86 per machine-hour; $20,577 per month

21. Setting up a machine to change from producing one product to another is an example of a:
A) Product-level activity.
B) Facility-level activity.
C) Unit-level activity.
D) Batch-level activity.

22) Hudek Inc., a manufacturing Corporation, has provided the following data for the month of July. The balance
in the Work in Process inventory account was $20,000 at the beginning of the month and $10,000 at the end of
the month. During the month, the Corporation incurred direct materials cost of $50,000 and direct labor cost of
$22,000. The actual manufacturing overhead cost incurred was $58,000. The manufacturing overhead cost
applied to Work in Process was $56,000. The cost of goods manufactured for July was:
A) $138,000
B) $128,000
C) $140,000
D) $130,000

23) Messana Corporation reported the following data for the month of August:

Inventories: Beginning Ending

     Raw materials $36,000 $24,000
     Work in process $23,000 $17,000
     Finished goods $37,000 $55,000
     
Additional information:    
      Raw materials purchases $69,000  
      Direct labor cost $94,000  
      Manufacturing overhead cost incurred $54,000  
Indirect materials included in manufacturing overhead cost
$8,000  
incurred
Manufacturing overhead cost applied to Work in Process $56,000  

The adjusted cost of goods sold that appears on the income statement for August is:
A) $209,000
B) $229,000
C) $247,000
D) $211,000

24) Recek, Inc., manufactures and sells two products: Product Y5 and Product N7. Data concerning the expected
production of each product and the expected total direct labor-hours (DLHs) required to produce that output
appear below:
 Expected Direct Labor-Hours
  Total Direct Labor-Hours
Production Per Unit
Product Y5 1,000 6.0 6,000
Product N7 400 8.0 3,200
Total direct labor-hours 9,200

The direct labor rate is $22.90 per DLH. The direct materials cost per unit for each product is given below:
  Direct Materials Cost per Unit
Product Y5 $252.90
Product N7 $202.00

The company is considering adopting an activity-based costing system with the following activity cost pools,
activity measures, and expected activity:
    Estimated Expected Activity
Activity Cost Activity Overhead Product
Product Y5 Total
Pools Measures Cost N7
Labor-related DLHs $321,724 6,000 3,200 9,200
40
Machine setups setups 67,221 500 900
0
4,80 45
General factory MHs   905,262 9,300
0 00
    $1,294,207      
Which of the following statements concerning the unit product cost of Product N7 is true?
A) The unit product cost of Product N7 under traditional costing is greater than its unit product under activity-
based costing by $342.84.
B) The unit product cost of Product N7 under traditional costing is greater than its unit product under activity-
based costing by $761.27.
C) The unit product cost of Product N7 under traditional costing is less than its unit product cost under activity-
based costing by $342.84.
D) The unit product cost of Product N7 under traditional costing is less than its unit product cost under activity-
based costing by $761.27.

25) A partial listing of costs incurred during December at Rooks Corporation appears below:
Factory supplies $7,000
Administrative wages and salaries $92,000
Direct materials $176,000
Sales staff salaries $32,000
Factory depreciation $52,000
Corporate headquarters building rent $47,000
Indirect labor $23,000
Marketing $136,000
Direct labor $82,000
The total of the period costs listed above for December is:
A) $307,000
B) $340,000
C) $82,000
D) $389,000

26) For which situation(s) below would an organization be more likely to use a process costing system of rather
than a job-order costing system?
A) a masonry company that builds brick walls, bulkheads, and walkways designed by architects
B) a paper mill that processes wood pulp into large rolls of paper
C) a framing shop that builds picture frames to order for individual customers
D) a shop that restores old cars to "showroom" quality

27) In July, Essinger Inc. incurred $72,000 of direct labor costs and $3,000 of indirect labor costs. The journal
entry to record the accrual of these wages would include a:
A) credit to Work in Process of $75,000
B) credit to Manufacturing Overhead of $3,000
C) debit to Work in Process of $75,000
D) debit to Manufacturing Overhead of $3,000

28) Which of the following would most likely be included as part of manufacturing overhead in the production of
a wooden table?
A) The amount paid to the individual who stains the table.
B) The cost of glue used in the table.
C) The cost of the wood used in the table.
D) The commission paid to the salesperson who sold the table.

29) Job 593 was recently completed. The following data have been recorded on its job cost sheet:
 Direct materials $3,190  
 Direct labor-hours 71 labor-hours
 Direct labor wage rate $15 per labor-hour
 Machine-hours 175 machine-hours
The Corporation applies manufacturing overhead on the basis of machine-hours. The predetermined overhead
rate is $14 per machine-hour. The total cost that would be recorded on the job cost sheet for Job 593 would be:
A) $4,255
B) $5,249
C) $3,219
D) $6,705
30) The nursing station on the fourth floor of Central Hospital is responsible for the care of orthopedic surgery
patients. The costs of prescription drugs administered by the nursing station to patients should be classified as:
A) direct patient costs.
B) period costs of the hospital.
C) indirect patient costs.
D) overhead costs of the nursing station.
31) Solen Corporation's break-even-point in sales is $900,000, and its variable expenses are 75% of sales. If the
company lost $32,000 last year, sales must have amounted to:
A) $628,000
B) $772,000
C) $804,000
D) $868,000
32) The Agate Corporation manufactures and sells two types of bookcases, standard and deluxe. Agate expects
the following operating results next year for each type of bookcase:
  Standard Deluxe
Sales $450,000 $50,000
Variable expenses (total)         $180,000 $20,000
 Agate expects to have a total of $57,600 in fixed expenses next year. What is Agate's break-even point next year
in sales dollars?
A) $96,000
B) $144,000
C) $240,000
D) $72,000

