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Chapter 2 Cost Terms, Concepts, and Classifications

True/False Questions
1. The sum of all costs of manufacturing costs except direct materials is called
manufacturing overhead.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
2. Conversion cost is the sum of direct labor and manufacturing overhead.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
3. Prime cost is the sum of direct labor and manufacturing overhead.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
4. Thread used in the production of mattresses, an indirect material, is classified as
manufacturing overhead.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
5. Period costs are also known as inventoriable costs.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
6. All costs in a merchandising company are period costs.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
7. The cost of goods sold of a manufacturing company equals beginning finished goods
inventory + cost of goods manufactured - ending finished goods inventory.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

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Chapter 2 Cost Terms, Concepts, and Classifications


8. A variable cost is constant if expressed on a per unit basis but the total dollar amount
changes as the number of units increases or decreases.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
9. As activity increases within the relevant range, fixed costs remain constant on a per
unit basis.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
10. Direct costs are often difficult to trace to the specific cost object under consideration.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
11. All of the following are examples of opportunity costs: salary given up to start a
business; rental income given up when you live in a house you own; interest income
that could be earned on money spent for a car.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Medium
12. The amount that was paid by a company for a building to house its operations is an
example of a sunk cost.
Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Easy
13. The most effective way to minimize quality costs while maintaining high quality is to
avoid having quality problems in the first place. This is the reason for incurring
appraisal costs.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 2B LO: 9 Level: Medium
14. External failure costs are limited to the costs of repairing defective products that are
under warranty.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 2B LO: 9 Level: Hard

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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


15. The costs of lost sales arising from poor quality are always included in quality cost
reports.
Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 2B LO: 10 Level: Medium
Multiple Choice Questions
16. The cost of the cushions that are used to manufacture sofas is best described as a:
A) manufacturing overhead cost.
B) period cost.
C) variable cost.
D) conversion cost.
Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1,2,5 Level: Medium
17. Chezpere Company manufactures and sells washing machines. In order to make
assembly of the machines faster and easier, some of the metal parts in the machines
are coated with grease. How should the cost of this grease be classified?
A)
B)
C)
D)

Direct Material Cost Fixed Cost


Yes
Yes
Yes
No
No
Yes
No
No

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking


AICPA FN: Reporting LO: 1,5,6 Level: Hard

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

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Chapter 2 Cost Terms, Concepts, and Classifications


18. A security guard's wages at a factory would be an example of:
A)
B)
C)
D)

Indirect labor Fixed manufacturing overhead


No
No
Yes
Yes
Yes
No
No
Yes

Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking


AICPA FN: Reporting LO: 1,5 Level: Medium Source: CPA, adapted
19. Manufacturing overhead includes:
A) all direct material, direct labor and administrative costs.
B) all manufacturing costs except direct labor.
C) all manufacturing costs except direct labor and direct materials.
D) all selling and administrative costs.
Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
20. Materials used in the operation of a factory, such as cleaning supplies, that are not an
integral part of the final product should be classified as:
A) direct materials.
B) a period cost.
C) administrative expense.
D) manufacturing overhead.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
21. The one cost that would be classified as part of both prime cost and conversion cost
would be:
A) indirect material.
B) direct labor.
C) direct material.
D) indirect labor.
Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy

2-10

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


22. Direct costs:
A) are incurred to benefit a particular accounting period.
B) are incurred due to a specific decision.
C) can be easily traced to a particular cost object.
D) are the variable costs of producing a product.
Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy
23. Prime costs consist of:
A) direct materials and the variable portion of manufacturing overhead.
B) direct labor and indirect labor.
C) indirect labor and the fixed portion of manufacturing overhead.
D) direct labor and direct materials.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Easy Source: CMA, adapted
24. Which of the following is NOT a period cost?
A) Monthly depreciation of the equipment in a fitness room used by factory
workers.
B) Salary of a billing clerk.
C) Insurance on a company showroom, where current and potential customers can
view new products.
D) Cost of a seminar concerning tax law updates that was attended by the
company's controller.
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
25. The annual insurance premium for the factory building would be a:
A) fixed cost, period cost, and indirect cost with regard to units of product.
B) fixed cost, product cost, and direct cost with regard to units of product.
C) variable cost, product cost, direct cost with regard to units of product.
D) fixed cost, product cost, indirect cost with regard to units of product.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,5,6 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-11

Chapter 2 Cost Terms, Concepts, and Classifications


26. Factory supplies in a manufacturing plant are most likely:
A) sunk costs.
B) period costs.
C) variable costs.
D) excluded from product costs.
Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,5,7 Level: Medium
27. All of the following are examples of product costs except:
A) depreciation on the company's retail outlets.
B) salary of the plant manager.
C) insurance on the factory equipment.
D) rental costs of the factory facility.
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
28. Inventoriable (i.e., product) costs that have become expenses can be found in:
A) period costs.
B) selling expenses.
C) cost of goods sold.
D) administrative expenses.
Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
29. The fixed portion of the cost of electricity for a manufacturing plant is a:
A)
B)
C)
D)

Period cost Product cost


Yes
No
Yes
Yes
No
Yes
No
No

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking


AICPA FN: Reporting LO: 2 Level: Medium Source: CPA, adapted

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Chapter 2 Cost Terms, Concepts, and Classifications


30. Which of the following statements about product costs is true?
A) Product costs are deducted from revenue when the production process is
completed.
B) Product costs are deducted from revenue as expenditures are made.
C) Product costs associated with unsold finished goods and work in process appear
on the balance sheet as assets.
D) Product costs appear on financial statements only when products are sold.
Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
31. Conversion costs consist of:
A) direct and indirect labor.
B) direct labor and direct materials.
C) direct labor and manufacturing overhead.
D) prime costs and manufacturing overhead.
Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy Source: CMA, adapted
32. Which of the following is an example of a period cost?
A) Fabric used to produce men's pants.
B) Advertising cost for a new product campaign.
C) Factory supervisor's salary.
D) Monthly depreciation of production equipment.
Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Easy
33. In the preparation of the schedule of Cost of Goods Manufactured, the accountant
incorrectly included as part of manufacturing overhead the rental expense on the firm's
retail facilities. This inclusion would:
A) overstate period expenses on the income statement.
B) overstate the cost of goods sold on the income statement.
C) understate the cost of goods manufactured.
D) have no effect on the cost of goods manufactured.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Hard

