ANSWER KEYS

(1)
MULTIPLE CHOICE
1. Ans: A. A standard cost system differentiates the expected cost from the actual cost. Thus,
deviation from expected results are identified on a routine basis. An increase in the actual price
of raw material over the standard price will result in an unfavorable price variance. Answer (b) is
incorrect because a decrease in price would result in a favorable price variance. Answer (c) is
incorrect because less waste would result in a favorable materials usage variance. Answer (d) is
incorrect because more waste would result in an unfavorable materials usage variance.
2. Ans: B. The time of purchase is the most appropriate point to isolate and recognize a price
variance. Analysis here permits an earlier examination of variances. Answers (a) and (c) are
incorrect because time elapses between when the materials are purchased and issued or used.
Answer (d) is incorrect because the transaction has not yet been consummated.
3. Ans: A. Variances are chargeable to the department with control over the differences that
occur. Since the production department usually controls how much materials are used,
materials usage variances are normally chargeable to that department. Answers (b), (c), and (d)
are incorrect because the purchasing, finished goods, and materials storage departments do not
have control over materials usage.
4. Ans: C. An efficiency, or usage, variance for materials occurs when more or less material
than the standard is used. Unfavorable variances are when actual is more than standard. Labor
that is skilled commensurate with materials usage standards should achieve standard materials
usage; i.e., little or no variance should arise. Answers (a), (b) and (d), are incorrect because
each is a possible cause of an unfavorable materials quantity usage variance.
5. Ans: C. A favorable price variance indicates that the materials were purchased at a price less
than standard. The unfavorable quantity variance indicates that the quantity of materials used
for actual production exceeded the standard quantity for the good units produced. Answers (a)
and (b) are incorrect because the quantity of materials purchased cannot be determined from
the information given. Answer (d) is incorrect because the actual usage was greater than
standard.
6. Ans: C. The labor rate variance is computed by finding the difference between standard and
actual rate and then multiplying by actual hours: AH (AR - SR). Answers (a) and (b) are
incorrect because they give no useful variances. Answer (d) is incorrect because it is the
rate/usage variance in three-way analysis of labor variances (not widely used).
7. Ans: D. From the actual cost. Thus, deviations from expected results can be identified on a
routine basis. The premium paid for overtime hours increases the labor rate, which would be
reflected in the labor rate variance. Answer (a), (b), and (c) are incorrect because overtime
wages do not affect the yield, quantity, or efficiency of labor.
8. Ans: C. An unfavorable labor efficiency variance results from actual hours worked exceeding
standard hours. Answer (a) is incorrect because it describes an unfavorable rate variance.
Answer (b) is incorrect because the overall variance can still be favorable even if a single
variance is unfavorable. Answer (d) is incorrect because overtime labor usually leads to
unfavorable rate, not efficiency, variances due to the overtime premium paid.
9. Ans: B. A debit balance denotes an unfavorable labor efficiency situation in which actual
hours exceed standard hours. Answer (a) is incorrect because SH greater than AH would result
in a credit balance. Answer (c) is incorrect because it would result in a credit balance in both the
labor efficiency and the labor rate accounts. Answer (d) is incorrect because it would result in a
debit balance in both the labor efficiency and the labor rate accounts.
10. Ans: D. The labor efficiency variance is the difference between actual and standard hours
required to perform a function times the standard labor rate. Cost-of-living adjustments affect
the labor rate variance, not the labor efficiency variance. Answer (a), (b), and (c) are incorrect
because each is a likely cause of the variance. Substandard materials probably take longer to
process than standard materials; reducing the work force by half may introduce inefficiencies
caused by lack of specialization; and new personnel will require more time to complete a
function than those with experience.
11. Ans: A. When the number of direct labor hours are reduced, without changing the standard
number of hours, a favorable labor usage variance results because actual hours will be less
than standard hours. Answer (b) is incorrect because it would result from the direct labor hours
increasing, with the standards held constant. Answers (c) and (d) are incorrect because they
concern labor rate, not labor efficiency variances. COST ACCOUNTING ANSWER KEY Page
