Test Bank For Managerial Accounting: The Cornerstone of Business Decision Making, 7th Edition

Name: Class: Date: Chapter 02 True / False 1. It is beneficial to assign indirect costs to cost objects. a. True b. False ANSWER: True 2. Price must be greater than cost in order for the firm to generate revenue. a. True b. False ANSWER: False 3. Accumulating costs is the way that costs are measured and recorded. a. True b. False ANSWER: True 4. Assigning costs involves the way that a cost is linked to some cost object. a. True b. False ANSWER: True 5. Assigning costs tells the accountant who spent the money. a. True b. False ANSWER: False 6. A cost object is any item such as products, customers, departments, regions, and so on, for which costs are measured and assigned. a. True b. False ANSWER: True 7. Costs are directly, not indirectly, associated with cost objects. a. True b. False ANSWER: False 8. Direct costs are those costs that cannot be easily and accurately traced to a cost object. a. True b. False ANSWER: False 9. Indirect costs are costs that are not easily and accurately traced to a cost object. a. True Copyright Cengage Learning. Powered by Cognero. Page 1 Name: Class: Date: Chapter 02 b. False ANSWER: True 10. Allocation means that an indirect cost is assigned to a cost object using a reasonable and convenient method. a. True b. False ANSWER: True 11. A variable cost is one that does not increase in total as output increase and does not decrease in total as output decreases. a. True b. False ANSWER: False 12. A fixed cost is a cost that does not increase in total as output increases and does not decrease in total as output decreases. a. True b. False ANSWER: True 13. An opportunity cost is the benefit given up or sacrificed when one alternative is chosen over another. a. True b. False ANSWER: True 14. Cost is a dollar measure of the resources used to achieve a given benefit. a. True b. False ANSWER: True 15. A cost object is something for which a company wants to know the cost. a. True b. False ANSWER: True 16. The revenue per unit is called cost. a. True b. False ANSWER: False 17. As costs are used up in the production of revenues, they are said to expire. Expired costs are called expenses. a. True b. False ANSWER: True Copyright Cengage Learning. Powered by Cognero. Page 2 Name: Class: Date: Chapter 02 18. Costs are incurred to produce future benefits. a. True b. False ANSWER: True 19. Expired costs are called assets. a. True b. False ANSWER: False 20. Reducing the cost required to achieve a given benefit means that a company is becoming less efficient. a. True b. False ANSWER: False 21. Costs can be assigned to cost objects in only one way. a. True b. False ANSWER: False 22. Property taxes on a factory building would normally be classified as a fixed cost. a. True b. False ANSWER: True 23. Glue used in the manufacture of cabinets would be an example of a fixed cost. a. True b. False ANSWER: False 24. Industries that provide services do not normally have direct contact with their customers. a. True b. False ANSWER: False 25. Research and development costs would be classified as product cost. a. True b. False ANSWER: False 26. Product costs include direct materials, direct labor, and selling costs. a. True b. False ANSWER: False Copyright Cengage Learning. Powered by Cognero. Page 3 Name: Class: Date: Chapter 02 27. All product costs other than direct materials and indirect labor are called overhead. a. True b. False ANSWER: False 28. Direct materials can be directly traced to the goods or services being produced. a. True b. False ANSWER: True 29. Any costs associated with storing, selling, and delivering the product are classified as product costs. a. True b. False ANSWER: False 30. Prime cost is the sum of direct materials cost and direct labor cost. a. True b. False ANSWER: True 31. Product costs are carried in inventory until the goods are finished, then they are expensed. a. True b. False ANSWER: False 32. Marketing costs would be classified as period costs. a. True b. False ANSWER: True 33. A factory building needs to hire janitorial services. This is classified as indirect labor. a. True b. False ANSWER: True 34. Period costs are all costs that are not product costs, such as office supplies. a. True b. False ANSWER: True 35. Employees who convert direct materials into a product or who provide a service to customers are classified as indirect labor. a. True b. False ANSWER: False Copyright Cengage Learning. Powered by Cognero. Page 4 Name: Class: Date: Chapter 02 36. All manufacturing costs are classified as overhead. a. True b. False ANSWER: False 37. For external reporting purposes, costs must be classified into only three categories. a. True b. False ANSWER: True 38. Cost of goods manufactured represents the cost of direct materials, direct labor, and overhead incurred during the current accounting period. a. True b. False ANSWER: False 39. Cost of goods sold is the total product cost of the units sold during a period. a. True b. False ANSWER: True 40. Sales revenue equals the product cost per unit times the number of units sold. a. True b. False ANSWER: False 41. Gross margin is the difference between sales revenue and cost of goods sold. a. True b. False ANSWER: True Multiple Choice 42. Which of the following is true of expired costs? a. Expired costs are reported as fixed assets on a company’s balance sheet. b. Expired costs are added to revenue to determine income on the income statement. c. Expired costs are used up in the production of revenue. d. Expired costs are recognized as liabilities on the balance sheet. ANSWER: c 43. Which of the following is true of assigning costs to cost objects? a. Assigning costs to cost objects typically is more difficult than cost accumulation. b. Assigning costs to cost objects can be accomplished in a number of ways. c. The choice of a method for assigning costs to cost objects depends on a number of factors, such as the need for Copyright Cengage Learning. Powered by Cognero. Page 5 Name: Class: Date: Chapter 02 accuracy. d. All of these are true. ANSWER: d 44. Which of the following statements best describes an indirect cost? a. An indirect cost can be easily and accurately traced to a cost object. b. An indirect cost is assigned to a cost object using allocation. c. It is not important to assign an indirect cost as it can be traced to a cost object. d. None of these statements are true. ANSWER: b 45. Which of the following is true of a variable cost? a. A variable cost in total changes in direct proportion to changes in output within the relevant range. b. A variable cost is a cost that is not linked to a company’s output. c. A variable cost in total remains constant regardless of the level of output. d. A variable cost in total increases as output decreases and decreases as output increases. ANSWER: a 46. Which of the following statements is true of cost? a. Cost is the difference between gross margin and operating expenses. b. Cost and price are always same for the owner of a company. c. Cost is a dollar measure of the resources used to achieve a given benefit. d. Cost is the revenue per unit. ANSWER: c 47. Which of the following is true of price? a. Price must be greater than cost for a firm to earn income. b. Price is the difference between gross margin and the cost of goods sold. c. Price is a dollar measure of the resources used to achieve a given benefit. d. Price is the difference between cost per unit and income per unit. ANSWER: a 48. Which of the following statements is true of assigning costs to a cost object? a. Assigning costs to a cost object is the way that costs are measured and recorded. b. Assigning costs to a cost object can be accomplished in a number of ways. c. Assigning costs to a cost object typically is simpler than cost accumulation. d. All of these ANSWER: b 49. An opportunity cost is: a. the benefit given up or sacrificed when one alternative is chosen over another. b. the cost to market, distribute, and service a product or service. c. expensed in the period in which it is incurred; it is not inventoried. d. the difference between gross margin and operating expenses. Copyright Cengage Learning. Powered by Cognero. Page 6 Name: Class: Date: Chapter 02 ANSWER: a 50. Non-manufacturing costs include a. marketing and administration. b. direct materials. c. indirect materials. d. overhead. ANSWER: a 51. Which of the following is an example of a service? a. motorcycle b. eye exam c. stereo d. television ANSWER: b 52. Which of the following is an example of a tangible product? a. lawn care b. accounting services c. customer service d. computer ANSWER: d 53. Costs are subdivided into what two major functional categories? a. opportunity and allocation b. fixed and variable c. product and non-production d. direct and indirect ANSWER: c 54. Product costs a. are costs that are included in the determining the value of the inventory. b. are manufacturing costs. c. include direct materials, direct labor, and overhead. d. are all of these. ANSWER: d 55. Which of the following would not be a period cost? a. research and development b. direct materials c. advertising costs d. office supplies ANSWER: b Copyright Cengage Learning. Powered by Cognero. Page 7 Name: Class: Date: Chapter 02 56. Which of the following would be an example of a direct materials cost? a. engine on an airplane b. lubricant used to manufacture a lighting fixture c. glue used to build cabinets d. nails used to manufacture a table ANSWER: a 57. Product costs consist of a. period costs. b. indirect materials, indirect labor, and administrative costs. c. direct materials, direct labor, and selling costs. d. direct materials, direct labor, and overhead. ANSWER: d 58. Which of the following is not an example of a direct materials cost? a. shelves on a bookcase b. engine in a car c. tires on a bicycle d. nails used to manufacture a desk ANSWER: d 59. Materials in the raw materials account do not become direct materials a. until they are withdrawn from inventory for use in production. b. until the finished product is sold. c. until they are purchased from a vendor. d. none of these are correct. ANSWER: a 60. Which of the following is an example of direct labor? a. vice president of marketing b. assembly line worker for televisions c. staff accountant d. supervisor at a manufacturing plant ANSWER: b 61. Direct labor is a(n) a. product cost. b. opportunity cost. c. administrative cost. d. fixed cost. ANSWER: a 62. Overhead includes a. indirect labor. Copyright Cengage Learning. Powered by Cognero. Page 8 Name: Class: Date: Chapter 02 b. indirect materials. c. factory supplies. d. all of these. ANSWER: d 63. Which of the following would not be included in overhead? a. marketing costs b. property taxes on the factory c. factory utility costs d. deprecation on factory machinery ANSWER: a 64. Indirect labor would include a. salary of the vice-president of marketing. b. salary of CEO. c. salary of factory supervisor. d. none of these are correct. ANSWER: c 65. The unit cost a. is the total product costs divided by the number of units produced. b. includes period costs. c. is the total prime costs divided by the number of units produced. d. is the total conversion costs divided by the number of units produced. ANSWER: a 66. Prime cost is a. indirect materials cost and direct labor cost. b. direct materials cost and direct labor cost. c. direct labor cost and indirect labor cost. d. direct materials cost and indirect labor cost. ANSWER: b 67. Conversion cost is the sum of a. product costs and period costs. b. selling cost and administrative costs. c. direct labor cost and direct materials costs. d. direct labor cost and overhead costs. ANSWER: d 68. Period costs a. are selling costs and administrative costs. b. are used to compute product cost. c. can be included in overhead costs. Copyright Cengage Learning. Powered by Cognero. Page 9 Name: Class: Date: Chapter 02 d. are carried in inventory until the goods are sold. ANSWER: a 69. Which of the following is an example of a period cost? a. research and development b. selling and marketing c. general accounting d. all of these ANSWER: d 70. Cost of goods manufactured equals a. the cost of indirect materials used in production. b. the product cost of goods completed during the current period and transferred to finished goods. c. the period costs for the current period. d. the cost of direct materials and direct labor used during the current period. ANSWER: b 71. Cost of goods manufactured equals a. total product costs incurred during the current period + beginning work in process − ending work in process. b. direct materials cost + direct labor cost + overhead cost. c. sales − cost of goods sold. d. none of these are correct. ANSWER: a 72. The cost of the partially completed goods at the end of the period would be a. ending work in process inventory. b. cost of goods sold. c. beginning finished goods inventory. d. beginning work in process inventory. ANSWER: a 73. Product costs are expensed a. when the product is finished. b. when the product unit cost is calculated. c. when the product is sold. d. all of these are correct. ANSWER: c 74. Excellent Inc. had a per-unit conversion cost of $3.00 during April and incurred direct materials cost of $112,000, direct labor costs of $84,000, and manufacturing overhead costs of $50,400 during the month. How many units did it manufacture during the month? a. 70,000 b. 18,000 c. 44,800 Copyright Cengage Learning. Powered by Cognero. Page 10 Name: Class: Date: Chapter 02 d. 30,000 ANSWER: c 75. Synergy Inc. manufactured 6,000 units during the month of March. They incurred direct materials cost of $120,000 and manufacturing overhead costs of $48,000. If their per-unit prime cost was $31.20 per unit, how much direct labor cost did it incur during March? a. $20,000 b. $35,000 c. $90,000 d. $67,200 ANSWER: d 76. During the month of January, Robinson & Green Inc. had total manufacturing costs of $121,000. It incurred $44,000 of direct labor cost and $33,000 of manufacturing overhead cost during the month. If the materials inventory on January 1 was $3,300 less that the materials inventory on January 31, what was the cost of materials purchased during the month? a. $37,000 b. $47,300 c. $40,000 d. None of these ANSWER: b 77. Product costs that are not attached to units that are sold are reported as: a. selling expenses on the income statement. b. costs of goods sold on the balance sheet. c. administrative costs on the income statement. d. inventory on the balance sheet. ANSWER: d 78. Information from the records of Davies & Moore Corporation for December of the current year is as follows: Sales $1,353,000 Selling and administrative expenses 231,000 Direct materials used 290,400 Direct labor 330,000 Manufacturing overhead 445,500 Inventories Direct materials Work in process Finished goods Dec. 1 $39,600 82,500 75,900 Dec. 31 $46,200 92,400 62,700 The conversion costs are: a. $960,000. b. $1,179,000. c. $775,500. d. $564,000. Copyright Cengage Learning. Powered by Cognero. Page 11 Name: Class: Date: Chapter 02 ANSWER: c 79. Information from the records of Garcia & Gordon Corp. for December of the current year is as follows: Sales $1,353,000 Selling and administrative expenses 2,310,00 Direct materials used 290,400 Direct labor 330,000 Factory overhead 445,500 Inventories Direct materials Work in process Finished goods Dec. 1 $39,600 82,500 75,900 Dec. 31 $46,200 92,400 62,700 The prime costs are: a. $960,000. b. $620,400. c. $705,000. d. $969,000. ANSWER: b 80. Taylor & Edwards Inc. manufactures television sets. Last month, direct materials (electronic components, etc.) costing $550,000 were put into production. Direct labor of $880,000 was incurred, manufacturing overhead equaled $495,000, and selling and administrative costs totaled $396,000. The company manufactured 8,400 television sets during the month. Assume that there were no beginning or ending work in process balances. What was the per-unit conversion cost? (Note: Round answer to two decimal places.) a. $218.75 b. $163.69 c. $162.54 d. $100.15 ANSWER: b 81. Atlas Inc. manufactures television sets. Last month, direct materials (electronic components, etc.) costing $550,000 were put into production. Direct labor of $880,000 was incurred, manufacturing overhead equaled $495,000, and selling and administrative costs totaled $396,000. The company manufactured 8,400 television sets during the month. Assume that there were no beginning or ending work in process balances. What was the total product cost for last month? a. $1,925,000 b. $2,110,000 c. $1,300,000 d. $1,250,000 ANSWER: a 82. Taylor & Edwards Inc. manufactures television sets. Last month, direct materials (electronic components, etc.) costing $550,000 were put into production. Direct labor of $880,000 was incurred, manufacturing overhead equaled $495,000, and selling and administrative costs totaled $396,000. The company manufactured 8,400 television sets during the month. Assume that there were no beginning or ending work in process balances. What was the per unit prime cost? (Note: Round your answer to two decimal places.) Copyright Cengage Learning. Powered by Cognero. Page 12 Name: Class: Date: Chapter 02 a. $263.75 b. $62.50 c. $170.24 d. $156.25 ANSWER: c 83. Taylor & Edwards Inc. manufactures television sets. Last month, direct materials (electronic components, etc.) costing $550,000 were put into production. Direct labor of $880,000 was incurred, manufacturing overhead equaled $495,000, and selling and administrative costs totaled $396,000. The company manufactured 8,400 television sets during the month. Assume