William Carey University - ACC 222

Chapter 16 Management Accounting: A Business Partner

Answer Key

TRUE /FALSE  Questions

1)Managerial accounting refers to the preparation and use of accounting information designed to meet the needs of decision makers inside and outside the business organization.

2. The three basic types of manufacturing cost are direct materials, direct labor and manufacturing overhead.

3. Manufacturing overhead is a term used to describe all manufacturing costs other than direct labor and direct materials.

4. Direct materials used, direct labor, and manufacturing overhead are included among the expenses listed in the income statement of a manufacturing company.

5. Product costs are offset against revenue in the period in which the related products are manufactured, rather than the period in which the products are sold.

6. Product costs are selling expenses that appear on the income statement.

7. Manufacturing overhead is considered an indirect cost, since overhead costs generally cannot be traced conveniently and directly to specific units of product.

8. As units are completed, their cost is transferred from the Work in Process Inventory account to the Finished Goods Inventory account.

9. Product costs are charged directly to expense accounts.

10. Management accounting encompasses the design and use of accounting information systems inside the company to achieve the company's objectives.

11. Management accounting reports provide a means of monitoring, evaluating and rewarding performance.

12. A value chain is a linked set of activities and resources necessary to deliver a product of low cost but high value to the retailer.

13. Supervisor salaries, equipment repairs, depreciation of machinery and indirect materials are all examples of manufacturing overhead.

14. Product costs become part of inventory and are placed on the balance sheet until goods are sold.

15. Period costs are recognized in the period when the cost is incurred and placed on the income statement as part of Cost of Goods Sold.

16. Direct labor costs are debited and work in process is credited when the direct labor employees contribute to the production process.

17. A debit balance in the Direct Labor account represents a liability for wages payable.

18. A schedule of the cost of finished goods manufactured summarizes the flow of manufacturing costs into and out of the finished goods inventory account.

19. Prime costs include direct materials and direct labor used in the production of goods and services.

20. Direct labor and overhead costs that are required to convert raw materials into finished goods are considered to be conversion costs.

Multiple Choice Questions

21. Which of the following is not a product cost?
    1. Depreciation on a raw materials warehouse.
    2. An employee working directly on assembling a car.
    3. The leather seats of a motorcycle.
    4. The real estate tax of the showroom.

22. When goods are completed and come off the assembly line
    1. Cost of Goods Sold is debited and Finished Goods Inventory is credited.
    2. Work in process Inventory is debited and Finished Goods Inventory is credited.
    3. Finished Goods Inventory is debited and Cost of Goods Sold is credited.
    4. Work in process Inventory is credited and Finished Goods Inventory is debited.

23. Costs that are traceable to a particular unit and are inventoriable are called:
    1. Period costs
    2. Product costs
    3. Overhead costs
    4. Job costs

24. Goods that are still in the production process would be in which account?
    1. Materials Inventory
    2. Work in process Inventory
    3. Finished Goods Inventory
    4. Cost of Goods Sold

25. The salaries paid to employees working directly on a company's products would be shown as a:
    1. Credit to Direct Labor
    2. Debit to Direct Labor
    3. Credit to work in process
    4. Debit to Manufacturing Overhead

26. 
    Determine the amount of manufacturing overhead given the following information:

A. $7,750

B. $10,430

C. $9,750

D. $11,080

27. The cost of the employee who installs the leather on the seats of a new automobile would be considered
    1. Manufacturing overhead
    2. Indirect labor
    3. Direct material
    4. Direct labor

28. The cost of the employee who computes total manufacturing costs would be considered:
    1. Direct labor
    2. Indirect labor
    3. Manufacturing overhead
    4. Administrative costs

29. The principal difference between managerial accounting and financial accounting is that managerial accounting information is:
    1. Prepared by managers.
    2. Intended primarily for use by decision makers inside the business organization.
    3. Prepared in accordance with a set of accounting principles developed by the Institute of Certified Managerial Accountants.
    4. Oriented toward measuring solvency rather than profitability.

30. Management accounting systems are designed to assist organizations in the performance of all of the following functions except:
    1. The assignment of decision-making authority over company assets.
    2. Planning and decision-making.
    3. Monitoring, evaluating and rewarding performance.
    4. The preparation of income tax returns.

31. Which of the following is not a period cost?
    1. Depreciation on factory equipment.
    2. Depreciation on the retail store building.
    3. Salesperson salaries.
    4. Office supplies used.

32. The set of linked activities and resources needed to create and deliver a product or service to the customer is referred to as:
    1. The budget.
    2. The value chain.
    3. The operating cycle.
    4. The production process.

