Cost Accounting Foundations And Evolutions 9th Edition by Michael R. Kinney – Test Bank
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Sample
Test
Chapter 3–Predetermined Overhead Rates, Flexible Budgets, and
Absorption/Variable Costing
Student: ___________________________________________________________________________
1. Absorption
costing is commonly used for external reporting.
True False
2. Absorption
costing is commonly used for internal reporting.
True False
3. Variable
costing is commonly used for internal reporting.
True False
4. Variable
costing is commonly used for external reporting.
True False
5. In an
actual cost system, factory overhead is assigned directly to products and
services.
True False
6. In a
normal cost system, factory overhead is assigned directly to products and
services.
True False
7. In a
normal cost system, factory overhead is assigned to an overhead control account
and then allocated to products and services.
True False
8. In an
actual cost system, factory overhead is assigned to an overhead control account
and then allocated to products and services.
True False
9. A
debit to the Factory Overhead account represents actual overhead costs.
True False
10. A
debit to the Factory Overhead account represents applied overhead costs.
True False
11. A
credit to the Factory Overhead account represents actual overhead costs.
True False
12. A
credit to the Factory Overhead account represents applied overhead costs.
True False
13. If
actual overhead exceeds applied overhead, factory overhead is said to be
overapplied.
True False
14. If
actual overhead exceeds applied overhead, factory overhead is said to be
underapplied.
True False
15. If
overapplied factory overhead is immaterial, the
account is closed by a credit to Cost of Goods Sold.
True False
16. If
overapplied factory overhead is material, the account is closed by a credit to
Cost of Goods Sold.
True False
17. If
overapplied factory overhead is immaterial,
the account is closed by a debit to Cost of Goods Sold.
True False
18. If
underapplied factory overhead is immaterial,
the account is closed by a debit to Cost of Goods Sold.
True False
19. If
underapplied factory overhead is immaterial,
the account is closed by a credit to Cost of Goods Sold.
True False
20. If
underapplied factory overhead is material, it is prorated among Work in Process
Inventory, Finished Goods Inventory, and Cost of Goods Sold.
True False
21. The
estimated maximum potential activity for a specified time is known as
theoretical capacity.
True False
22. Practical
capacity does not adjust
for routine downtime in a production process.
True False
23. Normal
capacity considers present and future production levels and cyclical
fluctuations.
True False
24. Expected
capacity is a long-run measure of activity.
True False
25. Practical
capacity is the capacity that can be achieved during normal working hours.
True False
26. The
regression equation y
= a+ bX assumes that the function is curvilinear in nature.
True False
27. The
regression equation y
= a+ bX assumes that the function is linear in nature.
True False
28. The
slope of a regression line is determined by dividing the change in activity
level by the change in total cost.
True False
29. The
slope of a regression line is determined by dividing the change in total cost
by the change in activity level.
True False
30. The
high-low method excludes outliers
from the calculation of the slope of a regression line.
True False
31. When
using the high-low method, fixed costs are computed before the variable
component is computed.
True False
32. When
using the high-low method, the variable component is computed before computing
the fixed component.
True False
33. A
flexible budget is a planning document that presents expected variable and
fixed overhead costs at different activity levels.
True False
34. A
master budget is a planning document that presents expected variable and fixed
overhead costs at different activity levels.
True False
35. Plantwide
overhead rates provide a more accurate computation of factory overhead than
departmental overhead rates
True False
36. Plantwide
overhead rates provide a less accurate computation of factory overhead than
departmental overhead rates
True False
37. Absorption
costing conforms with generally accepted accounting principles.
True False
38. Direct
costing conforms with generally accepted accounting principles.
True False
39. The
Internal Revenue Service allows the use of both variable and absorption
costing.
True False
40. Sales
minus cost of goods sold is referred to as variable contribution margin.
True False
41. Phantom
profits result when absorption costing is used and sales exceed production.
True False
42. Phantom
profits result when absorption costing is used and production exceeds sales.
True False
43. If
production exceeds sales, absorption costing net income exceeds variable
costing net income.
True False
44. If
production exceeds sales, absorption costing net income is less than variable
costing net income.
True False
45. If
sales exceed production, absorption costing net income is less than variable
costing net income.
