Chap 00122

Chapter 01 - Managerial Accounting Concepts and Principles
Chapter 01
Managerial Accounting Concepts and Principles

True / False Questions

1. Much of managerial accounting is directed at gathering useful information about costs for
planning and control decisions.
True False

2. Control is the process of setting goals and determining was to achie!e them.
True False

". Managerial accounting is an acti!it that pro!ides financial and nonfinancial information to
an organi#ation$s managers and other internal decision ma%ers.
True False

&. 'ne of the usual differences between financial and managerial accounting is the time
dimension of the information reported.
True False

(. Managerial accounting information can be forwarded to the managers of a compan
)uic%l since e*ternal auditors do not ha!e to re!iew it+ and estimates and pro,ections are
acceptable.
True False

-. 'ne difference between financial and managerial accounting is that the e*ternal users that
use financial information must plan a compan$s future+ but the internal users of managerial
accounting information generall must decide whether to in!est in or lend to a compan.
True False

1-1
.. Financial accounting relies on accepted principles that are enforced through an e*tensi!e
set of rules and guidelines/ on the other hand+ managerial accounting sstems are fle*ible.
True False

0. The focus of financial accounting is on an organi#ation$s pro,ects+ processes+ and
subdi!isions+ and the focus of managerial accounting is on the whole organi#ation.
True False

1. 2oth financial and managerial accounting report monetar information/ managerial
accounting also reports considerable nonmonetar information.
True False

10. 2oth financial and managerial accounting affect people$s decisions and actions.
True False

11. The concept of total )ualit management focuses on continuous impro!ement.
True False

12. The orientation of ,ust-in-time manufacturing is that products are 3pulled3 through the
manufacturing process b the orders recei!ed from customers.
True False

1". 4hen the attitude of continuous impro!ement e*ists throughout an organi#ation+ e!er
manager and emploee see%s to continuousl e*periment with new and impro!ed business
practices.
True False

1-2
1&. The main principle of the lean business model is the elimination of waste of e!er %ind
while satisfing the customer and pro!iding a positi!e return to the compan.
True False

1(. The management concept of customer orientation causes a compan to spend large
amounts on ad!ertising to con!ince customers to bu the compan$s standard products.
True False

1-. The management concept of customer orientation encourages a compan to set up its
production sstem to produce large )uantities of the same product for all customers.
True False

1.. Total )ualit management and ,ust-in-time manufacturing are two modern sstems
designed to impro!e the )ualit of management and the products and ser!ices offered.
True False

10. 5nder a ,ust-in-time manufacturing sstem+ large )uantities of in!entor are accumulated
throughout the factor to be certain that needed components are a!ailable each time that the
are needed.
True False

11. The balanced scorecard aids in continuous impro!ement b augmenting financial
measures with dri!ers or indicators of future financial performance.
True False

20. The 6ean 2usiness Model should ha!e no effect on cost in a modern manufacturing
en!ironment.
True False

1-"
21. Fraud affects all business.
True False

22. Fraud in!ol!es the deliberate or accidental misuse of the emploer$s assets.
True False

2". 7irect materials are not usuall easil traced to a product.
True False

2&. Costs ma be classified b man different cost classifications.
True False

2(. Product costs can be classified as one of three tpes8 direct materials+ direct labor+ or
o!erhead.
True False

2-. 4hether a cost is controllable or not controllable b an emploee depends on the
emploee$s le!el of responsibilit.
True False

2.. 9ndirect materials are accounted for as factor o!erhead because the are not easil traced
to specific units or batches of production.
True False

20. A !ariable cost changes in proportion to changes in the !olume in acti!it.
True False

1-&
21. 7irect costs are incurred for the benefit of more than one cost ob,ect.
True False

"0. A sun% cost has alread been incurred and cannot be a!oided or changed+ so it is irrele!ant
to decision ma%ing.
True False

"1. An out-of-poc%et cost re)uires a future cash outla and is rele!ant for decision ma%ing.
True False

"2. An opportunit cost re)uires a future cash outla and is rele!ant for decision ma%ing.
True False

"". Period costs are incurred b purchasing merchandise or manufacturing finished goods.
True False

"&. Product costs are e*penditures necessar and integral to finished products.
True False

"(. Cost concepts such as !ariable+ fi*ed+ mi*ed+ direct and indirect appl onl to
manufacturers and not to ser!ice companies.
True False

"-. Although direct labor and raw materials costs are treated as manufacturing costs and
therefore ma%e up part of the finished goods in!entor cost+ factor o!erhead is charged to
e*pense as it is incurred because it is a period cost.
True False

1-(
".. :elling and administrati!e e*penses are normall product costs.
True False

"0. The cost of partiall completed products is included in the balance of the ;oods in
Process 9n!entor account.
True False

"1. <aw materials that become part of a product and are identified with specific units or
batches of a product are called direct materials.
True False

&0. Manufacturers usuall ha!e three in!entories8 raw materials+ goods in process+ and
finished goods.
True False

&1. <aw materials in!entor includes onl direct materials.
True False

&2. The ;oods in Process 9n!entor account is found onl in the ledgers of merchandising
companies.
True False

&". The main difference between the income statement of a manufacturer and a merchandiser
is that the merchandiser includes cost of goods manufactured rather than cost of goods
purchased.
True False

1--
&&. <aw materials purchased plus beginning raw materials in!entor e)uals the ending
balance of raw materials in!entor.
True False

&(. Four factors come together in the manufacturing process8 beginning goods in process
in!entor+ direct materials+ direct labor+ and factor o!erhead.
True False

&-. =ewl completed units are combined with beginning finished goods in!entor to ma%e up
total ending goods in process in!entor.
True False

&.. The series of acti!ities that add !alue to a compan$s products or ser!ices is called a !alue
chain.
True False

&0. Ccle time e)uals process time plus inspection time plus mo!e time plus wait time.
True False

&1. A manufacturer$s cost of goods manufactured is the sum of direct materials+ direct labor+
and factor o!erhead costs incurred in producing products.
True False

(0. 9ndirect labor refers to the cost of the wor%ers whose efforts are directl traceable to
specific units or batches of product.
True False

1-.
(1. Factor o!erhead includes selling and administrati!e e*penses because the are indirect
costs of a product.
True False

(2. Prime costs consist of direct labor and factor o!erhead.
True False

(". The manufacturing statement is also %nown as the schedule of manufacturing acti!ities or
the schedule of cost of goods manufactured.
True False

(&. The manufacturing statement must be prepared monthl as it is a re)uired general-purpose
financial statement.
True False

Multiple Choice Questions

((. Managerial accounting information8
A. 9s used mainl b e*ternal users.
2. 9n!ol!es gathering information about costs for planning and control decisions.
C. 9s generall the onl accounting information a!ailable to managers.
7. Can be used for control purposes but not for planning purposes.
>. ?as little to do with controlling costs.

1-0
(-. Managerial accounting is different from financial accounting in that8
A. Managerial accounting is more focused on the organi#ation as a whole and financial
accounting is more focused on subdi!isions of the organi#ation.
2. Managerial accounting ne!er includes nonmonetar information.
C. Managerial accounting includes man pro,ections and estimates whereas financial
accounting has a minimum of predictions.
7. Managerial accounting is used e*tensi!el b in!estors+ whereas financial accounting is
used onl b creditors.
>. Managerial accounting is mainl used to set stoc% prices.

(.. Fle*ibilit of practice when applied to managerial accounting means that8
A. The information must be presented in electronic format so that it is easil changed.
2. Managers must be willing to accept the information as the accountants present it to them+
rather than in the format the as% for.
C. The managerial accountants need to be on call twent-four hours a da.
7. The design of a compan$s managerial accounting sstem largel depends on the nature of
the business and the arrangement of the internal operations of the compan.
>. Managers must be fle*ible with information pro!ided in !aring forms and using
inconsistent measures.

(0. 4hich of the following items does not represent a difference between financial and
managerial accounting@
A. 5sers of the information.
2. Fle*ibilit of practices.
C. Timeliness and time dimension of the information reported.
7. =ature of the information.
>. Purpose of accounting.

(1. 4hich of the following items is a management concept that was not created to impro!e
companies$ performances@
A. Aust-in-time manufacturing.
2. Customer orientation.
C. Total )ualit management.
7. Continuous impro!ement.
>. Theor of Constraints.

1-1
-0. The Malcolm 2aldridge Award was established b8
A. The 5nited =ations.
2. The 5. :. Chamber of Commerce.
C. The Malcolm 2aldridge Foundation.
7. The 5. :. Congress.
>. The :>C.

-1. Continuous impro!ement8
A. 9s a measure of profits.
2. 9s a measure of costs.
C. <e,ects the notion of 3good enough.3
7. 9s not applicable to most businesses.
>. 9s possible onl in ser!ice businesses.

-2. An attitude of constantl see%ing was to impro!e compan operations+ including
customer ser!ice+ product )ualit+ product features+ the production process+ and emploee
interactions+ is called8
A. Continuous impro!ement.
C. Aust-in-time.
7. Theor of constraints.
>. Total )ualit measurement.

-". A management concept that encourages all managers and emploees to be in tune with the
wants and needs of customers+ and which leads to fle*ible product designs and production
processes+ is called8
C. Aust-in-time.
>. Total )ualit management.

1-10
-&. An approach to managing in!entories and production operations such that units of
materials and products are obtained and pro!ided onl as the are needed is called8
C. Aust-in-time manufacturing.

-(. A management concept that applies )ualit impro!ement to all aspects of business
acti!ities is called8
A. Continuous operations.
C. Aust-in-time.

--. The model whose goal is to eliminate waste while satisfing the customer and pro!iding a
positi!e return to the compan is8
A. Total )ualit management.
2. Managerial accounting.
C. Customer orientation.
>. 6ean business model.

-.. 4hich of the following is not a characteristic of all fraud@
A. 9t is done to pro!ide direct or indirect benefit to the emploee.
2. 9t !iolates the emploee$s duties to his emploer.
C. 9t costs the emploer mone.
7. 9t is secret.
>. Can be intentional or unintentional.

1-11
-0. 4hich of the following statements regarding fraud is BareC true@
A. Fraud is a deliberate act.
2. Fraud can be deliberate or unintentional/ the outcome of the act determines if fraud e*ists.
C. A compan with a strong code of ethics can eliminate fraud.
7. A compan with strong internal controls can eliminate fraud.
>. The most common tpe of fraud is financial statement fraud.

-1. 4hich of the following statements is true@
A. The 9MA$s :tatement of >thical Professional Practice re)uires management accountants to
be incompetent+ maintain confidentialit+ act with integrit+ and communicate information in a
fair and credible manner.
2. The 9MA$s :tatement of >thical Professional Practice re)uires management accountants to
be competent+ maintain confidentialit+ eliminate all fraud+ and communicate information in a
C. The 9MA$s :tatement of >thical Professional Practice re)uires management accountants to
be incompetent+ maintain confidentialit+ act with integrit+ and miscommunicate information
in a credible manner.
be competent+ maintain confidentialit+ act with integrit+ and communicate information in a
>. The 9MA$s :tatement of >thical Professional Practice re)uires management accountants to
perform certain chec%s for fraud+ act with integrit+ and communicate information in a fair
and credible manner.

.0. The 9nstitute of Management Accountants has de!eloped a code of ethics which re)uires
management accountants to beha!e in certain was. 4hich of the following beha!iors is not
re)uired@
A. Competence
2. 9ntegrit
C. Maintenance of confidentialit
7. Communication of information in credible manner
>. Timeliness

1-12
.1. A direct cost is a cost that is8
A. 9dentifiable as controllable.
2. Dariable with respect to the !olume of acti!it.
C. Fi*ed with respect to the !olume of acti!it.
7. Traceable to a cost ob,ect.
>. :un% with respect to a cost ob,ect.

.2. An opportunit cost is8
A. An uncontrollable cost.
2. A cost of potential benefit lost.
C. A change in the cost of a component.
7. A direct cost.
>. A sun% cost.

.". 6abor costs that are clearl associated with specific units or batches of product because
the labor is used to con!ert raw materials into finished products called are8
A. :un% labor.
2. 7irect labor.
C. 9ndirect labor.
7. Finished labor.
>. :uper!isor labor.

.&. Costs that are incurred as part of the manufacturing process but are not clearl associated
with specific units of product or batches of production+ including all manufacturing costs
other than direct material and direct labor costs+ are called8
A. Administrati!e e*penses.
2. =onmanufacturing costs.
C. :un% costs.
7. Factor o!erhead.
>. Preproduction costs.

1-1"
.(. Materials that are used in support of the production process but that do not become a part
of the product and are not clearl identified with units or batches of product are called8
A. :econdar materials.
2. ;eneral materials.
C. 7irect materials.
7. 9ndirect materials.
>. Materials in!entor.