that there were no beginning or ending work in process balances. What was the amount of cost of goods manufactured last month? a. $1,925,000 b. $1,250,000 c. $1,300,000 d. $2,110,000 ANSWER: a 84. In July, Greenwood Company purchased materials costing $23,100 and incurred direct labor cost of $19,800. Manufacturing overhead totaled $35,200 for the month. Information on inventories was as follows: July 1 July 31 Materials $6,820 $7,810 Work in process 770 1,320 Finished goods 3,630 2,970 What was the cost of direct materials used in production for the month of July? a. $21,000 b. $22,110 c. $21,900 d. $20,500 ANSWER: b 85. In July, Noel & Vang Company purchased materials costing $23,100 and incurred direct labor cost of $19,800. Manufacturing overhead totaled $35,200 for the month. Information on inventories was as follows: Materials Work in process Finished goods July 1 $6,820 770 3,630 July 31 $7,810 1,320 2,970 What was the total manufacturing costs in July? a. $71,000 b. $50,000 c. $69,600 d. $77,110 ANSWER: d 86. In July, Noel & Vang Company purchased materials costing $23,100 and incurred direct labor cost of $19,800. Copyright Cengage Learning. Powered by Cognero. Page 13 Name: Class: Date: Chapter 02 Manufacturing overhead totaled $35,200 for the month. Information on inventories was as follows: Materials Work in process Finished goods July 1 $6,820 770 3,630 July 31 $7,810 1,320 2,970 What was the cost of goods manufactured for July? a. $70,500 b. $70,700 c. $76,560 d. $76,650 ANSWER: c 87. In July, Noel & Vang Company purchased materials costing $23,100 and incurred direct labor cost of $19,800. Manufacturing overhead totaled $35,200 for the month. Information on inventories was as follows: July 1 Materials $6,820 Work in process 770 Finished goods 3,630 What was the cost of goods sold for July? a. $77,220 b. $69,600 c. $71,300 d. $71,100 ANSWER: a July 31 $7,810 1,320 2,970 88. In July, Noel & Vang Company purchased materials costing $23,100 and incurred direct labor cost of $19,800. Manufacturing overhead totaled $35,200 for the month. Information on inventories was as follows: July 1 July 31 Materials $6,820 $7,810 Work in process 770 1,320 Finished goods 3,630 2,970 If Noel &Vang Company sold 10,300 units during July and its gross margin totaled $32,780, what was the sales price per unit? (Note: Round answer to two decimal places.) a. $9.94 b. $10.68 c. $10.09 d. $10.11 ANSWER: b 89. Wooten & McMahon Enterprises produces a product with the following per-unit costs: Direct materials $13.00 Copyright Cengage Learning. Powered by Cognero. Page 14 Name: Class: Date: Chapter 02 Direct labor 8.80 Manufacturing overhead 16.50 Last year, Wooten & McMahon Enterprises produced and sold 825 units at a sales price of $74.80 each. Total selling and administrative expense was $24,200.What was the per-unit prime cost? (Note: Round your answer to two decimal places.) a. $21.80 b. $23.50 c. $34.20 d. $11.70 ANSWER: a 90. Wooten & McMahon Enterprises produces a product with the following per-unit costs: Direct materials $13.00 Direct labor 8.80 Manufacturing overhead 16.50 Last year, Wooten & McMahon Enterprises produced and sold 825 units at a sales price of $74.80 each. Total selling and administrative expense was $24,200. What was the cost of goods sold last year? (Note: Round answer to two decimal places.) a. $47,500.10 b. $31,597.50 c. $14,250.50 d. $51,000.20 ANSWER: b 91. Wooten & McMahon Enterprises produces a product with the following per-unit costs: Direct materials $13.00 Direct labor 8.80 Manufacturing overhead 16.50 Last year, Wooten & McMahon Enterprises produced and sold 825 units at a sales price of $74.80 each. Total selling and administrative expense was $24,200. What was the total operating income last year? (Note: Round answer to two decimal places.) a. $29,000.75 b. $51,000.00 c. $25,500.50 d. $5,912.50 ANSWER: d 92. Last year, Buckner & Jones Company incurred the following costs: Direct materials Direct labor Manufacturing overhead Selling expenses Administrative expenses $42,000 63,000 94,500 25,200 23,100 Buckner & Jones produced and sold 2,060 units at a sales price of $131.25 each. Assume that beginning and ending inventories of materials, work in process, and finished goods were zero. Copyright Cengage Learning. Powered by Cognero. Page 15 Name: Class: Date: Chapter 02 The total period expense was: a. $24,000. b. $190,000. c. $48,300. d. $250,000. ANSWER: c 93. Last year, Buckner & Jones Company incurred the following costs: Direct materials Direct labor Manufacturing overhead Selling expenses Administrative expenses $42,000 63,000 94,500 25,200 23,100 Buckner & Jones produced and sold 2,060 units at a sales price of $131.25 each. Assume that beginning and ending inventories of materials, work in process, and finished goods were zero. What was the gross margin per unit? (Note: Round your answer to two decimal places.) a. $125.25 b. $7.56 c. $95.50 d. $34.41 ANSWER: d 94. Last year, Buckner & Jones Company incurred the following costs: Direct materials Direct labor Manufacturing overhead Selling expenses Administrative expenses $42,000 63,000 94,500 25,200 23,100 Buckner & Jones produced and sold 2,060 units at a sales price of $131.25 each. Assume that beginning and ending inventories of materials, work in process, and finished goods were zero. The total product costs were: a. $199,500. b. $100,000. c. $150,000. d. $236,000. ANSWER: a 95. Last year, Buckner & Jones Company incurred the following costs: Direct materials Direct labor Copyright Cengage Learning. Powered by Cognero. $42,000 63,000 Page 16 Name: Class: Date: Chapter 02 Manufacturing overhead Selling expenses Administrative expenses 94,500 25,200 23,100 Buckner & Jones produced and sold 2,060 units at a sales price of $131.25 each. Assume that beginning and ending inventories of materials, work in process, and finished goods were zero. What was the conversion cost per unit? (Note: Round answer to two decimal places.) a. $50.55 b. $76.46 c. $95.00 d. $125.65 ANSWER: b 96. Cost of goods sold a. represents all costs associated with research, development, and general administration of the organization. b. is found on the Balance Sheet. c. is the cost of the partially completed goods that are still on the factory floor at the end of the period. d. is the total product cost for the units sold during a period. ANSWER: d 97. Which of the following would not be found on the income statement of a manufacturer? a. cost of goods sold b. work in process c. sales revenue d. operating income ANSWER: b 98. Which of the following would be found on the balance sheet of a manufacturer? a. work in process b. raw materials c. finished goods d. All of the these are correct ANSWER: d 99. Which of the following would be found on the balance sheet of a manufacturer? a. sales revenue b. selling expenses c. factory equipment d. all of these are correct ANSWER: c 100. Gross margin equals a. cost of goods sold − selling and administrative expenses. b. direct materials + direct labor + manufacturing overhead. c. sales revenue − cost of goods sold. Copyright Cengage Learning. Powered by Cognero. Page 17 Name: Class: Date: Chapter 02 d. cost of goods manufactured + selling and administrative expenses. ANSWER: c 101. Operating income equals a. sales revenue − cost of goods sold − selling and administrative expense b. gross margin − selling expenses c. sales revenue − cost of goods sold d. sales revenue − selling and administrative expenses ANSWER: a 102. Gross margin percent equals a. gross margin/cost of goods sold. b. operating income/sales revenue. c. gross margin/sales revenue. d. sales revenue/gross margin. ANSWER: c 103. Which of the following would not be found on an income statement of a service organization? a. selling expenses b. cost of goods sold c. operating income d. sales revenue ANSWER: b 104. Which of the following can be found on the income statements of both a manufacturing and service organization? a. revenues b. operating income c. administrative expenses d. all of these can be found on both. ANSWER: d 105. A manufacturer normally has a. one inventory account. b. four inventory accounts. c. three inventory accounts. d. none of these are correct. ANSWER: c 106. An income statement of a manufacturer a. will show the ending balance of work in process. b. contains only manufacturing costs. c. will show the ending balance of materials inventory. d. covers a certain period of time. ANSWER: d Copyright Cengage Learning. Powered by Cognero. Page 18 Name: Class: Date: Chapter 02 107. On a manufacturer’s income statement expenses are separated into the following three categories: a. production, period, and indirect b. materials, work in process, and finished goods c. production, selling, and administrative d. variable, fixed, and direct ANSWER: c 