33. Which of the following is not a characteristic of managerial accounting?
    1. Reports are used primarily by insiders rather than by persons outside of the business entity.
    2. Its purpose is to assist managers in planning and controlling business operations.
    3. Information must be developed in conformity with generally accepted accounting principles or with income tax regulations.
    4. Information may be tailored to assist in specific managerial decisions.

34. In comparison with a financial statement prepared in conformity with generally accepted accounting principles, a managerial accounting report is more likely to:
    1. Be used by decision makers outside of the business organization.
    2. Focus upon the operating results of the most recently completed accounting period.
    3. View the entire organization as the reporting entity.
    4. Be tailored to the specific needs of an individual decision maker.

35. In comparison with a financial statement prepared in conformity with generally accepted accounting principles, a managerial accounting report is less likely to:
    1. Focus upon the entire organization as the accounting entity.
    2. Focus upon future accounting periods.
    3. Make use of estimated amounts.
    4. Be tailored to the specific needs of an individual decision maker.

36. Which of the following is not a product cost?
    1. Property tax on the factory building.
    2. Advertising.
    3. Factory workers' salaries.
    4. Indirect materials used.

37. The managerial functions of planning and controlling include all of the following activities except:
    1. Setting objectives and goals for future performance.
    2. Monitoring the extent to which planned objectives are being achieved.
    3. Taking corrective action when actual results differ from the plan.
    4. None of the above. All of these actions are properly considered planning and controlling managerial functions.

38. Which of the following is not one of the three types of inventories of a manufacturer?
    1. Materials inventory.
    2. Work in process inventory.
    3. Product inventory.
    4. Finished goods inventory.

39. Manufacturing costs do not include:
    1. Direct labor applicable to production within the period.
    2. Selling expenses related to goods manufactured during the period.
    3. Direct materials used during the period.
    4. Manufacturing overhead charged to work in process during the period.

40. Which of the following should not be classified as a manufacturing cost?
    1. Indirect factory labor costs, such as salaries of plant security guards.
    2. Direct materials used in the production process.
    3. Utility bills related to factory operations.
    4. Commissions paid to salespeople.

41. A product cost is deducted from revenue in the period in which:
    1. The related finished goods are sold.
    2. The expenditure is made.
    3. Production of the product begins.
    4. The production process is completed.

42. Until the related goods are sold, product costs are viewed as:
    1. Assets.
    2. Liabilities.
    3. Operating expenses.
    4. Manufacturing overhead.

43. Which of the following is not a product cost?
    1. Direct materials used.
    2. Direct labor costs applicable to production.
    3. Manufacturing overhead.
    4. Advertising expense.

44. Which of the following is a period cost rather than a product cost?
    1. Depreciation on a factory building.
    2. The cost of direct materials used.
    3. Depreciation on a sales showroom.
    4. The cost of disposing of hazardous waste materials from factory operations.

45. When inventory is finished:
    1. Finished Goods Inventory is credited.
    2. Work in process inventory is credited.
    3. Cost of Goods Sold is debited.
    4. Work in process inventory is debited.

46. If the salaries of the sales staff of a manufacturing company are improperly recorded as a product cost, what will be the likely effect on net income of the period in which the error occurs?
    1. Net income will be overstated.
    2. Net income will be understated.
    3. Net income will be unaffected.
    4. Net income will be understated only if inventory levels rise.

47. 
    The following information is available about the August transactions of the Helpful Tool Co:

The product costs to be deducted from revenue in August amount to: A. $493,000.

B. $737,000.

C. $718,000.

D. $739,000.

48. Manufacturing companies normally have three types of inventory:
    1. Direct materials, direct labor, and manufacturing overhead.
    2. Materials, work in process, and finished goods.
    3. Work in process, finished goods, and returned merchandise.
    4. Economy, standard, and deluxe.

49. When inventory is sold:
    1. Cost of Goods Sold is credited.
    2. Work in process Inventory is credited.
    3. Finished Goods Inventory is credited.
    4. Finished Goods Inventory is debited.

50. The ending inventory of a merchandising company corresponds most closely to which of the following amounts of a manufacturer?
    1. Ending inventory of finished goods.
    2. Cost of finished goods manufactured.
    3. Ending inventory of work in process.
    4. Total manufacturing costs incurred during the period.

51. Amounts debited to the work in process Inventory account may best be described as:
    1. Direct materials purchased, direct labor costs paid, and payments for items classified as manufacturing overhead.
    2. The cost of finished goods manufactured during the period.
    3. Total manufacturing costs charged to production.
    4. The cost of goods sold.