33) Fost Corporation's contribution margin ratio is 20%. If the degree of operating leverage is 15 at the $225,000
sales level, net operating income at the $225,000 sales level must equal:
A) $2,250
B) $5,063
C) $6,750
D) $3,000

34) Hartung Corporation produces and sells a single product. Data concerning that product appear below:
  Per Unit Percent of Sales
Selling price $140 100%
Variable expenses     42   30%
Contribution margin   $98   70%

Fixed expenses are $147,000 per month. The company is currently selling 2,000 units per month. The marketing
manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager
has proposed a commission of $13 per unit. In exchange, the sales staff would accept a decrease in their salaries
of $22,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts
that introducing this sales incentive would increase monthly sales by 400 units. What should be the overall effect
on the company's monthly net operating income of this change?
A) increase of $226,000
B) increase of $16,800
C) decrease of $14,000
D) increase of $30,000

35) Arizaga Corporation manufactures canoes in two departments, Fabrication and Waterproofing. In the
Fabrication Department, fiberglass panels are attached to a canoe-shaped aluminum frame. The canoes are then
transferred to the Waterproofing department to be coated with sealant. Arizaga uses a weighted-average process
cost system to collect costs in both departments.

All materials in the Fabrication Department are added at the beginning of the production process. On July 1, the
Fabrication Department had 320 canoes in process that were 20% complete with respect to conversion cost. On
July 31, Fabrication had 540 canoes in process that were 30% complete with respect to conversion cost. During
July, the Fabrication Department completed 6,700 canoes and transferred them to the Waterproofing Department.
What are the Fabrication Department's equivalent units related to materials for July?
A) 7,240
B) 6,380
C) 6,160
D) 6,920
36) Fabian Corporation uses the weighted-average method in its process costing system. The Assembly
Department started the month with 9,000 units in its beginning work in process inventory that were 70%
complete with respect to conversion costs. An additional 90,000 units were transferred in from the prior
department during the month to begin processing in the Assembly Department. During the month 87,000 units
were completed in the Assembly Department and transferred to the next processing department. There were
12,000 units in the ending work in process inventory of the Assembly Department that were 20% complete with
respect to conversion costs.
What were the equivalent units for conversion costs in the Assembly Department for the month?
A) 83,100
B) 89,400
C) 87,000
D) 93,000
37) Pulo Corporation uses a weighted-average process costing system. The company has two processing
departments. Production starts in the Assembly Department and is completed in the Finishing Department. The
units completed and transferred out of the Assembly department during April will become the:
A) units in May's beginning work in process in Finishing.
B) units started in production in Finishing for May.
C) units started in production in Finishing for April.
D) units in April's ending work in process in Finishing.
38) Bee Company is a honey wholesaler. An income statement and other data for the second quarter of the year
are given below:

Bee Company
Income Statement
For the Quarter Ended June 30
Sales   $960,000
Cost of goods sold      420,000
Gross margin   540,000
Selling and administrative expenses:    
  Selling $200,000  
  Administrative     75,000    275,000
Net operating income    $265,000

Other data:  
Average selling price $60 per unit
Selling expenses Fixed selling expenses plus 8% of sales
Administrative expense Fixed administrative expenses plus $2 per unit

Bee Company's net operating income for the second quarter using the contribution approach is:
A) $431,200
B) $156,200
C) $685,000
D) $265,000

39) Jameson Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing
overhead to jobs. The Corporation has provided the following estimated costs for the next year:
 Direct materials $5,000
 Direct labor $19,000
 Rent on factory building $16,000
 Sales salaries $24,000
 Depreciation on factory equipment $7,000
 Indirect labor $11,000
 Production supervisor's salary $14,000
Jameson estimates that 24,000 direct labor-hours will be worked during the year. The predetermined overhead
rate per hour will be:
A) $2.79
B) $4.00
C) $3.00
D) $2.00

40) What journal entry is made in a job-order costing system when $8,000 of materials are requisitioned for
general factory use instead of for use in a particular job?
A)

 Work in Process $8,000  

    Raw Materials   $8,000

B)

 Work in Process $8,000  

     Manufacturing Overhead   $8,000

C)

 Manufacturing Overhead $8,000  

    Raw Materials   $8,000

D)

 Manufacturing Overhead $8,000  

     Work in Process   $8,000