108. Hendrix & Franks Company had the following beginning and ending inventory balances for the current year ended December 31: Materials Work in Process Finished Goods January 1 $11,000 19,800 23,100 December 31 $ 8,800 18,700 18,150 In addition, direct labor costs of $33,000 were incurred, manufacturing overhead equaled $46,200, materials purchased were $29,700, and selling and administrative costs were $24,200. Hendrix & Franks Co. sold 27,500 units of product during the year at a sales price of $5.25 per unit. What was the amount of cost of goods manufactured for the year? a. $101,000 b. $124,000 c. $100,000 d. $112,200 ANSWER: d 109. Hendrix & Franks Company had the following beginning and ending inventory balances for the current year ended December 31: Materials Work in Process Finished Goods January 1 $11,000 19,800 23,100 December 31 $ 8,800 18,700 18,150 In addition, direct labor costs of $33,000 were incurred, manufacturing overhead equaled $46,200, materials purchased were $29,700, and selling and administrative costs were $24,200. Hendrix & Franks Co. sold 27,500 units of product during the year at a sales price of $5.25 per unit. What was the amount of cost of goods sold for the year? a. $102,000 b. $97,500 c. $117,150 d. $128,500 ANSWER: c 110. Hendrix & Franks Company had the following beginning and ending inventory balances for the current year ended December 31: Materials Work in Process January 1 $11,000 19,800 Copyright Cengage Learning. Powered by Cognero. December 31 $ 8,800 18,700 Page 19 Name: Class: Date: Chapter 02 Finished Goods 23,100 18,150 In addition, direct labor costs of $33,000 were incurred, manufacturing overhead equaled $46,200, materials purchased were $29,700, and selling and administrative costs were $24,200. Hendrix & Franks Co. sold 27,500 units of product during the year at a sales price of $5.25 per unit. What were the total manufacturing costs for the year? a. $111,100 b. $102,000 c. $123,000 d. $106,500 ANSWER: a 111. Hendrix & Franks Co. had the following beginning and ending inventory balances for the current year ended December 31: Materials Work in Process Finished Goods January 1 $11,000 19,800 23,100 December 31 $ 8,800 18,700 18,150 In addition, direct labor costs of $33,000 were incurred, manufacturing overhead equaled $46,200, materials purchased were $29,700, and selling and administrative costs were $24,200. Hendrix & Franks Co. sold 27,500 units of product during the year at a sales price of $5.25 per unit. What was the operating income (loss) for the year? a. $18,500 b. $125,000 c. $3,025 d. $2,000 ANSWER: c 112. During the month of June, Carney & Whitley Inc. had cost of goods manufactured of $123,200, direct materials cost of $57,200, direct labor cost of $40,700, and manufacturing overhead cost of $28,600. The work in process balance on June 30 was equal to $11,000. What was the work in process balance on June 1? a. $7,700 b. $13,000 c. $10,000 d. $115,000 ANSWER: a 113. Emarson & Slater Inc. had materials inventory of $13,200 on July 1. The materials inventory on July 31 was $16,500 and the cost of direct materials used in production was $22,000. What was the cost of materials purchased during the month? a. $25,300 b. $17,000 c. $35,000 d. $20,000 ANSWER: a 114. Rocha & Noel Inc. had cost of goods sold of $123,200 for the current year ended December 31. The finished goods Copyright Cengage Learning. Powered by Cognero. Page 20 Name: Class: Date: Chapter 02 inventory on January 1 was $30,800, and the finished goods inventory on December 31 was $18,700. What was the amount of cost of goods manufactured for the year? a. $129,000 b. $111,100 c. $67,000 d. $113,000 ANSWER: b 115. Thomas & Cooke Inc. had a gross margin for the month of February totaling $46,200. They sold 5,500 units during the month at a sales price of $22 per unit. What was the amount of cost of goods sold for the month? a. $100,000 b. $42,000 c. $74,800 d. None of these are correct. ANSWER: c 116. Wright & Boyle Inc. had the following income statement for the month of May: Sales revenue $ 470,800.00 Cost of goods sold Gross margin Less: Selling expenses Administrative expenses Operating income What was the sales revenue percent? a. 100% b. 48% c. 52% d. 16% ANSWER: a 217,766.40 $ 253,033.60 $ 86,199.20 74,942.80 $ 91,891.60 117. Wright & Boyle Inc. had the following income statement for the month of May: Sales revenue $470,800.00 Cost of goods sold 217,766.40 Gross margin $253,033.60 Less: $ Selling expenses 86,199.20 Administrative expenses 74,942.80 $ Operating income 91,891.60 What was the cost of goods sold percent? (Note: Round answer to two decimal places.) Copyright Cengage Learning. Powered by Cognero. Page 21 Name: Class: Date: Chapter 02 a. 100.51% b. 19.45% c. 52.56% d. 46.25% ANSWER: d 118. Wright & Boyle Inc. had the following income statement for the month of May: Sales revenue $470,800.00 Cost of goods sold 217,766.40 Gross margin $253,033.60 Less: $ Selling expenses 86,199.20 Administrative expenses 74,942.80 $ Operating income 91,891.60 What was the gross margin percent? (Note: Round answer to two decimal places.) a. 53.75% b. 48.75% c. 17.20% d. 19.14% ANSWER: a 119. Wright & Boyle Inc. had the following income statement for the month of May: Sales revenue $470,800.00 Cost of goods sold 217,766.40 Gross margin $253,033.60 Less: $ Selling expenses 86,199.20 Administrative expenses 74,942.80 $ Operating income 91,891.60 What was the selling expense percent? (Note: Round answer to two decimal places.) a. 17.25% b. 18.31% c. 16.20% d. No correct answer ANSWER: b 120. Wright & Boyle Inc. had the following income statement for the month of May: Sales revenue $470,800.00 Cost of goods sold 217,766.40 Gross margin $253,033.60 Less: Copyright Cengage Learning. Powered by Cognero. Page 22 Name: Class: Date: Chapter 02 Selling expenses $ 86,199.20 Administrative expenses 74,942.80 Operating income $ 91,891.60 What was the administrative expense percent? (Note: Round answer to two decimal places.) a. 15.92% b. 19.85% c. 16.50% d. 15.50% ANSWER: a 121. Wright & Boyle Inc. had the following income statement for the month of May: Sales revenue $470,800.00 Cost of goods sold 217,766.40 Gross margin $253,033.60 Less: $ Selling expenses 86,199.20 Administrative expenses 74,942.80 $ Operating income 91,891.60 What was the operating income percent? (Note: Round your answer to two decimal places.) a. 15.75% b. 19.65% c. 17.55% d. 19.52% ANSWER: d 122. Hill & Scott Company makes financial calculators. During the current year, Hill & Scott manufactured 106,700 financial calculators. Finished goods inventory had the following units on hand: January 1 1,386 units December 31 1,144 units How many financial calculators did Hill & Scott sell during the year? a. 196,780 b. 106,942 c. 97,000 d. 108,260 ANSWER: b 123. Hill & Scott Company makes financial calculators. During the current year, Hill & Scott manufactured 106,700 financial calculators. Finished goods inventory had the following units on hand: January 1 1,386 units December 31 1,144 units If each financial calculator had a per-unit product cost of $123.20, what was the cost of finished goods inventory on December 31? (Note: Round answer to two decimal places.) a. $140,940.80 Copyright Cengage Learning. Powered by Cognero. Page 23 Name: Class: Date: Chapter 02 b. $141,120.50 c. $24,640.75 d. None of these are correct. ANSWER: a 124. Hill & Scott Company makes financial calculators. During the current year, Hill & Scott manufactured 106,700 financial calculators. Finished goods inventory had the following units on hand: January 1 1,386 units December 31 1,144 units If each financial calculator had a per-unit product cost of $130, what was the cost of goods sold in the current year? a. $10,864,000 b. $10,839,360 c. $11,005,120 d. $13,902,460 ANSWER: d 125. Knowles & Foreman Company took the following data from its income statement at the end of the current year: Per-unit product cost Gross margin percentage Selling and administrative expenses Operating income What was gross margin for the year? a. $60,000 b. $100,000 c. $41,200 d. None of these ANSWER: c $35 41.20% $30,900 $10,300 126. Knowles & Foreman Company took the following data from its income statement at the end of the current year: Per-unit product cost Gross margin percentage Selling and administrative expenses Operating income What was cost of goods sold for the year? a. $58,800 b. $40,600 c. $100,000 d. None of these ANSWER: a $35 41.20% $30,900 $10,300 127. Knowles & Foreman Company took the following data from its income statement at the end of the current year: Per-unit product cost Gross margin percentage Selling and administrative expenses Copyright Cengage Learning. Powered by Cognero. $35 41.20% $30,900 Page 24 Name: Class: Date: Chapter 02 Operating income $10,300 How many units