DEPARTMENT OF ACCOUNTS & BUSINESS

COST ACCOUNTING 1B
MIDTERM EXAMINATION

NAME : DATE:
SECTION: SCORE:

General Instruction:
(a) Nobody is allowed to get out of the room while the examination is going on.
(b) Nobody is allowed to borrow or lend pencil, ballpen, and or calculator during the examination.
(c) You are not allowed to use and other scratch paper aside from the scratch paper attached to the answer sheet.
(d) Return the questionnaire, scratch papers and submit the answer sheer to the proctor.
(e) Talking to your classmates is not allowed during the examination period. Direct all questions to the proctor.
(f) For PART 1, use scantron sheet sheet/ bubble sheet and select the best answer.
(g) For PART 2, read carefully each question and answer using the answer sheet provided separately by the
proctor.
(h) The examination is for one (1) hour and fifty (50) minutes and no one is allowed to have an extension.
(i) Any form of cheating will be dealt accordingly. Failure to comply with any of these rules will merit an “F” in this
examination.

Part 1 – Theories (1 point each)

1. In comparing financial and management accounting, which of the following more accurately describes
management accounting information?
A. historical, precise, useful
B. required, estimated, internal
C. budgeted, informative, adaptable
D. comparable, verifiable, monetary

2. One major difference between financial and management accounting is that

A. financial accounting reports are prepared primarily for users external to the company.
B. management accounting is not under the jurisdiction of the Securities and Exchange Commission.
C. government regulations do not apply to management accounting.
D. all of the above are true.

3. Management accounting
A. is more concerned with the future than is financial accounting.
B. is less concerned with segments of a company than is financial accounting.
C. is more constrained by rules and regulations than is financial accounting.
D. all of the above are true.

4. Which of the following is not a valid method for determining product cost?
A. arbitrary assignment
B. direct measurement

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 C. systematic allocation
D. cost-benefit measurement

5. Cost accounting is directed toward the needs of

A. regulatory agencies.
B. external users.
C. internal users.
D. stockholders.
6. Cost accounting is necessitated by
A. the high degree of conversion found in certain businesses.
B. regulatory requirements for manufacturing companies.
C. management's need to be aware of all production activities.
D. management's need for information to be used for planning and controlling activities.

7. The process of ___________ causes the need for cost accounting.

A. conversion
B. sales
C. controlling
D. allocating

8. Financial accounting
A. is primarily concerned with internal reporting.
B. is more concerned with verifiable, historical information than is cost accounting.
C. focuses on the parts of the organization rather than the whole.
D. is specifically directed at management decision-making needs.

9. Financial accounting and cost accounting are both highly concerned with
A. preparing budgets.
B. determining product cost.
C. providing managers with information necessary for control purposes.
D. determining performance standards.

10. Which of the following topics is of more concern to management accounting than to
cost accounting?
A. generally accepted accounting principles
B. inventory valuation
C. cost of goods sold valuation
D. impact of economic conditions on company operations

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 11. Cost and management accounting
A. require an entirely separate group of accounts than financial accounting uses.
B. focus solely on determining how much it costs to manufacture a product or provide a
service.
C. provide product/service cost information as well as information for internal decision
making.
D. are required for business recordkeeping as are financial and tax accounting.

12. Which of the following statements is true?

A. Management accounting is a subset of cost accounting.
B. Cost accounting is a subset of both management and financial accounting.
C. Management accounting is a subset of both cost and financial accounting.
D. Financial accounting is a subset of cost accounting.

13. Which of the following statements is false?

A. A primary purpose of cost accounting is to determine valuations needed for external
financial statements.
B. A primary purpose of management accounting is to provide information to managers for
use in planning, controlling, and decision making.
C. The act of converting production inputs into finished products or services necessitates
cost accounting.
D. Two primary hallmarks of cost and management accounting are standardization of
procedures and use of generally accepted accounting principles.

14. Which of the following types of information are used in management accounting?
A. financial information
B. nonfinancial information
C. information focused on the long term
D. All of these answers are correct.

15. Modern cost accounting plays a role in:

A. planning new products
B. evaluating operational processes
C. controlling costs
D. All of these answers are correct.

16. Which of the following does NOT affect the direct/indirect classification of a cost?

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 A. the level of budgeted profit for the next year
B. the materiality of the cost in question
C. available technology to gather information about the cost
D. the design of the operation

17. Which of the following statements about the direct/indirect cost classification is NOT
true?
A. Indirect costs are always traced.
B. Indirect costs are always allocated.
C. The design of operations affects the direct/indirect classification.
D. The direct/indirect classification depends on the choice of cost object.

