ACCTG 1103 PRACTICE SET

Modified True or False

1. Factory Rent is included in the manufacturing overhead, but rent for the office is a period cost.
2. The main difference between merchandising and manufacturing companies is that merchandisers buy goods ready for sale
while manufacturers produce goods from material and labor.
3. A factory supervisor's salary would be classified as a direct cost of a unit of product.
4. The financial statements for manufacturing business are less complex than those of service and merchandising businesses.
5. The salary paid to a factory foreman is classified as a factory overhead.
6. A manufacturing business, like a sari-sari store, buys and sells goods or commodities.
7. Indirect materials or Factory supplies are classified as administrative expenses.
8. For manufacturing companies, goods are sold in the same form when they are bought.
9. Like Product costs, period costs are not necessarily treated as expenses in the period in which they are incurred.
10. For manufacturing companies, merchandise purchased is ready for sale.
11. The three cost elements of a manufactured good are direct materials, direct labor and marketing costs.
12. A manufacturing business must process or create the goods which it offers for sale.
13. Period Costs are found in both merchandising and manufacturing firms.
14. There are two types of inventories in a manufacturing business, raw materials and finished goods.
15. Product cost consists of the sum of prime cost and conversion cost.
16. Raw materials inventory are those goods that a company acquires at the start of production to be used in making products.
17. Lumber can be both a finished product and a raw material.
18. Direct materials are those that physically become part of a product.
19. Marketing, Selling and Administrative Costs are the three broad classifications of costs incurred by a manufacturing company.
20. Indirect materials are those items used to support the production process, and are very clearly identified with a specific unit or
batches of product.
21. The materials, labor, and overhead costs incurred to produce a product are called manufacturing cost.
22. Goods in process inventory consist of products that are not yet complete.
23. Finished goods inventory are those items that are ready for sale to customers.
24. The income statement of a manufacturing company is shorter than that of a merchandising business.
25. The term " cost of goods manufactured" can be seen in the balance sheet of manufacturing and merchandising firms only, and
not of service businesses.
26. Direct materials are the intangible components of a finished product.
27. Direct labor refers to the salaries of workers who physically convert the raw materials to finished products.
28. The salary of assembly workers who makes the actual laptop is considered to be a direct labor cost.
29. Indirect labor cost includes the salary of those who help the direct laborers.
30. Indirect material is a factory overhead cost, but not indirect labor.
31. Factory overhead costs are the expenditures that can be readily traced to finished goods.
32. Overtime paid to direct laborers is considered to be direct labor cost.
33. The salary of supervisor is a direct labor cost.
34. The production manager's salary is an indirect labor cost.
35. Factory insurance is an operating expense, and not a factory overhead.
36. Factory overhead also includes selling and administrative expenses because they are also incurred in manufacturing the
products.
37. Selling expense is considered to be a period cost.
38. Administrative expenses are considered to be product costs.
39. The sum of direct materials and direct labor is called prime cost.
 40. The difference of direct labor and factory overhead is called conversion cost.

Multiple Choice

1. Which Of the following is an element of prime cost?

DM DL
a. Yes Yes
b. Yes No
c. No Yes
d. No No
2. Prime Costs and Conversion cost share what common element of total cost?
a. Variable Overhead
b. Fixes Overhear
c. Direct Materials
d. Direct Labor

3. Indirect Labor is a
a. Prime Cost
b. Conversion Cost
c. Period Costs
d. Direct Costs

4. Direct Labor Cost is a

Conversion Cost Prime Cost
a. No No
b. No Yes
c. Yes Yes
d. Yes No

5. Direct Material Cost is a

Conversion Cost Prime Cost
a. No No
b. No Yes
c. Yes Yes
d. Yes No
6. Cost of Goods sold is
a. An expense
b. A period cost
c. Is an asset
d. None of the above
7. For a manufacturing company, the cost of goods available for sale during the given accounting period is
a. the beginning inventory of finished goods
b. the cost of goods manufactured during the period
c. the sum of the above
d. none of the above
8. Product costs are deducted from revenue
a. as expenditures are made.
b. when production is completed.
c. as goods are sold.
d. to minimize taxable income.

