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Exam 3: Basic Cost Management Concepts

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Question 31

Multiple Choice

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The change in total cost associated with each change in the quantity of the cost driver is:

A) Average cost.
B) Controllable cost.
C) Variable cost.
D) Unit cost.

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Question 32

Multiple Choice

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Which of the following should be considered a structural cost driver?

A) Scale.
B) Experience.
C) Complexity.
D) Technology.
E) All of the above.

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Question 33

Multiple Choice

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The three attributes of cost information include accuracy, timeliness, and

Which of the following is an example of an indirect cost?

How will unit (average) cost of manufacturing (materials, labor and overhead) usually change if the production level rises?

Stephenson Company's computer system recently crashed, erasing much of the company's financial data. The following accounting information was discovered soon afterwards on the CFO's back-up computer data. $\begin{array}{lr}\text { Cost of Goods Sold } & \$ 380,000 \\\text { Work-in-Process Inventory, Beginning } & 30,000 \\\text { Work-in-Process Inventory, Ending } & 40,000 \\\text { Selling and Administrative Expense } & 50,000 \\\text { Finished Goods Inventory, Ending } & 15,000 \\\text { Finished Goods Inventory, Beginning } & ?\\\text { Direct Materials Purchased } & 171,000 \\\text { Factory Overhead Applied } & 112,000 \\\text { Operating Income } & 22,000 \\\text { Direct Materials Inventory, Beginning } & 18,000 \\\text { Direct Materials Inventory, Ending } & 6,000 \\\text { Cost of Goods Manufactured } & 340,000 \\\text { Direct Labor } & 55,000\end{array}$ The CFO of Stephenson Company has asked you to recalculate the following accounts and report to him by week's end. What should be the amount of total manufacturing cost?

If the volume of production is increased over the level planned, the cost per unit would be expected to:

Consider the following for Columbia Street Manufacturing: $\begin{array} {| l | l | } \hline \text { Change in finished goods inventory } & \$ 985 \text { increase } \\\hline \text { Change in work-in-process inventory } & \$ 350 \text { decrease } \\\hline \text { Total manufacturing costs } & \$ 900 \\\hline\end{array}$ What are the cost of goods manufactured and cost of goods sold? $\begin{array}{lll}&\text { Cost of goods } &\text {Cost of goods }\\&\text { manufactured } &\text {sold }\\\text { A) } & \$ 885 & \$ 1,050 \\\text { B) } & \$ 1,250 & \$ 265 \\\text { C) } & \$ 1,525 & \$ 925 \\\text { D) } & \$ 1,250 & \$ 565\end{array}$

Young Fashions Company produces children's clothing. During the current year, the company incurred the following costs: $\begin{array}{lr}\text { Factory Rent }&\$144,000\\\text { Direct labor used } & 525,000 \\\text { Factory utilities } & 120,000 \\\text { Direct materials purchases } & 850,000 \\\text { Indirect materials } & 106,000 \\\text { Indirect labor } & 90,000\end{array}$ $\text { Inventories for the year were: }$ $\begin{array}{lll}&\text { January } 1&\text { December } 31\\\text { Direct materials }&\$220,000&\$155,000\\\text { Work in process } & 160,000 & 128,000 \\\text { Finished goods } & 320,000 & 310,000\end{array}$ Required: Prepare a statement of cost of goods manufactured and cost of goods sold.

The Gray Company has a staff of five clerks in its general accounting department.Three clerks who work during the day perform sundry accounting tasks; the two clerks who work in the evening are responsible for (1) collecting the cost data for the various jobs in process, (2) verifying manufacturing material and labor reports, and (3) supplying production reports to the supervisors by the next morning.The salaries of these two clerks who work at night should be classified as:

Strategic analysis uses which of the following to help a firm improve its competitive position through an analysis of product and production complexity?

If finished goods inventory has increased during the period, which of the following is always true?