58
12. Ans: A. More experienced people may perform more efficiently, but they usually cost more
to use. Answer (b) is incorrect because unskilled workers may result in an unfavorable labor
efficiency variance. Also, the labor rate variance would be favorable since they are paid less.
Answer (c) is incorrect because untrained labor who are paid at unbudgeted amounts may
result in both an unfavorable labor efficiency variance and an unfavorable labor rate variance.
Answer (d) is incorrect because defective materials usually cause an unfavorable materials
efficiency variance.
13. Ans: A. The actual labor cost is found by multiplying the actual labor rate times the actual
labor hours. The standard cost for good output is found by multiplying the standard rate times
the standard hours. The total labor rate variance is the difference between the actual labor costs
and the standard labor cost. Answer (b) is incorrect because the labor rate variance is AH (AR -
SR). Answer (c) is incorrect because the labor usage variance is SR (AH - SH). Answer (d) is
incorrect because the labor efficiency variance is the same as the labor usage variance.
14. Ans: C. An unfavorable volume variance results when actual production is less than the
expected production level. Fixed overhead is applied at the predetermined rate but, since
production is less than estimated, less overhead is charged to production than anticipated,
leaving some overhead unallocated. This can be viewed as the cost of idle capacity. Answers
(a) and (b) are incorrect because no direct correlation exists between the labor variances and
the overhead volume variance.
15. Ans: D. The volume variance arises from over- or under-application of budgeted fixed O/H.
A predetermined (budgeted) activity level is normally used to calculate the fixed O/H rate per
unit. A volume variance occurs when there is a difference between this budgeted capacity and
standard hours allowed for good output. Answers (a) and (b) are incorrect because the total O/H
application rate and total expenses contain both variable and fixed rates. Volume variance only
contains fixed O/H. Answer (c) is incorrect because the volume variance is only applicable to
fixed, not variable, O/H.
16. Ans: D. When the budgeted capacity is greater than actual production, an unfavorable fixed
O/H volume variance results. A predetermined (planned) activity level is used to calculate the
fixed O/H rate. An unfavorable volume variance occurs when actual activity (here, DLH since
that is the basis for O/H application) is less than budgeted. Unfavorable means some budgeted
fixed O/H has not been applied. Answer (a) is incorrect because an unfavorable labor rate
variance means the actual labor rate exceeds standard. Answer (b) is incorrect because a
favorable overhead volume variance means actual production levels exceed budgeted
production levels. Answer (c) is incorrect because an unfavorable labor efficiency variance
means actual hours worked exceed standard hours allowed for good output.
17. Ans: B. In three-way analysis, the spending variance is the difference between actual total
overhead and the sum of budgeted fixed costs and the variatjle overhead based on the actual
input at the standard rate. It combines the variable overhead spending and the fixed overhead
budget variances used in four-way analysis. Answer (a) is incorrect because the efficiency
variance in three- or four-way analysis is the difference between variable overhead at the
standard rate for actual input and at the standard rate for standard input. Answers (c) and (d)
are incorrect because the production volume (idle capacity) variance is the difference between
budgeted lump-sum fixed overhead and fixed overhead applied based on the predetermined
rate and the standard input allowed for the actual output.
18. Ans: A. Overhead spending variance is the difference between actual O/H incurred and the
budgeted O/H at actual hours. In essence, this is the overhead "rate" variance. Answer (b) is
incorrect because actual O/H rather than standard O/H should be used. Answer (c) is incorrect
because actual rather than standard hours should be used. Answer (d) is incorrect because
actual cost and hours should be used rather than standard cost and hours.
19. Ans: A. Variable overhead includes numerous items, and an overall rate is required. The
spending variance is made up of many price and quantity differences, some favorable, some
unfavorable. The spending variance is the difference between actual factory overhead incurred
and budgeted factory overhead based on actual hours worked. Answers (b) and (c) are
incorrect because the spending variance is concerned with both price and quantity differences.
Answer (d) is incorrect because a change in production volume will not affect the spending
variance, although it would affect the efficiency variance.
Computations:

1.

2.
3.

4.
5.

6.
7.

8.
9.

10.

11. C
12.

13.
14.
15.
16.

17.

18.

19.
(2)
MULTIPLE CHOICE
1. D
2. B. Three quarters of the materials are added at the start of the process and the remaining
quarter added when the process is 50% complete.
3. C
4. A
5. B
6. D
7. B
8. B
9. A

COMPUTATIONS
1. ANS: B

Wreaths completed from BWIP 500

Wreaths started and completed 4400
4900

2. ANS: D

Units
Transferre
Cost per
d Out
Eq. Unit
Total
4,900 1.70 $8,330

3. ANS: C

The transferred-in cost component is the 8,000 units that were transferred in.

4. ANS: A

Materials: Decorating: Units % Eqiv.

FIFO Comple Units
te
1
20
Beginning Work in Process 600 20%

7,700
+ Units Started and 7,700 100%
Completed

150
+ Ending Work in Process 300 50%

7,970
Equivalent Units of
Production
5. ANS: B

Conversion: Units % Equiv

Decorating: FIFO Comple .
te
Units

60
Beginning Work in 600 10%
Process

7,700
+ Units Started and 7,700 100%
Completed

225
+ Ending Work in Process 300 75%

Equivalent Units of
Production 7,985

6. ANS: A
When FIFO is used, consider only current costs.

Current Equiv Cost/

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

7. ANS: C
When FIFO is used, consider only current costs.

Current Equiv Cost/

Costs
Units Equiv
Unit
$95,820 7,985 $12.00
8. ANS: C

Costs to Complete Percent to Cost

per
Beg Inv Unit Complete Total
Unit
s
Materials 600 20% $8 $960
Conversion 600 10% $15 $900
Total Costs to $1,860
Complete

9. ANS: A

Units started this period 32,000

Less: Ending Work in Process 2,500
Units started and completed this period 29,500

10. ANS: A

Materials are added at the beginning of the process. 32,000 units were started in the
current period; therefore there are 32,000 equivalent units for materials.

11. ANS: B

Equivalent Units
Beginning Inventory (7,000 * 60%) 4,200
Started and Completed (29,500) 29,500
Ending Inventory (2,500 * 25%) 625
34,325 equivalent units

12. ANS: D
Equivalent Units
Beginning Inventory (7,000 7,
units) 000
Started this Period (32,000) 32,
000
39, equivalent
000 units

13. ANS: B

Equivalent Units
Beginning Inventory (7,000 * 100%) 7,000
Started and Completed (29,500) 29,500
Ending Inventory (2,500 * 25%) 625
37,125 equivalent units

14. ANS: C

Beginning Work in Process 10,000

Units Started 120,000
Total Units 130,000

15. ANS: D

BWIP: Materials $ 24,500

BWIP: Conversion 68,905
Current Period: Materials 75,600
Current Period: 130,053
Conversion
Total Costs $299,058

16. ANS: A

Units started this period 120,000

Less: Ending Work in Process 8,200
Units started and completed this period 111,800

17. ANS: D
Equivalent Units
Beginning Inventory (10,000 * 10,0
100%) 00
Started and Completed (111,800) 111,8
00
Ending Inventory (8,200 * 25%) 8,2
00
130,0 equivalent
00 units

18. ANS: B

Equivalent Units
Beginning Inventory (Ignored for 0
FIFO)
Started and Completed (111,800) 111,8
00
Ending Inventory (8,200 * 25%) 8,2
00
120,0 equivalent
00 units

19. ANS: C

Beginning Work in Process 10,0 45% 4,5

00 00
+ Completion of Units in 10,0 55% 5,5
Process 00 00
+ Units Started and 111,8 100% 111,8
Completed 00 00
+ Ending Work in Process 8,2 80% 6,5
00 60
Equivalent Units of 128,36
Production 0

20. ANS: C

Beginning Work in Process 10,0 0%

(ignored) 00 -
+ Completion of Units in 10,0 55% 5,5
Process 00 00
+ Units Started and Completed 111,8 100% 111,8
00 00
+ Ending Work in Process 8,2 80% 6,5
00 60
Equivalent Units of 123,86
Production 0

21. ANS: C

Material Costs:
Beginning $ 24,500
Current Period 75,600
100,100 ÷ 130,000 $ 0.77
=
units per unit

22. ANS: B

Conversion Costs:
Beginning $ 68,905
Current Period 130,053
198,958 ÷ 128,360 $
= 1.55
units per unit
23. ANS: D

Units Completed Costs per Equivalent Total

Unit
121,800 (1.55 + .77) = $2.32 $282,576

24. ANS: A

Conversion Costs:
Beginning (Ignored)
Current Period 130,053
130,053 ÷ 123,860 $
= 1.05
units per unit

25. ANS: C

Units Completed Costs per Equivalent Total

Unit
121,800 (1.05 + .63) = $1.68 $204,624
(3)
MULTIPLE CHOICE
1. B
2. C
3. B
4. C
5. C
6. A
7. A
8. D
9. C
10. D

COMPUTATIONS
1. ANS: B
Weighted Average Material A Material B
Beginning Work in Process 700 700
Units Started and Completed 1500 1500
Ending Work in Process 500 250
EUP Materials 2700 2450

2. ANS: C
FIFO Material A Material B
Beginning Work in Process 0 490
Units Started and Completed 1500 1500
Ending Work in Process 500 250
EUP Materials 2000 2240

3. ANS: A

Weighted Average
Beginning Work in Process 700
Units Started and Completed 1500
Ending Work in Process 400
2600

4. ANS: B

FIFO
Beginning Work in Process (700 * 40%) 280
Units Started and Completed 1500
Ending Work in Process (500 * 400
80%)
2180

5. ANS: A
Weighted Average: Material
A
 Beginning $
14,270
Current Period 40,0
00
54,2 ÷ 2,700 = $
70 20.10
units per unit

6. ANS: C

Material A Equivalent Average

Costs Units Cost per
EUP
(Current
Period)
$40,000 2,000 $20.00

7. ANS: B
Material B Costs Equivalent Average
Units Cost per
(Current Period)
EUP
$70,000 2,240 $31.25

8. ANS: D
Material B Costs Equivalent Average
Units Cost per
(Beginning
EUP
Inventory and
Current Period)
$75,950 2,450 $31.00

9. ANS: B
Conversion Equivalent Average
Costs Units Cost per
EUP
(Current Period)
$98,100 2,180 $45.00

10. ANS: A

Conversion Equivalent Average

Costs Cost per
(Beginning WIP Units EUP
and Current
Period)
$98,100 + 2,600 $39.90
$5,640

11. ANS: C

Materials: Weighted Average Units % Complete Eq. Units

Beginning Work in Process 14,5 100% 14,
00 500
+ Units Started and Completed 51,5 100% 51,
00 500
+ Ending Work in Process 16,0 100% 16,
00 000
+ Abnormal Spoilage 2,5 100% 2,
00 500
Equivalent Units of 84,5
Production 00

12. ANS: B

Conversion: Weighted Units % Complete Eq Units

Average
Beginning Work in Process 14,5 100% 14,
00 500
+ Units Started and Completed 51,5 100% 51,
00 500
+ Ending Work in Process 16,0 60% 9,
00 600
+ Abnormal Spoilage 2,5 100% 2,
00 500
Equivalent Units of 78,1
Production 00

13. ANS: A
Weighted Average: Materials
Beginning $
 25,100
Current Period 120,0
00
145,1 ÷ 84,500 = $
00 1.72
units per unit

14. ANS: C
Weighted Average:
Conversion
Beginning $
50,000
Current Period 300,0
00
350,0 ÷ 78,100 = $
00 4.48
units per unit

15. ANS: D
No costs are assigned to normal, continuous spoilage. Higher costs are assigned to
good units produced.

16. ANS: D

Equivalen Cost per Total

t Units Equivalent
Unit
16,000 $1.75 $28,000
9,600 $4.55 $43,680
$71,680

17. ANS: D

Materials: FIFO
Beginning Work in Process 0%
- -
+ Units Started and Completed 51,5 100% 51,
 00 500
+ Ending Work in Process 16,0 100% 16,
00 000
+ Abnormal Spoilage 2,5 100% 2,
00 500
Equivalent Units of 70,0
Production 00

18. ANS: B
Conversion: FIFO
Beginning Work in Process 14,5 25% 3,
00 625
+ Units Started and Completed 51,5 100% 51,
00 500
+ Ending Work in Process 16,0 60% 9,
00 600
+ Abnormal Spoilage 2,5 100% 2,
00 500
Equivalent Units of 67,2
Production 25