9. A selling cost is a(n)

Product Cost Period Cost Inventoriable Cost
a. Yes Yes No
b. Yes No No
c. No Yes No
d. No Yes Yes

10. Which of the following is not a product cost component?

a. rent on a factory building
b. indirect production labor wages
c. janitorial supplies used in a factory
d. commission on the sale of a product
11. Cost of Goods Sold is an
a. unexpired product cost.
b. expired product cost.
c. unexpired period cost.
d. expired period cost.

12. Conversion of inputs to outputs is recorded in the

a. Work in Process Inventory account.
b. Finished Goods Inventory account.
c. Raw Material Inventory account.
d. both a and b.

13. The distinction between direct and indirect costs depends on whether a cost
a. is controllable or non-controllable.
b. is variable or fixed.
c. can be conveniently and physically traced to a cost object under consideration.
d. will increase with changes in levels of activity.

14. HXH is a construction company that builds houses on special request. What is the proper classification of the carpenters’
wages?
Product Cost Period Cost Inventoriable Cost
a. Yes Yes No
b. Yes No Yes
c. No No No
d. No Yes Yes
 15. The formula to compute cost of goods manufactured is
a. beginning Work in Process Inventory plus purchases of raw material minus ending Work in Process Inventory.
b. beginning Work in Process Inventory plus direct labor plus direct material used plus overhead incurred minus ending
Work in Process Inventory.
c. direct material used plus direct labor plus overhead incurred.
d. direct material used plus direct labor plus overhead incurred plus beginning Work in Process Inventory.

16. The final figure in the Schedule of Cost of Goods Manufactured represents the
a. cost of goods sold for the period.
b. total cost of manufacturing for the period.
c. total cost of goods started and completed this period.
d. total cost of goods completed for the period.
17. The formula for cost of goods sold for a manufacturer is
a. beginning Finished Goods Inventory plus Cost of Goods Manufactured minus ending Finished Goods Inventory.
b. beginning Work in Process Inventory plus Cost of Goods Manufactured minus ending Work in Process Inventory.
c. direct material plus direct labor plus applied overhead.
d. direct material plus direct labor plus overhead incurred plus beginning Work in Process Inventory.

18. Which of the following would need to be allocated to a cost object?

a. direct material
b. direct labor
c. Cost of woods used in furniture making.
d. Factory Utility
19. A cost that remains constant in total but varies on a per-unit basis with changes in activity is called a(n)
a. expired cost.
b. fixed cost.
c. variable cost.
d. mixed cost.
20. The following statement that best describes a variable cost is:
a. it may change in total when such change depends on production within the relevant range
b. it increases on a per unit basis as production increases
c. it decreases on a per-unit basis as production increases
d. it may change in total when such change is related to changes in production
e. it is constant per unit of production

PROBLEM SOLVING

Problem A. Supply the missing amounts.

The following information pertains to Bench Manufacturing Company:

Direct materials 100,000

Indirect Materials 20,000
Direct Labor 120,000
Indirect Labor 18,000
Factory Overhead (excluding indirect materials and indirect labor)
50,000
 1. What is the total of the Prime Costs?
2. What is the total of the Conversion Costs?
3. What is the total of the Product Cost?

Problem B.

The following is the list of costs incurred last month of Bamba Co.

Product Advertising 40,000

Fire Insurance Premium for Factory 10,000
Electricity, Sales Offices 4,000
Lubricating Oil for Sewing Machines 8,000
Foam Cushions used in Production 64,000
Assembly Line Worker's wages 92,000

Rent of Factory Building 20,000

Freight-out 6,000

Salary of Company President 50,000

Property Taxes of Company Headquarters 6,000

1. What amount of these costs would be considered manufacturing overhead?

2. What amount of these costs would be considered period costs?
3. What amount of these costs would be considered product costs?

Problem C.

Laker Co. presented the following data for June 2022:

Inventories June 1 June 30

Finished Goods 90,000 48,000
Work in Progress 51,600 36,000
Raw Materials 44,000 50,000

Direct Labor 160,000

Material Purchases 200,000
Factory Overhead applied at 150% of direct labor costs

Questions

a. How much is the Total Raw Materials Available for Production?

b. How much is the Total Raw Materials Used?
c. How much is the Prime Cost?
d. How much is the Factory Overhead?
e. How much is the Conversion Cost?
f. How much is the Total Manufacturing Cost?
g. How much is the Total Goods Put into Process?
h. How much is the Cost of Goods Manufactured?
i. How much is the Cost of Goods Available for Sale?
j. How much is the Cost of Goods Sold?