Gar003, Chapter 3 Systems Design: Job-Order Costing

File: 1eC02TB, Chapter 2, Cost Terms, Concepts, and Classifications

True/False

1. The sum of all costs of manufacturing costs except direct materials is called manufacturing overhead. Level: Easy LO: 1 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: F

2. Conversion cost is the sum of direct labor and manufacturing overhead. Level: Easy LO: 1 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: T

3. Prime cost is the sum of direct labor and manufacturing overhead. Level: Easy LO: 1 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: F

4. Thread used in the production of mattresses, an indirect material, is classified as manufacturing overhead. Level: Easy LO: 1 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: T

5. Period costs are also known as inventoriable costs. Level: Easy LO: 2 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: F

6. All costs in a merchandising company are period costs. Level: Easy LO: 2 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: F

7. The cost of goods sold of a manufacturing company equals beginning finished goods inventory + cost of goods manufactured − ending finished goods inventory. Level: Easy LO: 3 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: T

8. A variable cost is constant if expressed on a per unit basis but the total dollar amount changes as the number of units increases or decreases. Level: Easy LO: 5 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: T 9. As activity increases within the relevant range, fixed costs remain constant on a per unit basis. Level: Easy LO: 5 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: F

10. Direct costs are often difficult to trace to the specific cost object under consideration. Level: Easy LO: 6 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: F

11. All of the following are examples of opportunity costs: salary given up to start a business; rental income given up when you live in a house you own; interest income that could be earned on money spent for a car. Level: Medium LO: 7 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: T

12. The amount that was paid by a company for a building to house its operations is an example of a sunk cost. Level: Easy LO: 7 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: T Multiple Choice

13. The cost of the cushions that are used to manufacture sofas is best described as a: A) manufacturing overhead cost. B) period cost. C) variable cost. D) conversion cost. Level: Medium LO: 1,2,5 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C

14. Chezpere Company manufactures and sells washing machines. In order to make assembly of the machines faster and easier, some of the metal parts in the machines are coated with grease. How should the cost of this grease be classified?

Direct Material Cost Fixed Cost A) Yes Yes B) Yes No C) No Yes D) No No Level: Hard LO: 1,5,6 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D

15. A security guard’s wages at a factory would be an example of:

Indirect labor Fixed manufacturing overhead A) No No B) Yes Yes C) Yes No D) No Yes Source: CPA, adapted Level: Medium LO: 1,5 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B

16. Manufacturing overhead includes: A) all direct material, direct labor and administrative costs. B) all manufacturing costs except direct labor. C) all manufacturing costs except direct labor and direct materials. D) all selling and administrative costs. Level: Easy LO: 1 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C

17. Materials used in the operation of a factory, such as cleaning supplies, that are not an integral part of the final product should be classified as: A) direct materials. B) a period cost. C) administrative expense. D) manufacturing overhead. Level: Easy LO: 1 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D

18. The one cost that would be classified as part of both prime cost and conversion cost would be: A) indirect material. B) direct labor. C) direct material. D) indirect labor. Level: Easy LO: 1 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B

19. Direct costs: A) are incurred to benefit a particular accounting period. B) are incurred due to a specific decision. C) can be easily traced to a particular cost object. D) are the variable costs of producing a product. Level: Easy LO: 1 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C

20. Prime costs consist of: A) direct materials and the variable portion of manufacturing overhead. B) direct labor and indirect labor. C) indirect labor and the fixed portion of manufacturing overhead. D) direct labor and direct materials. Source: CMA, adapted Level: Easy LO: 1 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D

21. Which of the following is NOT a period cost? A) Monthly depreciation of the equipment in a fitness room used by factory workers. B) Salary of a billing clerk. C) Insurance on a company showroom, where current and potential customers can view new products. D) Cost of a seminar concerning tax law updates that was attended by the company’s controller. Level: Medium LO: 1 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: A

22. The annual insurance premium for the factory building would be a: A) fixed cost, period cost, and indirect cost with regard to units of product. B) fixed cost, product cost, and direct cost with regard to units of product. C) variable cost, product cost, direct cost with regard to units of product. D) fixed cost, product cost, indirect cost with regard to units of product. Level: Medium LO: 2,5,6 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D

23. Factory supplies in a manufacturing plant are most likely: A) sunk costs. B) period costs. C) variable costs. D) excluded from product costs. Level: Medium LO: 2,5,7 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C

24. All of the following are examples of product costs except: A) depreciation on the company’s retail outlets. B) salary of the plant manager. C) insurance on the factory equipment. D) rental costs of the factory facility. Level: Easy LO: 2 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: A 25. Inventoriable (i.e., product) costs that have become expenses can be found in: A) period costs. B) selling expenses. C) cost of goods sold. D) administrative expenses. Level: Medium LO: 2 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C

26. The fixed portion of the cost of electricity for a manufacturing plant is a:

Period cost Product cost A) Yes No B) Yes Yes C) No Yes D) No No Source: CPA, adapted Level: Medium LO: 2 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C

27. Which of the following statements about product costs is true? A) Product costs are deducted from revenue when the production process is completed. B) Product costs are deducted from revenue as expenditures are made. C) Product costs associated with unsold finished goods and work in process appear on the balance sheet as assets. D) Product costs appear on financial statements only when products are sold. Level: Medium LO: 2 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C 28. Conversion costs consist of: A) direct and indirect labor. B) direct labor and direct materials. C) direct labor and manufacturing overhead. D) prime costs and manufacturing overhead. Source: CMA, adapted Level: Easy LO: 2 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C

29. Which of the following is an example of a period cost? A) Fabric used to produce men’s pants. B) Advertising cost for a new product campaign. C) Factory supervisor’s salary. D) Monthly depreciation of production equipment. Level: Easy LO: 2 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B

30. In the preparation of the schedule of Cost of Goods Manufactured, the accountant incorrectly included as part of manufacturing overhead the rental expense on the firm’s retail facilities. This inclusion would: A) overstate period expenses on the income statement. B) overstate the cost of goods sold on the income statement. C) understate the cost of goods manufactured. D) have no effect on the cost of goods manufactured. Level: Hard LO: 4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B 31. Desco Electronics, Inc. manufactures car radios. The direct material cost assigned to car radios that Desco started during the period but did not fully complete would be found in the ending balance of: A) raw materials inventory. B) work in process inventory. C) finished goods inventory. D) both raw materials inventory and work in process inventory. Level: Easy LO: 4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B

32. Rotonga Manufacturing Company leases a vehicle that it uses to deliver its finished products to customers. Which of the following terms could be used to correctly describe the monthly lease payments made on the delivery vehicle?

Direct Cost Fixed Cost A) Yes Yes B) Yes No C) No Yes D) No No Level: Medium LO: 5,6 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C

33. Within the relevant range, as the number of units produced increases: A) the variable cost per unit remains the same. B) fixed costs in total remain the same. C) variable costs increase in total. D) all of the above. Level: Easy LO: 5 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D

34. Which of the following production costs, if expressed on a per unit basis, would be most likely to change significantly as the production level varies? A) Direct materials. B) Direct labor. C) Fixed manufacturing overhead. D) Responses A and B are both correct. Level: Medium LO: 5 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C

35. When the level of activity decreases within the relevant range, the fixed cost per unit will: A) decrease. B) increase. C) remain the same. D) The effect cannot be predicted. Level: Medium LO: 5 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B

36. Which of the following is correct concerning reactions to INCREASES in activity?

Total Variable Cost Variable Cost Per Unit A) Increases Decreases B) Constant Decreases C) Decreases Constant D) Increases Constant Level: Easy LO: 5 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D

37. The distinction between indirect and direct costs depends on: A) whether a cost differs between alternatives. B) whether a cost is variable or fixed. C) whether a cost is a product or a period cost. D) whether a cost can be easily traced to the cost object under consideration. Level: Easy LO: 6 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D

38. An example of a fixed cost that would be considered a direct cost is: A) a cost accountant’s salary when the cost object is a unit of product. B) the rental cost of a warehouse to store finished goods when the cost object is the Purchasing Department. C) a production supervisor’s salary when the cost objective is the Production Department. D) Board of Directors’ fees when the cost object is the Marketing Department. Source: CMA, adapted Level: Hard LO: 6 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C

39. Which of the following statements concerning direct and indirect costs is NOT true? A) Whether a particular cost is classified as direct or indirect does not depend on the cost object. B) A direct cost is one that can be easily traced to the particular cost object. C) The factory manager’s salary would be classified as an indirect cost of producing one unit of product. D) A particular cost may be direct or indirect, depending on the cost object. Level: Medium LO: 6 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: A

40. All of the cost categories listed below are usually found in a company’s accounting records, except for: A) sunk costs. B) inventoriable costs. C) opportunity costs. D) marketing costs. Level: Easy LO: 7 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C

41. Cobra Mining Company spent $200 million five years ago to develop underground mining and milling operations in a remote area of a western state. Metals prices have since declined precipitously and the company is considering abandoning the operation. The term that would best describe the $200 million expenditure when considering the abandonment decision is: A) sunk cost. B) variable cost. C) differential cost. D) opportunity cost. Level: Medium LO: 7 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Ans: A

42. In a decision-making situation involving an asset, which of the following costs is generally NOT considered relevant to the decision and should be ignored? A) Incremental cost of selecting one alternative over another. B) Opportunity cost of using the asset in an alternative. C) Differential cost between two alternatives. D) The original cost of the asset. Source: CMA, adapted Level: Easy LO: 7 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Ans: D

43. A sunk cost is: A) a cost that is planned to be incurred in the near future. B) irrelevant for decision making. C) a cost connected with drilling for oil. D) affected by changes in the level of activity. Level: Easy LO: 7 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making Ans: B

44. The potential benefit that is given up when one alternative is selected over another is called: A) A sunk cost. B) An opportunity cost. C) Both a sunk cost and an opportunity cost. D) Neither a sunk cost nor an opportunity cost. Level: Easy LO: 7 AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Decision Making Ans: B

45. The following costs were incurred in July:

Direct materials...... $35,000 Direct labor...... $13,000 Manufacturing overhead...... $15,000 Selling expenses...... $14,000 Administrative expenses...... $30,000 Prime costs during the month totaled: A) $48,000 B) $28,000 C) $107,000 D) $63,000 Level: Medium LO: 1,2 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: A Solution:

Direct materials...... $35,000 Direct labor...... 13,000 Total...... $48,000

46. Abel Company’s manufacturing overhead is 20% of its total conversion costs. If direct labor is $38,000 and if direct materials are $47,000, the manufacturing overhead is: A) $152,000 B) $11,750 C) $21,250 D) $9,500 Level: Hard LO: 1 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D Solution: Conversion costs = Direct labor + Manufacturing overhead Conversion costs = $38,000 + Manufacturing overhead

0.20 × Conversion costs = Manufacturing overhead 0.20 × ($38,000 + Manufacturing overhead) = Manufacturing overhead $7,600 + 0.20 × Manufacturing overhead = Manufacturing overhead $7,600 = 0.80 × Manufacturing overhead Manufacturing overhead = $9,500 47. During the month of July, direct labor cost totaled $12,000 and direct labor cost was 30% of prime cost. If total manufacturing costs during July were $86,000, the manufacturing overhead was: A) $46,000 B) $40,000 C) $28,000 D) $74,000 Level: Hard LO: 1 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: A Solution: 0.30 × Prime cost = Direct labor 0.30 × Prime cost = $12,000 Prime cost = $40,000 Prime cost = Direct materials + Direct labor $40,000 = Direct materials + $12,000 Direct materials = $28,000

Total Manufacturing = Direct materials + Direct labor + manufacturing costs Overhead Manufacturing $86,000 = $28,000 + $12,000 + Overhead Manufacturing overhead = $46,000

48. In July direct labor was 40% of conversion cost. If the manufacturing overhead cost for the month was $34,000 and the direct materials cost was $23,000, the direct labor cost was: A) $22,667 B) $15,333 C) $51,000 D) $34,500 Level: Hard LO: 1 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: A Solution: 0.40 × Conversion costs = Direct labor 0.60 × Conversion costs = Manufacturing overhead 0.60 × Conversion costs = $34,000 Conversion costs = $56,667 Conversion costs = Direct labor + Manufacturing overhead $56,667 = Direct labor + $34,000 Direct labor = $22,667

49. Shown below are a number of costs incurred last year at Mecca Publishing Co., a manufacturer of elementary school textbooks:

Solvents and cleaners used by the custodians to clean the textbook printing presses...... $500 Depreciation on the automobiles used by sales representatives...... $4,200 Fire insurance on factory building...... $2,000 Shipping costs on textbooks sold...... $3,700

What is the total of the manufacturing overhead costs above? A) $500 B) $2,500 C) $6,200 D) $6,700 Level: Medium LO: 1 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B Solution: Solvents and cleaners used by the custodians to clean the textbook printing presses...... $ 500 Fire insurance on factory building...... 2,000 Total...... $2,500

50. Mammoser Manufacturing Corporation rents a building for $8,000 per month and uses it for a number of different purposes. The building space is utilized by the various activities as follows:

Receiving and storing raw materials...... 5% Production operations...... 70% Sales offices...... 15% Administrative offices...... 10% How much of the $8,000 monthly rent cost should be classified as manufacturing overhead? A) $5,600 B) $6,000 C) $6,800 D) $7,200 Level: Medium LO: 1 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B Solution: Receiving and storing raw materials (5% × $8,000)...... $ 400 5,60 Production operations (70% × $8,000)...... 0 $6,000

51. Consider the following costs:

Direct materials...... $33,000 Depreciation on factory equipment...... $12,000 Factory janitor’s salary...... $23,000 Direct labor...... $28,000 Utilities for factory...... $9,000 Selling expenses...... $16,000 Production supervisor’s salary...... $34,000 Administrative expenses...... $21,000

What is the total amount of manufacturing overhead included above? A) $78,000 B) $139,000 C) $44,000 D) $37,000 Level: Medium LO: 1 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: A Solution: Depreciation on factory equipment...... $12,000 Factory janitor’s salary...... 23,000 Utilities for factory...... 9,000 Production supervisor’s salary...... 34,000 Total...... $78,000

52. The information below relates to Derby Manufacturing Company’s operations for a recent month. (Assume that all raw materials are direct materials.):

Purchases of raw materials...... $91,000 Direct labor cost...... $122,000 Selling costs (total)...... $42,000 Administrative costs (total)...... $56,000 Manufacturing overhead costs (total)...... $340,000 Raw materials inventory, beginning...... $22,000 Work in process inventory, beginning...... $27,000 Finished goods inventory, beginning...... $42,000 Raw materials inventory, ending...... $7,000 Work in process inventory, ending...... $35,000 Finished goods inventory, ending...... $15,000

What was Derby’s cost of goods manufactured for the month? A) $545,000 B) $560,000 C) $568,000 D) $587,000 Level: Hard LO: 2,4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: B Solution: Derby Manufacturing Company Schedule of Cost of Goods Manufactured Direct materials: Beginning raw materials inventory...... $ 22,000 Add: Purchases of raw materials...... 91,000 Raw materials available for use...... 113,000 Deduct: Ending raw materials inventory...... 7,000 Raw materials used in production...... $106,000 Direct labor...... 122,000 Manufacturing overhead...... 340,000 Total manufacturing costs...... 568,000 Add: Beginning work in process inventory...... 27,000 595,000 Deduct: Ending work in process inventory...... 35,000 Cost of goods manufactured...... $560,000

53. Consider the following costs incurred in a recent period:

Direct materials...... $33,000 Depreciation on factory equipment...... $12,000 Factory janitor’s salary...... $23,000 Direct labor...... $28,000 Utilities for factory...... $9,000 Selling expenses...... $16,000 Production supervisor’s salary...... $34,000 Administrative expenses...... $21,000

What was the total amount of the period costs listed above for the period? A) $78,000 B) $71,000 C) $46,000 D) $37,000 Level: Medium LO: 2 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D Solution: Selling expenses...... $16,000 21,0 Administrative expenses...... 00 Total...... $37,000

54. Using the following data for a recent period, calculate the beginning finished goods inventory:

Sales...... $40,000 Beginning finished goods inventory...... ? Cost of goods manufactured...... $16,000 Ending finished goods inventory...... $5,000 Cost of goods sold...... ? Gross margin...... $17,000 Administrative and selling expenses...... ? Net operating income...... $10,000

The beginning finished goods inventory was: A) $24,000 B) $23,000 C) $7,000 D) $12,000 Level: Hard LO: 3,4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: D Solution: Cost of goods sold = Sales − Gross margin Cost of goods sold = $40,000 − $17,000 Cost of goods sold = $23,000

Beginning finished Cost of goods Ending finished Cost of goods + = goods inventory manufactured − goods inventory sold Beginning finished + $16,000 $5,000 = $23,000 goods inventory − Beginning finished goods inventory = $12,000

55. The following data are for a recent period’s operations:

Beginning finished goods inventory...... $150,475 Ending finished goods inventory...... $145,750 Sales...... $400,000 Gross margin...... $120,000

The cost of goods manufactured was: A) $115,275 B) $284,725 C) $275,275 D) $124,725 Level: Hard LO: 3,4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Sales − Cost of goods sold = Gross margin $400,000 − Cost of goods sold = $120,000 Cost of goods sold = $280,000

Beginning finished Cost of goods Ending finished Cost of goods + = goods inventory manufactured − goods inventory sold Cost of goods $150,475 + $145,750 = $280,000 manufactured − Cost of goods manufactured = $275,275

56. Last month a manufacturing company had the following operating results:

Beginning finished goods inventory...... $77,000 Ending finished goods inventory...... $72,000 Sales...... $593,000 Gross margin...... $67,000

What was the cost of goods manufactured for the month? A) $588,000 B) $526,000 C) $521,000 D) $531,000 Level: Hard LO: 3,4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Sales − Cost of goods sold = Gross margin $593,000 − Cost of goods sold = $67,000 Cost of goods sold = $526,000

Beginning finished Cost of goods Ending finished Cost of goods + = goods inventory manufactured − goods inventory sold Cost of goods $77,000 + $72,000 = $526,000 manufactured − Cost of goods manufactured = $521,000 57. The following data pertain to a recent period’s operations:

Sales...... ? Beginning finished goods inventory...... $12,000 Cost of goods manufactured...... $36,000 Ending finished goods inventory...... $6,000 Cost of goods sold...... ? Gross margin...... 40% of Sales Administrative and selling expenses...... $10,000 Net operating income...... ?

Net operating income was: A) $18,000 B) $10,000 C) $14,000 D) $46,000 Level: Hard LO: 3,4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Cost of Beginning finished Cost of goods Ending finished = + goods sold goods inventory manufactured − goods inventory Cost of = $12,000 + $36,000 $6,000 goods sold − Cost of goods sold = $42,000

Sales − Cost of goods sold = Gross margin Sales − $42,000 = Gross margin Gross margin = 40% × Sales Sales − $42,000 = 40% × Sales 60% × Sales = $42,000 Sales = $70,000

Gross margin − Administrative and selling expenses = Net operating income Gross margin = 40% × Sales Gross margin = $28,000

$28,000 − $10,000 = Net operating income Net operating income = $18,000 58. The following inventory balances have been provided for the most recent year:

Beginnin g Ending Raw materials...... $21,000 $15,000 Work in process...... $18,000 $29,000 Finished goods...... $57,000 $33,000

The cost of goods manufactured was $714,000. What was the cost of goods sold? A) $738,000 B) $693,000 C) $714,000 D) $733,000 Level: Medium LO: 3,4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Finished goods inventory, beginning...... $ 57,000 Add: Cost of goods manufactured...... 714,000 Goods available for sale...... 771,000 Deduct: Finished goods inventory, ending...... 33,000 Cost of goods sold...... $738,000

59. The cost of goods manufactured for October at Toule Manufacturing Corporation was $907,000. The following changes occurred in Toule inventory accounts during October:

Decrease in raw materials inventory...... $24,000 Decrease in work in process inventory...... $17,000 Increase in finished goods inventory...... $38,000

What was Toule’s cost of goods sold for October? A) $869,000 B) $886,000 C) $928,000 D) $945,000 Level: Hard LO: 3,4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning finished Cost of goods Ending finished Cost of goods + = goods inventory manufactured − goods inventory sold Rearranging: Cost of Beginning finished Ending finished Cost of goods + ( ) = goods inventory − goods inventory goods sold manufactured Cost of $907,000 + (-$38,000)* = goods sold Cost of $869,000 = goods sold

* An increase in finished goods inventory means that ending finished goods inventory is higher than the beginning finished goods inventory.

60. Gabrio Inc. is a merchandising company. Last month the company’s merchandise purchases totaled $87,000. The company’s beginning merchandise inventory was $19,000 and its ending merchandise inventory was $11,000. What was the company’s cost of goods sold for the month? A) $79,000 B) $87,000 C) $95,000 D) $117,000 Level: Easy LO: 3 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Merchandise inventory, beginning...... $ 19,000 Add: Merchandise purchased...... 87,000 Goods available for sale...... 106,000 Deduct: Finished goods inventory, ending...... 11,000 Cost of goods sold...... $ 95,000 61. Haala Inc. is a merchandising company. Last month the company’s cost of goods sold was $68,000. The company’s beginning merchandise inventory was $11,000 and its ending merchandise inventory was $17,000. What was the total amount of the company’s merchandise purchases for the month? A) $96,000 B) $62,000 C) $68,000 D) $74,000 Level: Medium LO: 3 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: D Solution: Merchandise inventory, beginning...... $11,000 Add: Merchandise purchased...... ? Goods available for sale...... ? Deduct: Finished goods inventory, ending...... 17,000 Cost of goods sold...... $68,000

Goods available for sale = $68,000 + $17,000 Goods available for sale = $85,000

Merchandise purchased = $85,000 − Merchandise inventory, beginning Merchandise purchased = $85,000 − $11,000 Merchandise purchased = $74,000

62. During July, the cost of goods manufactured at Xxis Corporation was $70,000. The beginning finished goods inventory was $19,000 and the ending finished goods inventory was $15,000. What was the cost of goods sold for the month? A) $104,000 B) $74,000 C) $70,000 D) $66,000 Level: Easy LO: 3 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: B Solution: Finished goods inventory, beginning...... $19,000 Add: Cost of goods manufactured...... 70,000 Goods available for sale...... 89,000 Deduct: Finished goods inventory, ending...... 15,000 Cost of goods sold...... $74,000

63. At the beginning of the most recent month’s operations, finished goods inventory was $30,000. The cost of goods manufactured was $326,000 and ending finished goods inventory was $42,000. What was the cost of goods sold for the month? A) $320,000 B) $338,000 C) $314,000 D) Cannot be calculated. Level: Easy LO: 3 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Finished goods inventory, beginning...... $ 30,000 Add: Cost of goods manufactured...... 326,000 Goods available for sale...... 356,000 Deduct: Finished goods inventory, ending...... 42,000 Cost of goods sold...... $314,000

64. Given the following information, calculate the company’s manufacturing overhead:

Work in process, ending...... $8,000 Work in process, beginning...... $11,000 Cost of goods manufactured...... $70,000 Direct labor...... $25,000 Direct materials...... $20,000

The manufacturing overhead is: A) $22,000 B) $25,000 C) $28,000 D) $36,000 Level: Hard LO: 4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Schedule of Cost of Goods Manufactured

Direct materials...... $20,000 Direct labor...... 25,000 Manufacturing overhead...... 22,000* Total manufacturing costs...... 67,000* Add: Work in process, beginning...... 11,000 78,000* Deduct: Work in process, ending...... 8,000 Cost of goods manufactured...... $70,000

* These items must be calculated by working backwards upward through the statements.

65. The following data have been provided for the most recent month’s operations:

Direct materials...... $8,000 Direct labor...... $25,000 Manufacturing overhead...... $9,000 Total manufacturing costs...... ? Beginning work in process inventory...... ? Ending work in process inventory...... $8,000 Cost of goods manufactured...... $45,000

The beginning work in process inventory is: A) $11,000 B) $42,000 C) $53,000 D) $37,000 Level: Hard LO: 4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Schedule of Cost of Goods Manufactured

Direct materials...... $ 8,000 Direct labor...... 25,000 Manufacturing overhead...... 9,000 Total manufacturing costs...... 42,000 Add: Work in process, beginning...... 11,000* 53,000* Deduct: Work in process, ending...... 8,000 Cost of goods manufactured...... $45,000

66. Using the following data for July, calculate the cost of goods manufactured:

Direct materials...... $31,000 Direct labor...... $22,000 Manufacturing overhead...... $29,000 Beginning work in process inventory...... $14,000 Ending work in process inventory...... $15,000

The cost of goods manufactured was: A) $83,000 B) $96,000 C) $81,000 D) $82,000 Level: Medium LO: 4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Schedule of Cost of Goods Manufactured

Direct materials...... $31,000 Direct labor...... 22,000 Manufacturing overhead...... 29,000 Total manufacturing costs...... 82,000 Add: Work in process, beginning...... 14,000 96,000 Deduct: Work in process, ending...... 15,000 Cost of goods manufactured...... $81,000

67. During the month of April, LTP Company incurred $30,000 of manufacturing overhead, $40,000 of direct labor, and purchased $25,000 of raw materials. Between the beginning and the end of the month, the raw materials and work in process inventories decreased by $4,000 and $3,000, respectively. The total manufacturing costs used in the computation of cost of goods manufactured during the month of April was: A) $88,000 B) $91,000 C) $99,000 D) $102,000 Level: Hard LO: 4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: First calculate raw materials used: Beginning inventory Ending inventory Raw materials + Purchases = raw materials − raw materials used

By rearranging: Beginning Ending Raw materials Purchases + ( inventory raw inventory raw ) = − used materials materials

Since raw material inventory decreased by $4,000, we know that: Beginning inventory raw materials − Ending inventory raw materials = $4,000

Substituting into equation: $25,000 + $4,000 = Raw materials used $29,000 = Raw materials used

Next, solve for total manufacturing costs: Raw materials Manufacturing Total + Direct labor + = used overhead manufacturing costs $29,000 + $40,000 + $30,000 = $99,000

68. The following information relates to Mako Manufacturing Company for the month of August:

Cost of goods manufactured...... $78,000 Cost of goods sold...... $82,000 Total manufacturing costs...... $90,000 Cost of goods available for sale...... $95,000

What was the balance in Mako’s Finished Goods Inventory account at the end of August? A) $4,000 B) $5,000 C) $8,000 D) $13,000 Level: Hard LO: 4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: D Solution: Goods available for sale − Ending finished goods inventory = Cost of goods sold Ending finished goods inventory = Goods available for sale − Cost of goods sold Ending finished goods inventory = $95,000 − $82,000 Ending finished goods inventory = $13,000

69. The following inventory balances relate to Komiza Manufacturing Corporation at the beginning and end of the year:

Beginnin g Ending Raw materials...... $10,000 $21,000 Work in process...... $5,000 $3,000 Finished goods...... $41,000 $48,000 Komiza’s cost of goods available for sale was $622,000. What was Komiza’s cost of goods manufactured? A) $581,000 B) $615,000 C) $629,000 D) $663,000 Level: Hard LO: 4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning finished Cost of goods Goods available + = goods inventory manufactured for sale Cost of goods $41,000 + = $622,000 manufactured Cost of goods manufactured = $581,000

70. Last year there was no change in either the raw materials or the work in process beginning and ending inventories. However, finished goods, which had a beginning balance of $25,000, increased by $15,000. If the manufacturing costs incurred totaled $600,000 during the year, the cost of goods available for sale must have been: A) $585,000 B) $600,000 C) $610,000 D) $625,000 Level: Medium LO: 4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: D Solution: Beginning Cost of goods finished Cost of goods = + available for sale goods manufactured inventory Cost of goods = $25,000 + $600,000 available for sale Cost of goods available for sale = $625,000

71. A company has provided the following cost data for its most recent accounting period:

Direct labor...... $98,000 Administrative expenses...... $15,000 Manufacturing overhead...... $25,000 Direct materials...... $200,000 Selling expenses...... $22,000

What was the cost of goods manufactured for the period? Assume there were no beginning or ending inventories. A) $303,000 B) $323,000 C) $338,000 D) $360,000 (CIMA, adapted) Level: Easy LO: 4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: B Solution: Direct labor...... $ 98,000 Manufacturing overhead...... 25,000 200,0 Direct materials...... 00 Cost of goods manufactured...... $323,000

72. Beginning work in process was $145,000. Manufacturing cost incurred for the month was $810,000. The ending work in process was $200,000. What was the cost of goods manufactured during the month? A) $900,000 B) $810,000 C) $755,000 D) $1,155,000 Level: Medium LO: 4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Beginning work in process inventory...... $145,000 Add: Manufacturing costs...... 810,000 Deduct: Ending work in process inventory...... (200,000) Cost of goods manufactured...... $755,000

73. Last year, Vashanda Corporation incurred the following costs to produce 18,000 units:

Cost of raw materials used...... $86,400 Property taxes on factory building...... $9,000

What should be the cost per unit for the above costs if 20,000 units of product are produced next year?

Raw materials Property taxes A) $4.32 $0.45 B) $4.32 $0.50 C) $4.80 $0.45 D) $4.80 $0.50 Level: Medium LO: 5 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C Solution: Variable manufacturing costs: $86,400 ÷ 18,000 = $4.80

Property taxes are a fixed cost: $9,000 At 20,000 units, fixed cost per unit = $9,000 ÷ 20,000 units = $0.45 per unit

74. At a sales volume of 20,000 units, total costs are $55,000. The company’s variable cost per unit is $1.50. What should be the total fixed cost at a sales volume of 30,000 units, assuming that is within the relevant range. A) $25,000 B) $30,000 C) $45,000 D) Cannot be determined. Level: Hard LO: 5 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: A Solution: Variable costs @ 20,000 units = 20,000 × $1.50 = $30,000 At 20,000 units, Total cost − Variable cost = Fixed cost $55,000 − $30,000 = Fixed cost Fixed cost = $25,000 Fixed costs will remain constant throughout the relevant range; therefore, fixed costs will remain at $25,000 at 30,000 units.

75. A mattress manufacturer has provided the following cost data. The cost of fabric, foam, springs, and lumber is $68,000. The cost of indirect materials is $21,000. Labor cost of assembly workers is $52,000 and for production supervisors is $14,000. How much indirect cost is included in the above costs? A) $21,000 B) $35,000 C) $89,000 D) $103,000 Level: Easy LO: 6 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B Solution: Indirect materials...... $21,000 Production supervisors...... 14,000 Total indirect costs...... $35,000

76. How much sunk cost is represented in the following list?

Annual operating cost...... $80,000 Fixed operating costs other than depreciation...... $14,000 Resale value, if sold now...... $25,000 Original cost of current machine...... $68,000 A) $80,000 B) $14,000 C) $25,000 D) $68,000 Level: Easy LO: 7 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D Solution: Only the original cost of the current machine is a sunk cost in the above list.

Reference: 2-1 Mendoza, Inc. manufactures and sells aluminum dishes for camping and outdoor enthusiasts through a mail order catalog operation. Large rectangular sheets of aluminum are purchased by Mendoza. These sheets are cut down into smaller squares and are then fed into a machine where they are trimmed down into a circular shape. These aluminum circles are then fed into a stamping machine where they are formed into plates and bowls. After production, the dishes are shipped to warehouses where they are packed and then shipped to customers.

77. Which of the following terms could be used to correctly describe the cost of the aluminum sheets? A) fixed cost B) period cost C) direct cost D) conversion cost Level: Medium LO: 1,2,5,6 Refer To: 2-1 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C

78. Which of the following terms could be used to correctly describe the wages paid to the machine operator who operates the stamping machine? A) direct labor cost B) administrative cost C) opportunity cost D) manufacturing overhead cost Level: Easy LO: 1,2,5,6 Refer To: 2-1 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: A

79. Which of the following terms could be used to correctly describe the cost of electricity used to run the stamping machine? A) variable cost B) indirect cost C) manufacturing overhead cost D) all of the above Level: Medium LO: 1,2,5,6 Refer To: 2-1 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D

80. Which of the following terms could be used to correctly describe the straight- line depreciation cost on the stamping machine? A) period cost B) variable cost C) inventoriable cost D) both A and C above Level: Hard LO: 1,2,5,6 Refer To: 2-1 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C

Reference: 2-2 A partial listing of costs incurred at Archut Corporation during September appears below:

Direct materials...... $113,000 Utilities, factory...... $5,000 Administrative salaries...... $81,000 Indirect labor...... $25,000 Sales commissions...... $48,000 Depreciation of production equipment...... $20,000 Depreciation of administrative equipment...... $30,000 Direct labor...... $129,000 Advertising...... $135,000

81. The total of the manufacturing overhead costs listed above for September is: A) $586,000 B) $50,000 C) $292,000 D) $30,000 Level: Medium LO: 1 Refer To: 2-2 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B Solution: Utilities, factory...... $ 5,000 Indirect labor...... 25,000 Depreciation of production equipment...... 20,000 Total manufacturing overhead costs...... $50,000

82. The total of the product costs listed above for September is: A) $292,000 B) $294,000 C) $50,000 D) $586,000 Level: Medium LO: 2 Refer To: 2-2 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: A Solution: Direct materials...... $113,000 Utilities, factory...... 5,000 Indirect labor...... 25,000 Depreciation of production equipment...... 20,000 129,0 Direct labor...... 00 Total product costs...... $292,000

83. The total of the period costs listed above for September is: A) $294,000 B) $344,000 C) $292,000 D) $50,000 Level: Medium LO: 2 Refer To: 2-2 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: A Solution: Administrative salaries...... $ 81,000 Sales commissions...... 48,000 Depreciation of administrative equipment...... 30,000 135,0 Advertising...... 00 Total period costs...... $294,000

Reference: 2-3 A partial listing of costs incurred during March at Febbo Corporation appears below:

Factory supplies...... $9,000 Administrative wages and salaries...... $85,000 Direct materials...... $126,000 Sales staff salaries...... $30,000 Factory depreciation...... $33,000 Corporate headquarters building rent...... $43,000 Indirect labor...... $26,000 Marketing...... $65,000 Direct labor...... $99,000

84. The total of the period costs listed above for March is: A) $68,000 B) $293,000 C) $291,000 D) $223,000 Level: Medium LO: 2 Refer To: 2-3 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D Solution: Administrative wages and salaries...... $ 85,000 Sales staff salaries...... 30,000 Corporate headquarters building rent...... 43,000 65, Marketing...... 000 Total period costs...... $223,000

85. The total of the manufacturing overhead costs listed above for March is: A) $68,000 B) $35,000 C) $516,000 D) $293,000 Level: Medium LO: 1 Refer To: 2-3 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: A Solution: Factory supplies...... $ 9,000 Factory depreciation...... 33,000 Indirect labor...... 26,000 Total manufacturing overhead...... $68,000 86. The total of the product costs listed above for March is: A) $516,000 B) $68,000 C) $293,000 D) $223,000 Level: Medium LO: 2 Refer To: 2-3 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C Solution: Factory supplies...... $ 9,000 Direct materials...... 126,000 Factory depreciation...... 33,000 Indirect labor...... 26,000 99, Direct labor...... 000 Total product costs...... $293,000

Reference: 2-4 The following data pertain to Graham Company’s operations in May:

May 1 May 31 Work in process inventory...... $7,000 $12,000 Raw materials inventory...... $15,000 ? $20,00 Finished goods inventory...... ? 0

Other data: Raw materials used...... $40,000 Sales...... $200,000 Cost of goods manufactured...... $135,000 Manufacturing overhead cost...... $60,000 Raw materials purchases...... $30,000 Gross Margin...... $60,000

87. The ending materials inventory was: A) $5,000 B) $10,000 C) $15,000 D) $20,000 Level: Medium LO: 1,3,4 Refer To: 2-4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning raw materials inventory...... $15,000 Add: Raw materials purchases...... 30,000 Raw materials available for use...... 45,000 Deduct: Ending raw materials inventory...... 5,000 * Raw materials used...... $40,000

*Calculate this item by working backwards, as shown: Raw materials used = Raw materials available − Ending raw materials inventory $40,000 = $45,000 − Ending raw materials inventory Ending raw materials inventory = $5,000

88. The beginning finished goods inventory was: A) $5,000 B) $15,000 C) $25,000 D) $30,000 Level: Hard LO: 1,3,4 Refer To: 2-4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: First, solve for cost of goods sold: Sales − Cost of goods sold = Gross margin Cost of goods sold = Sales − Gross margin Cost of goods sold = $200,000 − $60,000 Cost of goods sold = $140,000

Next, solve backwards for beginning finished goods inventory: Beginning raw materials inventory...... $ 25,000 * Add: Cost of goods manufactured...... 135,000 Cost of goods available for sale...... 160,000 * Deduct: Ending finished goods inventory...... 20,000 Cost of goods sold...... $140,000

89. The direct labor cost for May was: A) $35,000 B) $40,000 C) $30,000 D) $25,000 Level: Hard LO: 1,3,4 Refer To: 2-4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B Solution: Graham Company Schedule of Cost of Goods Manufactured

Direct materials...... $40,000 Direct labor...... 40,000* Manufacturing overhead...... 60,000 Total manufacturing costs...... 140,000* Add: Work in process, beginning...... 7,000 147,000* Deduct: Work in process, ending...... 12,000 Cost of goods manufactured...... $135,000

Reference: 2-5 Demeglio Corporation reported the following data for the month of September:

Beginnin Inventories: g Ending Raw materials...... $30,000 $34,000 Work in process...... $23,000 $22,000 Finished goods...... $32,000 $35,000

90. If the raw materials purchased during September totaled $63,000, what was the cost of the raw materials used in production for the month? A) $67,000 B) $63,000 C) $59,000 D) $64,000 Level: Easy LO: 1,3 Refer To: 2-5 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Beginning raw materials inventory...... $30,000 Add: Raw materials purchased...... 63,000 Raw materials available for use...... 93,000 Deduct: Ending raw material inventory...... 34,000 Raw materials used in production...... $59,000

91. If the company transferred $222,000 of completed goods from work in process to finished goods inventory during September, what was the cost of goods sold for the month? A) $219,000 B) $225,000 C) $222,000 D) $221,000 Level: Easy LO: 1,3 Refer To: 2-5 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning finished goods inventory...... $ 32,000 Add: Cost of goods manufactured...... 222,000 Goods available for sale...... 254,000 Deduct: Ending finished inventory...... 35,000 Cost of goods sold...... $219,000

Reference: 2-6 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

92. If raw materials costing $35,000 were purchased during January, the total manufacturing costs for the month would be: A) $145,000 B) $144,000 C) $151,000 D) $146,000 Level: Medium LO: 1 Refer To: 2-6 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: D Solution: Beginning raw materials inventory...... $ 32,000 Add: Raw materials purchased...... 35,000 Raw materials available for use...... 67,000 Deduct: Ending raw materials inventory...... 31,000 Raw materials used...... 36,000 Direct labor...... 40,000 Manufacturing overhead...... 70,000 Total manufacturing costs...... $146,000 93. Boardman Company’s total conversion cost for January would be: A) $110,000 B) $170,000 C) $135,000 D) $130,000 Level: Medium LO: 1 Refer To: 2-6 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: A Solution: Direct labor...... $ 40,000 Manufacturing overhead...... 70,000 Total conversion costs...... $110,000

Reference: 2-7 Fassino Corporation reported the following data for the month of November:

Additional information: Raw materials purchases...... $58,000 Direct labor cost...... $54,000 Manufacturing overhead cost...... $82,000 Selling expense...... $18,000 Administrative expense...... $42,000

94. The conversion cost for November was: A) $187,000 B) $112,000 C) $136,000 D) $140,000 Level: Medium LO: 1 Refer To: 2-7 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C Solution: Direct labor...... $ 54,000 Manufacturing overhead...... 82,000 Total conversion costs...... $136,000

95. The prime cost for November was: A) $136,000 B) $60,000 C) $105,000 D) $112,000 Level: Medium LO: 1 Refer To: 2-7 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C Solution: Beginning raw materials inventory...... $ 23,000 Add: Raw materials purchased...... 58,000 Raw materials available for use...... 81,000 Deduct: Ending raw materials inventory...... 30,000 Raw materials used...... 51,000 Direct labor...... 54,000 Total prime cost...... $105,000

Reference: 2-8 Management of Mcgibboney Corporation has asked your help as an intern in preparing some key reports for November. The beginning balance in the raw materials inventory account was $25,000. During the month, the company made raw materials purchases amounting to $54,000. At the end of the month, the balance in the raw materials inventory account was $37,000. Direct labor cost was $25,000 and manufacturing overhead cost was $62,000. The beginning balance in the work in process account was $22,000 and the ending balance was $23,000. The beginning balance in the finished goods account was $44,000 and the ending balance was $50,000. Selling expense was $21,000 and administrative expense was $38,000.