19. ANS: C
FIFO: Materials

Current Period $
120,000
120,0 ÷ 70,000 = $
00 1.71
units per unit

20. ANS: A

FIFO: Conversion

Current Period $
300,000
 300,0 ÷ 67,225 = $
00 4.46
units per unit

21. ANS: A
Transferred Out Units: FIFO Equi Cost per Total
v
Equiv
Unit Unit
s
Beginning Work in Process 75,1
00
+ Completion of Beginning (14,500 * 3,62 4.75 17,2
Inventory 25%) 5 19
+Units Started and Completed 51,50 6.25 321,8
0 75
Equivalent Units of Production 414,19
4
(4)
MULTIPLE CHOICE
1. A
2. B
3. A
4. D
5. C
6. B
7. B
8. D
9. D
10. A

COMPUTATIONS
1. ANS: A

Materials: FIFO
Beginning Work in Process 0%
- -
+ Units Started and Completed 77,0 100% 77,
00 000
+ Normal Spoilage--Discrete 3,5 100% 3,
 00 500
+ Abnormal Spoilage 5,0 100% 5,
00 000
+ Ending Work in Process 14,5 100% 14,
00 500
Equivalent Units of 100,0
Production 00

2. ANS: D

Conversion: FIFO
Beginning Work in Process 20,0 65% 13,
00 000
+ Units Started and Completed 77,0 100% 77,
00 000
+Normal Spoilage--Discrete 3,5 75% 2,
00 625
+ Abnormal Spoilage 5,0 75% 3,
00 750
+ Ending Work in Process 14,5 70% 10,
00 150
Equivalent Units of 106,5
Production 25

3. ANS: C

Abnormal spoilage is a period cost.

Materials 5,000 * $5,000

$1.00/unit
Conversion Costs 3,750 * 5,625
$1.50/unit
Total Abnormal Spoilage $10,625

4. ANS: B
Transferred Out Units: FIFO
Beginning Work in Process 25,
000
+ Completion of Beginning (20,000 * 13,0 1.50 19,
Inventory 65%) 00 500
+ Units Started and Completed 77,0 2.50 192,
00 500
+Normal Spoilage--Discrete- 3,5 1.00 3,
Materials 00 500
+Normal Spoilage--Discrete- 2,6 1.50 3,
Conversion 25 938
Equivalent Units of Production 244,4
38

5. ANS: C

Materials: Weighted
Average
Beginning Work in Process 20, 100% 20,
000 000
+ Units Started and 77, 100% 77,
Completed 000 000
+ Normal Spoilage--Discrete 3, 100% 3,
500 500
+ Abnormal Spoilage 5, 100% 5,
000 000
+ Ending Work in Process 14, 100% 14,
500 500
Equivalent Units of 120,0
Production 00

6. ANS: A

Conversion: Weighted
Average
Beginning Work in Process 20,000 100% 20,
000
+ Units Started and 77,000 100% 77,
Completed 000
+Normal Spoilage--Discrete 3,500 75% 2,
625
+ Abnormal Spoilage 5,000 75% 3,
750
+ Ending Work in Process 14,500 70% 10,
150
Equivalent Units of 113,5
Production 25

7. ANS: B

Equivale Cost per Total

nt Units
Equivalent
Unit
3,500 $1.00 $3,500.
00
2,625 $1.50 3,937.5
0
$7,437.
50
This amount is transferred out.

8. ANS: A

Ending Inventory: Weighted

Average
Materials 14,50 $1.0 $ 14,500.00
0 0
Conversion (14,500 * 70%) 10,15 1.5 15,225.00
0 0
Total $ 29,725.00

9. ANS: A
Materials: FIFO
Beginning Work in Process - 0%
-
65
,000
+ Units Started and Completed 100% 65,000
13
,000
+ Ending Work in Process 100% 13,000
1
,100
+ Normal Spoilage (discrete) 100% 1,100

900
+ Abnormal Spoilage 100% 900
Equivalent Units of Production 80,000

10. ANS: D

Conversion: FIFO %
Compl
Units EUP
ete
7
,500
Beginning Work in Process 60% 4,500
65
,000
+ Units Started and Completed 100% 65,000
13
,000
+ Ending Work in Process 70% 9,100
1
,100
+ Normal Spoilage (discrete) 100% 1,100

900
+ Abnormal Spoilage 100% 90
0
Equivalent Units of Production 80,60
0

11. ANS: B
Materials: Weighted Average Units % EUP
 Compl
ete

7,500
Beginning Work in Process 7,500 100%
65
,000
+ Units Started and Completed 100% 65,000
13
,000
+ Ending Work in Process 100% 13,000
1
,100
+ Normal Spoilage (discrete) 100% 1,100

