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Exam 11: Product Costing in Service and Manufacturing Entities

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Question 61

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Which of the following statements is

A) The manufacturing cost per unit decreases when the volume of production increases.
B) Net income is not affected by fluctuations in production.
C) Fixed manufacturing overhead is treated like a product cost.
D) Fixed manufacturing overhead costs incurred in the current period may be recognized as expense in a later period.

E) A) and B)
F) A) and C)

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Question 62

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Describe the basic differences between absorption and variable costing.Why are managers sometimes motivated to produce too much inventory when income is computed under an absorption costing system?

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Absorption costing is ...

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Question 63

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Product cost flows are cyclical in that the set of transactions that record the acquisition of raw materials,the conversion of raw materials to finished goods,and the sale of finished goods and related collection of cash occur over and over again.

Tucker Company's work in process account decreased by $1,000,while its Finished Goods Inventory account increased by $500.Assuming total manufacturing costs were $5,000,what was the company's cost of goods sold amount?

Which of the following statement(s) is/are correct? I.A predetermined overhead rate is used to assign estimated overhead costs to work in process. II) The predetermined overhead rate is calculated by dividing estimated overhead cost by the estimated volume or level of activity. III) The most common means of allocating overhead costs is to calculate a predetermined overhead rate at the end of the period.

Carolina Company placed $26,500 of raw materials into production.The recognition of this event will:

Estimated overhead costs are applied to work in process at the time the goods are sold.

For a manufacturing business,cost of indirect materials is first recorded in the:

Product costs are expensed as cost of goods sold:

Select the response that indicates the correct sequence of product cost flows from production to sale.

Blair Company transferred the cost of units completed during the month to Finished Goods.The total cost was $1,100.How does this event affect the financial statements? $\begin{array}{|c|c|c|c|c|c|c|c|c|c|}\hline {\text { Assets }} & = & \text { Liab. } & + & \text { Equity } & \text { Rev. } & - & \text { Exp. } & = & \text { Net Inc. } \\\hline \begin{array}{l|c|l}\text { WIP } & + & \text { Fin. } \\\text { Inv }&& \text { Goods } \\&& \text { Inv }\\\end{array} & & & & & & & & & \\\hline\end{array}$

A credit to the work in process account represents the:

Ferguson Company recognized $400 of estimated manufacturing overhead costs at the end of the month.How does this transaction affect the financial statements? $\begin{array}{|c|c|c|c|c|c|c|c|c|c|}\hline {\text { Assets }} & = & \text { Liab. } & + & \text { Equity } & \text { Rev. } & - & \text { Exp. } & = & \text { Net Inc. } \\\hline \begin{array}{l|c|l}\text { Mfg. } & + & \text { WIP Inv } \\\text { OH } \\\end{array} & & & & & & & & & \\\hline\end{array}$

The cost structure for Chiang Company, which began operations on January 1, is provided below: Variable selling and administrative costs are $4 per unit sold. During the year, the company produced 4,000 units and sold 3,500 units at the $60 selling price. Required: 1) Prepare an income statement under absorption costing. 2) Prepare an income statement under variable costing. 3) Explain the difference between the two income amounts. 4) What absorption costing disadvantage does this exercise emphasize?

Purchasing production supplies for cash is a(n) :

Travis Company had no beginning work in process or finished goods.Its total manufacturing costs for the year were $427,000.If cost of goods manufactured was $332,000 and cost of goods sold was $250,000,the amount of ending work in process would have been:

Cost information for services or products produced by a company is needed for:

Actual overhead costs are debited to the manufacturing overhead account,while estimated overhead costs are debited to the work in process account.

Under variable costing,all variable production costs are expensed when incurred.

All of the following costs are accumulated in the Work in Process Inventory account except: