COST ACCOUNTING REVIEWER C) To calculate the selling price of the product

D) To determine the market demand for the

1. Why do companies assign costs to their products product
and services?
A) To track expenses for internal use only 8. What is a bill of materials?
B) To fulfill their planning, controlling, and A) A list of the machines used to produce a
decision-making responsibilities product
C) To determine product quality B) A document that lists the quantity of each
D) To minimize tax liabilities direct material needed to complete a unit of
product
2. Which of the following is a reason why costs are C) A report of labor costs for the production
assigned to products for external reporting process
purposes? D) A record of the amount of overhead costs
A) To estimate future profits assigned to a job
B) To determine the value of ending inventories
and cost of goods sold 9. What is typically the first step in the job-order
C) To calculate the tax liabilities for the company costing system after an agreement with a
D) To monitor employee performance customer?
A) Issuing a production order
3. What is the main characteristic of absorption B) Preparing the job cost sheet
costing? C) Issuing a materials requisition form
A) Only direct materials costs are assigned to D) Determining labor costs
products
B) Non-manufacturing costs are included in the 10. What happens to the cost of direct materials
product cost after they are issued in a job-order costing
C) Only fixed costs are assigned to products system?
D) Both fixed and variable manufacturing costs A) The cost is automatically recorded in the
are assigned to units of product general ledger
B) The cost is charged to the job cost sheet
4. What is the primary purpose of a job-order C) The cost is added to the fixed manufacturing
costing system? overhead
A) To calculate inventory turnover D) The cost is recorded separately in a separate
B) To assign manufacturing costs to individual jobs inventory account
C) To monitor the quality of products being
produced 11. What is direct labor in the context of job-order
D) To determine the selling price of each product costing?
A) Labor costs that are not directly traced to a
5. Which of the following is NOT one of the three specific job
broad categories of manufacturing costs? B) Labor costs that are easily traced to a specific
A) Direct materials job
B) Direct labor C) Labor costs that are part of manufacturing
C) Manufacturing overhead overhead
D) Sales expenses D) Labor costs that are used for administrative
purposes only
6. What does a materials requisition form specify in
the production process? 12. How do companies typically track employee
A) The cost of each unit produced labor costs for job-order costing?
B) The type and quantity of materials to be drawn A) Using employee expense reports
from the storeroom for a job B) By estimating labor costs based on job difficulty
C) The total labor hours spent on each job C) Using computerized time tickets that capture
D) The selling price of the product employee activities
D) By manually recording labor hours at the end
7. What is the purpose of a job cost sheet in job- of the shift
order costing?
A) To track employee performance on each job
B) To record the materials, labor, and
manufacturing overhead costs for a job
13. What does a time ticket in job-order costing
track? 19. How much overhead is applied to a Job if it
incurs 27 direct labor-hours and the
A) The total number of hours worked by all predetermined overhead rate is $20 per direct
employees labor-hour?
B) The activities and hours worked by an
individual employee on a specific job A) $20
C) The total labor cost for a given period B) $540
D) The total number of hours worked on machine C) $800
maintenance D) $1,080

14. Which of the following is NOT a type of labor 20. Why is the predetermined overhead rate
cost in job-order costing? computed before the period begins?
A) Direct labor A) To calculate actual overhead costs
B) Indirect labor B) To ensure that overhead is applied consistently
C) Manufacturing labor throughout the year
D) Supervisory labor C) To match actual manufacturing overhead with
actual direct labor costs
15. What is the purpose of computing a D) To determine product pricing at the beginning
predetermined overhead rate in absorption of the year
costing?
A) To calculate actual overhead costs for the 21. What is a key disadvantage of using an actual
period overhead rate rather than a predetermined
B) To determine the exact cost of direct labor overhead rate?
C) To allocate estimated manufacturing overhead A) Actual overhead rates provide more accurate
to jobs cost data.
D) To determine product selling prices B) Seasonal fluctuations in costs can cause
overhead rates to fluctuate.
16. What is an allocation base in the context of C) The overhead rate is determined more quickly
manufacturing overhead? with actual costing.
A) A fixed cost used to assign overhead to jobs D) Actual overhead rates eliminate the need for
B) A measure like direct labor-hours or machine- allocation bases.
hours used to assign overhead
C) The total overhead cost for a specific job 22. Why do many companies prefer to use a
D) A budgeted cost to cover the expected variable predetermined overhead rate instead of an
costs actual overhead rate
A) Predetermined overhead rates are more
17. How is the predetermined overhead rate accurate.
calculated? B) Actual overhead rates are more predictable
A) Total estimated direct labor cost divided by across all seasons.
direct labor-hours C) Predetermined rates help avoid cost
B) Total estimated manufacturing overhead cost fluctuations caused by seasonal factors.
divided by the estimated total amount of the D) Actual rates allow for a better estimate of
allocation base future costs.
C) Actual manufacturing overhead cost divided by
total labor costs 23. What is the primary reason why a job cost sheet
D) Total actual manufacturing overhead divided includes direct materials, direct labor, and
by the actual direct labor-hours manufacturing overhead?
A) To provide the total cost of the job for the
18. What is overhead application in job-order financial accounting system.
costing? B) To allocate the costs to future periods.
A) Estimating total manufacturing costs for the job C) To determine the total cost of the job and
B) Assigning actual overhead costs to a job establish unit product cost.
C) Assigning estimated overhead costs to jobs D) To calculate income tax liability for the job.
based on the predetermined overhead rate 24. How is unit product cost calculated once all costs
D) Calculating the selling price of a job are applied to a job cost sheet?
 A) Total cost of the job divided by the total department (e.g., machine hours or direct labor
number of units. hours).
B) Total direct material cost divided by the D) The total direct materials used across all
number of units. departments.
C) Total labor cost divided by the number of units. 31. What is the first step in computing a
D) Total manufacturing overhead cost divided by predetermined overhead rate for a department?
the total number of units. A) Calculate the total direct labor cost.
25. What could happen if a company uses inaccurate B) Estimate the total manufacturing overhead cost
overhead allocations in its job cost system? for the year.
A) The company will undercharge for its jobs, C) Divide the estimated overhead costs by actual
leading to increased profit. machine hours worked.
B) Managers may make flawed pricing and D) Use the predetermined overhead rate to assign
production decisions. overhead to jobs.
C) Job costs will always be accurate, regardless of 32. If a company estimates that its total fixed
the allocation base used. manufacturing overhead for the year is $640,000,
D) The company’s financial statements will always with a variable overhead of $4 per direct labor-
show accurate profits. hour and 40,000 direct labor-hours, what is the
26. True or False: A cost driver is a factor that estimated total manufacturing overhead cost?
directly impacts the manufacturing overhead A) $640,000
cost for a job. B) $1,000,000
A) True C) $800,000
B) False D) $1,280,000
27. Which of the following is an example of a cost 33. True or False: If a company uses a single
driver in job-order costing? predetermined overhead rate for the entire
A) Number of direct labor-hours worked. plant, this means they allocate all overhead costs
B) Total company revenue. based only on direct labor-hours, regardless of
C) Amount of direct materials used. how different departments consume overhead.
D) Number of units sold. A) True
28. What is the risk of using an allocation base that B) False
does not reflect how jobs consume overhead 34. In the case of Job 407 at Dickson Company, if the
resources? predetermined overhead rate in the Milling
A) It can result in overcharging or undercharging Department is $8.50 per machine-hour and the
jobs for their share of overhead costs. job uses 100 machine-hours, how much
B) It will always lead to accurate unit product overhead would be applied from the Milling
costs. Department to Job 407?
C) It will make overhead allocation easier for A) $850
managers. B) $1,700
D) It ensures uniformity in pricing across all jobs. C) $8,500
29. How does a multiple predetermined overhead D) $850,000
rate system improve cost accuracy?
A) It allocates all overhead costs using a single 35. What is the main difference between using
base. departmental overhead rates and activity-based
B) It allows the company to use a different rate for costing (ABC) in a job-order costing system?
each department based on specific cost drivers. A) Departmental overhead rates focus on
C) It eliminates the need for any overhead activities within departments, while ABC uses
allocations. broader company-wide rates.
D) It reduces the need for estimating total B) ABC uses more specific overhead rates based
overhead costs. on activities, whereas departmental overhead
30. In a job cost system using multiple rates allocate costs based on departments.
predetermined overhead rates, which factor C) Departmental overhead rates assign costs
typically determines the allocation base for each based on the number of employees, while ABC
department? assigns costs based on machine-hours.
A) The number of workers employed in the D) ABC only applies to service companies,
department. whereas departmental overhead rates are used
B) The type of job being produced in the for manufacturing companies.
department. 36. In an activity-based costing system, what is a
C) How overhead resources are consumed in the cost driver?
 A) A factor that causes an overhead cost to be A) To track selling and administrative costs for
incurred. each job.
B) A department responsible for allocating B) To accumulate direct materials, direct labor,
manufacturing overhead. and manufacturing overhead costs for a job.
C) A calculation used to estimate the total C) To estimate the total cost of a job before
manufacturing overhead. production begins.
D) A document that lists the direct materials for a D) To report monthly profit margins for each job.
job. 42. When a company uses activity-based costing,
37. What is the main benefit of using activity-based how are overhead costs allocated to jobs?
costing over traditional predetermined overhead A) Overhead is applied based on the total
rates? machine-hours used by a job.
A) Activity-based costing simplifies the costing B) Overhead is applied based on the total direct
process by reducing the number of overhead labor-hours used by a job.
rates. C) Overhead is applied based on specific activities
B) Activity-based costing provides a more accurate that drive overhead costs.
allocation of overhead by considering the D) Overhead is applied based on a single overhead
activities that consume resources. rate for the entire company.
C) Activity-based costing does not require 43. What is the term used to describe a collection of
estimation of overhead rates. job cost sheets that explains the amounts
D) Activity-based costing is only applicable to reported in Work-in-Process and Finished Goods
manufacturing companies, making it less complex. accounts?
38. In the context of job-order costing, what does A) General ledger.
"underapplied overhead" mean? B) Cost of Goods Manufactured report.
A) More overhead was applied to production than C) Subsidiary ledger.
was actually incurred. D) Activity-based costing ledger.
B) The actual overhead costs were the same as 44. What is an example of a cost driver in a job-order
the applied overhead. costing system?
C) Less overhead was applied to production than A) The number of employees working in a
was actually incurred. department.
D) Overhead costs were completely ignored B) The total square footage of the production
during job costing. facility.
39. Which of the following best describes how C) The number of machine-hours or direct labor-
underapplied or overapplied overhead affects a hours used.
company’s financial statements? D) The total number of jobs completed in a
A) Underapplied overhead decreases the cost of period.
goods sold and increases net operating income. 45. What happens when a company applies more
B) Overapplied overhead increases the cost of overhead to production than it actually incurs?
goods sold and decreases net operating income. A) It results in underapplied overhead.
C) Underapplied overhead increases the cost of B) It results in overapplied overhead.
goods sold and decreases net operating income. C) It has no impact on financial statements.
D) Overapplied overhead has no effect on D) It results in higher actual costs for the period.
financial statements. 46. In a job-order costing system, what is the
40. In a job-order costing system using multiple formula for calculating the unit product cost?
predetermined overhead rates, how is the A) Total direct materials cost divided by the
overhead applied to jobs? number of jobs.
A) By multiplying the total estimated overhead by B) Total manufacturing overhead divided by the
the actual amount of the allocation base for the number of units produced.
job. C) Total cost of the job divided by the number of
B) By multiplying the predetermined overhead units produced.
rate by the actual amount of the allocation base D) Total direct labor cost divided by the number of
incurred by each job. hours worked.
C) By dividing the actual overhead costs by the 47. In a service company like a law firm, how is job-
total number of jobs for the period. order costing typically applied?
D) By applying the same overhead rate for all A) Each client is treated as a job, with costs for
departments based on direct labor costs. materials, labor, and overhead recorded on a job
41. What is the purpose of a job cost sheet in job- cost sheet.
order costing? B) Each department is treated as a job, with costs
 allocated by department. 54. When materials are issued to production, how
C) Job costs are only tracked for finished services are direct materials and indirect materials
provided. recorded in the job-order costing system?
D) The total number of employees in the firm is a) Direct materials are debited to Finished Goods,
used to allocate job costs. and indirect materials are debited to Work in
48. True or False: Activity-based costing (ABC) is Process
more accurate than traditional job-order costing b) Direct materials are debited to Work in Process,
because it considers a wider variety of cost and indirect materials are debited to
drivers. Manufacturing Overhead
A) True c) Direct materials are debited to Manufacturing
B) False Overhead, and indirect materials are debited to
Work in Process
49. Which of the following is NOT included in d) Direct materials are debited to Work in Process,
absorption costing? and indirect materials are debited to Finished
a) Direct materials Goods
b) Direct labor 55. How are job costs transferred from Work in
c) Fixed manufacturing overhead Process to Finished Goods?
d) Selling and administrative expenses a) By recording the cost of goods manufactured as
50. Which of the following best defines "allocation a debit to Finished Goods
base" in a job-order costing system? b) By transferring the cost of all jobs completed
a) A cost associated with materials purchased during the period to Finished Goods
b) A measure of activity such as direct labor-hours c) By applying the predetermined overhead rate
or machine-hours to all jobs finished during the period
c) The cost of labor required for each job d) By reducing the balance in Work in Process and
d) The amount of overhead applied to jobs increasing the balance in Finished Goods
51. What is the formula used for overhead 56. What happens to the costs of jobs that are sold
application in job-order costing? in job-order costing?
a) Overhead applied = Predetermined overhead a) They are recorded as a period cost on the
rate × Actual manufacturing costs income statement
b) Overhead applied = Actual overhead rate × b) They are transferred from Finished Goods to
Allocated base Cost of Goods Sold
c) Overhead applied = Predetermined overhead c) They are transferred from Work in Process to
rate × Amount of the allocation base incurred by Finished Goods
the job d) They are treated as operating expenses on the
d) Overhead applied = Direct labor cost × balance sheet
Predetermined overhead rate
52. What is the purpose of a job cost sheet in job- 57. What is the primary purpose of time tickets in a
order costing? job-order costing system?
a) To accumulate only direct material costs for a a) To calculate the amount of overhead applied to
job jobs
b) To track the selling and administrative expenses b) To record the direct and indirect labor hours
for each job worked by employees
c) To record the direct materials, direct labor, and c) To summarize the total manufacturing costs for
manufacturing overhead costs charged to a job a job
d) To calculate the income statement for a job d) To track raw material purchases
53. Which inventory accounts are used in job-order 58. Which of the following is true about how direct
costing to accumulate product costs? labor costs are recorded in a job-order costing
a) Raw Materials, Work in Process, and Finished system?
Goods a) They are debited to Manufacturing Overhead
b) Raw Materials, Work in Process, and Period b) They are charged directly to Finished Goods
Costs inventory
c) Work in Process, Finished Goods, and Cost of c) They are added to Work in Process and
Goods Sold recorded on individual job cost sheets
d) Raw Materials, Selling Expenses, and Finished d) They are recorded as selling expenses
Goods 59. Which of the following is NOT a manufacturing
overhead cost based on the provided example?
 a) Utilities (heat, water, and power) 65. Which of the following costs is considered a
b) Rent on factory equipment nonmanufacturing cost?
c) Salaries of direct laborers A) Direct labor
d) Depreciation on factory equipment B) Depreciation on office equipment
C) Factory rent
60. How are manufacturing overhead costs applied D) Direct materials
to jobs in a job-order costing system? 66. Which journal entry would record the accrual of
a) Based on actual overhead incurred during the selling and administrative salary costs?
period A) Debit: Salaries Expense, Credit: Cash
b) By multiplying the predetermined overhead B) Debit: Salaries Expense, Credit: Salaries and
rate by the actual amount of the allocation base Wages Payable
c) By applying a fixed rate to all jobs regardless of C) Debit: Work in Process, Credit: Salaries and
actual activity Wages Payable
d) By adding the overhead costs to the cost of D) Debit: Depreciation Expense, Credit:
direct materials Accumulated Depreciation
61. What is the function of the Manufacturing 67. What is the correct treatment of depreciation on
Overhead account in a job-order costing system? office equipment?
a) To accumulate only actual direct labor costs A) It is debited to Manufacturing Overhead as a
b) To act as a clearing account for actual and product cost.
applied overhead costs B) It is debited to Depreciation Expense as a
c) To accumulate direct materials costs for each period expense.
job C) It is capitalized as an asset on the balance
d) To track the sale of finished goods sheet.
62. If the applied manufacturing overhead exceeds D) It is recorded as a liability on the income
the actual overhead incurred, what is the result statement.
in the Manufacturing Overhead account? 68. How is the cost of goods manufactured
a) A debit balance calculated?
b) A credit balance A) Raw materials used + Direct labor +
c) A zero balance Manufacturing overhead
d) An increase in work-in-process inventory B) Direct labor + Depreciation on office equipment
63. What would happen if the predetermined + Manufacturing overhead
overhead rate was over-applied by $5,000? C) Total manufacturing costs + Beginning work in
a) The company would reduce the work in process process inventory − Ending work in process
balance by $5,000 inventory
b) The company would adjust for the over-applied D) Beginning finished goods inventory + Cost of
overhead by transferring the excess to cost of goods manufactured − Ending finished goods
goods sold inventory
c) The company would add the over-applied 69. When a job is completed, the costs are
amount to manufacturing overhead transferred from Work in Process to:
d) The company would apply additional direct A) Cost of Goods Sold
labor costs to offset the over-applied overhead B) Finished Goods
64. What is the key distinction between actual C) Raw Materials Inventory
manufacturing overhead costs and applied D) Depreciation Expense
manufacturing overhead costs in a job-order 70. Which of the following best describes
costing system? nonmanufacturing costs?
a) Actual overhead costs are charged directly to A) These costs are treated as period expenses and
jobs, while applied overhead is recorded in the charged directly to the income statement.
Manufacturing Overhead account B) These costs are included in the cost of goods
b) Actual overhead costs appear on the job cost manufactured.
sheets, while applied overhead costs are recorded C) These costs are capitalized as inventory.
in the Work in Process account D) These costs are added to manufacturing
c) Only applied overhead is recorded in the overhead.
Manufacturing Overhead account and job cost 71. Which account is debited when the cost of goods
sheets sold is recorded?
d) Actual overhead costs do not affect the Work in A) Finished Goods
Process account B) Work in Process
 C) Cost of Goods Sold 79. What type of costing method is typically used in
D) Raw Materials industries such as paper towel production or
72. Which journal entry would record advertising breakfast cereal manufacturing?
expenses for the period? A) Job-order costing
B) Process costing
A) Debit: Advertising Expense, Credit: Accounts C) Activity-based costing
Payable D) Direct costing
B) Debit: Advertising Expense, Credit: Advertising 80. Which of the following is a characteristic of
Revenue process costing?
C) Debit: Sales Expense, Credit: Accounts Payable A) Costs are assigned to individual jobs.
D) Debit: Manufacturing Overhead, Credit: B) Each department has its own Work in Process
Advertising Expense account.
73. What does the schedule of cost of goods C) The products produced are unique and
manufactured summarize? customized.
A) The costs of goods completed and transferred D) Materials are added at the end of the
from Work in Process to Finished Goods production process.
B) The total revenue from sales of finished goods 81. In process costing, how are partially completed
C) The depreciation on manufacturing equipment units handled?
D) The total sales commissions paid during the A) They are ignored and not counted as part of
period the output.
74. What is the effect of underapplied overhead on B) They are treated as fully completed units.
the income statement? C) They are translated into equivalent units based
A) It is added to the cost of goods sold. on their percentage of completion.
B) It is deducted from the cost of goods sold. D) They are charged to a special account until
C) It is ignored in the financial statements. completed.
D) It is added to the balance sheet under assets. 82. Which of the following is NOT typically used in a
process costing system?
75. Which of the following is an example of an A) Job cost sheets
industry that would use job-order costing? B) Departmental Work in Process accounts
A) Soda manufacturing C) Transferred-in costs
B) Shipbuilding D) Equivalent units of production
C) Gasoline production 83. What is the main purpose of calculating
D) Paper towel production equivalent units in process costing?
76. In process costing, how are costs accumulated? A) To estimate the cost of raw materials used
A) By job B) To determine the number of finished goods
B) By department available for sale
C) By product line C) To convert partially completed units into a
D) By customer order number of fully completed units
77. Which of the following industries would most D) To calculate the sales revenue from completed
likely use process costing? products
A) Custom furniture production 84. Which of the following journal entries would
B) Breakfast cereal production most likely be made in a process costing system
C) Special-order printing for materials used in a processing department?
D) Shipbuilding A) Debit: Raw Materials, Credit: Work in Process—
78. What is the primary difference between job- Formulating
order costing and process costing? B) Debit: Work in Process—Formulating, Credit:
A) Job-order costing accumulates costs by Raw Materials
department, while process costing accumulates C) Debit: Manufacturing Overhead, Credit: Work
costs by job. in Process—Formulating
B) Job-order costing is used for continuous D) Debit: Work in Process—Bottling, Credit:
production of identical products, while process Salaries and Wages Payable
costing is used for unique jobs. 85. What is the primary purpose of calculating
C) Job-order costing is used for customized equivalent units of production in process
products, while process costing is used for costing?
homogeneous products. A) To determine the total number of units
D) Job-order costing assigns costs uniformly, while produced during the period
process costing assigns costs by specific jobs. B) To calculate the unit cost of completed goods
 C) To convert partially completed units into full inventory are only included for the materials
equivalent units of work category.
D) To track the progress of units through the
production process
86. Under the weighted-average method, what is
included in the calculation of equivalent units of 91. Which cost categories are used to calculate the
production for a department? cost per equivalent unit under the weighted-
A) Only the units transferred to the next average method?
department A) Only direct materials
B) The number of completed units and the B) Only conversion costs
equivalent units in the ending work in process C) Direct materials and conversion costs
inventory D) Only fixed costs
C) The number of units started into production 92. If the equivalent units of production for
D) Only the beginning work in process inventory conversion costs in a department are 4,900 units,
87. How does the weighted-average method handle and the conversion cost per equivalent unit is
the completion percentages for beginning work $72.75, what is the total conversion cost for
in process inventory? those units?
A) It includes the completion percentages in the A) $349,200
calculation of equivalent units. B) $366,000
B) It ignores the completion percentages for the C) $356,000
beginning inventory. D) $356,250
C) It adjusts the completion percentages based on 93. Which of the following is NOT part of the
the work done in the current period. weighted-average method's equivalent unit
D) It treats beginning work in process units as fully calculation?
complete. A) Units transferred out
88. If 4,800 units were transferred out and the cost B) Units in beginning work in process
per equivalent unit for materials is $76.25, what C) Units in ending work in process
is the total cost of materials transferred out? D) Cost of beginning inventory
A) $366,000 94. What is the final step in the weighted-average
B) $349,200 method of process costing?
C) $715,200 A) Compute the cost per equivalent unit
D) $366,000 for materials and $349,200 for B) Prepare a cost reconciliation report
conversion C) Calculate the total costs of production
89. Which of the following statements is true about D) Assign costs to completed units only
the cost reconciliation report prepared in the 95. Which costing system is used by companies that
weighted-average method? produce many different products in one facility?
A) It accounts for the costs of units completed and A) Process costing
transferred out and the costs in the ending work B) Job-order costing
in process inventory. C) Operation costing
B) It only includes the costs of units completed D) Activity-based costing
and transferred out. 96. Which of the following best describes the hybrid
C) It only tracks the costs added during the period. system known as operation costing?
D) It reports costs based on the beginning work in A) A system that is used only for homogeneous
process inventory without considering current products produced in large quantities
production costs. B) A system that is used when products have
90. Under the weighted-average method, which of some common characteristics and some individual
the following is true about the treatment of characteristics
beginning work in process inventory? C) A system that combines job-order and activity-
A) The costs of beginning work in process are based costing
excluded from the cost per equivalent unit D) A system that calculates costs only for
calculation. completed products
B) The costs of beginning work in process are 97. In operation costing, which costs are typically
included, and current costs are averaged with accumulated by operation or department?
prior costs. A) Only direct material costs
C) The beginning work in process inventory is B) Only labor and overhead costs
treated as completed for cost purposes. C) Both direct materials and conversion costs
D) The costs of beginning work in process D) Only conversion costs
98. What is an example of a product that may be based only on current-period costs
suited for operation costing? C) Companies with no work-in-process inventory
A) Custom-built machinery D) Companies with no need for cost distinction
B) Shoes with various materials but common between prior and current periods
production steps 104. Which of the following is an advantage of the
C) Large batches of steel FIFO method over the weighted-average
D) High-volume electronic circuits method?
99. How does the FIFO method differ from the A) It is simpler to apply and does not require as
weighted-average method in process costing? many calculations.
A) The FIFO method averages costs over the entire B) It blends costs from prior and current periods,
period, while the weighted-average method uses making it more consistent.
only current period costs. C) It evaluates performance based on the costs of
B) The FIFO method excludes costs from the the current period only.
previous period, while the weighted-average D) It is more appropriate for products that do not
method blends costs from both the current and have beginning or ending inventories.
prior periods. 105. During the month of May, the Shaping and
C) The FIFO method uses only the beginning work Milling Department at Double Diamond Skis
in process inventory, while the weighted-average started and completed 4,600 units. The
method excludes it. department also had 200 units in the beginning
D) The FIFO method averages all costs, while the inventory, which were 55% complete with
weighted-average method separates costs for respect to materials and 30% complete with
materials and labor. respect to conversion costs. The equivalent units
100. Under the FIFO method, how are equivalent of production for the month, calculated using the
units of production for the beginning work in FIFO method, are as follows:
process inventory calculated?
A) By adding the equivalent units from the current  Units completed and transferred out: 4,800
period to the units in beginning inventory units
B) By multiplying the percentage of completion  Units in ending work in process inventory: 400
for materials and conversion costs separately units (25% complete with respect to
C) By considering the work done during the materials, 50% complete with respect to
current period to complete the units conversion costs)
D) By assuming that all beginning inventory units  Materials cost added during the period: $368
are completed during the current period  Conversion costs added during the period:
101. Which of the following is true about the FIFO $276
method of process costing?
A) It blends beginning inventory costs with current What are the equivalent units of production for
period costs for calculating unit costs. conversion costs under the FIFO method?
B) It only considers the work done during the
current period when calculating costs. A) 4,800 units
C) It is easier to apply than the weighted-average B) 5,000 units
method. C) 4,600 units
D) It does not account for the costs of the D) 4,900 units
beginning inventory.
102. In operation costing, what aspect of product
manufacturing does the system allow companies
to distinguish between?
A) Labor costs and overhead costs
B) Materials costs for individual products and
common production steps
C) Fixed and variable costs
D) Standard and actual costs for completed
products
103. Which of the following would most likely use
the FIFO method in process costing?
A) Companies that require simplicity in cost
allocation
B) Companies that need to evaluate performance
Answer Key: 30) C - How overhead resources are consumed in the
department (e.g., machine hours or direct labor
1) B - To fulfill their planning, controlling, and hours).
decision-making responsibilities 31) B - Estimate the total manufacturing overhead
2) B - To determine the value of ending inventories cost for the year.
and cost of goods sold 32) C - $800,000.
3) D - Both fixed and variable manufacturing costs 33) True
are assigned to units of product 34) A - $850.
4) B - To assign manufacturing costs to individual 35) B - ABC uses more specific overhead rates based
jobs on activities, whereas departmental overhead
5) D - Sales expenses rates allocate costs based on departments.
6) B - The type and quantity of materials to be drawn 36) A - A cost driver is a factor that causes an
from the storeroom for a job overhead cost to be incurred.
7) B - To record the materials, labor, and 37) B - Activity-based costing provides a more
manufacturing overhead costs for a job accurate allocation of overhead by considering
8) B - A document that lists the quantity of each the activities that consume resources.
direct material needed to complete a unit of 38) C - Less overhead was applied to production than
product was actually incurred.
9) A - Issuing a production order 39) C - Underapplied overhead increases the cost of
10) B - The cost is charged to the job cost sheet goods sold and decreases net operating income.
11) B - Labor costs that are easily traced to a specific 40) B - By multiplying the predetermined overhead
job rate by the actual amount of the allocation base
12) C - Using computerized time tickets that capture incurred by each job.
employee activities 41) B - To accumulate direct materials, direct labor,
13) B - The activities and hours worked by an and manufacturing overhead costs for a job.
individual employee on a specific job 42) C - Overhead is applied based on specific activities
14) C - Manufacturing labor that drive overhead costs.
15) C - To allocate estimated manufacturing overhead 43) C - Subsidiary ledger.
to jobs 44) C - The number of machine-hours or direct labor-
16) B - A measure like direct labor-hours or machine- hours used.
hours used to assign overhead 45) B - It results in overapplied overhead.
17) B - Total estimated manufacturing overhead cost 46) C - Total cost of the job divided by the number of
divided by the estimated total amount of the units produced.
allocation base 47) A - Each client is treated as a job, with costs for
18) C - Assigning estimated overhead costs to jobs materials, labor, and overhead recorded on a job
based on the predetermined overhead rate cost sheet.
19) B - $540 48) True
20) B - To ensure that overhead is applied consistently 49) D) Selling and administrative expenses
throughout the year 50) B) A measure of activity such as direct labor-hours
21) B - Seasonal fluctuations in costs can cause or machine-hours
overhead rates to fluctuate. 51) C) Overhead applied = Predetermined overhead
22) C - Predetermined rates help avoid cost rate × Amount of the allocation base incurred by
fluctuations caused by seasonal factors. the job
23) C - To determine the total cost of the job and 52) C) To record the direct materials, direct labor, and
establish unit product cost. manufacturing overhead costs charged to a job
24) A - Total cost of the job divided by the total 53) A) Raw Materials, Work in Process, and Finished
number of units. Goods
25) B - Managers may make flawed pricing and 54) B) Direct materials are debited to Work in
production decisions. Process, and indirect materials are debited to
26) True Manufacturing Overhead
27) A - Number of direct labor-hours worked. 55) A) By recording the cost of goods manufactured
28) A - It can result in overcharging or undercharging as a debit to Finished Goods
jobs for their share of overhead costs. 56) B) They are transferred from Finished Goods to
29) B - It allows the company to use a different rate Cost of Goods Sold
for each department based on specific cost 57) B) To record the direct and indirect labor hours
drivers. worked by employees
58) C) They are added to Work in Process and 89) A) It accounts for the costs of units completed and
recorded on individual job cost sheets transferred out and the costs in the ending work
59) C) Salaries of direct laborers in process inventory
60) B) By multiplying the predetermined overhead 90) B) The costs of beginning work in process are
rate by the actual amount of the allocation base included, and current costs are averaged with
61) B) To act as a clearing account for actual and prior costs
applied overhead costs 91) C) Direct materials and conversion costs
62) B) A credit balance 92) A) $349,200
63) B) The company would adjust for the over-applied 93) D) Cost of beginning inventory
overhead by transferring the excess to cost of 94) B) Prepare a cost reconciliation report
goods sold 95) B) Job-order costing
64) C) Only applied overhead is recorded in the 96) B) A system that is used when products have
Manufacturing Overhead account and job cost some common characteristics and some individual
sheets characteristics
65) B) Depreciation on office equipment 97) B) Only labor and overhead costs
66) B) Debit: Salaries Expense, Credit: Salaries and 98) B) Shoes with various materials but common
Wages Payable production steps
67) B) It is debited to Depreciation Expense as a 99) B) The FIFO method excludes costs from the
period expense. previous period, while the weighted-average
68) C) Total manufacturing costs + Beginning work in method blends costs from both the current and
process inventory − Ending work in process prior periods
inventory 100) C) By considering the work done during the
69) B) Finished Goods current period to complete the units
70) A) These costs are treated as period expenses and 101) B) It only considers the work done during the
charged directly to the income statement. current period when calculating costs
71) C) Cost of Goods Sold 102) B) Materials costs for individual products and
72) A) Debit: Advertising Expense, Credit: Accounts common production steps
Payable 103) B) Companies that need to evaluate
73) A) The costs of goods completed and transferred performance based only on current-period costs
from Work in Process to Finished Goods 104) C) It evaluates performance based on the
74) A) It is added to the cost of goods sold. costs of the current period only
75) B) Shipbuilding 105) D) 4,900 units
76) B) By department Solution:
77) B) Breakfast cereal production Units started and completed during the period
78) C) Job-order costing is used for customized (FIFO) = 4,600 units
products, while process costing is used for Equivalent units in beginning inventory = 200
homogeneous products. units × (100% - 30%) = 140 units
79) B) Process costing Equivalent units in ending inventory = 400 units ×
80) B) Each department has its own Work in Process 50% = 200 units
account. So, the total equivalent units for conversion costs
81) C) They are translated into equivalent units based = 4,600 (started and completed) + 140 (from
on their percentage of completion. beginning inventory) + 200 (from ending
82) A) Job cost sheets inventory) = 4,900 units.
83) C) To convert partially completed units into a
number of fully completed units
84) B) Debit: Work in Process—Formulating, Credit:
Raw Materials
85) C) To convert partially completed units into full
equivalent units of work
86) B) The number of completed units and the
equivalent units in the ending work in process
inventory
87) B) It ignores the completion percentages for the
beginning inventory
88) A) $366,000