True False
46. If
sales exceed production, absorption costing net income exceeds variable costing
net income.
True False
47. In
a(n) ____________________ cost system, factory overhead is assigned directly to
products and services.
________________________________________
48. In
a(n) ____________________ cost system, factory overhead is assigned to an
overhead control account and then allocated to products and services.
________________________________________
49. The
dollar amount of overhead assigned to work-in-process inventory using a
predetermined rate is known as ____________________ overhead.
________________________________________
50. If
actual overhead exceeds applied overhead, factory overhead is said to be
____________________.
________________________________________
51. If
actual overhead is less than applied overhead, factory overhead is said to be
____________________.
________________________________________
52. If
underapplied or overapplied factory overhead is material, it is prorated among
________________________________________,
________________________________________, and ___________________________________.
________________________________________
53. If
underapplied or overapplied factory overhead is immaterial, it is
charged to ______________________________.
________________________________________
54. The
performance measure that considers routine interruptions is known as
____________________ capacity.
________________________________________
55. A
performance measure that encompasses a firm’s long-run average activity is
referred to as ____________________ capacity.
________________________________________
56. A
performance measure that assumes all production factors are operating perfectly
is referred to as ____________________ capacity.
________________________________________
57. A
performance measure that is short-run in nature and represents a firm’s
anticipated activity level for the upcoming period is ____________________
capacity.
________________________________________
58. Consider
the regression equation y
= a + bX. The portion of the equation that represents fixed
costs is __________.
________________________________________
59. Consider
the regression equation y
= a + bX. The portion of the equation that represents the
variable rate is __________.
________________________________________
60. Consider
the regression equation y
= a + bX. The portion of the equation that represents the
activity base is __________.
________________________________________
61. An
observation that is found outside the relevant range is referred to as a(n)
____________________.
________________________________________
62. When
a relationship between several independent variables and one dependent variable
is analyzed, the regression is referred to as ____________________.
________________________________________
63. When
a relationship between one independent variable and one dependent variable is
analyzed, the regression is referred to as ____________________.
________________________________________
64. A
______________________________ is a planning document that presents expected
variable and fixed overhead costs at different activity levels.
________________________________________
65. The
costing technique that treats fixed manufacturing overhead as a period cost is
referred to as ______________ or ____________ costing.
________________________________________
66. The
costing technique that treats all manufacturing costs as inventoriable is
referred to as _________________ or ___________ costing.
________________________________________
67. Sales
less variable cost of goods sold is referred to as
________________________________________.
________________________________________
68. Temporary
profits that result when absorption costing is used and production exceeds
sales are referred to as _________________________.
________________________________________
69. Since
overhead costs are indirect costs,
A. they require some process of allocation.
B. they can be easily traced to production.
C. a predetermined overhead rate is not advantageous.
D. they cannot be allocated.
70. Cost
allocation is the assignment of ____ costs to one or more products using a
reasonable basis.
|
direct |
indirect |
|
|
|
1. yes
yes
B. yes no
C. no no
D. no yes
71. An
actual cost system differs from a normal cost system in that an actual cost
system
A. assigns overhead as it occurs during the manufacturing cycle.
B. assigns overhead at the end of the manufacturing process.
C. does not assign overhead at all.
D. does not use an Overhead Control account.
72. In a
normal cost system, which of the following is used?
|
Actual direct materials |
Actual direct labor |
Actual overhead |
|
|
|
|
1. yes
no yes
B. yes
yes yes
C. yes
yes no
D. no
yes no
73. Predetermined
overhead rates are computed based on
|
estimated overhead costs |
estimated level of activity |
|
|
|
1. yes
yes
B. yes
no
C. no
yes
D. no
no
74. One
reason annual overhead application rates are used is
A. because of seasonal variability of overhead costs.
B. to help budget overhead costs.
C. to minimize the overhead cost assigned to products.
D. to maximize the overhead cost assigned to products.
75. Which
of the following is not a
reason to use predetermined overhead rates?
A. to overcome the problems of assigning overhead to diverse types of
products
B. to compensate for fluctuations in monthly overhead costs
C. to provide a means for assigning overhead during the period rather than
at the end of the period
D. to smooth out the amount of overhead cost assigned to products when
monthly production activity differs
76. When
a manufacturing company has a highly automated manufacturing plant producing
many different products, which of the following is the more appropriate basis
of applying manufacturing overhead costs to work in process?