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-13

Chapter 2 Cost Terms, Concepts, and Classifications


34. Desco Electronics, Inc. manufactures car radios. The direct material cost assigned to
car radios that Desco started during the period but did not fully complete would be
found in the ending balance of:
A) raw materials inventory.
B) work in process inventory.
C) finished goods inventory.
D) both raw materials inventory and work in process inventory.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 4 Level: Easy
35. Rotonga Manufacturing Company leases a vehicle that it uses to deliver its finished
products to customers. Which of the following terms could be used to correctly
describe the monthly lease payments made on the delivery vehicle?
A)
B)
C)
D)

Direct Cost Fixed Cost


Yes
Yes
Yes
No
No
Yes
No
No

Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking


AICPA FN: Reporting LO: 5,6 Level: Medium
36. Within the relevant range, as the number of units produced increases:
A) the variable cost per unit remains the same.
B) fixed costs in total remain the same.
C) variable costs increase in total.
D) all of the above.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
37. Which of the following production costs, if expressed on a per unit basis, would be
most likely to change significantly as the production level varies?
A) Direct materials.
B) Direct labor.
C) Fixed manufacturing overhead.
D) Responses A and B are both correct.
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium

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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


38. When the level of activity decreases within the relevant range, the fixed cost per unit
will:
A) decrease.
B) increase.
C) remain the same.
D) The effect cannot be predicted.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Medium
39. Which of the following is correct concerning reactions to INCREASES in activity?
A)
B)
C)
D)

Total Variable Cost Variable Cost Per Unit


Increases
Decreases
Constant
Decreases
Decreases
Constant
Increases
Constant

Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking


AICPA FN: Reporting LO: 5 Level: Easy
40. The distinction between indirect and direct costs depends on:
A) whether a cost differs between alternatives.
B) whether a cost is variable or fixed.
C) whether a cost is a product or a period cost.
D) whether a cost can be easily traced to the cost object under consideration.
Ans: D AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
41. An example of a fixed cost that would be considered a direct cost is:
A) a cost accountant's salary when the cost object is a unit of product.
B) the rental cost of a warehouse to store finished goods when the cost object is the
Purchasing Department.
C) a production supervisor's salary when the cost objective is the Production
Department.
D) Board of Directors' fees when the cost object is the Marketing Department.
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Hard Source: CMA, adapted

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-15

Chapter 2 Cost Terms, Concepts, and Classifications


42. Which of the following statements concerning direct and indirect costs is NOT true?
A) Whether a particular cost is classified as direct or indirect does not depend on
the cost object.
B) A direct cost is one that can be easily traced to the particular cost object.
C) The factory manager's salary would be classified as an indirect cost of producing
one unit of product.
D) A particular cost may be direct or indirect, depending on the cost object.
Ans: A AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
43. All of the cost categories listed below are usually found in a company's accounting
records, except for:
A) sunk costs.
B) inventoriable costs.
C) opportunity costs.
D) marketing costs.
Ans: C AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Easy
44. Cobra Mining Company spent $200 million five years ago to develop underground
mining and milling operations in a remote area of a western state. Metals prices have
since declined precipitously and the company is considering abandoning the operation.
The term that would best describe the $200 million expenditure when considering the
abandonment decision is:
A) sunk cost.
B) variable cost.
C) differential cost.
D) opportunity cost.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Decision Making LO: 7 Level: Medium

2-16

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


45. In a decision-making situation involving an asset, which of the following costs is
generally NOT considered relevant to the decision and should be ignored?
A) Incremental cost of selecting one alternative over another.
B) Opportunity cost of using the asset in an alternative.
C) Differential cost between two alternatives.
D) The original cost of the asset.
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Decision Making LO: 7 Level: Easy Source: CMA, adapted
46. A sunk cost is:
A) a cost that is planned to be incurred in the near future.
B) irrelevant for decision making.
C) a cost connected with drilling for oil.
D) affected by changes in the level of activity.
Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Decision Making LO: 7 Level: Easy
47. The potential benefit that is given up when one alternative is selected over another is
called:
A) A sunk cost.
B) An opportunity cost.
C) Both a sunk cost and an opportunity cost.
D) Neither a sunk cost nor an opportunity cost.
Ans: B AACSB: Reflective Thinking AICPA BB: Critical Thinking
AICPA FN: Decision Making LO: 7 Level: Easy
48. A direct labor overtime premium should be charged to a specific job when the
overtime is caused by the:
A) increased overall level of activity in the factory.
B) customer's requirement for early completion of the job.
C) management's failure to include the job in the production schedule.
D) management's requirement that the job be completed before the annual factory
closure due to vacation.
Ans: B AACSB: Reflective Thinking
AICPA FN: Reporting Appendix: 2A
Source: CPA, adapted

AICPA BB: Critical Thinking


LO: 8 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

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Chapter 2 Cost Terms, Concepts, and Classifications


49. The idle time cost of assembly line workers in a manufacturing company is usually
included as a part of:
A) selling cost.
B) direct labor cost.
C) administrative cost.
D) manufacturing overhead cost.
Ans: D AACSB: Reflective Thinking
AICPA FN: Reporting Appendix: 2A

AICPA BB: Critical Thinking


LO: 8 Level: Medium

50. In preparing a quality cost report, the cost of employee's time spent in quality circles is
part of:
A) prevention costs.
B) appraisal costs.
C) internal failure costs.
D) external failure costs.
Ans: A AACSB: Reflective Thinking
AICPA FN: Reporting Appendix: 2B

AICPA BB: Critical Thinking


LO: 9,10 Level: Medium

51. Which of the following would be classified as a prevention cost on a quality cost
report?
A) Net cost of spoilage.
B) Supervision of testing and inspection activities.
C) Liability arising from defective products.
D) Technical support provided to suppliers.
Ans: D AACSB: Reflective Thinking
AICPA FN: Reporting Appendix: 2B

AICPA BB: Critical Thinking


LO: 9,10 Level: Medium

52. Which of the following would be classified as an internal failure cost on a quality cost
report?
A) Systems development.
B) Returns and allowances arising from quality problems.
C) Net cost of scrap.
D) Final product testing and inspection.
Ans: C AACSB: Reflective Thinking
AICPA FN: Reporting Appendix: 2B

2-18

AICPA BB: Critical Thinking


LO: 9,10 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


53. Which of the following would be classified as an external failure cost on a quality cost
report?
A) Depreciation of test equipment.
B) Repairs and replacements beyond the warranty period.
C) Supplies used in testing and inspection.
D) Re-entering data because of keying errors.
Ans: B AACSB: Reflective Thinking
AICPA FN: Reporting Appendix: 2B

AICPA BB: Critical Thinking


LO: 9,10 Level: Medium

54. An increase in appraisal costs in a quality improvement program would usually have
the following initial effects on internal and external failure costs:
A)
B)
C)
D)

Internal failure costs External failure costs


Increase
Increase
Increase
Decrease
Decrease
Increase
Decrease
Decrease

Ans: B AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting Appendix: 2B LO: 9 Level: Hard
55. The cost of testing incoming materials received from suppliers would be classified as
a(n):
A) prevention cost.
B) appraisal cost.
C) internal failure cost.
D) external failure cost.
Ans: B AACSB: Reflective Thinking
AICPA FN: Reporting Appendix: 2B

AICPA BB: Critical Thinking


LO: 9 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

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Chapter 2 Cost Terms, Concepts, and Classifications


56. In classifying the costs of quality at a company that manufactures sonar equipment,
which of the following is considered an external failure cost?
A) the net cost of scrap and spoilage incurred during production.
B) the cost of repairs and replacements made during the warranty period.
C) the cost of debugging software errors found in the sonar equipment during
inspection at the plant.
D) both B and C above.
E)
none of the above.
Ans: B AACSB: Reflective Thinking
AICPA FN: Reporting Appendix: 2B

AICPA BB: Critical Thinking


LO: 9 Level: Medium

57. The four categories of quality costs in a quality cost report are:
A) external failure, product liability, prevention, and carrying.
B) external failure, internal failure, prevention, and appraisal.
C) warranty, product liability, prevention, and appraisal.
D) warranty, product liability, training, and appraisal.
Ans: B AACSB: Reflective Thinking
AICPA FN: Reporting Appendix: 2B
Source: CMA, adapted

AICPA BB: Critical Thinking


LO: 9 Level: Easy

58. The following costs were incurred in July:


Direct materials..............................
Direct labor....................................
Manufacturing overhead................
Selling expenses............................
Administrative expenses................

$35,000
$13,000
$15,000
$14,000
$30,000

Prime costs during the month totaled:


A) $48,000
B) $28,000
C) $107,000
D) $63,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1,2 Level: Medium

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Chapter 2 Cost Terms, Concepts, and Classifications


Solution:
Direct materials.......
Direct labor.............
Total........................

$35,000
13,000
$48,000

59. Abel Company's manufacturing overhead is 20% of its total conversion costs. If direct
labor is $38,000 and if direct materials are $47,000, the manufacturing overhead is:
A) $152,000
B) $11,750
C) $21,250
D) $9,500
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Hard
Solution:
Conversion costs = Direct labor + Manufacturing overhead
Conversion costs = $38,000 + Manufacturing overhead
0.20 Conversion costs = Manufacturing overhead
0.20 ($38,000 + Manufacturing overhead) = Manufacturing overhead
$7,600 + 0.20 Manufacturing overhead = Manufacturing overhead
$7,600 = 0.80 Manufacturing overhead
Manufacturing overhead = $9,500
60. During the month of July, direct labor cost totaled $12,000 and direct labor cost was
30% of prime cost. If total manufacturing costs during July were $86,000, the
manufacturing overhead was:
A) $46,000
B) $40,000
C) $28,000
D) $74,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Hard

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

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Chapter 2 Cost Terms, Concepts, and Classifications


Solution:
0.30 Prime cost = Direct labor
0.30 Prime cost = $12,000
Prime cost = $40,000
Prime cost = Direct materials + Direct labor
$40,000 = Direct materials + $12,000
Direct materials = $28,000
Total
=
manufacturing costs
$86,000

Direct materials

Direct labor

$28,000

$12,000

Manufacturing
Overhead
Manufacturing
+
Overhead
+

Manufacturing overhead = $46,000


61. In July direct labor was 40% of conversion cost. If the manufacturing overhead cost
for the month was $34,000 and the direct materials cost was $23,000, the direct labor
cost was:
A) $22,667
B) $15,333
C) $51,000
D) $34,500
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Hard
Solution:
0.40 Conversion costs = Direct labor
0.60 Conversion costs = Manufacturing overhead
0.60 Conversion costs = $34,000
Conversion costs = $56,667
Conversion costs = Direct labor + Manufacturing overhead
$56,667 = Direct labor + $34,000
Direct labor = $22,667

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Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


62. Shown below are a number of costs incurred last year at Mecca Publishing Co., a
manufacturer of elementary school textbooks:
Solvents and cleaners used by the custodians to clean
the textbook printing presses...........................................
Depreciation on the automobiles used by sales
representatives.................................................................
Fire insurance on factory building...................................
Shipping costs on textbooks sold.....................................

$500
$4,20
0
$2,00
0
$3,70
0

What is the total of the manufacturing overhead costs above?


A) $500
B) $2,500
C) $6,200
D) $6,700
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
Solution:
Solvents and cleaners used by the custodians to clean
the textbook printing presses..................................
Fire insurance on factory building................................
Total..............................................................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

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Chapter 2 Cost Terms, Concepts, and Classifications


63. Mammoser Manufacturing Corporation rents a building for $8,000 per month and uses
it for a number of different purposes. The building space is utilized by the various
activities as follows:
Receiving and storing raw materials......... 5%
Production operations................................ 70%
Sales offices............................................... 15%
Administrative offices............................... 10%
How much of the $8,000 monthly rent cost should be classified as manufacturing
overhead?
A) $5,600
B) $6,000
C) $6,800
D) $7,200
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
Solution:
Receiving and storing raw materials (5% $8,000)........
Production operations (70% $8,000)............................

2-24

$ 400
5,600
$6,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


64. Consider the following costs:
Direct materials..........................................
Depreciation on factory equipment...........
Factory janitors salary..............................
Direct labor................................................
Utilities for factory....................................
Selling expenses........................................
Production supervisors salary...................
Administrative expenses............................

$33,00
0
$12,00
0
$23,00
0
$28,00
0
$9,000
$16,00
0
$34,00
0
$21,00
0

What is the total amount of manufacturing overhead included above?