.-. The salar paid to the super!isor of an assembl line would normall be classified as8
A. 7irect labor.
2. 9ndirect labor.
C. A period cost.
7. A general cost.
>. An assembl cost.

... Classifing costs b beha!ior in!ol!es8
A. 9dentifing fi*ed cost and !ariable cost.
2. 9dentifing cost of goods sold and operating costs.
C. 9dentifing all costs.
7. 9dentifing costs in a phsical manner.
>. 9dentifing both )uantitati!e and )ualitati!e cost factors.

.0. Costs classified b controllabilit are useful for8
A. The balance sheet.
2. The income statement.
C. The budgeting process.
7. >!aluation reports.
>. 7etermining product cost.

1-1&
.1. 4hich of the following is ne!er included in direct materials costs@
A. 9n!oice costs of direct materials.
2. 'utgoing deli!er charges.
C. Materials storage costs.
7. Materials handling costs.
>. 9nsurance on stored material.

00. <aw materials that phsicall become part of the product and can be traced to specific
units or batches of product are called8
A. <aw materials sold.
2. Chargeable materials.
C. ;oods in process.
>. 7irect materials.

01. The following costs are included in a recent summar of data for a compan8 ad!ertising
e*pense E0(+000/ depreciation e*pense - factor building E1""+000/ direct labor E2(0+000/
direct material used E"00+000/ factor utilities E10(+000/ and sales salaries e*pense E1(0+000.
7etermine the dollar amount of prime costs.
A. E1+02"+000
2. E((0+000
C. E&00+000
7. E2"(+000
>. E2"0+000

7etermine the dollar amount of con!ersion costs.
A. E1+02"+000
2. E((0+000
C. E&00+000
7. E2"(+000
>. E2"0+000

1-1(
0". A mi*ed cost8
A. <e)uires the future outla of cash and is rele!ant for future decision ma%ing.
2. 7oes not change with changes in the !olume of acti!it within the rele!ant range.
C. 9s directl traceable to a cost ob,ect.
7. Contains a combination of fi*ed costs and !ariable costs.
>. ?as alread been incurred and cannot be a!oided so it is irrele!ant for decision ma%ing.

0&. A fi*ed cost8
7. Changes with changes in the !olume of acti!it within the rele!ant range.

0(. 4hich of the following costs is not included in factor o!erhead@
A. Paroll ta*es on the wages of super!isor factor wor%ers.
2. 9ndirect labor.
C. 7epreciation of manufacturing e)uipment.
7. Manufacturing supplies used.
>. 7irect materials.

0-. The three ma,or cost components of a manufactured product are8
A. Mar%eting+ selling+ and administrati!e costs.
2. 9ndirect labor+ indirect materials+ and miscellaneous factor e*penses.
C. 7irect materials+ direct labor+ and factor o!erhead.
7. 7ifferential costs+ opportunit costs+ and sun% costs.
>. ;eneral+ selling+ and administrati!e costs.

0.. 4hich of the following costs would not be classified as factor o!erhead@
A. Propert ta*es on maintenance machiner.
2. >*pired insurance on factor e)uipment.
C. 4ages of the factor ,anitor.
7. Metal door%nobs used on wood cabinets produced.
>. :mall tools used in production.

1-1-
00. Period costs for a manufacturing compan would flow directl to8
A. The current income statement.
2. Factor o!erhead.
C. The current balance sheet.
7. Aob cost sheet.
>. The current manufacturing statement.

01. Costs that are first assigned to in!entor are called8
A. Period costs.
2. Product costs.
C. ;eneral costs.
7. Administrati!e costs.
>. Fi*ed costs.

10. Costs that flow directl to the current income statement are called8
A. Period costs.
2. Product costs.
C. ;eneral costs.
7. 2alance sheet costs.
>. Capitali#ed costs.

11. Product costs8
A. Are e*penditures necessar and integral to finished products.
2. Are e*penditures identified more with a time period rather than with finished products.
C. 9nclude selling and administrati!e e*penses.
7. Are costs that !ar with the !olume of acti!it.
>. Are costs that do not !ar with the !olume of acti!it.

1-1.
12. The following are all e*amples of product costs8
A. 7irect material+ 7irect 6abor and 9ndirect 6abor.
2. 7irect 6abor+ DP of :ales salar+ and 9nsurance on the factor.
C. 7epreciation on the factor e)uipment+ depreciation on the office building+ and
depreciation on the factor building.
7. Factor 9nsurance+ 9nterest e*pense+ and Propert ta*es on the factor.
>. 'ffice supplies+ :ales commissions+ and maintenance costs on office copier.

1". Products that ha!e been completed and are read to be sold b the manufacturer are
called8
A. Finished goods in!entor.
2. ;oods in process in!entor.
C. <aw materials in!entor.
7. Cost of goods sold.
>. Factor supplies.

1&. ;oods a compan ac)uires to use in ma%ing products are called8
A. Cost of goods sold.
2. <aw materials in!entor.
C. Finished goods in!entor.
>. Con!ersion costs.

1(. Products that are in the process of being manufactured but are not et complete are
called8
A. <aw materials in!entor.
2. Con!ersion costs.
C. Cost of goods sold.
>. Finished goods in!entor.

1-10
1-. Another title for goods in process in!entor is8
A. 9ndirect materials in!entor.
2. 4or% in process in!entor.
C. Con!ersion costs.
7. 7irect materials in!entor.
>. <aw materials in!entor.

1.. Ccle time is8
A. Dalue added time.
2. Process time plus inspection time.
C. Process time plus inspection time plus mo!e time.
7. Process time plus inspection time plus mo!e time plus wait time.
>. Another name for ccle efficienc.

10. Ccle efficienc8
A. 9s the ratio of !alue-added time to total ccle time.
2. 9s the ratio of !alue-added time to non-!alue-added time.
C. 9s the ratio of process time to total ccle time.
7. Cannot be used in con,unction with other analtical tools.
>. 9s the same as the ccle time.

11. A compan produces wor% boots. The compan recei!ed and produced an order for "+000
pairs of boots. The following information is a!ailable regarding this order.

4hat is this compan$s manufacturing ccle efficienc@
A. 22 das.
2. (.( das
C. 22.2.F
7. 1(F
>. 21.&F

1-11
100. Companies A+ 2+ C and 7 are competitors in the same industr. <ecentl each recei!ed
and produced an order for .(+000 units of an identical item. The following times were
measured at each compan.

4hich of the following statements is true regarding the manufacturing ccle efficienc of
these companies@
A. Compan A was the least efficient.
2. Compan 7 was the most efficient.
C. Compan 2 was the least efficient.
7. Compan C was the most efficient.
>. Compan A was the most efficient.

101. The cost of labor that is not clearl associated with specific units or batches of product is
called8
A. 5nspecified labor.
2. 7irect labor.
C. 9ndirect labor.
7. 2asic labor.
>. Aoint labor.

102. Factor o!erhead costs normall include all of the following e*cept8
A. 9ndirect labor costs.
2. 9ndirect material costs.
C. :elling costs.
7. Machiner oil.
>. Factor rent.

1-20
10". The following costs are included in a recent summar of data for a compan8 ad!ertising
7etermine the dollar amount of o!erhead costs.
A. E1+02"+000
2. E((0+000
C. E&00+000
7. E2"(+000
>. E2"0+000

10&. 4hich of the following items appears onl in a manufacturing compan$s financial
statements@
2. Cost of goods manufactured.
C. ;oods a!ailable for sale.
7. ;ross profit.
>. =et income.

10(. The total cost of goods completed during the accounting period for a manufacturer is
called8
A. >nding finished goods in!entor.
2. Total manufacturing costs.
C. >nding goods in process in!entor.
7. Cost of goods manufactured.
>. Cost of goods sold.

10-. A manufacturing firm$s cost of goods manufactured is e)ui!alent to a merchandising
firm$s8
2. Cost of goods purchased.
C. Cost of goods a!ailable.
7. 2eginning merchandise in!entor.
>. >nding merchandise in!entor.

1-21
10.. 4hich one of the following items is normall not a manufacturing cost@
A. 7irect materials.
2. Factor o!erhead.
C. ;eneral and administrati!e e*penses.
7. 7irect labor.
>. Con!ersion cost.

100. Auliet Corporation has accumulated the following accounting data for the ear8

The cost of goods manufactured for the ear is8
A. E200
2. E1+000
C. E(+000
7. E-+&00
>. E0+200

101. A manufacturing compan has a beginning finished goods in!entor of E1&+-00+ raw
material purchases of E10+000+ cost of goods manufactured of E"2+(00+ and an ending finished
goods in!entor of E1.+000. The cost of goods sold for this compan is8
A. E21+200
2. E21+"00
C. E"2+(00
7. E&.+100
>. E2.+-00

110. The beginning and ending finished goods in!entories of the Pri#e <ing manufacturing
compan were E.(+000 and E."+000 respecti!el. 9f cost of goods sold e)ualed E--+000+ what
is the amount of cost of goods manufactured for this period@
A. E2+000
2. E-&+000
C. E-0+000
7. E02+000
>. E21&+000

1-22
111. Compute cost of goods manufactured for this period gi!en the following amounts.

A. E.2+000
2. E&0+000
C. E-0+000
7. E--+000
>. E100+000.

112. The beginning and ending finished goods in!entories of a compan were E11+000 and
E1&+000 respecti!el. 9f cost of goods sold e)ualed E000+000+ what is the amount of cost of
goods manufactured for this period@
A. E.0-+000
2. E.01+000
C. E.1.+000
7. E00"+000
>. E"+000

11". A manufacturing statement is also %nown as a schedule or listing of the8
A. <aw materials processed.
2. Factor supplies used.
C. Cost of goods manufactured.
7. Total finished goods.

1-2"
11&. The following information relates to the manufacturing operations of the 9M? Publishing
Corporation for the ear8

The raw materials used in manufacturing during the ear totaled E110+000. <aw materials
purchased during the ear amount to8
A. E10.+000
2. E11(+000
C. E110+000
7. E121+000
>. E12-+000

11(. A,a* Compan accumulated the following account information for the ear8

5sing the abo!e information+ total factor o!erhead costs would be8
A. E1+000
2. E1-+000
C. E1(+000
7. E1"+000
>. E.+000

1-2&
11-. The following information is a!ailable for the ear ended 7ecember "18

The amount of raw materials used in production for the ear is8
A. E&+100
2. E(+100
C. E"+(00
7. E-+(00
>. E&+000

11.. A financial report that summari#es the amounts and tpes of costs that were incurred in
the manufacturing process during the period is a8
A. Materialit statement.
2. Managerial statement.
C. Manufacturing statement.
7. Merchandise statement.
>. Monetar statement.

110. 4hich of the following accounts would all appear on a manufacturing statement@
A. <aw materials+ factor insurance e*pired+ indirect labor.
2. <aw materials+ goods in process+ finished goods.
C. Factor buildings+ deli!er e)uipment+ and depreciation on factor e)uipment.
7. 7irect labor+ indirect labor+ sales salaries.
>. 7irect labor+ factor repairs and maintenance+ wages paable.

5se the following information from ?ard Co. for the current ear8

1-2(
111. The total of ?ard Co.$s manufacturing costs added during the current ear is8
A. E12+000
2. E1-+100
C. E1.+100
7. E10+100
>. E1"+-00

120. ?ard Co.$s cost of goods manufactured for the current ear is8
A. E12+000
2. E1-+100
C. E1.+100
7. E10+100
>. E1"+-00

121. Total manufacturing costs incurred during the ear do not include8
A. 7irect materials used.
C. ;oods in process in!entor+ beginning balance.
7. 7irect labor.
>. 7epreciation of machiner.

122. 9f beginning and ending goods in process in!entories are E(+000 and E1(+000+
respecti!el+ and cost of goods manufactured is E1.0+000+ what is the total manufacturing cost
for the period@
A. E100+000
2. E1((+000
C. E1-0+000
7. E1.(+000
>. E1-(+000

1-2-
The following information is a!ailable for Tal%ing Tos+ 9nc. for the current ear8

12". The total manufacturing costs incurred during the ear were8
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A. E1"+000
2. E&&+(00
C. E(.+(00
7. E1&+(00
>. E01+000

12&. The total cost of goods manufactured for the ear was8
A. E1"+000
2. E&&+(00
C. E(.+(00
7. E1&+(00.
>. E(2+000

1-2.
12(. Current information for the Austin Compan follows8

All raw materials used were traceable to specific batches of product. Austin Compan$s cost
of goods manufactured for the ear is8
A. E12(+000
2. E120+-00
C. E1"1+&00
7. E1".+000
>. E1"1+000

12-. 5se the following data to determine the cost of goods manufactured8

A. E102+000
2. E110+100
C. E1-+-00
7. E11"+.00
>. E100+200

1-20
12.. 5se the following data to determine the cost of goods manufactured.