96. The conversion cost for November was: A) $116,000 B) $79,000 C) $87,000 D) $129,000 Level: Medium LO: 1 Refer To: 2-8 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C Solution: Direct labor...... $25,000 Manufacturing overhead...... 62,000 Total conversion costs...... $87,000

97. The prime cost for November was: A) $79,000 B) $59,000 C) $67,000 D) $87,000 Level: Medium LO: 1 Refer To: 2-8 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C Solution: Beginning raw materials inventory...... $25,000 Add: Raw materials purchased...... 54,000 Raw materials available for use...... 79,000 Deduct: Ending raw materials inventory...... 37,000 Raw materials used...... 42,000 Direct labor...... 25,000 Total prime cost...... $67,000 Reference: 2-9 Yokum Company has provided the following data for the month of August:

August 1 August 31 Raw materials inventory...... $8,000 ? Work in process inventory...... ? $14,000 Finished goods inventory...... $25,000 $35,000

Other Data: Sales...... $350,000 Manufacturing overhead costs...... $44,000 Direct labor...... $80,000 Purchase of raw materials...... $94,000 Administrative expenses...... $40,000 Cost of goods manufactured...... $206,000 Raw materials used in production...... $87,000 Selling expenses...... $15,000

98. The ending raw materials inventory was: A) $3,000 B) $11,000 C) $15,000 D) $7,000 Level: Hard LO: 2,3,4 Refer To: 2-9 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Beginning raw materials inventory...... $ 8,000 Add: Raw materials purchased...... 94,000 Raw materials available for use...... 102,000 Deduct: Ending raw materials inventory...... 15,000 * Raw materials used...... $87,000

* This item must be calculated by working backwards upward through the statements. 99. The beginning work in process inventory was: A) $6,000 B) $9,000 C) $15,000 D) $2,000 Level: Hard LO: 2,3,4 Refer To: 2-9 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: B Solution: Beginning raw materials inventory...... $ 8,000 Add: Raw materials purchased...... 94,000 Raw materials available for use...... 102,000 Deduct: Ending raw materials inventory...... 15,000 * Raw materials used...... $87,000

Raw materials used...... $ 87,000 Direct labor...... 80,000 Manufacturing overhead...... 44,000 Total manufacturing costs...... 211,000 Add: Beginning work in process inventory...... 9,000 * Subtotal...... 220,000 * Deduct: Ending work in process inventory...... 14,000 Cost of goods manufactured...... $206,000

100. The cost of goods sold was: A) $196,000 B) $206,000 C) $211,000 D) $190,000 Level: Medium LO: 2,3,4 Refer To: 2-9 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning raw materials inventory...... $ 8,000 Add: Raw materials purchased...... 94,000 Raw materials available for use...... 102,000 Deduct: Ending raw materials inventory...... 15,000 * Raw materials used...... $ 87,000

Raw materials used...... $ 87,000 Direct labor...... 80,000 Manufacturing overhead...... 44,000 Total manufacturing costs...... 211,000 Add: Beginning work in process inventory...... 9,000 * Subtotal...... 220,000 * Deduct: Ending work in process inventory...... 14,000 Cost of goods manufactured...... $206,000

Beginning finished goods inventory...... $ 25,000 Add: Cost of goods manufactured...... 206,000 Goods available for sale...... 231,000 Deduct: Ending finished goods inventory...... 35,000 Cost of goods sold...... $196,000

Reference: 2-10 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...... $160 101. The cost of the raw materials used in production during the year (in thousands of dollars) was: A) $190 B) $90 C) $150 D) $160 Level: Medium LO: 2,3,4 Refer To: 2-10 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: B Solution: $ Beginning raw materials inventory...... 40 Add: Raw materials purchased...... 120 Raw materials available for use...... 160 Deduct: Ending raw materials inventory...... 70 Raw materials used...... $90

102. The cost of goods manufactured (finished) for the year (in thousands of dollars) was: A) $540 B) $500 C) $570 D) $590 Level: Medium LO: 2,3,4 Refer To: 2-10 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning raw materials inventory...... $ 40 Add: Raw materials purchased...... 120 Raw materials available for use...... 160 7 Deduct: Ending raw materials inventory...... 0 Raw materials used...... $ 90 Raw materials used...... $ 90 Direct labor...... 200 Manufacturing overhead...... 230 Total manufacturing costs...... 520 7 Add: Beginning work in process inventory...... 0 Subtotal...... 590 5 Deduct: Ending work in process inventory...... 0 Cost of goods manufactured...... $540

103. The cost of goods sold for the year (in thousands of dollars) was: A) $700 B) $500 C) $660 D) $580 Level: Medium LO: 2,3,4 Refer To: 2-10 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: B Solution: Beginning raw materials inventory...... $ 40 Add: Raw materials purchased...... 120 Raw materials available for use...... 160 Deduct: Ending raw materials inventory...... 70 Raw materials used...... $90

Raw materials used...... $ 90 Direct labor...... 200 Manufacturing overhead...... 230 Total manufacturing costs...... 520 Add: Beginning work in process inventory...... 70 Subtotal...... 590 Deduct: Ending work in process inventory...... 50 Cost of goods manufactured...... $540

Beginning finished goods inventory...... $120 Add: Cost of goods manufactured...... 540 Goods available for sale...... 660 Deduct: Ending finished goods inventory...... 160 Cost of goods sold...... $500

104. The net operating income for the year (in thousands of dollars) was: A) $150 B) $200 C) $490 D) $250 Level: Medium LO: 2,3,4 Refer To: 2-10 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: B Solution: Beginning raw materials inventory...... $ 40 Add: Raw materials purchased...... 120 Raw materials available for use...... 160 Deduct: Ending raw materials inventory...... 70 Raw materials used...... $90

Raw materials used...... $ 90 Direct labor...... 200 Manufacturing overhead...... 230 Total manufacturing costs...... 520 Add: Beginning work in process inventory...... 70 Subtotal...... 590 Deduct: Ending work in process inventory...... 50 Cost of goods manufactured...... $540

Beginning finished goods inventory...... $120 Add: Cost of goods manufactured...... 540 Goods available for sale...... 660 Deduct: Ending finished goods inventory...... 160 Cost of goods sold...... $500

Sales...... $990 Cost of goods sold...... 500 Gross margin...... 490 Selling and administrative expenses: Administrative expense...... $150 Selling expense...... 140 290 Net operating income...... $200

Reference: 2-11 Mark is an engineer who has designed a telecommunications device. He is convinced that there is a big potential market for the device. Accordingly, he has decided to quit his present job and start a company to manufacture and market the device.

105. The salary that Mark earns at his present employ is: A) a variable cost B) a fixed cost C) a product cost D) an opportunity cost Level: Easy LO: 7 Refer To: 2-11 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D

106. Mark purchased a machine two years ago to make experimental boards. The machine will be used to manufacture the new board. The cost of this machine is: A) an opportunity cost B) a sunk cost C) a differential cost D) a period cost Level: Easy LO: 7 Refer To: 2-11 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B

107. The cost of the raw materials that will be used in manufacturing the computer board is: A) a sunk cost B) a fixed cost C) a period cost D) a variable cost Level: Easy LO: 2,5 Refer To: 2-11 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D

108. Rent on the administrative office space is: A) a variable cost B) an opportunity cost C) a period cost D) a product cost Level: Easy LO: 2,5 Refer To: 2-11 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C

109. Property taxes on the building that will be purchased to house the manufacturing facility are: A) a product cost B) a variable cost C) an opportunity cost D) a period cost Level: Easy LO: 2,5 Refer To: 2-11 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: A

Reference: 2-12 Vignana Corporation manufactures and sells hand-painted clay figurines of popular sports heroes. Shown below are some of the costs incurred by Vignana for last year:

Cost of clay used in production...... $65,000 Wages paid to the workers who paint the figurines...... $90,000 Wages paid to the sales manager’s secretary...... $22,000 Cost of junk mail advertising...... $47,000

110. What is the total of the direct costs above? A) $65,000 B) $112,000 C) $155,000 D) $202,000 Level: Medium LO: 6 Refer To: 2-12 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C Solution: Cost of clay used in production...... $ 65,000 Wages paid to the workers who paint the figurines...... 90,000 Total direct costs...... $155,000

111. What is the total of the inventoriable (product) costs above? A) $0 B) $69,000 C) $155,000 D) $159,000 Level: Medium LO: 2 Refer To: 2-12 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C Solution: Cost of clay used in production...... $ 65,000 Wages paid to the workers who paint the figurines...... 90,000 Total product costs...... $155,000 112. What is the total of the conversion costs above? A) $65,000 B) $69,000 C) $90,000 D) $155,000 Level: Medium LO: 2 Refer To: 2-12 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C Solution: Only the wages paid to the works who paint the figurines ($90,000) are considered to be conversion costs.

Reference: 2-13 Gaeddert Corporation reported the following data for the month of July:

Additional information: Sales...... $250,000 Raw materials purchases...... $76,000 Direct labor cost...... $33,000 Manufacturing overhead cost...... $81,000 Selling expense...... $24,000 Administrative expense...... $29,000

113. The total manufacturing cost for July was: A) $190,000 B) $114,000 C) $199,000 D) $81,000 Level: Medium LO: 4 Refer To: 2-13 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Beginning raw materials inventory...... $ 36,000 Add: Raw materials purchased...... 76,000 Raw materials available for use...... 112,000 Deduct: Ending raw materials inventory...... 27,000 Raw materials used...... 85,000 Add: Direct labor costs...... 33,000 Add: Manufacturing overhead...... 81,000 Total manufacturing costs...... $199,000

114. The cost of goods manufactured for July was: A) $196,000 B) $190,000 C) $202,000 D) $199,000 Level: Medium LO: Refer To: 2-13 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning raw materials inventory...... $ 36,000 Add: Raw materials purchased...... 76,000 Raw materials available for use...... 112,000 Deduct: Ending raw materials inventory...... 27,000 Raw materials used...... 85,000 Add: Direct labor costs...... 33,000 Add: Manufacturing overhead...... 81,000 Total manufacturing costs...... $199,000

Total manufacturing costs...... $199,000 Add: Beginning work in process inventory...... 13,000 Subtotal...... 212,000 Deduct: Ending work in process inventory...... 16,000 Cost of goods manufactured...... $196,000

115. The cost of goods sold for July was: A) $244,000 B) $138,000 C) $190,000 D) $202,000 Level: Medium LO: 3 Refer To: 2-13 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Beginning raw materials inventory...... $ 36,000 Add: Raw materials purchased...... 76,000 Raw materials available for use...... 112,000 Deduct: Ending raw materials inventory...... 27,000 Raw materials used...... 85,000 Add: Direct labor costs...... 33,000 Add: Manufacturing overhead...... 81,000 Total manufacturing costs...... $199,000

Beginning finished goods inventory...... $ 36,000 Add: Cost of goods manufactured...... 196,000 Cost of goods available for sale...... 232,000 Deduct: Ending finished goods inventory...... 42,000 Cost of goods sold...... $190,000

116. The net operating income for July was: A) $7,000 B) $60,000 C) $83,000 D) $9,000 Level: Medium LO: 3 Refer To: 2-13 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning raw materials inventory...... $36,000 Add: Raw materials purchased...... 76,000 Raw materials available for use...... 112,000 Deduct: Ending raw materials inventory...... 27,000 Raw materials used...... $85,000

Raw materials used...... $ 85,000 Direct labor...... 33,000 Manufacturing overhead...... 81,000 Total manufacturing costs...... 199,000 Add: Beginning work in process inventory...... 13,000 Subtotal...... 212,000 Deduct: Ending work in process inventory...... 16,000 Cost of goods manufactured...... $196,000

Sales...... $250,000 Cost of goods sold...... 190,000 Gross margin...... 60,000 Selling and administrative expenses: Administrative expenses...... $29,000 Selling expenses...... 24,000 53,000 Net operating income...... $ 7,000

Reference: 2-14 Management of Jarva Corporation has asked your help as an intern in preparing some key reports for May. The company started the month with raw materials inventories of $29,000. During the month, the company made raw materials purchases amounting to $72,000. At the end of the month, raw materials inventories totaled $33,000. Direct labor cost was $36,000 and manufacturing overhead cost was $57,000. The beginning balance in the work in process account was $24,000 and the ending balance was $16,000. The beginning balance in the finished goods account was $35,000 and the ending balance was $46,000. Sales totaled $220,000. Selling expense was $14,000 and administrative expense was $36,000.