A) $78,000
B) $139,000
C) $44,000
D) $37,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
Solution:
Depreciation on factory equipment...........
Factory janitors salary..............................
Utilities for factory....................................
Production supervisors salary...................
Total...........................................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$12,00
0
23,000
9,000
34,000
$78,00
0

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Chapter 2 Cost Terms, Concepts, and Classifications


65. The information below relates to Derby Manufacturing Company's operations for a
recent month. (Assume that all raw materials are direct materials.):
Purchases of raw materials........................
Direct labor cost.........................................
Selling costs (total)....................................
Administrative costs (total).......................
Manufacturing overhead costs (total)........
Raw materials inventory, beginning..........
Work in process inventory, beginning.......
Finished goods inventory, beginning.........
Raw materials inventory, ending...............
Work in process inventory, ending............
Finished goods inventory, ending..............

$91,000
$122,00
0
$42,000
$56,000
$340,00
0
$22,000
$27,000
$42,000
$7,000
$35,000
$15,000

What was Derby's cost of goods manufactured for the month?


A) $545,000
B) $560,000
C) $568,000
D) $587,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Measurement LO: 2,4 Level: Hard
Solution:
Derby Manufacturing Company
Schedule of Cost of Goods Manufactured
Direct materials:
Beginning raw materials inventory.................
$ 22,000
Add: Purchases of raw materials....................
91,000
Raw materials available for use......................
113,000
Deduct: Ending raw materials inventory........
7,000
Raw materials used in production..................
Direct labor.........................................................
Manufacturing overhead....................................
Total manufacturing costs..................................
Add: Beginning work in process inventory........

2-26

$106,000
122,000
340,000
568,000
27,000
595,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


Deduct: Ending work in process inventory........
Cost of goods manufactured...............................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

35,000
$560,000

2-27

Chapter 2 Cost Terms, Concepts, and Classifications


66. Consider the following costs incurred in a recent period:
Direct materials..........................................
Depreciation on factory equipment...........
Factory janitors salary..............................
Direct labor................................................
Utilities for factory....................................
Selling expenses........................................
Production supervisors salary...................
Administrative expenses............................

$33,00
0
$12,00
0
$23,00
0
$28,00
0
$9,000
$16,00
0
$34,00
0
$21,00
0

What was the total amount of the period costs listed above for the period?
A) $78,000
B) $71,000
C) $46,000
D) $37,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Selling expenses........................................
Administrative expenses............................
Total...........................................................

2-28

$16,00
0
21,00
0
$37,00
0

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


67. Using the following data for a recent period, calculate the beginning finished goods
inventory:
Sales...........................................................
Beginning finished goods inventory..........
Cost of goods manufactured......................
Ending finished goods inventory...............
Cost of goods sold.....................................
Gross margin..............................................
Administrative and selling expenses.........
Net operating income.................................

$40,00
0
?
$16,00
0
$5,000
?
$17,00
0
?
$10,00
0

The beginning finished goods inventory was:


A) $24,000
B) $23,000
C) $7,000
D) $12,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard
Solution:
Cost of goods sold = Sales Gross margin
Cost of goods sold = $40,000 $17,000
Cost of goods sold = $23,000
Beginning finished
Cost of goods
Ending finished
+

=
goods inventory
manufactured
goods inventory
Beginning finished
+
$16,000

$5,000
=
goods inventory
Beginning finished goods inventory = $12,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Cost of goods
sold
$23,000

2-29

Chapter 2 Cost Terms, Concepts, and Classifications


68. The following data are for a recent period's operations:
Beginning finished goods inventory..........
Ending finished goods inventory...............
Sales...........................................................
Gross margin..............................................

$150,47
5
$145,75
0
$400,00
0
$120,00
0

The cost of goods manufactured was:


A) $115,275
B) $284,725
C) $275,275
D) $124,725
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard
Solution:
Sales Cost of goods sold = Gross margin
$400,000 Cost of goods sold = $120,000
Cost of goods sold = $280,000
Beginning finished
Cost of goods
Ending finished
+

=
goods inventory
manufactured
goods inventory
Cost of goods
$150,475
+

$145,750
=
manufactured
Cost of goods manufactured = $275,275

2-30

Cost of goods
sold
$280,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


69. Last month a manufacturing company had the following operating results:
Beginning finished goods inventory..........
Ending finished goods inventory...............
Sales...........................................................
Gross margin..............................................

$77,000
$72,000
$593,00
0
$67,000

What was the cost of goods manufactured for the month?


A) $588,000
B) $526,000
C) $521,000
D) $531,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard
Solution:
Sales Cost of goods sold = Gross margin
$593,000 Cost of goods sold = $67,000
Cost of goods sold = $526,000
Beginning finished
Cost of goods
Ending finished
+

=
goods inventory
manufactured
goods inventory
Cost of goods
$77,000
+

$72,000
=
manufactured
Cost of goods manufactured = $521,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Cost of goods
sold
$526,000

2-31

Chapter 2 Cost Terms, Concepts, and Classifications


70. The following data pertain to a recent period's operations:
Sales...........................................................
?
Beginning finished goods inventory..........
$12,000
Cost of goods manufactured......................
$36,000
Ending finished goods inventory...............
$6,000
Cost of goods sold.....................................
?
Gross margin.............................................. 40% of Sales
Administrative and selling expenses.........
$10,000
Net operating income.................................
?
Net operating income was:
A) $18,000
B) $10,000
C) $14,000
D) $46,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard
Solution:
Cost of
Beginning finished
=
+
goods sold
goods inventory
Cost of
=
$12,000
+
goods sold
Cost of goods sold = $42,000

Cost of goods
manufactured

Ending finished
goods inventory

$36,000

$6,000

Sales Cost of goods sold = Gross margin


Sales $42,000 = Gross margin
Gross margin = 40% Sales
Sales $42,000 = 40% Sales
60% Sales = $42,000
Sales = $70,000
Gross margin Administrative and selling expenses = Net operating income
Gross margin = 40% Sales
Gross margin = $28,000
$28,000 $10,000 = Net operating income
Net operating income = $18,000

2-32

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


71. The following inventory balances have been provided for the most recent year:
Beginnin
g
Raw materials....................

$21,000

Work in process.................

$18,000

Finished goods...................

$57,000

Ending
$15,00
0
$29,00
0
$33,00
0

The cost of goods manufactured was $714,000. What was the cost of goods sold?
A) $738,000
B) $693,000
C) $714,000
D) $733,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3,4 Level: Medium
Solution:
Finished goods inventory, beginning.........................
Add: Cost of goods manufactured..............................
Goods available for sale.............................................
Deduct: Finished goods inventory, ending.................
Cost of goods sold......................................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 57,000
714,000
771,000
33,000
$738,000

2-33

Chapter 2 Cost Terms, Concepts, and Classifications


72. The cost of goods manufactured for October at Toule Manufacturing Corporation was
$907,000. The following changes occurred in Toule inventory accounts during
October:
Decrease in raw materials inventory..........
Decrease in work in process inventory......
Increase in finished goods inventory.........

$24,00
0
$17,00
0
$38,00
0

What was Toule's cost of goods sold for October?


A) $869,000
B) $886,000
C) $928,000
D) $945,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3,4 Level: Hard
Solution:

2-34

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


73. Gabrio Inc. is a merchandising company. Last month the company's merchandise
purchases totaled $87,000. The company's beginning merchandise inventory was
$19,000 and its ending merchandise inventory was $11,000. What was the company's
cost of goods sold for the month?
A) $79,000
B) $87,000
C) $95,000
D) $117,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Easy
Solution:
Merchandise inventory, beginning.............................
Add: Merchandise purchased.....................................
Goods available for sale.............................................
Deduct: Finished goods inventory, ending.................
Cost of goods sold......................................................

$ 19,000
87,000
106,000
11,000
$ 95,000

74. Haala Inc. is a merchandising company. Last month the company's cost of goods sold
was $68,000. The company's beginning merchandise inventory was $11,000 and its
ending merchandise inventory was $17,000. What was the total amount of the
company's merchandise purchases for the month?
A) $96,000
B) $62,000
C) $68,000
D) $74,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-35

Chapter 2 Cost Terms, Concepts, and Classifications


Solution:
Merchandise inventory, beginning.............................
Add: Merchandise purchased.....................................
Goods available for sale.............................................
Deduct: Finished goods inventory, ending.................
Cost of goods sold......................................................

$11,000
?
?
17,000
$68,000

Goods available for sale = $68,000 + $17,000


Goods available for sale = $85,000
Merchandise purchased = $85,000 Merchandise inventory, beginning
Merchandise purchased = $85,000 $11,000
Merchandise purchased = $74,000
75. During July, the cost of goods manufactured at Xxis Corporation was $70,000. The
beginning finished goods inventory was $19,000 and the ending finished goods
inventory was $15,000. What was the cost of goods sold for the month?
A) $104,000
B) $74,000
C) $70,000
D) $66,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Easy
Solution:
Finished goods inventory, beginning.........................
Add: Cost of goods manufactured..............................
Goods available for sale.............................................
Deduct: Finished goods inventory, ending.................
Cost of goods sold......................................................

2-36

$19,000
70,000
89,000
15,000
$74,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


76. At the beginning of the most recent month's operations, finished goods inventory was
$30,000. The cost of goods manufactured was $326,000 and ending finished goods
inventory was $42,000. What was the cost of goods sold for the month?
A) $320,000
B) $338,000
C) $314,000
D) Cannot be calculated.
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Easy
Solution:
Finished goods inventory, beginning.........................
Add: Cost of goods manufactured..............................
Goods available for sale.............................................
Deduct: Finished goods inventory, ending.................
Cost of goods sold......................................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$30,000
326,000
356,000
42,000
$314,000

2-37

Chapter 2 Cost Terms, Concepts, and Classifications


77. Given the following information, calculate the company's manufacturing overhead:
Work in process, ending................
Work in process, beginning...........
Cost of goods manufactured..........
Direct labor....................................
Direct materials..............................

$8,000
$11,00
0
$70,00
0
$25,00
0
$20,00
0

The manufacturing overhead is:


A) $22,000
B) $25,000
C) $28,000
D) $36,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Hard
Solution:
Schedule of Cost of Goods Manufactured
Direct materials...............................................................
Direct labor.....................................................................
Manufacturing overhead.................................................
Total manufacturing costs...............................................
Add: Work in process, beginning...................................
Deduct: Work in process, ending....................................
Cost of goods manufactured...........................................

$20,000
25,000
22,000*
67,000*
11,000
78,000*
8,000
$70,000

* These items must be calculated by working backwards upward through the


statements.

2-38

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


78. The following data have been provided for the most recent month's operations:
Direct materials..........................................
Direct labor................................................
Manufacturing overhead............................
Total manufacturing costs.........................
Beginning work in process inventory........
Ending work in process inventory.............
Cost of goods manufactured......................

$8,000
$25,00
0
$9,000
?
?
$8,000
$45,00
0

The beginning work in process inventory is:


A) $11,000
B) $42,000
C) $53,000
D) $37,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Hard
Solution:
Schedule of Cost of Goods Manufactured
Direct materials...............................................................
Direct labor.....................................................................
Manufacturing overhead.................................................
Total manufacturing costs...............................................
Add: Work in process, beginning...................................
Deduct: Work in process, ending....................................
Cost of goods manufactured...........................................

$ 8,000
25,000
9,000
42,000
11,000*
53,000*
8,000
$45,000

* These items must be calculated by working backwards upward through the


statements.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-39

Chapter 2 Cost Terms, Concepts, and Classifications


79. Using the following data for July, calculate the cost of goods manufactured:
Direct materials..........................................
Direct labor................................................
Manufacturing overhead............................
Beginning work in process inventory........
Ending work in process inventory.............

$31,00
0
$22,00
0
$29,00
0
$14,00
0
$15,00
0

The cost of goods manufactured was:


A) $83,000
B) $96,000
C) $81,000
D) $82,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Schedule of Cost of Goods Manufactured
Direct materials...............................................................
Direct labor.....................................................................
Manufacturing overhead.................................................
Total manufacturing costs...............................................
Add: Work in process, beginning...................................
Deduct: Work in process, ending....................................
Cost of goods manufactured...........................................

2-40

$31,000
22,000
29,000
82,000
14,000
96,000
15,000
$81,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


80. During the month of April, LTP Company incurred $30,000 of manufacturing
overhead, $40,000 of direct labor, and purchased $25,000 of raw materials. Between
the beginning and the end of the month, the raw materials and work in process
inventories decreased by $4,000 and $3,000, respectively. The total manufacturing
costs used in the computation of cost of goods manufactured during the month of
April was:
A) $88,000
B) $91,000
C) $99,000
D) $102,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Hard
Solution:
First calculate raw materials used:
Beginning inventory
+ Purchases
raw materials

Ending inventory
=
raw materials

Raw materials
used

By rearranging:
Purchases

+(

Beginning
inventory raw
materials

Ending
inventory raw
materials

)=

Raw materials
used

Since raw material inventory decreased by $4,000, we know that:


Beginning inventory raw materials Ending inventory raw materials = $4,000
Substituting into equation:
$25,000 + $4,000 = Raw materials used
$29,000 = Raw materials used
Next, solve for total manufacturing costs:
Raw materials
Manufacturing
+ Direct labor +
used
overhead
$29,000
+
$40,000
+
$30,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Total
manufacturing costs
=
$99,000
=

2-41

Chapter 2 Cost Terms, Concepts, and Classifications


81. The following information relates to Mako Manufacturing Company for the month of
August:
Cost of goods manufactured......................
Cost of goods sold.....................................
Total manufacturing costs.........................
Cost of goods available for sale.................