A. E-(+000
2. E&(+000
C. E&1+(00
7. E(2+"00
>. E&.+100

120. 5se the following information to compute the cost of goods manufactured8

A. E"-+-(0
2. E"0+1(0
C. E"0+-(0
7. E"0+"(0
>. E"1+-(0

1-21
121. 5se the following information to compute the total manufacturing costs incurred during
the period8

A. E"-+-(0
2. E"0+1(0
C. E"0+-(0
7. E"0+"(0
>. E"1+-(0

1"0. 5se the following information to compute the cost of goods sold for the period8

A. E"-+-(0
2. E"0+1(0
C. E"0+-(0
7. E"0+"(0
>. E"1+-(0

1-"0
1"1. 5se the following information to compute the cost of goods manufactured8

A. E-"+000
2. E10(+000
C. E10.+000
7. E10+000
>. E101+000


A. E1&"+&00
2. E1"+000
C. E1&"+000
7. E1&&+(00
>. E1"+&00

1-"1
5se the following information for ?aes+ 9nc.+ as of 7ecember "1 to answer the ne*t
)uestions8

1"". 4hat is the correct amount of direct materials used+ based on the ?aes 9nc.
information@
A. E1&1+000.
2. E12(+000.
C. E1".+000.
7. E121+000.
>. E1"0+000.

1"&. 4hat is the correct amount of o!erhead based on the ?aes 9nc. information@
A. E112+000.
2. E110+(00.
C. E200+000.
7. E1(0+000.
>. E..+(00.

1-"2
1"(. 4hat is the total amount of manufacturing costs added to ;oods 9n Process during the
period@
A. E"1"+000.
2. E"2(+000.
C. E"01+(00.
7. E"1.+000.
>. E"0.+(00.

1"-. 4hat is the correct amount of Cost of ;oods Manufactured based on the ?aes+ 9nc.
information@
A. E"10+(00.
2. E"0-+000.
C. E"01+000.
7. E"0-+000.
>. E21-+(00.

Matching Questions

1-""
1".. Match the following terms with the appropriate definition.
1. Costs that are incurred for the benefit of more than one
cost ob,ect :un% costs GGGG
2. Costs that flow directl to the current income statement
as e*penses. 9ndirect costs GGGG
". >*penditures directl associated with the manufacture
of finished products/ include direct materials and direct
labor Product costs GGGG
&. Costs that ha!e alread been incurred and cannot be
a!oided or changed Prime costs GGGG
(. >*penditures necessar and integral to finished
products Fi*ed costs GGGG
-. The potential benefit lost b choosing a specific action
from two or more alternati!es
'pportunit
costs GGGG
.. Costs that do not change with changes in the !olume of
acti!it Period costs GGGG
0. >*penditures incurred in the process of con!erting raw
materials to finished products/ include direct labor and
factor o!erhead
Con!ersion
costs GGGG
1. Costs that change in proportion to changes in !olume
of acti!it
Factor
o!erhead GGGG
10. Manufacturing e*penditures that cannot be separatel
or readil traced to finished goods Dariable costs GGGG

1-"&
1"0. Match the following terms to the appropriate definitions.
1. Products in the process of being manufactured but not
et complete
Managerial
accounting GGGG
2. An acti!it that pro!ides financial and nonfinancial
information to an organi#ation$s managers and other
internal decision ma%ers
Continuous
impro!ement GGGG
". A model whose goal is to eliminate waste while
satisfing the customer and pro!iding a positi!e return to
the compan
<aw materials
in!entor GGGG
&. An idea that means that emploees understand the
changing needs and wants of their customers and align
their management and operating practices accordingl
Customer
orientation GGGG
(. A sstem that ac)uires in!entor and produces onl
when needed
Aust-in-time
manufacturing GGGG
-. >*penditures directl associated with the manufacture
of finished goods/ includes direct materials and direct
labor
;oods in
process
in!entor GGGG
.. The ratio of !alue-added time to total ccle time
6ean business
model GGGG
0. An idea that re,ects the notions of 3good enough3 and
3acceptable3 and challenges emploees and managers to
continuall e*periment with new and impro!ed business
practices
2alanced
scorecard GGGG
1. ;oods a compan ac)uires to use in ma%ing products Prime costs GGGG
10. An approach that aids continuous impro!ement b
augmenting financial measures with information on the
dri!ers or indicators of future financial performance
along the four dimensions of B1C financial+ B2C customer+
B"C internal business processes/ B&C learning and growth
Ccle
efficienc GGGG

Short Answer Questions

1"1. 4hat is managerial accounting and how is it used to aid decision ma%ers@

1-"(
1&0. There are man differences between financial and managerial accounting. 9dentif and
e*plain at least three of these differences.

1&1. >*plain what is meant b the 3lean business model3 and wh man businesses ha!e
adopted it.

1&2. 4hat is fraud as it relates to the business en!ironment@

1&". 6ist the four elements found in all fraud schemes.

1-"-
1&&. ?ow does fraud affect managerial accounting@

1&(. 2raintree 6td. manufactures coats in a large facilit. 'ne area in the production facilit is
an underused storage space. The compan has twice turned down offers to lease out this
facilit. This situation is an e*ample of what costing concept@ ?ow should 2raintree handle
the costing for this situation@

1&-. 9dentif the three categories of manufacturing costs.

1&.. 7efine and contrast period costs and product costs. ?ow are the reported in the
financial statements of a manufacturing compan@

1-".
1&0. 4hat are the three tpes of in!entories that are carried b manufacturers@ 7escribe each
tpe of in!entor.

1&1. 4hat is the main difference between the income statement of a manufacturer and that of
a merchandiser@

1(0. 4hat is ccle time and ccle efficienc@ 4hat is the purpose of these measures@

1(1. 4hat are prime costs@ 4hat are con!ersion costs@

1-"0
1(2. 4hat are the components of the manufacturing statement@ 7escribe each component.

Essay Questions

1(". The following cost items relate to the 2roc% Compan. Classif each cost as a !ariable
cost+ a fi*ed cost+ or a mi*ed cost b placing an H in the appropriate column. >ach cost should
be e!aluated in terms of the !olume of units of finished products produced. Also indicate with
an H for each item if it is a product cost or a period cost.

1-"1
1(&. For each item shown below+ indicate whether it is a product cost or a period cost+ b
placing an H in the appropriate column. For each item that is a product cost+ also indicate
whether it is a direct cost or an indirect cost with respect to a unit of finished product.

1-&0
1((. <ingle Compan is a manufacturer of compact dis%s BC7sC. Place each of the following
costs in the appropriate column.

1-&1
1(-. ?ar!$s ?iFi :ound :stems produces spea%ers for mo!ie theaters that sell for E1+200
each. 6isted below are selected cost items for the production of -00 units.

Classif each cost as either fi*ed or !ariable+ and either a product or a period cost.

1-&2
1(.. The following costs are incurred b >stafan Manufacturing Co. Classif each cost item
as either a period cost or a product cost. 9f the cost is a product cost+ identif it as a prime
andIor con!ersion cost.

1-&"
1(0. Assume Jernel :eason recei!es and produces an order for 1+.(0 cases of popcorn
seasoning and that the following times were measured during production of this order8

BaC Compute the compan$s manufacturing ccle time.
BbC Compute the compan$s manufacturing ccle efficienc.
BcC 9nterpret these results. 4hat can the compan do to impro!e these measures@

1(1. Agent : 9ncorporated produces home securit sstems. The compan recei!ed and
produced an order for -(0 sstems last month. The following information is a!ailable
regarding this order.

BcC The management of Agent : wishes to impro!e their manufacturing ccle efficienc to
(0F. The feel the compan$s inspection time can be shortened considerabl+ but that process+
mo!e and wait times cannot be reduced below the times gi!en abo!e. 4ill Agent : meet its
goal b focusing onl on inspection time@ >*plain and support our answer.

1-&&
1-0. M-2ot+ 9ncorporated produces automatic car starters. The compan recei!ed and
produced an order for 10+000 starters last month. Assume that the following times were
measured during the production of this order.


1-1. 4hitman Products and <oc%land 9ndustries report the following information at
7ecember "18

<e)uired8
BaC 4hich compan is a manufacturer@ >*plain.
BbC Prepare the Current Asset :ection of the 2alance :heet for the manufacturer.

1-&(
1-2. ?orton Foods ba%es and sells 1+000 do#en bagels each wee% to food ser!ice operations.
Among the costs are ba%ers$ salaries+ E2&+000/ production management salaries+ E1-+000/
production e)uipment operating costs+ E"2+000/ and flour and ingredient costs+ E1(+000.
<e)uired8
BaC Calculate prime costs.
BbC Calculate con!ersion costs.

1-". A manufacturing compan$s finished goods in!entor on Aanuar 1 was E-0+000/ cost of
goods manufactured was E1&.+000/ and the 7ecember "1 finished goods in!entor was
E..+000. 4hat is the cost of goods sold for that ear@

1-&-
1-&. Calculate Cost of ;oods :old for the following two companies8

1-(. The Tic% Compan manufactures tac%s. Costs for :eptember were direct labor+
E0&+000/ indirect labor+ E"-+.00/ direct materials+ E((+100/ factor maintenance+ E&+000/
factor utilities+ E"+200/ and insurance on plant and e)uipment+ E.00. 4hat is Tic%
Compan$s factor o!erhead for :eptember@

1-&.
1--. The following information for 2aldwin Compan+ as of 7ecember "1+ is pro!ided.

A. Calculate the direct material used during the period.
2. Calculate the total manufacturing costs incurred during the period.
C. Calculate the Cost of ;oods Manufactured during the period.
7. Calculate the Cost of ;oods :old during the period.

1-&0
1-.. The following list indicates costs as the flow through the business as a product is
manufactured. :ome items are missing. Compute the missing amounts.

1-&1
1-0. The following list indicates costs as the flow through the business as a product is

1-(0
1-1. 9nformation for <eed Manufacturing follows8

Calculate both the cost of goods manufactured and the cost of goods sold for <eed
Manufacturing.

1.0. 5se the following information to prepare the manufacturing statement for Forsthe
Compan for the month ended Aune "08

1-(1
1.1. 2ourne Crafts manufactures specialt %e chains for tourist attractions. 'n 7ecember "1+
2001+ the firm had 200 sou!enir attraction dis%s used in the production of the chains that cost
E" each/ and -00 completed %e chains that cost E- each. 7uring ear 2010 2ourne Crafts
purchased 1+(00 sou!enir dis%s costing E" each and produced 1+100 %e chains.
<e)uired8
7etermine the total cost of raw materials in!entor at 7ecember "1+ 2010.

1.2. The following items for Titus Compan are used to compute the cost of goods
manufactured and the cost of goods sold. 9ndicate how each item should be used in the
calculations b filling in the blan%s with 3 K 3 if the item is to be added+ 3-3 if the item is to be
subtracted+ or 303 if the item is not used in the calculation. The first item is completed as an
e*ample.

1-(2
1.". 9nformation for ;ifford+ 9nc.+ as of 7ecember "1 follows8

Prepare a manufacturing statement for the ear ended 7ecember "1.

1-("
1.&. 9nformation for the Ace Manufacturing Compan follows8

Calculate the cost of goods manufactured for this compan.

Fill in the Blan Questions

1.(. GGGGGGGGGGGGGGGGGGGGGGGG is an acti!it that pro!ides financial and nonfinancial
information to an organi#ation$s managers and other internal decision ma%ers.
GGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGGG

1.-. GGGGGGGGGGGGGGGGGGG is the process of setting goals and ma%ing plans to achie!e
them.

1... The focus of managerial accounting is on pro!iding GGGGGGGGGGGGGGGG reports while
the focus of financial accounting is on pro!iding GGGGGGGGGGGGG reports.

1.0. A GGGGGGGGGGGGGGGGGGGGGG sstem means that a compan ac)uires or produces
in!entor onl when needed.

1-(&
1.1. The model whose goal is to eliminate waste while satisfing the customer and pro!iding
a positi!e return to the compan is the GGGGGGGGGGGGGGGGGGGGG.

100. GGGGGGGGGGGGGGGGGGGGG re,ects the notions of 3good enough3 or 3acceptable3 and
challenges emploees and managers to continuousl e*periment with new and impro!ed
business practices.

101. The GGGGGGGGGGGGGGGGGGGGGGGG aids continuous impro!ement b augmenting
financial measures with information on the dri!ers or indicators of future financial
performance along four dimensions8 B1C financial+ B2C customer+ B"C internal business
processes+ and B&C learning and growth.

102. GGGGGGGGGGGGGGGGGGGGG in!ol!es the use of one$s ,ob for personal gain+ through the
deliberate misuse of emploer$s assets.

10". GGGGGGGGGGGGGGGGGGGGG are beliefs that distinguish right from wrong.

