TUTORS COPY

ACCT2112 Management Accounting

Tutorial Questions with Suggested Answers
Chapter 2: An Introduction to Cost Terms and Purposes

Section A: Multiple Choice Questions

Instruction: Select the best answers for the following questions.

1.

Cost objects include

a.
b.
c.
d.
e.

2.

The general term used to identify both the tracing and the allocation of accumulated
costs to a cost object is
a.
b.
c.
d.
e.

3.

products.
customers.
departments.
all of the above.
none of the above.

cost accumulation.
cost assignment.
cost tracing.
conversion costing.
none of the above

The determination of a cost as being either direct or indirect depends upon

a.
the accounting system.
b.
the allocation system.
c.
the cost tracing system.
d. the cost object chosen.
e.
none of the above.

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4.

The MOST likely cost driver of direct material costs is

a.
b.
c.
d.
e.

5.

When 10,000 units are produced, fixed costs are $14 per unit. Therefore, when 20,000
units are produced fixed costs
a.
b.
c.
d.
e.

6.

will increase to $28 per unit.

will remain at $14 per unit.
will decrease to $7 per unit.
will total $280,000.
none of the above.

Costs expensed on the income statement in the accounting period incurred are referred
to as
a.
b.
c.
d.
e.

7.

the number of parts within the product.

the number of miles driven.
the number of products manufactured.
the number of production hours.
none of the above.

direct costs.
indirect costs.
period costs.
inventoriable costs
product costs

Prime costs include

a.
b.
c.
d.
e.

direct materials and direct manufacturing labor costs.

direct manufacturing labor and manufacturing overhead costs.
direct materials and manufacturing overhead costs.
only direct materials.
only direct labor

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8.

Conversion costs include

a.
b.
c.
d.
e.

9.

In the cost classification system used by manufacturing firms, total manufacturing costs
would include all of the following EXCEPT:
a.
b.
c.
d.
e.

10.

direct materials costs and conversion costs

direct materials costs, direct manufacturing labor costs, and manufacturing
overhead costs
indirect materials costs, indirect manufacturing labor costs, and
manufacturing overhead costs
prime costs and manufacturing overhead costs
none of the above.

Which of the following formulas determine cost of goods sold in a merchandising

entity?
a.
b.
c.
d.
e.

11.

direct materials and direct manufacturing labor costs.

direct manufacturing labor and manufacturing overhead costs.
direct materials and manufacturing overhead costs.
only direct materials.
only direct labor.

Beginning inventory + Purchases + Ending inventory = Cost of goods sold

Beginning inventory + Purchases - Ending inventory = Costs of goods sold
Beginning inventory Purchases + Ending inventory = Cost of goods sold
Beginning inventory Ending inventory Purchases = Cost of goods sold
None of the above.

Which of the following formulas determine cost of goods sold in a manufacturing

entity?
a.
b.
c.
d.
e.

Beginning work-in-process inventory + Cost of goods manufactured Ending

work-in-process inventory = Cost of goods sold
Beginning work-in-process inventory + Cost of goods manufactured + Ending
work-in-process inventory = Cost of goods sold
Cost of goods manufactured - Beginning finished goods inventory Ending
finished goods inventory = Cost of goods sold
Cost of goods manufactured + Beginning finished goods inventory Ending
finished goods inventory = Cost of goods sold
None of the above.

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12.

Merchandising companies normally report:

a.
b.
c.
d.
e.

13.

For a computer manufacturer, period costs include the cost of:

a.
b.
c.
d.
e.

14.

the keyboard
labor used for assembly and packaging
distribution
assembly-line equipment
none of the above.

Period costs:
a.
b.
c.
d.
e.

15.

only merchandise inventory

only finished goods inventory
direct materials inventory, work-in-process inventory, and finished goods
inventory accounts
no inventory accounts
none of the above.

are treated as expenses in the period they are incurred

are directly traceable to products
include direct labor
are also referred to as manufacturing overhead costs
none of the above.

Christi Manufacturing provided the following information for last month.

Sales
Variable costs
Fixed costs
Operating income

$10,000
3,000
5,000
$2,000

If sales double next month, what is the projected operating income?

a.
b.
c.
d.
e.

$4,000
$7,000
$9,000
$12,000
none of the above.

(10,000 x 2) - ($3,000 x 2) - $5,000 = $9,000

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16.

The following information pertains to the Cannady Corporation:

Beginning work-in-process inventory
Ending work-in-process inventory
Beginning finished goods inventory
Ending finished goods inventory
Cost of goods manufactured
What is cost of goods sold?
a.
b.
c.
d.
e.

$1,235,000
$1,205,000
$1,218,000
$1,222,000
none of the above.

$180,000 + $1,220,000 - $195,000 = $1,205,000

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50,000
48,000
180,000
195,000
1,220,000

Section B: Questions/Problems

QUESTION 1
Crawley Pty Ltd manufactures various computing parts and accessories. On 28 February
2015, at about 12:01am, a distraught employee, Arson Crazy, put a torch to a manufacturing
plant. The resulting blaze completely destroyed the plant and its contents. Fortunately, some
of the accounting records were kept in another building. The following data (in thousands)
for the fiscal year survived:
Cost of goods sold
Purchases of direct materials
Factory overhead
Sales commissions
Direct labour
Direct materials used
Finished goods inventory beginning
Gross profit
Account payable beginning
Account payable ending
Work-in-process - beginning
Work-in-process - ending

$32,000
8,000
13,000
2,000
4,000
7,600
7,800
12,000
1,700
1,500
1,300
800

The loss is fully covered by insurance. The insurance company wants to know the historical
cost of the inventories as a basis for negotiating a settlement (although the settlement is
actually to be based on replacement, not historical cost).

REQUIRED:
[Please show your workings/computations clearly]
Calculate the ending inventory of finished goods on 28 February for the above insurance
claim.

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SUGGESTED ANSWER TO QUESTION 1

FG Beginning
Add: COGM (see below computation)
COGAS
Less: FG ending (?)
COGS

$ 7,800 (G)
25,100
$32,900
900
$32,000 (G)

Cost of goods manufactured:

DM Used
DL
FOH

$ 7,600
4,000
13,000
$24,600
1,300
$25,900
800
$25,100

Add WIP beginning

Less: WIP ending
COGM

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