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CHAPTER 3 COST ACCOUNTING CYCLE
Multiple Choice – Theories
- Cost of goods sold is a. An expense b. A period cost c. Is an asset d. None of the above
Answer: A
- For a manufacturing company, the cost of goods sold available for sale during a given accounting period is a. The beginning inventory of finished goods b. The cost of goods manufactured during the period c. The sum of the above d. None of the above
Answer: C
- Which of the following would not be classified as manufacturing overhead? a. Indirect labor b. Direct materials c. Insurance on factory building d. Indirect material
Answer: B
- The wage of a timekeeper in the factory would be classified as a. prime cost b. direct labor c. indirect labor d. administrative expense
Answer: C
- As current technology changes manufacturing processes, it is likely that direct a. labor will increase b. labor will decrease c. materials will increase d. material will decrease
Answer: B
- Sales commissions are classified as a. prime costs b. period costs c. product costs d. indirect labor
Answer: B
- For inventoriable costs to become expenses under the matching principle, a. the must be finished and in stock b. the product must be expensed based on its percentage of completion c. the product to which they attach must be sold d. all accounts must be settled
Answer: C
- A manufacturing company reports cost of goods manufactured as a. a current asset on the balance sheet b. an administrative expense on the income statement c. a component in the calculation of cost of goods sold d. a component of the raw materials inventory on the balance sheet
Answer: C
- Costs of goods manufactured in a manufacturing company is analogous to a. Ending inventory in a merchandising company b. Beginning inventory in a merchandising company c. Cost of goods available for sale in a merchandising company d. Cost of goods purchased in a merchandising company
Answer: D
- If the amount of “Cost of goods manufactured” during a period exceeds the amount of the “Total manufacturing costs” for the period, then a. Ending work in process inventory is greater than or equal to the amount of the beginning work in process inventory b. Ending work in process is greater than the amount of the beginning work in process inventory c. Ending work in process is equal to the cost of goods manufactured d. Ending work in process is less than the amount of the beginning work in process inventory
Answer: D
Solution:
Items 3 through 5 are based on the following information pertaining to Glenn Company’s manufacturing operations.
Inventories 3/1/11 3/31/ Direct Materials P 36,000 P 30, Work-in-process 18,000 12, Finished goods 54,000 72,
Additional Information for the month of March 2011 Direct materials purchased P 84, Direct labor payroll 60, Direct labor rate per hour 7. Factory overhead rate/direct labor hour
- For the month of March 2011, prime cost was
a. P 90, b. P 120, c. P 144, d. P 150,
Answer: D
Solution:
Direct Materials Direct Mats. – Beg. 36, Add: Purchases 84, Less: Direct Mats. – End. (30,000) 90, Direct Labor 60, Prime Cost 150,
Direct Materials Purchases 430, Less: Increase in raw materials 15,000 415, Direct Labor 200, Factory Overhead 300, Manufacturing Cost 915, Add: Decrease in Finished Goods 35, Cost of Goods Sold 950,
4. For the month of March 2011, conversion cost was
Answer: B
Answer: D
Solution:
- Prime cost was:
a. P 175, b. P 250, c. P 130, d. P 225,
Answer: B
Solution:
Direct materials P 100, Direct labor P 150, Prime cost P 250,
- Conversion cost was:
a. P 150, b. P 225, c. P 250, d. P 270,
Answer: B
Solution:
Direct labor P 150, Factory overhead P 75, Conversion cost P 225,
- Direct cost was:
a. P 225, b. P 250, c. P 310, d. P 325,
Answer: C
Solution:
Direct Selling and administrative Expense (P 120,000 x 50%) P 60, Direct materials 100, Direct labor 150, Direct cost P 310,
- Indirect cost was:
a. P 75, b. P 135, c. P 195, d. P 325,
Answer: B
Solution: Indirect Selling and Administrative Expense (P 120,000 x 50%) P 60, Factory overhead 75, Indirect cost P 135,
- Product cost was:
a. P 135, b. P 250, c. P 325, d. P 370,
Answer: C
Solution:
Direct materials P 100, Direct labor 150, Factory overhead 75, Product cost P 325,
- Variable cost was:
a. P 250, b. P 280, c. P 352, d. P 370,
Answer: C
Solution:
Variable Selling and Administrative Expense (P 120,000 x 60%) P 72, Direct materials 100, Direct labor 150, Variable factory overhead (P 75,000 x 40%) 30, Variable cost P 352,
The Lion Company’s cost of goods manufactured was P 120,000 when it sales were P 360,000 and its gross margin was P 220,000.