10&. A manufacturer$s in!entor that is not completel finished is called
GGGGGGGGGGGGGGGGGG.

10(. For a manufacturer+ the cost of goods sold can be computed b adding the beginning
finished goods in!entor to GGGGGGGGGGGGGGGGGGGGGGGG and then subtracting the ending
finished goods in!entor.

1-((
10-. The process of identifing costs as direct or indirect is referred to as classifing costs b
GGGGGGGGGGGGGGG.

10.. The potential benefit lost b ta%ing a specific action from two or more choices is an
GGGGGGGGGGGGGGGGGGGGGGGGGGGGG.

100. A GGGGGGGGGGGGGGGGG cost changes in proportion to changes in the !olume of acti!it.

101. A GGGGGGGGGGGGGGGGG cost does not change in proportion to changes in the !olume of
acti!it within the rele!ant range.

110. A GGGGGGGGGGGGGGGGG cost contains a combination of fi*ed and !ariable costs.

111. A GGGGGGGGGGGGGGGGGGG cost has alread been incurred and cannot be a!oided or
changed+ so it irrele!ant to decision ma%ing.

112. An GGGGGGGGGGGGGGGGGGGGG cost re)uires the future outla of cash and is rele!ant for
decision ma%ing.

1-(-
11". >*penditures necessar and integral to the manufacture of finished products are
GGGGGGGGGGGGGGGG costs.

11&. >*penditures that flow directl to the current income statement and are not reported as
assets are GGGGGGGGGGGGGGGGGGG costs.

11(. GGGGGGGGGGGGGGGGGGGGG in!entor consists of goods a compan ac)uires to use in
ma%ing products.

11-. GGGGGGGGGGGGGGGGGGGG in!entor consists of products in the process of being
manufactured but not et complete.

11.. GGGGGGGGGGGGGGGGGGGG in!entor consists of completed products read for sale b a
manufacturer.

110. 'ne of the main differences between the calculation of cost of goods sold for a
merchandiser and that of a manufacturer is that the calculation includes cost of goods
purchased for the merchandiser+ but the manufacturer replaces that with

111. Dalue-added time di!ided b ccle time is the GGGGGGGGGGGGGGGGGGGG.

1-(.
200. The sum of process time plus inspection time plus mo!e time plus wait time is defined as
GGGGGGGGGGGGGGGGGGGGGGGGG.

201. >*penditures incurred in the process of con!erting raw materials to finished goods+ that
include direct labor and factor o!erhead are %nown as GGGGGGGGGGGGGGGGGGGGGGGGG.

202. ?erren+ 9nc. reported the following data regarding costs and in!entories for the current
ear8 beginning goods-in-process in!entor+ E&+000/ beginning finished goods in!entor+
E2+000/ cost of goods manufactured+ E11+(00/ operating e*penses+ E"+000/ ending finished
goods in!entor+ E1+000/ ending goods-in-process in!entor+ E1+(00. Cost of goods sold for
?erren+ 9nc. e)uals GGGGGGGGGGGGGGGGGGGG.

20". >*penditures directl associated with the manufacture of finished goods that include
direct materials and direct labor are GGGGGGGGGGGGGGGGGGGGG costs.

20&. The manufacturing statement is also %nown as GGGGGGGGGGGGGGGGGGGGGGGGGGGG.

1-(0
Chapter 01 Managerial Accounting Concepts and Principles Answer Je

True / False Questions

1. Much of managerial accounting is directed at gathering useful information about costs for
planning and control decisions.
T!"E

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Bloom's: Remember
Diic!lty: "asy
#earning $b%ecti&e: C' "()lain the )!r)ose an* nat!re o+ an* the role o ethics in+ managerial acco!nting,

2. Control is the process of setting goals and determining was to achie!e them.
FA#SE

AACSB: Analytic
Bloom's: Remember
Diic!lty: "asy

". Managerial accounting is an acti!it that pro!ides financial and nonfinancial information to
an organi#ation$s managers and other internal decision ma%ers.
T!"E

AACSB: Comm!nications
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy

1-(1
&. 'ne of the usual differences between financial and managerial accounting is the time
dimension of the information reported.
T!"E

AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy

(. Managerial accounting information can be forwarded to the managers of a compan
)uic%l since e*ternal auditors do not ha!e to re!iew it+ and estimates and pro,ections are
acceptable.
T!"E

AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy

-. 'ne difference between financial and managerial accounting is that the e*ternal users that
use financial information must plan a compan$s future+ but the internal users of managerial
accounting information generall must decide whether to in!est in or lend to a compan.
FA#SE

AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: -n*erstan*
Diic!lty: "asy

1--0
.. Financial accounting relies on accepted principles that are enforced through an e*tensi!e
set of rules and guidelines/ on the other hand+ managerial accounting sstems are fle*ible.
T!"E

AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: -n*erstan*
Diic!lty: "asy

0. The focus of financial accounting is on an organi#ation$s pro,ects+ processes+ and
subdi!isions+ and the focus of managerial accounting is on the whole organi#ation.
FA#SE

AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy

1. 2oth financial and managerial accounting report monetar information/ managerial
accounting also reports considerable nonmonetar information.
T!"E

AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy

10. 2oth financial and managerial accounting affect people$s decisions and actions.
T!"E

AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: Me*i!m

1--1
11. The concept of total )ualit management focuses on continuous impro!ement.
T!"E

AACSB: Analytic
AICPA BB: Reso!rce Management
Bloom's: Remember
Diic!lty: "asy
#earning $b%ecti&e: C. Describe tren*s in managerial acco!nting,

12. The orientation of ,ust-in-time manufacturing is that products are 3pulled3 through the
manufacturing process b the orders recei!ed from customers.
T!"E

AACSB: Analytic
Bloom's: Remember
Diic!lty: "asy

1". 4hen the attitude of continuous impro!ement e*ists throughout an organi#ation+ e!er
manager and emploee see%s to continuousl e*periment with new and impro!ed business
practices.
T!"E

AACSB: Analytic
Bloom's: Remember
Diic!lty: "asy

1&. The main principle of the lean business model is the elimination of waste of e!er %ind
while satisfing the customer and pro!iding a positi!e return to the compan.
T!"E

AACSB: Analytic
Bloom's: Remember
Diic!lty: "asy

1--2
1(. The management concept of customer orientation causes a compan to spend large
amounts on ad!ertising to con!ince customers to bu the compan$s standard products.
FA#SE

AACSB: Analytic
AICPA BB: Marketing
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-. The management concept of customer orientation encourages a compan to set up its
production sstem to produce large )uantities of the same product for all customers.
FA#SE

AACSB: Analytic
AICPA BB: Marketing
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1.. Total )ualit management and ,ust-in-time manufacturing are two modern sstems
designed to impro!e the )ualit of management and the products and ser!ices offered.
T!"E

AACSB: Analytic
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1--"
10. 5nder a ,ust-in-time manufacturing sstem+ large )uantities of in!entor are accumulated
throughout the factor to be certain that needed components are a!ailable each time that the
are needed.
FA#SE

AACSB: Analytic
Bloom's: -n*erstan*
Diic!lty: Me*i!m

11. The balanced scorecard aids in continuous impro!ement b augmenting financial
measures with dri!ers or indicators of future financial performance.
T!"E

AACSB: Analytic
Bloom's: -n*erstan*
Diic!lty: Me*i!m

20. The 6ean 2usiness Model should ha!e no effect on cost in a modern manufacturing
en!ironment.
FA#SE

AACSB: Analytic
Bloom's: A))ly
Diic!lty: /ar*

21. Fraud affects all business.
T!"E

AACSB: Analytic
Bloom's: Remember
Diic!lty: "asy

1--&
22. Fraud in!ol!es the deliberate or accidental misuse of the emploer$s assets.
FA#SE

AACSB: Analytic
Bloom's: -n*erstan*
Diic!lty: Me*i!m

2". 7irect materials are not usuall easil traced to a product.
FA#SE

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Meas!rement
Bloom's: Remember
Diic!lty: "asy
#earning $b%ecti&e: C0 Describe acco!nting conce)ts !se!l in classiying costs,

2&. Costs ma be classified b man different cost classifications.
T!"E

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

2(. Product costs can be classified as one of three tpes8 direct materials+ direct labor+ or
o!erhead.
T!"E

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

1--(
2-. 4hether a cost is controllable or not controllable b an emploee depends on the
emploee$s le!el of responsibilit.
T!"E

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

2.. 9ndirect materials are accounted for as factor o!erhead because the are not easil traced
to specific units or batches of production.
T!"E

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

20. A !ariable cost changes in proportion to changes in the !olume in acti!it.
T!"E

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

21. 7irect costs are incurred for the benefit of more than one cost ob,ect.
FA#SE

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1---
"0. A sun% cost has alread been incurred and cannot be a!oided or changed+ so it is irrele!ant
to decision ma%ing.
T!"E

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

"1. An out-of-poc%et cost re)uires a future cash outla and is rele!ant for decision ma%ing.
T!"E

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

"2. An opportunit cost re)uires a future cash outla and is rele!ant for decision ma%ing.
FA#SE

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

"". Period costs are incurred b purchasing merchandise or manufacturing finished goods.
FA#SE

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy
#earning $b%ecti&e: C1 Deine )ro*!ct an* )erio* costs an* e()lain ho2 they im)act inancial statements,

1--.
"&. Product costs are e*penditures necessar and integral to finished products.
T!"E

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

"(. Cost concepts such as !ariable+ fi*ed+ mi*ed+ direct and indirect appl onl to
manufacturers and not to ser!ice companies.
FA#SE

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

"-. Although direct labor and raw materials costs are treated as manufacturing costs and
therefore ma%e up part of the finished goods in!entor cost+ factor o!erhead is charged to
e*pense as it is incurred because it is a period cost.
FA#SE

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

".. :elling and administrati!e e*penses are normall product costs.
FA#SE

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1--0
"0. The cost of partiall completed products is included in the balance of the ;oods in
Process 9n!entor account.
T!"E

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy
#earning $b%ecti&e: C3 "()lain ho2 balance sheets an* income statements or man!act!ring an* merchan*ising com)anies *ier,

"1. <aw materials that become part of a product and are identified with specific units or
batches of a product are called direct materials.
T!"E

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

&0. Manufacturers usuall ha!e three in!entories8 raw materials+ goods in process+ and
finished goods.
T!"E

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy

&1. <aw materials in!entor includes onl direct materials.
FA#SE

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1--1
&2. The ;oods in Process 9n!entor account is found onl in the ledgers of merchandising
companies.
FA#SE

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

&". The main difference between the income statement of a manufacturer and a merchandiser
is that the merchandiser includes cost of goods manufactured rather than cost of goods
purchased.
FA#SE

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy

&&. <aw materials purchased plus beginning raw materials in!entor e)uals the ending
balance of raw materials in!entor.
FA#SE

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy
#earning $b%ecti&e: C4 "()lain man!act!ring acti&ities an* the lo2 o man!act!ring costs,

1-.0
&(. Four factors come together in the manufacturing process8 beginning goods in process
in!entor+ direct materials+ direct labor+ and factor o!erhead.
T!"E

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy

&-. =ewl completed units are combined with beginning finished goods in!entor to ma%e up
total ending goods in process in!entor.
FA#SE

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy

&.. The series of acti!ities that add !alue to a compan$s products or ser!ices is called a !alue
chain.
T!"E

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: Me*i!m

&0. Ccle time e)uals process time plus inspection time plus mo!e time plus wait time.
T!"E

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy
#earning $b%ecti&e: A' Com)!te cycle time an* cycle eiciency+ an* e()lain their im)ortance to )ro*!ction management,

1-.1
&1. A manufacturer$s cost of goods manufactured is the sum of direct materials+ direct labor+
and factor o!erhead costs incurred in producing products.
T!"E

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy
#earning $b%ecti&e: P' Com)!te cost o goo*s sol* or a man!act!rer,

(0. 9ndirect labor refers to the cost of the wor%ers whose efforts are directl traceable to
specific units or batches of product.
FA#SE

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

(1. Factor o!erhead includes selling and administrati!e e*penses because the are indirect
costs of a product.
FA#SE

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

(2. Prime costs consist of direct labor and factor o!erhead.
FA#SE

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

1-.2
(". The manufacturing statement is also %nown as the schedule of manufacturing acti!ities or
the schedule of cost of goods manufactured.
T!"E

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: -n*erstan*
Diic!lty: Me*i!m
#earning $b%ecti&e: P0 Pre)are a man!act!ring statement an* e()lain its )!r)ose an* links to inancial statements,

(&. The manufacturing statement must be prepared monthl as it is a re)uired general-purpose
financial statement.
FA#SE

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: -n*erstan*
Diic!lty: Me*i!m

Multiple Choice Questions

((. Managerial accounting information8
A. 9s used mainl b e*ternal users.
B$ 9n!ol!es gathering information about costs for planning and control decisions.
C. 9s generall the onl accounting information a!ailable to managers.
7. Can be used for control purposes but not for planning purposes.
>. ?as little to do with controlling costs.