52. Amounts credited to the work in process Inventory account may best be described as:
    1. The cost of finished goods manufactured.
    2. Total manufacturing costs charged to production.
    3. The cost of goods sold.
    4. Direct materials purchased, direct labor costs paid, and payments for items classified as manufacturing overhead.

53. In an aircraft factory, the inventory of direct materials would not include:
    1. Electronic instruments to be installed in aircraft.
    2. Completed aircraft, available for sale.
    3. Sheet aluminum to be used for the exterior "skin" of the aircraft.
    4. Ejection seats to be installed only in military aircraft.

54. When a manufacturing company purchases raw materials or component parts to be used in manufacturing finished goods, these costs are initially debited to:
    1. Expense accounts.
    2. Materials Inventory.
    3. Finished Goods Inventory.
    4. Manufacturing Overhead.

55. The placing of direct materials into the production process is recorded by an entry debiting:
    1. Materials Expense.
    2. Materials Inventory.
    3. Work in process Inventory.
    4. Finished Goods Inventory.

56. The placing of direct materials into the production process is recorded by an entry crediting:
    1. Materials Expense.
    2. Materials Inventory.
    3. Work in process Inventory.
    4. Finished Goods Inventory.

57. The accountant for Eric's Plumbing Equipment Company recently made a journal entry consisting of a debit to Work in process and a credit to Materials Inventory. This entry recorded:
    1. The use of raw materials in the production process.
    2. Payment for raw materials.
    3. The return of unused materials to inventory.
    4. The receipt of raw materials from the company's supplier.

58. When direct materials are used:
    1. Manufacturing Overhead is debited.
    2. Materials Inventory is debited.
    3. Cost of Goods Sold is debited.
    4. Work in process inventory is debited.

59. Direct labor costs in a paint factory would include wages of employees who:
    1. Supervise heavy equipment operators.
    2. Operate paint-mixing machines.
    3. Develop highly secret formulas for new products.
    4. Paint the interior of the factory every two years.

60. The payment of wages to factory employees who work directly on the goods being manufactured is recorded by an entry debiting:
    1. Wages Expense.
    2. Direct Labor.
    3. Work in process Inventory.
    4. Cash.

61. The payment of wages to factory employees who work directly on the goods being manufactured is recorded by an entry crediting:
    1. Wages Expense.
    2. Direct Labor.
    3. Work in process Inventory.
    4. Cash.

62. Since production employees work directly on the goods being manufactured, the related labor costs are recorded by debiting:
    1. Wages Expense.
    2. Direct Labor.
    3. Work in process Inventory.
    4. Manufacturing Overhead.

63. If it is the first year of operations and the cost of all work in process during the year is

$830,000 and the cost of finished goods manufactured is $860,000, what is the value of the ending work in process inventory?

A. $0.

B. $30,000.

C. some other amount.

D. this is an impossible situation.

64. If the end of the fiscal year is not a payroll date, the Direct Labor account normally has:
    1. A debit balance, representing prepaid labor costs.
    2. A credit balance, representing accrued wages payable.
    3. Either a debit or a credit balance, depending upon whether the end of the fiscal year falls before or after the end of the pay period.
    4. A zero balance, because the Direct Labor account is closed along with the other expense accounts.

65. Manufacturing overhead is best described as:
    1. All manufacturing costs other than direct materials and direct labor.
    2. All period costs associated with manufacturing operations.
    3. Indirect materials and indirect labor.
    4. All operating expenses other than selling expenses and general and administrative expenses.

66. Which of the following costs would not be considered part of the manufacturing overhead of a furniture manufacturer?
    1. The cost of compliance with federal factory safety regulations.
    2. Depreciation expense on factory equipment.
    3. The cost of grease used to lubricate factory equipment.
    4. The cost of wood used in furniture construction.

67. Which of the following costs would not be considered part of the manufacturing overhead of a chemical plant?
    1. The costs of disposing of toxic waste materials.
    2. Salaries of factory medical personnel.
    3. Salaries of employees who operate distilling equipment used in the production process.
    4. The cost of complying with federal safety regulations concerning plant operations.

68. Which group of people is management accounting designed to satisfy?
    1. Management.
    2. Creditors.
    3. Investors.
    4. Governmental agencies.

69. In the year-end financial statements, the Manufacturing Overhead account should have:
    1. A debit balance, representing overhead on hand and available for use.
    2. A credit balance, representing accumulated depreciation and amounts owed to suppliers of overhead items.
    3. Either a debit or a credit balance, depending upon whether the overhead application rate used throughout the year was higher or lower than 100%.
    4. A zero balance, since all overhead costs incurred during the period should be assigned to the production of the period.