900
+ Abnormal Spoilage 100% 900
Equivalent Units of Production 87,500

12. ANS: A

Conversion: FIFO %
Compl
Units EUP
ete
7
,500
Beginning Work in Process 100% 7,500
65
,000
+ Units Started and Completed 100% 65,000
13
,000
+ Ending Work in Process 70% 9,100
1
,100
+ Normal Spoilage (discrete) 100% 1,100

900
+ Abnormal Spoilage 100% 90
0
Equivalent Units of Production 83,60
0
13. ANS: C

FIFO:
Materials

Current $ 120,000
Period
120,000 ÷ 80,000 $ 1.50
=
units per unit

14. ANS: C
FIFO:
Conversion

Current $
Period 350,000
350,0 ÷ 80,600 $
00 = 4.34
units per
unit

15. ANS: A
Weighted Average:
Materials
Beginning $
10,400
Current 120,0
Period 00
130,4 ÷ 87,500 $
00 = 1.49
units per unit

16. ANS: D

Weighted Average:
Conversion
 Beginning $
13,800
Current 350,0
Period 00
363,8 ÷ 83,600 $
00 = 4.35
units per
unit

17. ANS: B

Ending Inventory: FIFO

Materials 13,00 $ 1.50 $

0 19,500.00

9,
100
Conversion (13,000 * 4.34 39,494.0
70%) 0
Total $ 58,994.00

18. ANS: C

Abnormal Price per

Equivalent
Spoiled Units
Unit
Total
900 $5.84 $5,256

19. ANS: D

Normal Price per

Equivale
Spoiled
nt Unit
Units
Total
1,100 $5.84 $6,424
 Transferre
d Out

20. ANS: B

Price per
Equivalent
Goods
Unit
Transferred
Total
Out
73,600 $5.84 $429,82
4
(5)
1. A cost that changes with the number of units produced, but that can never be zero, is what
kind of cost?
Answer: Mixed cost
If the cost can never be zero, it has a fixed component. However, since it changes with the
number of units produced, it also has a variable component. This is a mixed cost. Product and
period costs refer to cost classifications rather than cost behaviors.

2. Manufacturing overhead is allocated as what kind of cost?

Answer: Product cost
While the behavior of manufacturing overhead is probably a mixture of fixed and variable costs,
it is allocated to the product produced rather than the accounting period, making it a product
cost.

3. A cost that changes with the number of units produced and is zero when no units are
produced is what kind of cost?
Answer: Variable cost
Variable costs start at zero when no units are produced and change with the number of units
produced.

4. A cost that remains unchanged across the relevant range of units produced is what kind of
cost?
Answer: Fixed cost
A cost that remains the same (or, in practice, very nearly the same) across a range of units of
product produced (the relevant range) is said to be a fixed cost. This is often the case for
insurance premiums, executive compensation, and similar costs.

5. The costing system that tracks costs to a department or work group and assigns the cost to
products produced by that department or work group is which kind of costing system?
Answer: Process costing system
Most costing systems today are activity based in that they attempt to assign costs to activities
more precisely, rather than simply allocating them across product lines. However, when the
system attempts to track costs to a specific department or work group and then assign it to their
products, it is a process costing system.
6. A costing system that tracks costs to a specific lot of a product is which kind of costing
system?
Answer: Job order costing system
A job order costing system tracks costs for each lot of the product by using "job order"
production tickets where all direct inputs are measured for that lot. Indirect costs, unfortunately,
still have to be allocated by whatever means makes the most sense to management.

7. The costing system that initially assigns all costs to Cost of Goods Sold and then removes
them to the appropriate inventory values is which kind of costing system?
Answer: Backflush costing system
Proponents of backflush costing claim that it leaves a more accurate Cost of Goods Sold for the
income statement, but it always seemed to me that it was just a good way to be lazy at the first
of the month and then work like mad at the end of the month. However, backflush costing can
be very handy where ongoing inventory tracking is particularly difficult, such as with liquids, or
where the same materials might go into several products that are made to order, such as certain
oilfield chemicals.