18. Cost tracing is:

A. the assignment of direct costs to the chosen cost object
B. a function of cost allocation
C. the process of tracking both direct and indirect costs associated with a cost object
D. the process of determining the actual cost of the cost object

19. The determination of a cost as either direct or indirect depends upon the:
A. accounting system
B. allocation system
C. cost tracing system
D. cost object chosen

20. Classifying a cost as either direct or indirect depends upon:

A. the behavior of the cost in response to volume changes
B. whether the cost is expensed in the period in which it is incurred
C. whether the cost can be easily identified with the cost object
D. whether an expenditure is avoidable or not in the future

21. A manufacturing plant produces two product lines: golf equipment and soccer
equipment. An example of direct costs for the golf equipment line are:
A. beverages provided daily in the plant break room
B. monthly lease payments for a specialized piece of equipment needed to manufacture
the golf driver
C. salaries of the clerical staff that work in the company administrative offices
D. utilities paid for the manufacturing plant

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 22. A manufacturing plant produces two product lines: golf equipment and soccer
equipment. An example of indirect cost for the soccer equipment line is:
A. material used to make the soccer balls
B. labor to shape the leather used to make the soccer ball
C. shift supervisor for the soccer line
D. plant supervisor

23. Which one of the following items is a direct cost?

A. Customer-service costs of a multiproduct firm; Product A is the cost object.
B. Printing costs incurred for payroll check processing; payroll check processing is the cost
object.
C. The salary of a maintenance supervisor in a multiproduct manufacturing plant; Product
B is the cost object.
D. Utility costs of the administrative offices; the accounting department is the cost object.

24. Indirect manufacturing costs:

A. can be traced to the product that created the costs
B. can be easily identified with the cost object
C. generally include the cost of material and the cost of labor
D. may include both variable and fixed costs

25. All of the following are true EXCEPT that indirect costs:
A. may be included in prime costs
B. are not easily traced to products or services
C. vary with the selection of the cost object
D. may be included in manufacturing overhead

26. Which statement is true?

A. All variable costs are direct costs.
B. Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs.
C. All fixed costs are indirect costs.
D. All direct costs are variable costs.

27. A cost accounting information system necessarily should accomplish all of the
following except:
A. reflect the division of authority so that individual managers can be held accountable
B. provide management with information that facilitates prompt identification of
activities needing attention

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 C. be more sophisticated than is required by legal, regulatory, and contractual
requirements
D. be tailored to give the most efficient blend of sophistication and simplicity

28. The term "variable costs" refers to:

A. all costs whose total amounts change in proportion to changes in activity within a
relevant range
B. all costs that are likely to respond to the amount of attention devoted to them by a
specified manager
C. all costs that are associated with marketing, shipping, warehousing, and billing
activities
D. all costs that do not change in total for a given period and relevant range, but
become progressively smaller on a per-unit basis as volume increases
E. all manufacturing costs incurred to produce units of output.

29. Cost objects include:

A. products
B. customers
C. departments
D. All of these answers are correct.

30. Actual costs are:

A. the costs incurred
B. budgeted costs
C. estimated costs
D. forecasted costs

31. Work-in-process inventory would normally include:

A. direct materials in stock and awaiting use in the manufacturing process
B. goods partially worked on but not yet fully completed
C. goods fully completed but not yet sold
D. products in their original form intended to be sold without changing their basic form

32. Finished goods inventory would normally include:

A. direct materials in stock and awaiting use in the manufacturing process
B. goods partially worked on but not yet fully completed
C. goods fully completed but not yet sold
D. products in their original form intended to be sold without changing their basic form

33. ________ are the acquisition costs of all materials that eventually become part of the
cost object and can be traced to the cost object.
A. Direct manufacturing labor costs
B. Direct material costs
C. Indirect manufacturing costs

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 D. Manufacturing overhead costs

34. ________ are all manufacturing costs that are related to the cost object but CANNOT
be traced to that cost object.
A. Direct material costs
B. Period costs
C. Indirect manufacturing costs
D. Direct manufacturing labor costs

35. The income statement of a manufacturing firm reports:

A. period costs only
B. inventoriable costs only
C. both period and inventoriable costs
D. period and inventoriable costs but at different times; the reporting varies

36. The income statement of a service-sector firm reports:

A. period costs only
B. inventoriable costs only
C. both period and inventoriable costs
D. period and inventoriable costs but at different times; the reporting varies

37. Manufacturing costs include all of the following EXCEPT:

A. costs incurred inside the factory
B. both direct and indirect costs
C. both variable and fixed costs
D. both direct and period costs

38. Inventoriable costs:

A. include administrative and marketing costs
B. are expensed in the accounting period in which the products are sold
C. are particularly useful in management accounting
D. are also referred to as nonmanufacturing costs

39. Inventoriable costs are expensed on the income statement:

A. when direct materials for the product are purchased
B. after the products are manufactured
C. when the products are sold
D. not at any particular time, it varies.

40. Costs that are initially recorded as assets and expensed when sold are called:
A. period costs
B. inventoriable costs
C. variable costs
D. fixed costs
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Part 2- Problem Solving (1 point each)

Hammer Inc., had the following activities during 2018:

Direct materials:

Beginning inventory 20,000

Purchases 61,600

Ending inventory 10,400

Direct manufacturing labor 16,000

Manufacturing overhead 12,000

Beginning work-in-process inventory 800

Ending work-in-process inventory 4,000

Beginning finished goods inventory 24,000

Ending finished goods inventory 16,000

Required:

A. What is the cost of direct materials used during 2018?

B. What is cost of goods manufactured for 2018?
C. What is cost of goods sold for 2018?
D. What amount of prime costs was added to production during 2018?
E. What amount of conversion costs was added to production during 2018?

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