70. Since manufacturing costs (direct materials, direct labor, and overhead) are incurred in the process of manufacturing units of product, these costs are debited to:
    1. The Direct Materials Inventory, Direct Labor, and Manufacturing Overhead accounts.
    2. Expense accounts.
    3. The work in process Inventory account.
    4. The Cost of Goods Sold account.

71. Since manufacturing costs (direct materials, direct labor, and overhead) are incurred in the process of manufacturing units of product, these costs are credited to:
    1. The Direct Materials Inventory, Direct Labor, and Manufacturing Overhead accounts.
    2. Liability accounts.
    3. The work in process Inventory account.
    4. The Cost of Goods Sold account.

72. The completion of a computer by First Wireless, Inc. would require a debit to which of the following accounts?
    1. Cost of goods sold
    2. Work in process Inventory.
    3. Finished Goods Inventory.
    4. Materials Inventory.

73. In a manufacturing company, the cost of finished goods manufactured is equal to:
    1. The beginning inventory of finished goods, plus total manufacturing costs, less the ending inventory of finished goods.
    2. Total manufacturing costs for the period, less selling expenses.
    3. The beginning inventory of work in process, plus total manufacturing costs, less the ending inventory of work in process.
    4. The cost of goods available for sale, less the ending inventory of finished goods.

74. In a manufacturing company, the cost of finished goods manufactured is equal to:
    1. The beginning inventory of finished goods, plus net purchases, less the ending inventory of finished goods.
    2. The sum of the manufacturing costs charged (debited) to the Work in Process Inventory account during the period.
    3. The costs of direct materials, direct labor, and manufacturing overhead incurred in manufacturing the goods sold during the period.
    4. The beginning inventory of work in process, plus total manufacturing costs for the period, less the ending inventory of work in process.

75. In a manufacturing company, the cost of goods sold is equal to:
    1. The beginning inventory of finished goods, plus net purchases, less the ending inventory of finished goods.
    2. The sum of the manufacturing costs charged (debited) to the Work in process Inventory account during the period.
    3. The costs of direct materials, direct labor, and manufacturing overhead incurred in manufacturing the goods sold during the period.
    4. The beginning inventory of work in process, plus total manufacturing costs for the period, less the ending inventory of work in process.

76. In a schedule of cost of finished goods manufactured, the figure for total manufacturing costs:
    1. May be less than the cost of direct materials used.
    2. May be less than the direct labor costs assigned to production.
    3. May be less than the manufacturing overhead applied to production.
    4. May be less than the cost of finished goods manufactured.

77. The cost of finished goods manufactured will exceed the cost of goods sold whenever:
    1. The inventory of finished goods increases over the period.
    2. The inventory of work in process increases over the period.
    3. The inventory of finished goods decreases over the period.
    4. The inventory of work in process decreases over the period.

78. Grand Co.'s ending inventory of work in process is twice as large as at the beginning of the period. Therefore:
    1. The ending inventory of finished goods must be larger than the beginning inventory of finished goods.
    2. Total manufacturing costs for the period must exceed the cost of finished goods manufactured.
    3. Total manufacturing costs for the period must exceed the cost of goods sold.
    4. The cost of finished goods manufactured must be smaller than the cost of goods sold.

79. Refer to the above data. The total amount of inventory to be included in Elite's August 31^st balance sheet amounts to:

A. $135,000.

B. $210,000.

C. $160,000.

D. Some other amount.

80. Refer to the above data. Total manufacturing costs charged (debited) to Work in process during August amount to:

A. $60,000.

B. $125,000.

C. $110,000.

D. Some other amount.

81. Refer to the above data. The cost of finished goods manufactured in August is: A. $147,000.

B. $92,000.

C. $57,000.

D. Some other amount.

82. Refer to the above data. The cost of goods sold in August is:

A. $75,000.

B. $17,000.

C. $135,000.

D. Some other amount.

83. Refer to the above data. The total amount of inventory to be included in Imperial's September 30^th balance sheet amounts to:

A. $255,000.

B. $123,000.

C. $185,000.

D. Some other amount.

84. Refer to the above data. Total manufacturing costs charged (debited) to work in process during September amount to:

A. $180,000.

B. $170,000.

C. $172,000.

D. Some other amount.

85. Refer to the above data. The cost of finished goods manufactured in September is: A. $190,000.

B. $180,000.

C. $213,000.

D. Some other amount.

86. Refer to the above data. The cost of goods sold in September is: A. $190,000.

B. $158,000.

C. $168,000.

D. Some other amount.

QUIZ A                                

The manufacturing cost accounts of Varsity Manufacturing Co. provide the following information for the year ended December 31, 2010:

Direct materials used................................................................................. $500,000

.