AACSB: Analytic
Bloom's: Remember
Diic!lty: "asy

1-."
(-. Managerial accounting is different from financial accounting in that8
A. Managerial accounting is more focused on the organi#ation as a whole and financial
accounting is more focused on subdi!isions of the organi#ation.
2. Managerial accounting ne!er includes nonmonetar information.
C$ Managerial accounting includes man pro,ections and estimates whereas financial
accounting has a minimum of predictions.
7. Managerial accounting is used e*tensi!el b in!estors+ whereas financial accounting is
used onl b creditors.
>. Managerial accounting is mainl used to set stoc% prices.

AACSB: Analytic
Bloom's: Remember
Diic!lty: "asy

(.. Fle*ibilit of practice when applied to managerial accounting means that8
A. The information must be presented in electronic format so that it is easil changed.
2. Managers must be willing to accept the information as the accountants present it to them+
rather than in the format the as% for.
C. The managerial accountants need to be on call twent-four hours a da.
%$ The design of a compan$s managerial accounting sstem largel depends on the nature of
the business and the arrangement of the internal operations of the compan.
>. Managers must be fle*ible with information pro!ided in !aring forms and using
inconsistent measures.

AACSB: Analytic
Bloom's: Remember
Diic!lty: "asy

1-.&
(0. 4hich of the following items does not represent a difference between financial and
managerial accounting@
A. 5sers of the information.
2. Fle*ibilit of practices.
C. Timeliness and time dimension of the information reported.
7. =ature of the information.
E$ Purpose of accounting.

AACSB: Analytic
Bloom's: Remember
Diic!lty: "asy

(1. 4hich of the following items is a management concept that was not created to impro!e
companies$ performances@
A. Aust-in-time manufacturing.
C. Total )ualit management.
E$ Theor of Constraints.

AACSB: Analytic
Bloom's: Remember
Diic!lty: "asy

-0. The Malcolm 2aldridge Award was established b8
A. The 5nited =ations.
2. The 5. :. Chamber of Commerce.
C. The Malcolm 2aldridge Foundation.
%$ The 5. :. Congress.
>. The :>C.

AACSB: Analytic
Bloom's: Remember
Diic!lty: Me*i!m

1-.(
-1. Continuous impro!ement8
A. 9s a measure of profits.
2. 9s a measure of costs.
C$ <e,ects the notion of 3good enough.3
7. 9s not applicable to most businesses.
>. 9s possible onl in ser!ice businesses.

AACSB: Analytic
Bloom's: -n*erstan*
Diic!lty: Me*i!m

-2. An attitude of constantl see%ing was to impro!e compan operations+ including
customer ser!ice+ product )ualit+ product features+ the production process+ and emploee
interactions+ is called8
A$ Continuous impro!ement.
C. Aust-in-time.
>. Total )ualit measurement.

AACSB: Analytic
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-.-
-". A management concept that encourages all managers and emploees to be in tune with the
wants and needs of customers+ and which leads to fle*ible product designs and production
processes+ is called8
B$ Customer orientation.
C. Aust-in-time.

AACSB: Analytic
AICPA BB: Marketing
Bloom's: -n*erstan*
Diic!lty: Me*i!m

-&. An approach to managing in!entories and production operations such that units of
materials and products are obtained and pro!ided onl as the are needed is called8
C$ Aust-in-time manufacturing.

AACSB: Analytic
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-..
-(. A management concept that applies )ualit impro!ement to all aspects of business
acti!ities is called8
A. Continuous operations.
C. Aust-in-time.
E$ Total )ualit management.

AACSB: Analytic
Bloom's: -n*erstan*
Diic!lty: Me*i!m

--. The model whose goal is to eliminate waste while satisfing the customer and pro!iding a
positi!e return to the compan is8
A. Total )ualit management.
2. Managerial accounting.
C. Customer orientation.
E$ 6ean business model.

AACSB: Analytic
AICPA BB: Marketing
Bloom's: -n*erstan*
Diic!lty: Me*i!m

-.. 4hich of the following is not a characteristic of all fraud@
A. 9t is done to pro!ide direct or indirect benefit to the emploee.
2. 9t !iolates the emploee$s duties to his emploer.
C. 9t costs the emploer mone.
7. 9t is secret.
E$ Can be intentional or unintentional.

AACSB: Analytic
Bloom's: Remember
Diic!lty: "asy

1-.0
-0. 4hich of the following statements regarding fraud is BareC true@
A$ Fraud is a deliberate act.
2. Fraud can be deliberate or unintentional/ the outcome of the act determines if fraud e*ists.
C. A compan with a strong code of ethics can eliminate fraud.
7. A compan with strong internal controls can eliminate fraud.
>. The most common tpe of fraud is financial statement fraud.

AACSB: Analytic
Bloom's: A))ly
Diic!lty: /ar*

-1. 4hich of the following statements is true@
A. The 9MA$s :tatement of >thical Professional Practice re)uires management accountants to
be incompetent+ maintain confidentialit+ act with integrit+ and communicate information in a
be competent+ maintain confidentialit+ eliminate all fraud+ and communicate information in a
C. The 9MA$s :tatement of >thical Professional Practice re)uires management accountants to
be incompetent+ maintain confidentialit+ act with integrit+ and miscommunicate information
in a credible manner.
%$ The 9MA$s :tatement of >thical Professional Practice re)uires management accountants to
be competent+ maintain confidentialit+ act with integrit+ and communicate information in a
>. The 9MA$s :tatement of >thical Professional Practice re)uires management accountants to
perform certain chec%s for fraud+ act with integrit+ and communicate information in a fair
and credible manner.

AACSB: Analytic
Bloom's: A))ly
Diic!lty: /ar*

1-.1
.0. The 9nstitute of Management Accountants has de!eloped a code of ethics which re)uires
management accountants to beha!e in certain was. 4hich of the following beha!iors is not
re)uired@
A. Competence
2. 9ntegrit
C. Maintenance of confidentialit
7. Communication of information in credible manner
E$ Timeliness

AACSB: "thics
AICPA BB: #egal
Bloom's: -n*erstan*
Diic!lty: Me*i!m

.1. A direct cost is a cost that is8
A. 9dentifiable as controllable.
2. Dariable with respect to the !olume of acti!it.
C. Fi*ed with respect to the !olume of acti!it.
%$ Traceable to a cost ob,ect.
>. :un% with respect to a cost ob,ect.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

.2. An opportunit cost is8
A. An uncontrollable cost.
B$ A cost of potential benefit lost.
C. A change in the cost of a component.
7. A direct cost.
>. A sun% cost.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

1-00
.". 6abor costs that are clearl associated with specific units or batches of product because
the labor is used to con!ert raw materials into finished products called are8
A. :un% labor.
B$ 7irect labor.
C. 9ndirect labor.
7. Finished labor.
>. :uper!isor labor.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

.&. Costs that are incurred as part of the manufacturing process but are not clearl associated
with specific units of product or batches of production+ including all manufacturing costs
other than direct material and direct labor costs+ are called8
A. Administrati!e e*penses.
2. =onmanufacturing costs.
C. :un% costs.
%$ Factor o!erhead.
>. Preproduction costs.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

1-01
.(. Materials that are used in support of the production process but that do not become a part
of the product and are not clearl identified with units or batches of product are called8
A. :econdar materials.
2. ;eneral materials.
C. 7irect materials.
%$ 9ndirect materials.
>. Materials in!entor.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

.-. The salar paid to the super!isor of an assembl line would normall be classified as8
A. 7irect labor.
B$ 9ndirect labor.
C. A period cost.
7. A general cost.
>. An assembl cost.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

... Classifing costs b beha!ior in!ol!es8
A$ 9dentifing fi*ed cost and !ariable cost.
2. 9dentifing cost of goods sold and operating costs.
C. 9dentifing all costs.
7. 9dentifing costs in a phsical manner.
>. 9dentifing both )uantitati!e and )ualitati!e cost factors.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

1-02
.0. Costs classified b controllabilit are useful for8
A. The balance sheet.
2. The income statement.
C. The budgeting process.
%$ >!aluation reports.
>. 7etermining product cost.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

.1. 4hich of the following is ne!er included in direct materials costs@
A. 9n!oice costs of direct materials.
B$ 'utgoing deli!er charges.
C. Materials storage costs.
7. Materials handling costs.
>. 9nsurance on stored material.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

00. <aw materials that phsicall become part of the product and can be traced to specific
units or batches of product are called8
A. <aw materials sold.
2. Chargeable materials.
C. ;oods in process.
E$ 7irect materials.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-0"
7etermine the dollar amount of prime costs.
A. E1+02"+000
B$ E((0+000
C. E&00+000
7. E2"(+000
>. E2"0+000

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

7etermine the dollar amount of con!ersion costs.
A. E1+02"+000
2. E((0+000
C$ E&00+000
7. E2"(+000
>. E2"0+000

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-0&
0". A mi*ed cost8
%$ Contains a combination of fi*ed costs and !ariable costs.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

0&. A fi*ed cost8
B$ 7oes not change with changes in the !olume of acti!it within the rele!ant range.
7. Changes with changes in the !olume of acti!it within the rele!ant range.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

0(. 4hich of the following costs is not included in factor o!erhead@
A. Paroll ta*es on the wages of super!isor factor wor%ers.
2. 9ndirect labor.
C. 7epreciation of manufacturing e)uipment.
7. Manufacturing supplies used.
E$ 7irect materials.

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-0(
0-. The three ma,or cost components of a manufactured product are8
A. Mar%eting+ selling+ and administrati!e costs.
2. 9ndirect labor+ indirect materials+ and miscellaneous factor e*penses.
C$ 7irect materials+ direct labor+ and factor o!erhead.
7. 7ifferential costs+ opportunit costs+ and sun% costs.
>. ;eneral+ selling+ and administrati!e costs.

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: -n*erstan*
Diic!lty: Me*i!m

0.. 4hich of the following costs would not be classified as factor o!erhead@
A. Propert ta*es on maintenance machiner.
2. >*pired insurance on factor e)uipment.
C. 4ages of the factor ,anitor.
%$ Metal door%nobs used on wood cabinets produced.
>. :mall tools used in production.

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: -n*erstan*
Diic!lty: Me*i!m

00. Period costs for a manufacturing compan would flow directl to8
A$ The current income statement.
2. Factor o!erhead.
C. The current balance sheet.
7. Aob cost sheet.
>. The current manufacturing statement.

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-0-
01. Costs that are first assigned to in!entor are called8
A. Period costs.
B$ Product costs.
C. ;eneral costs.
7. Administrati!e costs.
>. Fi*ed costs.

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: Me*i!m

10. Costs that flow directl to the current income statement are called8
A$ Period costs.
2. Product costs.
C. ;eneral costs.
7. 2alance sheet costs.
>. Capitali#ed costs.

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: Me*i!m

11. Product costs8
A$ Are e*penditures necessar and integral to finished products.
2. Are e*penditures identified more with a time period rather than with finished products.
C. 9nclude selling and administrati!e e*penses.
7. Are costs that !ar with the !olume of acti!it.
>. Are costs that do not !ar with the !olume of acti!it.

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-0.
12. The following are all e*amples of product costs8
A$ 7irect material+ 7irect 6abor and 9ndirect 6abor.
2. 7irect 6abor+ DP of :ales salar+ and 9nsurance on the factor.
C. 7epreciation on the factor e)uipment+ depreciation on the office building+ and
depreciation on the factor building.
7. Factor 9nsurance+ 9nterest e*pense+ and Propert ta*es on the factor.
>. 'ffice supplies+ :ales commissions+ and maintenance costs on office copier.

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1". Products that ha!e been completed and are read to be sold b the manufacturer are
called8
A$ Finished goods in!entor.
C. <aw materials in!entor.
7. Cost of goods sold.
>. Factor supplies.

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy

1&. ;oods a compan ac)uires to use in ma%ing products are called8
B$ <aw materials in!entor.
C. Finished goods in!entor.
>. Con!ersion costs.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

1-00
1(. Products that are in the process of being manufactured but are not et complete are
called8
A. <aw materials in!entor.
2. Con!ersion costs.
C. Cost of goods sold.
%$ ;oods in process in!entor.
>. Finished goods in!entor.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

1-. Another title for goods in process in!entor is8
A. 9ndirect materials in!entor.
B$ 4or% in process in!entor.
C. Con!ersion costs.
7. 7irect materials in!entor.
>. <aw materials in!entor.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

1.. Ccle time is8
A. Dalue added time.
2. Process time plus inspection time.
C. Process time plus inspection time plus mo!e time.
%$ Process time plus inspection time plus mo!e time plus wait time.
>. Another name for ccle efficienc.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-01
10. Ccle efficienc8
A$ 9s the ratio of !alue-added time to total ccle time.
2. 9s the ratio of !alue-added time to non-!alue-added time.
C. 9s the ratio of process time to total ccle time.
7. Cannot be used in con,unction with other analtical tools.
>. 9s the same as the ccle time.

AACSB: Analytic
Bloom's: -n*erstan*
Diic!lty: Me*i!m

11. A compan produces wor% boots. The compan recei!ed and produced an order for "+000
pairs of boots. The following information is a!ailable regarding this order.

4hat is this compan$s manufacturing ccle efficienc@
A. 22 das.
2. (.( das
C. 22.2.F
%$ 1(F
>. 21.&F
Total ccle time L "." K &.1 K &.. K 1.1 L 22 das
Ccle efficienc L Process timeITotal ccle time
L "."I22
L 1(F

AACSB: Analytic
Bloom's: A))ly
Diic!lty: Me*i!m

1-10
100. Companies A+ 2+ C and 7 are competitors in the same industr. <ecentl each recei!ed
and produced an order for .(+000 units of an identical item. The following times were
measured at each compan.

4hich of the following statements is true regarding the manufacturing ccle efficienc of
these companies@
A. Compan A was the least efficient.
2. Compan 7 was the most efficient.
C. Compan 2 was the least efficient.
%$ Compan C was the most efficient.
>. Compan A was the most efficient.

AACSB: Analytic
Bloom's: A))ly
Diic!lty: /ar*

1-11
101. The cost of labor that is not clearl associated with specific units or batches of product is
called8
A. 5nspecified labor.
2. 7irect labor.
C$ 9ndirect labor.
7. 2asic labor.
>. Aoint labor.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

102. Factor o!erhead costs normall include all of the following e*cept8
A. 9ndirect labor costs.
2. 9ndirect material costs.
C$ :elling costs.
7. Machiner oil.
>. Factor rent.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy
Static5Algo: Static

1-12
10". The following costs are included in a recent summar of data for a compan8 ad!ertising
7etermine the dollar amount of o!erhead costs.
A. E1+02"+000
2. E((0+000
C. E&00+000
7. E2"(+000
E$ E2"0+000

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

10&. 4hich of the following items appears onl in a manufacturing compan$s financial
statements@
B$ Cost of goods manufactured.
C. ;oods a!ailable for sale.
7. ;ross profit.
>. =et income.

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy

1-1"
10(. The total cost of goods completed during the accounting period for a manufacturer is
called8
A. >nding finished goods in!entor.
2. Total manufacturing costs.
C. >nding goods in process in!entor.
%$ Cost of goods manufactured.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

10-. A manufacturing firm$s cost of goods manufactured is e)ui!alent to a merchandising
firm$s8
B$ Cost of goods purchased.
C. Cost of goods a!ailable.
7. 2eginning merchandise in!entor.
>. >nding merchandise in!entor.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

10.. 4hich one of the following items is normall not a manufacturing cost@
A. 7irect materials.
2. Factor o!erhead.
C$ ;eneral and administrati!e e*penses.
7. 7irect labor.
>. Con!ersion cost.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1&
100. Auliet Corporation has accumulated the following accounting data for the ear8

The cost of goods manufactured for the ear is8
A. E200
2. E1+000
C$ E(+000
7. E-+&00
>. E0+200
2eg F; K C';M - >=7 F; L C';:
C';M L C';: - 2eg F; K >nd F;
C';M L E&+200 - E"+200 K E&+000
C';M L E(+000

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: Me*i!m

101. A manufacturing compan has a beginning finished goods in!entor of E1&+-00+ raw
material purchases of E10+000+ cost of goods manufactured of E"2+(00+ and an ending finished
goods in!entor of E1.+000. The cost of goods sold for this compan is8
A. E21+200
B$ E21+"00
C. E"2+(00
7. E&.+100
>. E2.+-00
2eg F; K C';M - >nd F; L C';:
E1&+-00 K E"2+(00 - E1.+000 L E21+"00

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: Me*i!m

1-1(
110. The beginning and ending finished goods in!entories of the Pri#e <ing manufacturing
compan were E.(+000 and E."+000 respecti!el. 9f cost of goods sold e)ualed E--+000+ what
is the amount of cost of goods manufactured for this period@
A. E2+000
B$ E-&+000
C. E-0+000
7. E02+000
>. E21&+000
2eg F; K C';M - >nd F; L C';:
E.(+000 K C';M - E."+000 L E--+000
E2+000 K C';M L E--+000
C';M L E-&+000

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: /ar*

1-1-
111. Compute cost of goods manufactured for this period gi!en the following amounts.

A. E.2+000
2. E&0+000
C$ E-0+000
7. E--+000
>. E100+000.
2eg F; K C';M - >nd F; L C';:
E-0+000 K C';M - E--+000 L E(&+000
EB-+000C K C';M L E(&+000
C';M L E-0+000

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: /ar*

1-1.
112. The beginning and ending finished goods in!entories of a compan were E11+000 and
E1&+000 respecti!el. 9f cost of goods sold e)ualed E000+000+ what is the amount of cost of
goods manufactured for this period@
A. E.0-+000
2. E.01+000
C. E.1.+000
%$ E00"+000
>. E"+000
2eg F; K C';M - >nd F; L C';:
E11+000 K C';M - E1&+000 L E000+000
- E"+000 K C';M L E000+000
C';M L E00"+000

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: /ar*

11". A manufacturing statement is also %nown as a schedule or listing of the8
A. <aw materials processed.
C$ Cost of goods manufactured.
7. Total finished goods.

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy

1-10
11&. The following information relates to the manufacturing operations of the 9M? Publishing
Corporation for the ear8

The raw materials used in manufacturing during the ear totaled E110+000. <aw materials
purchased during the ear amount to8
A. E10.+000
2. E11(+000
C. E110+000
%$ E121+000
>. E12-+000
2eg <M K Purch - >nd <M L <M used
Purch L <M used - 2eg <M K >nd <M
Purch L E110+000 - E(.+000 K E-0+000
Purch L E121+000

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-11
11(. A,a* Compan accumulated the following account information for the ear8

5sing the abo!e information+ total factor o!erhead costs would be8
A$ E1+000
2. E1-+000
C. E1(+000
7. E1"+000
>. E.+000
F'? L 9ndirect materials K 9ndirect labor K Maintenance
F'? L E2+000 K E(+000 K E2+000
F'? L E1+000

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: "asy

1-100
11-. The following information is a!ailable for the ear ended 7ecember "18

The amount of raw materials used in production for the ear is8
A. E&+100
2. E(+100
C$ E"+(00
7. E-+(00
>. E&+000
2eg <M K Purch - >nd <M L <M used
E2+(00 K E&+000 - E"+000 L E"+(00

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: "asy

11.. A financial report that summari#es the amounts and tpes of costs that were incurred in
the manufacturing process during the period is a8
A. Materialit statement.
2. Managerial statement.
C$ Manufacturing statement.
7. Merchandise statement.
>. Monetar statement.

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy

1-101
110. 4hich of the following accounts would all appear on a manufacturing statement@
A$ <aw materials+ factor insurance e*pired+ indirect labor.
2. <aw materials+ goods in process+ finished goods.
C. Factor buildings+ deli!er e)uipment+ and depreciation on factor e)uipment.
7. 7irect labor+ indirect labor+ sales salaries.
>. 7irect labor+ factor repairs and maintenance+ wages paable.

AACSB: Re)orting
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

5se the following information from ?ard Co. for the current ear8

111. The total of ?ard Co.$s manufacturing costs added during the current ear is8
A. E12+000
2. E1-+100
C$ E1.+100
7. E10+100
>. E1"+-00
<M used K 76 K F'? L Mfg. costs added
E(+000 K E.+000 K E(+100 L E1.+100

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-102
120. ?ard Co.$s cost of goods manufactured for the current ear is8
A. E12+000
B$ E1-+100
C. E1.+100
7. E10+100
>. E1"+-00
C';M L Costs added Bfrom prior )uestionC K 2;9P - >;9P
C';M L E1.+100 K E"+000 - E&+000
C';M L E1-+100

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: -n*erstan*
Diic!lty: Me*i!m

121. Total manufacturing costs incurred during the ear do not include8
A. 7irect materials used.
C$ ;oods in process in!entor+ beginning balance.
7. 7irect labor.
>. 7epreciation of machiner.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-10"
122. 9f beginning and ending goods in process in!entories are E(+000 and E1(+000+
respecti!el+ and cost of goods manufactured is E1.0+000+ what is the total manufacturing cost
for the period@
A$ E100+000
2. E1((+000
C. E1-0+000
7. E1.(+000
>. E1-(+000
Mfg. costs K 2;9P - >;9P L C';M
Mfg. costs L C';M - 2;9P K >;9P
Mfg. costs L E1.0+000 - E(+000 K E1(+000
Mfg. costs L E100+000

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: A))ly
Diic!lty: Me*i!m

The following information is a!ailable for Tal%ing Tos+ 9nc. for the current ear8

1-10&
12". The total manufacturing costs incurred during the ear were8
Error! Hyperlink reference not valid.Error! Hyperlink reference not valid.
A. E1"+000
B$ E&&+(00
C. E(.+(00
7. E1&+(00
>. E01+000
Costs added L 7M used K 76 K F'?
Costs added L E12+(00 K E2-+(00 K E(+(00
Costs added L E&&+(00

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: A))ly
Diic!lty: Me*i!m

12&. The total cost of goods manufactured for the ear was8
A. E1"+000
2. E&&+(00
C$ E(.+(00
7. E1&+(00.
>. E(2+000
C';M L Costs added Bfrom prior )uestionC K 2;9P - >;9P
C';M L E&&+(00 K E(0+000 - E".+000
C';M L E(.+(00

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: A))ly
Diic!lty: Me*i!m

1-10(
12(. Current information for the Austin Compan follows8

All raw materials used were traceable to specific batches of product. Austin Compan$s cost
of goods manufactured for the ear is8
A$ E12(+000
2. E120+-00
C. E1"1+&00
7. E1".+000
>. E1"1+000
<M used L 2eg <M K <M purchases - >nd <M
<M used L E1(+200 K E-0+000 - E1-+-00
<M used L E(0+-00
C';M L <M used K 76 K F'? K 2;9P - >;9
C';M L E(0+-00 K E&2+000 K E"0+000 K E22+&00 - E20+000
C';M L E12(+000

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: A))ly
Diic!lty: /ar*

1-10-
12-. 5se the following data to determine the cost of goods manufactured8

A. E102+000
2. E110+100
C$ E1-+-00
7. E11"+.00
>. E100+200
F'? L 9nd. 6abor K 9nd. Materials K 7epreciation factor e)uip
F'? L E-+"00 K E1"+(00 K E.+(00
F'? L E2.+"00
C';M L 7M K 76 K F'? K 2;9P - >;9P
C';M L E&0+(00 K E"0+-00 K E2.+"00 K E.+200 - E1+000
C';M L E1-+-00

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: A))ly
Diic!lty: /ar*

1-10.
12.. 5se the following data to determine the cost of goods manufactured.