117. The total manufacturing cost for May was: A) $93,000 B) $57,000 C) $165,000 D) $161,000 Level: Medium LO: 4 Refer To: 2-14 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: D Solution: Beginning raw materials inventory...... $ 29,000 Add: Raw materials purchased...... 72,000 Raw materials available for use...... 101,000 Deduct: Ending raw materials inventory...... 33,000 Raw materials used...... 68,000 Add: Direct labor costs...... 36,000 Add: Manufacturing overhead...... 57,000 Total manufacturing costs...... $161,000

118. The cost of goods manufactured for May was: A) $161,000 B) $165,000 C) $169,000 D) $153,000 Level: Medium LO: 4 Refer To: 2-14 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Beginning raw materials inventory...... $ 29,000 Add: Raw materials purchased...... 72,000 Raw materials available for use...... 101,000 Deduct: Ending raw materials inventory...... 33,000 Raw materials used...... 68,000 Add: Direct labor costs...... 36,000 Add: Manufacturing overhead...... 57,000 Total manufacturing costs...... $161,000

119. The cost of goods sold for May was: A) $107,000 B) $180,000 C) $158,000 D) $209,000 Level: Medium LO: 3 Refer To: 2-14 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Beginning raw materials inventory...... $ 29,000 Add: Raw materials purchased...... 72,000 Raw materials available for use...... 101,000 Deduct: Ending raw materials inventory...... 33,000 Raw materials used...... 68,000 Add: Direct labor costs...... 36,000 Add: Manufacturing overhead...... 57,000 Total manufacturing costs...... $161,000

Total manufacturing costs...... $161,000 Add: Beginning work in process inventory...... 24,000 Subtotal...... 185,000 Deduct: Ending work in process inventory...... 16,000 Cost of goods manufactured...... $169,000 Beginning finished goods inventory...... $ 35,000 Add: Cost of goods manufactured...... 169,000 Cost of goods available for sale...... 204,000 Deduct: Ending finished goods inventory...... 46,000 Cost of goods sold...... $158,000

120. The net operating income for May was: A) $77,000 B) $12,000 C) $62,000 D) $5,000 Level: Medium LO: 3 Refer To: 2-14 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: B Solution: Beginning raw materials inventory...... $ 29,000 Add: Raw materials purchased...... 72,000 Raw materials available for use...... 101,000 Deduct: Ending raw materials inventory...... 33,000 Raw materials used...... $ 68,000

Raw materials used...... $ 68,000 Direct labor...... 36,000 Manufacturing overhead...... 57,000 Total manufacturing costs...... 161,000 Add: Beginning work in process inventory...... 24,000 Subtotal...... 185,000 Deduct: Ending work in process inventory...... 16,000 Cost of goods manufactured...... $169,000

Reference: 2-15 The following selected data for March were taken from Rubenstein Company’s financial statements:

Cost of goods available for sale...... $65,000 Manufacturing overhead...... $20,000 Cost of goods manufactured...... $51,000 Finished goods inventory, ending...... $10,000 Direct materials used...... $15,000 Sales...... $105,000 Selling and administrative expenses...... $30,000 Direct labor...... $20,000 Work in process inventory, beginning...... $0

121. The gross margin was: A) $55,000 B) $54,000 C) $50,000 D) $40,000 Level: Medium LO: 3 Refer To: 2-15 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Step #1: Cost of goods available for sale...... $65,000 Less: Finished goods inventory, ending...... 10,000 Cost of goods sold...... $55,000

Step #2: Sales...... $105,000 Cost of goods sold...... 55,000 Gross margin...... $ 50,000 122. The beginning finished goods inventory was: A) $24,000 B) $9,000 C) $10,000 D) $14,000 Level: Medium LO: 4 Refer To: 2-15 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: D Solution: Finished goods inventory, beginning...... $14,000* Add: Cost of goods manufactured...... 51,000 Cost of goods available for sale...... $65,000

* This item must be calculated by working backwards upward through the statements.

123. The ending work in process inventory was: A) $4,000 B) $8,000 C) $10,000 D) $0 Level: Medium LO: 4 Refer To: 2-15 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning work in process inventory...... $ 0 Add: Direct materials...... 15,000 Add: Direct labor...... 20,000 Add: Manufacturing overhead...... 20,000 55,000 Deduct: Ending work in process inventory...... 4,000 * Cost of goods manufactured...... $51,000 * This item must be calculated by working backwards upward through the statements.

Reference: 2-16 Dauenhauer Corporation reported the following data for the month of April:

124. The total manufacturing cost for April was: A) $61,000 B) $167,000 C) $91,000 D) $174,000 Level: Medium LO: 4 Refer To: 2-16 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: D Solution: Beginning raw materials inventory...... $ 27,000 Add: Raw materials purchased...... 76,000 Raw materials available for use...... 103,000 Deduct: Ending raw materials inventory...... 20,000 Raw materials used...... 83,000 Add: Direct labor costs...... 30,000 Add: Manufacturing overhead...... 61,000 Total manufacturing costs...... $174,000

125. The cost of goods manufactured for April was: A) $160,000 B) $174,000 C) $167,000 D) $188,000 Level: Medium LO: 4 Refer To: 2-16 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning raw materials inventory...... $ 27,000 Add: Raw materials purchased...... 76,000 Raw materials available for use...... 103,000 Deduct: Ending raw materials inventory...... 20,000 Raw materials used...... 83,000 Add: Direct labor costs...... 30,000 Add: Manufacturing overhead...... 61,000 Total manufacturing costs...... $174,000

126. The cost of goods sold for April was: A) $240,000 B) $170,000 C) $150,000 D) $113,000 Level: Medium LO: 3 Refer To: 2-16 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: B Solution: Beginning raw materials inventory...... $ 27,000 Add: Raw materials purchased...... 76,000 Raw materials available for use...... 103,000 Deduct: Ending raw materials inventory...... 20,000 Raw materials used...... 83,000 Add: Direct labor costs...... 30,000 Add: Manufacturing overhead...... 61,000 Total manufacturing costs...... $174,000

127. The net operating income for April was: A) $60,000 B) $15,000 C) $12,000 D) $91,000 Level: Medium LO: 3 Refer To: 2-16 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Beginning raw materials inventory...... $27,000 Add: Raw materials purchased...... 76,000 Raw materials available for use...... 103,000 Deduct: Ending raw materials inventory...... 20,000 Raw materials used...... $83,000 Raw materials used...... $ 83,000 Direct labor...... 30,000 Manufacturing overhead...... 61,000 Total manufacturing costs...... 174,000 Add: Beginning work in process inventory...... 10,000 Subtotal...... 184,000 Deduct: Ending work in process inventory...... 24,000 Cost of goods manufactured...... $160,000

Reference: 2-17 Juart Corporation reported the following data for the month of December:

128. The cost of goods sold for December was: A) $147,000 B) $97,000 C) $228,000 D) $151,000 Level: Medium LO: 3,4 Refer To: 2-17 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning raw materials inventory...... $ 26,000 Add: Raw materials purchased...... 78,000 Raw materials available for use...... 104,000 Deduct: Ending raw materials inventory...... 38,000 Raw materials used...... 66,000 Add: Direct labor costs...... 24,000 Add: Manufacturing overhead...... 58,000 Total manufacturing costs...... $148,000

129. The net operating income for December was: A) $23,000 B) $83,000 C) $88,000 D) $10,000 Level: Medium LO: 3 Refer To: 2-17 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning raw materials inventory...... $ 26,000 Add: Raw materials purchased...... 78,000 Raw materials available for use...... 104,000 Deduct: Ending raw materials inventory...... 38,000 Raw materials used...... 66,000 Add: Direct labor costs...... 24,000 Add: Manufacturing overhead...... 58,000 Total manufacturing costs...... $148,000

Reference: 2-18 Steenbergen Corporation reported the following data for the month of June:

130. The total manufacturing cost for June was: A) $165,000 B) $71,000 C) $115,000 D) $172,000 Level: Medium LO: 4 Refer To: 2-18 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: D Solution: Beginning raw materials inventory...... $ 39,000 Add: Raw materials purchased...... 50,000 Raw materials available for use...... 89,000 Deduct: Ending raw materials inventory...... 32,000 Raw materials used...... 57,000 Add: Direct labor costs...... 44,000 Add: Manufacturing overhead...... 71,000 Total manufacturing costs...... $172,000

131. The net operating income for June was: A) $37,000 B) $87,000 C) $79,000 D) $31,000 Level: Medium LO: 3 Refer To: 2-18 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: D Beginning raw materials inventory...... $ 39,000 Add: Raw materials purchased...... 50,000 Raw materials available for use...... 89,000 Deduct: Ending raw materials inventory...... 32,000 Raw materials used...... 57,000 Add: Direct labor costs...... 44,000 Add: Manufacturing overhead...... 71,000 Total manufacturing costs...... $172,000

Reference: 2-19 Management of Thede Corporation has asked your help as an intern in preparing some key reports for July. The beginning balance in the raw materials inventory account was $29,000. During the month, the company made raw materials purchases amounting to $55,000. At the end of the month, the balance in the raw materials inventory account was $37,000. Direct labor cost was $41,000 and manufacturing overhead cost was $61,000. The beginning balance in the work in process account was $22,000 and the ending balance was $23,000. The beginning balance in the finished goods account was $42,000 and the ending balance was $55,000. Sales totaled $230,000. Selling expense was $13,000 and administrative expense was $32,000.

132. The total manufacturing cost for July was: A) $157,000 B) $149,000 C) $61,000 D) $102,000 Level: Medium LO: 4 Refer To: 2-19 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: B Solution: Beginning raw materials inventory...... $ 29,000 Add: Raw materials purchased...... 55,000 Raw materials available for use...... 84,000 Deduct: Ending raw materials inventory...... 37,000 Raw materials used...... 47,000 Add: Direct labor costs...... 41,000 Add: Manufacturing overhead...... 61,000 Total manufacturing costs...... $149,000

133. The cost of goods manufactured for July was: A) $149,000 B) $150,000 C) $148,000 D) $157,000 Level: Medium LO: 4 Refer To: 2-19 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Beginning raw materials inventory...... $ 29,000 Add: Raw materials purchased...... 55,000 Raw materials available for use...... 84,000 Deduct: Ending raw materials inventory...... 37,000 Raw materials used...... 47,000 Add: Direct labor costs...... 41,000 Add: Manufacturing overhead...... 61,000 Total manufacturing costs...... $149,000 Total manufacturing costs...... $149,000 Add: Beginning work in process inventory...... 22,000 Subtotal...... 171,000 Deduct: Ending work in process inventory...... 23,000 Cost of goods manufactured...... $148,000

134. The cost of goods sold for July was: A) $217,000 B) $135,000 C) $161,000 D) $115,000 Level: Medium LO: 3 Refer To: 2-19 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: B Solution: Beginning raw materials inventory...... $ 29,000 Add: Raw materials purchased...... 55,000 Raw materials available for use...... 84,000 Deduct: Ending raw materials inventory...... 37,000 Raw materials used...... 47,000 Add: Direct labor costs...... 41,000 Add: Manufacturing overhead...... 61,000 Total manufacturing costs...... $149,000

135. The net operating income for July was: A) $28,000 B) $95,000 C) $50,000 D) $83,000 Level: Medium LO: 3 Refer To: 2-19 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Beginning raw materials inventory...... $ 29,000 Add: Raw materials purchased...... 55,000 Raw materials available for use...... 84,000 Deduct: Ending raw materials inventory...... 37,000 Raw materials used...... 47,000 Add: Direct labor costs...... 41,000 Add: Manufacturing overhead...... 61,000 Total manufacturing costs...... $149,000

Reference: 2-20 The CFO of Claussen Corporation has provided the following data for June. The beginning balance in the raw materials inventory account was $38,000. During the month, the company made raw materials purchases amounting to $53,000. At the end of the month, the balance in the raw materials inventory account was $27,000. Direct labor cost was $33,000 and manufacturing overhead cost was $74,000. The beginning balance in the work in process account was $24,000 and the ending balance was $23,000. The beginning balance in the finished goods account was $57,000 and the ending balance was $55,000. Sales totaled $290,000. Selling expense was $17,000 and administrative expense was $43,000.

136. The cost of goods sold for June was: A) $174,000 B) $170,000 C) $292,000 D) $124,000 Level: Medium LO: 3,4 Refer To: 2-20 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning raw materials inventory...... $ 38,000 Add: Raw materials purchased...... 53,000 Raw materials available for use...... 91,000 Deduct: Ending raw materials inventory...... 27,000 Raw materials used...... 64,000 Add: Direct labor costs...... 33,000 Add: Manufacturing overhead...... 74,000 Total manufacturing costs...... $171,000

Beginning finished goods inventory...... $ 57,000 Add: Cost of goods manufactured...... 172,000 Cost of goods available for sale...... 229,000 Deduct: Ending finished goods inventory...... 55,000 Cost of goods sold...... $174,000 137. The net operating income for June was: A) $56,000 B) $123,000 C) $70,000 D) $116,000 Level: Medium LO: 3,4 Refer To: 2-20 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning raw materials inventory...... $ 38,000 Add: Raw materials purchased...... 53,000 Raw materials available for use...... 91,000 Deduct: Ending raw materials inventory...... 27,000 Raw materials used...... 64,000 Add: Direct labor costs...... 33,000 Add: Manufacturing overhead...... 74,000 Total manufacturing costs...... $171,000

Sales...... $290,000 Cost of goods sold...... 174,000 Gross margin...... 116,000 Selling and administrative expenses: Administrative expenses...... $43,000 Selling expenses...... 17,000 60,000 Net operating income...... $ 56,000 Reference: 2-21 Downin Corporation has provided the following data for May. The beginning balance in the raw materials inventory account was $34,000. During the month, the company made raw materials purchases amounting to $65,000. At the end of the month, the balance in the raw materials inventory account was $29,000. Direct labor cost was $30,000 and manufacturing overhead cost was $56,000. The beginning balance in the work in process account was $15,000 and the ending balance was $16,000. The beginning balance in the finished goods account was $41,000 and the ending balance was $57,000. Sales totaled $220,000. Selling expense was $21,000 and administrative expense was $42,000.

138. The total manufacturing cost for May was: A) $156,000 B) $86,000 C) $151,000 D) $56,000 Level: Medium LO: 4 Refer To: 2-21 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning raw materials inventory...... $ 34,000 Add: Raw materials purchased...... 65,000 Raw materials available for use...... 99,000 Deduct: Ending raw materials inventory...... 29,000 Raw materials used...... 70,000 Add: Direct labor costs...... 30,000 Add: Manufacturing overhead...... 56,000 Total manufacturing costs...... $156,000

139. The net operating income for May was: A) $71,000 B) $81,000 C) $6,000 D) $18,000 Level: Medium LO: 3 Refer To: 2-21 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: D Solution: Beginning raw materials inventory...... $ 34,000 Add: Raw materials purchased...... 65,000 Raw materials available for use...... 99,000 Deduct: Ending raw materials inventory...... 29,000 Raw materials used...... 70,000 Add: Direct labor costs...... 30,000 Add: Manufacturing overhead...... 56,000 Total manufacturing costs...... $156,000

Reference: 2-22 Yore Corporation has provided the following data for the month of June. The beginning balance in the finished goods inventory account was $35,000 and the ending balance was $26,000. Sales totaled $220,000. Cost of goods manufactured was $99,000, selling expense was $15,000, and administrative expense was $46,000. 140. The cost of goods sold for June was: A) $99,000 B) $160,000 C) $90,000 D) $108,000 Level: Easy LO: 3 Refer To: 2-22 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: D Solution: Beginning finished goods inventory...... $ 35,000 Add: Cost of goods manufactured...... 99,000 Cost of goods available for sale...... 134,000 Deduct: Ending finished goods inventory...... 26,000 Cost of goods sold...... $108,000

141. The net operating income for June was: A) $51,000 B) $60,000 C) $121,000 D) $130,000 Level: Easy LO: 3 Refer To: 2-22 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning finished goods inventory...... $ 35,000 Add: Cost of goods manufactured...... 99,000 Cost of goods available for sale...... 134,000 Deduct: Ending finished goods inventory...... 26,000 Cost of goods sold...... $108,000

Reference: 2-23 Streif Inc., a local retailer, has provided the following data for the month of June:

Merchandise inventory, beginning balance...... $46,000 Merchandise inventory, ending balance...... $52,000 Sales...... $260,000 Purchases of merchandise inventory...... $128,000 Selling expense...... $13,000 Administrative expense...... $40,000

142. The cost of goods sold for June was: A) $128,000 B) $181,000 C) $122,000 D) $134,000 Level: Easy LO: 3 Refer To: 2-23 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Beginning finished goods inventory...... $ 46,000 Add: Cost of goods manufactured...... 128,000 Cost of goods available for sale...... 174,000 Deduct: Ending finished goods inventory...... 52,000 Cost of goods sold...... $122,000

143. The net operating income for June was: A) $132,000 B) $126,000 C) $85,000 D) $79,000 Level: Easy LO: 3 Refer To: 2-23 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Beginning finished goods inventory...... $ 46,000 Add: Cost of goods manufactured...... 128,000 Cost of goods available for sale...... 174,000 Deduct: Ending finished goods inventory...... 52,000 Cost of goods sold...... $122,000

Reference: 2-24 Mcclean Corporation reported the following data for the month of October:

Additional information: Raw materials purchases...... $75,000 Direct labor cost...... $45,000 Manufacturing overhead cost...... $64,000 Selling expense...... $16,000 Administrative expense...... $44,000

144. The total manufacturing cost for October was: A) $177,000 B) $184,000 C) $64,000 D) $109,000 Level: Medium LO: 4 Refer To: 2-24 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning raw materials inventory...... $ 29,000 Add: Raw materials purchased...... 75,000 Raw materials available for use...... 104,000 Deduct: Ending raw materials inventory...... 36,000 Raw materials used...... 68,000 Add: Direct labor costs...... 45,000 Add: Manufacturing overhead...... 64,000 Total manufacturing costs...... $177,000

145. The cost of goods manufactured for October was: A) $177,000 B) $175,000 C) $184,000 D) $179,000 Level: Medium LO: 4 Refer To: 2-24 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: B Solution: Beginning raw materials inventory...... $ 29,000 Add: Raw materials purchased...... 75,000 Raw materials available for use...... 104,000 Deduct: Ending raw materials inventory...... 36,000 Raw materials used...... 68,000 Add: Direct labor costs...... 45,000 Add: Manufacturing overhead...... 64,000 Total manufacturing costs...... $177,000 Total manufacturing costs...... $177,000 Add: Beginning work in process inventory...... 19,000 Subtotal...... 196,000 Deduct: Ending work in process inventory...... 21,000 Cost of goods manufactured...... $175,000

Reference: 2-25 Vives Corporation reported the following data for the month of April:

Additional information: Raw materials purchases...... $79,000 Direct labor cost...... $27,000 Manufacturing overhead cost...... $89,000

146. The cost of goods manufactured for April was: A) $212,000 B) $190,000 C) $201,000 D) $195,000 Level: Medium LO: 4 Refer To: 2-25 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning raw materials inventory...... $ 27,000 Add: Raw materials purchased...... 79,000 Raw materials available for use...... 106,000 Deduct: Ending raw materials inventory...... 21,000 Raw materials used...... 85,000 Add: Direct labor costs...... 27,000 Add: Manufacturing overhead...... 89,000 Total manufacturing costs...... $201,000 Total manufacturing costs...... $201,000 Add: Beginning work in process inventory...... 21,000 Subtotal...... 222,000 Deduct: Ending work in process inventory...... 10,000 Cost of goods manufactured...... $212,000

147. The cost of goods sold for April was: A) $267,000 B) $205,000 C) $219,000 D) $132,000 Level: Medium LO: 4 Refer To: 2-25 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: C Solution: Beginning raw materials inventory...... $ 27,000 Add: Raw materials purchased...... 79,000 Raw materials available for use...... 106,000 Deduct: Ending raw materials inventory...... 21,000 Raw materials used...... 85,000 Add: Direct labor costs...... 27,000 Add: Manufacturing overhead...... 89,000 Total manufacturing costs...... $201,000

Beginning finished goods inventory...... $ 48,000 Add: Cost of goods manufactured...... 212,000 Cost of goods available for sale...... 260,000 Deduct: Ending finished goods inventory...... 41,000 Cost of goods sold...... $219,000 Reference: 2-26 Server Corporation has provided the following data for July. The beginning balance in the raw materials inventory account was $22,000. During the month, the company made raw materials purchases amounting to $76,000. At the end of the month, the balance in the raw materials inventory account was $36,000. Direct labor cost was $25,000 and manufacturing overhead cost was $79,000. The beginning balance in the work in process account was $11,000 and the ending balance was $20,000. The beginning balance in the finished goods account was $43,000 and the ending balance was $39,000.

148. The total manufacturing cost for July was: A) $166,000 B) $104,000 C) $79,000 D) $180,000 Level: Medium LO: 4 Refer To: 2-26 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: A Solution: Beginning raw materials inventory...... $ 22,000 Add: Raw materials purchased...... 76,000 Raw materials available for use...... 98,000 Deduct: Ending raw materials inventory...... 36,000 Raw materials used...... 62,000 Add: Direct labor costs...... 25,000 Add: Manufacturing overhead...... 79,000 Total manufacturing costs...... $166,000

149. The cost of goods manufactured for July was: A) $166,000 B) $157,000 C) $180,000 D) $175,000 Level: Medium LO: 4 Refer To: 2-26 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: B Solution: Beginning raw materials inventory...... $ 22,000 Add: Raw materials purchased...... 76,000 Raw materials available for use...... 98,000 Deduct: Ending raw materials inventory...... 36,000 Raw materials used...... 62,000 Add: Direct labor costs...... 25,000 Add: Manufacturing overhead...... 79,000 Total manufacturing costs...... $166,000

Reference: 2-27 At a sales volume of 20,000 units, Choice Corporation’s sales commissions (a cost that is variable with respect to sales volume) total $132,000.

150. To the nearest whole dollar, what should be the total sales commissions at a sales volume of 18,400 units? (Assume that this sales volume is within the relevant range.) A) $126,720 B) $132,000 C) $121,440 D) $143,478 Level: Easy LO: 5 Refer To: 2-27 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C Solution: $132,000 ÷ 20,000 = $6.60 per unit 18,400 units × $6.60 = $121,440 151. To the nearest whole cent, what should be the average sales commission per unit at a sales volume of 18,500 units? (Assume that this sales volume is within the relevant range.) A) $6.60 B) $6.87 C) $7.17 D) $7.14 Level: Easy LO: 5 Refer To: 2-27 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: A Solution: $132,000 ÷ 20,000 = $6.60 per unit average cost

Reference: 2-28 At a sales volume of 38,000 units, Tirri Corporation’s property taxes (a cost that is fixed with respect to sales volume) total $733,400.

152. To the nearest whole dollar, what should be the total property taxes at a sales volume of 37,200 units? (Assume that this sales volume is within the relevant range.) A) $725,680 B) $733,400 C) $749,172 D) $717,960 Level: Easy LO: 5 Refer To: 2-28 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B Solution: Fixed costs do not change with changes in volume; therefore, fixed costs will total $733,400 at a sales volume of 37,200 units. 153. To the nearest whole cent, what should be the average property tax per unit at a sales volume of 37,300 units? (Assume that this sales volume is within the relevant range.) A) $19.30 B) $19.66 C) $19.72 D) $19.48 Level: Easy LO: 5 Refer To: 2-28 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B Solution: $733,400 ÷ 37,300 units = $19.66 per unit (rounded)

Reference: 2-29 Leas Corporation staffs a helpline to answer questions from customers. The costs of operating the helpline are variable with respect to the number of calls in a month. At a volume of 25,000 calls in a month, the costs of operating the helpline total $452,500.

154. To the nearest whole dollar, what should be the total cost of operating the helpline costs at a volume of 23,900 calls in a month? (Assume that this call volume is within the relevant range.) A) $442,545 B) $452,500 C) $473,326 D) $432,590 Level: Easy LO: 5 Refer To: 2-29 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D Solution: $452,500 ÷ 25,000 calls = $18.10 per call $18.10 per call × 23,900 calls = $432,590 155. To the nearest whole cent, what should be the average cost of operating the helpline per call at a volume of 25,300 calls in a month? (Assume that this call volume is within the relevant range.) A) $18.93 B) $18.00 C) $17.89 D) $18.10 Level: Easy LO: 5 Refer To: 2-29 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D Solution: $452,500 ÷ 25,000 calls = $18.10 per call (average)

Reference: 2-30 Batterson Corporation leases its corporate headquarters building. This lease cost is fixed with respect to the company’s sales volume. In a recent month in which the sales volume was 28,000 units, the lease cost was $697,200.

156. To the nearest whole dollar, what should be the total lease cost at a sales volume of 29,200 units in a month? (Assume that this sales volume is within the relevant range.) A) $712,140 B) $697,200 C) $727,080 D) $668,548 Level: Easy LO: 5 Refer To: 2-30 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B Solution: Fixed costs do not change with changes in volume; therefore, fixed costs will total $697,200 at all sales levels within the relevant range. 157. To the nearest whole cent, what should be the average lease cost per unit at a sales volume of 26,400 units in a month? (Assume that this sales volume is within the relevant range.) A) $25.66 B) $24.90 C) $23.88 D) $26.41 Level: Easy LO: 5 Refer To: 2-30 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: D Solution: $697,200 ÷ 26,400 units = $26.41 (rounded)

Reference: 2-31 The following cost data pertain to the operations of Ladwig Department Stores, Inc., for the month of December.

