1. Indirect labor is a part of: c. a product cost that is variable with respect to the company's output.

a. Prime cost. b. Conversion cost. c. Period cost. d. Nonmanufacturing cost. d. a period cost that is fixed with respect to the company's output.
2. The cost of lubricants used to grease a production machine in a manufacturing company is an
example of a(n): 11. The nursing station on the fourth floor of Central Hospital is responsible for the care of patients who have
a. period cost. b. direct material cost. c. indirect material cost. d.none of the above. undergone orthopedic surgery. The costs of drugs administered by the nursing station to patients would be
3. The salary paid to the president of King Company would be classified on the income statement as classified as:
a(n): a. direct costs of the patients. b. indirect costs of the patients.
a. administrative expense. b. direct labor cost. c. overhead costs of the nursing station. d. period costs of the hospital.
c. manufacturing overhead cost. d. selling expense. 12. All of the following would be classified as product costs except:
a. property taxes on production equipment. b. insurance on factory machinery.
4. Direct labor cost is a part of:
c. salaries of the advertising staff. d. wages of machine operators.
Conversion cost Prime cost
13. Product costs appear on the balance sheet:
a. No No
a. only if goods are partially completed at the end of the period.
b. No Yes b. only if goods are unsold at the end of a period.
c. Yes Yes c. only if goods are partially completed or are unsold at the end of a period.
d. Yes No d. only in merchandising firms.
5. Direct material cost is a: 14. Ross Corporation shipped finished goods to a customer on credit, but the sale was not recorded and the
Conversion cost Prime cost costs of the finished goods were incorrectly included on the period's balance sheet as part of the finished
a. No No goods inventory. Which one of the following statements is correct concerning the effects of this error?
b. No Yes a. Accounts receivable was not affected, inventory was overstated, sales were understated, and cost of
c. Yes Yes goods sold was understated.
b. Accounts receivable was understated, inventory was not affected, sales were understated, and cost of
d. Yes No
goods sold was understated.
6. Prime cost and conversion cost share what common element of total cost? c. Accounts receivable was understated, inventory was overstated, sales were understated, and cost of
a. Direct materials. b. Direct labor. goods sold was overstated.
c. variable overhead. d. Fixed overhead. d. Accounts receivable was understated, inventory was overstated, sales were understated, and cost of
7. Prime cost consists of: goods sold was understated.
a. direct labor and manufacturing overhead. 15. Data for Cost A and Cost B are as follows:
b. direct materials and manufacturing overhead. Number of
c. direct materials and direct labor. Units
d. direct materials, direct labor and manufacturing overhead. Produced Unit Cost Total Cost
8. Wages paid to a timekeeper in a factory are a: Cost A
1 ? P10
Prime cost Conversion cost 10 ? P100
a. Yes No
100 ? P1,000
b. Yes Yes
1,000 ? P10,000
c. No No
Cost B
d. No Yes
1 P5,000 ?
9. Property taxes on a company's factory building would be classified as a(n):
10 P500 ?
a. product cost. b. opportunity cost. c. period cost. d. variable cost.
10. Depreciation on a personal computer used in the marketing department of a manufacturing firm 100 P50 ?
would be classified as: 1,000 P5 ?
a. a product cost that is fixed with respect to the company's output.
b. a period cost that is fixed with respect to the company's output.
 23. Which of the following would be classified as a prevention cost on a quality cost report?
Which of the above best describes the behavior of Costs A and B? a. Disposal of defective products. b. Net cost of spoilage.
a. Cost A is fixed, Cost B is variable. c. Depreciation of test equipment. d. Technical support provided to suppliers.
b. Cost A is variable, Cost B is fixed. 24. Which of the following would be classified as a prevention cost on a quality cost report?
c. Both Cost A and Cost B are variable. a. Debugging software errors. b. Quality training.
d. Both Cost A and Cost B are fixed. c. Test and inspection of incoming materials. d. Cost of field servicing and handling complaints.