- If the ending inventory of finished goods was P 30,000, the beginning inventory of finished goods must have been:
a. P 10, b. P 50, c. P 130, d. P 150,
Answer: B
Solution:
The gross margin for Cruise Company for 2011 was P 325,000 when sales were P 700,000. The FG inventory was P 60,000 and the FG inventory, end was P 35,000.
- The cost of goods manufactured was:
a. P 300, b. P 350, c. P 230, d. P 375,
Answer: B
Solution:
Sales P 700, Less: Gross Margin (325,000) Cost of Goods Sold P 375, Add: Finished Goods, end 35, Less: Finished Goods, beginning (65,000) Cost of Goods Manufactured P 350,
Sales 360, Cost of Goods Sold Cost of goods manufactured 120, Add: Finished goods, beg. (SQUEEZE)
Goods available for sale 170, Less: Finished goods, end. 30,000 140, Gross Margin 220,
During the month of January, F Co.’s direct labor cost totaled P 36,000, and the direct labor cost was 60% of prime cost.
- If total mfg. costs during January were P 85,000, the factory overhead was:
a. P 24, b. P 25, c. P 49, d. P 60,
Answer: B
Solution:
Manufacturing Costs P 85, Less: Prime Cost (P 36,000 / 60%) (60,000) Factory overhead P 25,
During 2011, there was no change in the beginning or ending balance in the Materials inventory account for the DL Co. However, the WP inventory account increased by P 15,000, and the FG inventory account decreased by P 10,000.
- If purchases of raw materials were P 100,000 for the year, direct labor costs was P 150,000, and manufacturing overhead cost was P 200,000, the cost of goods sold for the year would be:
a. P 435, b. P 445, c. P 465, d. P 475,
Answer: B
Solution:
Direct materials P 100, Direct labor 150, Factory overhead 200, Total Manufacturing Costs 450, Work in process (increase) (15,000) Cost of goods Manufactured 435, Finished Goods (decrease) 10, Cost of Goods Sold P 445,
- Determine the sales for the year.
Gross profit P 280, Ending inventory 120, Goods available for sale 180,
a. P 300, b. P 340, c. P 400, d. P 460,
Answer: B
Solution:
Goods Available for Sale P 180, Less: Inventory,end 120, Cost of Goods Sold 60, Add: Gross Profit 280, Sales 340,
*Gross profit is attained by getting the difference between Sales and Cost of Goods Sold. Using the SQUEEZE method we are able to get the number of sales by adding COGS and Gross Profit.
Given the following information:
Finished goods beginning P 26, Finished goods ending 37, Cost of goods manufactured 127,
- What is the cost of goods sold?
a. P 115, b. P 138, c. P 153, d. P 190, e. P 116,
Answer: E
Solution:
Cost of Goods Manufactured 127, Add: Finished Goods, beg. 26, Total Goods Available for Sale 153, Less: Finished Goods, end 37, Cost of Goods Sold 116,
- The above solution is based on the Cost Goods Sold Statement formula.
Uniflo Manufacturing Company developed the following data for the current year.
Work in process inventory, January 1 P 40, Direct materials used 24, Actual factory overhead 48, Applied factory overhead 36, Cost of goods manufactured 44, Total manufacturing costs 120,
- Uniflo Company’s direct labor cost for the year is
a. P 12, b. P 60, c. P 36, d. P 48,
Answer: B
Solution:
Direct Materials used 24, Factory Overhead Applied 36, Direct Labor (60,000) SQUEEZE Total Manufacturing Cost 120,
*Factory overhead applied is used in determining the total manufacturing cost and not the actual overhead.
- Uniflo Company’s work in process inventory, December 31 is
a. P 116, b. P 80, c. P 76, d. P 36,
Answer: A
Solution:
Total Manufacturing Cost 120, Work in process, beg 40, Cost of goods put into process 160, Less: Work in process, end 116,000 SQUEEZE Cost of Goods Manufactured 44,
Solution:
Sales 50, Cost of Goods Sold (17,000) Gross Profit 33, Total selling, general, and administrative costs (14,000) Net Income 19,
- Net Income is the increase in the retained earnings.