Complete the inventory formula: Beginning Inventory + ______ = ________ + Ending Inventory

Conrad, Inc. recently lost a portion of its records in an office fire. The following information was salvaged from the accounting records. $\begin{array}{lr}\text { Cost of Goods Sold } & \$ 65,000 \\\text { Work-in-Process Inventory, Beginning } & 10,500 \\\text { Work-in-Process Inventory, Ending } & 9,000 \\\text { Selling and Administrative Expense } & 15,000 \\\text { Finished Goods Inventory, Ending } & 15,000 \\\text { Finished Goods Inventory, Beginning } & ?\\\text { Direct Materials Used } & ? \\\text { Factory Overhead Applied } & 12,000 \\\text { Operating Income } & 14,000 \\\text { Direct Materials Inventory, Beginning } & 11,000 \\\text { Direct Materials Inventory, Ending } & 6,000 \\\text { Cost of Goods Manufactured } & 60,000\end{array}$ Direct labor cost incurred during the period amounted to 1.5 times the factory overhead. The CFO of Conrad, Inc. has asked you to recalculate the following accounts and to report to him by the end of the day. What is the amount of total manufacturing cost?

All indirect manufacturing costs are commonly combined into a single cost pool called:

Assume the following information pertaining to Cub Company: $\begin{array}{lr}\text { Prime costs } & \$ 195,000 \\\text { Conversion costs } & 221,000 \\\text { Direct materials used } & 85,000 \\\text { Beginning work in process } & 98,000 \\\text { Ending work in process } & 81,000\end{array}$ Total manufacturing cost is calculated to be:

The following data relates to the Solar Products Company for the fiscal year ended December 31: $\begin{array} { l r } \text { Direct Materials Inventory, Beginning } & \$ 60 \\\text { Direct Materials Inventory, Ending } & 40 \\\text { Direct Materials Purchases } & 290 \\\text { Direct Labor } & 33 \\\text { Finished Goods Inventory, Beginning } & 90 \\\text { Finished Goods Inventory, Ending } & 100 \\\text { Factory overhead } & 155 \\\text { Work-in-Process Inventory, Beginning } & 80 \\\text { Work-in-Process Inventory, Ending } & 60\end{array}$ Required: Prepare a statement of cost of goods manufactured and cost of goods sold.

Williams Company is an East Coast producer of electronic furnace air filters. A significant jump in new housing starts in the region has triggered a 25 percent increase in orders for the filter units, especially the quality model that Williams sells for $270. Six weeks after increasing production to supply the increased orders, the assistant controller notices some unusual unit cost data in the monthly report she is preparing. Prior and current month unit values are given below: $\begin{array}{lccc}\text { Filter } & \text { This Month } & \text { Last Month } & \text { Change } \\\text { Average total cost } & \$ 167.20 & \$ 171.14 & -\$ 3.94 \\\text { Cost of last unit produced } & 104.90 & 101.22 & +3.68\end{array}$ Required: (1) Suggest some possible causes for the decline in average total cost. (2) Assume now the opposite change has occurred, namely, average total cost has risen $3.94 per unit, while unit variable cost has fallen by $3.68 per unit. Suggest a possible situation to explain these changes.

Tierney Construction, Inc. recently lost a portion of its financial records in an office theft. The following accounting information remained in the office files: $\begin{array}{lr}\text { Cost of goods sold } & \$ 80,000 \\\text { Work in process inventory, January 1, 2016 } & 18,500 \\\text { Work in process inventory, December 31, 2016 } & 14,500 \\\text { Selling and Administrative Expenses } & 16,000 \\\text { Net Income } & 30,000\\\text { Factory overhead } & 20,000 \\\text { Direct materials inventory, January 1, 2016 } & 26,000 \\\text { Direct materials inventory, December 31, 2016 } & 14,000 \\\text { Cost of goods manufactured } & 98,000 \\\text { Finished goods inventory, January 1, 2016 } & 31,000\end{array}$ Direct labor cost incurred during the period amounted to 2.5 times the factory overhead. The CFO of Tierney Construction, Inc. has asked you to recalculate the following accounts and to report to him by the end of tomorrow. What should be the amount in the finished goods inventory at December 31, 2016?

In order to assure that accounting information is accurate and to avoid potentially costly mistakes in the decision making process, firms should: