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Chapter 7
Variable Costing: A Tool for Management
True/False
1. In the preparation of financial statements using variable costing,

T fixed manufacturing overhead is treated as a period cost.
Easy
2. Direct labor is always considered to be a product cost under variable

F costing.
Hard
3. Under variable costing, the unit product cost contains some fixed
F manufacturing overhead cost.
Medium
4. Under variable costing it may be possible to report a profit even if

F the company sells less than the breakeven volume of sales.
Medium
5. Under variable costing, the impact of fixed cost is emphasized because

T the total amount of such cost for the period appears in the income
Easy statement.
6. Absorption costing treats fixed manufacturing overhead as a period

F cost, rather than as a product cost.
Easy
7. The unit product cost under absorption costing contains no element of

F fixed manufacturing overhead cost.
Medium
8. Absorption costing treats all manufacturing costs as product costs.

T
Easy
9. When the number of units in work in process and finished goods

T inventories increase, absorption costing net income will typically be
Easy greater than variable costing net income.
10. When sales exceeds production for a period, absorption costing net
F income will generally be greater than variable costing net income.
Easy
Managerial Accounting, 9/e 221

11. Absorption costing net income is closer to the net cash flow of a
F period than is variable costing net income.
Medium
12. Variable costing is not permitted for income tax purposes, but it is
F widely accepted for external financial reports.
Medium
13. Net income is not affected by changes in production when absorption

F costing is used.
Medium
14. When JIT methods are introduced, the difference in net income computed
T under the absorption and variable costing methods is reduced.
Easy
15. Since variable costing emphasizes costs by behavior, it works well

T with costvolumeprofit analysis.
Easy
Multiple Choice
16. A cost that would be included in product costs under both absorption
C costing and variable costing would be:
Easy a. supervisory salaries.
b. equipment depreciation.
c. variable manufacturing costs.
d. variable selling expenses.
17. An allocated portion of fixed manufacturing overhead is included in

C product costs under:
Easy
CPA Absorption Variable
costing costing
adapted
a. No No
b. No Yes
c. Yes No
d. Yes Yes
18. The variable costing method ordinarily includes in product costs the
B following:
Medium a. Direct materials cost, direct labor cost, but no manufacturing
CPA overhead cost.
b. Direct materials cost, direct labor cost, and variable
adapted
manufacturing overhead cost.
c. Prime cost but not conversion cost.
d. Prime cost and all conversion cost.
222Managerial Accounting, 9/e

19. Cay Company's fixed manufacturing overhead costs totaled $100,000, and
D variable selling costs totaled $80,000. Under variable costing, how
Easy should these costs be classified?
Period costs Product costs

a. $0 $180,000
b. $80,000 $100,000
c. $100,000 $80,000
d. $180,000 $0
20. Which of the following are considered to be product costs under

A variable costing?
Easy
I. Variable manufacturing overhead.
II. Fixed manufacturing overhead.
III. Selling and administrative expenses.
a. I.
b. I and II.
c. I and III.
d. I, II, and III.
21. What factor is the cause of the difference between net income as
B computed under absorption costing and net income as computed under
Medium variable costing?
CPA a. Absorption costing considers all manufacturing costs in the
adapted determination of net income, whereas variable costing considers
only prime costs.
b. Absorption costing allocates fixed manufacturing costs between
cost of goods sold and inventories, and variable costing considers
all fixed manufacturing costs as period costs.
c. Absorption costing includes all variable manufacturing costs in
product costs, but variable costing considers variable
manufacturing costs to be period costs.
d. Absorption costing includes all fixed manufacturing costs in
product costs, but variable costing expenses all fixed
manufacturing costs.
22. Under variable costing, costs which are treated as period costs
C include:
Easy a. only fixed manufacturing costs.
b. both variable and fixed manufacturing costs.
c. all fixed costs.
d. only fixed selling and administrative costs.

23. Which of the following statements is true for a firm that uses
C variable costing?
Medium a. The unit product cost changes as a result of changes in the
number of units manufactured.
b. Both variable selling costs and variable production costs are
included in the unit product cost.
c. Net income moves in the same direction as sales.
d. Net income is greatest in periods when production is highest.
24. Which of the following are considered to be product costs under

B absorption costing?
Easy
I. Variable manufacturing overhead.
II. Fixed manufacturing overhead.
III. Selling and administrative expenses.
a. I, II, and III.

b. I and II.
c. I and III.
d. I.
25. The term "gross margin" for a manufacturing company refers to the
C excess of sales over
Easy a. cost of goods sold, excluding fixed manufacturing overhead.
b. all variable costs, including variable selling and
administrative expenses.
c. cost of goods sold, including fixed manufacturing overhead.
d. variable costs, excluding variable selling and administrative
expenses.
26. Net income determined using full absorption costing can be reconciled
A to net income determined using variable costing by computing the
Medium difference between:
CPA a. Fixed manufacturing overhead costs deferred in or released from
adapted inventories.
b. Inventoried discretionary costs in the beginning and ending
inventories.
c. Gross margin (absorption costing method) and contribution
margin (variable costing method).
d. Sales as recorded under the variable costing method and sales as
recorded under the absorption costing method.
27. Net income reported under absorption costing will exceed net income
B reported under variable costing for a given period if:
Medium a. production equals sales for that period.
CMA b. production exceeds sales for that period.
adapted c. sales exceed production for that period.
d. the variable manufacturing overhead exceeds the fixed
manufacturing overhead.

28. What will be the difference in net income between variable costing and
D absorption costing if the number of units in work in process and
Medium finished goods inventories increase?
CPA a. There will be no difference in net income.
adapted b. Net income computed using variable costing will be higher.
c. The difference in net income cannot be determined from the
information given.
d. Net income computed using variable costing will be lower.
29. The costing method that can be used most easily with breakeven
A analysis and other costvolumeprofit techniques is:
Easy a. variable costing.
b. absorption costing.
c. process costing.
d. joborder costing.
30. For the most recent year, Atlantic Company's net income computed by
C the absorption costing method was $7,400, and its net income computed
Hard by the variable costing method was $10,100. The company's unit product
cost was $17 under variable costing and $22 under absorption costing.
If the ending inventory consisted of 1,460 units, the beginning
inventory must have been:
a. 920 units.
b. 1,460 units.
c. 2,000 units.
d. 12,700 units.
31. During the most recent year, Evans Company had a net income of $90,000
B using absorption costing and $84,000 using variable costing. The fixed
Hard overhead application rate was $6 per unit. There were no beginning
inventories. If 22,000 units were produced last year, then sales for
last year were:
a. 15,000 units.
b. 21,000 units.
c. 23,000 units.
d. 28,000 units.
32. During the year just ended, Roberts Company' income under absorption
D costing was $3,000 lower than its income under variable costing. The
Hard company sold 9,000 units during the year, and its variable costs were
$9 per unit, of which $3 was variable selling expense. If production
cost is $11 per unit under absorption costing every year, then how
many units did the company produce during the year?
a. 8,000.
b. 10,000.
c. 9,600.
d. 8,400.

33. Last year, Silver Company's variable production costs totaled $7,500
C and its fixed manufacturing overhead costs totaled $4,500. The company
Hard produced 3,000 units during the year and sold 2,400 units. There were
no units in the beginning inventory. Which of the following statements
is true?
a. Under variable costing, the units in the ending inventory will
be costed at $4 each.
b. The net income under absorption costing for the year will be $900
lower than the net income under variable costing.
c. The ending inventory under variable costing will be $900
lower than the ending inventory under absorption costing.
d. Under absorption costing, the units in ending inventory will be
costed at $2.50 each.
34. During the last year, Hansen Company had net income under absorption
D costing that was $5,500 lower than its income under variable costing.
Hard The company sold 9,000 units during the year, and its variable costs
were $10 per unit, of which $6 was variable selling expense. If fixed
production cost is $5 per unit under absorption costing every year,
then how many units did the company produce during the year?
a. 7,625 units.
b. 8,450 units.
c. 10,100 units.
d. 7,900 units.
35. Indiana Corporation produces a single product that it sells for $9 per
B unit. During the first year of operations, 100,000 units were produced
Medium and 90,000 units were sold. Manufacturing costs and selling and
CMA administrative expenses for the year were as follows:
adapted
Fixed Costs Variable Costs
Raw materials ............ $1.75 per unit produced
Direct labor ............. 1.25 per unit produced
Factory overhead ......... $100,000 0.50 per unit produced
Selling and administrative 70,000 0.60 per unit sold
What was Indiana Corporation's net income for the year using variable
costing?
a. $181,000.
b. $271,000.
c. $281,000.
d. $371,000.

36. Last year, fixed manufacturing overhead was $30,000, variable
C production costs were $48,000, fixed selling and administration costs
Medium were $20,000, and variable selling administrative expenses were
$9,600. There was no beginning inventory. During the year, 3,000 units
were produced and 2,400 units were sold at a price of $40 per unit.
Under variable costing, net income would be:
a. a profit of $6,000.
b. a profit of $4,000.
c. a loss of $2,000.
d. a loss of $4,400.
37. West Co.'s manufacturing costs are as follows:

D
Easy Direct materials and direct labor ....... $700,000
CPA Other variable manufacturing costs ...... 100,000
adapted Depreciation of factory building and
manufacturing equipment ............. 80,000
Other fixed manufacturing overhead ...... 18,000
What amount should be considered product costs for external reporting

purposes?
a. $700,000.
b. $800,000.
c. $880,000.
d. $898,000.
38. At the end of last year, Lee Company had 30,000 units in its ending
C inventory. Lee's variable production costs are $10 per unit and its
Hard fixed manufacturing overhead costs are $5 per unit every year. The
company's net income for the year was $12,000 higher under variable
costing than under absorption costing. Given these facts, the number
of units of product in inventory at the beginning of the year must
have been:
a. 28,800 units.
b. 27,600 units.
c. 32,400 units.
d. 42,000 units.
39. During the last year, Moore Company's variable production costs
B totaled $10,000 and its fixed manufacturing overhead costs totaled
Medium $6,800. The company produced 5,000 units during the year and sold
4,600 units. There were no units in the beginning inventory. Which of
the following statements is true?
a. The net income under absorption costing for the year will be $800
higher than net income under variable costing.
b. The net income under absorption costing for the year will be $544
higher than net income under variable costing.
c. The net income under absorption costing for the year will be $544
lower than net income under variable costing.
d. The net income under absorption costing for the year will be $800
lower than net income under variable costing.

40. Last year, Ben Company's income under absorption costing was $4,400
B lower than its income under variable costing. The company sold 8,000
Hard units during the year, and its variable costs were $8 per unit, of
which $3 was variable selling expense. Fixed manufacturing overhead
was $1 per unit in beginning inventory under absorption costing. How
many units did the company produce during the year?
a. 12,400 units.
b. 3,600 units.
c. 7,120 units.
d. 7,450 units.
41. Last year, Stephen Company had 20,000 units in its ending inventory.
C During the year, Stephen's variable production costs were $12 per
Hard unit. The fixed manufacturing overhead cost was $8 per unit in the
beginning inventory. The company's net income for the year was $9,600
higher under variable costing than it was under absorption costing.
Given these facts, the number of units of product in the beginning
inventory last year must have been:
a. 21,200.
b. 19,200.
c. 18,800.
d. 19,520.
Reference: 71
Aaker Company, which has only one product, has provided the following data concerning
its most recent month of operations:
Selling price ............................ $99
Units in beginning inventory ............. 0

Units produced ........................... 6,300
Units sold ............................... 6,000
Units in ending inventory ................ 300
Variable costs per unit:

Direct materials ....................... $12
Direct labor ........................... 42
Variable manufacturing overhead ........ 6
Variable selling and administrative .... 6
Fixed costs:
Fixed manufacturing overhead ........... $170,100
Fixed selling and administrative ....... 24,000

42. What is the unit product cost for the month under variable costing?
D a. $66
Easy b. $93
Refer To: c. $87
71 d. $60
43. What is the unit product cost for the month under absorption costing?
A a. $87
Easy b. $60
Refer To: c. $66
71 d. $93
44. The total contribution margin for the month under the variable costing
D approach is:
Medium a. $72,000.
Refer To: b. $27,900.
71 c. $234,000.
d. $198,000.
45. The total gross margin for the month under the absorption costing
C approach is:
Medium a. $98,100.
Refer To: b. $198,000.
71 c. $72,000.
d. $12,000.
46. What is the total period cost for the month under the variable costing
A approach?
Hard a. $230,100
Refer To: b. $194,100
71 c. $170,100
d. $60,000
47. What is the total period cost for the month under the absorption
B costing approach?
Hard a. $170,100
Refer To: b. $60,000
71 c. $230,100
d. $24,000
48. What is the net income for the month under variable costing?
B a. $8,100
Medium b. $3,900
Refer To: c. $12,000
71 d. ($14,100)

49. What is the net income for the month under absorption costing?
C a. $3,900
Medium b. ($14,100)
71 d. $8,100
Reference: 72
Last year, Walsh Company manufactured 25,000 units and sold 22,000 units. Production
costs were as follows:
Direct material .................. $100,000

Direct labor ..................... 75,000
Variable manufacturing overhead .. 50,000
Fixed manufacturing overhead ..... 75,000
Sales totaled $440,000, variable selling and administrative expenses were $110,000,
and fixed selling and administrative expenses were $45,000. There was no beginning
inventory. Assume that direct labor is a variable cost.
50. Under absorption costing, the unit product cost would be:
B a. $9.00.
Easy b. $12.00.
Refer To: c. $13.40.
72 d. $14.00.
51. Under absorption costing, the gross margin would be:

A a. $176,000.
Medium b. $242,000.
Refer To: c. $ 66,000.
72 d. $ 21,000.
52. The contribution margin per unit would be:

D a. $15.00.
Medium b. $11.00.
Refer To: c. $ 8.00.
72 d. $ 6.00.
53. Under variable costing, the total amount of fixed manufacturing cost
A in the ending inventory would be:
Easy a. $ 0.
Refer To: b. $ 9,000.
72 c. $14,400.
d. $27,000.
54. The net income under variable costing would be:

C a. $ 2,000.
Medium b. $21,000.
Refer To: c. $12,000.
72 d. $ 9,000.

55. The net income under absorption costing would be:
D a. $ 9,000.
Medium b. $12,000.
Refer To: c. $ 2,000.
72 d. $21,000.
Reference: 73
Farron Company, which has only one product, has provided the following data
concerning its most recent month of operations:
Selling price ............................ $92

Units produced ........................... 8,700
Units sold ............................... 8,300

Direct labor ........................... 55
Fixed costs:
A a. $69
Easy b. $84
Refer To: c. $89
73 d. $74
D a. $74
Easy b. $89
Refer To: c. $69
73 d. $84
A a. $10,600
Medium b. ($17,000)
73 d. $6,000

B a. ($17,000)
Medium b. $16,600
Refer To: c. $6,000
73 d. $10,600
Reference: 74
Jarvix Company, which has only one product, has provided the following data
Selling price ............................ $111

Units produced ........................... 8,800
Units sold ............................... 8,900

Direct labor ........................... 37
Fixed costs:
Fixed manufacturing overhead ........... $ 61,600
The company produces the same number of units every month, although the sales in
units vary from month to month. The company's variable costs per unit and total fixed
costs have been constant from month to month.
B a. $83
Medium b. $74
Refer To: c. $90
74 d. $81
C a. $90
Medium b. $74
Refer To: c. $81
74 d. $83
D a. $25,900
Medium b. $2,100
74 d. $18,500

D a. $2,100
Medium b. $25,900
74 d. $17,800
Reference: 75
Hatfield Company, which has only one product, has provided the following data
Selling price ............................ $123

Units produced ........................... 6,400
Units sold ............................... 6,100

Direct labor ........................... 30
Fixed costs:
C a. $98
Easy b. $84
Refer To: c. $76
75 d. $106
A approach is:
Medium a. $237,900.
Refer To: b. $97,100.
75 c. $152,500.
d. $286,700.
D approach?
Hard a. $140,300
Refer To: b. $140,800
75 c. $232,300
d. $281,100

B a. $6,600
Medium b. $5,600
Refer To: c. ($17,200)
75 d. $12,200
Reference: 76
Iancu Company, which has only one product, has provided the following data concerning
Selling price ............................ $149

Units produced ........................... 4,200
Units sold ............................... 3,900

Direct labor ........................... 46
Fixed costs:
C a. $124
Easy b. $115
Refer To: c. $78
76 d. $87
B a. $27,300
Medium b. $16,200
Refer To: c. ($7,200)
76 d. $11,100

Reference: 77
The Pacific Company manufactures a single product. The following data relate to the
year just completed:
Variable cost per unit:

Production .................... $43
Selling and administrative .... $15
Fixed costs in total:

Production .................... $145,000
Selling and administrative .... $ 95,000
During the last year, 5,000 units were produced and 4,800 units were sold. There were
no beginning inventories.
70. Under variable costing, the unit product cost would be:
D a. $91.00.
Easy b. $72.00.
77 d. $43.00.
71. The carrying value of finished goods inventory at the end of the year
C under variable costing would be:
Medium a. $8,800 greater than under absorption costing.
Refer To: b. $8,800 less than under absorption costing.
77 c. $5,800 less than under absorption costing.
d. The same as absorption costing.
72. Under absorption costing, the cost of goods sold for the year would
B be:
Medium a. $206,400.
Refer To: b. $345,600.
77 c. $278,400.
d. $360,000.

Reference: 78
Crystal Company's variable costing income statement for the month of May appears
below:
Crystal Company
Income Statement
For the month ended May 31
Sales ($10 per unit) .............. $900,000

Less variable costs:
Variable cost of goods sold:
Beginning inventory ......... $125,000
Add variable cost of goods
manufactured .............. 400,000
Goods available for Sale .... 525,000
Less ending inventory ....... 75,000
Variable cost of goods sold . 450,000
Variable selling expense ..... 90,000
Total variable costs ..... 540,000
Contribution margin ............... 360,000
Fixed costs:
Fixed manufacturing overhead ... 240,000
Fixed selling and admin. ....... 90,000
Total fixed costs ........ 330,000
Net income ........................ $ 30,000
The company produces 80,000 units each month. Variable production costs per unit and
total fixed costs have remained constant over the past several months.
73. The dollar value of the company's inventory on May 31 under the
A absorption costing method would be:
Hard a. $120,000.
Refer To: b. $ 90,000.
78 c. $ 75,000.
d. $ 60,000.
74. Under absorption costing, for the month ended May 31, the company
B would report a:
Hard a. $30,000 loss.
Refer To: b. $0 profit.
78 c. $30,000 profit.
d. $60,000 profit.

Reference: 79
The following data were provided by Green Enterprises for the most recent period:
Units in beginning inventory ........ 0

Units produced ...................... 8,000
Units sold .......................... 6,000

Manufacturing ..................... $15
Selling and administrative ........ 5
Fixed costs, in total:
Manufacturing ..................... $24,000
Selling and administrative ........ 16,000
75. Under variable costing, the unit product cost is:

C a. $20.
Easy b. $18.
Refer To: c. $15.
79 d. $22.
76. Under absorption costing, the unit product cost is:

B a. $20.
Easy b. $18.
Refer To: c. $15.
79 d. $25.
77. For the period above, one would expect the net income under absorption
A costing to be:
Easy a. higher than the net income under variable costing.
Refer To: b. lower than the net income under variable costing.
79 c. the same as the net income under variable costing.
d. The relation between absorption costing net income and variable
costing net income cannot be determined.
Reference: 710
The following data pertain to one month's operations of Whitney, Inc.:
Units in beginning inventory ....... 0

Units produced ..................... 9,000
Units sold ......................... 8,000

Manufacturing .................... $10
Selling and administrative ....... 6
Manufacturing .................... $18,000
Selling and administrative ....... 27,000

78. The carrying value on the balance sheet of the ending finished goods
B inventory under variable costing would be:
Easy a. $16,000.
Refer To: b. $10,000.
710 c. $19,000.
d. $12,000.
C inventory under absorption costing would be:
Easy a. $16,000.
Refer To: b. $10,000.
710 c. $12,000.
d. $21,000.
80. For the month referred to above, net income under variable costing
B will be:
Medium a. higher than net income under absorption costing.
Refer To: b. lower than net income under absorption costing.
710 c. the same as net income under absorption costing.
d. The relation between variable costing and absorption costing net
income cannot be determined.
Reference: 711
Bateman Company, which has only one product, has provided the following data
Selling price ............................ $117

Units produced ........................... 4,700
Units sold ............................... 4,400

Direct labor ........................... 38
Fixed costs:
D a. $89
Easy b. $97
Refer To: c. $108
711 d. $78
A a. $97
Easy b. $108
Refer To: c. $78
711 d. $89
Reference: 712

During the last year, Snyder Co. produced 10,000 units of Product S. Costs incurred
by Snyder during the year were as follows:
Direct materials ................... $11,000

Direct labor ....................... 21,000
Variable manufacturing overhead .... 6,100
Variable selling and general ....... 3,100
Fixed manufacturing overhead ....... 9,000
Fixed selling and general .......... 4,100
Total .............................. $54,300
83. The unit product cost under absorption costing would have been:
C a. $5.43.
Medium b. $3.81.
Refer To: c. $4.71.
712 d. $4.12.
84. The unit product cost under variable costing would have been:
B a. $3.20.
Medium b. $3.81.
Refer To: c. $4.12.
712 d. $3.51.
Reference: 713
During the past year, Carr Company manufactured 25,000 units and sold 20,000 units.
Production costs for the year were as follows:
Fixed manufacturing overhead ...... $250,000

Variable manufacturing overhead ... $210,000
Direct labor ...................... $120,000
Direct materials .................. $180,000
Sales totaled $850,000, variable selling expenses totaled $110,000, and fixed selling
and administrative expenses totaled $170,000. There were no units in beginning
inventory. Assume that direct labor is a variable cost.
85. The contribution margin per unit would be:

D a. $12.10.
Medium b. $22.10.
713 d. $16.60.
86. Under absorption costing, the ending inventory for the year would be
D valued at:
Medium a. $179,500.
Refer To: b. $213,500.
713 c. $222,000.
d. $152,000.
87. The net income for the year under variable costing would be:
C a. $28,000 lower than under absorption costing.
Medium b. $28,000 higher than under absorption costing.
Refer To: c. $50,000 lower than under absorption costing.
713 d. $50,000 higher than under absorption costing.
Reference: 714

Last year, Harris Company manufactured 17,000 units and sold 13,000 units. Production
costs for the year were as follows:
Direct materials...................... $153,000

Direct labor.......................... 110,500
Variable manufacturing overhead....... 204,000
Fixed manufacturing overhead.......... 255,000
Sales were $780,000 for the year, variable selling and administrative expenses were
$88,400, and fixed selling and administrative expenses were $170,000. There was no
beginning inventory. Assume that direct labor is a variable cost.
88. The contribution margin per unit was:

D a. $17.50.
Medium b. $32.50.
714 d. $25.70.
89. Under absorption costing, the carrying value on the balance sheet of
B the ending inventory for the year would be:
Medium a. $190,800.
Refer To: b. $170,000.
714 c. $230,800.
d. $ 0.
90. Under variable costing, the company's net income for the year would
d be:
Hard a. $60,000 higher than under absorption costing.
Refer To: b. $108,000 higher than under absorption costing.
714 c. $108,000 lower than under absorption costing.
d. $60,000 lower than under absorption costing.

Reference: 715
Fahey Company manufactures a single product which it sells for $25 per unit. The
company has the following cost structure:

Manufacturing .................... $9
Selling and Administrative ....... 3
Manufacturing .................... $72,000
Selling and Administrative ....... 54,000
There were no units in beginning inventory. During the year, 18,000 units were
produced and 15,000 units were sold.
C a. $ 9.
Easy b. $12.
Refer To: c. $13.
715 d. $16.
92. The company's net income for the year under variable costing would be:
D a. $60,000.
Medium b. $81,000.
Refer To: c. $57,000.
715 d. $69,000.
Reference: 716
Erie Company manufactures a single product. Assume the following data for the year
just completed:

Selling and Administrative ... $60,000
Production ................... $82,500

Selling and Administrative ... $5
Production ................... $8
There were no units in inventory at the beginning of the year. During the year 30,000
units were produced and 25,000 units were sold. Each unit sells for $35.
D a. $8.
Easy b. $17.75.
Refer To: c. $13.
716 d. $10.75.

94. The company's net income under variable costing would be:
A a. $407,500.
Medium b. $421,250.
Refer To: c. $431,250.
716 d. $417,500.
Reference: 717
Chown Company, which has only one product, has provided the following data concerning
Selling price ............................ $110

Units produced ........................... 8,000
Units sold ............................... 7,800

Direct labor ........................... 31
Fixed costs:
B approach is:
Medium a. $179,400.
Refer To: b. $390,000.
717 c. $421,200.
d. $142,000.
B approach is:
Medium a. $196,800.
Refer To: b. $179,400.
717 c. $390,000.
d. $7,800.

Reference: 718
Delvin Company, which has only one product, has provided the following data
Selling price ............................ $120

Units produced ........................... 1,800
Units sold ............................... 1,500

Direct labor ........................... 42
Fixed costs:
B approach?
Hard a. $42,000
Refer To: b. $49,200
718 c. $35,700
d. $7,200
A costing approach?
Hard a. $42,000
Refer To: b. $7,200
718 c. $49,200
d. $28,500

Reference: 719
Gabbert Company, which has only one product, has provided the following data
Selling price ............................ $90

Units produced ........................... 3,600
Units sold ............................... 3,400

Direct labor ........................... 11
Fixed costs:
D approach is:
Medium a. $62,800.
Refer To: b. $95,200.
719 c. $183,600.
d. $156,400.
A approach is:
Medium a. $95,200.
Refer To: b. $156,400.
719 c. $6,800.
d. $107,600.
D approach?
Hard a. $93,600
Refer To: b. $154,800
719 c. $88,400
d. $182,000
A costing approach?
Hard a. $88,400
Refer To: b. $182,000
719 c. $61,200
d. $93,600

Reference: 720
Gordon Company produces a single product that sells for $10 per unit. Last year there
were no beginning inventories, 100,000 units were produced, and 80,000 units were
sold. The company has the following cost structure:
Fixed costs Variable costs

Raw materials................ $2.00 per unit produced
Direct labor................. 1.25 per unit produced
Factory overhead............. $120,000 0.75 per unit produced
Selling and administrative... 70,000 1.00 per unit sold
103. Net income under variable costing would be:

B a. $114,000.
Medium b. $210,000.
Refer To: c. $234,000.
720 d. $330,000.
B inventory under absorption costing would be:
Medium a. $ 80,000.
Refer To: b. $104,000.
720 c. $110,000.
d. $124,000.
Reference: 721
Elliot Company, which has only one product, has provided the following data
Selling price ............................ $112

Units produced ........................... 4,900
Units sold ............................... 4,500

Direct labor ........................... 45
Fixed costs:
D a. $18,000
Medium b. ($19,600)
Refer To: c. $9,600
721 d. $8,400
D a. ($19,600)
Medium b. $9,600
Refer To: c. $8,400
721 d. $18,000

Reference: 722
Khanam Company, which has only one product, has provided the following data
Selling price ............................ $97

Units produced ........................... 8,400
Units sold ............................... 8,500

Direct labor ........................... 37
Fixed costs:
Fixed manufacturing overhead ........... $ 67,200
The company produces the same number of units every month, although the sales in
units vary from month to month. The company's variable costs per unit and total fixed
costs have been constant from month to month.
B a. $8,500
Medium b. $9,300
Refer To: c. $3,200
722 d. $15,100
A a. $8,500
Medium b. $9,300
Refer To: c. $3,200
722 d. $15,100

Reference: 723
DeAnne Company's variable costing income statement for August appears below:
DeAnne Company
Income Statement
For the month ended August 31
Sales ($15 per unit) ................ $600,000

Less variable costs:
Beginning inventory .............. $ 72,000
Add variable cost of
goods manufactured ............. 315,000
Goods available for sale ......... 387,000
Less ending inventory ............ 27,000
Variable cost of goods sold ...... 360,000
Variable selling expense ......... 80,000
Total variable costs .......... 440,000
Contribution margin ................. 160,000
Fixed costs:
Fixed manufacturing .............. 105,000
Fixed selling and administrative . 35,000
Total fixed costs ............. 140,000
Net income .......................... $ 20,000
The company produces 35,000 units each month. Variable production costs per unit and
total fixed costs have remained constant over the past several months.
109. The dollar value of the company's inventory on August 31 under the
C absorption costing method would be:
Hard a. $27,000.
Refer To: b. $42,000.
723 c. $36,000.
d. $47,000.
110. Under absorption costing, for the month ended August 31, the company
D would report a:
Hard a. $20,000 profit.
Refer To: b. $ 5,000 loss.
723 c. $35,000 profit.
d. $ 5,000 profit.

Essay
111. Lee Company, which has only one product, has provided the following data
Hard concerning its most recent month of operations:
Selling price ............................ $95

Units produced ........................... 6,200
Units sold ............................... 5,900

Direct labor ........................... 28
Fixed costs:
The company produces the same number of units every month, although the
sales in units vary from month to month. The company's variable costs
per unit and total fixed costs have been constant from month to month.
Required:
a. What is the unit product cost for the month under variable
costing?
b. What is the unit product cost for the month under absorption
costing?
c. Prepare an income statement for the month using the contribution
format and the variable costing method.
d. Prepare an income statement for the month using the absorption
costing method.
e. Reconcile the variable costing and absorption costing net
incomes for the month.

Answer:
a. & b. Unit product costs
Variable costing:

Direct labor ........................... 28
Unit product cost ...................... $71
Absorption costing:
Direct labor ........................... 28
Fixed manufacturing overhead ........... 10
c. & d. Income statements
Variable costing income statement

Sales ...................................... $560,500
Less variable expenses:
Beginning inventory .................... $ 7,100
Add variable manufacturing costs ....... 440,200
Goods available for sale ............... 447,300
Less ending inventory .................. 28,400
Variable cost of goods sold ............ 418,900
Variable selling and administrative .... 29,500 448,400
Contribution margin ........................ 112,100
Less fixed expenses:
Fixed manufacturing overhead ........... 62,000
Fixed selling and administrative ....... 35,400 97,400
Net income ................................. $ 14,700
Absorption costing income statement

Sales ...................................... $560,500
Cost of goods sold:
Beginning inventory ...................... $ 8,100
Add cost of goods manufactured ........... 502,200
Goods available for sale ................. 510,300
Less ending inventory .................... 32,400 477,900
Gross margin ............................... 82,600

Less selling and administrative expenses:
Variable selling and administrative ...... 29,500
Fixed selling and administrative ......... 35,400 64,900
Net income ................................. $ 17,700

e. Reconciliation
Variable costing net income ................ $14,700
Add fixed manufacturing overhead costs
deferred in inventory under absorption
costing .................................. 3,000
Deduct fixed manufacturing overhead costs
released from inventory under absorption
costing .................................. 0
Absorption costing net income .............. $17,700
112. Mahugh Company, which has only one product, has provided the following
Medium data concerning its most recent month of operations:
Selling price .............................. $122

Units produced ........................... 8,300
Units sold ............................... 8,200

Direct labor ........................... 46
Fixed costs:
Required:
costing?
b. What is the unit product cost for the month under absorption
costing?
c. Prepare an income statement for the month using the contribution
d. Prepare an income statement for the month using the absorption
costing method.
e. Reconcile the variable costing and absorption costing net
incomes for the month.

Answer:
a. & b. Unit product costs
Variable costing:
Direct materials ..................... $27
Direct labor ......................... 46
Variable manufacturing overhead ...... 4
Unit product cost .................... $77
Absorption costing:
Direct materials ..................... $ 27
Direct labor ......................... 46
Variable manufacturing overhead ...... 4
Fixed manufacturing overhead ......... 24
Unit product cost .................... $101
c. & d. Income statements
Variable costing income statement

Sales .................................... $1,000,400
Beginning inventory .................. $ 0
Add variable manufacturing costs ..... 639,100
Goods available for sale ............. 639,100
Less ending inventory ................ 7,700
Variable cost of goods sold .......... 631,400
Variable selling and administrative .. 57,400 688,800
Contribution margin ...................... 311,600
Fixed manufacturing overhead ......... 199,200
Fixed selling and administrative ..... 106,600 305,800
Net income ............................... $ 5,800
Absorption costing income statement

Sales .................................... $1,000,400
Cost of goods sold:
Beginning inventory .................... $ 0
Add cost of goods manufactured ......... 838,300
Less ending inventory .................. 10,100 828,200
Gross margin ............................. 172,200
Variable selling and administrative .... 57,400
Net income ............................... $ 8,200
e. Reconciliation
Variable costing net income ................ $5,800
costing .................................. 2,400
costing .................................. 0
Absorption costing net income .............. $8,200

113. The EG Company produces and sells one producta microwave oven. The
Medium following data refer to the year just completed:
Beginning inventory ....................... $0

Units produced ............................ 25,000
Units sold ................................ 20,000
Sales price per unit ...................... $400
Selling and administrative expenses:
Variable per unit ...................... $15
Fixed (total) .......................... $275,000
Manufacturing costs:
Direct materials cost per unit ......... $200
Direct labor cost per unit ............. $50
Variable overhead cost per unit ........ $30
Fixed overhead (total) ................. $300,000
Assume that direct labor is a variable cost.
Required:
a. Compute the cost of a single unit of product under both the

absorption costing and variable costing approaches.
b. Prepare an income statement for the year using absorption
costing.
c. Prepare an income statement for the year using variable costing.
d. Reconcile the absorption costing and variable costing net
income figures in (b) and (c) above.
Answer:
a. Cost per unit under absorption costing:

Direct materials.................... $200
Direct labor........................ 50
Variable overhead................... 30
Fixed overhead ($300,000  25,000).. 12
Total cost per unit................. $292
Cost per unit under variable costing:

Direct materials.................... $200
Direct labor........................ 50
Variable overhead................... 30
Total cost per unit................. $280
b. Absorption costing income statement:
Sales............................... $8,000,000
Cost of goods sold:
Beginning inventory................. $ 0
Cost of goods manufactured
(25,000 @ $292) 7,300,000
Cost of goods available............. 7,300,000
Less ending inventory
(5,000 units @ $292) ............. 1,460,000 5,840,000
Gross profit........................ 2,160,000
[($15 x 20,000) + $275,000]....... 575,000
Net income.......................... $1,585,000

c. Variable costing income statement:
Sales............................... $8,000,000
Cost of goods sold:
Beginning inventory................. $ 0
(25,000 @ $280) 7,000,000
Cost of goods available............. 7,000,000
(5,000 units @ $280) 1,400,000
Variable cost of goods sold......... 5,600,000
Variable selling and admin. expenses:
(20,000 x $15)................. 300,000 5,900,000
Contribution margin................. 2,100,000
Manufacturing overhead.............. 300,000
Selling and administrative.......... 275,000 575,000
Net income.......................... $1,525,000
d.
Net income under variable costing... $1,525,000
Add fixed manufacturing overhead
costs deferred in inventory
under absorption costing
(5,000 units X $12) .............. 60,000
Net income under absorption costing $1,585,000
114. The Dean Company produces and sells a single producta microwave oven.
Medium The following data refer to the year just completed:
Beginning inventory .................... $0

Units produced ......................... 20,000
Units sold ............................. 19,000
Sales price per unit ................... $350
Variable per unit .................... $10
Fixed (total) ........................ $225,000
Direct materials cost per unit ....... $190
Direct labor cost per unit ........... $40
Variable overhead cost per unit ...... $25
Fixed overhead (total) ............... $250,000
Assume that direct labor is a variable cost.
Required:
a. Compute the cost of a single unit of product under both the

absorption costing and variable costing approaches.
b. Prepare an income statement for the year using absorption
costing.
c. Prepare an income statement for the year using variable costing.
d. Reconcile the absorption costing and variable costing net
income figures in (b) and (c) above.

Answer:
Direct materials.................... $190.00

Direct labor........................ 40.00
Variable overhead................... 25.00
Fixed overhead ($250,000  20,000).. 12.50
Total cost per unit................. $267.50

Direct materials.................... $190.00
Direct labor........................ 40.00
Variable overhead................... 25.00
Total cost per unit................. $255.00
b. Absorption costing income statement:
Sales................................. $6,650,000
Cost of goods sold:
Beginning inventory................... $ 0
(20,000 @ $267.50) ................. 5,350,000
Cost of goods available............... 5,350,000
(1,000 units @ $267.50) ............ 267,500 5,082,500
Gross profit.......................... 1,567,500
[($10 x 19,000) + $225,000]......... 415,000
Net income............................ $1,152,500
c. Variable costing income statement:
Sales................................. $6,650,000
Cost of goods sold:
Beginning inventory................... $ 0
(20,000 @ $255) .................... 5,100,000
Cost of goods available............... 5,100,000
(1,000 units @ $255) ............... 255,000
Variable cost of goods sold........... 4,845,000
Variable selling and administrative
expenses: (19,000 x $10)............ 190,000 5,035,000
Contribution margin................... 1,615,000
Manufacturing overhead................ $ 250,000
Selling and administrative............ 225,000 475,000
Net income............................ $1,140,000
d.
Net income under variable costing..... $1,140,000
costing (5,000 units X $12) ......... 12,500
Net income under absorption costing... $1,152,500

115. Operating data for Fowler Company and its absorption costing income
Medium statements for the last two years are presented below:
Year 1 Year 2
Units in beginning inventory ... 0 3,000
Units produced ................. 18,000 18,000
Units sold ..................... 15,000 20,000
Year 1 Year 2
Sales ............................ $240,000 $320,000
Cost of goods sold:
Beginning inventory ............ 0 30,000
Add cost of goods manufactured . 180,000 180,000
Goods available for sale ....... 180,000 210,000
Less ending inventory .......... 30,000 10,000
Cost of goods sold ........... 150,000 200,000
Gross margin ..................... 90,000 120,000
Selling & admin. expenses ........ 80,000 90,000
Net income ....................... $ 10,000 $ 30,000
Variable manufacturing costs are $6 per unit. Fixed manufacturing

overhead totals $72,000 in each year. This overhead is applied at the
rate of $4 per unit. Variable selling and administrative expenses were
$2 per unit sold.
Required:
a. What was the unit product cost in each year under variable
costing?
b. Prepare new income statements for each year using variable
costing.
c. Reconcile the absorption costing and variable costing net
income for each year.
Answer:
a. The manufacturing cost of $6 per unit is the unit product cost

under variable costing in both years.

b. Year 1 Year 2
Sales ................................... $240,000 $320,000
Beginning inventory ................. 0 18,000
Add variable manufacturing costs @ $6 108,000 108,000
Goods available for sale ............ 108,000 126,000
Less ending inventory @ $6 .......... 18,000 6,000
Variable cost of goods sold ......... 90,000 120,000
Variable selling and administrative @ $2 30,000 40,000
Total variable expenses ............... 120,000 160,000
Contribution margin ..................... 120,000 160,000
Fixed manufacturing overhead .......... 72,000 72,000
Fixed selling and administrative* ..... 50,000 50,000
Total ................................ 122,000 122,000
Net income .............................. $( 2,000) $ 38,000
Year 1: $80,000 $2 x 15,000 = $50,000
c. Year 1 Year 2
Variable costing net income ............. $( 2,000) $38,000
Add fixed factory overhead deferred
in inventory under absorption
costing (3,000 units x $4 per unit) ... 12,000
Less fixed factory overhead released
from inventory under absorption
costing (2,000 units x $4 per unit) ... (8,000)
Absorption costing net income ........... $10,000 $30,000
116. Pabbatti Company, which has only one product, has provided the following
Hard data concerning its most recent month of operations:
Selling price ............................ $112

Units produced ........................... 2,800
Units sold ............................... 2,900

Direct labor ........................... 19
Fixed costs:
The company produces the same number of units every month, although
the sales in units vary from month to month. The company's variable
costs per unit and total fixed costs have been constant from month to
month.

Required:
costing?
b. Prepare an income statement for the month using the contribution
c. Without preparing an income statement, determine the absorption
costing net income for the month.
(Hint: Use the reconciliation method.)
Answer:
a. Variable costing unit product cost

Direct materials ...................... $37
Direct labor .......................... 19
Variable manufacturing overhead ....... 7
Unit product cost ..................... $63
b. Variable costing income statement

Sales ................................... $324,800
Beginning inventory ................. $ 31,500
Add variable manufacturing costs .... 176,400
Goods available for sale ............ 207,900
Less ending inventory ............... 25,200
Variable cost of goods sold ......... 182,700
Variable selling and administrative . 14,500 197,200
Contribution margin ..................... 127,600
Fixed manufacturing overhead ........ 109,200
Fixed selling and administrative .... 5,800 115,000
Net income .............................. $ 12,600
c. Computation of absorption costing net income
Fixed manufacturing overhead per unit .... $39.00

Change in inventories (units) ............ (100)
Variable costing net income .............. $12,600

costing ................................ 0
costing ................................ (3,900)
Absorption costing net income ............ $8,700
117. Qabar Company, which has only one product, has provided the following
Selling price ............................ $110

Units produced ........................... 4,600
Units sold ............................... 4,200

Direct labor ........................... 28
Fixed costs:
Required:
a. What is the unit product cost for the month under

variable costing?
b. Prepare an income statement for the month using the contribution
c. Without preparing an income statement, determine the absorption
costing net income for the month.
(Hint: Use the reconciliation method.)
Answer:
a. Variable costing unit product cost
Direct labor ........................... 28
b. Variable costing income statement

Sales .................................... $462,000
Net income ............................... $ 7,800
c. Computation of absorption costing net income
Fixed manufacturing overhead per unit .... $12.00

Change in inventories (units) ............ 400
Variable costing net income .............. $7,800

costing ................................ 4,800
costing ................................ 0
Absorption costing net income ............ $12,600
118. UHF Antennas, Inc., produces and sells a unique television antenna. The
Medium company has just opened a new plant to manufacture the antenna, and the

following cost and revenue data have been reported for the first month
of the new plant's operation:
Beginning inventory .................... 0

Units produced ......................... 35,000
Units sold ............................. 30,000
Selling price per unit ................. $50
Variable per unit ................... $2
Fixed (total) ....................... $360,000
Direct material cost per unit ....... $9
Direct labor cost per unit .......... $8
Variable overhead cost per unit ..... $3
Fixed overhead cost (total) ......... $350,000
Management is anxious to see how profitable the new antenna will be and
has asked that an income statement be prepared for the month. Assume
that direct labor is a variable cost.
Required:
a. Assuming that the company uses absorption costing, compute the

unit product cost and prepare an income statement.
b. Assuming that the company uses variable costing, compute the unit
product cost and prepare an income statement.
c. Explain the reason for any difference in the ending inventories
under the two costing methods and the impact of this difference on
reported net income.
Answer:
a.
Unit product cost under absorption costing:
Direct materials cost per unit............... $ 9
Direct labor cost per unit................... $ 8
Variable overhead cost per unit.............. $ 3
Fixed overhead cost per unit:
$350,000/35,000 units...................... $10
Total cost per unit under absorption costing. $30
Income statement under absorption costing:
Sales ($50 x 30,000)................... $1,500,000

Cost of goods sold:
Beginning inventory....................$ 0
Cost of goods manufactured............. 1,050,000
Cost of goods available................ 1,050,000
Ending inventory (5,000 x $30)......... 150,000 900,000
Gross margin........................... 600,000
Selling and administrative expense:
[360,000 + ($2 x 30,000)............. 420,000
Net income............................. $ 180,000
Cost of goods manufactured: $30 x 35,000 = $1,050,000.

b.
Unit product cost under variable costing:
Direct materials cost per unit............... $ 9
Direct labor cost per unit................... $ 8
Variable overhead cost per unit.............. $ 3
Total cost per unit under variable costing... $20
Income statement under variable costing:
Sales ($50 x 30,000).................... $1,500,000

Cost of goods sold:
Beginning inventory..................... $ 0
($20 x 35,000 units) ................. 700,000
Cost of goods available................. 700,000
Ending inventory (5,000 x $20).......... 100,000
Variable cost of goods sold............. 600,000
expenses: ($2 x 30,000)............... 60,000 660,000
Contribution margin..................... 840,000
Fixed expenses:
Fixed overhead........................ $350,000
Fixed selling and administrative...... 360,000 710,000
Net income.............................. $ 130,000
c.
Net income under variable costing....... $130,000
costing (5,000 units X $10) ........... 50,000
Net income under absorption costing..... $180,000
119. Data concerning Sonderegger Company’s operations last year appear below:
Medium
Units in beginning inventory ............ 0
Units produced .......................... 70,000
Units sold .............................. 60,000
Selling price per unit .................. $12.00

Direct materials ...................... $2.00
Direct labor .......................... 1.00
Variable manufacturing overhead ....... 1.00
Variable selling and administrative ... 1.50
Fixed manufacturing overhead .......... $140,000
Fixed selling and administrative ...... 150,000
Required:
a. Prepare an income statement for the year using absorption
costing.
b. Prepare an income statement for the year using variable costing.
c. Prepare a report reconciling the difference in net income
between absorption and variable costing for the year.

Answer:
a.
Sales .................................... $720,000
Cost of goods sold:
Beginning inventory ....................$ 0
Add cost of goods manufactured @ $6* ... 420,000
Less ending inventory @ $6* ............ 60,000 360,000
Gross margin ............................. 360,000
Selling and administrative expenses* ..... 240,000
Net income ............................... $120,000
* $6 = $2.00 + $1.00 + $1.00 + $140,000/70,000

** 60,000 units x $1.50 per unit variable plus
$150,000 fixed.
b.
Sales ..................................... $720,000
Beginning inventory ................... 0
Add variable manuf. costs @ $4 ........ 280,000
Goods available for sale .............. 280,000
Less ending inventory @ $4 ............ 40,000
Variable cost of goods sold ........... 240,000
Variable selling & admin. @ $1.50 ....... 90,000 330,000
Contribution margin ....................... 390,000
Fixed manufacturing overhead ............ 140,000
Fixed selling & admin. .................. 150,000 290,000
Net income ................................ $100,000
c.
Variable costing net income ............... $100,000
Add fixed factory overhead deferred in
inventory under absorption costing
(10,000 units x $2 per unit) ............ 20,000
Absorption costing net income ............. $120,000
120. Nelson Company, which has only one product, has provided the following
Hard data concerning its most recent month of operations:
Selling price ............................ $84

Units produced ........................... 1,900
Units sold ............................... 2,100

Direct labor ........................... 10

Fixed costs:
The company produces the same number of units every month, although
the sales in units vary from month to month. The company's variable
costs per unit and total fixed costs have been constant from month to
month.

Required:
a. Prepare an income statement for the month using the contribution

b. Prepare an income statement for the month using the absorption
costing method.
Answer:
a. Variable costing income statement
Sales ................................... $176,400
Beginning inventory ................. $ 21,000
Add variable manufacturing costs .... 79,800
Goods available for sale ............ 100,800
Less ending inventory ............... 12,600
Variable cost of goods sold ......... 88,200
Variable selling and administrative . 21,000 109,200
Contribution margin ..................... 67,200
Fixed manufacturing overhead .......... 38,000
Fixed selling and administrative ...... 21,000 59,000
Net income .............................. $ 8,200
b. Absorption costing income statement

Sales ................................... $176,400
Cost of goods sold:
Beginning inventory ................... $ 31,000
Add cost of goods manufactured ........ 117,800
Goods available for sale .............. 148,800
Less ending inventory ................. 18,600 130,200
Gross margin ............................ 46,200
Variable selling and administrative ... 21,000
Fixed selling and administrative ...... 21,000 42,000
Net income .............................. $ 4,200
121. Oakes Company, which has only one product, has provided the following
Selling price ............................ $108

Units produced ........................... 1,100
Units sold ............................... 900

Direct labor ........................... 30
Fixed costs:

Required:
a. Prepare an income statement for the month using the contribution

b. Prepare an income statement for the month using the absorption
costing method.
Answer:
a. Variable costing income statement
Sales .................................... $97,200
Net income ............................... $12,700
b. Absorption costing income statement

Sales .................................... $97,200
Cost of goods sold:
Beginning inventory .................... $ 0
Add cost of goods manufactured ......... 85,800
Less ending inventory .................. 15,600 70,200
Gross margin ............................. 27,000
Variable selling and administrative .... 9,900
Net income ............................... $15,300
122. The Miller Company had the following results for its first two years of
Medium operation:
Year 1 Year 2
Sales ................................ $1,200,000 $1,200,000
Cost of goods sold ................... 800,000 680,000
Gross margin ......................... 400,000 520,000
Selling and administrative expense ... 300,000 300,000
Net income ........................... $ 100,000 $ 220,000
In Year 1, the company produced and sold 40,000 units of its only
product; in Year 2, the company again sold 40,000 units, but increased
production to 50,000 units. The company’s variable production cost is
$5 per unit and its fixed manufacturing overhead cost is $600,000 a
year. Fixed manufacturing overhead costs are applied to the product on
the basis of each year's unit production (i.e., a new fixed overhead
rate is computed each year). Variable selling and administrative
expenses are $2 per unit sold.

Required:
a. Compute the unit product cost for each year under absorption
costing and under variable costing.
b. Prepare an income statement for each year, using the contribution
approach with variable costing.
c. Reconcile the variable costing and absorption costing income
figures for each year.
d. Explain why the net income for Year 2 under absorption costing
was higher than the net income for Year 1, although the same number
of units were sold in each year.
Answer:

Year 1 Year 2
Variable production cost per unit ..... $ 5 $ 5
Fixed manufacturing overhead cost:
($600,000/40,000) ................ $15
($600,000/50,000) ................ ___ $12
Unit product cost ..................... $20 $17

Year 1 Year 2
Variable production cost per unit...... $5 $5
b. Income statements for each year under variable costing:
Year 1 Year 2
Sales................................. $1,200,000 $1,200,000
Cost of goods sold ($5 x 40,000)...... 200,000 200,000
expense ($2 x 40,000)............... 80,000 80,000
Contribution margin................... 920,000 920,000
Fixed expenses:
Fixed manufacturing overhead........ 600,000 600,000
Fixed selling and administrative
expense ......................... 220,000 220,000
Net income............................ $ 100,000 $ 100,000
c. Reconciliation of absorption costing and variable costing net

incomes:
Year 1 Year 2
Net income under variable costing....... $100,000 $100,000
Fixed manufacturing overhead deferred in
(released from) inventory:
Year 1 ............................. 0
Year 2 (10,000 units x $12 per unit) ________ 120,000
Net income under absorption costing..... $100,000 $220,000
d. The increase in production in Year 2, in the face of level

sales, caused a buildup of inventory and a deferral of a
portion of the overhead costs of Year 2 to the next year. This
deferral of cost relieved Year 2 of $120,000 of fixed
manufacturing overhead. Income for Year 2 was $120,000 higher than
income of Year 1, even though the same number of units was sold
each year. By increasing production and building up inventory, the
company was able to increase profits without increasing sales. This is

major criticism of the absorption costing approach.
123. The Hadfield Company manufactures and sells a unique electronic part.
Hard The company's plant is highly automated with low variable and high fixed
manufacturing costs. Operating results on an absorption costing basis
for the first three years of activity were as follows:
Year 1 Year 2 Year 3

Sales ........................ $704,000 $528,000 $704,000
Cost of goods sold:
Beginning inventory .......... 0 0 220,000
Cost of goods manufactured ... 520,000 550,000 496,000
Goods available for sale ..... 520,000 550,000 716,000
Less ending inventory ........ 0 220,000 186,000
Cost of goods sold ........... 520,000 330,000 530,000
Gross margin ................. 184,000 198,000 174,000
Less selling and
administrative expense ..... 180,000 160,000 180,000
Net income (loss) ............ $ 4,000 $ 38,000 $ (6,000)
Additional information about the company is as follows:
- Variable manufacturing costs (direct labor, direct materials, and

variable manufacturing overhead) total $3 per unit, and fixed
manufacturing overhead costs total $400,000.
- Fixed manufacturing costs are applied to units of product on the
basis of the number of units produced each year (i.e., a new fixed
overhead rate is computed each year).
- The company uses a FIFO inventory flow assumption.
- Variable selling and administrative expenses are $2 per unit sold.
Fixed selling and administrative expenses total $100,000.
- Production and sales information for the three years is as follows:

Production in units .... 40,000 50,000 32,000
Sales in units ......... 40,000 30,000 40,000

Required:
a. Compute net income for each year under the variable costing
approach.
b. Referring to the absorption costing income statements above,
explain why net income was higher in Year 2 than in Year 1 under
absorption costing, in light of the fact that fewer units were sold in
Year 2 than in Year 1.
c. Referring again to the absorption costing income statements,
explain why the company suffered a loss in Year 3 but reported a
profit in Year 1, although the same number of units was sold in each
year.
d. If the company had used JIT during Year 2 and Year 3 and
produced only what could be sold, what would the company's net
income (loss) have been each year under absorption costing.
Answer:
a.
Sales .......................... $704,000 $528,000 $704,000
Beginning inventory .......... 0 0 60,000
Variable manufacturing costs . 120,000 150,000 96,000
Goods available for sale ..... 120,000 150,000 156,000
Less ending inventory ........ 0 60,000 36,000
Variable cost of goods sold .. 120,000 90,000 120,000
Variable selling expense ...... 80,000 60,000 80,000
Total variable expenses ..... 200,000 150,000 200,000
Contribution margin ............ 504,000 378,000 504,000
Fixed manufacturing overhead .. 400,000 400,000 400,000
Fixed sellling and admin. ..... 100,000 100,000 100,000
Total fixed expenses ........ 500,000 500,000 500,000
Net income (loss) .............. $ 4,000 $(122,000) $ 4,000
b. Production increased sharply in Year 2 even though unit sales

declined. The increase in production resulted in a lower unit
product cost in Year 2 than in Year 1. Furthermore, because
production exceeded sales, fixed manufacturing overhead costs were
deferred in inventories. These effects more than offset the loss of
revenue due to lower sales. The company's income thus rose even
though sales were down.
c. Production decreased sharply in Year 3. This resulted in an

increase in the unit product cost. In addition, inventories
decreased and as a result fixed manufacturing overhead deferred in
inventories in Year 2 were released to the income statement in Year
3.
d. If JIT had been in use, the net income under absorption costing
would have been the same as under variable costing in all three
years. With production geared to sales, there would have been no ending
inventory, and therefore, there would have been no fixed overhead
costs deferred in inventory to other years.

Chapter 6—Process Costing
MULTIPLE CHOICE
1. Which cost accumulation procedure is most applicable in continuous mass-production manufacturing

environments?
a. standard
b. actual
c. process
d. job order
ANS: C PTS: 1 DIF: Easy OBJ: 6-1
NAT: AACSB: Reflective Thinking
LOC: AICPA Functional Competencies: Measurement, Reporting
2. Process costing is used in companies that

a. engage in road and bridge construction.
b. produce sailboats made to customer specifications.
c. produce bricks for sale to the public.
d. construct houses according to customer plans.
3. A producer of ____ would not use a process costing system.

a. gasoline
b. potato chips
c. blank videotapes
d. stained glass windows
ANS: D PTS: 1 DIF: Easy OBJ: 6-1
Chapter 6 2
4. A process costing system is used by a company that
a. produces heterogeneous products.
b. produces items by special request of customers.
c. produces homogeneous products.
d. accumulates costs by job.
5. Which is the best cost accumulation procedure to use for continuous mass production of like units?
a. actual
b. standard
c. job order
d. process
6. Equivalent units of production are equal to the

a. units completed by a production department in the period.
b. number of units worked on during the period by a production department.
c. number of whole units that could have been completed if all work of the period had been
used to produce whole units.
d. identifiable units existing at the end of the period in a production department.
ANS: C PTS: 1 DIF: Moderate OBJ: 6-2
7. In a process costing system using the weighted average method, cost per equivalent unit for a given
cost component is found by dividing which of the following by EUP?
a. only current period cost
b. current period cost plus the cost of beginning inventory
c. current period cost less the cost of beginning inventory
d. current period cost plus the cost of ending inventory
ANS: B PTS: 1 DIF: Easy OBJ: 6-2
8. The weighted average method is thought by some accountants to be inferior to the FIFO method
because it
a. is more difficult to apply.
b. only considers the last units worked on.
c. ignores work performed in subsequent periods.
d. commingles costs of two periods.
ANS: D PTS: 1 DIF: Moderate OBJ: 6-3
Chapter 6 3
9. The first step in determining the cost per EUP per cost component under the weighted average method
is to
a. add the beginning Work in Process Inventory cost to the current period's production cost.
b. divide the current period's production cost by the equivalent units.
c. subtract the beginning Work in Process Inventory cost from the current period's
production cost.
d. divide the current period's production cost into the EUP.
ANS: A PTS: 1 DIF: Moderate OBJ: 6-3
10. The difference between EUP calculated using FIFO and EUP calculated using weighted average is the
equivalent units
a. started and completed during the period.
b. residing in beginning Work in Process Inventory.
c. residing in ending Work in Process Inventory.
d. uncompleted in Work in Process Inventory.
ANS: B PTS: 1 DIF: Moderate OBJ: 6-3
11. EUP calculations for standard process costing are the same as
a. the EUP calculations for weighted average process costing.
b. the EUP calculations for FIFO process costing.
c. LIFO inventory costing for merchandise.
d. the EUP calculations for LIFO process costing.
12. In a FIFO process costing system, which of the following are assumed to be completed first in the
current period?
a. units started this period
b. units started last period
c. units transferred out
d. units still in process
13. To compute equivalent units of production using the FIFO method of process costing, work for the
current period must be stated in units
a. completed during the period and units in ending inventory.
b. completed from beginning inventory, units started and completed during the period, and
units partially completed in ending inventory.
c. started during the period and units transferred out during the period.
d. processed during the period and units completed during the period.
Chapter 6 4
14. The FIFO method of process costing will produce the same cost of goods transferred out amount as the
weighted average method when
a. the goods produced are homogeneous.
b. there is no beginning Work in Process Inventory.
c. there is no ending Work in Process Inventory.
d. beginning and ending Work in Process Inventories are each 50 percent complete.
15. The primary difference between the FIFO and weighted average methods of process costing is
a. in the treatment of beginning Work in Process Inventory.
b. in the treatment of current period production costs.
c. in the treatment of spoiled units.
d. none of the above.
ANS: A PTS: 1 DIF: Easy OBJ: 6-4
16. Material is added at the beginning of a process in a process costing system. The beginning Work in
Process Inventory for the process was 30 percent complete as to conversion costs. Using the FIFO
method of costing, the number of equivalent units of material for the process during this period is
equal to the
a. beginning inventory this period for the process.
b. units started and completed this period in the process.
c. units started this period in the process plus the beginning Work in Process Inventory.
d. units started and completed this period plus the units in ending Work in Process Inventory.
17. In a cost of production report using process costing, transferred-in costs are similar to the
a. cost of material added at the beginning of production.
b. conversion cost added during the period.
c. cost transferred out to the next department.
d. cost included in beginning inventory.
18. In a process costing system, the journal entry to record the transfer of goods from Department #2 to
Finished Goods Inventory is a
a. debit Work in Process Inventory #2, credit Finished Goods Inventory.
b. debit Finished Goods Inventory, credit Work in Process Inventory #1.
c. debit Finished Goods Inventory, credit Work in Process Inventory #2.
d. debit Cost of Goods Sold, credit Work in Process Inventory #2.
Chapter 6 5
19. Transferred-in cost represents the cost from

a. the last department only.
b. the last production cycle.
c. all prior departments.
d. the current period only.
20. Which of the following is(are) the same between the weighted average and FIFO methods of
calculating EUPs?
Units to EUP Total cost to

account for calculations account for
a. no yes no
b. yes yes yes
c. yes no no
d. yes no yes

21. Process costing techniques should be used in assigning costs to products

a. if a product is manufactured on the basis of each order received.
b. when production is only partially completed during the accounting period.
c. if a product is composed of mass-produced homogeneous units.
d. whenever standard-costing techniques should not be used.
22. Averaging the total cost of completed beginning work-in-process inventory and units started and
completed over all units transferred out is known as
a. strict FIFO.
b. modified FIFO.
c. weighted average costing.
d. normal costing.
Chapter 6 6
23. A process costing system
a. cannot use standard costs.
b. restates Work in Process Inventory in terms of completed units.
c. accumulates costs by job rather than by department.
d. assigns direct labor and manufacturing overhead costs separately to units of production.
24. A process costing system does which of the following?
Calculates EUPs Assigns costs to inventories
a. no no
b. no yes
c. yes yes
d. yes no

25. A process costing system
Calculates average cost Determines total units to

per whole unit account for
a. yes yes
b. no no
c. yes no
d. no yes

26. A hybrid costing system combines characteristics of

a. job order and standard costing systems.
b. job order and process costing systems.
c. process and standard costing systems.
d. job order and normal costing systems.
Chapter 6 7
27. When standard costs are used in process costing,
a. variances can be measured during the production period.
b. total costs rather than current production and current costs are used.
c. process costing calculations are made simpler.
d. the weighted average method of calculating EUPs makes computing transferred-out costs
easier.
28. Which of the following is subtracted from weighted average EUP to derive FIFO EUP?
a. beginning WIP EUP completed in current period
b. beginning WIP EUP produced in prior period
c. ending WIP EUP not completed
d. ending WIP EUP completed
29. The cost of abnormal continuous losses is

a. considered a product cost.
b. absorbed by all units in ending inventory and transferred out on an equivalent unit basis.
c. written off as a loss on an equivalent unit basis.
d. absorbed by all units past the inspection point.
30. Abnormal spoilage can be
continuous discrete
a. yes no
b. no no
c. yes yes
d. no yes
31. When the cost of lost units must be assigned, and those same units must be included in an equivalent
unit schedule, these units are considered
a. normal and discrete.
b. normal and continuous.
c. abnormal and discrete.
d. abnormal and continuous.
Chapter 6 8
32. A continuous loss
a. occurs unevenly throughout a process.
b. never occurs during the production process.
c. always occurs at the same place in a production process.
d. occurs evenly throughout the production process.
33. Which of the following would be considered a discrete loss in a production process?
a. adding the correct ingredients to make a bottle of ketchup
b. putting the appropriate components together for a stereo
c. adding the wrong components when assembling a stereo
d. putting the appropriate pieces for a bike in the box
34. The method of neglect handles spoilage that is

a. discrete and abnormal.
b. discrete and normal.
c. continuous and abnormal.
d. continuous and normal.
35. The cost of normal discrete losses is

a. absorbed by all units past the inspection point on an equivalent unit basis.
b. absorbed by all units in ending inventory.
c. considered a period cost.
d. written off as a loss on an equivalent unit basis.
36. The cost of abnormal continuous losses is

a. considered a product cost.
b. absorbed by all units in ending inventory and transferred out on an equivalent unit basis.
c. written off as a loss on an equivalent unit basis.
d. absorbed by all units past the inspection point.
Chapter 6 9
37. Normal spoilage units resulting from a continuous process
a. are extended to the EUP schedule.
b. result in a higher unit cost for the good units produced.
c. result in a loss being incurred.
d. cause estimated overhead to increase.
38. When the cost of lost units must be assigned, and those same units must be included in an equivalent
unit schedule, these units are considered
a. normal and discrete.
b. normal and continuous.
c. abnormal and discrete.
d. abnormal and continuous.
39. Which of the following accounts is credited when abnormal spoilage is written off in an actual cost
system?
a. Miscellaneous Revenue
b. Loss from Spoilage
c. Finished Goods
d. Work in Process
40. The cost of abnormal discrete units must be assigned to
good units lost units
a. yes yes
b. no no
c. yes no
d. no yes
Chapter 6 10
41. Which of the following statements is false? The cost of rework on defective units, if
a. abnormal, should be assigned to a loss account.
b. normal and if actual costs are used, should be assigned to material, labor and overhead
costs of the good production.
c. normal and if standard costs are used, should be considered when developing the overhead
application rate.
d. abnormal, should be prorated among Work In Process, Finished Goods, and Cost of Goods
Sold.
42. If normal spoilage is detected at an inspection point within the process (rather than at the end), the cost
of that spoilage should be
a. included with the cost of the units sold during the period.
b. included with the cost of the units completed in that department during the period.
c. allocated to ending work in process units and units transferred out based on their relative
values.
d. allocated to the good units that have passed the inspection point.
43. Dallas Co. has a production process in which the inspection point is at 65 percent of conversion. The
beginning inventory for July was 35 percent complete and ending inventory was 80 percent complete.
Normal spoilage costs would be assigned to which of the following groups of units, using FIFO
costing?
Beginning Ending Units Started

Inventory Inventory & Completed
a. no yes yes
b. yes yes yes
c. no no yes
d. yes no no

44. Which of the following is not a question that needs to be answered with regard to quality control?
a. What happens to the spoiled units?
b. What is the actual cost of spoilage?
c. How can spoilage be controlled?
d. Why does spoilage happen?
ANS: A PTS: 1 DIF: Moderate OBJ: 6-8
Chapter 6 11
45. Normal spoilage units resulting from a continuous process
a. are extended to the EUP schedule.
b. result in a higher unit cost for the good units produced.
c. result in a loss being incurred.
d. cause estimated overhead to increase.
46. The addition of material in a successor department that causes an increase in volume is called
a. accretion.
b. reworked units.
c. complex procedure.
d. undetected spoilage.
47. Wood Company transferred 5,500 units to Finished Goods Inventory during October. On October 1,
the company had 300 units on hand (40 percent complete as to both material and conversion costs). On
October 31, the company had 800 units (10 percent complete as to material and 20 percent complete as
to conversion costs). The number of units started and completed during October was:
a. 5,200.
b. 5,380.
c. 5,500.
d. 6,300.
ANS: A
Units Transferred Out 5,500
Less: Units in Beginning Inventory (300)
Units Started and Completed 5,200
PTS: 1 DIF: Easy OBJ: 6-2 NAT: AACSB: Analytical Skills

48. Cole Company transferred 6,000 units to Finished Goods Inventory during August. On August 1, the
company had 400 units on hand (35 percent complete as to both material and conversion costs). On
August 31, the company had 750 units (20 percent complete as to material and 30 percent complete as
to conversion costs). The number of units started and completed during August was:
a. 5,600
b. 5,860
c. 6,000
d. 6,750
ANS: A
Units Transferred Out 6,000
Less: Units in Beginning Inventory (400)

Chapter 6 12
49. Boggs Company started 9,000 units in March. The company transferred out 7,000 finished units and
ended the period with 3,500 units that were 40 percent complete as to both material and conversion
costs. Beginning Work in Process Inventory units were
a. 500.
b. 600.
c. 1,500.
d. 2,000.
ANS: C
Beginning Work in Process 1,500
Add: Units Started 9,000
Deduct: Units Transferred Out (7,000)
Ending Work in Process 3,500

50. Williams Company started 8,600 units in April. The company transferred out 6,400 finished units and
ended the period with 3,200 units that were 40 percent complete as to both material and conversion
costs. Beginning Work in Process Inventory units were
a. 400.
b. 1,000.
c. 1,280.
d. 2,200.
ANS: B

51. Lincoln Company had beginning Work in Process Inventory of 5,000 units that were 40 percent
complete as to conversion costs. Lincoln Company started and completed 42,000 units this period and
had ending Work in Process Inventory of 12,000 units. How many units were started this period?
a. 42,000
b. 47,000
c. 54,000
d. 59,000
ANS: C
Deduct: Units Transferred Out ( 47,000)
PTS: 1 DIF: Moderate OBJ: 6-2 NAT: AACSB: Analytical Skills

Chapter 6 13
52. Douglas Company had beginning Work in Process Inventory of 6,000 units that were 45 percent
complete as to conversion costs. Douglas Company started and completed 46,000 units this period and
had ending Work in Process Inventory of 11,000 units. How many units were started this period?
a. 46,000
b. 52,000
c. 57,000
d. 63,000
ANS: C

53. Streete Company uses a weighted average process costing system. Material is added at the start of
production. Streete Company started 13,000 units into production and had 4,500 units in process at the
start of the period that were 60 percent complete as to conversion costs. If Streete Company transferred
out 11,750 units, how many units were in ending Work in Process Inventory?
a. 1,250
b. 3,000
c. 3,500
d. 5,750
ANS: D

54. Roache Company uses a weighted average process costing system. Material is added at the start of
production. Roache Company started 14,000 units into production and had 5,000 units in process at the
start of the period that were 75 percent complete as to conversion costs. If Roache Company
transferred out 12,250 units, how many units were in ending Work in Process Inventory?
a. 1,750
b. 3,000
c. 5,500
d. 6,750
ANS: D

Chapter 6 14
55. Jones Company uses a weighted average process costing system and started 30,000 units this month.
Jones had 12,000 units that were 20 percent complete as to conversion costs in beginning Work in
Process Inventory and 3,000 units that were 40 percent complete as to conversion costs in ending
Work in Process Inventory. What are equivalent units for conversion costs?
a. 37,800
b. 40,200
c. 40,800
d. 42,000
ANS: B
Beginning Work in Process 12,000 20% 2,400
+ Completion of Units in Process 12,000 80% 9,600
+ Units Started and Completed 27,000 100% 27,000
+ Ending Work in Process 3,000 40% 1,200
Equivalent Units of Production 40,200

56. Summers Company uses a weighted average process costing system and started 36,000 units this
month. Jones had 15,000 units that were 25 percent complete as to conversion costs in beginning Work
in Process Inventory and 6,000 units that were 35 percent complete as to conversion costs in ending
Work in Process Inventory. What are equivalent units for conversion costs?
a. 43,350
b. 47,100
c. 48,900
d. 51,000
ANS: B

57. Weston Company makes small metal containers. The company began April with 250 containers in
process that were 30 percent complete as to material and 40 percent complete as to conversion costs.
During the month, 5,000 containers were started. At month end, 1,700 containers were still in process
(45 percent complete as to material and 80 percent complete as to conversion costs). Using the
weighted average method, what are the equivalent units for conversion costs?
a. 3,450
b. 4,560
c. 4,610
d. 4,910
Chapter 6 15
ANS: D
Beginning Work in Process 250 40% 100
+ Completion of Units in Process 250 60% 150

58. Meade Company makes small metal containers. The company began October with 300 containers in
process that were 35 percent complete as to material and 45 percent complete as to conversion costs.
During the month, 6,000 containers were started. At month end, 1,900 containers were still in process
(40 percent complete as to material and 75 percent complete as to conversion costs). Using the
weighted average method, what are the equivalent units for conversion costs?
a. 4,265
b. 5,590
c. 5,825
d. 6,300
ANS: C

59. Ormandy Company uses a FIFO process costing system. The company had 5,000 units that were 60
percent complete as to conversion costs at the beginning of the month. The company started 22,000
units this period and had 7,000 units in ending Work in Process Inventory that were 35 percent
complete as to conversion costs. What are equivalent units for material, if material is added at the
beginning of the process?
a. 18,000
b. 22,000
c. 25,000
d. 27,000
ANS: B
The material is added at the beginning of the process; therefore there are 22,000 equivalent units of
material.

60. Bernstein Company uses a FIFO process costing system. The company had 6,000 units that were 75
percent complete as to conversion costs at the beginning of the month. The company started 25,000
units this period and had 8,000 units in ending Work in Process Inventory that were 40 percent
complete as to conversion costs. What are equivalent units for material, if material is added at the
beginning of the process?
Chapter 6 16
a. 18,500
b. 25,000
c. 26,500
d. 31,000
ANS: B
The material is added at the beginning of the process; therefore there are 25,000 equivalent units of
material.

61. Montgomery Company makes fabric-covered hatboxes. The company began July with 500 boxes in
process that were 100 percent complete as to cardboard, 80 percent complete as to cloth, and 60
percent complete as to conversion costs. During the month, 3,300 boxes were started. On April 30, 350
boxes were in process (100 percent complete as to cardboard, 70 percent complete as to cloth, and 55
percent complete as to conversion costs). Using the FIFO method, what are equivalent units for cloth?
a. 3,295
b. 3,395
c. 3,450
d. 3,595
ANS: A
Beginning Work in Process (Ignored for FIFO) 500 0% -
+ Ending Work in Process 350 70% 245

62. Hahn Company makes fabric-covered storage totes. The company began July with 600 totes in process
that were 100 percent complete as to cardboard, 75 percent complete as to cloth, and 65 percent
complete as to conversion costs. During the month, 3,600 totes were started. On April 30, 450 totes
were in process (100 percent complete as to cardboard, 60 percent complete as to cloth, and 50 percent
complete as to conversion costs). Using the FIFO method, what are equivalent units for cloth?
a. 3,570
b. 3,750
c. 3,870
d. 4,020
ANS: A
Beginning Work in Process (Ignored for FIFO) 600 0% -

Chapter 6 17
Brewer Corporation
Brewer Corporation. has the following information for August:
Beginning Work in Process Inventory

(70% complete as to conversion) 6,000 units
Started 24,000 units
Ending Work in Process Inventory
Beginning WIP Inventory Costs:

Material $23,400
Conversion 50,607
Current Period Costs:

Material $31,500
Conversion 76,956
All material is added at the start of the process and all finished products are transferred out.
63. Refer to Brewer Corporation. How many units were transferred out in August?
a. 15,500
b. 18,000
c. 21,500
d. 24,000
ANS: C

64. Refer to Brewer Corporation. Assume that weighted average process costing is used. What is the cost
per equivalent unit for material?
a. $0.55
b. $1.05
c. $1.31
d. $1.83
ANS: D
Material Costs:
Beginning $23,400
Current Period 31,500
54,900 ÷ 30,000 units = $ 1.83

Chapter 6 18
65. Refer to Brewer Corporation. Assume that FIFO process costing is used. What is the cost per
equivalent unit for conversion?
a. $3.44
b. $4.24
c. $5.71
d. $7.03
ANS: B
Conversion Costs:
Beginning (Ignored for FIFO) $ -
$ 76,956
Equivalent Units
Beginning Inventory (6,000 * 30%) 1,800
Started and Completed (15,500) 15,500
Ending Inventory (8,500 * 10%) 850
18,150 eq units
Cost per equivalent unit $ 4.24

Collins Corporation
Collins Corporation. has the following information for May:

Started 27,000 units
Beginning WIP Inventory Costs:

Material $25,500
Conversion 52,725

Material $34,300
Conversion 80,845
All material is added at the start of the process and all finished products are transferred out.
66. Refer to Collins Corporation. How many units were transferred out in May?
a. 17,600
b. 19,500
c. 25,100
d. 27,000
Chapter 6 19
ANS: C

67. Refer to Collins Corporation. Assume that weighted average process costing is used. What is the cost
per equivalent unit for material?
a. $0.99
b. $1.18
c. $1.64
d. $1.73
ANS: D
Material Costs:
Beginning $25,500
Current Period _34,300
$59,800 ÷ 34,500 units = $ 1.73

68. Refer to Collins Corporation. Assume that FIFO process costing is used. What is the cost per
equivalent unit for conversion?
a. $3.05
b. $3.87
c. $4.25
d. $6.40
ANS: B
Conversion Costs:
Beginning (Ignored for FIFO) $ -
$ 80,845
Equivalent Units
Ending Inventory (9,400 * 15%) 1,410
20,885 equivalent units
Cost per equivalent unit ($80,845/20885) $ 3.87

Chapter 6 20
Fantastic Decorations Corporation
The Fantastic Decorations Corporation makes wreaths in two departments: Forming and Decorating.
Forming began the month with 500 wreaths in process that were 100 percent complete as to material
and 40 percent complete as to conversion. During the month, 6,500 wreaths were started. At month
end, Forming had 2,100 wreaths that were still in process that were 100 percent complete as to
material and 50 percent complete as to conversion. Assume Forming uses the weighted average
method of process costing. Costs in the Forming Department are as follows:
Beginning Work in Process Costs:

Material $1,000
Conversion 1,500
Current Costs:
Material $3,200
Conversion 5,045
The Decorating Department had 600 wreaths in process at the beginning of the month that were 80
percent complete as to material and 90 percent complete as to conversion. The department had 300
units in ending Work in Process that were 50 percent complete as to material and 75 percent complete
as to conversion. Decorating uses the FIFO method of process costing, and costs associated with
Decorating are:
Beginning WIP Inventory:

Transferred In $1,170
Material 4,320
Conversion 6,210
Current Period:
Transferred In ?
Material $67,745
Conversion 95,820
69. Refer to Fantastic Decorations Corporation. How many units were transferred to Decorating during
the month?
a. 600
b. 4,900
c. 5,950
d. 7,000
ANS: B
Wreaths completed from BWIP 500
Wreaths started and completed 4,400
4,900

70. Refer to Fantastic Decorations Corporation. What was the cost transferred out of Forming during the
month?
a. $5,341
b. $6,419
c. $8,245
d. $8,330
Chapter 6 21
ANS: D
Units Transferred Out Cost per Eq. Unit Total
4,900 1.70 $8,330

71. Refer to Fantastic Decorations Corporation. Assume 8,000 units were transferred to Decorating.
Compute the number of equivalent units as to costs in Decorating for the transferred-in cost
component.
a. 7,400
b. 7,700
c. 8,000
d. 8,600
ANS: C
The transferred-in cost component is the 8,000 units that were transferred in.

