Management Accounting: Concepts, Techniques & Controversial Issues

James R. Martin

Chapter 2
Cost Accounting Systems and Manufacturing Statements
Extra MC Questions

1. The traditional inventory valuation methods include
    a. absorption costing and job order costing.
    b. direct costing and process costing.
    c. absorption costing and process costing.
    d. direct costing and job order costing.
    e. absorption costing and direct costing.

2. The traditional cost accumulation methods include
    a. absorption costing and direct costing.
    b. absorption costing and job order costing.
    c. direct costing and process costing.
    d. job order costing and process costing.
    e. direct costing and job order costing.

3. Normal historical costing must include
    a. overhead allocations.
    b. full absorption costing.
    c. job order costing.
    d. activity costing.
    e. none of these.

4. In direct or variable costing,
    a. only direct manufacturing costs are assigned to product inventories.
    b. all variable manufacturing costs are assigned to product inventories.
    c. all variable costs are assigned to product inventories.
    d. costs are assigned to product inventories to obtain proper matching.
    e. none of these.

5. Contribution margin is equal to
    a. Sales less variable cost of goods sold.
    b. Sales less gross profit.
    c. Sales less variable cost of goods sold and variable selling & administrative expenses.
    d. Sales less manufacturing margin.
    e. None of these.

6. Which of the following does not represent a product cost?
    a. Indirect material.
    b. Factory depreciation.
    c. Indirect labor.
    d. Abnormal spoilage.
    e. Direct material.

7. Four types of inventory valuation methods include
    a. Normal historical, full absorption, direct and job order.
    b. Full absorption, direct, throughput and activity based.
    c. Job order, process, backflush and activity based.
    d. Throughput, standard, periodic and direct.
    e. None of these.

8. Three types of input measurement bases for a cost accounting system include
    a. Activity based, standard and job order.
    b. Standard, full absorption and direct.
    c. Full absorption, pure historical and normal historical.
    d. Pure historical, normal historical, and standard.
    e. None of these.

9. Which of the following groups include only cost accumulation methods?
    a. Activity based, backflush and periodic.
    b. Job order, standard and full absorption.
    c. Process, backflush and job order.
    d. Direct, throughput and backflush.
    e. None of these.

10. Full Absorption costing is
    a. a perpetual inventory method.
    b. a cost accumulation method.
    c. an inventory valuation method.
    d. basic cost system.
    e. a cost flow assumption.

11. A manufacturing plant where orders are processed to customer specifications would most likely use
    a. Normal historical costing.
    b. Job order costing.
    c. Full absorption costing.
    d. Process costing.
    e. Direct costing.

12. If cost of goods sold can be recorded at the time of sale, then the firm must be using
    a. perpetual inventories.
    b. full absorption costing.
    c. normal historical costing.
    d. standard costing.
    e. Either a or d.

13. Activity costing refers to a product costing method that
    a. is the same as direct costing.
    b. treats all costs as variable and allocates them to products on the basis of the transactions that drive the costs.
    c. treats only manufacturing costs as variable and allocates these costs to products on the basis of transactions.
    d. is a more accurate product costing method acceptable for external reporting.
    e. None of these.

14. Which of the following methods indicate whether both fixed and variable manufacturing costs are capitalized in the inventory?
    a. Either historical costing or standard costing.
    b. Either absorption costing or direct (or variable) costing.
    c. Either job order costing or process costing.
    d. Periodic or perpetual.
    e. FIFO and weighted average.

15. Which of the following methods indicate whether manufacturing costs are accumulated by department or by customer?
    a. Either historical costing or standard costing.
    b. Either absorption costing or direct (or variable) costing.
    c. Either job order costing or process costing.
    d. Periodic or perpetual.
    e. FIFO and weighted average.

16. Which of the following methods represent cost flow assumptions?
    a. Either historical costing or standard costing.
    b. Either absorption costing or direct (or variable) costing.
    c. Either job order costing or process costing.
    d. Periodic or perpetual.
    e. FIFO and weighted average.

17. Which of the groups below tend to need information on a more timely basis, i.e., more often?
    a. Outside investors and creditors.
    b. Plant, production and operating managers.
    c. Marketing, product, business and senior managers.
    d. The IRS.
    e. The SEC.

18. If the dollar amount of work in process inventory increases during a period, then total manufacturing costs will be
    a. greater than cost of goods manufactured.
    b. less than cost of goods manufactured.
    c. greater than cost of goods sold.
    d. less than cost of goods sold.
    e. equal to cost of goods manufactured but less than cost of goods sold.

19. If the dollar amounts of the work in process and finished goods inventories do not change during a period, we would expect total manufacturing cost to be
    a. less than cost of goods sold.
    b. greater than cost of goods sold.
    c. equal to cost of goods sold.
    d. a or b.
    e. a, b or c.

Assume the following information (in thousands of dollars) is given for the Soft Company:

20. Cost of goods manufactured based on absorption costing is
    a. 360 
    b. 476 
    c. 478 
    d. 480 
    e. 705

21. Cost of goods sold based on absorption costing is
    a. 460 
    b. 480 
    c. 500 
    d. 495 
    e. None of these.

22. Gross profit is
    a. 250 
    b. 270 
    c. 290 
    d. 375 
    e. None of these.

23. Net income before tax based on absorption costing is
    a. 25 
    b. 27 
    c. 32 
    d. 30 
    e. None of these.

24. Cost of goods manufactured based on direct costing is
    a. 360
    b. 375 
    c. 385 
    d. 500 
    e. None of these.

25. Cost of goods sold based on direct costing is
    a. 360 
    b. 375
    c. 385 
    d. 500 
    e. None of these.

26. Manufacturing margin is
    a. 390 
    b. 375 
    c. 265 
    d. 250 
    e. None of these.

27. Contribution margin is
    a. 390 
    b. 375 
    c. 265 
    d. 250 
    e. None of these.

28. Net income before tax based on direct costing is
    a. 25 
    b. 27 
    c. 32 
    d. 30 
    e. None of these.

29. Based on the information given in this problem, the following appears to have occurred.
    a. The company produced more than it sold.
    b. The company produced less than it sold.
    c. The company produced the same amount that it sold.
    d. There is no logical way to answer this question.

The following information is given for the Gulf Company.

No change occurred in the dollar amount of the work in process inventory during the period.

30. Gulf Company’s Gross profit is
    a. 510 
    b. 180 
    c. 200 
    d. 220    
    e. None of these.

31. The Company’s Net income based on absorption costing is
    a. 480 
    b. 200 
    c. -100 
    d. -80   
    e. Some other amount.

32. Gulf Company’s total Contribution margin is
    a. 510 
    b. 320 
    c. 310  
    d. 95 
    e. Some other amount.

33. The Company’s Net income based on direct or variable costing is
    a. -90   
    b. -80 
    c. -180 
    d. 120 
    e. Some other amount.

34. Based on the three generalizations associated with direct and absorption costing net income comparisons,
    a. Gulf Company appears to have sold more output than it produced.
    b. Gulf Company appears to have sold less output than it produced.
    c. Gulf Company appears to have sold the same amount of output it produced.
    d. Gulf Company could have sold more or less output than it produced.
    e. There is no indication one way or the other concerning the relationship between output and sales.

The following financial results are given for the MAX Company:

35. Max Company's gross profit is 
    a. 450,000 
    b. 535,000 
    c. 390,000 
    d. 305,000 
    e. 250,000

36. Max Company's contribution margin is 
    a. 450,000 
    b. 535,000 
    c. 390,000 
    d. 305,000 
    e. 250,000

37. Max Company's Net income under direct costing is
    a. $5,000 > net income under absorption costing.
    b. $5,000 < net income under absorption costing.
    c. $15,000 > net income under absorption costing. 
    d. $15,000 < net income under absorption.
    e. none of the above.

38. Max Company's financial results tend to indicate that
    a. Max Company produced more products than it sold.
    b. Max Company produced fewer products than it sold.
    c. Max Company produced the same number of products that it sold.
    d. the relationship between the production of products and sales is not indicated by the information given.

39. Proper matching is not obtained with direct costing because
    a. fixed manufacturing costs are not accounted for in accordance with GAAP.
    b. fixed selling and administrative costs are not accounted for in accordance with GAAP.
    c. Variable selling costs are not accounted for in accordance with GAAP.
    d. a and b. e. a and c.

40. When using absorption costing, product costs are the same as
    a. manufacturing costs. 
    b. inventoriable costs. 
    c. manufacturing, administrative and selling costs.
    d. a and b. 
    e. all of the above.

41. Which of the following statements is conceptually incorrect?
    a. All expired costs represent expenses. 
    b. All unexpired costs represent assets.
    c. All expenses represent expired costs. 
    d. All assets represent unexpired costs.
    e. All assets represent future benefits.

42. When total manufacturing costs are greater than the cost of goods manufactured
    a. the inventory of finished goods increases. 
    b. the inventory of finished goods decreases.
    c. the inventory of work in process increases. 
    d. the inventory of work in process decreases. 
    e. b and d.

43. If total manufacturing costs are equal to the cost of goods manufactured and greater than cost of goods sold
    a. the inventory of finished goods increases. 
    b. the inventory of finished goods decreases.
    c. the inventory of work in process increases. 
    d. the inventory of work in process decreases. 
    e. none of these.

44. Which of the following methods provides the greatest amount of incentive for management to produce more inventory than required to satisfy customer demand.
    a. direct costing. 
    b. absorption costing.
    c. job order costing 
    d. process costing. 
    e. Historical costing.

The following information given for the Sola Company

45. The cost of goods manufactured based on absorption costing is
    a. 1,820 
    b. 1,440 
    c. 1,420 
    d. 1,400 
    e. Some other amount.

46. The cost of goods sold for absorption costing is
    a. 1,400 
    b. 1,560 
    c. 1,630 
    d. 1,960 
    e. None of these.

47. Before tax net income for absorption costing is
    a. 1,160 
    b. 1,200 
    c. 1,370 
    d. 1,040 
    e. None of the above.

48. The cost of goods sold based on direct costing is
    a. 1,200 
    b. 1,230 
    c. 1,240 
    d. 1,330 
    e. 1,360

49. Contribution margin is
    a. 1,670 
    b. 1,500 
    c. 1,370 
    d. 1,340 
    e. None of these.

50. Before tax net income for direct costing is
    a. 930 
    b. 1,070 
    c. 1,040 
    d. 1,370 
    e. Some other amount.

51. Based on the information given in this problem, the following appears to have occurred.
    a. The company produced more than it sold.
    b. The company produced less than it sold.
    c. The company produced the same amount that it sold.
    d. There is no logical way to answer this question.