16. Fixed costs expressed on a per unit basis: 25. Which of the following would be classified as a prevention cost on a quality cost report?
a. will increase with increases in activity. a. Supplies used in testing and inspection. b. Debugging software errors.
b. will decrease with increases in activity. c. Quality improvement projects. d. Lost sales arising from a reputation for poor quality.
c. are not affected by activity. 26. Which of the following would be classified as an appraisal cost on a quality cost report?
d. should be ignored in making decisions since they cannot change. a. Final product testing and inspection. b. Net cost of spoilage.
16. The costs of staffing and operating the accounting department at Central Hospital would be considered by c. Repairs and replacements beyond the warranty period. d. Rework labor and overhead.
the Department of Surgery to be: 27. Which of the following would be classified as an appraisal cost on a quality cost report?
a. direct costs. b. indirect costs. c. incremental costs. d. opportunity costs. a. Quality improvement projects. b. Supplies used in testing and inspection.
17. A cost incurred in the past that is not relevant to any current decision is classified as a(n): c. Audits of the effectiveness of the quality system. d. Quality data gathering, analysis, and reporting.
a. period cost. b. opportunity cost. c. sunk cost. d. differential cost. 28. Which of the following would be classified as an appraisal cost on a quality cost report?
18. Differential costs can: a. Maintenance of test equipment. b. Re-entering data because of keying errors.
a. only be fixed costs. b. only be variable costs. c. Debugging software errors. d. Warranty repairs and replacements.
c. be either fixed or variable. D. be incremental but not decremental. 29. Which of the following would be classified as an internal failure cost on a quality cost report?
19. John Johnson decided to leave his former job where he earned P12 per hour to go to a new job where he a. Quality improvement projects. b. Supervision of testing and inspection activities.
will earn P13 per hour. In the decision process, the former wage of P12 per hour would be classified as a(n): c. Debugging software errors. d. Warranty repairs and replacements.
a. sunk cost. b. direct cost. c. fixed cost. d. opportunity cost. 30. Which of the following would be classified as an internal failure cost on a quality cost report?
20. The term that refers to costs incurred in the past that are not relevant to a decision is: a. Final product testing and inspection. b. Warranty repairs and replacements.
a. marginal cost. b. indirect cost. c. period cost. d. sunk cost. c. Depreciation of test equipment. d. Debugging software errors.
21. Lathe operators at KF Manufacturing are hourly employees who are paid time and a half for hours worked 31. Which of the following would be classified as an internal failure cost on a quality cost report?
in excess of 40 hours per week. Lester is a lathe operator who worked 45 hours during the current week and a. Rework labor and overhead. b. Cost of field servicing and handling complaints.
had no idle time. The correct accounting for the amounts paid to Lester would be: c. Technical support provided to suppliers. d. Lost sales arising from a reputation for poor quality.
a. charge only the overtime premium earned to the overhead account. 32. Which of the following would be classified as an external failure cost on a quality cost report?
b. charge the hourly wage earned plus the overtime premium earned to the overhead account. a. Reentering data because of keying errors. b. Customer returns arising from quality problems.
c. charge only the overtime premium earned to the direct labor cost for the project Lester was working on c. Test and inspection of in-process goods. d. Rework labor and overhead.
when the overtime was incurred. 33. Which of the following would be classified as an external failure cost on a quality cost report?
d. charge the hourly wage earned plus the overtime premium earned to the direct labor cost for the project a. Repairs and replacements beyond the warranty period.
Lester was working on when the overtime was incurred. b. Technical support provided to suppliers.
22. The controller of the recently organized Crandall Company is considering the two methods listed below for c. Quality improvement projects.
accounting for labor fringe benefits. Which of the two methods is considered acceptable? d. Rework labor and overhead.
Method A: Treat all labor fringe benefits as indirect labor by adding them in total to 34. Which of the following would be classified as an external failure cost on a quality cost report?
manufacturing overhead. a. Final product testing and inspection. b. Disposal of defective products.
Method B: Treat labor fringe benefits that relate to direct labor as additional direct labor c. Supervision of testing and inspection activities. d. Cost of field servicing and handling complaints.
cost and fringe benefits relating to indirect labor as part of manufacturing 35. Inspection of products would be classified as a(n):
overhead. a. prevention cost. b. appraisal cost.
a. Only Method A is acceptable. b. Only Method B is acceptable. c. internal failure cost. d. external failure cost.
c. Both Method A and Method B are acceptable. d. Neither Method A nor Method B is acceptable; 36. The cost of warranty repairs would be classified as a(n):
a. prevention cost. b. appraisal cost.
c. internal failure cost. d. external failure
37. The cost of quality training would be classified as a(n): 42. The following costs were incurred in February:
a. prevention cost. b. appraisal cost. c. internal failure cost. d. external failure cost. Direct materials ......................... P43,000
38. The cost of labor time required to rework defective units would be classified as a(n): Direct labor ............................... P16,000
a. prevention cost. b. appraisal cost. c. internal failure cost. d. external failure cost. Manufacturing overhead ........... P37,000
39. Which of the following is (are) categorized as internal failure cost(s)? Selling expenses ........................ P17,000
I. Rework. Administrative expenses ........... P26,000
II. Responding to customer complaints. Conversion costs during the month totaled:
III. Statistical quality control procedures. a. P59,000 b. P80,000 c. P53,000 d. P139,000
a. I only. b. II only. c. III only. d. I, II, and III. 43. The following costs were incurred in March:
Direct materials ............................. P21,000
Answer: A Level: Medium LO: 9 Source: CPA, adapted Appendix: 2B Direct labor .................................... P17,000
40. Adolphson Corporation has provided the following summary of its quality cost report for the last two years: Manufacturing overhead ................ P67,000
Selling expenses ............................ P16,000
Summary of Quality Cost Report Administrative expenses ................ P15,000
(in thousands) Conversion costs during the month totaled:
a. P88,000 b. P38,000 c. P136,000 d. P84,000
This Year Last Year % Change 44. The following costs were incurred in January:
Prevention costs .......................... P 300 P 200 +50 Direct materials ............................. P39,000
Appraisal costs ........................... 315 210 +50 Direct labor .................................... P26,000
Internal failure costs ................... 114 190 -40 Manufacturing overhead ................ P21,000
External failure costs .................. 621 1,200 -48 Selling expenses ............................ P14,000
Total quality costs ...................... P1,350 P1,800 -25 Administrative expenses ................ P27,000
Prime costs during the month totaled:
On the basis of this report, which one of the following statements is most likely correct? a. P86,000 b. P65,000 c. P47,000 d. P127,000
a. An increase in prevention and appraisal costs resulted in fewer defects, and therefore, resulted 45. The following costs were incurred in February:
in a decrease in internal and external failure costs. Direct materials ............................. P39,000
b. A decrease in internal and external failure costs resulted in less need for prevention and Direct labor .................................... P18,000
appraisal costs. Manufacturing overhead ................ P14,000
c. Quality costs such as scrap and rework decreased by 48%. Selling expenses ............................ P13,000
d. Quality costs such as returns and repairs under warranty decreased by 40%. Administrative expenses ................ P29,000
Prime costs during the month totaled:
41. The following costs were incurred in January: a. P71,000 b. P32,000 c. P113,000 d. P57,000
Direct materials ............................. P33,000 46. The following costs were incurred in March:
Direct materials ............................. P39,000
Direct labor .................................... P28,000
Direct labor .................................... P24,000
Manufacturing overhead ................ P69,000 Manufacturing overhead ................ P14,000
Selling expenses ............................ P16,000 Selling expenses ............................ P11,000
Administrative expenses ................ P21,000 Administrative expenses ................ P19,000
Conversion costs during the month totaled: Prime costs during the month totaled:
a. P97,000 b. P167,000 c. P102,000 d. P61,000 a. P63,000 b. P107,000 c. P38,000 d. P77,000
47. Aable Company's manufacturing overhead is 20% of its total conversion costs. If direct labor is P45,000
and if direct materials are P53,000, the manufacturing overhead is:
a. P11,250 b. P13,250 c. P180,000 d. P24,500
48. Abair Company's manufacturing overhead is 20% of its total conversion costs. If direct labor is P38,000
and if direct materials are P35,000, the manufacturing overhead is: 60. A manufacturing company has provided the following cost data for a recent period:
a. P18,250 b. P9,500 c. P8,750 d. P152,000 Direct materials ............................................... P8,000
49. Abbey Company's manufacturing overhead is 60% of its total conversion costs. If direct labor is P35,000 Manufacturing overhead .................................. P12,000
and if direct materials are P55,000, the manufacturing overhead is: Direct labor ...................................................... P10,000
a. P135,000 b. P23,333 c. P82,500 d. P52,500 Increase in work-in-process ............................. P4,000
50. During the month of January, direct labor cost totaled P17,000 and direct labor cost was 60% of prime Prime cost for the period was:
cost. If total manufacturing costs during January were P82,000, the manufacturing overhead was: a. P18,000 b. P26,000 c. 30,000 d. P34,000
a. P11,333 b. P53,667 c. P28,333 d. P65,000 61. A manufacturing company prepays its insurance coverage for a three-year period. The premium for the
51. During the month of February, direct labor cost totaled P13,000 and direct labor cost was 40% of prime three years is P3,000 and is paid at the beginning of the first year. Three-fourths of the premium applies to
cost. If total manufacturing costs during February were P80,000, the manufacturing overhead was: factory operations and one-fourth applies to selling and administrative activities. What amounts should be
a. P32,500 b. P19,500 c. P67,000 d. P47,500 considered product and period costs respectively for the first year of coverage?
52. During the month of March, direct labor cost totaled P17,000 and direct labor cost was 70% of prime cost. Product Period
If total manufacturing costs during March were P88,000, the manufacturing overhead was: a. P1,000 P0
a. P24,286 b. P71,000 c. P63,714 d. P7,286 b. P250 P750
53. Knowel Company's direct labor is 40 percent of its conversion cost. If the manufacturing overhead cost for c. P2,250 P750
the last period was P60,000 and the direct materials cost was P30,000, the direct labor cost was: d. P750 P250
a. P90,000 b. P20,000 c. P60,000 d. P40,000 62. Last month a manufacturing company had the following operating results:
54. In January direct labor was 40% percent of conversion cost. If the manufacturing overhead cost for the
month was P78,000 and the direct materials cost was P22,000, the direct labor cost was: Beginning finished goods inventory ................ P72,000
a. P14,667 b. P52,000 c. P33,000 d. P117,000 Ending finished goods inventory ..................... P66,000
55. In February direct labor was 60% percent of conversion cost. If the manufacturing overhead cost for the Sales ................................................................. P465,000
month was P78,000 and the direct materials cost was P22,000, the direct labor cost was: Gross margin ................................................... P88,000
a. P52,000 b. P14,667 c. P117,000 d. P33,000 What was the cost of goods manufactured for the month?
56. In March direct labor was 60% percent of conversion cost. If the manufacturing overhead cost for the a. P371,000 b. P459,000 c. P383,000 d. P377,000
month was P38,000 and the direct materials cost was P32,000, the direct labor cost was: 63. Last month a manufacturing company had the following operating results:
a. P21,333 b. P48,000 c. P25,333 d. P57,000 Beginning finished goods inventory ............ P74,000
57. Crossland Company's direct labor cost is 30% of its conversion cost. If the manufacturing overhead cost Ending finished goods inventory ................. P50,000
for the last period was P49,000 and the direct materials cost was P20,000, the direct labor cost was: Sales ............................................................. P438,000
a. P 6,000 b. P14,700 c. P21,000 d. P34,000 Gross margin ................................................ P63,000
58. CF Company manufactures wooden rocking chairs. CF identified the following three material costs in its What was the cost of goods manufactured for the month?
production process for July: P100,000 for springs for the rocking mechanism; two springs at a cost of P10 a. P375,000 b. P414,000 c. P399,000 d. P351,000
each are used in each chair; P1,700 for glue used as needed from one gallon containers; and P500 for 64. Gabert Inc. is a merchandising company. Last month the company's merchandise purchases totaled
stain used to touch up spots on the chairs. The total cost that should have been assigned to indirect P68,000. The company's beginning merchandise inventory was P17,000 and its ending merchandise
material for July was: inventory was P13,000. What was the company's cost of goods sold for the month?
a. P102,200 b. P500 c. P2,200 d. P1,700 a. P72,000 b. P68,000 c. P98,000 d. P64,000
59. Fab Co. manufactures textiles. Fab's manufacturing costs last year included the following salaries and 65. Haag Inc. is a merchandising company. Last month the company's cost of goods sold was P86,000. The
wages: company's beginning merchandise inventory was P20,000 and its ending merchandise inventory was
Loom operators .......................... P120,000 P21,000. What was the total amount of the company's merchandise purchases for the month?
Factory foremen ........................ P45,000 a. P86,000 b. P127,000 c. P87,000 d. P85,000
Machinery repairmen ................ P30,000 66. During February, the cost of goods manufactured was P83,000. The beginning finished goods inventory
What is the amount of direct labor included in this list? was P14,000 and the ending finished goods inventory was P13,000. What was the cost of goods sold for
a. P195,000 b. P165,000 c. P150,000 d. P120,000 the month?
a. P83,000 b. P110,000 c. P82,000 d. P84,000
67. During March, the cost of goods manufactured was P62,000. The beginning finished goods inventory was 70. Using the following data for March, calculate the cost of goods manufactured:
P11,000 and the ending finished goods inventory was P19,000. What was the cost of goods sold for the Direct materials ...................................................... P29,000
month? Direct labor ............................................................ P19,000
a. P70,000 b. P92,000 c. P54,000 d. P62,000 Manufacturing overhead ........................................ P27,000
68. The following information is taken from the records of CL Company for last year: Beginning work in process inventory .................... P11,000
Ending work in process inventory ......................... P12,000
Direct materials ..................................................... P5,000 The cost of goods manufactured was:
Manufacturing overhead ........................................ P6,000 a. P74,000 b. P86,000 c. P76,000 d. P75,000
Total manufacturing costs ..................................... P17,000 71. Jacobs is employed as a machinist for an aircraft manufacturer. She is paid P15 per hour for regular time
Beginning work in process inventory .................... P1,000 and time and a half for all work in excess of 40 hours per week. During the past week, Jacobs was idle for
Cost of goods manufactured .................................. P15,000 two hours due to machine breakdowns and was idle four hours due to materials shortages. Jacobs
What are the correct amounts for direct labor and ending work in process inventory? worked 40 hours last week with no overtime. The allocation of Jacobs' wages for the past week between
direct labor cost and manufacturing overhead cost would be:
Direct Labor Ending Work in Direct Labor Manufacturing
Process Overhead
a. P12,000 P2,000 a. P600 P0
b. P11,000 P2,000 b. P570 P30
c. P6,000 P1,000 c. P540 P60
d. P6,000 P3,000 d. P510 P90

69. The following information is taken from the records of DW Company for last year: 72. Johnson is employed on the assembly line of a manufacturing company where he assembles a
component part for one of the company's products. He is paid P14 per hour for regular time and time and
Direct materials ............................................. P8,000 a half for all work in excess of 40 hours per week. During the past week, Johnson worked a total of 50
Direct labor ................................................... P3,000 hours and had no idle time. The allocation of Johnson's wages for the past week between direct labor
Manufacturing overhead ............................... P11,000 cost and manufacturing overhead cost would be:
Ending work in process inventory ................ P5,000
Cost of goods manufactured ......................... P19,000 Manufacturing
The amount of beginning work in process inventory is: Direct Labor Overhead
a. P24,000 a. P770 P0
b. P2,000 b. P700 P70
c. P22,000
c. P560 P210
d. P3,000
Using the following data for February, calculate the cost of goods manufactured: d. P560 P0
Direct materials ...................................................... P36,000
Direct labor ............................................................ P20,000 Use the following to answer questions 73-74:
Manufacturing overhead ........................................ P19,000
Beginning work in process inventory .................... P10,000 Clyde Company has provided the following data for the month of November:
Ending work in process inventory ......................... P13,000
The cost of goods manufactured was: Inventories November 1 November 30
a. P78,000 b. P85,000 c. P72,000 d. P75,000 Raw materials ...................... P17,000 ?
Work in process ................... P14,000 P12,000
Finished goods .................... ? P9,000