A. E-(+000
B$ E&(+000
C. E&1+(00
7. E(2+"00
>. E&.+100
F'? L 9nd. 6abor K 9nd. Materials K 7epreciation factor e)uip
F'? L E.+"00 K E"+&00 K E2+000
F'? L E12+.00
C';M L 7M K 76 K F'? K 2;9P - >;9P
C';M L E20+(00 K E1(+100 K E12+.00 K E1+(00 - E&+000
C';M L E&(+000

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: A))ly
Diic!lty: /ar*

1-100
120. 5se the following information to compute the cost of goods manufactured8

A. E"-+-(0
2. E"0+1(0
C. E"0+-(0
%$ E"0+"(0
>. E"1+-(0
<M used L 2eg <M K <M Purchases - >nd <M
<M used L E(+(00 K E.+&00 - E&+000
<M used L E0+100
F'? L 7eprec. on factor e)uip. K Factor repairs.IMaint.
F'? L E-+(00 K E"+"00
F'? E1+000
C';M L <M used K 76 K F'? K 2;9P - >;9P
C';M L E0+100 K E12+2(0 K E1+000 K E(+.00 - E-+"00
C';M L E"0+"(0

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: A))ly
Diic!lty: /ar*

1-101
121. 5se the following information to compute the total manufacturing costs incurred during
the period8

A. E"-+-(0
B$ E"0+1(0
C. E"0+-(0
7. E"0+"(0
>. E"1+-(0
B((00 K .&00 - &000C K 122(0 K B-(00 K ""00C L E"0+1(0

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: /ar*

1-110
1"0. 5se the following information to compute the cost of goods sold for the period8

A. E"-+-(0
2. E"0+1(0
C. E"0+-(0
7. E"0+"(0
E$ E"1+-(0
10+200 K "0+"(0 - 0100 L E"1+-(0

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: /ar*

1-111

A. E-"+000
2. E10(+000
C. E10.+000
7. E10+000
E$ E101+000
<M used L E."+000 K E(0+000 - E-0+000
<M used L E-"+000
F'? L 7eprec. on factor e)uip. K Factor repairs and maintenance
F'? L E.+000 K E12+000
F'? L E11+000
C';M L <M used K 76 K F'? K 2;9P - >;9P
C';M L E-"+000 K E2(+000 K E11+000 K E01+000 - E.1+000
C';M L E101+000

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: A))ly
Diic!lty: /ar*

1-112

A$ E1&"+&00
2. E1"+000
C. E1&"+000
7. E1&&+(00
>. E1"+&00
<M used L E.+(00 K E1&+000 - E0+(00
<M used L E1"+000
F'? L 7eprec. on factor e)uip. K Factor :uper!isor$s salar
F'? L E-+000 K E(0+000
F'? L E(-+000
C';M L <M used K 76 K F'? K 2;9P - >;9P
C';M L E1"+000 K E.(+000 K E(-+000 K E0+.00 - E1+"00
C';M L E1&"+&00

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: A))ly
Diic!lty: /ar*

1-11"
5se the following information for ?aes+ 9nc.+ as of 7ecember "1 to answer the ne*t
)uestions8

1"". 4hat is the correct amount of direct materials used+ based on the ?aes 9nc.
information@
A. E1&1+000.
2. E12(+000.
C. E1".+000.
%$ E121+000.
>. E1"0+000.
0+000 K 12(+000 - &000 L E121+000

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: Me*i!m

1-11&
1"&. 4hat is the correct amount of o!erhead based on the ?aes 9nc. information@
A. E112+000.
B$ E110+(00.
C. E200+000.
7. E1(0+000.
>. E..+(00.
2(+000 K 12+000 K 1(+(00 K 1&+000 K .+(00 K 2(+000 K 11+(00

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: /ar*

1"(. 4hat is the total amount of manufacturing costs added to ;oods 9n Process during the
period@
A. E"1"+000.
2. E"2(+000.
C. E"01+(00.
7. E"1.+000.
E$ E"0.+(00.
121+000 K 110+(00 K -0+000

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: /ar*

1-11(
1"-. 4hat is the correct amount of Cost of ;oods Manufactured based on the ?aes+ 9nc.
information@
A. E"10+(00.
2. E"0-+000.
C$ E"01+000.
7. E"0-+000.
>. E21-+(00.
"+(00 K "0.+(00 - 2+000

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: /ar*

Matching Questions

1-11-
1".. Match the following terms with the appropriate definition.
1. Costs that are incurred for the benefit of more than one
cost ob,ect :un% costs &
2. Costs that flow directl to the current income statement
as e*penses. 9ndirect costs 1
". >*penditures directl associated with the manufacture of
finished products/ include direct materials and direct labor Product costs '
&. Costs that ha!e alread been incurred and cannot be
a!oided or changed Prime costs (
(. >*penditures necessar and integral to finished products Fi*ed costs )
-. The potential benefit lost b choosing a specific action
from two or more alternati!es
'pportunit
costs *
.. Costs that do not change with changes in the !olume of
acti!it Period costs +
0. >*penditures incurred in the process of con!erting raw
materials to finished products/ include direct labor and
factor o!erhead
Con!ersion
costs ,
1. Costs that change in proportion to changes in !olume of
acti!it
Factor
o!erhead 10
10. Manufacturing e*penditures that cannot be separatel or
readil traced to finished goods Dariable costs -

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-11.
1"0. Match the following terms to the appropriate definitions.
1. Products in the process of being manufactured but not et
complete
Managerial
accounting +
2. An acti!it that pro!ides financial and nonfinancial
information to an organi#ation$s managers and other internal
decision ma%ers
Continuous
impro!ement ,
". A model whose goal is to eliminate waste while
satisfing the customer and pro!iding a positi!e return to
the compan
<aw materials
in!entor -
&. An idea that means that emploees understand the
changing needs and wants of their customers and align their
management and operating practices accordingl
Customer
orientation &
(. A sstem that ac)uires in!entor and produces onl when
needed
Aust-in-time
manufacturing '
-. >*penditures directl associated with the manufacture of
finished goods/ includes direct materials and direct labor
;oods in
process in!entor 1
.. The ratio of !alue-added time to total ccle time
6ean business
model (
0. An idea that re,ects the notions of 3good enough3 and
3acceptable3 and challenges emploees and managers to
continuall e*periment with new and impro!ed business
practices
2alanced
scorecard 10
1. ;oods a compan ac)uires to use in ma%ing products Prime costs *
10. An approach that aids continuous impro!ement b
augmenting financial measures with information on the
dri!ers or indicators of future financial performance along
the four dimensions of B1C financial+ B2C customer+ B"C
internal business processes/ B&C learning and growth
Ccle
efficienc )

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

Short Answer Questions

1-110
1"1. 4hat is managerial accounting and how is it used to aid decision ma%ers@
Managerial accounting is an acti!it that pro!ides financial and nonfinancial information to
an organi#ation$s managers and other internal decision ma%ers. Much of managerial
accounting in!ol!es gathering information about costs for planning and control decisions. 9n
addition+ it helps managers plan and control business acti!ities. 9n particular+ it helps
managers identif problems that re)uire correcti!e actions.

AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-111
1&0. There are man differences between financial and managerial accounting. 9dentif and
e*plain at least three of these differences.
B:tudents would need to choose an three of the se!en differences described below.C The
differences include8 B1C 5sers and decision ma%ers - Financial accounting focuses on e*ternal
decision ma%ers and managerial accounting focuses on internal decision ma%ers. B2C Purpose
of information - >*ternal users of financial accounting information must often decide whether
to in!est in+ or lend to a compan or whether to continue to own or carr the compan$s debt.
9nternal users of managerial accounting must plan a compan$s future+ so the information
must help them ma%e planning and control decisions. B"C Fle*ibilit of practice - Financial
accounting relies on accepted principles that are enforced through an e*tensi!e set of rules
and guidelines B;AAPC/ managerial accounting sstems are fle*ible to meet the differing
needs of managers in different situations. B&C Timeliness of information - ;enerall+ financial
information is not immediatel a!ailable to e*ternal users because it must be audited/ internal
users can usuall obtain managerial accounting information )uic%l because it does not need
to be audited and estimates and pro,ections are acceptable. B(C Time dimension - >*ternal
financial reports deal primaril with the results of both past acti!ities and current conditions
and a!oid predictions whene!er possible/ managerial accounting regularl includes prediction
of conditions and e!ents. B-C Focus of information - Financial accounting generall focuses on
the entire organi#ation/ managerial accounting focuses on an organi#ation$s pro,ects+
processes+ and subdi!isions. B.C =ature of information - 2oth financial and managerial
accounting report monetar information/ managerial accounting also reports nonmonetar
information.

AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-120
1&1. >*plain what is meant b the 3lean business model3 and wh man businesses ha!e
adopted it.
The lean business model is a model whose main principle is the elimination of waste while
satisfing the customer and pro!iding a positi!e return to the compan. 9t is based on the
changes in the business en!ironment - including an increased emphasis on customers and the
e*panding global econom. A primar force behind its adoption is competition - both
domestic and international.

AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m
Static5Algo: Static

1&2. 4hat is fraud as it relates to the business en!ironment@
Fraud in!ol!es the use of one$s ,ob for personal gain through deliberate misuse of the
emploer$s assets.

AACSB: Analytic
Bloom's: Remember
Diic!lty: "asy

1&". 6ist the four elements found in all fraud schemes.
All fraud8 1C 9s done to pro!ide direct or indirect benefit to the emploee. 2C Diolates the
emploee$s duties to his or her emploer. "C Costs the emploer mone. &C 9s secret.

AACSB: Analytic
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-121
1&&. ?ow does fraud affect managerial accounting@
Fraud increases a business$ costs which can lead to poor pricing decisions+ an improper
product mi*+ and fault performance e!aluations.

AACSB: Analytic
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1&(. 2raintree 6td. manufactures coats in a large facilit. 'ne area in the production facilit is
an underused storage space. The compan has twice turned down offers to lease out this
facilit. This situation is an e*ample of what costing concept@ ?ow should 2raintree handle
the costing for this situation@
The situation raises an opportunit cost+ i.e.+ the impact of a lost benefit. 9t would be
accounted for onl in considering alternati!e decisions. 9t is not a financial cost. :till+ good
management procedures and information sstems would want estimates of such costs and
would need such data for effecti!e business decision ma%ing.

AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1&-. 9dentif the three categories of manufacturing costs.
The three basic cost elements in accounting for manufactured goods are direct material costs+
direct labor costs+ and factor o!erhead costs.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

1-122
1&.. 7efine and contrast period costs and product costs. ?ow are the reported in the
financial statements of a manufacturing compan@
Period costs are the costs that are charged to e*pense because the are more identified with a
time period than with finished products. Product costs are costs that are first assigned to
in!entor. Period costs are e*pensed and reported on the current income statement. Product
costs are assigned to in!entor on the balance sheet until the product is sold/ when sold+ the
are e*pensed as cost of goods sold on the income statement.

AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1&0. 4hat are the three tpes of in!entories that are carried b manufacturers@ 7escribe each
tpe of in!entor.
Manufacturers carr three tpes of in!entories8 raw materials in!entor+ goods in process
in!entor+ and finished goods in!entor. <aw materials in!entor consists of goods a
compan ac)uires to use in ma%ing products. 9t can include both direct materials - those items
that are used directl in a product and are clearl identified with a single unit or batch of
product - and indirect materials - those items that cannot be clearl identified with specific
units or batches of products. ;oods in process+ also called wor% in process+ are products in the
process of being manufactured+ but are not et complete. Finished goods are completed
products read for sale.

AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

1-12"
1&1. 4hat is the main difference between the income statement of a manufacturer and that of
a merchandiser@
9n the calculation of cost of goods sold+ the merchandiser adds cost of goods purchased to
beginning merchandise in!entor+ then subtracts the ending merchandise in!entor to get cost
of goods sold. :ince a manufacturer has three tpes of in!entories - raw materials+ goods in
process+ and finished goods - the manufacturer replaces 3merchandise in!entor3 with
3finished goods3 in!entor. 9n addition+ the manufacturer does not purchase its items for
resale+ but instead manufactures them+ so replaces 3cost of goods purchased3 in the abo!e
calculation with 3cost of goods manufactured.3

AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: Remember
Diic!lty: "asy

1(0. 4hat is ccle time and ccle efficienc@ 4hat is the purpose of these measures@
Ccle time is the sum of process+ inspection+ mo!e and wait time. 'f these four+ onl process
time is considered to be !alue-added time. Ccle efficienc is the ratio of !alue-added time to
total ccle time. These measures are used to e!aluate a how efficientl a compan uses its
time.

AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-12&
1(1. 4hat are prime costs@ 4hat are con!ersion costs@
Prime costs are e*penditures directl associated with the manufacture of finished goods and
include direct materials and direct labor. Con!ersion costs are e*penditures incurred in the
con!erting raw materials into finished goods+ and include direct labor and factor o!erhead.

AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

1(2. 4hat are the components of the manufacturing statement@ 7escribe each component.
The components of the manufacturing statement are direct materials+ direct labor+ factor
o!erhead+ and computation of the cost of goods manufactured. 7irect materials used is
computed b adding beginning raw materials in!entor+ adding raw materials purchased+ and
subtracting the ending raw materials in!entor Bassuming all of the raw materials are direct
materialsC. 7irect labor is the cost of the wor%ers whose efforts can be traced to indi!idual
units or batches of products. Factor o!erhead lists all of the indirect manufacturing costs.
Finall+ the direct materials+ direct labor+ and factor o!erhead are added to determine total
manufacturing costs. 2eginning goods in process is added to total manufacturing costs+ and
ending goods in process are subtracted to determine the cost of goods manufactured.

AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

Essay Questions

1-12(
1(". The following cost items relate to the 2roc% Compan. Classif each cost as a !ariable
cost+ a fi*ed cost+ or a mi*ed cost b placing an H in the appropriate column. >ach cost should
be e!aluated in terms of the !olume of units of finished products produced. Also indicate with
an H for each item if it is a product cost or a period cost.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-12-
1(&. For each item shown below+ indicate whether it is a product cost or a period cost+ b
placing an H in the appropriate column. For each item that is a product cost+ also indicate
whether it is a direct cost or an indirect cost with respect to a unit of finished product.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-12.
1((. <ingle Compan is a manufacturer of compact dis%s BC7sC. Place each of the following
costs in the appropriate column.

1-120
AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-121
1(-. ?ar!$s ?iFi :ound :stems produces spea%ers for mo!ie theaters that sell for E1+200
each. 6isted below are selected cost items for the production of -00 units.