Arizona Manufacturing Company reported the following year-end information
Work in process inventory, January 1 180, Raw materials inventory, January 1 50, Work in process inventory, December 31 150, Raw materials inventory, December 31 80, Raw materials purchased 160, Direct labor 150, Factory overhead applied 100, Factory overhead control 120,
- Cost of goods manufactured for the year is
a. P 380, b. P 410, c. P 350, d. P 440,
Answer: B
Solution:
Materials Used: Raw Materials, beg 50, Add: Purchases 160, Total Available for use 210, Less: Materials, end 80,000 130, Direct Labor 150, Factory Overhead Applied 100, Total Manufacturing Cost 380, Add: Work in process, beg. 180, Cost of goods put into process 560, Less: Work in process, end. 150, Cost of goods manufactured 410,
- Used Cost of Goods Sold Statement to determine the value.
Alabama Corporation reported the following for the year. WP inventory, beg – P 90,000; cost of goods manufactured – P 258,000; FG inventory, beg – P 126,000; WP inventory, end – P 110,000; FG inventory, end – P 132,
- Cost of goods sold for Alabama Corporation during the year
a. P 252, b. P 264, c. P 232, d. P 126,
Answer: A
Solution:
Cost of goods manufactured 258, Add: Finished goods, beg. 126, Total goods available for sale 384, Less: Finished goods, end 132, Cost of goods sold 252,
- Total manufacturing costs for Alabama Corporation
a. P 278, b. P 368, c. P 298, d. P 238,
Answer: A
Solution:
Cost of goods manufactured 258, Work in process, end 110, Less: Work in process, beg. 90, Total manufacturing cost 278,
- The closing entries necessary under the perpetual and periodic inventory systems do not differ because all expenses and revenues must be close. (differ)
Answer: FALSE
*Perpetual inventory systems record cost of goods sold and keep inventory at its current balance throughout the year. Therefore, there is no need to do a year-end inventory adjustment unless the perpetual records disagree with the inventory count. In addition, a separate cost of goods sold calculation is unnecessary since cost of goods sold is recorded whenever inventory is sold.
*The inventory account in a periodic inventory system keeps its beginning balance until the end of period adjustment to the physical inventory count. Therefore, a separate cost of goods sold calculation is necessary.
- When a company changes from one inventory costing method to another, the change must be fully disclosed in a footnote to the financial statements explaining the reasons for the change.
Answer: TRUE
- Graphically, the economic order quality (EOQ) is the point where the carrying cost line intersect the ordering cost line.
Answer: TRUE
- The primary goal of inventory management activity is to minimize the risks of a stockout while maximizing the return on inventory. (inventory related costs)
Answer: FALSE
- When computing the economic production run size, the costs to set up a production run are analogous to carrying costs in the basic economic order quantity model. (order costs)
Answer: FALSE
- The purchase price per unit of inventory is irrelevant in lathe economic order quantity (EOQ) model.
Answer: TRUE
- The accounting for spoiled units and defective units is the same. (different)
Answer: FALSE
*When spoiled units are discovered, they are taken out of production and no further work is performed on them. While defective units do not meet production standards and must be processed further in order to be salable as good units or as irregulars.
Multiple Choice - Problems
- According to the net method, which of the following items should be included in the cost of inventory? Freight-cost Purchase discounts not taken a. Yes No b. Yes Yes c. No Yes d. No No
Answer: A Explanation: The cost of inventory should include all expenditures (direct and indirect) incurred to bring an item to its existing condition and location. Freight charges are thus appropriately included in inventory costs. Under the net purchase method, purchase discounts not taken are recorded in a Purchase Discount Lost Account. When this method is used, purchase discounts lost are considered a financial expense and are thus excluded from the cost of inventory.
- The weighted average for the year inventory cost flow method is applicable to which of the following inventory system? Periodic Perpetual a. Yes Yes b. Yes No c. No Yes d. No No
Answer: B
Explanation: Weighted average for the year inventory cost flow method is applicable only to periodic inventory system because in perpetual inventory system, moving average method is the one being used.
- During June, Delta Co. experienced scrap, normal spoilage, and abnormal spoilage in its manufacturing process. The cost of units produced includes a. Scrap, but not spoilage b. Normal spoilage, but neither scrap nor abnormal spoilage c. Scrap and normal spoilage, but not abnormal spoilage d. None of the items mentioned
Answer: C