Corporate legal office salaries...... $68,000 Shoe Department cost of sales--Brentwood Store...... $66,000 Corporate headquarters building lease...... $86,000 Store manager’s salary--Brentwood Store...... $10,000 Shoe Department sales commissions--Brentwood Store...... $5,000 Store utilities--Brentwood Store...... $11,000 Shoe Department manager’s salary--Brentwood Store...... $3,000 Central warehouse lease cost...... $3,000 Janitorial costs--Brentwood Store...... $11,000

The Brentwood Store is just one of many stores owned and operated by the company. The Shoe Department is one of many departments at the Brentwood Store. The central warehouse serves all of the company’s stores.

158. What is the total amount of the costs listed above that are direct costs of the Shoe Department? A) $66,000 B) $74,000 C) $106,000 D) $71,000 Level: Easy LO: 6 Refer To: 2-31 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B Solution: Shoe Department cost of sales–Brentwood Store...... $66,000 Shoe Department sales commissions–Brentwood Store...... 5,000 Shoe Department Manager’s Salary–Brentwood Store...... 3,000 Total direct costs...... $74,000

159. What is the total amount of the costs listed above that are NOT direct costs of the Brentwood Store? A) $74,000 B) $32,000 C) $157,000 D) $86,000 Level: Medium LO: 6 Refer To: 2-31 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: C Solution: Corporate legal office salaries...... $ 68,000 Corporate headquarters building lease...... 86,000 Central warehouse lease cost...... 3,000 Total...... $157,000

Reference: 2-32 The following cost data pertain to the operations of Quinonez Department Stores, Inc., for the month of September.

Corporate headquarters building lease...... $77,000 Cosmetics Department sales commissions–Northridge Store...... $4,000 Corporate legal office salaries...... $59,000 Store manager’s salary–Northridge Store...... $11,000 Heating–Northridge Store...... $10,000 Cosmetics Department cost of sales–Northridge Store...... $37,000 Central warehouse lease cost...... $16,000 Store security–Northridge Store...... $12,000 Cosmetics Department manager’s salary–Northridge Store...... $4,000

The Northridge Store is just one of many stores owned and operated by the company. The Cosmetics Department is one of many departments at the Northridge Store. The central warehouse serves all of the company’s stores.

160. What is the total amount of the costs listed above that are direct costs of the Cosmetics Department? A) $78,000 B) $45,000 C) $41,000 D) $37,000 Level: Easy LO: 6 Refer To: 2-32 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: B Solution: Cosmetics Department sales commissions–Northridge Store...... $ 4,000 Cosmetics Department cost of sales–Northridge Store...... 37,000 Cosmetics Department manager’s salary–Northridge Store...... 4,000 Total direct costs...... $45,000

161. What is the total amount of the costs listed above that are NOT direct costs of the Northridge Store? A) $152,000 B) $33,000 C) $45,000 D) $77,000 Level: Medium LO: 6 Refer To: 2-32 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: A Solution: Corporate headquarters building lease...... $ 77,000 Corporate legal office salaries...... 59,000 Central warehouse lease cost...... 16,000 Total costs which are NOT direct...... $152,000

Reference: 2-33 A trucking business is considering whether to give up its local delivery routes or to expand its long haul (over 100 miles) operations.

162. In this decision, the original cost of any of the trucks that it currently owns can best be described as a(n): A) opportunity cost B) conversion cost C) sunk cost D) differential (incremental) cost Level: Easy LO: 7 Refer To: 2-33 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Ans: C

163. In this decision, the wage costs of the additional drivers that will have to be hired for the long haul operations can best be described as a(n): A) opportunity cost B) administrative cost C) sunk cost D) differential (incremental) cost Level: Easy LO: 7 Refer To: 2-33 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Ans: D 164. In this decision, the lost income from the local delivery routes given up can best be described as a(n): A) opportunity cost B) conversion cost C) sunk cost D) differential (incremental) cost Level: Easy LO: 7 Refer To: 2-33 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Ans: A

Reference: 2-34 Dominik Corporation purchased a machine 5 years ago for $527,000 when it launched product M08Y. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 310 machine costing $545,000 or by a new model 240 machine costing $450,000. Management has decided to buy the model 240 machine. It has less capacity than the model 310 machine, but its capacity is sufficient to continue making product M08Y. Management also considered, but rejected, the alternative of dropping product M08Y and not replacing the old machine. If that were done, the $450,000 invested in the new machine could instead have been invested in a project that would have returned a total of $532,000.

165. In making the decision to buy the model 240 machine rather than the model 310 machine, the differential cost was: A) $95,000 B) $5,000 C) $77,000 D) $18,000 Level: Easy LO: 7 Refer To: 2-34 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Ans: A Solution: Model 310 cost...... $545,000 Model 240 cost...... 450,000 Differential cost...... $ 95,000

166. In making the decision to buy the model 240 machine rather than the model 310 machine, the sunk cost was: A) $545,000 B) $450,000 C) $527,000 D) $532,000 Level: Easy LO: 7 Refer To: 2-34 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Ans: C Solution: The original cost of $527,000 is a sunk cost.

167. In making the decision to invest in the model 240 machine, the opportunity cost was: A) $545,000 B) $450,000 C) $532,000 D) $527,000 Level: Easy LO: 7 Refer To: 2-34 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Ans: C Solution: The opportunity cost is the proceeds from the project that would have yielded $532,000.

Reference: 2-35 Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $360,000 or a new model 220 machine costing $340,000 to replace a machine that was purchased 7 years ago for $348,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired.

Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L.

Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $340,000 in the new machine, the money could be invested in a project that would return a total of $411,000.

168. In making the decision to buy the model 220 machine rather than the model 370 machine, the sunk cost was: A) $348,000 B) $340,000 C) $360,000 D) $411,000 Level: Easy LO: 7 Refer To: 2-35 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Ans: A Solution: The original cost of the machine purchased 7 years ago for $348,000 is a sunk cost.

169. In making the decision to buy the model 220 machine rather than the model 370 machine, the differential cost was: A) $20,000 B) $8,000 C) $12,000 D) $63,000 Level: Easy LO: 7 Refer To: 2-35 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Ans: A Solution: Cost of model 370 machine...... $360,000 Cost of model 220 machine...... 340,000 Differential cost...... $ 20,000

170. In making the decision to invest in the model 220 machine, the opportunity cost was: A) $348,000 B) $340,000 C) $360,000 D) $411,000 Level: Easy LO: 7 Refer To: 2-35 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Ans: D Solution: The opportunity cost is the proceeds from the project that would have yielded $411,000.

171. The information below relates to Guzzardi Manufacturing Company. (Assume that all raw materials are direct materials.):

Purchases of raw materials...... $362,000 Direct labor cost...... $207,000 Selling costs (total)...... $61,000 Administrative costs (total)...... $84,000 Manufacturing overhead costs (total)...... $775,000 Raw materials inventory, beginning...... $37,000 Work in process inventory, beginning...... $19,000 Finished goods inventory, beginning...... $62,000 Raw materials inventory, ending...... $44,000 Work in process inventory, ending...... $3,000 Finished goods inventory, ending...... $77,000

Required: What is Guzzardi’s cost of goods sold? Level: Medium LO: 1,2,3,4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: Purchases of raw materials...... $ 362,000 3 Add: Raw materials inventory, beginning...... 7,000 399,000 4 Deduct: Raw materials inventory, ending...... 4,000 Raw materials used in production...... 355,000 Direct labor cost...... 207,000 775, Manufacturing overhead costs (total)...... 000 Total manufacturing cost...... 1,337,000 1 Add: Work in process inventory, beginning...... 9,000 1,356,000

Deduct: Work in process inventory, ending...... 3,000 Cost of goods manufactured...... $1,353,000

Finished goods inventory, beginning...... $ 62,000 Add: Cost of goods manufactured...... 1,353,000 Goods available for sale...... 1,415,000 77, Deduct: Finished goods inventory, ending...... 000 Cost of goods sold...... $1,338,000

172. Miyose Corporation, a manufacturing company, has provided the following data for the month of June:

Beginnin Inventories: g Ending Raw materials...... $23,000 $21,000 Finished goods...... $32,000 $37,000 Raw materials purchased during June totaled $67,000 and the cost of goods manufactured totaled $124,000.

Required: a. What was the cost of raw materials used in production during June? Show your work. b. What was the cost of goods sold for June? Show your work.

Level: Easy LO: 1,3 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: a. Beginning materials inventory...... $23,000 Add: Purchases of raw materials...... 67,000 Raw materials available for use...... 90,000 Deduct: Ending raw materials inventory...... 21,000 Raw materials used in production...... $69,000 b. Cost of goods manufactured...... $124,000 32, Add: Beginning finished goods inventory...... 000 Goods available for sale...... 156,000 37, Deduct: Ending finished goods inventory...... 000 Cost of goods sold...... $119,000

173. During the month of May, Russnak Corporation, a manufacturing company, purchased raw materials costing $73,000. The cost of goods manufactured for the month was $102,000. The beginning balance in the raw materials account was $26,000 and the ending balance was $39,000. The beginning balance in the finished goods account was $42,000 and the ending balance was $46,000.

Required: a. What was the cost of raw materials used in production during May? Show your work. b. What was the cost of goods sold for May? Show your work.

Level: Easy LO: 1,3 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: a. Beginning materials inventory...... $26,000 Add: Purchases of raw materials...... 73,000 Raw materials available for use...... 99,000 Deduct: Ending raw materials inventory...... 39,000 Raw materials used in production...... $60,000 b. Cost of goods manufactured...... $102,000 42, Add: Beginning finished goods inventory...... 000 Goods available for sale...... 144,000 46, Deduct: Ending finished goods inventory...... 000 Cost of goods sold...... $ 98,000

174. Mary Tappin, an assistant Vice President at Galaxy Toys, was disturbed to find on her desk a memo from her boss, Gary Resnick, to the controller of the company. The memo appears below:

Galaxy Toys Internal Memo

Sept 15

To: Harry Wilson, Controller Fm: Gary Resnick, Executive Vice President

As you know, we won’t start recording many sales until October when stores start accepting shipments from us for the Christmas season. Meanwhile, we are producing flat-out and are building up our finished goods inventories so that we will be ready to ship next month. Unfortunately, we are in a bind right now since it looks like the net income for the quarter ending on Sept 30 is going to be pretty awful. This may get us in trouble with the bank since they always review the quarterly financial reports and may call in our loan if they don’t like what they see. Is there any possibility that we could change the classification of some of our period costs to product costs--such as the rent on the finished goods warehouse? Please let me know as soon as possible. The President is pushing for results.

Mary didn’t know what to do about the memo. It wasn’t intended for her, but its contents were alarming.

Required: a. Why has Gary Resnick suggested reclassifying some period costs as product costs? b. Why do you think Mary was alarmed about the memo? Level: Medium LO: 2 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Ans: a. Gary Resnick has suggested reclassifying some period costs as product costs since the company is building up large finished goods inventories in anticipation of the Christmas selling season. Product costs are inventoried and flow through to the income statement only when products are sold. Period expenses, in contrast, flow directly to the income statement. Since most of the finished goods inventories will be held over to the next quarter, reclassifying period costs as product costs will effectively defer recognition of expenses until next quarter and therefore will improve the current quarter’s net operating income. b. Mary Tappin is probably alarmed by both the economic situation the company finds itself in and by the apparent willingness of top management to bend the rules. Improperly reclassifying costs is an indication that top management does not feel like it has to play by the rules or be honest in its dealings with the bank. With such loose ethical standards, Mary may wonder what other things they are doing that are unethical and/or illegal.

175. A partial listing of costs incurred at Boylen Corporation during March appears below:

Direct materials...... $181,000 Utilities, factory...... $10,000 Sales commissions...... $69,000 Administrative salaries...... $99,000 Indirect labor...... $32,000 Advertising...... $75,000 Depreciation of production equipment...... $28,000 Direct labor...... $120,000 Depreciation of administrative equipment...... $49,000

Required: a. What is the total amount of product cost listed above? Show your work. b. What is the total amount of period cost listed above? Show your work.

Level: Medium LO: 2 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: a. Product costs consist of direct materials, direct labor, and manufacturing overhead: Direct materials...... $181,000 Direct labor...... 120,000 Manufacturing overhead: Utilities, factory...... $10,000 Indirect labor...... 32,000 70, Depreciation of production equipment...... 28,000 000 Total product cost...... $371,000 b. Period costs consist of all costs other than product costs: Administrative salaries...... $ 99,000 Sales commissions...... 69,000 Depreciation of administrative equipment...... 49,000 75, Advertising...... 000 Total period cost...... $292,000

176. Marquess Corporation has provided the following partial listing of costs incurred during May:

Marketing salaries...... $39,000 Property taxes, factory...... $8,000 Administrative travel...... $102,000 Sales commissions...... $73,000 Indirect labor...... $31,000 Direct materials...... $197,000 Advertising...... $145,000 Depreciation of production equipment...... $39,000 Direct labor...... $78,000

Required: a. What is the total amount of product cost listed above? Show your work. b. What is the total amount of period cost listed above? Show your work.

Level: Medium LO: 2 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: a. Product costs consist of direct materials, direct labor, and manufacturing overhead: Direct materials...... $197,000 Direct labor...... 78,000 Manufacturing overhead: Property taxes, factory...... $ 8,000 Indirect labor...... 31,000 39,00 78, Depreciation of production equipment...... 0 000 Total product cost...... $353,000 b. Period costs consist of all costs other than product costs: Administrative travel...... $102,000 Sales commissions...... 73,000 Marketing salaries...... 39,000 Advertising...... 145,000 Total period cost...... $359,000

177. Classify the following costs for an auto manufacturer as either direct materials, direct labor, manufacturing overhead, or period costs. a. Steel used in automobiles b. Assembly department employee wages c. Utility costs used in executive building d. Travel costs used by sales personnel e. Cost of shipping goods to customers f. Property taxes on assembly plant g. Glass used in automobiles h. Maintenance supplies i. Depreciation on assembly plant j. Plant manager’s salary k. CEO’s salary l. Depreciation on executive building m. Salary of marketing executive n. Tires installed on automobiles o. Advertising

Required:

Complete the answer sheet above by placing an “X” under each heading that identifies the cost involved.

Direct Materials Direct Labor Manufacturing Overhead Period Cost a. b. c. d. e. f. g. h. i. j. k. l. m. n. o.

Level: Medium LO: 2 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: Direct Materials Direct Labor Manufacturing Overhead Period Cost a. X b. X c. X d. X e. X f. X g. X h. X i. X j. X k. X l. X m. X n. X o. X

178. The following costs relate to one month’s activity in Carr Company:

Indirect labor...... $400 Rent on factory building...... $300 Maintenance of equipment...... $100 Direct material used...... $1,200 Utilities on factory...... $200 Direct labor...... $1,500 Selling expense...... $500 Administrative expense...... $300 Work in process, beginning...... $800 Work in process, ending...... $600 Finished goods, beginning...... $500 Finished goods, ending...... $250

Required:

a. Prepare a schedule of Cost of Goods Manufactured in good form.

b. Determine the Cost of Goods Sold for the month. Level: Medium LO: 3,4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: a. Direct materials...... $1,200 Direct labor...... 1,500 Manufacturing overhead: Indirect labor...... $400 Rent...... 300 Maintenance...... 100 Utilities...... 200 1,000 Total manufacturing cost...... 3,700 8 Add: WIP, beginning...... 00 4,500 6 Deduct: WIP, ending...... 00 Cost of goods manufactured...... $3,900 b. Finished goods, beginning...... $ 500 Add: Cost of goods manufactured...... 3,900 Goods available for sale...... 4,400

Finished goods, ending...... 250 Cost of goods sold...... $4,150

179. Nish Corporation has provided the following data for the month of April:

Sales...... $220,000 Raw materials purchases...... $50,000 Direct labor cost...... $23,000 Manufacturing overhead cost...... $59,000 Selling expense...... $18,000 Administrative expense...... $43,000

Beginnin Inventories: g Ending Raw materials...... $26,000 $35,000 Work in process..... $18,000 $22,000 Finished goods...... $42,000 $29,000

Required: a. Prepare a Schedule of Cost of Goods Manufactured in good form for April. b. Prepare an Income Statement in good form for April. Level: Medium LO: 3,4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: a. Schedule of Cost of Goods Manufactured Direct materials: Beginning materials inventory...... $26,000 Add: Purchases of raw materials...... 50,000 Raw materials available for use...... 76,000 Deduct: Ending raw materials inventory...... 35,000 Raw materials used in production...... $ 41,000 Direct labor...... 23,000 59, Manufacturing overhead...... 000 Total manufacturing costs...... 123,000 18, Add: Beginning work in process inventory...... 000 141,000 22, Deduct: Ending work in process inventory...... 000 Cost of goods manufactured...... $119,000 b. Income Statement Sales...... $220,000 Cost of goods sold: Beginning finished goods inventory...... $ 42,000 119,00 Add: Cost of goods manufactured...... 0 Goods available for sale...... 161,000 29,00 Deduct: Ending finished goods inventory...... 0 132,000 Gross margin...... 88,000 Selling and administrative expenses: Selling expenses...... 18,000 61,0 Administrative expenses...... 43,000 00 Net operating income...... $ 27,000

180. The following data have been provided the Monster Manufacturing Company for the most recent period:

Sales...... $16,800 Raw materials inventory, beginning...... $900 Raw materials inventory, ending...... $750 Purchases of raw materials...... $8,400 Direct labor...... $1,240 Manufacturing overhead...... $2,070 Administrative expenses...... $1,890 Selling expenses...... $1,000 Work in process inventory, beginning...... $700 Work in process inventory, ending...... $1,050 Finished goods inventory, beginning...... $970 Finished goods inventory, ending...... $1,120

Required:

Calculate the cost of goods manufactured and prepare an income statement. Level: Easy LO: 3,4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: Cost of goods manufactured: Direct materials = $900+$8,400-$750 = $8,550 Total manufacturing costs = $8,550+$1,240+$2,070 = $11,860 Cost of goods manufacturing = $11,860+$700-$1,050 = $11,510

Monster Manufacturing Company Income Statement Sales...... $16,800 Cost of goods sold: Beginning finished goods inventory...... $ 970 11,51 Plus cost of goods manufactured...... 0 Cost of goods available for sale...... 12,480 1,1 Less ending finished goods inventory...... 20 11,3 Cost of goods sold...... 60 Gross margin...... 5,440 Selling and administrative expenses: Administrative expenses...... 1,890 1,0 Selling expenses...... 00 2,8 Total selling and administrative expense...... 90 Net operating income...... $ 2,550 181. In December, Vollick Corporation had sales of $245,000, selling expenses of $23,000, and administrative expenses of $26,000. The cost of goods manufactured was $190,000. The beginning balance in the finished goods inventory account was $59,000 and the ending balance was $56,000.

Required:

Prepare an Income Statement in good form for December. Level: Easy LO: 3 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: Income Statement Sales...... $245,000 Cost of goods sold:...... Beginning finished goods inventory...... $ 59,000 190,00 Add: Cost of goods manufactured...... 0 Goods available for sale...... 249,000 56,0 193,0 Deduct: Ending finished goods inventory...... 00 00 Gross margin...... 52,000 Selling and administrative expenses: Selling expenses...... 23,000 26,0 49,0 Administrative expenses...... 00 00 Net operating income...... $ 3,000

182. In April, Holderness Inc., a merchandising company, had sales of $221,000, selling expenses of $14,000, and administrative expenses of $25,000. The cost of merchandise purchased during the month was $155,000. The beginning balance in the merchandise inventory account was $34,000 and the ending balance was $48,000.

Required:

Prepare an Income Statement in good form for April.

Level: Easy LO: 3 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: Income Statement Sales...... $221,000 Cost of goods sold: Beginning merchandise inventory...... $ 34,000 Add: Purchases...... 155,000 Goods available for sale...... 189,000 48,00 Deduct: Ending merchandise inventory...... 0 141,000 Gross margin...... 80,000 Selling and administrative expenses: Selling expenses...... 14,000 25,00 39,00 Administrative expenses...... 0 0 Net operating income...... $ 41,000

183. The following data were taken from the cost records of Morrey Company for last year:

Depreciation, factory...... $60,000 Indirect labor...... $100,000 Utilities, factory...... $40,000 Insurance, factory...... $10,000 Lubricants for machines...... $15,000 Direct labor...... $200,000 Purchases of raw materials...... $150,000

Inventories at the beginning and at the end of the year were as follows:

Beginnin g Ending Raw materials...... $10,000 $20,000 Work in process...... $25,000 $5,000 Finished goods...... $30,000 $50,000

Required:

Prepare a schedule of cost of goods manufactured in good form. Level: Medium LO: 4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: Morrey Company Schedule of Cost of Goods Manufactured Direct materials: Raw materials inventory, beginning...... $ 10,000 Add: Purchases of raw materials...... 150,000 Raw materials available for use...... 160,000 20,0 Deduct: Raw materials inventory, ending...... 00 Raw materials used in production...... $140,000 Direct labor...... 200,000 Manufacturing overhead: Depreciation, factory...... 60,000 Indirect labor...... 100,000 Utilities, factory...... 40,000 Insurance, factory...... 10,000 15,0 Lubricants for machines...... 00 225,00 Total manufacturing overhead cost...... 0 Total manufacturing costs...... 565,000 25,0 Add: Work in process inventory, beginning...... 00 590,000 5, Deduct: Work in process inventory, ending...... 000 Cost of Goods Manufactured...... $585,000

184. Pamer Corporation has provided the following data for the month of September:

Raw materials purchases...... $60,000 Direct labor cost...... $27,000 Manufacturing overhead cost...... $76,000

Beginnin Inventories: g Ending Raw materials...... $20,000 $23,000 Work in process...... $24,000 $18,000 Finished goods...... $43,000 $32,000 Required:

Prepare a Schedule of Cost of Goods Manufactured in good form for September. Level: Medium LO: 4 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting AICPA FN: Measurement Ans: Schedule of Cost of Goods Manufactured Direct materials: Beginning materials inventory...... $20,000 Add: Purchases of raw materials...... 60,000 Raw materials available for use...... 80,000 Deduct: Ending raw materials inventory...... 23,000 Raw materials used in production...... $ 57,000 Direct labor...... 27,000 76,0 Manufacturing overhead...... 00 Total manufacturing costs...... 160,000 24,0 Add: Beginning work in process inventory...... 00 184,000 18,0 Deduct: Ending work in process inventory...... 00 Cost of goods manufactured...... $166,000

185. A number of costs and measures of activity are listed below.

Possible Measure of Cost Description Activity 1. Cost of vaccine used at a clinic Vaccines administered 2. Building rent at a taco shop Dollar sales 3. Salary of production manager at a snowboard manufacturer Snowboards produced 4. Cost of electricity for production equipment at a snowboard manufacturer Snowboards produced 5. Ferry captain’s salary on a regularly scheduled passenger ferry Number of passengers 6. Cost of glue used in furniture production Units produced 7. Janitorial wages at a snowboard manufacturer Snowboards produced 8. Depreciation on factory building at a snowboard Snowboards produced manufacturer 9. Cost of advertising at a snowboard company Snowboards sold 10. Cost of shipping bags of fertilizer to a customer at a chemical plant Bags shipped

Required:

For each item above, indicate whether the cost is MAINLY fixed or variable with respect to the possible measure of activity listed next to it.

Level: Easy LO: 5 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: 1. Cost of vaccine used at a clinic; Vaccines administered; Variable 2. Building rent at a taco shop; Dollar sales; Fixed 3. Salary of production manager at a snowboard manufacturer; Snowboards produced; Fixed 4. Cost of electricity for production equipment at a snowboard manufacturer; Snowboards produced; Variable 5. Ferry captain’s salary on a regularly scheduled passenger ferry; Number of passengers; Fixed 6. Cost of glue used in furniture production; Units produced; Variable 7. Janitorial wages at a snowboard manufacturer; Snowboards produced; Fixed 8. Depreciation on factory building at a snowboard manufacturer; Snowboards produced; Fixed 9. Cost of advertising at a snowboard company; Snowboards sold; Fixed 10. Cost of shipping bags of fertilizer to a customer at a chemical plant; Bags shipped; Variable

186. A number of costs are listed below.

Cost Description Cost Object 1. Wages of carpenters on a home building site A particular home 2. Cost of wiring used in making a personal computer A particular personal computer 3. Manager’s salary at a hotel run by a chain of hotels A particular hotel guest 4. Manager’s salary at a hotel run by a chain of hotels The particular hotel 5. Cost of aluminum mast installed in a yacht at a yacht manufacturer A particular yacht 6. Monthly lease cost of X-ray equipment at a The Radiology (X- hospital Ray) Department 7. Cost of screws used to secure wood trim in a yacht at a yacht manufacturer A particular yacht 8. Cost of electronic navigation system installed in a yacht at a yacht manufacturer A particular yacht 9. Cost of a replacement battery installed in a car at the auto repair shop of an automobile dealer The auto repair shop 10. Cost of a measles vaccine administered at an outpatient clinic at a hospital A particular patient

Required:

For each item above, indicate whether the cost is direct or indirect with respect to the cost object listed next to it.

Level: Easy LO: 6 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting Ans: 1. Wages of carpenters on a home building site; A particular home; Direct 2. Cost of wiring used in making a personal computer; A particular personal computer; Indirect 3. Manager’s salary at a hotel run by a chain of hotels; A particular hotel guest; Indirect 4. Manager’s salary at a hotel run by a chain of hotels; The particular hotel; Direct 5. Cost of aluminum mast installed in a yacht at a yacht manufacturer; A particular yacht; Direct 6. Monthly lease cost of X-ray equipment at a hospital; The Radiology (X-Ray) Department; Direct 7. Cost of screws used to secure wood trim in a yacht at a yacht manufacturer; A particular yacht; Indirect 8. Cost of electronic navigation system installed in a yacht at a yacht manufacturer; A particular yacht; Direct 9. Cost of a replacement battery installed in a car at the auto repair shop of an automobile dealer; The auto repair shop; Direct 10. Cost of a measles vaccine administered at an outpatient clinic at a hospital; A particular patient; Direct