Classif each cost as either fi*ed or !ariable+ and either a product or a period cost.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1"0
1(.. The following costs are incurred b >stafan Manufacturing Co. Classif each cost item
as either a period cost or a product cost. 9f the cost is a product cost+ identif it as a prime
andIor con!ersion cost.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1"1
1(0. Assume Jernel :eason recei!es and produces an order for 1+.(0 cases of popcorn
seasoning and that the following times were measured during production of this order8

BcC 9nterpret these results. 4hat can the compan do to impro!e these measures@

BcC Jernel :eason needs to e!aluate its production process to see if it can identif was to
reduce its non-!alue-added acti!ities. All other things being e)ual+ an reduction in the time
spent inspecting+ mo!ing and waiting would impro!e the compan$s efficienc.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1"2
1(1. Agent : 9ncorporated produces home securit sstems. The compan recei!ed and
produced an order for -(0 sstems last month. The following information is a!ailable
regarding this order.

BcC The management of Agent : wishes to impro!e their manufacturing ccle efficienc to
(0F. The feel the compan$s inspection time can be shortened considerabl+ but that process+
mo!e and wait times cannot be reduced below the times gi!en abo!e. 4ill Agent : meet its
goal b focusing onl on inspection time@ >*plain and support our answer.

BcC Agent :+ 9ncorporated will not meet their goal of (0F manufacturing efficienc if the
focus onl on shortening the inspection time. >!en eliminating all inspection time is not
enough to meet this goal if all other times remain the same.

1-1""
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: Me*i!m

1-0. M-2ot+ 9ncorporated produces automatic car starters. The compan recei!ed and
produced an order for 10+000 starters last month. Assume that the following times were
measured during the production of this order.


AACSB: Analytic
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: Me*i!m

1-1"&
1-1. 4hitman Products and <oc%land 9ndustries report the following information at
7ecember "18

<e)uired8
BaC 4hich compan is a manufacturer@ >*plain.
BbC Prepare the Current Asset :ection of the 2alance :heet for the manufacturer.
BaC <oc%land 9ndustries is the manufacturer. 9t has three tpes of in!entories8 raw materials+
goods in process+ and finished goods. 9t con!erts materials to finished goods.
BbC Current Assets - <oc%land 9ndustries8

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: -n*erstan*
Diic!lty: "asy

1-1"(
1-2. ?orton Foods ba%es and sells 1+000 do#en bagels each wee% to food ser!ice operations.
Among the costs are ba%ers$ salaries+ E2&+000/ production management salaries+ E1-+000/
production e)uipment operating costs+ E"2+000/ and flour and ingredient costs+ E1(+000.
<e)uired8
BaC Calculate prime costs.
BbC Calculate con!ersion costs.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

1-". A manufacturing compan$s finished goods in!entor on Aanuar 1 was E-0+000/ cost of
goods manufactured was E1&.+000/ and the 7ecember "1 finished goods in!entor was
E..+000. 4hat is the cost of goods sold for that ear@

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1"-
1-&. Calculate Cost of ;oods :old for the following two companies8

CA<D><+ 6T7.8

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1".
1-(. The Tic% Compan manufactures tac%s. Costs for :eptember were direct labor+
E0&+000/ indirect labor+ E"-+.00/ direct materials+ E((+100/ factor maintenance+ E&+000/
factor utilities+ E"+200/ and insurance on plant and e)uipment+ E.00. 4hat is Tic%
Compan$s factor o!erhead for :eptember@

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1"0
1--. The following information for 2aldwin Compan+ as of 7ecember "1+ is pro!ided.

A. Calculate the direct material used during the period.
2. Calculate the total manufacturing costs incurred during the period.
C. Calculate the Cost of ;oods Manufactured during the period.
7. Calculate the Cost of ;oods :old during the period.
AC .000 K 1&+000 - "(00 L 1.+(00
2C 1.+(00 K (1+000 K B10+.(0 K 1+000 K 11+-2( K 10+(00 K (+-2( K 10+.(0 K 0+-00C L
2"1+"(0
CC &+000 K 2"1+"(0 - 2+(00 L 2"2+0(0
7C &2+.(0 K 2"2+0(0 - (2+000 L 22"+-00

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: /ar*

1-1"1
1-.. The following list indicates costs as the flow through the business as a product is

A. 21(+000 K 1+0-(+&00 - "1(+.(0 L 1+0&&+-(0
2. H K 1+0&&+-(0 K .00+000 K 1+&.(+000 - "+1(0+000 L 2-(+000/ H L 11-+0(0
C. 20&+000 K "+1(0+.00 - H L 2-0+(00/ H L "1--+200

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: /ar*

1-1&0
1-0. The following list indicates costs as the flow through the business as a product is

A. ".+(00 K (-.+&00 - H L "1+(.0/ H L (."+""0
2. .&2+(00B.(C L ".1+2(0
C. 1"+2(0 K (."+""0 K .&2+(00 K ".1+2(0 - 0.+-00 L H/ H L 1+-12+."0
7. &1+000 K 1+-12+."0 - 1+-2(+000 L H/ H L 11-+."0

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: /ar*

1-1&1
1-1. 9nformation for <eed Manufacturing follows8

Calculate both the cost of goods manufactured and the cost of goods sold for <eed
Manufacturing.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: A))ly
Diic!lty: /ar*

1-1&2
1.0. 5se the following information to prepare the manufacturing statement for Forsthe
Compan for the month ended Aune "08

AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1&"
1.1. 2ourne Crafts manufactures specialt %e chains for tourist attractions. 'n 7ecember "1+
2001+ the firm had 200 sou!enir attraction dis%s used in the production of the chains that cost
E" each/ and -00 completed %e chains that cost E- each. 7uring ear 2010 2ourne Crafts
purchased 1+(00 sou!enir dis%s costing E" each and produced 1+100 %e chains.
<e)uired8
7etermine the total cost of raw materials in!entor at 7ecember "1+ 2010.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1&&
1.2. The following items for Titus Compan are used to compute the cost of goods
manufactured and the cost of goods sold. 9ndicate how each item should be used in the
calculations b filling in the blan%s with 3 K 3 if the item is to be added+ 3-3 if the item is to be
subtracted+ or 303 if the item is not used in the calculation. The first item is completed as an
e*ample.

1-1&(
AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1&-
1.". 9nformation for ;ifford+ 9nc.+ as of 7ecember "1 follows8

Prepare a manufacturing statement for the ear ended 7ecember "1.
1-1&.

AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1&0
1.&. 9nformation for the Ace Manufacturing Compan follows8

Calculate the cost of goods manufactured for this compan.

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

Fill in the Blan Questions

1-1&1
1.(. GGGGGGGGGGGGGGGGGGGGGGGG is an acti!it that pro!ides financial and nonfinancial
information to an organi#ation$s managers and other internal decision ma%ers.
Managerial accounting

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

1.-. GGGGGGGGGGGGGGGGGGG is the process of setting goals and ma%ing plans to achie!e
them.
Planning

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

1... The focus of managerial accounting is on pro!iding GGGGGGGGGGGGGGGG reports while
the focus of financial accounting is on pro!iding GGGGGGGGGGGGG reports.
.nternal/ E0ternal

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1.0. A GGGGGGGGGGGGGGGGGGGGGG sstem means that a compan ac)uires or produces
in!entor onl when needed.
1ust2.n2Ti3e 41.T5 or 1ust2.n2Ti3e2Manu6acturing

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1(0
1.1. The model whose goal is to eliminate waste while satisfing the customer and pro!iding
a positi!e return to the compan is the GGGGGGGGGGGGGGGGGGGGG.
#ean 7usiness 3odel$

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

100. GGGGGGGGGGGGGGGGGGGGG re,ects the notions of 3good enough3 or 3acceptable3 and
challenges emploees and managers to continuousl e*periment with new and impro!ed
business practices.
Continuous i3pro8e3ent

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

101. The GGGGGGGGGGGGGGGGGGGGGGGG aids continuous impro!ement b augmenting
financial measures with information on the dri!ers or indicators of future financial
performance along four dimensions8 B1C financial+ B2C customer+ B"C internal business
processes+ and B&C learning and growth.
Balanced scorecard

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1(1
102. GGGGGGGGGGGGGGGGGGGGG in!ol!es the use of one$s ,ob for personal gain+ through the
deliberate misuse of emploer$s assets.
Fraud

AACSB: Analytic
Bloom's: Remember
Diic!lty: "asy

10". GGGGGGGGGGGGGGGGGGGGG are beliefs that distinguish right from wrong.
Ethics

AACSB: Analytic
Bloom's: Remember
Diic!lty: "asy

10&. A manufacturer$s in!entor that is not completel finished is called
GGGGGGGGGGGGGGGGGG.
9oods in Process

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

10(. For a manufacturer+ the cost of goods sold can be computed b adding the beginning
finished goods in!entor to GGGGGGGGGGGGGGGGGGGGGGGG and then subtracting the ending
finished goods in!entor.
Cost o6 9oods Manu6actured

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1(2
10-. The process of identifing costs as direct or indirect is referred to as classifing costs b
GGGGGGGGGGGGGGG.
Tracea7ility

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

10.. The potential benefit lost b ta%ing a specific action from two or more choices is an
:pportunity Cost

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

100. A GGGGGGGGGGGGGGGGG cost changes in proportion to changes in the !olume of acti!it.
;aria7le

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

101. A GGGGGGGGGGGGGGGGG cost does not change in proportion to changes in the !olume of
acti!it within the rele!ant range.
Fi0ed

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1("
110. A GGGGGGGGGGGGGGGGG cost contains a combination of fi*ed and !ariable costs.
Mi0ed

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

111. A GGGGGGGGGGGGGGGGGGG cost has alread been incurred and cannot be a!oided or
changed+ so it irrele!ant to decision ma%ing.
Sun

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

112. An GGGGGGGGGGGGGGGGGGGGG cost re)uires the future outla of cash and is rele!ant for
decision ma%ing.
:ut2o62pocet

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

11". >*penditures necessar and integral to the manufacture of finished products are
GGGGGGGGGGGGGGGG costs.
Product

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

1-1(&
11&. >*penditures that flow directl to the current income statement and are not reported as
assets are GGGGGGGGGGGGGGGGGGG costs.
Period

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

11(. GGGGGGGGGGGGGGGGGGGGG in!entor consists of goods a compan ac)uires to use in
ma%ing products.
!aw 3aterials

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

11-. GGGGGGGGGGGGGGGGGGGG in!entor consists of products in the process of being
manufactured but not et complete.
9oods in process or wor in process

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

11.. GGGGGGGGGGGGGGGGGGGG in!entor consists of completed products read for sale b a
manufacturer.
Finished goods

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

1-1((
110. 'ne of the main differences between the calculation of cost of goods sold for a
merchandiser and that of a manufacturer is that the calculation includes cost of goods
purchased for the merchandiser+ but the manufacturer replaces that with
Cost o6 goods 3anu6actured

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

111. Dalue-added time di!ided b ccle time is the GGGGGGGGGGGGGGGGGGGG.
Cycle e66iciency

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

200. The sum of process time plus inspection time plus mo!e time plus wait time is defined as
GGGGGGGGGGGGGGGGGGGGGGGGG.
Cycle Ti3e

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1(-
201. >*penditures incurred in the process of con!erting raw materials to finished goods+ that
include direct labor and factor o!erhead are %nown as GGGGGGGGGGGGGGGGGGGGGGGGG.
Con8ersion Costs

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: Remember
Diic!lty: "asy

202. ?erren+ 9nc. reported the following data regarding costs and in!entories for the current
ear8 beginning goods-in-process in!entor+ E&+000/ beginning finished goods in!entor+
E2+000/ cost of goods manufactured+ E11+(00/ operating e*penses+ E"+000/ ending finished
goods in!entor+ E1+000/ ending goods-in-process in!entor+ E1+(00. Cost of goods sold for
?erren+ 9nc. e)uals GGGGGGGGGGGGGGGGGGGG.
<1+='00 4<+=000 > <11='00 2 <1=0005

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

20". >*penditures directl associated with the manufacture of finished goods that include
direct materials and direct labor are GGGGGGGGGGGGGGGGGGGGG costs.
Pri3e

AACSB: Analytic
AICPA BB: In*!stry
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1(.
20&. The manufacturing statement is also %nown as GGGGGGGGGGGGGGGGGGGGGGGGGGGG.
Schedule o6 3anu6acturing acti8ities= or schedule o6 cost o6 goods 3anu6actured$

AACSB: Analytic
AICPA BB: In*!stry
AICPA FN: Re)orting
Bloom's: -n*erstan*
Diic!lty: Me*i!m

1-1(0

Chap 00122

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Chapter 01 - Managerial Accounting Concepts and Principles

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