8. In an Activity Based Costing (ABC) system, plant insurance is most likely to be which level of
cost?
Answer: Facility-level cost
In ABC, a unit-level cost can be traced to a specific unit of the product. Batch-level costs can be
traced to a lot of the product, and product-level costs can be traced to an individual product
(ketchup or barbecue sauce, for example). Costs that apply to the plant, such as insurance and
administration, can't be traced to any one product and so must be allocated to all products in
some fashion. These are the facility-level costs.

9. A company makes one product, which has variable manufacturing costs of $3.25 per unit and
variable selling and administrative costs of $1.17 per unit. Fixed manufacturing costs are
$42,300 per month, and fixed selling and administrative costs are $29,900 per month. The
company wants to earn an average monthly profit if $15,000, and they expect to produce and
sell an average of 40,000 units of the product per month. What is the minimum selling price
management can be expected to set to meet their profitability goals?
Answer: $6.60
To meet profitability goals, management must set a price that can be reasonably expected to
cover all fixed costs, all variable costs, and the desired profit. To get that price, add up all the
fixed costs and the desired profit, divide by the number of units to be produced and sold, and
then add the variable costs per unit. This is a variation on break-even calculations, adding only
the desired profit element, which is treated as a fixed cost.
10. A company has the following cost data for the month:
Beginning Raw Materials Inventory: $12,500
Raw Materials Purchases: $47,000
Ending Raw Materials Inventory: $8,200
Beginning Work in Process Inventory: $4,700
Ending Work in Process Inventory: $2,800
Beginning Finished Goods Inventory: $27,600
Ending Finished Goods Inventory: $29,200
Direct Labor Costs: $64,400
Manufacturing Overhead Costs: $14,500
What is the Cost of Goods Sold for the month?

Answer: $130,500
Adding the Raw Materials Purchases to the Beginning Raw Materials Inventory, then
subtracting the Ending Raw Materials Inventory, gives the Raw Materials Put Into Production.
Add that, the Direct Labor Costs, and the Manufacturing Overhead Costs to the Beginning Work
in Process Inventory, then subtract the Ending Work in Process Inventory, and that gives the
Cost of Goods Manufactured. Add Cost of Goods Manufactured to the Beginning Finished
Goods Inventory, subtract the Ending Finished Goods Inventory, and you have the Cost of
Goods Sold.
11. C
12. B
13. A
14. B
15. B
16. A
17. C
18. B
19. D
20. E
21. D
22. C
23. A
24. B

25. D. Homogenous products, such as computers, automobiles, shoes, paint, candy, canned
foods, and television sets, are manufactured in a process production system.

26. D. Process cost accounting is used primarily with the production of a single product or line of
products made in a continuous, repetitive process.

27. A. Job order cost accounting involves assigning costs by job or job lot. Process cost
accounting involves assigning costs to production processes or production departments.

28. D. The materials consumption report replaces the materials requisitions that are used in a
job order accounting system; and it provides a summary of all materials issued to production.

29. B. The number of units transferred out is equal to the beginning units in process, plus the
number of units started, less the ending units in process (6,000 + 30,000 - 8,000), or 28,000
units.

30. D. The beginning units plus the units started are equal to the units transferred out plus the
ending units (beginning units + units started = units transferred out + ending units). 3,000 + x =
15,000 + 500. Units started (x) = 15,000 + 500 - 3,000 = 12,500.

31. A. It is assumed that the beginning units in process will be completed before any new units
are completed; and that new units started will be completed before any additional new units.

32. A. The cost per unit of the beginning units in process is $4 ($20,000/5,000). The cost per
unit of the units started and completed is $4 (($63,000 + $57,000)/30,000).

33. D. The per unit cost is $23 [($8 + $6 + (1.5 x $6) = $23]. Five thousand units at $23 per unit
is $115,000 (5,000 x $23).

34. B. The per unit cost to complete is: direct material, 0$; direct labour, 5,000 x .70 x $6 =
$21,000; and overhead, 5,000 x .70 x $9 = $31,500. The total current period costs assigned to
the beginning inventory: $21,000 + $31,500 = $52,500.

35. A. The equivalent units are: beginning units x percentage to complete + units started and
completed + ending units x percentage completed. (3,000 x .6) + (15,000 - 500) + (500 x .6) =
16,600.

36. D. The totals should be identical, if all the costs are accurately reported and recorded, and
the equivalent unit computation is correct.

37. C. It is the section of the process cost summary where the equivalent units of production are
calculated in order to determine the unit process cost for each production cost.