Answer the following questions. If you select answer d, indicate the correct amount.

                 1       Refer to the above data. The total amount of inventory that should appear in the company’s balance sheet at December 31, 2010:, is:

                 2       Refer to the above data. The total manufacturing costs charged to the Work in process Inventory account during 2009: amounted to:

                 3       Refer to the above data. The total manufacturing costs deducted from revenue in 2010: amounted to:

                 4       Refer to the above data. The balance in the Materials Inventory account at the beginning of 2010: was:

QUIZ B                                

The “flow” of manufacturing costs through the ledger of Able Mfg. Co. during April is summarized in the following T accounts. Certain amounts have been omitted and are represented by question marks.

Direct Labor                                        Finished Goods Inventory

Answer the following questions. If you select answer d, indicate the correct amount.

                 1       Refer to the above data. The total amount of inventory that should appear in the company’s balance sheet at April 30 is:

                 2       Refer to the above data. The amount of wages paid to direct workers during April amounted to:

                 3       Refer to the above data. The total manufacturing costs charged to production during April were:

                 5

You are to summarize the “flow” of manufacturing costs through the ledger accounts of Berman Mfg. Co. for the month of June. Complete the following T accounts by entering summary amounts for the month in each of the blank spaces provided (lettered a through j). In addition to the amounts already shown in the T accounts, the following information is available:

Direct materials used during June...............................................................................           $51,000

Wages paid during June to direct labor workers......................................................... $22,000

Cost of finished goods manufactured.........................................................................            $98,000

Total manufacturing costs charged to production (in the Work in Process account, record this entire amount as

one entry)....................................................................................................................            $94,000

Materials Inventory                                   Work in Process Inventory

CHAPTER 16                        

QUIZ D                                

Information about the manufacturing costs and inventories of Tracy Mfg. Co. in 2009 is shown below:

Manufacturing Costs:

Direct materials used.............................................................................................. $655,000

Direct labor charged to production......................................................................... $330,000

Manufacturing overhead........................................................................................ $455,000

1. Using the appropriate data, prepare a Schedule of Cost of Finished Goods Manufactured for the year ended December 31, 2009

TRACY MFG. CO.

Schedule of Cost of Finished Goods Manufactured For the Year Ended December 31, 2009

2. Compute the cost of goods sold in 2009:. $            

CHAPTER 16 SELF-TEST QUESTIONS FROM TEXTBOOK

Choose the best answer for each of the following questions and insert the identifying letter in the space provided.

                 1       Indicate which of the following statements are more descriptive of managerial accounting than of financial accounting. (More than one answer may be appropriate.)

1. 1. Recognized standards for presentation.
   2. Information is tailored to the needs of individual decision makers.
   3. Information is more widely distributed.
   4. Emphasis is on expected future results.

                 2       In a manufacturing company, the costs debited to the Work in process Inventory account represent:

1. Direct materials used, direct labor, and manufacturing overhead.
2. Cost of finished goods manufactured.
3. Period costs and product costs.
4. None of the above. The types of costs debited to this account will depend upon the type of products being manufactured.

                  3     The Work in process Inventory account had a beginning balance of $4,200 on February

1. During February, the cost of direct materials used was $29,000 and direct labor cost applied to production was $3,000. Overhead is applied at the rate of $20 per direct labor hour. During February, 180 direct labor hours were used in the production process. If the cost of finished goods manufactured was $34,100, compute the balance in the Work in process Inventory account at the end of February.

                 4       The purpose of an overhead application rate is to:

1. Assign a portion of indirect manufacturing costs to each product manufactured.
2. Determine the type and amount of costs to be debited to the Manufacturing Overhead account.
3. Charge the Work in process Inventory account with the appropriate amount of direct manufacturing costs.
4. Allocate manufacturing overhead to expense in proportion to the number of units manufactured during the period.

                 5       The accounting records of Newport Mfg. Co. include the following information for the most recent year ended Dec. 31:

.

Indicate which of the following are correct. (More than one answer may be correct.)

1. Amount debited to the Work in process Inventory account during year, $500,000.
2. Cost of finished goods manufactured, $490,000.
3. Cost of goods sold, $470,000.
4. Total manufacturing costs, $650,000.