were sold during the year? a. 3,333 units b. 1,000 units c. 1,500 units d. 1,680 units ANSWER: d 128. Seaview Company took the following data from their income statement at the end of the current year. Per-unit product cost Gross margin percentage Selling and administrative expenses Operating income What was the sales price per unit? a. $50 b. $30 c. $20 d. $10 ANSWER: a $30 40% $30,000 $10,000 129. If beginning work-in-process inventory is $120,000, ending work-in-process inventory is $160,000, cost of goods manufactured is $400,000 and direct materials used are $100,000, what are the conversion costs? a. $140,000 b. $280,000 c. $300,000 d. $340,000 ANSWER: d 130. Information from the records of Place, Inc., for December is as follows: Sales Selling and administrative expenses Direct materials purchases Direct labor Factory overhead Direct materials, December 1 Work in process, December 1 Finished goods, December 1 Direct materials, December 31 Work in process, December 31 Finished goods, December 31 $820,000 140,000 176,000 200,000 270,000 24,000 50,000 46,000 28,000 56,000 38,000 Net income for the month of December is: a. $644,000. b. $36,000. c. $636,000. Copyright Cengage Learning. Powered by Cognero. Page 25 Name: Class: Date: Chapter 02 d. $180,000. ANSWER: b 131. Selected data concerning the past year’s operations of the Burner Corporation are as follows: Selling and administrative expenses Direct materials used Direct labor Direct materials Work in process Finished goods $225,000 397,500 450,000 Inventories Dec. 1 Dec. 31 $36,000 $42,000 75,000 84,000 69,000 57,000 The cost of direct materials purchased is: a. $397,500. b. $403,500. c. $367,500. d. $405,000. ANSWER: b Completion 132. Expired costs are called ____________. ANSWER: expenses 133. ______________is the amount of cash or cash equivalent sacrificed for goods and/or services that are expected to bring a current or future benefit to the organization. ANSWER: Cost 134. _____________________ is the way that a cost is linked to some cost object. ANSWER: Assigning costs 135. A(n) __________________ is any item such as a product, customer, department, project, geographic region, and so on, for which costs are measured and assigned. ANSWER: cost object 136. Costs that can be easily and accurately traced to a cost object are called __________. ANSWER: direct costs 137. The process of assigning an indirect cost to a cost object by using a reasonable and convenient method is called _____________. ANSWER: allocation. 138. A(n)_________________ is the benefit given up or sacrificed when one alternative is chosen over another. ANSWER: opportunity cost 139. A(n) ________________ is a cost that does not increase in total as output increase and does not decrease in total as Copyright Cengage Learning. Powered by Cognero. Page 26 Name: Class: Date: Chapter 02 output decreases. ANSWER: fixed cost 140. Organizations that produce products are called _______________________. ANSWER: manufacturing organizations 141. ________________ are those costs, both direct and indirect, of producing a product in a manufacturing firm or of acquiring a product in a merchandising firm and preparing it for sale. ANSWER: Product costs 142. Materials that become part of a product usually are classified as _______________. ANSWER: direct materials. 143. Insurance coverage, medical care, and accounting are examples of _________________ performed for customers. ANSWER: service activities or services 144. _________________ equals the sum of direct materials, direct labor, and manufacturing overhead. ANSWER: Total product cost 145. All product costs other than direct materials and direct labor are put into a category called _________________________. ANSWER: manufacturing overhead. 146. ______________________ is the sum of direct labor cost and manufacturing overhead cost. ANSWER: Conversion cost 147. ________________ and _________________ costs are considered period costs. ANSWER: Selling and administrative selling, administrative administrative, selling 148. Employees who convert direct materials into a product are classified as _____________. ANSWER: direct labor. 149. ___________________ is the cost of the partially completed goods that are still on the factory floor at the end of a time period. ANSWER: Work in process 150. The difference between sales revenue and cost of goods sold is known as the ______________. ANSWER: gross margin 151. The ____________________________ represents that total product cost of goods completed during the current period and transferred to finished goods inventory. ANSWER: cost of goods manufactured Matching Select the appropriate classification for each of the following costs. Copyright Cengage Learning. Powered by Cognero. Page 27 Name: Class: Date: Chapter 02 a. Period b. Product 152. Advertising costs ANSWER: a 153. Cost accountant’s salary ANSWER: a 154. Factory supervisor’s salary ANSWER: b 155. Research and development costs ANSWER: a 156. Marketing costs ANSWER: a 157. Cost of shipping products to customers ANSWER: a 158. Supplies for factory washroom ANSWER: b 159. Assembly line worker’s wages ANSWER: b Select the appropriate classification for each of the costs incurred by a manufacturer of automobiles. a. direct materials b. direct labor c. overhead d. selling expense e. administrative expense 160. cost of tires ANSWER: a 161. factory supplies ANSWER: c 162. general accounting costs ANSWER: e 163. factory security costs ANSWER: c 164. factory janitorial costs Copyright Cengage Learning. Powered by Cognero. Page 28 Name: Class: Date: Chapter 02 ANSWER: c 165. salary of chief executive officer ANSWER: e 166. depreciation of vehicles used by sales personnel ANSWER: d 167. cost of windshields used in the production process ANSWER: a Select the appropriate classification for each of the items listed below. a. Product cost b. Period cost 168. Cost of nails used by a home builder ANSWER: a 169. Fees paid to an advertising firm ANSWER: b 170. Sugar used in soft drink production ANSWER: a 171. Rental cost of executive Lear jet ANSWER: b 172. Cost of conference for sales team ANSWER: b 173. Factory supervisor’s salary ANSWER: a 174. Fees paid to outside auditing firm ANSWER: b 175. Factory security costs ANSWER: a Select the appropriate definition for each of the items listed below. a. per-unit prime cost b. per-unit conversion cost c. per-unit cost of goods manufactured 176. (direct labor + overhead)/units produced ANSWER: b Copyright Cengage Learning. Powered by Cognero. Page 29 Name: Class: Date: Chapter 02 177. (total manufacturing costs + work in process beginning − work in process ending)/units produced ANSWER: c 178. (direct materials + direct labor)/units produced ANSWER: a Select the appropriate definition for each of the items listed below. a. period cost b. direct cost c. opportunity cost d. variable cost e. indirect cost f. fixed cost g. product cost 179. A benefit given up when one alternative is chosen over another ANSWER: c 180. A cost that stays the same in total regardless of changes in output ANSWER: f 181. A cost that is difficult to trace to a cost object ANSWER: e 182. A manufacturing cost ANSWER: g 183. A cost that is not inventoried ANSWER: a 184. A cost that can be easily traced to a cost object ANSWER: b 185. A cost that increases in total as output increases ANSWER: d Select the appropriate classification of the items listed below. a. selling expense b. administrative expense c. direct materials d. direct labor e. overhead 186. Chief of surgery’s salary at a hospital ANSWER: d Copyright Cengage Learning. Powered by Cognero. Page 30 Name: Class: Date: Chapter 02 187. Wages of assembly line workers in an automobile plant ANSWER: d 188. Cost of lubricating factory machinery ANSWER: e 189. Cost of shipping goods to customers ANSWER: a 190. Glue used in the manufacture of furniture ANSWER: e 191. Cost of engines in the manufacture of airplanes ANSWER: c 192. Salary of chief executive officer ANSWER: b 193. A professor’s salary at a university ANSWER: d Select the appropriate classification of the output generated by each of the following industries. a. Tangible b. Intangible 194. CPA firm ANSWER: b 195. Car manufacturer ANSWER: a 196. Law firm ANSWER: b 197. Medical clinic ANSWER: b 198. Bowling alley ANSWER: b 199. Fast food restaurant ANSWER: a 200. Video rental ANSWER: b 201. Professional sports franchise Copyright Cengage Learning. Powered by Cognero. Page 31 Name: Class: Date: Chapter 02 ANSWER: b Select the appropriate definition for each of the items listed below. a. Work in process inventory b. Finished goods inventory c. Cost of goods sold d. Cost of goods manufactured e. Total manufacturing costs 202. The cost of units finished but not sold at the end of the current period ANSWER: b 203. Direct materials + direct labor + overhead