Use the following information to answer questions 1 and 2:
At a law firm, overhead is assigned to clients based on direct
labor hours. At the beginning of 20x7, estimated overhead
costs were $156,000 and estimated direct labor hours were
20,800. Actual overhead costs amounted to $166,400, and
20,904 direct labor hours were worked.
1. What predetermined overhead rate should the law firm use
to apply overhead to clients? (Round to the nearest cent.)
A. $7.46 C. $7.96
B. $7.50 D. $8.00
2. How much overhead should be applied to a client whose
file notes 120 direct labor hours in 20x7? (Round to the
nearest cent.)
A. $895.20 C. $955.20
B. $900.00 D. $960.00
3. Which of the following statements accurately describes cost flows in a manufacturing
firm utilizing JIT?
A. Direct labor and direct materials are maintained in a WIP account for long periods
of time.
B. Manufacturing overhead is recorded in the raw materials account.
C. There’s little need to maintain raw materials, WIP, or finished-goods accounts.
D. There’s no need to maintain a cost of goods sold account.
Use the following information to answer question 4:
Direct materials used—$31,000
Direct labor—$18,000
Factory rent—$12,000
Equipment depreciation—factory—$2,000
Equipment depreciation—office—$750
Marketing expense—$2,500
Administrative expenses—$40,000
Units produced—35,000
4. What are the total nonmanufacturing costs?
A. $43,250 C. $63,000
B. $57,250 D. $106,250
5. For a student who is considering housing options for next semester, cost, proximity to
campus, and square feet of living area are all examples of
A. alternative solutions. C. problems.
B. relevant variables. D. decision objectives.
Use the following information to answer questions 6, 7, and 8:
During 2007, JKL Manufacturing had the following costs:
Equipment depreciation—factory $2,000
Equipment depreciation—office $5,750
Marketing expense $2,500
Direct materials used $31,000
Direct labor $18,000
Administrative expenses $15,000
Factory rent $12,000
3,500 units were produced in 2007
6. What is the product cost per unit, rounded to the nearest dollar?
A. $15 C. $20
B. $18 D. $25
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7. What are the total period costs for 2007?
A. $23,250 C. $68,750
B. $51,000 D. $86,250
8. What is the net income for 2007 if 3,000 units are sold for $35 each?
A. $23,250 C. $51,000
B. $27,750 D. $105,000
9. Tom’s Thimbles, a manufacturing company, began the month with raw materials
costing $9,000 on hand. Purchases during the month totaled $12,000. If $8,000
of raw materials were remaining at the end of the month, what was the amount
used for production during the current month?
A. $4,000 C. $13,000
B. $11,000 D. $29,000
10. An employee who works 40 hours per week spent 3 hours talking about football and
had 37 productive hours. The employee is paid $5 per hour and was paid for a full
40-hour week. In a job costing system, how would the labor costs be classified?
A. Direct labor $200
B. Direct labor $185, Slack time $15
C. Direct labor $185, Overhead $15
D. Overhead $200
Answer questions 11 and 12 from the following information:
FactorsXenabox T.V. BigScreen T.V.
Screen size 50 inch 50 inch
Picture quality great good
Cost $1,300 $1,300
Delivery charge $50$50
11. Which of the following four factors is relevant to your decision?
A. Screen size C. Cost
B. Picture quality D. Delivery charge
12. Which of the following four factors is qualitative?
A. Screen size C. Cost
B. Picture quality D. Delivery charge
13. Which of the following statements best reflects the differences between the needs of
internal users and the needs of external users of accounting information?
A. Accounting information for external users is more flexible.
B. Accounting information for internal users is more timely.
C. Accounting information for external users is more future-oriented.
D. Accounting information for internal users is more focused on the organization as a
whole.
Use the following information to answer question 14:
All information is for one month, and direct labor hours are the allocation base.
Direct material used—2,500 pounds @ $0.75 per pound
Direct labor—200 hrs; wage rate, $7.50 per hour; benefits, $1.50 per hour
Estimated monthly overhead—$5,000
Estimated monthly direct labor hours—250
Actual expenses:
Factory rent $1,750
Factory utilities $1,850
Advertising $1,250
Factory equipment depreciation $1,500
Sales commissions $1,250
14. What was the actual overhead?
A. $7,600 C. $5,100
B. $6,350 D. $5,000
15. Peterson Upholstery manufactures custom furniture. Peterson has just completed a job
that required 20 yards of fabric at a cost of $15 per yard. Out of the 20 yards of fabric,
18 yards actually became a part of the completed project. The remaining 2 yards
were considered normal spoilage in the production process. Which of the following
statements is correct regarding the fabric cost for this job?
A. Direct materials cost of $270 should be allocated to the job.
B. Direct materials cost of $300 should be allocated to the job.
C. Indirect materials cost of $270 should be allocated to the job.
D. Indirect materials cost of $30 should be allocated to the job.
16. In its initial year of operation, Montoya Manufacturing started and completed 4,000
identical widgets and had 1,000 widgets that were 40% complete in work-in-process at
the end of the year. Total production costs for the year were $55,000. What is the cost
per equivalent unit?
A. $11.00 C. $12.50
B. $11.96 D. $13.75
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17. Which of the following scenarios best describes an operational decision for an
auto manufacturer?
A. Building a new assembly facility overseas to capture greater market share
B. Establishing a quality control program to build customer satisfaction and
brand loyalty
C. Hiring and training welders to meet an annual production target
D. Diversifying the product line by acquiring a computer chip manufacturer
Use the following information to answer question 18:
Lil Chicken Farm calculates predetermined overhead rates for each department using
the number of pens as the cost driver. In the feeding department, total overhead costs
were $4,410 in 20x7, and are expected to total $5,060 in 20x8. There were 420 pens
in 20x7 and plans for 460 pens in 20x8.
18. If the actual number of pens in 20x8 was 450 and actual overhead was $5,000, what
was the amount of under- or overapplied overhead?
A. $50 underapplied C. $422.50 overapplied
B. $275 underapplied D. $684.50 overapplied
Use the following wage and salary expense information for a dress shop to answer question 19:
Machine operators $200,000
Quality control supervisors $100,000
Fabric cutters $75,000
Factory janitor $18,000
Company president $150,000
19. What is the amount of indirect labor incurred?
A. $75,000 C. $250,000
B. $118,000 D. $543,000
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Use the following information to answer questions 20, 21, and 22:
The Drapery Company sells draperies suited for large or small windows and has
decided to adopt an activity-based costing system. Last year the company incurred
$800,000 in overhead costs related to the following activities:
Activity Allocation Base Overhead Cost
Purchasing # of purchase orders $300,000
Receiving # of shipments received $200,000
Sales # of sales orders $300,000
The activities for large and small window draperies were as follows:
Large Small
Purchase orders 5,000 10,000
Shipments received 7,500 12,500
Sales orders 6,500 8,500
20. What is the overhead rate for sales?
A. $60 C. $20
B. $30 D. $10
21. How much of the receiving overhead should be assigned to the large draperies?
A. $75,000 C. $125,000
B. $100,000 D. $200,000
22. If a customer requested a bid on a specially designed drapery that would require five
purchase orders, how much purchasing overhead would you include in the bid?
A. $25 C. $100
B. $50 D. $125
23. Cost of goods manufactured equals
A. beginning direct materials inventory plus all production costs incurred less ending
direct materials inventory.
B. beginning direct materials inventory plus all production costs incurred less ending
work-in-process inventory.
C. beginning work-in-process inventory plus direct materials used plus direct labor
used plus manufacturing overhead used less ending work-in-process inventory.
D. beginning work-in-process inventory plus direct materials used plus direct labor
used plus manufacturing overhead used plus beginning finished goods inventory.
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24. If a company is in the process of implementing an activity-based costing system,
which cost driver would a purchasing department manager identify to allocate costs?
A. Amount of material C. Amount of labor hours
B. Number of receipts D. Number of parts
25. When considering housing options, if the cost of a dorm room and the cost of an
apartment across the street are the same, then cost is
A. sunk. C. relevant.
B. an opportunity cost. D. not relevant.