A. direct labor hours
B. direct labor dollars
C. machine hours
D. cost of materials used
77. A
mixed cost has which of the following components?
|
Variable component |
Fixed component |
|
|
|
1. yes
no
B. yes
yes
C. no
no
D. no
yes
78. In
the formula y = a + bX, y represents
A. fixed costs.
B. total cost.
C. variable costs.
D. mixed costs.
79. In
the formula y = a + bX, a represents
A. mixed cost.
B. variable cost.
C. total cost.
D. fixed cost.
80. In
relationship to changes in activity, variable overhead changes
|
in total |
per unit |
|
|
|
1. no
no
B. no yes
C. yes yes
D. yes no
81. In
relationship to changes in activity, fixed overhead changes
|
in total |
per unit |
|
|
|
1. yes
yes
B. no no
C. no yes
D. yes no
82. If
the level of activity increases,
A. variable cost per unit and total fixed costs increase.
B. fixed cost per unit and total variable cost increase.
C. total cost will increase and fixed cost per unit will decrease.
D. variable cost per unit and total cost increase.
83. Weaknesses
of the high-low method include all of the following except
A. only two observations are used to develop the cost function.
B. the high and low activity levels may not be representative.
C. the method does not detect if the cost behavior is nonlinear.
D. the mathematical calculations are relatively complex.
84. If
there is no “a” value in a linear cost equation, this is an indication that the
cost is
A. fixed.
B. mixed.
C. variable.
D. either fixed or mixed.
85. An
outlier is
A. something that happens outside the organization that does not affect
production.
B. always used in analyzing a mixed cost.
C. something that happens inside the organization that does not affect
production.
D. typically not used in analyzing a mixed cost.
86. Applied
overhead consists of which of the following?
A. actual activity times predetermined overhead rate
B. estimated activity times predetermined overhead rate
C. actual activity times actual overhead rate
D. estimated activity times actual overhead rate
87. If a
company used two overhead accounts (actual overhead and applied overhead), the
one that would receive the most debits would be
A. actual overhead.
B. applied overhead.
C. both would receive an equal number of debits.
D. impossible to determine without additional information.
88. If
underapplied overhead is considered to be immaterial,
it is closed to which of the following accounts?
|
Work in Process |
Finished Goods |
Cost of Goods Sold |
|
|
|
|
1. yes
yes
yes
B. no
yes
yes
C. yes
no
no
D. no
no
yes
89. Overapplied
overhead will result if
A. the plant is operated at less than expected capacity.
B. overhead costs incurred were greater than estimated overhead costs.
C. overhead costs incurred were less than overhead costs charged to
production.
D. overhead costs incurred were greater than overhead charged to
production.
90. Actual
overhead exceeds applied overhead and the amount is immaterial. Which of
the following will be true? Upon
closing,
|
Overhead is |
Cost of Goods Sold will |
|
|
|
1. underapplied
increase
B. overapplied
decrease
C. overapplied
increase
D. underapplied
decrease
91. If
actual overhead is less than applied overhead, which of the following will be
true? Upon closing,
|
Overhead is |
Cost of Goods Sold is |
|
|
|
1. underapplied
credited
B. underapplied
debited
C. overapplied
debited
D. overapplied
credited
92. The
estimated maximum potential activity for a specified time is:
A. theoretical capacity
B. practical capacity
C. normal capacity
D. expected capacity
93. The
measure of activity that allows for routine variations in manufacturing
activity is:
A. theoretical capacity
B. practical capacity
C. normal capacity
D. expected capacity
94. The
measure of production that considers historical and estimated future production
levels and cyclical fluctuations is referred to as:
A. theoretical capacity
B. practical capacity
C. normal capacity
D. expected capacity
95. A
short-run measure of activity that represents a firm’s anticipated activity
level for an upcoming period based upon expected demand is referred to as:
A. theoretical capacity
B. practical capacity
C. normal capacity
D. expected capacity
96. An
item or event that has a cause-effect relationship with the incurrence of a
variable cost is called a
A. mixed cost.
B. predictor.
C. direct cost.
D. cost driver.
97. Thibodeaux
Tailors has gathered information on utility costs for the past year. The
controller has decided that utilities are a function of the hours worked during
the month. The following information is available and representative of the
company’s utility costs:
|
|
Hours worked |
Utility cost incurred |
|
Low point |
1,300 |
$ 903 |
|
High point |
1,680 |
1,074 |
|
|
|
|
If 1,425 hours are worked in a month, total utility cost
(rounded to the nearest dollar) using the high-low method should be
A. $947.
B. $954.
C. $959.
D. $976.
98. Welch
Corporation uses a predetermined overhead application rate of $.30 per direct
labor hour. During the year it incurred $345,000 dollars of actual overhead,
but it planned to incur $360,000 of overhead. The company applied $363,000 of
overhead during the year. How many direct labor hours did the company plan to
incur?
A. 1,150,000
B. 1,190,000
C. 1,200,000
D. 1,210,000
99. Machine
Master, Inc. had the following data regarding monthly power costs:
|
Month |
Machine hours |
Power cost |
|
Jan |
300 |
$680 |
|
Feb |
600 |
720 |
|
Mar |
400 |
695 |
|
Apr |
200 |
640 |
|
|
|
|
Assume that management expects 500 machine hours in May. Using
the high-low method, calculate May’s power cost using machine hours as the
basis for prediction.
A. $700
B. $705
C. $710
D. $1,320
100.
Davis Corporation has developed the following flexible budget
formula for monthly overhead:
|
For output of less than
200,000 units: |
$36,600 + $.80(units) |
|
For output of 200,000 units
or more: |
$43,000 + $.80(units) |
|
|
|
How much overhead should Davis expect if the firm plans to
produce 200,000 units?
A. $52,600
B. $59,000
C. $196,600
D. $203,000
101.
Landon Corporation wishes to develop a single predetermined
overhead rate. The company’s expected annual fixed overhead is $340,000 and its
variable overhead cost per machine hour is $2. The company’s relevant range is
from 200,000 to 600,000 machine hours. Landon expects to operate at 425,000
machine hours for the coming year. The plant’s theoretical capacity is 850,000.
The predetermined overhead rate per machine hour should be
A. $2.40.
B. $2.57.
C. $2.80.
D. $2.85.
102.
Lawson Corporation
Lawson Corporation has the following data for use of its
machinery
|
Month |
Usage |
Cost |
|
Jun |
600 |
$750 |
|
Jul |
650 |
775 |
|
Aug |
420 |
550 |
|
Sept |
500 |
650 |
|
Oct |
450 |
570 |
|
|
|
|
Refer to Lawson Corporation. Using the high-low method, compute
the variable cost element.
A. $1.02
B. $.98
C. $1.31
D. $1.19
103.
Lawson Corporation
Lawson Corporation has the following data for use of its
machinery
|
Month |
Usage |
Cost |
|
Jun |
600 |
$750 |
|
Jul |
650 |
775 |
|
Aug |
420 |
550 |
|
Sept |
500 |
650 |
|
Oct |
450 |
570 |
|
|
|
|
Refer to Lawson Corporation. Using the high-low method, compute
the fixed cost element (to the nearest whole dollar).
A. $225
B. $138
C. $411
D. $364
104.
Phoenix Corporation
The records of Phoenix Corporation revealed the following data for the current
year.
|
Work in Process |
$ 73,150 |
|
Finished Goods |
115,000 |
|
Cost of Goods Sold |
133,650 |
|
Direct Labor |
111,600 |
|
Direct Material |
84,200 |
|
|
|
Refer to Phoenix Corporation. Assume, for this question
only, actual overhead is $98,700 and applied overhead is $93,250. Manufacturing
overhead is:
A. overapplied by $12,900.
B. underapplied by $18,350.
C. overapplied by $5,450.
D. underapplied by $5,450.
105.
Phoenix Corporation
The records of Phoenix Corporation revealed the following data for the current
year.
|
Work in Process |
$ 73,150 |
|
Finished Goods |
115,000 |
|
Cost of Goods Sold |
133,650 |
|
Direct Labor |
111,600 |
|
Direct Material |
84,200 |
|
|
|
Refer to Phoenix Corporation. Assume that Phoenix has
underapplied overhead of $37,200 and that this amount is material. What journal
entry is needed to close the overhead account? (Round decimals to nearest whole
percent.)
A. Debit Work in Process $8,456; Finished Goods $13,294; Cost of Goods
Sold $15,450 and credit Overhead $37,200
B. Debit Overhead $37,200 and credit Work in Process $8,456; Finished
Goods $13,294; Cost of Goods Sold $15,450
C. Debit Work in Process $37,200 and credit Overhead $37,200
D. Debit Cost of Goods Sold $37,200 and credit Overhead $37,200
106.
Phoenix Corporation
The records of Phoenix Corporation revealed the following data for the current
year.
|
Work in Process |
$ 73,150 |
|
Finished Goods |
115,000 |
|
Cost of Goods Sold |
133,650 |
|
Direct Labor |
111,600 |
|
Direct Material |
84,200 |
|
|
|
Refer to Phoenix Corporation. Assume that Phoenix has
underapplied overhead of $10,000 and that this amount is immaterial. What is
the balance in Cost of Goods Sold after the underapplied overhead is closed?
A. $133,650
B. $123,650
C. $143,650
D. $137,803
107.
Phoenix Corporation
The records of Phoenix Corporation revealed the following data for the current
year.
|
Work in Process |
$ 73,150 |
|
Finished Goods |
115,000 |
|
Cost of Goods Sold |
133,650 |
|
Direct Labor |
111,600 |
|
Direct Material |
84,200 |
|
|
|
Refer to Phoenix Corporation. Assume that Phoenix has
overapplied overhead of $25,000 and that this amount is material. What is the
balance in Cost of Goods Sold after the overapplied overhead is closed?
A. $123,267
B. $144,033
C. $158,650
D. $108,650
108.
Ryan Corporation is relocating its facilities. The company
estimates that it will take three trucks to move office contents. If the per
truck rental charge is $1,000 plus 25 cents per mile, what is the expected cost
to move 800 miles?
A. $1,000
B. $1,200
C. $2,400
D. $3,600
109.
Texoma Trucking Company is exploring different prediction models
that can be used to forecast indirect labor costs. One independent variable
under consideration is machine hours. Following are matching observations on
indirect labor costs and machine hours for the past six months:
|
Month |
Machine hours |
Indirect labor costs |
|
1 |
300 |
$20,000 |
|
2 |
400 |
$24,000 |
|
3 |
240 |
$17,000 |
|
4 |
370 |
$22,000 |
|
5 |
200 |
$13,000 |
|
6 |
225 |
$14,000 |
|
|
|
|
In a high-low model, which months’ observations would be used to
compute the model’s parameters?
A. 2 and 5
B. 1 and 6
C. 2 and 6
D. 4 and 5
110.
Consider the following three product costing alternatives:
process costing, job order costing, and standard costing. Which of these can be
used in conjunction with absorption costing?
A. job order costing
B. standard costing
C. process costing
D. all of the above
111.
Another name for absorption costing is
A. full costing.
B. direct costing.
C. job order costing.
D. fixed costing.
112.
If a firm produces more units than it sells, absorption costing,
relative to variable costing, will result in
A. higher income and assets.
B. higher income but lower assets.
C. lower income but higher assets.
D. lower income and assets.
113.
Under absorption costing, fixed manufacturing overhead could be
found in all of the following except the
A. work-in-process account.
B. finished goods inventory account.
C. Cost of Goods Sold.
D. period costs.
114.
If a firm uses absorption costing, fixed manufacturing overhead
will be included
A. only on the balance sheet.
B. only on the income statement.
C. on both the balance sheet and income statement.
D. on neither the balance sheet nor income statement.
115.
Under absorption costing, if sales remain constant from period 1
to period 2, the company will report a larger income in period 2 when
A. period 2 production exceeds period 1 production.
B. period 1 production exceeds period 2 production.
C. variable production costs are larger in period 2 than period 1.
D. fixed production costs are larger in period 2 than period 1.
116.
The FASB requires which of the following to be used in
preparation of external financial statements?
A. variable costing
B. standard costing
C. activity-based costing
D. absorption costing
117.
An ending inventory valuation on an absorption costing balance
sheet would
A. sometimes be less than the ending inventory valuation under variable
costing.
B. always be less than the ending inventory valuation under variable
costing.
C. always be the same as the ending inventory valuation under variable
costing.
D. always be greater than or equal to the ending inventory valuation under
variable costing.
118.
Absorption costing differs from variable costing in all of the
following except
A. treatment of fixed manufacturing overhead.
B. treatment of variable production costs.
C. acceptability for external reporting.
D. arrangement of the income statement.
119.
Which of the following is not associated
with absorption costing?
A. functional format
B. gross margin
C. period costs
D. contribution margin
120.
Unabsorbed fixed overhead costs in an absorption costing system
are
A. fixed manufacturing costs not allocated to units produced.
B. variable overhead costs not allocated to units produced.
C. excess variable overhead costs.
D. costs that cannot be controlled.
121.
Profit under absorption costing may differ from profit
determined under variable costing. How is this difference calculated?
A. Change in the quantity of all units in inventory times the relevant
fixed costs per unit.
B. Change in the quantity of all units produced times the relevant fixed
costs per unit.
C. Change in the quantity of all units in inventory times the relevant
variable cost per unit.
D. Change in the quantity of all units produced times the relevant
variable cost per unit.
122.
What factor, related to manufacturing costs, causes the
difference in net earnings computed using absorption costing and net earnings
computed using variable costing?
A. Absorption costing considers all costs in the determination of net
earnings, whereas variable costing considers fixed costs to be period costs.
B. Absorption costing allocates fixed overhead costs between cost of goods
sold and inventories, and variable costing considers all fixed costs to be
period costs.
C. Absorption costing “inventories” all direct costs, but variable costing
considers direct costs to be period costs.
D. Absorption costing “inventories” all fixed costs for the period in ending
finished goods inventory, but variable costing expenses all fixed costs.
123.
The costing system that classifies costs by functional group
only is
A. standard costing.
B. job order costing.
C. variable costing.
D. absorption costing.
124.
A functional classification of costs would classify
“depreciation on office equipment” as a
A. product cost.
B. general and administrative expense.
C. selling expense.
D. variable cost.
125.
The costing system that classifies costs by both functional
group and behavior is
A. process costing.
B. job order costing.
C. variable costing.
D. absorption costing.
126.
Under variable costing, which of the following are costs that
can be inventoried?
A. variable selling and administrative expense
B. variable manufacturing overhead
C. fixed manufacturing overhead
D. fixed selling and administrative expense
127.
Consider the following three product costing alternatives:
process costing, job order costing, and standard costing. Which of these can be
used in conjunction with variable costing?
A. job order costing
B. standard costing
C. process costing
D. all of them
128.
Another name for variable costing is
A. full costing.
B. direct costing.
C. standard costing.
D. adjustable costing.
129.
If a firm uses variable costing, fixed manufacturing overhead
will be included
A. only on the balance sheet.
B. only on the income statement.
C. on both the balance sheet and income statement.
D. on neither the balance sheet nor income statement.
130.
When variable costing is used,
A. all product costs are considered to be variable.
B. all period costs are considered to be variable.
C. all product costs are considered to be fixed.
D. product costs are separated into fixed and variable components.
131.
How will a favorable volume variance affect net income under each
of the following methods?
|
Absorption |
Variable |
|
|
|
1. reduce
no effect
B. reduce increase
C. increase no effect
D. increase reduce
132.
Variable costing considers which of the following to be product
costs?
|
Fixed |
Fixed |
Variable |
Variable |
|
|
|
|
|
1. yes
no
yes no
B. yes
no
yes yes
C. no
no
yes yes
D. no
no yes
no
133.
The variable costing format is often more useful to managers
than the absorption costing format because
A. costs are classified by their behavior.
B. costs are always lower.
C. it is required for external reporting.
D. it justifies higher product prices.
134.
The difference between the reported income under absorption and
variable costing is attributable to the difference in the
A. income statement formats.
B. treatment of fixed manufacturing overhead.
C. treatment of variable manufacturing overhead.
D. treatment of variable selling, general, and administrative expenses.
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