ANSWER: e 204. The cost of units unfinished at the end of the current period ANSWER: a 205. Beginning finished goods inventory + Cost of goods manufactured – Ending finished goods inventory ANSWER: c 206. (direct materials + direct labor + overhead) +/− the change in work in process inventory from the beginning to the end of the current period ANSWER: d Select the appropriate item for each of the definitions listed below. a. gross margin b. selling expenses c. sales revenue d. cost of goods sold e. operating income 207. gross margin − selling and administrative expenses ANSWER: e 208. marketing and distributing costs ANSWER: b 209. price x units sold ANSWER: c 210. sales revenue − cost of goods sold ANSWER: a 211. Beginning finished goods inventory + Cost of goods manufactured – Ending finished goods inventory ANSWER: d Copyright Cengage Learning. Powered by Cognero. Page 32 Name: Class: Date: Chapter 02 Select the appropriate definition of each of the items listed below. a. Income Statement b. Cost of goods manufactured c. Work in process d. Gross margin e. Operating income 212. Gross margin − selling and administrative expenses ANSWER: e 213. The difference between sales revenue and cost of goods sold ANSWER: d 214. The total cost of goods completed during the current period ANSWER: b 215. Covers a particular period of time ANSWER: a 216. Cost of partially completed goods ANSWER: c Subjective Short Answer 217. Stone Company, maker of computers, incurred the following costs during the year: Required: Classify each cost as either fixed or variable cost. Fixed Variable 1. Salary of the factory supervisor 2. Materials needed to assemble the computers 3. Wages paid to an assembly line worker 4. Depreciation on the factory 5. Utility bill for the factory 6. Grease used to lubricate the machine 7. Rent paid for the factory 8. Property taxes on the factory and corporate office 9. Boxes used to package the completed computers 10. Advertising in a newspaper monthly ANSWER: 1. Fixed 2. Variable 3. Variable 4. Fixed 5. Variable 6. Variable 7. Fixed 8. Fixed 9. Variable 10. Fixed Copyright Cengage Learning. Powered by Cognero. Page 33 Name: Class: Date: Chapter 02 218. Ashland Company, maker of kitchen cabinets, incurred the following costs during the current year: Required: Classify each cost as either a product or period cost. Product Period 1. Depreciation on automobiles used by the sales staff. 2. Salary of Ashland’s chief executive officer 3. Glue used in the production process 4. Supplies for factory washroom 5. Research and development costs 6. Property taxes on factory building 7. Salary of company controller 8. Depreciation on furniture in factory lunchroom 9. Cost of lubricating machinery 10. Wood used in production process ANSWER: Product 1.Depreciation on automobiles used by the sales staff. 2.Salary of Ashland’s chief executive officer 3.Glue used in the production process 4.Supplies for factory washroom 5.Research and development costs 6.Property taxes on factory building 7.Salary of company controller 8.Depreciation on furniture in factory lunchroom 9.Cost of lubricating machinery 10.Wood used in production process Period X X X X X X X X X X 219. The Bayou Company makes crab pots. During the current month, direct materials costing $126,000 were put into production. Direct labor of $78,000 was incurred and overhead equaled $84,000. Selling and administrative expenses totaled $66,000 for the month and the company manufactured 3,000 crab pots. Assume there was no beginning inventory and that 2,800 crab pots were sold. Required: A. Compute the per-unit product cost B. Compute the per-unit prime cost C. Compute the per-unit conversion cost D. What is cost of goods sold for the month? E. What is the cost of ending finished goods for the month? ANSWER: A. ($126,000 + $78,000 + $84,000) / 3,000 = $96 B. ($126,000 + $78,000) / 3,000 = $68 C. ($78,000 + $84,000) / 3,000 = $54 D. ($96 × 2,800) = $268,800 E. ($96 × 200) = $19,200 Copyright Cengage Learning. Powered by Cognero. Page 34 Name: Class: Date: Chapter 02 220. Ross Company makes handbags. Last month direct materials (leather, thread, zippers, decorative accents) costing $76,000 were put into production. Ross had 30 workers, each worked 160 hours this month and each are paid $12 per hour. Overhead equaled $80,000 for the period. Ross Company produced 40,000 handbags as of the end of the month. Required: Calculate the total product cost for the month and calculate the cost of one handbag that was produced. ANSWER: Direct materials $ 76,000 Direct labor 57,600 (30 employees × 160 hrs. × $12/hour) Overhead 80,000 Total cost $213,600 Cost of one handbag: $213,600 / 40,000 = $5.34 221. Arcadia Company manufactures recreational vehicles and incurred the following costs during the current year. Required: Classify each cost using the table format given below: Direct Materials Overhead Period Cost Selling Administrative Expense Expense Product Cost Direct Labor Period Cost Selling Administrative Expense Expense Product Cost Direct Labor 1. Wages of general office personnel 2. Cost of tires 3. Factory supervisor’s salary 4. Conference for marketing personnel 5. Factory security guards 6. Research and development 7. Assembly line workers 8. Company receptionist 9. Advertising cost 10. Cost of shipping vehicles to customers ANSWER: Direct Materials 1. Wages of general office personnel 2. Cost of tires 3. Factory supervisor’s salary 4. Conference for marketing personnel 5. Factory security guards 6. Research and development 7. Assembly line workers 8. Company receptionist Copyright Cengage Learning. Powered by Cognero. Overhead X X X X X X X X Page 35 Name: Class: Date: Chapter 02 9. Advertising cost 10. Cost of shipping vehicles to customers X X 222. Room With A View Company manufactures curtains. Last week, direct materials costing $42,000 were put into production. Direct labor of $22,000 was incurred and overhead totaled $50,000. By the end of the week, the company had produced 12,000 curtains. Required: 1. Calculate the total prime cost for the week. 2. Calculate the per-unit prime cost. 3. Calculate the total conversion cost for the week. 4. Calculate the per-unit conversion cost. ANSWER: 1. $64,000 (42,000 + 22,000) 2. $5.33 (64,000 / 12,000) 3. $72,000 (22,000 + 50,000) 4. $6.00 (72,000 / 12,000) 223. The Blanchett Company manufactures fishing rods. Last year, direct materials costing $516,000 were put into production. Direct labor of $430,000 was incurred and overhead equaled $645,000. The company had operating income for the year of $58,000 and manufactured and sold 86,000 fishing rods at a sales price of $21 per unit. Assume that there were no beginning or ending inventory balances in the work in process and finished goods inventory accounts. Required: A. Compute the per-unit product cost B. Compute the per-unit prime cost C. Compute the per-unit conversion cost D. Compute the gross margin for the year E. Compute the selling and administrative expenses for the year Assume production amounted to 86,000 fishing rods and 80,000 were sold. Compute cost F. of goods sold. Assume production amounted to 86,000 fishing rods and 80,000 were sold. Compute the G. balance in ending finished goods inventory. ANSWER: A. ($516,000 + $430,000 + $645,000) / 86,000 = $18.50 B. ($516,000 + $430,000) / 86,000 = $11.00 C. ($430,000 + $645,000) / 86,000 = $12.50 D. Sales (86,000 × $21) COGS (86,000 × $18.50) Gross margin $1,806,000 1,591,000 $ 215,000 E. Gross margin Less: Sell. and admin. Operating income $215,000 157,000 $ 58,000 F. (80,000 × $18.50) = $1,480,000 Copyright Cengage Learning. Powered by Cognero. Page 36 Name: Class: Date: Chapter 02 G. (6,000 × $18.50) = $111,000 224. The Butchart Company manufactures microwave ovens. Last year, the per-unit product cost was $56, the per-unit prime cost was $34, and the per-unit conversion cost was $42. Cost of goods sold for the year was $560,000 and the sale price per unit was $100. In addition, direct labor costs of $200,000 and selling and administrative expenses of $240,000 were incurred. Required: A. Calculate how many units were sold last year B. Compute the cost of direct materials used C. Compute the cost of overhead D. Compute the gross margin for the year E. Calculate operating income ANSWER: A. Cost of goods sold $560,000 / $56 = 10,000 units B. 10,000 × $34 − ($200,000 of direct labor cost) = $140,000 C. 10,000 × $42 − ($200,000 of direct labor cost) = $220,000 D. Sales revenue (10,000 × $100) $1,000,000 Cost of goods sold 560,000 Gross margin $ 440,000 E. Gross margin Less: Sell. and admin. Operating income $ 440,000 240,000 $ 200,000 225. Picture It Inc. manufactures customized wooden frames. The direct materials needed to construct the frames are wood, glass and cardboard. Picture It has 22 employees who work a 40-hour work week and are each paid $17 per hour. The company produced and sold 900 frames in the month of September. During the month of September the following purchases were made to produce the 900 frames: Wood—4000 ft. at $1.20/ft. Glass—400 pieces at $5.60/piece Cardboard—500 pieces at $0.50/piece Required: 1. Calculate the total product cost for the month. Assume that all employees worked four full weeks in September and that the company incurred $55,000 in overhead costs. 2. Calculate the per-unit cost. 3. Calculate the gross margin for the month of September assuming that the company sells each frame for $250. ANSWER: 1. Direct materials: Wood = Glass = Cardboard = $4,800 (4,000 × $1.20) 2,240 (400 × $5.65) 250 (500 × $0.50) Copyright Cengage Learning. Powered by Cognero. Page 37 Name: Class: Date: Chapter 02 $7,290 Direct labor: $ 59,840 (22 × 160 × $17) Overhead 55,000 Total cost $122,130 2. $122,130 / 900 = $135.70 3. Gross margin = sales revenue – cost of goods sold Gross margin = $225,000 ($250 × 900) – $122,130 = $102,870 226. Tucker Company, a manufacturing firm, has supplied the following information from its accounting records for the month of April. Direct labor cost Purchases of raw materials Factory insurance Research and development Factory property taxes Sales commissions paid Work in process, April 1 Work in process, April 30 Materials inventory, April 1 Materials inventory, April 30 Finished goods inventory, April 1 Finished goods inventory, April 30 $12,000 17,000 4,000 7,500 3,000 4,500 2,000 2,800 1,475 1,200 2,250 750 Required: Prepare a Statement of Cost of Goods Manufactured. ANSWER: Tucker Company Statement of Cost of Goods Manufactured For the Month of April Materials inventory, April 1 $ 1,475 Materials purchased 17,000 Materials available for use $18,475 Materials inventory, April 30 1,200 Materials used Direct labor Overhead Total manufacturing costs Work in process, April 1 Work in process, April 30 Cost of goods manufactured $17,275 12,000 7,000 $36,275 2,000 (2,800) $35,475 227. In June, Olympic Company purchased materials costing $38,000, and incurred direct labor cost of $42,000. Overhead totaled $27,000 for the month. Information on inventories was as follows: Materials Work in process Finished goods Copyright Cengage Learning. Powered by Cognero. June 1 $3,000 1,000 2,500 June 30 $2,700 1,275 1,775 Page 38 Name: Class: Date: Chapter 02 Required: A. Calculate the cost of direct materials used during June. B. Calculate the total manufacturing cost for June. C. Calculate the cost of goods manufactured for June. D. Calculate cost of goods sold for June. ANSWER: A. Materials, 6/1 Purchases Materials, 6/30 Materials used $ 3,000 38,000 (2,700) $ 38,300 B. ($38,300 + $42,000 + $27,000) = $107,300 C. Total manufacturing costs Work in process, 6/1 Work in process, 6/30 Cost of goods manufactured $107,300 1,000 (1,275) $107,025 D. Cost of goods manufactured Finished goods, 6/1 Finished goods, 6/30 Cost of goods sold $107,025 2,500 (1,775) $107,750 228. Templar Company, a manufacturing firm, has supplied the following information from its accounting records for the month of November: Factory supplies used Depreciation on factory building Salary of company controller Factory janitorial costs Marketing and promotion Direct labor cost Purchases of raw materials Finished goods inventory, Nov. 1 Finished goods inventory, Nov. 30 Work-in-process inventory, Nov. 1 Work-in-process inventory, Nov. 30 Materials inventory, Nov. 1 Materials inventory, Nov. 30 Required: A. Prepare a Statement of Cost of Goods Manufactured B. Prepare a Statement of Cost of Goods Sold ANSWER: $18,000 17,000 6,000 5,000 4,500 22,000 10,000 2,250 3,750 4,200 2,750 3,500 5,100 Templar Company Statement of Cost of Goods Manufactured For the Month of November Materials inventory, Nov. 1 $ 3,500 Purchases of materials 10,000 Materials inventory, Nov. 30 (5,100) Copyright Cengage Learning. Powered by Cognero. Page 39 Name: Class: Date: Chapter 02 Materials used Direct labor Overhead Total manufacturing costs Work-in-process inventory, Nov. 1 Work-in-process inventory, Nov. 30 Cost of goods manufactured $ 8,400 22,000 40,000 $70,400 4,200 (2,750) $71,850 Templar Company Statement of Cost of Goods Sold For the Month of November Cost of goods manufactured Finished goods inventory, Nov. 1 Finished goods inventory, Nov. 30 Cost of goods sold $71,850 2,250 (3,750) $70,350 229. Fidalgo Company makes stereos. During the year, Fidalgo manufactured and sold 75,000 stereos at a sales price of $575 per unit. Fidalgo’s per-unit product cost was $540 and selling and administrative expenses totaled $2,000,000. Required: A. Compute the total sales revenue B. Compute the gross margin C. Compute the operating income D. Compute the operating income if 75,000 stereos were produced and 69,000 were sold. ANSWER: A. 75,000 × $575 = $43,125,000 B. Sales revenue (69,000 × $575) Cost of goods sold (75,000 × $540) Gross margin $43,125,000 C. Gross margin Selling and admin. expenses Operating income $2,625,000 2,000,000 $ 625,000 D. Sales revenue Cost of goods sold (69,000 × $540) Gross margin Selling and admin. expenses Operating income $39,675,000 40,500,000 $ 2,625,000 37,260,000 $ 2,415,000 2,000,000 $ 415,000 230. Baleen Company supplied the following data at the end of the current year: Sales commissions Sales revenue Research and development Finished goods inventory, Jan. 1 Copyright Cengage Learning. Powered by Cognero. $ 12,000 120,000 17,000 7,500 Page 40 Name: Class: Date: Chapter 02 Work in process inventory, Jan 1 Finished goods inventory, Dec. 31 Work in process inventory, Dec. 31 Cost of goods manufactured Required: Prepare an income statement for Baleen Company. ANSWER: 9,000 6,000 11,000 52,000 Baleen Company Income Statement For the Year Ended December 31, 2011 Sales revenue Cost of goods sold* Gross margin Less: Selling expense Administrative expense Operating income $120,000 53,500 $ 66,500 *Cost of goods manufactured Finished goods inventory, Jan. 1 Finished goods inventory, Dec. 31 $ 52,000 7,500 $ (6,000) 12,000 17,000 $ 37,500 231. Macon Company supplied the following data and information on inventories at the end of the current year. January 1 $21,000 17,500 26,000 Materials Work in process Finished goods Direct labor Selling expenses Sales revenue Administrative expenses Purchases of raw materials Factory supervision Factory supplies used December 31 $23,500 8,500 27,000 $ 40,000 31,000 400,000 14,500 62,000 50,000 25,000 Required: Prepare an income statement of Macon Company for the current year. ANSWER: Macon Company Income Statement For the Year Ended December 31, 2011 Sales revenue Cost of goods sold* Gross margin Less: Selling expenses Administrative expenses Operating income $400,000 182,500 217,500 *Cost of goods manufactured** $183,500 Copyright Cengage Learning. Powered by Cognero. $ 31,000 14,500 $172,000 Page 41 Name: Class: Date: Chapter 02 Finished goods inventory, Jan. 1 Finished goods inventory, Dec. 31 Cost of goods sold 26,000 (27,000) $182,500 **Purchases of raw materials Materials inventory, 1/1 Materials inventory, 12/31 Materials used Direct labor Overhead ($50,000 + $25,000) Total manufacturing costs Work in process inventory, Jan. 1 Work in process inventory, Dec. 31 Cost of goods manufactured $ 62,000 21,000 (23,500) $ 59,500 40,000 75,000 $174,500 17,500 (8,500) $183,500 232. Bartlow Company has supplied the following information from its accounting records for the month of May. Direct labor cost Purchases of raw materials Factory depreciation Advertising Factory property taxes Materials inventory, 5/1 Materials inventory, 5/31 Work in process inventory, 5/1 Work in process inventory, 5/31 Cost of goods manufactured Sales revenue Executive salary cost Finished goods inventory, 5/1 Finished goods inventory, 5/31 Operating income Gross margin $11,500 20,000 7,500 10,000 6,500 1,250 2,500 ? 1,500 45,850 ? 25,000 5,500 4,250 67,900 ? Required: Solve for the missing amounts (?). (Solve for WIP at 5/1 first, then Gross Margin, then Sales Revenue.) ANSWER: Bartlow Company Schedule of Cost of Goods Manufactured For the Month of May Materials inventory, 5/1 Purchases of materials Materials inventory, 5/31 Materials used Direct labor Overhead (7,500 + 6,500) Total manufacturing costs Work in process, 5/1 Work in process, 5/31 Cost of goods manufactured Copyright Cengage Learning. Powered by Cognero. $ 1,250 20,000 (2,500) $18,750 11,500 14,000 $44,250 3,100 (1,500) $45,850 Page 42 Name: Class: Date: Chapter 02 Bartlow Company Income Statement For the Month of May Sales revenue Cost of goods sold* Gross margin Less: Selling expense Administrative expense Operating income $150,000 47,100 $102,900 *Cost of goods manufactured Finished goods inventory, 5/1 Finished goods inventory, 5/31 Cost of goods sold $ 45,850 5,500 (4,250) $ 47,100 $ 10,000 25,000 $ 67,900 233. See the following separate cases. Sales Cost of goods manufactured Finished goods inventory (beginning balance) Finished goods inventory (ending balance) Cost of goods sold Gross margin Selling expenses Administrative expenses Operating income Required: Solve for the missing amounts (A,B,C,D,E,F) ANSWER: Case #1 $1,000 A 100 150 B 300 C 50 200 Case #2 $1,300 500 D 200 600 E 75 40 F Case #1 $1,000 $ 750 100 (150) $ 700 300 50 50 $ 200 Sales Cost of goods manufactured Finished goods inventory (beginning balance) Finished goods inventory (ending balance) Cost of goods sold Gross margin Selling expenses Administrative expenses Operating income Case #2 $1,300 $ 500 300 (200) $ 600 700 75 40 $ 585 234. See the following separate cases. Purchase of materials Materials inventory (beginning balance) Materials inventory (ending balance) Direct labor Factory supervision Copyright Cengage Learning. Powered by Cognero. Case #1 $ 5,000 A 1,000 7,000 1,500 Case #2 C $ 220 350 4,250 1,100 Page 43 Name: Class: Date: Chapter 02 Factory supplies Total manufacturing costs Work in process inventory (beginning balance) Work in process inventory (ending balance) Cost of goods manufactured Required: Solve for the missing amounts (A,B,C,D). ANSWER: 1,250 14,500 1,200 B 14,600 Purchases of materials Materials inventory (beginning balance) Materials inventory (ending balance) Materials used Direct labor Overhead Total manufacturing costs Work in process inventory, (beginning balance) Work in process inventory, (ending balance) Cost of goods manufactured 900 D 1,230 650 10,200 Case #1 $ 5,000 750 (1,000) $ 4,750 7,000 2,750 $14,500 1,200 (1,100) $14,600 Case #2 $ 3,500 220 (350) $ 3,370 4,250 2,000 $ 9,620 1,230 (650) $10,200 235. Rancor Company’s accountant prepared the following income statement for the month of August. Rancor Company Income Statement For the Month of August Sales revenue Cost of goods sold Gross margin Less: Selling expense Administrative expense Operating income $912,200 601,920 $310,280 164,160 63,840 $ 82,280 Required: (Round to the nearest whole percent) A. Calculate the sales revenue percent B. Calculate the cost of goods sold percent C. Calculate the gross margin percent D. Calculate the selling expense percent E. Calculate the administrative expense percent F. Calculate the operating income percent ANSWER: A. B. C. D. E. F. $912,000 / $912,200 = 100% $601,920 / $912,200 = 66% $310,280 / $912,200 = 34% $164,160 / $912,200 = 18% $63,840 / $912,200 = 7% $82,280 / $912,200 = 9% 236. Extrema Company supplied the following data at the end of the current year. Copyright Cengage Learning. Powered by Cognero. Page 44 Name: Class: Date: Chapter 02 Finished goods inventory, Jan 1. Finished goods inventory, Dec. 31 Cost of goods manufactured Sales revenue Sales commissions Research and development costs $ 12,000 7,500 152,380 212,000 19,080 15,900 Required: A. Calculate the cost of goods sold percent B. Calculate the gross margin percent C. Calculate the selling expense percent D. Calculate the administrative expense percent E. Calculate the operating income percent ANSWER: A. A. B. C. D. E. Cost of goods manufactured Finished goods inventory, 1/1 Finished goods inventory, 12/31 Cost of goods sold $152,380 12,000 (7,500) $156,880 Sales revenue Cost of goods sold Gross margin Less: Selling expense Administrative expense Operating income $212,000 156,880 $ 55,120 19,080 15,900 $ 20,140 156,880 / 212,000 = 74% 55,120 / 212,000 = 26% 19,080 / 212,000 = 9% 15,900 / 212,000 = 7.5% 20,140 / 212,000 = 9.5% 237. Rizzuto Company supplied the following information for the month of January. Cost of Goods Sold percent 62% Selling Expense percent 6% Administrative Expense percent 13% Required: Reconstruct Rizzuto’s income statement for January assuming that their total sales revenue for the month equaled $500,000. ANSWER: Rizzuto Company Income Statement For the Month of January Sales revenue Cost of goods sold (500,000 × 62%) Gross margin (500,000 × 38%) Less: Selling expense (500,000 × 6%) Copyright Cengage Learning. Powered by Cognero. $500,000 310,000 $190,000 30,000 Page 45 Name: Class: Date: Chapter 02 Administrative expense (500,000 × 13%) Operating income 65,000 $ 95.000 238. Cashman Company supplied the following information for the month of December. Operating income percent 10.5% Gross margin percent 30% Required: Solve for the following amounts assuming that Cashman Company’s operating income in December was $44,100. A. Sales revenue B. Cost of goods sold C. Total selling and administrative expenses ANSWER: A. B. C. Sales Revenue = $44,100 / 0.105 = $420,000 Cost of goods sold = $420,000 × 0.70 = $294,000 Gross margin ($420,000 × 0.30) Less: Selling and administrative expense Operating income $126,000 81,900 $ 44,100 239. Wapato Company produces a product with the following per unit costs. Direct materials $17 Direct labor 11 Overhead 12 Last year, Wapato produced and sold 3,000 units at a sales price of $80 each. Total selling and administrative expenses were $25,000. Required: Solve for the following: A. Total cost of goods sold for last year B. Operating income for last year C. Total gross margin for last year D. Prime cost per unit ANSWER: A. ($17 + $11 + $12) × 3,000 = $120,000 B. & C. Sales revenue (3,000 × $80) Cost of goods sold Gross margin Less: Selling and administrative expenses Operating income D. $240,000 120,000 $120,000 25,000 $ 95,000 $17 + $11 = $28 240. Tesco Company showed the following costs for last month: Direct materials Direct labor Copyright Cengage Learning. Powered by Cognero. $40,000 35,000 Page 46 Name: Class: Date: Chapter 02 Overhead Selling expense Administrative expense 52,000 17,000 12,000 Last month, Tesco produced and sold 20,000 units at a sales price per unit of $18. Assume no beginning or ending inventory balances for work in process and finished goods inventories. Required: Solve for the following amounts. A. Total product cost for last month B. Unit product cost for last month C. Total period costs D. Gross margin for last month E. Operating income for last month ANSWER: A. $40,000 + $35,000 + $52,000 = $127,000 B. $127,000 / 20,000 = $6.35 C. $17,000 + $12,000 = $29,000 D & E. Sales revenue (20,000 × $18) Cost of goods sold Gross margin Less: Selling expense Administrative expense Operating income $360,000 127,000 $233,000 17,000 12,000 $204,000 241. Stabler Company, a manufacturing firm, has provided the following information for the month of May: Factory supplies used Depreciation on factory building Commissions for sales personnel Salary of company CFO Factory janitorial costs Research and development Depreciation on corporate office Advertising costs Direct labor cost Purchases of raw materials Finished goods inventory units, May 1 Finished goods inventory units, May 31 Finished goods inventory, May 1 Finished goods inventory, May 31 Work in process inventory, May 1 Work in process inventory, May 31 Materials inventory, May 1 Materials inventory, May 31 $22,000 10,000 32,000 9,000 3,000 5,000 8,500 2,500 40,000 15,000 4,000 6,500 36,000 59,865 7,500 3,300 2,100 4,200 Required: A. Prepare a Statement of Cost of Goods Manufactured. Copyright Cengage Learning. Powered by Cognero. Page 47 Name: Class: Date: Chapter 02 B. Calculate the cost of one unit assuming 10,000 units were completed during May. C. Prepare a Statement of Cost of Goods Sold. D. Calculate the number of units that were sold during May. E. Prepare an Income Statement assuming the sales price per unit is $35. ANSWER: A. Stabler Company Statement of Cost of Goods Manufactured For the Month of May Materials Inventory, May 1 Purchases of materials Materials Inventory, May 31 Materials used Direct Labor Overhead Total manufacturing costs Work in Process Inventory, May 1 Work in Process Inventory, May 31 Cost of Goods Manufactured $ 2,100 15,000 (4,200) $12,900 40,000 35,000 $87,900 7,500 (3,300) $92,100 B. $92,100 / 10,000 = $9.21 C. Stabler Company Statement of Cost of Goods Sold For the Month of May Cost of Goods Manufactured Finished Goods Inventory, May 1 Finished Goods Inventory, May 31 Cost of Goods Sold $92,100 36,000 (59,865) $68,235 D. Number of units sold: Finished goods inventory, May 1 Units finished during May Finished goods inventory, May 31 Units sold during May 4000 10,000 6,500 7,500 E. Stabler Company Income Statement For the Month of May Sales revenue (7,500 × $35) Cost of goods sold Gross margin Less: Selling expense Commissions $32,000 Advertising 2,500 Administrative expense Salary of CFO $ 9,000 Copyright Cengage Learning. Powered by Cognero. $262,500 68,235 $194,265 34,500 Page 48 Name: Class: Date: Chapter 02 Research and development Depreciation on corporate office Operating income Copyright Cengage Learning. Powered by Cognero. 5,000 8,500 22,500 $137,265 Page 49