$78,00
0
$82,00
0
$90,00
0
$95,00
0

What was the balance in Mako's Finished Goods Inventory account at the end of
August?
A) $4,000
B) $5,000
C) $8,000
D) $13,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Hard
Solution:
Goods available for sale - Ending finished goods inventory = Cost of goods sold
Ending finished goods inventory = Goods available for sale - Cost of goods sold
Ending finished goods inventory = $95,000 - $82,000
Ending finished goods inventory = $13,000

2-42

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


82. The following inventory balances relate to Komiza Manufacturing Corporation at the
beginning and end of the year:
Beginnin
g
Raw materials....................
Work in process.................

$10,000
$5,000

Finished goods...................

$41,000

Ending
$21,00
0
$3,000
$48,00
0

Komiza's cost of goods available for sale was $622,000. What was Komiza's cost of
goods manufactured?
A) $581,000
B) $615,000
C) $629,000
D) $663,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Hard
Solution:
Beginning finished
Cost of goods
Goods available
+
=
goods inventory
manufactured
for sale
Cost of goods
$41,000
+
=
$622,000
manufactured
Cost of goods manufactured = $581,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-43

Chapter 2 Cost Terms, Concepts, and Classifications


83. Last year there was no change in either the raw materials or the work in process
beginning and ending inventories. However, finished goods, which had a beginning
balance of $25,000, increased by $15,000. If the manufacturing costs incurred totaled
$600,000 during the year, the cost of goods available for sale must have been:
A) $585,000
B) $600,000
C) $610,000
D) $625,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Cost of goods
available for sale

Beginning
finished
goods
inventory

Cost of goods
=
$25,000
+
available for sale
Cost of goods available for sale = $625,000

2-44

Cost of goods
manufactured
$600,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


84. A company has provided the following cost data for its most recent accounting period:
Direct labor....................................
Administrative expenses................
Manufacturing overhead................
Direct materials..............................
Selling expenses............................

$98,000
$15,000
$25,000
$200,00
0
$22,000

What was the cost of goods manufactured for the period? Assume there were no
beginning or ending inventories.
A) $303,000
B) $323,000
C) $338,000
D) $360,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Easy
Source: CMA, adapted
Solution:
Direct labor....................................
Manufacturing overhead................
Direct materials..............................
Cost of goods manufactured..........

$ 98,000
25,000
200,00
0
$323,00
0

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-45

Chapter 2 Cost Terms, Concepts, and Classifications


85. Beginning work in process was $145,000. Manufacturing cost incurred for the month
was $810,000. The ending work in process was $200,000. What was the cost of goods
manufactured during the month?
A) $900,000
B) $810,000
C) $755,000
D) $1,155,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Beginning work in process inventory.................
Add: Manufacturing costs..................................
Deduct: Ending work in process inventory........
Cost of goods manufactured...............................

$145,000
810,000
(200,000)
$755,000

86. Last year, Vashanda Corporation incurred the following costs to produce 18,000 units:
Cost of raw materials used.........................
Property taxes on factory building.............

$86,40
0
$9,000

What should be the cost per unit for the above costs if 20,000 units of product are
produced next year?
A)
B)
C)
D)

Raw materials Property taxes


$4.32
$0.45
$4.32
$0.50
$4.80
$0.45
$4.80
$0.50

Ans: C AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting LO: 5 Level: Medium
Solution:
Variable manufacturing costs:
$86,400 18,000 = $4.80
Property taxes are a fixed cost: $9,000
At 20,000 units, fixed cost per unit = $9,000 20,000 units = $0.45 per unit

2-46

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


87. At a sales volume of 20,000 units, total costs are $55,000. The company's variable cost
per unit is $1.50. What should be the total fixed cost at a sales volume of 30,000 units,
assuming that is within the relevant range.
A) $25,000
B) $30,000
C) $45,000
D) Cannot be determined.
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Hard
Solution:

88. A mattress manufacturer has provided the following cost data. The cost of fabric,
foam, springs, and lumber is $68,000. The cost of indirect materials is $21,000. Labor
cost of assembly workers is $52,000 and for production supervisors is $14,000. How
much indirect cost is included in the above costs?
A) $21,000
B) $35,000
C) $89,000
D) $103,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Indirect materials...........................
Production supervisors..................
Total indirect costs.........................

$21,000
14,000
$35,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-47

Chapter 2 Cost Terms, Concepts, and Classifications


89. How much sunk cost is represented in the following list?
Annual operating cost............................................
Fixed operating costs other than depreciation.......
Resale value, if sold now.......................................
Original cost of current machine...........................
A)
B)
C)
D)

$80,000
$14,000
$25,000
$68,000

$80,000
$14,000
$25,000
$68,000

Ans: D AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting LO: 7 Level: Easy
Solution:
Only the original cost of the current machine is a sunk cost in the above list.
90. John Adams, an operator of a manufacturing machine, receives time-and-a-half for
any time worked in excess of 40 hours per week. His rate of pay is $16 per hour. How
much should be charged to direct labor if he worked 48 hours last week and had no
idle time?
A) $768
B) $640
C) $832
D) $192
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 2A LO: 8 Level: Medium
Solution:
48 hours $16 per hour = $768