Compute the number of equivalent units in Decorating for material.
a. 7,970
b. 8,000
c. 8,330
d. 8,450
ANS: A
Materials: Decorating: FIFO Units % Complete Eqiv. Units

Compute the number of equivalent units in Decorating for conversion.
a. 7,925
b. 7,985
c. 8,360
d. 8,465
Chapter 6 22
ANS: B
Conversion: Decorating: FIFO Units % Complete Equiv.
Units


74. Refer to Fantastic Decorations Corporation. Assume that 8,000 units were transferred to Decorating at
a total cost of $16,000. What is the material cost per equivalent unit in Decorating?
a. $8.50
b. $8.65
c. $8.80
d. $9.04
ANS: A
When FIFO is used, consider only current costs.
Current Costs Equiv Cost/

Units Equiv Unit
$67,745 7,970 $8.50

75. Refer to Fantastic Decorations Corporation. Assume that 8,000 units were transferred to Decorating at
a total cost of $16,000. What is the conversion cost per equivalent unit in Decorating?
a. $11.32
b. $11.46
c. $12.00
d. $12.78
ANS: C
When FIFO is used, consider only current costs.
Current Costs Equiv Cost/

Units Equiv Unit
$95,820 7,985 $12.00

Chapter 6 23
76. Refer to Fantastic Decorations Corporation. Assume the material cost per EUP is $8.00 and the
conversion cost per EUP is $15 in Decorating. What is the cost of completing the units in beginning
inventory?
a. $ 960
b. $ 1,380
c. $ 1,860
d. $11,940
ANS: C
Costs to Percent to Cost per
Complete Beg Inv Units Complete Unit Total
Materials 600 20% $8 $960
Conversion 600 10% $15 $900
Total Costs to Complete $1,860

Four Seasons Company
Four Seasons Company adds material at the start to its production process and has the following
information available for August:

Started this period 32,000 units
Transferred out ?
77. Refer to Four Seasons Company. Compute the number of units started and completed in August.
a. 29,500
b. 34,500
c. 36,500
d. 39,000
ANS: A
Units started this period 32,000
Less: Ending Work in Process 2,500
Units started and completed this period 29,500

78. Refer to Four Seasons Company. Calculate equivalent units of production for material using FIFO.
a. 32,000
b. 36,800
c. 37,125
d. 39,000
Chapter 6 24
ANS: A
Materials are added at the beginning of the process. 32,000 units were started in the current period;
therefore there are 32,000 equivalent units for materials.

79. Refer to Four Seasons Company. Calculate equivalent units of production for conversion using FIFO.
a. 30,125
b. 34,325
c. 37,125
d. 39,000
ANS: B
Equivalent Units for Conversion
34,325 eq. units

80. Refer to Four Seasons Company. Calculate equivalent units of production for material using weighted
average.
a. 32,000
b. 34,325
c. 37,125
d. 39,000
ANS: D
Equivalent Units--Materials
Beginning Inventory (7,000 units) 7,000
Started this Period (32,000) 32,000
39,000 eq. units

81. Refer to Four Seasons Company. Calculate equivalent units of production for conversion using
weighted average.
a. 34,325
b. 37,125
c. 38,375
d. 39,925
ANS: B
Equivalent Units--Conversion
37,125 eq. units
Chapter 6 25
Simpson Company
Simpson Company adds material at the start of production. The following production information is
available for September:

Started this period 120,000 units
Beginning Work in Process Inventory Costs:

Material $24,500
Conversion 68,905

Material $ 75,600
Conversion 130,053
82. Refer to Simpson Company. How many units must be accounted for?
a. 118,200
b. 128,200
c. 130,000
d. 138,200
ANS: C
Units Started 120,000
Total Units 130,000

83. Refer to Simpson Company. What is the total cost to account for?
a. $ 93,405
b. $205,653
c. $274,558
d. $299,058
ANS: D
BWIP: Materials $ 24,500
BWIP: Conversion 68,905
Current Period: Materials 75,600
Current Period: Conversion 130,053
Total Costs $299,058

Chapter 6 26
84. Refer to Simpson Company. How many units were started and completed in the period?
a. 111,800
b. 120,000
c. 121,800
d. 130,000
ANS: A
Units started this period 120,000
Less: Ending Work in Process 8,200
Units started and completed this period 111,800

85. Refer to Simpson Company. What are the equivalent units for material using the weighted average
method?
a. 120,000
b. 123,860
c. 128,360
d. 130,000
ANS: D
Equivalent Units
130,000 eq. units

86. Refer to Simpson Company. What are the equivalent units for material using the FIFO method?
a. 111,800
b. 120,000
c. 125,500
d. 130,000
ANS: B
Equivalent Units
Beginning Inventory (Ignored for FIFO) 0
120,000 eq. units

87. Refer to Simpson Company. What are the equivalent units for conversion using the weighted average
method?
a. 120,000
b. 123,440
c. 128,360
d. 130,000
Chapter 6 27
ANS: C

88. Refer to Simpson Company. What are the equivalent units for conversion using the FIFO method?
a. 118,360
b. 122,860
c. 123,860
d. 128,360
ANS: C
Beginning Work in Process (ignored) 10,000 0% -

89. Refer to Simpson Company. What is the material cost per equivalent unit using the weighted average
method?
a. $.58
b. $.62
c. $.77
d. $.82
ANS: C
Material Costs:
Beginning $ 24,500
100,100 ÷ 130,000 units= $ 0.77 per unit

90. Refer to Simpson Company. What is the conversion cost per equivalent unit using the weighted
average method?
a. $1.01
b. $1.05
c. $1.55
d. $1.61
Chapter 6 28
ANS: C
Conversion Costs:
Beginning $ 68,905
198,958 ÷ 128,360 units= $ 1.55 per unit

91. Refer to Simpson Company. What is the cost of units completed using the weighted average method?
a. $237,510
b. $266,742
c. $278,400
d. $282,576
ANS: D
Units Completed Costs per Equivalent Unit Total
121,800 (1.55 + .77) = $2.32 $282,576
PTS: 1 DIF: Difficult OBJ: 6-3 NAT: AACSB: Analytical Skills

92. Refer to Simpson Company. What is the conversion cost per equivalent unit using the FIFO method?
a. $1.05
b. $.95
c. $1.61
d. $1.55
ANS: A
Conversion Costs:
Beginning (Ignored)
Current Period $130,053
$130,053 ÷ 123,860 units= $1.05 per unit

93. Refer to Simpson Company. What is the cost of all units transferred out using the FIFO method?
a. $204,624
b. $191,289
c. $287,004
d. $298,029
ANS: C
Beginning Inventory
10,000 units:
Raw Materials (prior period) $24,500
Direct Labor (prior period 68,905
FOH (10,000 * .55 * $1.05) 5,775
$99,180
Units Started and Completed
111,800 units * $ (.63+1.05): $187,824
Total $287,004
Chapter 6 29
Mercury Corporation
Beginning inventory (30% complete as to Material B 700 units

and 60% complete for conversion)
Started this cycle 2,000 units
Ending inventory (50% complete as to Material B and 500 units
80% complete for conversion)
Beginning inventory costs:

Material A $14,270
Material B 5,950
Conversion 5,640
Current Period costs:

Material A $40,000
Material B 70,000
Conversion 98,100
Material A is added at the start of production, while Material B is added uniformly throughout the
process.
94. Refer to Mercury Corporation. Assuming a weighted average method of process costing, compute
EUP units for Materials A and B.
a. 2,700 and 2,280, respectively
b. 2,700 and 2,450, respectively
c. 2,000 and 2,240, respectively
d. 2,240 and 2,700, respectively
ANS: B
Weighted Average Material A Material B
Beginning Work in Process 700 700
Units Started and Completed 1,500 1,500
Ending Work in Process 500 250
EUP Materials 2,700 2,450

95. Refer to Mercury Corporation Assuming a FIFO method of process costing, compute EUP units for
Materials A and B.
a. 2,700 and 2,280, respectively
b. 2,700 and 2,450, respectively
c. 2,000 and 2,240, respectively
d. 2,450 and 2,880, respectively
ANS: C
FIFO Material A Material B
Beginning Work in Process 0 490
Units Started and Completed 1,500 1,500
Ending Work in Process 500 250
Chapter 6 30
EUP Materials 2,000 2,240

96. Refer to Mercury Corporation Assuming a weighted average method of process costing, compute EUP
for conversion.
a. 2,600
b. 2,180
c. 2,000
d. 2,700
ANS: A
Weighted Average
Beginning Work in Process 700
Ending Work in Process 400
2,600

97. Refer to Mercury Corporation Assuming a FIFO method of process costing, compute EUP for
conversion.
a. 2,240
b. 2,180
c. 2,280
d. 2,700
ANS: B
FIFO
Beginning Work in Process (700 * 40%) 280
Ending Work in Process (500 * 80%) 400
2,180

98. Refer to Mercury Corporation Assuming a weighted average method of process costing, compute the
average cost per unit for Material A.
a. $20.10
b. $20.00
c. $31.25
d. $31.00
ANS: A
Weighted Average: Material A
Beginning $ 14,270
54,270 ÷ 2,700 units= $ 20.10 per unit

Chapter 6 31
99. Refer to Mercury Corporation Assuming a FIFO method of process costing, compute the average cost
per EUP for Material A.
a. $31.25
b. $20.10
c. $20.00
d. $31.00
ANS: C
Material A Costs Equivalent Units Average Cost per EUP
(Current Period)
$40,000 2,000 $20.00

per EUP for Material B.
a. $20.10
b. $31.25
c. $20.00
d. $31.00
ANS: B
Material B Costs
(Current Period) Equivalent Units Average Cost per EUP
$70,000 2,240 $31.25

average cost per EUP for Material B.
a. $20.00
b. $31.25
c. $20.10
d. $31.00
ANS: D
Material B Costs
(Beginning Inventory and Current Period) Equivalent Units Average Cost per EUP
$75,950 2,450 $31.00

per EUP for conversion.
a. $45.50
b. $45.00
c. $43.03
d. $47.59
Chapter 6 32
ANS: B
Conversion Costs Equivalent Units Average Cost per EUP
(Current Period)
$98,100 2,180 $45.00

average cost per EUP for conversion.
a. $39.90
b. $45.00
c. $43.03
d. $47.59
ANS: A
Conversion Costs
(Beginning WIP and Current Period) Equivalent Units Average Cost per EUP
$(98,100 + $5,640)=$103,640 2,600 $39.90

Guthrie Corporation
The following information is available for Guthrie Corporation for the current year:
Beginning Work in Process Costs of Beginning Work in Process:

(75% complete) 14,500 units Material $25,100
Started 75,000 units Conversion 50,000
Ending Work in Process Current Costs:
(60% complete) 16,000 units Material $120,000
Abnormal spoilage 2,500 units Conversion 300,000
Normal spoilage 5,000 units
(continuous)
Transferred out 66,000 units
All materials are added at the start of production.
104. Refer to Guthrie Corporation. Using weighted average, what are equivalent units for material?
a. 82,000
b. 89,500
c. 84,500
d. 70,000
ANS: C
Materials: Weighted Average Units % Complete Eq. Units
+ Abnormal Spoilage 2,500 100% 2,500
Chapter 6 33
105. Refer to Guthrie Corporation. Using weighted average, what are equivalent units for conversion costs?
a. 80,600
b. 78,100
c. 83,100
d. 75,600
ANS: B
Conversion: Weighted Average Units % Complete Eq Units

106. Refer to Guthrie Corporation. What is the cost per equivalent unit for material using weighted
average?
a. $1.72
b. $1.62
c. $1.77
d. $2.07
ANS: A
Weighted Average: Materials
Beginning $ 25,100
145,100 ÷ 84,500 units= $1.72 per unit

107. Refer to Guthrie Corporation. What is the cost per equivalent unit for conversion costs using weighted
average?
a. $4.62
b. $4.21
c. $4.48
d. $4.34
ANS: C
Weighted Average: Conversion
Beginning $ 50,000
$ 350,000 ÷ 78,100 units = $ 4.48 per unit

Chapter 6 34
108. Refer to Guthrie Corporation. What is the cost assigned to normal spoilage using weighted average?
a. $31,000
b. $15,500
c. $30,850
d. None of the responses are correct
ANS: D
No costs are assigned to normal, continuous spoilage. Higher costs are assigned to good units
produced.

109. Refer to Guthrie Corporation. Assume that the cost per EUP for material and conversion are $1.75 and
$4.55, respectively. What is the cost assigned to ending Work in Process?
a. $100,800
b. $87,430
c. $103,180
d. $71,680
ANS: D
Equivalent Cost per
Units Equivalent Unit Total
16,000 $1.75 $28,000
9,600 $4.55 $43,680
$71,680

110. Refer to Guthrie Corporation. Using FIFO, what are equivalent units for material?
a. 75,000
b. 72,500
c. 84,500
d. 70,000
ANS: D
Materials: FIFO
Beginning Work in Process - 0% -

111. Refer to Guthrie Corporation. Using FIFO, what are equivalent units for conversion costs?
a. 72,225
b. 67,225
c. 69,725
d. 78,100
Chapter 6 35
ANS: B
Conversion: FIFO

112. Refer to Guthrie Corporation. Using FIFO, what is the cost per equivalent unit for material?
a. $1.42
b. $1.66
c. $1.71
d. $1.60
ANS: C
FIFO: Materials
Current Period $ 120,000
120,000 ÷ 70,000 units = $1.71 per unit

113. Refer to Guthrie Corporation. Using FIFO, what is the cost per equivalent unit for conversion costs?
a. $4.46
b. $4.15
c. $4.30
d. $3.84
ANS: A
FIFO: Conversion
300,000 ÷ 67,225 units = $ 4.46 per unit

114. Refer to Guthrie Corporation. Assume that the FIFO EUP cost for material and conversion are $1.50
and $4.75, respectively. Using FIFO what is the total cost assigned to the units transferred out?
a. $414,194
b. $339,094
c. $445,444
d. $396,975
ANS: A
Transferred Out Units: FIFO Equiv Cost per Total
Units Equiv Unit
+ Completion of Beginning Inventory (14,500 * 25%) 3,625 4.75 17,219
+Units Started and Completed 51,500 6.25 321,875
Chapter 6 36

Crafton Corporation
Crafton Corporation has the following information for the current month:
Units started 100,000 units

Beginning Work in Process: (35% complete) 20,000 units
Normal spoilage (discrete) 3,500 units
Abnormal spoilage 5,000 units
Ending Work in Process: (70% complete) 14,500 units
Material $15,000
Conversion 10,000
All materials are added at the start of the production process. Crafton Corporation inspects goods at 75
percent completion as to conversion.
115. Refer to Crafton Corporation. What are equivalent units of production for material, assuming FIFO?
a. 100,000
b. 96,500
c. 95,000
d. 120,000
ANS: A
Materials: FIFO
+ Normal Spoilage--Discrete 3,500 100% 3,500

116. Refer to Crafton Corporation. What are equivalent units of production for conversion costs, assuming
FIFO?
a. 108,900
b. 103,900
c. 108,650
d. 106,525
ANS: D
Conversion: FIFO
+Normal Spoilage--Discrete 3,500 75% 2,625
Chapter 6 37

117. Refer to Crafton Corporation. Assume that the costs per EUP for material and conversion are $1.00
and $1.50, respectively. What is the amount of the period cost for July using FIFO?
a. $0
b. $9,375
c. $10,625
d. $12,500
ANS: C
Abnormal spoilage is a period cost.
Materials 5,000 * $1.00/unit $5,000
Conversion Costs 3,750 * $1.50/unit 5,625
Total Abnormal Spoilage $10,625

and $1.50, respectively. Using FIFO, what is the total cost assigned to the transferred-out units
(rounded to the nearest dollar)?
a. $245,750
b. $244,438
c. $237,000
d. $224,938
ANS: B
Transferred Out Units: FIFO
Beginning Work in Process $ 25,000
+ Completion of Beginning Inventory (20,000 * 65%) 13,000 1.50 19,500
+ Units Started and Completed 77,000 2.50 192,500
+Normal Spoilage--Discrete-Materials 3,500 1.00 3,500
+Normal Spoilage--Discrete-Conversion 2,625 1.50 3,938
Equivalent Units of Production $244,438

119. Refer to Crafton Corporation. What are equivalent units of production for material assuming weighted
average is used?
a. 107,000
b. 116,500
c. 120,000
d. 115,000
Chapter 6 38
ANS: C
Materials: Weighted Average

120. Refer to Crafton Corporation. What are equivalent units of production for conversion costs assuming
weighted average is used?
a. 113,525
b. 114,400
c. 114,775
d. 115,650
ANS: A
Conversion: Weighted Average

and $1.50, respectively. What is the cost assigned to normal spoilage, using weighted average, and
where is it assigned?
Value Assigned To
a. $7,438 Units transferred out and Ending Inventory

b. $7,438 Units transferred out
c. $8,750 Units transferred out and Ending Inventory
d. $8,750 Units transferred out
ANS: B
Cost per
Equivalent Units Equivalent Unit Total
3,500 $1.00 $3,500
2,625 $1.50 3,938
$7,438
This amount is transferred out.

Chapter 6 39
and $1.50, respectively. Assuming that weighted average is used, what is the cost assigned to ending
inventory?
a. $29,725.00
b. $37,162.50
c. $38,475.00
d. $36,250.00
ANS: A
Ending Inventory: Weighted Average
Materials 14,500 $1.00 $ 14,500.00
Conversion (14,500 * 70%) 10,150 1.50 15,225.00
Total $ 29,725.00

Knight Corporation
Knight Corporation has the following information for the current month:
Units started 95,000 units

Beginning Work in Process: (30% complete) 15,000 units
Abnormal spoilage 4,000 units
Ending Work in Process: (75% complete) 15,000 units
Material $18,000
Conversion 14,000
All materials are added at the start of the production process. Knight Corporation inspects goods at 75
percent completion as to conversion.
123. Refer to Knight Corporation. What are equivalent units of production for material, assuming FIFO?
a. 91,000
b. 92,000
c. 95,000
d. 110,000
ANS: C
Materials: FIFO

Chapter 6 40
124. Refer to Knight Corporation. What are equivalent units of production for conversion costs, assuming
FIFO?
a. 97,750
b. 100,000
c. 101,750
d. 104,500
ANS: B
Conversion: FIFO

125. Refer to Knight Corporation. Assume that the costs per EUP for material and conversion are $2.00 and
$2.25, respectively. What is the amount of the period cost for July using FIFO?
a. $0
b. $12,750
c. $14,750
d. $17,000
ANS: C
Abnormal spoilage is a period cost.
Materials 4,000 * $2.00/unit $ 8,000
Conversion Costs 3,000 * $2.25/unit 6,750
Total Abnormal Spoilage $14,750

$2.25, respectively. Using FIFO, what is the total cost assigned to the transferred-out units (rounded to
the nearest dollar)?
a. $344,938
b. $365,875
c. $376,938
d. $378,625
ANS: C
Transferred Out Units: FIFO
Beginning Work in Process $ 32,000
+ Completion of Beginning Inventory (15,000 * 70%) 10,500 $2.25 23,625
+ Units Started and Completed 73,000 4.25 310,250
+Normal Spoilage--Discrete-Materials 3,000 2.00 6,000
+Normal Spoilage--Discrete-Conversion (3,000 * 75%) 2,250 2.25 5,063
Total Costs Assigned to Transferred Units $376,938

Chapter 6 41
127. Refer to Knight Corporation. What are equivalent units of production for material assuming weighted
average is used?
a. 105,500
b. 106,000
c. 107,000
d. 110,000
ANS: D
Materials: Weighted Average

128. Refer to Knight Corporation. What are equivalent units of production for conversion costs assuming
weighted average is used?
a. 103,750
b. 104,500
c. 104,750
d. 105,500
ANS: B
Conversion: Weighted Average

$2.25, respectively. What is the cost assigned to normal spoilage, using weighted average, and where
is it assigned?
Value Assigned To
a. $11,063 Units transferred out and Ending Inventory

b. $11,063 Units transferred out
c. $12,750 Units transferred out and Ending Inventory
d. $12,750 Units transferred out
Chapter 6 42
ANS: B
Equivalent Cost per
Units Equivalent Unit Total
3,000 $2.00 $6,000
2,250 $2.25 5,063
$11,063
This amount is transferred out.

$2.25, respectively. Assuming that weighted average is used, what is the cost assigned to ending
inventory?
a. $55,312.50
b. $63,750.00
c. $66,375.00
d. $72,312.50
ANS: A
Ending Inventory: Weighted Average
Materials 15,000 $2.00 $ 30,000.00
Conversion (15,000 * 75%) 11,250 2.25 25,312.50
Total $ 55,312.50

Chapman Corporation
The following information is available for Chapman Corporation for the current month:
Started this month 80,000 units

Beginning WIP
(40% complete) 7,500 units
Abnormal spoilage 900 units
Ending WIP
(70% complete) 13,000 units

Material $10,400
Conversion 13,800
Current Costs:
Material $120,000
Conversion 350,000
All materials are added at the start of production and the inspection point is at the end of the process.
Chapter 6 43
131. Refer to Chapman Corporation. What are equivalent units of production for material using FIFO?
a. 80,000
b. 79,100
c. 78,900
d. 87,500
ANS: A
Materials: FIFO
-
Beginning Work in Process 0% -
+ Normal Spoilage (discrete) 1,100 100% 1,100
+ Abnormal Spoilage 900 100% 900

132. Refer to Chapman Corporation. What are equivalent units of production for conversion costs using
FIFO?
a. 79,700
b. 79,500
c. 81,100
d. 80,600
ANS: D
Conversion: FIFO % Complete
Units EUP

133. Refer to Chapman Corporation. What are equivalent units of production for material using weighted
average?
a. 86,600
b. 87,500
c. 86,400
d. 85,500
ANS: B
Materials: Weighted Average Units % Complete EUP
Chapter 6 44

134. Refer to Chapman Corporation. What are equivalent units of production for conversion costs using
weighted average?
a. 83,600
b. 82,700
c. 82,500
d. 81,600
ANS: A
Conversion: FIFO Units % Complete EUP

135. Refer to Chapman Corporation. What is cost per equivalent unit for material using FIFO?
a. $1.63
b. $1.37
c. $1.50
d. $1.56
ANS: C
FIFO: Materials
$ 120,000 ÷ 80,000 $ 1.50 per unit
units=

136. Refer to Chapman Corporation. What is cost per equivalent unit for conversion costs using FIFO?
a. $4.00
b. $4.19
c. $4.34
d. $4.38
ANS: C
FIFO: Conversion
$ 350,000 ÷ 80,600 units = $ 4.34 per unit

Chapter 6 45
137. Refer to Chapman Corporation. What is cost per equivalent unit for material using weighted average?
a. $1.49
b. $1.63
c. $1.56
d. $1.44
ANS: A
Weighted Average:
Materials
Beginning $ 10,400
130,400 ÷ 87,500 units = $ 1.49 /unit

138. Refer to Chapman Corporation. What is cost per equivalent unit for conversion costs using weighted
average?
a. $4.19
b. $4.41
c. $4.55
d. $4.35
ANS: D
Weighted Average:
Conversion
Beginning $ 13,800
363,800 ÷ 83,600 units = $4.35 per unit

139. Refer to Chapman Corporation. What is the cost assigned to ending inventory using FIFO?
a. $75,920
b. $58,994
c. $56,420
d. $53,144
ANS: B
Ending Inventory: FIFO
Materials 13,000 $ 1.50 $ 19,500
Conversion (13,000 * 70%) 9,100 4.34 39,494
Total $ 58,994

140. Refer to Chapman Corporation. What is the cost assigned to abnormal spoilage using FIFO?
a. $1,350
b. $3,906
c. $5,256
d. $6,424
Chapter 6 46
ANS: C
Abnormal
Spoiled Units Price per Equivalent Unit Total
900 $5.84 $5,256

141. Refer to Chapman Corporation. What is the cost assigned to normal spoilage and how is it classified
using weighted average?
a. $6,193 allocated between WIP and Transferred Out
b. $6,424 allocated between WIP and Transferred Out
c. $6,193 assigned to loss account
d. $6,424 assigned to units Transferred Out
ANS: D
Normal
Spoiled Units Price per Equivalent Unit Total
1,100 $5.84 $6,424 Transferred Out

142. Refer to Chapman Corporation. What is the total cost assigned to goods transferred out using weighted
average?
a. $435,080
b. $429,824
c. $428,656
d. $423,400
ANS: B
Goods Transferred Out/ Price per Eq Unit Total
73,600 $5.84 $429,824

Chapter 1
Managerial Accounting and the Business Environment
True/False
1. Decision making is a distinct management activity that should be separated from planning,
F directing and motivating, and controlling activities.
Medium
2. When carrying out their directing and motivating activities, managers mobilize the
T organization's human and other resources so that the organization's plans are carried out.
Easy
3. When carrying out planning activities, managers rely on feedback to ensure that the plan is
F actually carried out and is appropriately modified as circumstances change.
Medium
4. When carrying out their controlling activities, managers select a course of action and specify
F how the action will be implemented.
Medium
5. The controller occupies a staff position in an organization.

T
Medium
6. Persons occupying staff positions provide support and assistance to other parts of the
T organization.
Easy
7. Informal relationships and channels of communication often develop that do not appear on the
T organization chart.
Easy
8. Managerial accounting places less emphasis on precision and more emphasis on flexibility and
T relevance of data than does financial accounting.
Medium
9. Managerial accounting is not governed by generally accepted accounting principles (GAAP).

T
Easy
10. Just-in-time is a production system in which units are produced and materials are purchased
T only as needed to meet actual customer demand.
Easy
11. In a just-in-time system, the flow of goods is controlled by a push approach in which partially
F completed units are "pushed" forward to the next workstation as soon as work is completed at
Medium the prior workstation.
12. There is a greater danger of undermining employee morale with Process Reengineering than

T with Total Quality Management
Medium
13. Total Quality Management involves a focus on serving the customer and systematic problem-
T solving using teams made up of front-line workers.
Easy
14. The Plan-Do-Act-Check Cycle involves applying the scientific method to problem-solving.
T
Easy
15. In Process Reengineering, a business process is diagrammed in detail, questioned, and then
T completely redesigned in order to eliminate unnecessary steps, reduce opportunities for errors,
Easy and reduce costs.
16. In JIT purchasing, as many suppliers as possible are used so as to avoid relying too much on a
F few suppliers.
Easy
17. Efforts designed to increase the rate of output should generally be applied to non-constraint
F workstations.
Medium
18. The Standards of Ethical Conduct promulgated by the Institute of Management Accountants
T specifically states, among other things, that management accountants have a responsibility to
Easy disclose fully all relevant information that could be reasonably be expected to influence an
intended user's understanding of the reports, comments and recommendations presented.
19. The Standards of Ethical Conduct promulgated by the Institute of Management Accountants
F specifically states, among other things, that management accountants have a responsibility to
Medium inform responsible journalists of any wrongdoing they uncover in the organization.
20 Work in process inventories consist of units that are only partially complete and will require
T further work before they are ready for sale to a customer.
Easy

Multiple Choice
21. Obtaining feedback is generally identified most directly with which of the functions of
C management?
Medium a. Planning
b. Directing and motivating
c. Controlling
d. Decision making
22. The plans of management are expressed formally in:

D a. the annual report to shareholders.
Easy b. Form 10-Q submitted to the Securities and Exchange Commission (SEC).
c. performance reports.
d. budgets.
23. A staff position:

B a. relates directly to the carrying out of the basic objectives of the organization.
Easy b. is supportive in nature, providing service and assistance to other parts of the organization.
c. is superior in authority to a line position.
d. none of these.
24. Which of the following persons would occupy a line position in a department store?
B I. Sales manager
Medium II. Manager, furniture department
III. Manager, advertising department
IV. Manager, personnel department
a. Only I
b. Only I and II
c. Only I, II, III
d. I, II, III, IV
25. The controller occupies:

B a. a line position.
Easy b. a staff position.
c. neither a line nor a staff position, since the accounting department must be
independent.
d. both a line and a staff position.
26. Managerial accounting:

A a. has its primary emphasis on the future.
Easy b. is required by regulatory bodies such as the SEC.
c. focuses on the organization as a whole, rather than on the organization's segments.
d. Responses a, b, and c are all correct.

27. Which of the following statements are true regarding financial and managerial accounting?
D I. Both are mandatory.
Medium II. Both rely on the same underlying financial data.
III. Both emphasize the segments of an organization, rather
than just looking at the organization as a whole.
IV. Both are geared to the future, rather than to the past.
a. I, II, III, and IV

b. Only II, III and IV
c. Only II and III
d. Only II
28. Managerial accounting places considerable weight on:

D a. generally accepted accounting principles.
Easy b. the financial history of the entity.
c. ensuring that all transactions are properly recorded.
d. detailed segment reports about departments, products, and customers.
29. For internal uses, managers are more concerned with receiving information that is:
C a. completely objective and verifiable.
Easy b. completely accurate and precise.
c. relevant, flexible, and immediately available.
d. relevant, completely accurate, and precise.
30. The benefits of a successful Just-In-Time system include all of the following except:
B a. funds tied up in inventories are released for use elsewhere.
Medium b. inventory buffers are increased.
c. throughput time is reduced.
d. defect rates are decreased.
31. A key concept of the JIT inventory system is:

D a. the raw materials, work in process, and finished goods inventories of manufacturing
Medium companies act as buffers so that operations can proceed smoothly even if suppliers are
late with deliveries or a department is unable to operate for a brief period due to
breakdowns or other reasons.
b. the use of many suppliers so as to ensure rapid delivery of materials for production.
c. the maintenance of a stock of raw materials so that defective materials can be replaced
quickly so as to maintain a high rate of productivity.
d. inventories are costly to carry and can be kept to minimum levels or eliminated completely
with careful planning.

32. The just in time (JIT) concept applies to which of the following:
C
Easy I. The acquisition of raw materials.
II. The assembly of manufactured parts in products.
III. The shipment of finished products to customers.
a. I.
b. I, III.
c. I, II, III.
d. II, III.
33. The flow of goods through a JIT system is based on:

D a. a workstation efficiently completing its processing of a batch of units so that the units
Medium can proceed forward to the next workstation before the next workstation is ready to
receive them.
b. processing goods in large batch sizes rather than less economical small batches.
c. maintaining a stockpile of raw materials in anticipation of materials shortages.
d. producing to meet customer demand with no buildup of inventory at any point in the
production process.
34. A successful JIT system is based upon which of the following concepts?
D a. The company must rely upon a large number of suppliers to ensure frequent deliveries of
Medium small lots.
b. The company should always choose those suppliers offering the lowest prices.
c. The company should avoid long-term contracts with suppliers so as to exert pressure
on suppliers to make prompt and frequent deliveries.
d. A small number of suppliers make frequent deliveries of specific quantities thus avoiding
the buildup of large inventories of materials on hand.
35. The plant layout under the JIT concept emphasizes:

B a. a functional approach in which machines performing the same function are grouped
Medium together.
b. a product approach in which all machines needed in the production of a particular
product are grouped together.
c. a facilities approach in which all machines of a similar nature are located in one plant
building.
d. a concentrated approach in which the processing of certain subassemblies is performed by
a small number of independent machine shops under contract to the manufacturing
company.

36. The key point of a focused factory is that:
C a. the flow line of a product must be straight.
Medium b. the flow line of product must be U-shaped.
c. all machines in a product flow line are tightly grouped together so that partially-
completed units are not shifted from place to place all over the factory.
d. products should be moved from one group of machines to another even if this involves
movements across the plant or to another building so as to exploit fully the benefits of
worker specialization.
37. A company adopting the JIT approach would:

B a. produce large batches of products so as to recoup the costs associated with setups.
Medium b. attempt to reduce setup time so as to economically produce in smaller batches.
c. adapt a functional plant layout so as to enhance production flexibility.
d. require workers to become highly specialized in operating a single machine.
38. The Plan-Do-Check-Act Cycle includes all of the following except:

B a. studying the current process.
Medium b. determining which manager is responsible for existing problems.
c. implementing a plan on a small scale if possible.
d. analyzing data to identify possible causes for any problems.
39. In Total Quality Management, problems are solved by teams consisting of:
C a. top managers.
Easy b. outside consultants and quality control engineers.
c. front-line workers.
d. customers and sales representatives.
40. 40. A danger in Process Reengineering is that:

C a. non-value-added activities may be eliminated.
Medium b. some resources may no longer be required.
c. employee morale may suffer.
d. all of the above.

41. The Standards of Ethical Conduct for Practitioners of Management Accounting and Financial
C Management contains a policy regarding confidentiality that requires that management
Hard accountants:
a. refrain from disclosing confidential information acquired in the course of their work except
when authorized by management.
b. refrain from disclosing confidential information acquired in the course of their work in all
situations.
c. refrain from disclosing confidential information acquired in the course of their work except
when authorized by management, unless legally obligated to do so.
d. refrain from disclosing confidential information acquired in the course of their work in all
cases since the law requires them to do so.
42. The Standards of Ethical Conduct for Practitioners of Management Accounting and Financial
A Management states that significant ethical issues should be discussed first with an immediate
Medium superior unless the superior is involved. If satisfactory resolution cannot be achieved when the
problem is initially presented, then the issues should be:
a. submitted to the next higher managerial level.
b. submitted to the chief executive officer of the firm.
c. submitted to the audit committee, executive committee, board of directors, or owners.
d. submitted to outside legal counsel.
43. A traditional functional factory layout results in:

B a. minimal material handling.
Medium b. large work in process inventories.
c. minimal throughput time.
d. low storage costs.
44. An example of a performance report would be:

D a. an income statement reporting actual results for the past month.
Medium b. an income statement showing the amounts budgeted for the past month.
c. a balance sheet showing the actual financial position at the end of the past month.
d. a production report showing budgeted and actual production for the past month.

Essay
45. You have recently been hired by a manufacturing company. Two days ago, you met with the
Medium top management of the your company to discuss future strategies for the firm. During the
meeting the president of the company expressed concern about the profitability of the company
and the company's ability to compete effectively in the future. You responded to the president's
concerns by mentioning some articles you had read in professional accounting journals
regarding JIT. The president responded to your comments by saying that although the JIT
concept sounded interesting, no one in the company was knowledgeable about JIT. The
president then requested that you prepare a brief summary of JIT for the next strategic
planning meeting.
Required:
a. List the five key elements involved in the successful operation of a JIT system.
b. List at least five benefits cited as coming from a JIT system.
Answer:
a. The five key elements involved in the successful operation
of JIT system are:
1. A company must learn to rely on a few suppliers who are willing to
make frequent deliveries in small lots of defect-free material.
2. A company must improve the manufacturing flow lines in its
plants by physically locating together all of the machines needed in the
production of a particular product.
3. A company must reduce setup times by creating flow lines that are
dedicated to a single product so that production occurs in smaller batches
resulting in reduced levels of work in process and finished goods inventories.
4. A company must develop a system of total quality control over its part
and materials, such quality being monitored by both suppliers and employees so as to
avoid interruptions in production.
5. A company must develop a flexible work force of multi-
skilled workers capable of operating the various machines in the
manufacturing flow lines as well as performing minor repairs and maintenance
work when no demands are made by the next work station.

b. A JIT system should produce the following benefits:
1. Worker productivity is increased through teams working in a cellular
plant layout organized in product flow lines.
2. Setup time is decreased, resulting in smaller batch sizes and smoother
flow of goods between workstations.
3. Total production time is decreased, resulting in greater output and quicker
response to customer needs.
4. Waste is reduced as a result of implementation of a Total Quality
Control program.
5. Inventories of all types are reduced through better control by
suppliers, less wait time between work stations, smaller production
runs, and the production of goods to customer orders.
6. Investment funds previously tied up in inventories are released for use
elsewhere in the company.
7. Usable space in the plant is increased as areas
previously used to store inventory are made available for other, more
productive uses.

Chapter 3
Systems Design: Job-Order Costing
True/False
1. Job-order costing would be more likely to be used than process costing

T in situations where many different products or services are produced
Easy each period to customer specifications.
2. Job-order costing is used in manufacturing companies and process

F costing is used in service firms.
Easy
3. In a job-order costing system, costs are traced to departments and

F then allocated to units of product using an average process.
Easy
4. Normally a job cost sheet is not prepared for a job until after the
F job has been completed.
Medium
5. Job cost sheets contain entries for actual direct material, actual
F direct labor, and actual manufacturing overhead cost incurred in
Easy completing a job.
6. In order to improve the accuracy of unit costs, most companies

F recompute the predetermined overhead rate each month.
Medium
7. The following journal entry would be made to apply overhead cost to

T jobs in a job-order costing system:
Medium
Work in Process ............... XXX
Manufacturing Overhead ... XXX
8. When the predetermined overhead rate is based on direct labor-hours,

T the amount of overhead applied to a job is proportional to the amount
Easy of actual direct labor-hours incurred on the job.
9. When completed goods are sold the transaction is recorded as a debit

F to Cost of Goods Sold and a credit to Work in Process.
Medium
10. The most common accounting treatment of underapplied manufacturing

F overhead is to transfer it to the Manufacturing Overhead control
Hard account.
11. In job-order costing, the Work in Process inventory account contains

F the actual costs of direct labor, direct materials, and manufacturing
Medium overhead incurred on partially completed jobs.
12. Nonmanufacturing costs are expensed as incurred, rather than going

T into the Work in Process account.
Easy
13. A credit balance in the Manufacturing Overhead account at the end of

F the year means that overhead was underapplied.

Medium
14. Indirect materials are not charged to a specific job but rather are
T included in manufacturing overhead.
Easy
15. The labor time ticket contains a detailed summary of the direct and
T the indirect labor hours of an employee.
Easy
Multiple Choice
16. Which of the following companies would be most likely to use a job-
B order costing system rather than a process costing system?
Easy a. fast food restaurant
b. shipbuilding
c. crude oil refining
d. candy making
17. The computation of unit product costs involves an averaging process

B in:
Easy
CMA Job-order costing Process costing
adapted a. Yes No
b. Yes Yes
c. No Yes
d. No No
18. Work in Process is a control account supported by detailed cost data

A contained in:
Easy a. job cost sheets.
b. the Manufacturing Overhead account.
c. the Finished Goods inventory account.
d. purchase requisitions.
19. In job-order costing, all of the following statements are correct with
D respect to labor time and cost except:
Medium a. time tickets are kept by employees showing the amount of work
on specific jobs.
b. the job cost sheet for a job will contain all direct labor
charges to that particular job.
c. labor cost that can be traced to a job only with a great deal
of effort is treated as part of manufacturing overhead.
d. a machine operator performing routine annual maintenance work
on a piece of equipment would charge the maintenance time to a
specific job.
20. In a job order cost system, the journal entry to record the
A application of overhead cost to jobs would include:
Medium a. a credit to the Manufacturing Overhead account.
b. a credit to the Work in Process inventory account.
c. a debit to Cost of Goods Sold.
d. a debit to the Manufacturing Overhead account.
21. In a job-order cost system, the use of indirect materials would

C usually be recorded as a debit to:
Medium a. Raw Materials.
b. Work in Process.
c. Manufacturing Overhead.
d. Finished Goods.

22. In a job order cost system, the use of direct materials previously
A purchased usually is recorded as a debit to:
Easy a. Work in Process inventory.
CPA b. Finished Goods inventory.
adapted c. Manufacturing Overhead.
d. Raw Materials inventory.
23. In a job-order cost system, direct labor costs usually are recorded
D initially with a debit to:
Easy a. Manufacturing Overhead.
b. Finished Goods inventory.
c. Direct Labor Expense.
d. Work in Process.
24. If a company applies overhead to jobs on the basis of a predetermined

A overhead rate, a credit balance in the Manufacturing Overhead account
Medium at the end of any period means that:
a. more overhead cost has been charged to jobs than has been
incurred during the period.
b. more overhead cost has been incurred during the period than has
been charged to jobs.
c. the amount of overhead cost charged to jobs is greater than the
estimated cost for the period.
d. the amount of overhead cost charged to jobs is less than the
estimated overhead cost for the period.

25. In a job order cost system, the amount of overhead cost that has been
D applied to a job that remains incomplete at the end of a period:
Medium a. is deducted on the Income Statement as overapplied overhead.
b. is closed to Cost of Goods Sold.
c. is transferred to Finished Goods at the end of the period.
d. is part of the ending balance of the Work in Process inventory
account.
26. The Work in Process inventory account of a manufacturing company shows

B a balance of P2,400 at the end of an accounting period. The job cost
Hard sheets of the two uncompleted jobs show charges of P400 and P200 for
direct materials, and charges of P300 and P500 for direct labor. From
this information, it appears that the company is using a predetermined
overhead rate, as a percentage of direct labor costs, of:
a. 80%.
b. 125%.
c. 300%.
d. 240%.
27. Freeman Company uses a predetermined overhead rate based on direct

C labor hours to apply manufacturing overhead to jobs. At the beginning
Medium of the year, the company estimated manufacturing overhead would be
P150,000 and direct labor hours would be 10,000. The actual figures
for the year were P186,000 for manufacturing overhead and 12,000
direct labor hours. The cost records for the year will show:
a. overapplied overhead of P30,000.
b. underapplied overhead of P30,000.
c. underapplied overhead of P6,000.
d. overapplied overhead of P6,000.
28. Harrell Company uses a predetermined overhead rate based on direct

B labor hours to apply manufacturing overhead to jobs. At the beginning
Medium of the year the company estimated its total manufacturing overhead
cost at P400,000 and its direct labor-hours at 100,000 hours. The
actual overhead cost incurred during the year was P350,000 and the
actual direct labor hours incurred on jobs during the year was 90,000
hours. The manufacturing overhead for the year would be:
a. P10,000 underapplied.
b. P10,000 overapplied.
c. P50,000 underapplied.
d. P50,000 overapplied.

29. For the current year, Paxman Company incurred P150,000 in actual
A manufacturing overhead cost. The Manufacturing Overhead account showed
Hard that overhead was overapplied in the amount of P6,000 for the year. If
the predetermined overhead rate was P8.00 per direct labor hour, how
many hours were worked during the year?
a. 19,500 hours
b. 18,000 hours
c. 18,750 hours
d. 17,750 hours
30. Carlo Company uses a predetermined overhead rate based on direct labor
B hours to apply manufacturing overhead to jobs. The company estimated
Medium manufacturing overhead at P255,000 for the year and direct labor-hours
CPA at 100,000 hours. Actual manufacturing overhead costs incurred during
adapted the year totaled P270,000. Actual direct labor hours were 105,000.
What was the overapplied or underapplied overhead for the year?
a. P2,250 overapplied.
b. P2,250 underapplied.
c. P15,000 overapplied.
d. P15,000 underapplied.
31. Sawyer Manufacturing Company uses a predetermined overhead rate based

D on direct labor hours to apply manufacturing overhead to jobs. Last
Medium year, the company worked 57,000 actual direct labor hours and incurred
P345,000 of actual manufacturing overhead cost. The Company had
estimated that it would work 55,000 direct labor hours during the year
and incur P330,000 of manufacturing overhead cost. The company's
manufacturing overhead cost for the year was:
a. overapplied by P15,000.
b. underapplied by P15,000.
c. overapplied by P3,000.
d. underapplied by P3,000.
32. The Watts Company uses predetermined overhead rates to apply

D manufacturing overhead to jobs. The predetermined overhead rate is
Easy based on labor cost in Dept. A and on machine hours in Dept. B. At the
beginning of the year, the company made the following estimates:
Dept. A Dept. B
Direct labor cost ........ P30,000 P40,000
Manufacturing overhead ... 60,000 50,000
Direct labor hours ....... 6,000 8,000
Machine hours ............ 2,000 10,000
What predetermined overhead rates would be used in Dept A and Dept B,

respectively?
a. 50% and P8.00
b. 50% and P5.00
c. P15 and 110%
d. 200% and P5.00

33. Compton Company uses a predetermined overhead rate in applying overhead
C to production orders on a labor cost basis in Department A and on a
Easy machine hours basis in Department B. At the beginning of the most
recently completed year, the company made the following estimates:
Dept. A Dept. B
Direct labor cost ........ P56,000 P33,000
Factory overhead ......... 67,200 45,000
Direct labor hours ....... 8,000 9,000
Machine hours ............ 4,000 15,000
What predetermined overhead rate would be used in Department A and

Department B, respectively?
a. 83% and P5
b. 83% and P3
c. 120% and P3
d. 83% and P3
34. Kelsh Company uses a predetermined overhead rate based on machine

C hours to apply manufacturing overhead to jobs. The company has
Medium provided the following estimated costs for next year:
Direct materials .................. P10,000

Direct labor ...................... 30,000
Sales commissions ................. 40,000
Salary of production supervisor ... 20,000
Indirect materials ................ 4,000
Advertising expense ............... 8,000
Rent on factory equipment ......... 10,000
Kelsh estimates that 5,000 direct labor hours and 10,000 machine hours
will be worked during the year. The predetermined overhead rate per
hour will be:
a. P6.80.
b. P6.40.
c. P3.40.
d. P8.20.

35. Simplex Company has the following estimated costs for next year:
D
Medium Direct materials .................... P15,000
Direct labor ........................ 55,000
Sales commissions ................... 75,000
Salary of production supervisor ..... 35,000
Indirect materials .................. 5,000
Advertising expense ................. 11,000
Rent on factory equipment ........... 16,000
Simplex estimates that 10,000 direct labor and 16,000 machine hours will
be worked during the year. If overhead is applied on the basis of
machine hours, the overhead rate per hour will be:
a. P8.56.
b. P7.63.
c. P6.94.
d. P3.50.
36. CR Company has the following estimated costs for the next year:
A
Medium Direct materials ..................... P 4,000
Direct labor ......................... 20,000
Rent on factory building ............. 15,000
Sales salaries ....................... 25,000
Depreciation on factory equipment .... 8,000
Indirect labor ....................... 10,000
Production supervisor’s salary ....... 12,000
CR Company estimates that 20,000 labor hours will be worked during the
year. If overhead is applied on the basis of direct labor hours, the
overhead rate per hour will be:
a. P2.25.
b. P3.25.
c. P3.45.
d. P4.70.
37. Lucy Sportswear manufactures a specialty line of T-shirts. The company

D uses a job-order costing system. During March, the following costs
Medium were incurred on Job ICU2: direct materials P13,700 and direct labor
P4,800. In addition, selling and shipping costs of P7,000 were
incurred on the job. Manufacturing overhead was applied a the rate of
P25 per machine-hour and Job ICU2 required 800 machine-hours. If Job
ICU2 consisted of 7,000 shirts, the Cost of Goods Sold per shirt was:
a. P6.50
b. P6.00
c. P5.70
d. P5.50

38. Lucas Co. has a job order cost system. For the month of April, the
B following debits (credits) appeared in the Work in Process account:
Hard
CPA April
adapted 1 Balance .................. P 24,000
30 Direct materials ......... 80,000
30 Direct labor ............. 60,000
30 Manufacturing overhead ... 54,000
30 To finished goods ........ (200,000)
Lucas applies overhead at a predetermined rate of 90% of direct labor

cost. Job No. 100, the only job still in process at the end of April,
has been charged with manufacturing overhead of P4,500. The amount of
direct materials charged to Job No. 100 was:
a. P18,000.
b. P8,500.
c. P5,000.
d. P4,500.
39. Worrell Corporation has a job-order cost system. The following debits
C (credits) appeared in the Work in Process account for the month of
Hard March:
CPA
adapted March 1, balance ....................... P 12,000
March 31, direct materials ............. 40,000
March 31, direct labor ................. 30,000
March 31, manufacturing overhead applied 27,000
March 31, to finished goods ............ (100,000)
Worrell applies overhead at a predetermined rate of 90% of direct

labor cost. Job No. 232, the only job still in process at the end of
March, has been charged with manufacturing overhead of P2,250. What
was the amount of direct materials charged to Job No. 232?
a. P2,250
b. P2,500
c. P4,250
d. P9,000

40. The Samuelson Company uses a job-order cost system. The following data
D were recorded for June:
Medium
June 1 Added During June
Work in Process Direct Direct
Job Number Inventory Materials Labor
475 P1,000 P 400 P 200
476 P 900 P 600 P 800
477 P 800 P 900 P1,400
478 P 600 P 1,100 P1,900
Overhead is charged to production at 70% of the direct materials cost.

Jobs 475, 477, and 478 have been delivered to the customer.
Samuelson’s Work in Process inventory balance on June 30 was:

a. P6,450.
b. P2,860.
c. P2,300.
d. P2,720.
41. Beaver Company used a predetermined overhead rate last year of P2 per
B direct labor hour, based on an estimate of 25,000 direct labor hours
Easy to be worked during the year. Actual costs and activity during the
year were:
Actual manufacturing overhead cost incurred P47,000

Actual direct labor hours worked .......... 24,000
The under- or overapplied overhead last year was:

42. Dowan Company uses a predetermined overhead rate based on direct labor
B hours to apply manufacturing overhead to jobs. Last year Dowan Company
Hard incurred P156,600 in actual manufacturing overhead cost. The
Manufacturing Overhead account showed that overhead was underapplied
by P12,600 for the year. If the predetermined overhead rate is P6.00
per direct labor hour, how many hours did the company work during the
year?
a. 26,000 hours
b. 24,000 hours
c. 28,200 hours
d. 25,000 hours

43. Paul Company used a predetermined overhead rate during the year just
D completed of P3.50 per direct labor hour, based on an estimate of 22,000
Medium direct labor hours to be worked during the year. Actual overhead cost
and activity during the year were:
Actual manufacturing overhead cost incurred .. P90,000

Actual direct labor hours worked ............. 25,000
The under- or overapplied overhead for the year would be:

44. Sweet Company applies overhead to jobs on the basis of 125% of direct
A labor cost. If Job 107 shows P10,000 of manufacturing overhead
Medium applied, how much was the direct labor cost on the job?
a. P8,000
b. P12,500
c. P11,250
d. P10,000
45. Knowlton Company applies overhead to completed jobs on the basis of 70%
C of direct labor cost. If Job 501 shows P21,000 of manufacturing overhead
Medium applied, the direct labor cost on the job was:
a. P14,700.
b. P21,000.
c. P30,000.
d. P27,300.
46. The balance in White Company's Work in Process inventory account was
A P15,000 on August 1 and P18,000 on August 31. The company incurred
Hard P30,000 in direct labor cost during August and requisitioned P25,000
in raw materials (all direct material). If the sum of the debits to
the Manufacturing Overhead account total P28,000 for the month, and if
the sum of the credits totaled P30,000, then:
a. Finished Goods was debited for P82,000 during the month.
b. Finished Goods was credited for P83,000 during the month.
c. Manufacturing Overhead was underapplied by P2,000 at the end of
the month.
d. Finished Goods was debited for P85,000 during the month.

47. Under Lamprey Company's job-order costing system, manufacturing
B overhead is applied to Work in Process inventory using a predetermined
Medium overhead rate. During January, Lamprey's transactions included the
following:
Direct materials issued to production .... P 90,000

Indirect materials issued to production .. 8,000
Manufacturing overhead cost incurred ..... 125,000
Manufacturing overhead cost applied ...... 113,000
Direct labor cost incurred ............... 107,000
Lamprey Company had no beginning or ending inventories. What was the

cost of goods manufactured for January?
a. P302,000
b. P310,000
c. P322,000
d. P330,000
48. Compute the amount of direct materials used during November if P20,000
A in raw materials were purchased during the month and if the
Easy inventories were as follows:
Balance Balance
November 1 November 30
Raw materials .... P 4,000 P 3,000
Work in process .. 12,000 15,000
Finished goods ... 24,000 27,000
a. P21,000.
b. P19,000.
c. P18,000.
d. P15,000.
49. Sharp Company's records show that overhead was overapplied by P10,000
C last year. This overapplied overhead was closed out to the Cost of
Hard Goods Sold account at the end of the year. In trying to determine why
overhead was overapplied by such a large amount, the company has
discovered that P6,000 of depreciation on factory equipment was
charged to administrative expense in error. Given the above
information, which of the following statements is true?
a. Manufacturing overhead was actually overapplied by P16,000 for
the year.
b. The company's net income is understated by P6,000 for the
year.
c. Under the circumstances posed above, the error in recording
depreciation would have no effect on net income for the year.
d. The P6,000 in depreciation should have been charged to Work in
Process rather than to administrative expense.

Reference: 3-1
Wayne company uses a job costing system and applies overhead to jobs using a
predetermined overhead rate based on direct labor-hours. The company had the
following inventories at the beginning and end of March:
March 1 March 31
Direct Materials....... P36,000 P30,000
Work in Process........ 18,000 12,000
Finished Goods......... 54,000 72,000
The following additional data pertain to operations during March:
Direct materials purchased... P84,000

Direct labor cost............ P60,000
Direct labor rate............ P7.50 per direct labor-hour
Overhead rate................ P10.00 per direct labor-hour
50. During March total debits to Work in Process were:

D a. P84,000.
Medium b. P220,000.
CPA c. P144,000.
adapted d. P230,000.
Refer To:
3-1
51. The Cost of Goods Manufactured for March was:

D a. P212,000.
Medium b. P218,000.
CPA c. P230,000.
Refer To:
3-1
Reference: 3-2
Hamilton Company uses job-order costing. Manufacturing overhead is applied using a
predetermined rate of 150% of direct labor cost. Any over- or underapplied
manufacturing overhead is closed to the Cost of Goods Sold account at the end of each
month. Additional information is available as follows:
 Job 101 was the only job in process at January 31. The job cost sheet for
this job contained the following costs at the beginning of the month:
Direct materials .................. P4,000

Direct labor ...................... P2,000
Applied manufacturing overhead .... P3,000
 Jobs 102, 103, and 104 were started during February.

 Direct materials requisitions for February totaled P26,000.
 Direct labor cost of P20,000 was incurred for February.
 Actual manufacturing overhead was P32,000 for February.
 The only job still in process at February 28 was Job 104, with costs of
P2,800 for direct materials and P1,800 for direct labor.
52. The cost of goods manufactured for February was:

A a. P77,700.
Medium b. P78,000.
CPA c. P79,700.
adapted d. P85,000.
Refer To:
3-2
53. For the month of February, the manufacturing overhead was:

D a. P700 overapplied.
Medium b. P1,000 overapplied.
CPA c. P2,000 overapplied.
adapted d. P2,000 underapplied.
Refer To:
3-2
Reference: 3-3
Meyers Company had the following inventory balances at the beginning and end of
November:
November 1 November 30
Raw Materials ...... P17,000 P20,000
Finished Goods ..... P50,000 P44,000
Work in Process .... P 9,000 P11,000
During November, P39,000 in raw materials (all direct materials) were drawn from
inventory and used in production. The company's predetermined overhead rate was P8
per direct labor-hour, and it paid its direct labor workers P10 per hour. A total of
300 hours of direct labor time had been expended on the jobs in the beginning Work in
Process inventory account. The ending Work in Process inventory account contained
P4,700 of direct materials cost. The Company incurred P28,000 of actual manufacturing
overhead cost during the month and applied P26,400 in manufacturing overhead cost.
54. The raw materials purchased during November totaled:

A a. P42,000.
Medium b. P45,000.
Refer To: c. P36,000.
3-3 d. P39,000.
55. The direct materials cost in the November 1 Work in Process inventory
C account totaled:
Medium a. P6,600.
Refer To: b. P6,000.
3-3 c. P3,600.
d. P3,000.

56. The actual direct labor hours worked during November totaled:
B a. 2,800 hours.
Hard b. 3,300 hours.
Refer To: c. 3,500 hours.
3-3 d. 3,600 hours.
57. The amount of direct labor cost in the November 30 Work in Process
C inventory was:
Hard a. P2,800.
3-3 c. P3,500.
d. P6,300.
Reference: 3-4
The following T accounts are for Stanford Company:
Raw Materials Cost of Goods Sold

Beg. Bal. 7,000 | 24,000(2) |
(1)19,000 | |
| |
| |
| |
Sales Salaries Expense Work in Process

(4) 11,000 | Beg. Bal. 11,000 | ? (7)
| (2) 15,000 |
| (4) 18,000 |
| (6) 31,000 |
| |
Accounts Payable Manufacturing Overhead

| 19,000 (1) (2) 9,000 | 31,000 (6)
| 5,000 (5) (3) 16,000 |
| (4) 8,000 |
| (5) 5,000 |
| |
Wages & Salaries Payable Finished Goods

| 7,000 Beg. Bal. Beg. Bal. 18,000 |
| 37,000 (4) (7) 62,000 |
| End. Bal. 15,000 |
| |
Accumulated Depreciation—
Factory
| 82,000 Beg. Bal.
| 16,000 (3)

58. The indirect labor cost is:
A a. P8,000.
Hard b. P15,000.
3-4 d. P37,000.
59. The cost of goods manufactured is:

D a. P82,000.
Hard b. P64,000.
3-4 d. P62,000.
60. The cost of goods sold (after adjustment for under- or overapplied
C overhead) is:
Hard a. P58,000.
3-4 c. P72,000.
d. P65,000.
61. The manufacturing overhead applied is:

B a. P24,000.
Medium b. P31,000.
3-4 d. P42,000.
62. The cost of direct materials used is:

B a. P14,000.
Hard b. P15,000.
3-4 d. P24,000.
63. The ending Work in Process account balance would be:

A a. P13,000.
Hard b. P75,000.
3-4 d. P64,000.
Reference: 3-5
Mallet Company has only Job 844 in process on March 1 of the current year. The job has
been charged with P2,000 of direct material cost, P2,500 of direct labor cost, and
P1,750 of manufacturing overhead cost. The company assigns overhead cost to jobs at a
predetermined rate of 70% of direct labor cost. Any under- or overapplied overhead
cost is closed to Cost of Goods Sold at the end of the month.

During March, the following activity and amounts were recorded by the company:
Raw materials (all direct materials):

Purchased during the month ..................... P29,500
Used in production ............................. P30,500
Labor:
Direct labor hours worked during the month ..... 2,500
Direct labor cost incurred ..................... P26,500
Indirect labor costs incurred .................. P5,500
Manufacturing overhead costs incurred (total) .. P18,500
Inventories:
Raw materials (all direct) March 31 ............ P7,500
Work in process, March 31 ...................... P14,500
Work in process inventory contains P5,500 of direct labor cost.
64. The amount of direct materials cost in the March 31 work in process
A inventory account was:
Medium a. P5,150.
3-5 c. P9,000.
d. P3,850.
65. The cost of goods manufactured for March was:

A a. P67,300
Hard b. P67,250
Refer To: c. P81,800
3-5 d. P75,550
66. The entry to dispose of the under- or overapplied overhead cost for the
B month would include:
Hard a. a debit of P50 to Cost of Goods Sold.
Refer To: b. a debit of P50 to Manufacturing Overhead.
3-5 c. a debit of P5,500 to Manufacturing Overhead.
d. a credit of P5,500 to Cost of Goods Sold.
67. The balance in the March 1 in the Raw Materials inventory was:
D a. P10,500.
Hard b. P9,500.
3-5 d. P8,500.

Reference: 3-6
The Milo Company's records for May contained the following information:
Actual direct labor-hours ....... 9,000 hours

Actual direct labor cost ........ P 47,000
Direct material purchased ....... 16,000
Direct material used ............ 14,000
Cost of goods sold .............. 100,000
Overapplied overhead ............ 5,000
Ending inventories:
Raw materials ................. 30,000
Work in process ............... 50,000
Finished goods ................ 70,000
The company uses a predetermined overhead rate of P5.00 per direct labor hour to
apply manufacturing overhead to jobs.
68. The actual overhead cost incurred during the month was:
C a. P50,000.
Medium b. P55,000.
3-6 d. P45,000.
69. The total cost added to Work in Process during May was:
B a. P101,000.
Medium b. P106,000.
3-6 d. P111,000.
Reference: 3-7
The information below has been taken from the cost records of Tercel Company for the
past year:
Raw materials used in production ......................... P326,000

Total manufacturing costs charged to jobs during
the year (includes raw materials, direct labor, and
manufacturing overhead applied at the rate of 60 per
cent of direct labor cost) ............................. 686,000
Cost of goods available for sale ......................... 826,000
Selling and administrative expenses ...................... 25,000
Inventories
Beginning Ending
Raw Materials ............. P75,000 P 85,000
Work in Process ........... 80,000 30,000
Finished Goods ............ 90,000 110,000

70. The cost of raw materials purchased during the year amounted to:
D a. P411,000.
Medium b. P360,000.
CMA c. P316,000.
Refer To:
3-7
71. Direct labor costs charged to production during the year amounted to:
B a. P135,000.
Medium b. P225,000.
CMA c. P360,000.
Refer To:
3-7
72. The Cost of Goods Manufactured during the year was:

C a. P636,000.
Medium b. P766,000.
CMA c. P736,000.
Refer To:
3-7
73. The Cost of Goods Sold for the year (before disposition of any
B overhead under- or overapplied) was:
Medium a. P736,000.
CMA b. P716,000.
adapted c. P691,000.
Refer To: d. P801,000.
3-7
Reference: 3-8
The following data are for Potras Company:
Beginning Ending
Finished goods inventory ............ P30,000 P40,000
Work in process inventory ........... P20,000 P13,000
Raw materials inventory ............. P21,000 P26,000
Purchases of raw materials .......... P71,000
Factory depreciation ................ P 5,000
Other factory costs ................. P10,000
Direct labor ........................ P27,000
Indirect labor ...................... P 6,000
Selling expense ..................... P12,000
Over- or underapplied overhead ...... -0-
74. The cost of raw materials used in production was:

D a. P26,000.
Medium b. P71,000.
3-8 d. P66,000.
75. The cost of goods manufactured was:

C a. P114,000.
Medium b. P133,000.
3-8 d. P138,000.
76. The cost of goods sold was:

D a. P131,000.
Medium b. P91,000.
3-8 d. P111,000.
Reference: 3-9
The Bus Company uses a job-order cost system. The following information was recorded
for September:
Added During September

September 1 Direct Direct
Job Number Inventory Materials Labor
1 P1,000 P 300 P200
2 1,400 250 300
3 500 1,500 150
4 750 4,000 400
The direct labor wage rate is P10 per hour. Overhead is applied at the rate of P5 per
direct labor-hour. Jobs 1, 2, and 3 have been completed and transferred to finished
goods. Job 2 has been delivered to the customer.
77. The ending Work in Process inventory is:

B a. P7,575.
Medium b. P5,350.
3-9 d. P5,150.
78. The Cost of Goods Manufactured for September is:

C a. P10,750.
Medium b. P11,275.
3-9 d. P7,625.
79. The Cost of Goods Sold for September (before disposition of any under-
A or overapplied overhead) is:
Medium a. P2,100.
3-9 c. P3,700.
d. P1,950.

Reference: 3-10
The following journal entries without Peso data were taken from the accounting
records of Case Company. Case company has a job-order costing system and applies
overhead to jobs using a predetermined overhead rate.
1. Work in Process ................ XXX

Manufacturing Overhead ......... XXX
Wages Payable .............. XXX
2. Salary Expense ................. XXX

Wages Payable .............. XXX
3. Manufacturing Overhead ......... XXX

Accumulated Depreciation ... XXX

Raw Materials .............. XXX

Manufacturing Overhead ..... XXX
6. Manufacturing Overhead ......... XXX

Raw Materials .............. XXX
7. Finished Goods ................. XXX

Work in Process ............ XXX
8. Raw Materials .................. XXX

Accounts Payable ........... XXX
80. The entry to record the purchase of raw materials is:

A a. 8.
Medium b. 4.
Refer To: c. 6.
3-10 d. 1.
81. The entry to transfer the cost of goods manufactured for the period
C is:
Medium a. 1.
Refer To: b. 4.
3-10 c. 7.
d. 5.
82. The entry to record the application of overhead is:

B a. 1.
Medium b. 5.
Refer To: c. 6.
3-10 d. 3.

83. The entry to record depreciation on manufacturing equipment is:
B a. 1.
Medium b. 3.
Refer To: c. 4.
3-10 d. 5.
Reference: 3-11
Summit Company has provided the following inventory balances and manufacturing cost
data for the month of January:
Inventories: January 1 January 31

Direct materials ....... P30,000 P40,000
Work in process ........ P15,000 P20,000
Finished goods ......... P65,000 P50,000
Month of January
Cost of goods manufactured ........ P515,000
Manufacturing overhead applied .... P150,000
Direct materials used ............. P190,000
Actual manufacturing overhead ..... P144,000
Under Summit's job-order costing system, any over or underapplied overhead is closed
to the Cost of Goods Sold account at the end of the calendar year (i.e., December
31).
84. What was the total amount of direct material purchases during January?
D a. P180,000
Medium b. P190,000
CPA c. P195,000
adapted d. P200,000
Refer To:
3-11
85. How much direct labor cost was incurred during January?
C a. P170,000
Medium b. P175,000
CPA c. P180,000
adapted d. P186,000
Refer To:
3-11
Reference: 3-12
The Tse Manufacturing Company uses a job-order costing system and applies overhead to
jobs using a predetermined overhead rate. The company closes any balance in the
Manufacturing Overhead account to Cost of Goods Sold. During the year the company's
Finished Goods inventory account was debited for P125,000 and credited for P110,000.
The ending balance in the Finished Goods inventory account was P28,000. At the end of
the year, manufacturing overhead was overapplied by P4,500.
86. The balance in the Finished Goods inventory account at the beginning
B of the year was:
Hard a. P28,000.
3-12 c. P17,500.
d. P8,500.
87. If the estimated manufacturing overhead for the year was P24,000, and
B the applied overhead was P26,500, the actual manufacturing overhead
Medium cost for the year was:

Refer To: a. P19,500.
3-12 b. P22,000.
c. P28,500.
d. P31,000.
Essay
88. Parker Company uses a job order cost system and applies manufacturing
Medium overhead to jobs using a predetermined overhead rate based on direct
labor-hours. Last year manufacturing overhead and direct labor-hours
were estimated at P50,000 and 20,000 hours, respectively, for the
year. In June, Job #461 was completed. Materials costs on the job
totaled P4,000 and labor costs totaled P1,500 at P5 per hour. At the
end of the year, it was determined that the company worked 24,000
direct labor hours for the year and incurred P54,000 in actual
manufacturing overhead costs.
Required:
a. Job #461 contained 100 units. Determine the unit cost that
would appear on the job cost sheet.
b. Determine the under- or overapplied overhead for the year.
Answer:
a. Direct materials ............ P4,000
Direct labor ............... 1,500
Overhead (300* x P2.50**) .. 750
Total ..................... P6,250
Unit cost .................. P62.50
* P1,500 ÷ P5.00/DLH = 300 DLH

** P50,000 ÷ 20,000 DLH = P2.50/DLH
b. Actual overhead Cost ........ P54,000

Overhead applied:
24,000 DLH x P2.50 ....... 60,000
Overapplied overhead ....... (P 6,000)

89. Gilford, Inc., uses a job order costing system. Costs going through
Hard the company's work in process account during June are given below.
Manufacturing overhead is applied to production using a predetermined
overhead rate based on direct labor cost.
Work in Process
______________________________________________________________________
_____________________________
Balance -0- | 95,000 Transferred out
Direct materials 20,000 |
Direct labor 30,000 |
Manufacturing Overhead 60,000 |
______________________________________________________________________
______________________________
Balance 15,000 |
Only Job 105 was still in process at the end of the month. This job
had been charged with P3,000 in direct materials cost.
Required:
a. Complete the following job order cost card for Job 105:
Direct materials .......... P 3,000

Direct labor .............. _______
Manufacturing overhead .... _______
Total cost at June 30 .. _______
b. Determine the total amount of materials cost charged to completed

jobs during the month.
Answer:
a. Since only Job 105 was in process at the end of the month, all
of the P15,000 balance in the Work in Process account must apply
to it.
Total cost in Work in Process (all Job 105) ... P15,000

Less materials cost in Job 105 ................ 3,000
Direct labor and manufacturing overhead cost .. P12,000
From the Work in Process T-account, it appears that

manufacturing overhead is being applied at 200% of
direct labor cost.
Let X = Direct labor cost

X + 2.00X = P12,000
3X = P12,000
X = P 4,000
Thus, direct labor cost in Job 105 is P4,000, and

manufacturing overhead cost is 200% x P4,000 = P8,000.
Therefore,
Direct materials ........... P 3,000

Direct labor ............... 4,000
Manufacturing overhead ..... 8,000
Total cost at June 30 ... P15,000

b. Since P20,000 in materials cost was charged to Work in Process,
and since only P3,000 in materials cost applies to Job 105, the
difference of P17,000 represents the cost charged to completed
jobs during the month.
90. Stan Wilson, a newly hired worker at Superior Molding, was puzzled by
Easy the job cost sheets attached to the jobs he worked on. He understood
the materials and labor cost entries--these represent the actual costs
of materials he requisitioned for the job and the cost of the labor
hours he recorded for the job. However, he did not understand the
entry for Manufacturing Overhead. This entry was made at the end of
the day by the accountants and he had no idea where this number came
from. He asked the company's controller, Mary Donner, but the only
part of the explanation he understood was that the overhead entries do
not represent actual overhead costs.
Required:
Explain to Stan what the Manufacturing Overhead entries on the job

cost sheet mean.
Answer:
The Manufacturing Overhead entries on the job cost sheet are arrived
at by applying a predetermined overhead rate to the base, which is
most likely direct labor-hours. This number does not represent actual
overhead costs. There are several reasons for this. First, by
definition, it is difficult or impossible to trace overhead costs to
particular jobs. Therefore, actual overhead costs cannot really be
traced to the jobs Stan works on. Even so, an "actual" rate could be
used instead of a predetermined rate for spreading overhead costs
among jobs. However, most companies choose to use a predetermined rate
since actual rates tend to fluctuate and cannot be determined until
the close of the accounting period.
91. Bakerston Company is a manufacturing firm that uses job-order costing.

Medium The company's inventory balances were as follows at the beginning and
end of the year:
Beginning Ending
Balance Balance
Raw materials ........ P14,000 P22,000
Work in process ...... 27,000 9,000
Finished goods ....... 62,000 77,000
The company applies overhead to jobs using a predetermined overhead

rate based on machine-hours. At the beginning of the year, the company
estimated that it would work 33,000 machine-hours and incur P231,000
in manufacturing overhead cost. The following transactions were
recorded for the year:
• Raw materials were purchased, P315,000.

• Raw materials were requisitioned for used in production,
P307,000 (P281,000 direct and P26,000 indirect).
• The following employee costs were incurred: direct labor,
P377,000; indirect labor, P96,000; and administrative
salaries, P172,000.
• Selling costs, P147,000.
• Factory utility costs, P10,000.
• Depreciation for the year was P127,000 of which P120,000

is related to factory operations and P7,000 is related to
selling and administrative activities.
• Manufacturing overhead was applied to jobs. The actual level
of activity for the year was 34,000 machine-hours.
• Sales for the year totaled P1,253,000 .
Required:
a. Prepare a schedule of cost of goods manufactured in good

form.
b. Was the overhead under- or overapplied? By how much?
c. Prepare an income statement for the year in good form.
The company closes any under- or overapplied overhead to
Cost of Goods Sold.
Answer:
a. Schedule of cost of goods manufactured
Estimated total manufacturing overhead(a) P231,000

Estimated total machine-hours (b) ....... 33,000
Predetermined overhead rate (a) ÷ (b) ... P7.00
Actual total machine-hours (a) .......... 34,000

Predetermined overhead rate (b) ......... P7.00
Overhead applied (a) X (b) .............. P238,000
Direct materials:
Raw materials inventory, beginning ....P 14,000
Add: purchases of raw materials ....... 315,000
Total raw materials available ......... 329,000
Deduct: raw materials inventory, ending 22,000
Raw materials used in production ...... 307,000
Less: indirect materials .............. 26,000
Direct materials ........................ 281,000
Direct labor ............................ 377,000
Manufacturing overhead applied .......... 238,000
Total manufacturing costs ............... 896,000
Add: Beginning work in process inventory 27,000
923,000
Deduct: Ending work in process inventory 9,000
Cost of goods manufactured ..............P 914,000
b. Overhead under- or overapplied
Actual manufacturing overhead cost incurred:

Indirect materials ...................P 26,000
Indirect labor ....................... 96,000
Factory utilities .................... 10,000
Factory depreciation ................. 120,000
Manufacturing overhead cost incurred 252,000
Manufacturing overhead applied ......... 238,000
Underapplied overhead ..................P 14,000
c. Income Statement
Beginning finished goods inventory .....P 62,000

Cost of goods manufactured ............. 914,000

Ending finished goods inventory ........ 77,000
Unadjusted cost of goods sold .......... 899,000
Add: underapplied overhead ............. 14,000
Adjusted cost of goods sold ............P 913,000
Sales .................................. P1,253,000

Cost of goods sold (adjusted) .......... 913,000
Gross margin ........................... 340,000
Administrative salaries ..............P 172,000
Selling costs ........................ 147,000
Depreciation ......................... 7,000
326,000
Net income ............................. P 14,000
92. Allenton Company is a manufacturing firm that uses job-order costing.

Medium At the beginning of the year, the company's inventory balances were as
follows:
Raw materials ........ P 26,000

Work in process ...... 47,000
Finished goods ....... 133,000
The company applies overhead to jobs using a predetermined overhead

rate based on machine-hours. At the beginning of the year, the company
estimated that it would work 31,000 machine-hours and incur P248,000
in manufacturing overhead cost. The following transactions were
recorded for the year:
a. Raw materials were purchased, P411,000.
b. Raw materials were requisitioned for used in production,
P409,000 (P388,000 direct and P21,000 indirect).
c. The following employee costs were incurred: direct labor,
P145,000; indirect labor, P61,000; and administrative
salaries, P190,000.
d. Selling costs, P148,000.
e. Factory utility costs, P12,000.
f. Depreciation for the year was P121,000 of which P114,000 is
related to factory operations and P7,000 is related to selling
and administrative activities.
g. Manufacturing overhead was applied to jobs. The actual level of

activity for the year was 29,000 machine-hours.
h. The cost of goods manufactured for the year was P783,000.
i. Sales for the year totaled P1,107,000 and the costs on the job
cost sheets of the goods that were sold totaled P768,000.
j. The balance in the Manufacturing Overhead account was closed
out to Cost of Goods Sold.
Required:
Prepare the appropriate journal entry for each of the items above (a.
through j.). You can assume that all transactions with employees,
customers, and suppliers were conducted in cash.
Answer:
a. Raw Materials Inventory ........ 411,000
Cash ...................... 411,000
b. Work in Process Inventory ...... 388,000

Manufacturing Overhead ......... 21,000

Raw Materials Inventory ... 409,000
c. Work in Process Inventory ...... 145,000

Manufacturing Overhead ......... 61,000
Administrative Salary Expense .. 190,000
Cash ...................... 396,000
d. Selling Expenses ............... 148,000

Cash ...................... 148,000
e. Manufacturing Overhead ......... 12,000

Cash ...................... 12,000
f. Manufacturing Overhead ......... 114,000

Depreciation Expense ........... 7,000
Accumulated Depreciation .. 121,000
g. Work in Process ................ 232,000

Manufacturing Overhead .... 232,000
h. Finished Goods ................. 783,000

Work in Process ........... 783,000
i. Cash ........................... 1,107,000

Sales ..................... 1,107,000
Cost of Goods Sold ............. 768,000
Finished Goods ............ 768,000
j. Manufacturing Overhead ......... 24,000

Cost of Goods Sold ........ 24,000

93. The Collins Company uses a job-order cost system and applies
Medium manufacturing overhead cost to jobs on the basis of the cost of
materials used in production. At the beginning of the most recent year,
the following estimates were made as a basis for computing the
predetermined overhead rate for the year: manufacturing overhead cost,
P200,000; direct materials cost, P160,000. The following transactions
took place during the year (all purchases and services were acquired on
account):
a. Raw materials purchased, P86,000.

b. Raw materials requisitioned for use in production (all direct
materials), P98,000.
c. Utility costs incurred in the factory, P15,000.
d. Salaries and wages incurred as follows:
Direct labor ......................... P175,000
Indirect labor ....................... P70,000
Selling and administrative salaries .. P125,000
e. Maintenance costs incurred in the factory, P15,000.
f. Advertising costs incurred, P89,000.
g. Depreciation recorded for the year, P80,000 (80% relates to
factory assets and the remainder relates to selling and
administrative assets).
h. Rental cost incurred on buildings, P70,000, (75% of the space is
occupied by the factory, and 25% is occupied by sales and
administration).
i. Miscellaneous selling and administrative costs incurred,
P11,000.
j. Manufacturing overhead cost was applied to jobs as per company
policy.
k. Cost of goods manufactured for the year, P500,000.
l. Sales for the year (all on account) totaled P1,000,000. These goods
cost P600,000 to manufacture.
Required:
Prepare journal entries to record the information above. Key your

entries by the letters a through l.
Answer:
a. Raw Materials ................... 86,000

Accounts Payable ............. 86,000
b. Work in Process ................. 98,000

Raw Materials ................ 98,000
c. Manufacturing Overhead .......... 15,000

d. Work in Process ................. 175,000

Manufacturing Overhead .......... 70,000
Salaries Expense ................ 125,000
Salaries and Wages Payable ... 370,000

e. Manufacturing Overhead .......... 15,000
f. Advertising Expense ............. 89,000

g. Manufacturing Overhead .......... 64,000

Depreciation Expense ............ 16,000
Accumulated Depreciation ..... 80,000
h. Manufacturing Overhead .......... 52,500

Rent Expense .................... 17,500
i. Miscellaneous Expense ........... 11,000

j. Work in Process ................. 122,500

Manufacturing Overhead ....... 122,500
((P200,000/P160,000) x P98,000))
k. Finished Goods .................. 500,000

Work in Process .............. 500,000
l. Accounts Receivable ............. 1,000,000

Sales ........................ 1,000,000
Cost of Goods Sold .............. 600,000

Finished Goods ............... 600,000
94. Carver Test Systems manufactures automated testing equipment. The

Hard company uses a job-order costing system and applies overhead on the
basis of machine-hours. At the beginning of the year, estimated
manufacturing overhead was P1,960,000 and the estimated machine-hours
was 98,000. Data regarding several jobs at Carver are presented below.
Beginning Direct Direct Machine

Job Number Balance Materials Labor Hours
XJ-107 P118,600 P 4,000 P 8,400 150
ST-211 121,450 2,500 12,160 300
XD-108 21,800 86,400 36,650 3,100
SL-205 34,350 71,800 32,175 2,700
RX-115 - 18,990 21,845 1,400
By the end of the first month (January), all jobs but RX-115 were
completed, and all completed jobs had been delivered to customers
except for SL-205.
Required:
What was the balance in Finished Goods inventory at the end of

January?
Answer:
The Finished Goods inventory consists only of job SL-205. The balance

in the account is computed as follows:
Beginning balance, job SL-205 ......... P 34,350

November charges to job SL-205
Direct materials ................... 71,800
Direct labor ....................... 32,175
Manufacturing overhead applied* .... 54,000
Ending balance, job SL-205 ............ P192,325
* Predetermined overhead rate = P1,960,000 ÷ 98,000 MH = P20

per MH
Overhead applied = 2,700 machine-hours X P20 per MH = P54,000
95. Dotsero Technology, Inc., has a job-order costing system. The company
Medium uses predetermined overhead rates in applying manufacturing overhead
cost to individual jobs. The predetermined overhead rate in Department A
is based on machine-hours, and the rate in Department B is based on
direct materials cost. At the beginning of the most recent year, the
company’s management made the following estimates for the year:
Department
A B
Machine-hours ................. 70,000 19,000
Direct labor-hours ............ 30,000 60,000
Direct materials cost ......... P195,000 P282,000
Direct labor cost ............. P260,000 P520,000
Manufacturing overhead cost ... P420,000 P705,000
Job 243 entered into production an April 1 and was completed on May 12.
The company’s cost records show the following information about the job:
Department
A B
Machine-hours ................. 250 60
Direct labor-hours ............ 70 120
Direct materials cost ......... P840 P1,100
Direct labor cost ............. P610 P880
At the end of the year, the records of Dotsero showed the following
actual cost and operating data for all jobs worked on during the year:
Department
A B
Machine-hours ................. 61,000 20,000
Direct labor-hours ............ 28,000 66,000
Direct materials cost ......... P156,000 P284,000
Manufacturing overhead cost ... P385,000 P705,000
Required:
a. Compute the predetermined overhead rates for Department A and

Department B.
b. Compute the total overhead cost applied to Job 243.
c. Compute the amount of underapplied or overapplied overhead in each

department at the end of the current year.
Answer:
a. Department A predetermined overhead rate:
Estimated overhead cost/Estimated machine-hours

= P420,000/70,000 = P6.00
Department B predetermined overhead rate:
Estimated overhead cost/Estimated direct materials cost

= P705,000/P282,000 = 250% of direct materials cost
b. Overhead applied to Job 243:
Department A: 250 x P6.00 = P1,500

Department B: P1,100 x 2.5 = P2,750
P4,250
c. Department A Department B
Manufacturing overhead incurred... P385,000 P705,000
Manufacturing overhead applied:
61,000 X P6.00 = ............. 366,000
P284,000 X 250% = ............. 710,000
Underapplied (overapplied) overhead P 19,000 P (5,000)
96. Scanlon Company has a job-order costing system and applies manufacturing
Medium overhead cost to products on the basis of machine hours. The following
estimates were used in preparing the predetermined overhead rate for the
most recent year:
Machine hours ........................ 95,000

Manufacturing overhead cost .......... P1,710,000
During the most recent year, a severe recession in the company’s

industry cause the curtailment of production and a buildup of inventory
in the company’s warehouses. The company’s cost records revealed the
following actual cost and operating data for the year:
Machine hours .......................... 75,000

Manufacturing overhead cost ............ P1,687,500
Amount of applied overhead in inventories at year-end:

Work in process ...................... P 337,500
Finished goods ....................... 253,125
Amount of applied overhead in
cost of goods sold for the year .. 759,375
Required:
a. Compute the company’s predetermined overhead rate for the year

and the amount of under- or overapplied overhead for the year.
b. Determine the difference between net income for the year if the
under- or overapplied overhead is allocated to the appropriate
accounts rather than closed directly to Cost of Goods Sold.

Answer:
The company’s predetermined overhead rate for the year is:
P1,710,000/95,000 = P18 per machine hour
The amount of under-/overapplied overhead is:
Actual overhead ............... P1,687,500

Applied overhead (P18 X 75,000) 1,350,000
Underapplied overhead ......... P 337,500
Allocation of underapplied overhead:
Overhead applied in work in process P 337,500 25.00% P 84,375

Overhead applied in finished goods 253,125 18.75% 63,281
Overhead applied in cost of goods sold 759,375 56.25% 189,844
Total overhead applied P1,350,000 100.00% P337,500
The entire amount of underapplied overhead P337,500 is added to Cost of

Goods Sold where no allocation occurs. Allocation results in only
P189,844 being added to Cost of Goods Sold. Net income would be higher
under allocation by P337,500 - P189,844 = P147,650.

97. The following cost data relate to the manufacturing activities of the
Medium Kamas Company during the most recent year:
Manufacturing overhead costs incurred during the year:
Property taxes ............. P 1,600

Utilities, factory ......... 2,600
Indirect labor ............. 5,100
Depreciation, factory ...... 13,000
Insurance, factory ......... 2,500
Total actual costs ......... P24,800
Other costs incurred during the year:
Purchases of raw materials . P15,000

Direct labor cost .......... 22,000
Inventories:
Raw materials, beginning ... P 5,000
Raw materials, ending ...... 4,400
Work in process, beginning . 3,500
Work in process, ending .... 4,500
The company uses a predetermined overhead rate to charge overhead cost

to production. The rate for the year just completed was P4.00 per
machine-hour; a total of 6,000 machine-hours were recorded for the year.
Required:
a. Compute the amount of under- or overapplied overhead cost for the

year just ended.
b. Prepare a schedule of cost of goods manufactured for the year.
Answer:
a. Actual total manufacturing overhead cost ....... P24,800

Manufacturing overhead applied: 6,000 x P4.00 = 24,000
Underapplied manufacturing overhead ............ P 800
b. Kamas Company
Schedule of Cost of Goods Manufactured
For the Year Just Ended
Direct materials:
Raw materials, beginning ............... P 5,000
Add purchases of raw materials ......... 15,000
Raw materials available for use ........ 20,000
Deduct raw materials inventory, ending . 4,400

Raw materials used in production ....... 15,600
Direct labor ............................... 22,000
Manufacturing overhead applied to
work in process .................... 24,000
Total manufacturing costs .................. 61,600
Add beginning work in process .............. 3,500
65,100
Deduct ending work in process .............. 4,500
Cost of goods manufactured ................. P60,600

98. Arthur Manufacturing Company produces a single product. The controller
Hard has asked your help in preparing a schedule of cost of goods
manufactured for the month just ended. The following information is
available:
1. Eleven thousand units were sold at P22 per unit.
2. Thirteen thousand units requiring one unit each of raw materials

were produced.
3. Raw materials inventory at the beginning of the month was 1,100

units at P4 each.
4. During the month, two purchases of raw materials were made:
Purchase #1: 7,000 units at P5 each

Purchase #2: 6,000 units at P5.50 each
5. The company uses the first-in, first-out method of determining

raw materials inventories.
6. The work in process inventories were:
Beginning of the month: 1,500 units valued at P17,000

End of the month: 1,500 units valued at P19,000
7. Direct labor cost was P110,000.
8. Overhead is applied to production on the basis of 65% of

direct labor cost.
Required:
Prepare a schedule of cost of goods manufactured for the month.

Answer:
Arthur Manufacturing Company

For the Year Just Ended
Raw materials used:

Beginning raw materials inventory ...... P 4,400
Purchases .............................. 68,000
Raw materials available ................ 72,400
Ending raw materials inventory ......... 6,050
Raw materials used ..................... 66,350
Direct labor ........................... 110,000
Manufacturing overhead applied
to work in process ................ 71,500
Total manufacturing costs .............. 247,850
Add: Work in process, beginning ....... 17,000
264,850
Deduct: Work in process, ending ....... 19,000
Cost of goods manufactured ............. P245,850
Computations:
Raw materials:
Beginning: 1,100 @ P4 ................. P 4,400
Purchases: 7,000 @ P5 ....... P35,000
6,000 @ P5.50..... 33,000 68,000
Ending: 1,100 @ P5.50 .............. (6,050)
Raw materials used ..................... P69,350
Units:
1,100 + 7,000 + 6,000 – 13,000 = 1,100 units in ending inventory.
Factory overhead applied to work in process:
P110,000 x 0.65 = P71,500.

Chapter 2
Cost Terms, Concepts, and Classifications
True/False
1. All costs incurred in a merchandising firm are considered to be

F period costs.
Easy
2. Depreciation is always considered a product cost for external

F financial reporting purposes in a manufacturing firm.
Medium
3. In external financial reports, factory utilities costs may be

T included in an asset account on the balance sheet at the end of
Medium the period.
4. Advertising costs are considered product costs for external

F financial reports since they are incurred in order to promote
Medium specific products.
5. Property taxes and insurance premiums paid on a factory

T building are examples of manufacturing overhead.
Easy
6. Manufacturing overhead combined with direct materials is known

F as conversion cost.
Easy
7. If the ending inventory of finished goods is understated, net

F income will be overstated.
Medium
8. In a manufacturing company, goods available for sale equals the

T sum of the cost of goods manufactured and the beginning
Medium finished goods inventory.
9. Variable costs are costs whose per unit costs vary as the
F activity level rises and falls.
Easy
10. On a per unit basis, a fixed cost varies inversely with the
T level of activity.
Easy

11. The following would typically be considered indirect costs of
F manufacturing a particular Boeing 747 to be delivered to
Easy Singapore Airlines: electricity to run production equipment,
the factory manager's salary, and the cost of the General
Electric jet engines installed on the aircraft.
12. The following costs should be considered direct costs of

F providing delivery room services to a particular mother and her
Hard baby: the costs of drugs administered in the operating room,
the attending physician's fees, and a portion of the liability
insurance carried by the hospital to cover the delivery room.
13. The following costs should be considered by a law firm to be

T indirect costs of defending a particular client in court: rent
Hard on the law firm's offices, the law firm's receptionist's wages,
the costs of heating the law firm's offices, and the
depreciation on the personal computer in the office of the
attorney who has been assigned the client.
14. A cost that differs from one month to another is known as a

F differential cost.
Easy
15. (Appendix) Some companies classify labor fringe benefits for

T direct labor workers as part of the direct labor cost and some
Easy classify these costs as manufacturing overhead.
Multiple Choice
16. The corporate controller’s salary would be considered a(n):

C a. manufacturing cost.
Easy b. product cost.
c. administrative cost.
d. selling expense.
17. The cost of fire insurance for a manufacturing plant is

A generally considered to be a:
Medium a. product cost.
b. period cost.
c. variable cost.
d. all of the above.
18. The cost of rent for a manufacturing plant is generally

A considered to be a:
Medium
CPA Prime cost Product cost
adapted a. No Yes
b. No No
c. Yes No
d. Yes Yes

19. Each of the following would be a period cost except:
C a. the salary of the company president's secretary.
Easy b. the cost of a general accounting office.
c. depreciation of a machine used in manufacturing.
d. sales commissions.
20. For a manufacturing company, which of the following is an

B example of a period rather than a product cost?
Easy a. Depreciation of factory equipment.
CPA b. Wages of salespersons.
adapted c. Wages of machine operators.
d. Insurance on factory equipment.
21. Which of the following would be considered a product cost for

D external financial reporting purposes?
Medium a. Cost of a warehouse used to store finished goods.
b. Cost of guided public tours through the company's
facilities.
c. Cost of travel necessary to sell the manufactured product.
d. Cost of sand spread on the factory floor to absorb oil from
manufacturing machines.
22. Which of the following would NOT be treated as a product cost

D for external financial reporting purposes?
Easy a. Depreciation on a factory building.
b. Salaries of factory workers.
c. Indirect labor in the factory.
d. Advertising expenses.
23. Transportation costs incurred by a manufacturing company to ship

C its product to its customers would be classified as which of the
Easy following?
a. Product cost
b. Manufacturing overhead
c. Period cost
d. Administrative cost
24. The salary of the president of a manufacturing company would be

B classified as which of the following?
Easy a. Product cost
b. Period cost
c. Manufacturing overhead
d. Direct labor
25. Micro Computer Company has set up a tollfree telephone line for
D customer inquiries regarding computer hardware produced by the
Easy company. The cost of this tollfree line would be classified as
which of the following?
a. Product cost
b. Manufacturing overhead
c. Direct labor
d. Period cost

26. The wages of factory maintenance personnel would usually be
C considered to be:
Medium
Indirect labor Manufacturing overhead
a. No Yes
b. Yes No
c. Yes Yes
d. No No
27. Direct materials are a part of:

C
Medium Conversion cost Manufacturing cost Prime cost
CPA a. Yes Yes No
adapted b. Yes Yes Yes
c. No Yes Yes
d. No No No
28. Manufacturing overhead consists of:

B a. all manufacturing costs.
Medium b. all manufacturing costs, except direct materials and direct
CPA labor.
adapted c. indirect materials but not indirect labor.
d. indirect labor but not indirect materials.
29. Which of the following should NOT be included as part of

A manufacturing overhead at a company that makes office
Medium furniture?
a. sheet steel in a file cabinet made by the company.
b. manufacturing equipment depreciation.
c. idle time for direct labor.
d. taxes on a factory building.
30. Rossiter Company failed to record a credit sale at the end of

D the year, although the reduction in finished goods inventories
Hard was correctly recorded when the goods were shipped to the
CMA customer. Which one of the following statements is correct?
adapted a. Accounts receivable was not affected, inventory was not
affected, sales were understated, and cost of goods sold was
understated.
b. Accounts receivable was understated, inventory was
overstated, sales were understated, and cost of goods sold
was overstated.
c. Accounts receivable was not affected, inventory was
understated, sales were understated, and cost of goods sold
was understated.
d. Accounts receivable was understated, inventory was not
affected, sales were understated, and cost of goods sold was
not affected.

31. If the cost of goods sold is greater than the cost of goods
D manufactured, then:
Hard a. work in process inventory has decreased during the period.
b. finished goods inventory has increased during the period.
c. total manufacturing costs must be greater than cost of goods
manufactured.
d. finished goods inventory has decreased during the period.
32. Last month, when 10,000 units of a product were manufactured,

D the cost per unit was $60. At this level of activity, variable
Medium costs are 50% of total unit costs. If 10,500 units are
manufactured next month and cost behavior patterns remain
unchanged the:
a. total variable cost will remain unchanged.
b. fixed costs will increase in total.
c. variable cost per unit will increase.
d. total cost per unit will decrease.
33. Variable cost:

B a. increases on a per unit basis as the number of units
Easy produced increases.
b. remains constant on a per unit basis as the number of units
produced increases.
c. remains the same in total as production increases.
d. decreases on a per unit basis as the number of units
produced increases.
34. Within the relevant range, the difference between variable

B costs and fixed costs is:
Medium a. variable costs per unit fluctuate and fixed costs per unit
remain constant.
b. variable costs per unit are constant and fixed costs per
unit fluctuate.
c. both total variable costs and total fixed costs are
constant.
d. both total variable costs and total fixed costs fluctuate.
35. Which of the following statements regarding fixed costs is

A incorrect?
Medium a. Expressing fixed costs on a per unit basis usually is the best
approach for decision making.
b. Fixed costs expressed on a per unit basis will react inversely
with changes in activity.
c. Assumptions by accountants regarding the behavior of fixed
costs rest heavily on the concept of the relevant range.
d. Fixed costs frequently represent longterm investments in
property, plant, and equipment.

36. An opportunity cost is:
B a. the difference in total costs which results from selecting
Easy one alternative instead of another.
b. the benefit forgone by selecting one alternative instead of
another.
c. a cost which may be saved by not adopting an alternative.
d. a cost which may be shifted to the future with little or no
effect on current operations.
37. The term differential cost refers to:

A a. a difference in cost which results from selecting one
Medium alternative instead of another.
b. the benefit forgone by selecting one alternative instead of
another.
c. a cost which does not entail any dollar outlay but which is
relevant to the decisionmaking process.
d. a cost which continues to be incurred even though there is
no activity.
38. Which of the following costs is often important in decision

C making, but is omitted from conventional accounting records?
Easy a. Fixed cost.
b. Sunk cost.
c. Opportunity cost.
d. Indirect cost.
39. When a decision is made among a number of alternatives, the

B benefit that is lost by choosing one alternative over another
Easy is the:
CMA a. realized cost.
adapted b. opportunity cost.
c. conversion cost.
d. accrued cost.
40. Conversion cost consists of which of the following?

D a. Manufacturing overhead cost.
Easy b. Direct materials and direct labor cost.
c. Direct labor cost.
d. Direct labor and manufacturing overhead cost.
41. Prime cost consists of direct materials combined with:

A a. direct labor.
Easy b. manufacturing overhead.
c. indirect materials.
d. cost of goods manufactured.

42. Which one of the following costs should NOT be considered a
C direct cost of serving a particular customer who orders a
Hard customized personal computer by phone directly from the
manufacturer?
a. the cost of the hard disk drive installed in the computer.
b. the cost of shipping the computer to the customer.
c. the cost of leasing a machine on a monthly basis that
automatically tests hard disk drives before they are
installed in computers.
d. the cost of packaging the computer for shipment.
43. Which one of the following costs should NOT be considered an

A indirect cost of serving a particular customer at a Dairy Queen
Medium fast food outlet?
a. the cost of the hamburger patty in the burger they ordered.
b. the wages of the employee who takes the customer's order.
c. the cost of heating and lighting the kitchen.
d. the salary of the outlet's manager.
44. Green Company's costs for the month of August were as follows:
D direct materials, $27,000; direct labor, $34,000; sales
Medium salaries, $14,000; indirect labor, $10,000; indirect materials,
$15,000; general corporate administrative cost, $12,000; taxes
on manufacturing facility, $2,000; and rent on factory,
$17,000. The beginning work in process inventory was $16,000
and the ending work in process inventory was $9,000. What was
the cost of goods manufactured for the month?
a. $105,000
b. $132,000
c. $138,000
d. $112,000
45. A manufacturing company prepays its insurance coverage for a

D threeyear period. The premium for the three years is $2,700 and
Medium is paid at the beginning of the first year. Eighty percent of the
premium applies to manufacturing operations and 20% applies to
selling and administrative activities. What amounts should be
considered product and period costs respectively for the first
year of coverage?
Product Period
a. $2,700 $ 0
b. $2,160 $ 540
c. $1,440 $ 360
d. $ 720 $ 180

46. Using the following data, calculate the beginning work in
D process inventory.
Hard
Cost of goods sold .......... $70
Direct labor ................ $20
Direct materials ............ $15
Cost of goods manufactured .. $80
Work in process ending ...... $10
Finished goods ending ....... $15
Manufacturing overhead ...... $30
The beginning work in process inventory is:

a. $20.
b. $15.
c. $55.
d. $25.
47. During the month of May, Bennett Manufacturing Company

A purchased $43,000 of raw materials. The manufacturing overhead
Hard totaled $27,000 and the total manufacturing costs were
$106,000. Assuming a beginning inventory of raw materials of
$8,000 and an ending inventory of raw materials of $6,000,
direct labor must have totaled:
a. $34,000.
b. $38,000.
c. $36,000.
d. $45,000.
48. Using the following data for January, calculate the cost of
B goods manufactured:
Medium
Direct materials ....................... $38,000
Direct labor ........................... $24,000
Manufacturing overhead ................. $17,000
Beginning work in process inventory .... $10,000
Ending work in process inventory ....... $11,000
The cost of goods manufactured was:

a. $89,000.
b. $78,000.
c. $79,000.
d. $80,000.

49. During the month of June, Reardon Company incurred $17,000 of
C direct labor, $8,500 of manufacturing overhead and purchased
Hard $15,000 of raw materials. Between the beginning and the end of
the month, the raw materials inventory increased by $2,000, the
finished goods inventory increased by $1,500, and the work in
process inventory decreased by $3,000. The cost of goods
manufactured would be:
a. $38,500.
b. $40,500.
c. $41,500.
d. $43,500.
50. Mueller Company reported the following data for the year just
B ended:
Hard
Raw materials used in production ......... $ 800,000
Direct labor ............................. 700,000
Total overhead costs ..................... 900,000
Ending work in process inventory ......... 400,000
Cost of goods manufactured ............... 2,500,000
The beginning work in process inventory was:

a. $300,000.
b. $500,000.
c. $1,300,000.
d. $100,000.
51. Williams Company’s direct labor cost is 25% of its conversion

A cost. If the Manufacturing overhead cost for the last period was
Hard $45,000 and the direct materials cost was $25,000, the direct
labor cost was:
a. $15,000.
b. $60,000.
c. $33,333.
d. $20,000.
52. The Lyons Company's cost of goods manufactured was $120,000

B when its sales were $360,000 and its gross margin was $220,000.
Hard If the ending inventory of finished goods was $30,000, the
beginning inventory of finished goods must have been:
a. $ 20,000.
b. $ 50,000.
c. $110,000.
d. $150,000.

53. The gross margin for Cushing Company for the first quarter of
C last year was $325,000 when sales were $700,000. The beginning
Hard inventory of finished goods was $60,000 and the ending
inventory of finished goods was $85,000. The cost of goods
manufactured for the first quarter would have been:
a. $375,000.
b. $350,000.
c. $400,000.
d. $385,000.
54. Last month a manufacturing company had the following operating

B results:
Hard
Beginning finished goods inventory ..... $ 74,000
Ending finished goods inventory ........ $ 73,000
Sales .................................. $464,000
Gross margin ........................... $ 52,000
What was the cost of goods manufactured for the month?

a. $413,000
b. $411,000
c. $412,000
d. $463,000
55. The following information was provided by Wilson Company for the
A year just ended:
Hard
Beginning finished goods inventory ... $150,750
Ending finished goods inventory ...... 140,475
Sales ................................ 475,000
Gross margin ......................... 150,000
The cost of goods manufactured for the year was:

a. $314,725.
b. $335,275.
c. $325,000.
d. $335,275.
56. The following information was provided by Grand Company for the
A year just ended:
Hard
Beginning finished goods inventory ..... $130,425
Ending finished goods inventory ........ 125,770
Sales .................................. 500,000
Gross margin ........................... 100,000
The cost of goods manufactured for the year was:

a. $395,345.
b. $95,345.
c. $104,655.
d. $404,655.

57. The following inventory valuation errors were discovered by
B Knox Corporation's new controller just after the annual
Hard financial statements were published at the end of Year 3.
CMA
adapted > The Year 3 ending inventory was understated by $17,000.
> The Year 2 ending inventory was understated by $61,000.
> The Year 1 ending inventory was overstated by $23,000.
The net income for Knox in each of these years was:

Net income $168,000 $254,000 $138,000
Assuming there were no income taxes, the net income in each

year should be adjusted to:

a. $212,000 $170,000 $161,000
b. $124,000 $338,000 $115,000
c. $ 90,000 $338,000 $161,000
d. $124,000 $170,000 $115,000
58. Delta Merchandising, Inc., has provided the following information

C for the year just ended:
Hard
Net sales .................. $128,500
Beginning inventory ........ 24,000
Purchases .................. 80,000
Gross margin ............... 38,550
The ending inventory for the company at year end was:

a. $65,450.
b. $24,500.
c. $14,050.
d. $9,950.
59. The beginning balance of the Raw Materials inventory account

C for May was $27,500. The ending balance for May was $28,750 and
Medium $128,900 of raw materials were used during the month. The
CMA materials purchased during the month cost:
adapted a. $131,300.
b. $127,650.
c. $130,150.
d. $157,650.

60. Gabel Inc. is a merchandising company. Last month the company's
D merchandise purchases totaled $63,000. The company's beginning
Easy merchandise inventory was $13,000 and its ending merchandise
inventory was $15,000. What was the company's cost of goods
sold for the month?
a. $91,000
b. $63,000
c. $65,000
d. $61,000
61. Haack Inc. is a merchandising company. Last month the company's

B cost of goods sold was $84,000. The company's beginning
Medium merchandise inventory was $20,000 and its ending merchandise
inventory was $18,000. What was the total amount of the
company's merchandise purchases for the month?
a. $86,000
b. $82,000
c. $84,000
d. $122,000
62. During January, the cost of goods manufactured was $93,000. The
B beginning finished goods inventory was $16,000 and the ending
Easy finished goods inventory was $20,000. What was the cost of
goods sold for the month?
a. $129,000
b. $89,000
c. $93,000
d. $97,000
63. (Appendix) Sally Smith is employed in the production of various

B electronic products, and earns $8 per hour. She is paid time
Medium andahalf for work in excess of 40 hours per week. During a
given week she worked 45 hours and had no idle time. How much
of her week's wages would be charged to manufacturing overhead?
a. $60
b. $20
c. $40
d. $0
64. (Appendix) During the first week of April, Gillian worked a

C total of 50 hours assembling products and had no idle time.
Medium Gillian is paid $15 per hour for regular time, and is paid
timeandahalf for all hours in excess of a 40 hour week. The
amount of Gillian's wages that should be charged to direct
labor for the week is:
a. $600.
b. $225.
c. $750.
d. $975.

65. (Appendix) Robert Smith earns $6 per hour assembling products.
C For each hour over 40 he works, he is paid timeandahalf.
Medium During a given week he worked 45 hours and had no idle time.
How much of his weekly wages would be charged to the
manufacturing overhead account?
a. $30
b. $45
c. $15
d. $0
Reference: 21
NOTE TO THE INSTRUCTOR: Questions 66 to 69, 70 to 73, and 74 to 77 are
different versions of the same question.
The following data (in thousands of dollars) have been taken from the
accounting records of Karling Corporation for the just completed year.
Sales ................................... $990

Raw materials inventory, beginning ...... $ 40
Raw materials inventory, ending ......... $ 70
Purchases of raw materials .............. $120
Direct labor ............................ $200
Manufacturing overhead .................. $230
Administrative expenses ................. $150
Selling expenses ........................ $140
Work in process inventory, beginning .... $ 70
Work in process inventory, ending ....... $ 50
Finished goods inventory, beginning ..... $120
Finished goods inventory, ending ........ $160
Use these data to answer the following series of questions.
66. The cost of the raw materials used in production during the
B year (in thousands of dollars) was:
Medium a. $190.
Refer To: b. $90.
21 c. $150.
d. $160.
67. The cost of goods manufactured (finished) for the year (in
A thousands of dollars) was:
Medium a. $540.
Refer To: b. $500.
21 c. $570.
d. $590.
68. The cost of goods sold for the year (in thousands of dollars)
B was:
Medium a. $700.
Refer To: b. $500.
21 c. $660.
d. $580.

69. The net income for the year (in thousands of dollars) was:
B a. $150.
Medium b. $200.
Refer To: c. $490.
21 d. $250.
Reference: 22
accounting records of Karlana Corporation for the just completed year.
Sales ................................... $910

Direct labor ............................ $130
D year (in thousands of dollars) was:
Medium a. $180.
Refer To: b. $40.
22 c. $120.
d. $160.
B thousands of dollars) was:
Medium a. $530.
Refer To: b. $520.
22 c. $500.
d. $460.
B was:
Medium a. $670.
Refer To: b. $500.
22 c. $540.
d. $650.

B a. $410.
Medium b. $110.
Refer To: c. $40.
22 d. $180.
Reference: 23
accounting records of Karlist Corporation for the just completed year.
Sales ................................... $800

Direct labor ............................ $100
C year (in thousands of dollars) was:
Medium a. $240.
Refer To: b. $190.
23 c. $170.
d. $250.
A thousands of dollars) was:
Medium a. $450.
Refer To: b. $470.
23 c. $530.
d. $540.
B was:
Medium a. $610.
Refer To: b. $410.
23 c. $490.
d. $570.

B a. $390.
Medium b. $130.
Refer To: c. $70.
23 d. $190.
Reference: 24
The following data pertain to Harriman Company's operations during July:
July 1 July 31
Raw materials inventory ..... 0 $5,000
Work in process inventory ... ? 4,000
Finished goods inventory .... $12,000 ?
Other data:
Cost of goods manufactured ........ $105,000
Raw materials used ................ 40,000
Manufacturing overhead costs ...... 20,000
Direct labor costs ................ 39,000
Gross profit ...................... 100,000
Sales ............................. 210,000
78. The beginning work in process inventory was:

A a. $10,000.
Hard b. $14,000.
Refer To: c. $1,000.
24 d. $4,000.
79. The ending finished goods inventory was:

C a. $17,000.
Hard b. $12,000.
24 d. $2,000.
Reference: 25
Bergeron Inc. reported the following data for last year:
Work in process inventory, beginning .. $100

Work in process inventory, ending ..... $150
Finished goods inventory, beginning ... $180
Finished goods inventory, ending ...... $200
Direct labor cost ..................... $300
Direct materials cost ................. $500
Manufacturing overhead cost ........... $400
80. The prime cost is:

B a. $900.
Easy b. $800.
Refer To: c. $500.
25 d. $700.

81. The conversion cost is:
A a. $700.
Easy b. $800.
Refer To: c. $900.
25 d. $500.
82. The cost of goods manufactured is:

D a. $1,250.
Medium b. $1,180.
25 d. $1,150.
Reference: 26
Geneva Steel Corporation produces large sheets of heavy gauge steel. The
company showed the following amounts relating to its production for the year
just completed:
Direct materials used in production ... $110,000

Direct labor costs for the year ....... 55,000
Work in process, beginning ............ 22,000
Finished goods, beginning ............. 45,000
Cost of goods available for sale ...... 288,000
Cost of goods sold .................... 238,000
Work in process, ending ............... 16,000
83. The balance of the finished goods inventory at the end of the
B year was:
Hard a. $95,000.
Refer To: b. $50,000.
26 c. $193,000.
d. $45,000.
84. Manufacturing overhead cost for the year was:

D a. $84,000.
Hard b. $78,000.
Refer To: c. $56,000.
26 d. $72,000.
85. Cost of goods manufactured for the year was:

C a. $171,000.
Hard b. $160,000.
Refer To: c. $243,000.
26 d. $244,000.

Reference: 27
Boardman Company reported the following data for the month of January:
Inventories: 1/1 1/31

Raw materials ................. $32,000 $31,000
Work in process ............... $18,000 $12,000
Finished goods ................ $30,000 $35,000
Additional information:
Sales revenue ................. $210,000
Direct labor costs ............ 40,000
Manufacturing overhead costs .. 70,000
Selling expenses .............. 25,000
Administrative expenses ....... 35,000
86. If raw materials costing $35,000 were purchased during January,

D the total manufacturing costs for the month would be:
Medium a. $145,000.
Refer To: b. $144,000.
27 c. $151,000.
d. $146,000.
87. Assume that cost of goods sold for January was $124,000. The net
B income for January would be:
Medium a. $61,000.
Refer To: b. $26,000.
27 c. $51,000.
d. $25,000.
88. Boardman Company’s total conversion cost for January would be:
A a. $110,000.
Medium b. $170,000.
Refer To: c. $135,000.
27 d. $130,000.
89. Assume that cost of goods sold for Boardman Company for January
C was $140,000. What would be the cost of goods manufactured for
Medium the month?
Refer To: a. $140,000
27 b. $135,000
c. $145,000
d. $139,000
Reference: 28
At a sales volume of 32,000 units, CD Company’s total fixed costs are
$64,000 and total variable costs are $60,000. The relevant range is 30,000
to 55,000 units.

90. If CD Company were to sell 43,000 units, the total expected cost
C would be:
Medium a. $146,000.
Refer To: b. $166,625.
28 c. $144,625.
d. $124,000.
91. If CD Company were to sell 50,000 units, the total expected cost
D per unit (rounded to the nearest cent) would be:
Medium a. $3.20.
Refer To: b. $2.48.
28 c. $3.88.
d. $3.16.

Essay
92. Stony Electronics Corporation manufactures a portable radio

Easy designed for mounting on the wall of the bathroom. The following
list represents some of the different types of costs incurred in
the manufacture of these radios:
1. The plant manager’s salary.

2. The cost of heating the plant.
3. The cost of heating executive offices.
4. The cost of printed circuit boards used in the radios.
5. Salaries and commissions of company salespersons.
6. Depreciation on office equipment used in the executive
offices.
7. Depreciation on production equipment used in the plant.
8. Wages of janitorial personnel who clean the plant.
9. The cost of insurance on the plant building.
10. The cost of electricity to light the plant.
11. The cost of electricity to power plant equipment.
12. The cost of maintaining and repairing equipment in the plant.
13. The cost of printing promotional materials for trade shows.
14. The cost of solder used in assembling the radios.
15. The cost of telephone service for the executive offices.
Required:
Classify each of the items above as product (inventoriable) cost

or period (noninventoriable) costs for the purpose of preparing
external financial statements.
Answer:
1. Product.
2. Product.
3. Period.
4. Product.
5. Period.
6. Period.
7. Product.
8. Product.
9. Product.
10. Product.
11. Product.
12. Product.
13. Period.
14. Product.
15. Period.

93. Bill Pope has developed a new device that is so exciting he is
Medium considering quitting his job in order to produce and market it
on a largescale basis. Bill will rent a garage for $300 per
month for production purposes. Utilities will cost $40 per
month. Bill has already taken an industrial design course at
the local community college to help prepare himself for this
venture. The course cost $300. Bill will rent production
equipment at a monthly cost of $800. He estimates the material
cost per unit will be $5, and the labor cost will be $3. He
will hire workers and spend his time promoting the product. To
do this he will quit his job which pays $3,000 per month.
Advertising and promotion will cost $900 per month.
Required:
Complete the chart below by placing an “X” under each heading
that helps to identify the cost involved. There can be “Xs”
placed under more than one heading for a single cost, e.g., a
cost might be a sunk cost, an overhead cost and a product cost;
there would be an “X” placed under each of these headings
opposite the cost.
Oppor Vari Mfg. Differ

tunity Sunk able Fixed Over Product Selling ential
Cost Cost Cost Cost Head Cost Cost Cost*
Garage rent
Utilities
Cost of the
industrial
design
course
Equipment
rented
Material
cost
Labor cost
Present
salary
Advertising
* Between the alternatives of going into business to make the device or not
going into business to make the device.

Answer:
Oppor Vari Mfg. Differ

tunity Sunk able Fixed Over Product Selling ential
Cost Cost Cost Cost Head Cost Cost Cost*
Garage rent X X X X
Utilities X X X X
Cost of the X
industrial
design
course
Equipment X X X X
rented
Material X X X
cost
Labor cost X X X
Present X X
salary
Advertising X X X
94. Logan Products, a small manufacturer, has submitted the items

Hard below concerning last year's operations. The president's
secretary, trying to be helpful, has alphabetized the list.
Administrative salaries ................ $ 2,400

Advertising expense .................... 1,200
Depreciation factory building ....... 800
Depreciation factory equipment ...... 1,600
Depreciation office equipment ....... 180
Direct labor cost ...................... 21,900
Raw materials inventory, beginning ..... 2,100
Raw materials inventory, ending ........ 3,200
Finished goods inventory, beginning .... 46,980
Finished goods inventory, ending ....... 44,410
General liability insurance expense .... 240
Indirect labor cost .................... 11,800
Insurance on factory ................... 1,400
Purchases of raw materials ............. 14,600
Repairs and maintenance of factory ..... 900
Sales salaries ......................... 2,000
Taxes on factory ....................... 450
Travel and entertainment expense ....... 1,410
Work in process inventory, beginning ... 1,670
Work in process inventory, ending ...... 1,110

Required:
a. Prepare a schedule of Cost of Goods Manufactured in good

form for the year.
b. Determine the Cost of Goods Sold for the year.
Answer:
a.
LOGAN COMPANY
Raw materials used:

Beginning inventory................... $ 2,100
Purchases............................. 14,600
Available........................... 16,700
Less ending inventory................. 3,200 $13,500
Direct labor............................ 21,900
Manufacturing overhead:
Depreciation factory building...... 800
Depreciation factory equipment..... 1,600
Indirect labor cost................... 11,800
Insurance on factory.................. 1,400
Repairs and maintenance............... 900
Taxes on factory...................... 450 16,950
Total manufacturing cost.......... 52,350
Add work in process inventory, beginning 1,670
54,020
Less work in process inventory, ending.. 1,110
Cost of goods manufactured.............. $52,910
b.
Finished goods inventory, beginning..... $46,980
Cost of goods manufactured (above)...... 52,910
Available for sale.................... 99,890
Less finished goods inventory, ending.. 44,410
Cost of goods sold...................... $55,480
95. Laco Company acquired its factory building about 20 years ago.
Medium For a number of years the company has rented out a small,
unused part of the building. The renter's lease will expire
soon. Rather than renewing the lease, Laco Company is
considering using the space itself to manufacture a new
product. Under this option, the unused space will continue to
be depreciated on a straightline basis, as in past years.
Direct materials and direct labor cost for the new product
would be $50 per unit. In order to have a place to store
finished units of the new product, the company would have to
rent a small warehouse nearby. The rental cost would be $2,000
per month. It would cost the company an additional $4,000 each
month to advertise the new product. A new production supervisor
would be hired to oversee production of the new product who

would be paid $3,000 per month. The company would pay a sales
commission of $10 for each unit of product that is sold.
Required:
Complete the chart below by placing an "X" under each column

heading that helps to identify the costs listed to the left.
There can be "X’s" placed under more than one heading for a
single cost. For example, a cost might be a product cost, an
opportunity cost, and a sunk cost; there would be an "X" placed
under each of these headings on the answer sheet opposite the
cost.
Oppor Vari Selling Differ

tunity Sunk able Fixed Product & Admin ential
Cost Cost Cost Cost Cost Cost Cost*
Rent on
unused
factory
space
Depreciation
on the
factory
space
Direct
material
and direct
labor
Rental cost
of the small
warehouse
Advertising
cost
Production
supervisor’s
salary
Sales
commissions
* Between the alternatives of (1) renting the space out again or (2) using
the space to produce the new product.

Answer:
Oppor Vari Selling Differ

tunity Sunk able Fixed Product & Admin ential
Cost Cost Cost Cost Cost Cost Cost*
Rent on X §
unused
factory
space
Depreciation X X X
on the
factory
space
Direct X X X
material
and direct
labor
Rental cost X X X
of the small
warehouse
Advertising X X X
cost
Production X X X
supervisor’s
salary
Sales X X X
commissions
§ We suggest you allow either answer (a blank or an X) in this cell. Some

experts would consider an opportunity cost to be a differential cost and
others would not. It is all a matter of definition and the definitions given
in the text do not really cover this contingency.

96. A list of accounts for a manufacturing company for an accounting
Hard period is given below. Find the unknown amounts indicated by
question marks.
Sales ..................................... $39,000

Cost of goods sold ........................ ?
Purchases of direct materials ............. 11,000
Direct labor .............................. 5,000
Finished goods inventory, beginning ....... 5,000
Work in process, beginning ................ 800
Work in process, ending ................... 3,000
Gross margin .............................. 11,700
Finished goods inventory, ending .......... ?
Accounts payable, beginning ............... 4,000
Accounts payable, ending .................. 2,800
Direct materials inventory, beginning ..... 1,000
Direct materials inventory, ending ........ 3,000
Indirect labor ............................ 2,000
Indirect materials used ................... 4,000
Utilities expense, factory ................ 3,000
Depreciation on factory equipment ......... 7,000
Answer:
Cost of goods sold = 39,000 – 11,700 = 27,300.
Direct materials used = 1,000 + 11,000 – 3,000 = 9,000.
Cost of goods manufactured = 9,000 + 5,000 + (2,000 + 4,000 +
3,000 + 7,000) + 800 – 3,000 =
27,800.
Finished goods inventory, ending = 5,000 + 27,800 – 27,300 =
5,500.
97. Use the following information to determine the gross margin for
Hard Pacific States Manufacturing for the year just ended (all amounts
are in thousands ($000) of dollars:
Sales ..................................... $31,800

Purchases of direct materials ............. 7,000
Direct labor .............................. 5,000
Work in process inventory, 1/1 ............ 800
Work in process inventory, 12/31 .......... 3,000
Finished goods inventory, 1/1 ............. 4,000
Finished goods inventory, 12/31 ........... 5,300
Accounts payable, 1/1 ..................... 1,700
Accounts payable, 12/31 ................... 1,500
Direct materials inventory, 1/1 ........... 6,000
Direct materials inventory, 12/31 ......... 1,000
Indirect labor ............................ 600
Indirect materials used ................... 500
Utilities expense, factory ................ 1,900
Depreciation on factory equipment ......... 3,500

Answer:
Direct materials used = 6,000 + 7,000 – 1,000 = 12,000.
Cost of goods manufactured = 12,000 + 5,000 + (600 + 500 +
1,900 + 3,500) + 800 – 3,000 =
21,300.
Cost of goods sold = 4,000 + 21,300 – 5,300 = 20,000.
Gross margin = 31,800 20,000 = 11,800
98. The following information is from Marchant Manufacturing Co.

Hard for September:
Direct materials used in production .. $ 95,000

Direct labor ......................... 67,000
Total manufacturing cost ............. 234,000
Raw materials inventory, Sept. 1 ..... 24,000
Work in process inventory, Sept. 1 ... 6,000
Finished goods inventory, Sept. 1 .... 101,000
Purchases of raw materials ........... 102,000
Cost of goods manufactured ........... 233,000
Administrative expense ............... 41,000
Selling expense ...................... 56,000
Sales ................................ 344,000
Gross margin ......................... 127,000
Net income ........................... 30,000
Required:
a. Compute the Cost of Goods Sold.
b. Compute the balance in Finished Goods Inventory at September

30.
c. Compute the balance in Work in Process Inventory at

September 30.
d. Compute the balance in Raw Materials Inventory at September

30.
e. Compute the total manufacturing overhead.
(Hint: The easiest method of solving this problem is to sketch

out the income statement and the schedule of cost of goods
manufactured, enter the given amounts, and then enter the
unknowns as plug figures.)

Answer:
MARCHANT MANUFACTURING
Direct materials used:

Inventory, Sept. 1.................... $ 24,000
Purchases............................. 102,000
126,000
Inventory, Sept. 30 (d) plug....... 31,000
Direct materials used given.... 95,000
Direct labor............................ 67,000
Manufacturing overhead (e) plug...... 72,000
Total manufacturing cost – given.. 234,000
Inventory of work in process, Sept 1.... 6,000
240,000
Inventory of work in process, Sept 30
(c) plug............................ 7,000
Cost of goods manufactured given..... $233,000
MARCHANT MANUFACTURING
Income Statement
Sales................................... $344,000
Cost of goods sold:
Finished goods, Sept 1................ $101,000
Cost of goods manufactured above... 233,000
Available for sale................. 334,000
Finished goods, Sept 30 (b) plug... 117,000
Cost of goods sold (a) plug..... 217,000
Gross margin given................... 127,000
Operating expenses:
Administrative expenses............... 41,000
Selling expenses...................... 56,000 97,000
Net income given..................... $ 30,000
99. NOTE TO THE INSTRUCTOR: Questions 99, 100 and 101 are different
Medium versions of the same question.
The following data (in thousands of dollars) have been taken
from the accounting records of Larsen Corporation for the just
completed year.
Sales ..................................... $860

Purchases of raw materials ................ $150
Direct labor .............................. $110
Manufacturing overhead .................... $210
Administrative expenses ................... $130
Selling expenses .......................... $180
Raw materials inventory, beginning ........ $ 40
Raw materials inventory, ending ........... $ 80
Work in process inventory, beginning ...... $ 20
Work in process inventory, ending ......... $ 80
Finished goods inventory, beginning ....... $ 80
Finished goods inventory, ending .......... $150

Required:
a. Prepare a Schedule of Cost of Goods Manufactured in good

form.
b. Compute the Cost of Goods Sold.
c. Using data from your answers above as needed, prepare an

Income Statement in good form.
Answer:
Direct materials:
Add: Purchases of raw materials ........... $150
Raw materials available for use ........... $190
Deduct: Raw materials inventory, ending ... $ 80
Raw materials used in production .......... $110
Direct labor .............................. $110
Total manufacturing cost .................. $430
Add: Work in process inventory, beginning . $ 20
$450
Deduct: Work in process inventory, ending . $ 80
Cost of goods manufactured ................ $370
b. Computation of cost of goods sold
Finished goods inventory, beginning ......... $ 80

Add: Cost of goods manufactured ............. $370
Goods available for sale .................... $450
Deduct: Finished goods inventory, ending .... $150
Cost of goods sold .......................... $300
c. Income statement
Sales ....................................... $860
Less: Cost of goods sold .................... $300
Gross margin ................................ $560
Less: Administrative expenses ............... $130
Less: Selling expenses ...................... $180
Net income .................................. $250

from the accounting records of Larner Corporation for the just
completed year.
Sales ..................................... $870

Direct labor .............................. $130
Finished goods inventory, beginning ....... $150
Required:

form.


Answer:
Direct materials:
Raw materials used in production .......... $ 80
Direct labor .............................. $130
$460
Finished goods inventory, beginning ......... $150

c. Income statement
Sales ....................................... $870
Gross margin ................................ $410
Net income .................................. $110

from the accounting records of Larmont Corporation for the just
completed year.
Sales ..................................... $990

Direct labor .............................. $240
Finished goods inventory, beginning ....... $160
Required:

form.

Answer:
Direct materials:
Raw materials used in production .......... $ 40
Direct labor .............................. $240
$540
Finished goods inventory, beginning ......... $160


c. Income statement
Sales ....................................... $990
Gross margin ................................ $470
Net income .................................. $230
102. The following costs relate to one month's activity in Martin

Medium Company:
Indirect materials ........................ $ 300

Rent on factory building .................. 500
Maintenance of equipment .................. 50
Direct material used ...................... 1,200
Utilities on factory ...................... 250
Direct labor .............................. 1,500
Selling expense ........................... 500
Administrative expense .................... 300
Work in process inventory, beginning ...... 600
Work in process inventory, ending ......... 800
Finished goods inventory, beginning ....... 500
Finished goods inventory, ending .......... 250
Required:

form.
b. Determine the Cost of Goods Sold.
Answer:
a. Direct materials...................... 1,200
Direct labor.......................... 1,500
Indirect materials........ $300
Rent...................... 500
Maintenance............... 50
Utilities................. 250 1,100
Total manufacturing costs............. 3,800
Add: WIP, beginning................... 600
4,400
Deduct: WIP, ending................... 800
Cost of goods manufactured............ $3,600
b. Finished goods, beginning............. $ 500

Add: Cost of goods manufactured....... 3,600
Goods available for sale.............. 4,100
Finished goods, ending................ 250
Cost of goods sold.................... $3,850

103. (Appendix) Brooke Foster is employed by Wong Laboratories, Inc.,
Hard and is directly involved in preparing and packaging the company’s
leading sleep aid, RestWell. Brooke’s basic wage rate is $15 per
hour, and she is paid time and a half for any work in excess of
40 hours per week. Additionally, Wong Laboratories provides a
fringe benefit package that costs the company $5 for each hour of
employee time (regular or overtime). During a recent week, Brooke
worked 49 hours but was idle for 3 hours due to materials
shortages.
Required:
a. Assume that Wong Laboratories treats all fringe benefits as

part of manufacturing overhead. Compute Brooke’s total wages
and fringe benefits for the week and indicate how much of her
wages and fringe benefits for the week would be allocated to
direct labor and how much would be allocated to manufacturing
overhead.
b. Assume that Wong Laboratories treats the part of fringe

benefits related to direct labor as a component of direct
labor cost. Compute Brooke’s total wages and fringe benefits
for the week and indicate how much of her wages and fringe
benefits would be allocated to direct labor and how much
would be allocated to manufacturing overhead.
Answer:
a.
Regular time: ................. 40 hours x $15 = $ 600.00
Overtime: ..................... 9 hours x $22.50 = 202.50
Fringe benefits: .............. 49 hours x $5 = 245.00
Total wages and fringe benefits $1,047.50
Allocation of wages and fringe benefits:

Direct labor: ............... 46 hrs. x $15 = $ 690.00
Idle time: .................... 3 hrs. x $15 = 45.00
Overtime premium: ............. 9 hrs. x $7.50 = 67.50
Fringe benefit: ............... 49 hrs. x $5 = 245.00

b. Total wages and fringe benefits would be $1,047.50 as shown
above.
Allocation of wages and fringe benefits:

Direct labor:
Wage cost: .................... 46 hrs. x $15 = $ 690.00
Fringe benefit: ........... 46 hrs. x $5 = 230.00
Total direct labor ........ $ 920.00
Idle time: ................ 3 hrs. x $15 = $ 45.00
Overtime premium: 9 x $7.50 = 67.50
Fringe benefits: .......... 3 hrs. x $5 = 15.00
Total manufacturing overhead $127.50
104. (Appendix) Fred Adams is employed by the Cedar Manufacturing

Medium Company on their assembly line. Fred is paid $15 per hour for
regular time, and time and a half for all work in excess of 40
hours per week. During the two weeks of the pay period just
completed Fred reported the following:
Week 1:
Idle time due to machine breakdowns .... 3 hours
Idle time due to material shortages .... 2 hours
Overtime ............................... None
Week 2:
Idle time .............................. None
Overtime ............................... 9 hours
Required:
Compute Fred’s wages for each week and allocate Fred’s wages for
each week between direct labor cost and manufacturing overhead.

Answer:
Week 1:
Fred’s wages equal 40 hours x $15 per hour, or $600.
Fred’s wages would be allocated between direct labor and
manufacturing overhead as follows:
Direct labor cost: 35 hours x $15 = ........ $525.00

Manufacturing overhead: 5 hours x $15 = .... 75.00
Total ...................................... $600.00
Week 2:
Fred’s wages equal:
40 hours x $15 per hour = ................ $600.00
9 hours x $22.50 per hour = ............. 202.50
Total wages for Week 2 ..................... $802.50
Fred’s wages would be allocated between direct labor and

manufacturing overhead as follows:
Direct labor cost: 49 hours x $15 per hour = $735.00

Manufacturing overhead: 9 hours x $7.50 = 67.50
Total ..................................... $802.50

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Chapter 7

Variable Costing: A Tool for Management

1. In the preparation of financial statements using variable costing,

2. Direct labor is always considered to be a product cost under variable

4. Under variable costing it may be possible to report a profit even if

5. Under variable costing, the impact of fixed cost is emphasized because

6. Absorption costing treats fixed manufacturing overhead as a period

7. The unit product cost under absorption costing contains no element of

8. Absorption costing treats all manufacturing costs as product costs.

9. When the number of units in work in process and finished goods

Managerial Accounting, 9/e 221

13. Net income is not affected by changes in production when absorption

15. Since variable costing emphasizes costs by behavior, it works well

17. An allocated portion of fixed manufacturing overhead is included in

222Managerial Accounting, 9/e

Period costs Product costs

20. Which of the following are considered to be product costs under

Managerial Accounting, 9/e 223

24. Which of the following are considered to be product costs under

a. I, II, and III.

224Managerial Accounting, 9/e

Managerial Accounting, 9/e 225

226Managerial Accounting, 9/e

37. West Co.'s manufacturing costs are as follows:

What amount should be considered product costs for external reporting

Managerial Accounting, 9/e 227

Selling price ............................ $99

Units in beginning inventory ............. 0

Variable costs per unit:

228Managerial Accounting, 9/e

Managerial Accounting, 9/e 229

Direct material .................. $100,000

51. Under absorption costing, the gross margin would be:

52. The contribution margin per unit would be:

54. The net income under variable costing would be:

230Managerial Accounting, 9/e

Selling price ............................ $92

Units in beginning inventory ............. 0

Variable costs per unit:

Managerial Accounting, 9/e 231

Selling price ............................ $111

Units in beginning inventory ............. 400

Variable costs per unit:

232Managerial Accounting, 9/e

Selling price ............................ $123

Units in beginning inventory ............. 0

Variable costs per unit:

Managerial Accounting, 9/e 233

Selling price ............................ $149

Units in beginning inventory ............. 0

Variable costs per unit:

234Managerial Accounting, 9/e

Variable cost per unit:

Fixed costs in total:

Managerial Accounting, 9/e 235

Sales ($10 per unit) .............. $900,000

236Managerial Accounting, 9/e

Units in beginning inventory ........ ­0­

Variable costs per unit:

Units in beginning inventory ........ 0

Units in beginning inventory ....... 0