2-48

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


91. During the last week in October, Harvey worked a total of 45 hours and had no idle
time. Harvey is paid $10 per hour for regular time, and is paid time-and-a-half for all
hours in excess of 35 hours per week. Given this information:
A) $350 should be charged to direct labor
B) $50 should be charged to manufacturing overhead
C) $150 should be charged to manufacturing overhead
D) $500 should be charged to direct labor.
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 2A LO: 8 Level: Medium
Solution:
Overtime premium = $5
$10 1.5 = $15 overtime rate
$15 overtime rate $10 regular rate = $5 overtime premium
Total hours Regular work week hours = Overtime hours
45 35 = 10
10 hours $5 per hour = $50 amount to be charged to manufacturing overhead
92. Sandra Pietro installs mufflers at Dethtrapp Motorcycle Company. Sandra is paid $14
per hour and an extra $7 per hour for every hour over 40 that is worked in a given
week. Last week Sandra worked 50 hours with 2 of these hours correctly classified as
idle time. How much of Sandra's wages last week should be included in manufacturing
overhead cost?
A) $28
B) $70
C) $98
D) $168
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting Appendix: 2A LO: 8 Level: Hard
Solution:
Overtime premium charged to manufacturing overhead:
(50 total hours 40 regular hours) $7 overtime premium = $70
2 hours of idle time $14 per hour = $28
Total wages to be included in manufacturing overhead = $70 + $28 = $98

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-49

Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 93-96:
Mendoza, Inc. manufactures and sells aluminum dishes for camping and outdoor enthusiasts
through a mail order catalog operation. Large rectangular sheets of aluminum are purchased
by Mendoza. These sheets are cut down into smaller squares and are then fed into a machine
where they are trimmed down into a circular shape. These aluminum circles are then fed into
a stamping machine where they are formed into plates and bowls. After production, the dishes
are shipped to warehouses where they are packed and then shipped to customers.
93. Which of the following terms could be used to correctly describe the cost of the
aluminum sheets?
A) fixed cost
B) period cost
C) direct cost
D) conversion cost
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1,2,5,6 Level: Medium
94. Which of the following terms could be used to correctly describe the wages paid to the
machine operator who operates the stamping machine?
A) direct labor cost
B) administrative cost
C) opportunity cost
D) manufacturing overhead cost
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1,2,5,6 Level: Easy
95. Which of the following terms could be used to correctly describe the cost of electricity
used to run the stamping machine?
A) variable cost
B) indirect cost
C) manufacturing overhead cost
D) all of the above
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1,2,5,6 Level: Medium

2-50

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Chapter 2 Cost Terms, Concepts, and Classifications


96. Which of the following terms could be used to correctly describe the straight-line
depreciation cost on the stamping machine?
A) period cost
B) variable cost
C) inventoriable cost
D) both A and C above
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1,2,5,6 Level: Hard
Use the following to answer questions 97-99:
A partial listing of costs incurred at Archut Corporation during September appears below:
Direct materials...................................................
Utilities, factory..................................................
Administrative salaries.......................................
Indirect labor.......................................................
Sales commissions..............................................
Depreciation of production equipment...............
Depreciation of administrative equipment.........
Direct labor.........................................................
Advertising.........................................................

$113,00
0
$5,000
$81,000
$25,000
$48,000
$20,000
$30,000
$129,00
0
$135,00
0

97. The total of the manufacturing overhead costs listed above for September is:
A) $586,000
B) $50,000
C) $292,000
D) $30,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
Solution:
Utilities, factory..................................................
Indirect labor.......................................................
Depreciation of production equipment...............
Total manufacturing overhead costs...................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 5,000
25,000
20,000
$50,000

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Chapter 2 Cost Terms, Concepts, and Classifications


98. The total of the product costs listed above for September is:
A) $292,000
B) $294,000
C) $50,000
D) $586,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Direct materials...................................................
Utilities, factory..................................................
Indirect labor.......................................................
Depreciation of production equipment...............
Direct labor.........................................................
Total product costs..............................................

$113,00
0
5,000
25,000
20,000
129,00
0
$292,00
0

99. The total of the period costs listed above for September is:
A) $294,000
B) $344,000
C) $292,000
D) $50,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Administrative salaries.......................................
Sales commissions..............................................
Depreciation of administrative equipment.........
Advertising.........................................................
Total period costs................................................

2-52

$ 81,000
48,000
30,000
135,00
0
$294,00
0

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Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 100-102:
A partial listing of costs incurred during March at Febbo Corporation appears below:
Factory supplies...............................................
Administrative wages and salaries..................
Direct materials................................................
Sales staff salaries............................................
Factory depreciation........................................
Corporate headquarters building rent..............
Indirect labor....................................................
Marketing.........................................................
Direct labor......................................................

$9,000
$85,000
$126,00
0
$30,000
$33,000
$43,000
$26,000
$65,000
$99,000

100. The total of the period costs listed above for March is:
A) $68,000
B) $293,000
C) $291,000
D) $223,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Administrative wages and salaries..................
Sales staff salaries............................................
Corporate headquarters building rent..............
Marketing.........................................................
Total period costs.............................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 85,000
30,000
43,000
65,00
0
$223,00
0

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Chapter 2 Cost Terms, Concepts, and Classifications


101. The total of the manufacturing overhead costs listed above for March is:
A) $68,000
B) $35,000
C) $516,000
D) $293,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
Solution:
Factory supplies...............................................
Factory depreciation........................................
Indirect labor....................................................
Total manufacturing overhead.........................

$ 9,000
33,000
26,000
$68,000

102. The total of the product costs listed above for March is:
A) $516,000
B) $68,000
C) $293,000
D) $223,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Factory supplies...............................................
Direct materials................................................
Factory depreciation........................................
Indirect labor....................................................
Direct labor......................................................
Total product costs...........................................

2-54

$ 9,000
126,000
33,000
26,000
99,00
0
$293,00
0

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 103-105:
The following data pertain to Graham Company's operations in May:
May 1
Work in process inventory.............
Raw materials inventory................

$7,000
$15,00
0

Finished goods inventory...............

Other data:
Raw materials used........................
Sales...............................................
Cost of goods manufactured..........
Manufacturing overhead cost........
Raw materials purchases...............
Gross Margin.................................

May 31
$12,00
0
?
$20,00
0

$40,000
$200,00
0
$135,00
0
$60,000
$30,000
$60,000

103. The ending materials inventory was:


A) $5,000
B) $10,000
C) $15,000
D) $20,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 1,3,4 Level: Medium
Solution:
Beginning raw materials inventory................
Add: Raw materials purchases.......................
Raw materials available for use.....................
Deduct: Ending raw materials inventory........
Raw materials used........................................

$15,000
30,000
45,000
5,000 *
$40,000

*Calculate this item by working backwards, as shown:


Raw materials used = Raw materials available Ending raw materials inventory
$40,000 = $45,000 Ending raw materials inventory
Ending raw materials inventory = $5,000

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Chapter 2 Cost Terms, Concepts, and Classifications

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Chapter 2 Cost Terms, Concepts, and Classifications


104. The beginning finished goods inventory was:
A) $5,000
B) $15,000
C) $25,000
D) $30,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 1,3,4 Level: Hard
Solution:
Sales Cost of goods sold = Gross margin
Cost of goods sold = Sales Gross margin
Cost of goods sold = $200,000 $60,000
Cost of goods sold = $140,000
Next, solve backwards for beginning finished goods inventory:
Beginning raw materials inventory......................
$ 25,000 *
Add: Cost of goods manufactured........................
135,000
Cost of goods available for sale...........................
160,000 *
Deduct: Ending finished goods inventory............
20,000
Cost of goods sold................................................
$140,000
* These items must be calculated by working backwards upward through the
statements.

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Chapter 2 Cost Terms, Concepts, and Classifications


105. The direct labor cost for May was:
A) $35,000
B) $40,000
C) $30,000
D) $25,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1,3,4 Level: Hard
Solution:
Graham Company
Schedule of Cost of Goods Manufactured
Direct materials...............................................................
Direct labor.....................................................................
Manufacturing overhead.................................................
Total manufacturing costs...............................................
Add: Work in process, beginning...................................

$40,000
40,000*
60,000
140,000*
7,000
147,000*
Deduct: Work in process, ending....................................
12,000
Cost of goods manufactured........................................... $135,000
* These items must be calculated by working backwards upward through the
statements.
Use the following to answer questions 106-107:
Demeglio Corporation reported the following data for the month of September:
Inventories:

Beginnin
g

Raw materials....................

$30,000

Work in process.................

$23,000

Finished goods...................

$32,000

2-58

Ending
$34,00
0
$22,00
0
$35,00
0

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Chapter 2 Cost Terms, Concepts, and Classifications


106. If the raw materials purchased during September totaled $63,000, what was the cost of
the raw materials used in production for the month?
A) $67,000
B) $63,000
C) $59,000
D) $64,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 1,3 Level: Easy
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use...........................
Deduct: Ending raw material inventory...............
Raw materials used in production........................

$30,000
63,000
93,000
34,000
$59,000

107. If the company transferred $222,000 of completed goods from work in process to
finished goods inventory during September, what was the cost of goods sold for the
month?
A) $219,000
B) $225,000
C) $222,000
D) $221,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 1,3 Level: Easy
Solution:
Beginning finished goods inventory....................
Add: Cost of goods manufactured........................
Goods available for sale.......................................
Deduct: Ending finished inventory.......................
Cost of goods sold................................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 32,000
222,000
254,000
35,000
$219,000

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Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 108-109:
Boardman Company reported the following data for the month of January:
Inventories:
Raw materials....................
Work in process.................
Finished goods...................

1/1
$32,00
0
$18,00
0
$30,00
0

1/31
$31,00
0
$12,00
0
$35,00
0

Additional information:
Sales revenue.................................
Direct labor costs...........................
Manufacturing overhead costs.......
Selling expenses............................
Administrative expenses................

$210,00
0
$40,000
$70,000
$25,000
$35,000

108. If raw materials costing $35,000 were purchased during January, the total
manufacturing costs for the month would be:
A) $145,000
B) $144,000
C) $151,000
D) $146,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 1 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use...........................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Direct labor...........................................................
Manufacturing overhead.......................................
Total manufacturing costs....................................

2-60

$ 32,000
35,000
67,000
31,000
36,000
40,000
70,000
$146,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


109. Boardman Company's total conversion cost for January would be:
A) $110,000
B) $170,000
C) $135,000
D) $130,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
Solution:
$ 40,00
0
70,000
$110,00
0

Direct labor....................................
Manufacturing overhead................
Total conversion costs...................
Use the following to answer questions 110-111:

Fassino Corporation reported the following data for the month of November:
Inventories:

Beginnin
g

Raw materials....................

$23,000

Work in process.................

$19,000

Finished goods...................

$55,000

Additional information:
Raw materials purchases...............
Direct labor cost.............................
Manufacturing overhead cost........
Selling expense..............................
Administrative expense.................

Ending
$30,00
0
$20,00
0
$29,00
0

$58,000
$54,000
$82,000
$18,000
$42,000

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Chapter 2 Cost Terms, Concepts, and Classifications


110. The conversion cost for November was:
A) $187,000
B) $112,000
C) $136,000
D) $140,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
Solution:
Direct labor....................................
Manufacturing overhead................
Total conversion costs...................

$ 54,00
0
82,000
$136,00
0

111. The prime cost for November was:


A) $136,000
B) $60,000
C) $105,000
D) $112,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use...........................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Direct labor...........................................................
Total prime cost....................................................

2-62

$ 23,000
58,000
81,000
30,000
51,000
54,000
$105,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 112-113:
Management of Mcgibboney Corporation has asked your help as an intern in preparing some
key reports for November. The beginning balance in the raw materials inventory account was
$25,000. During the month, the company made raw materials purchases amounting to
$54,000. At the end of the month, the balance in the raw materials inventory account was
$37,000. Direct labor cost was $25,000 and manufacturing overhead cost was $62,000. The
beginning balance in the work in process account was $22,000 and the ending balance was
$23,000. The beginning balance in the finished goods account was $44,000 and the ending
balance was $50,000. Selling expense was $21,000 and administrative expense was $38,000.
112. The conversion cost for November was:
A) $116,000
B) $79,000
C) $87,000
D) $129,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium
Solution:
Direct labor....................................
Manufacturing overhead................
Total conversion costs...................

$25,000
62,000
$87,000

113. The prime cost for November was:


A) $79,000
B) $59,000
C) $67,000
D) $87,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 1 Level: Medium

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Chapter 2 Cost Terms, Concepts, and Classifications


Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use...........................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Direct labor...........................................................
Total prime cost....................................................

$25,000
54,000
79,000
37,000
42,000
25,000
$67,000

Use the following to answer questions 114-116:


Yokum Company has provided the following data for the month of August:
Raw materials inventory................
Work in process inventory.............
Finished goods inventory...............

August 1 August 31
$8,000
?
?
$14,000
$25,000
$35,000

Other Data:
Sales...........................................................
Manufacturing overhead costs...................
Direct labor................................................
Purchase of raw materials..........................
Administrative expenses............................
Cost of goods manufactured......................
Raw materials used in production.............
Selling expenses........................................

2-64

$350,00
0
$44,000
$80,000
$94,000
$40,000
$206,00
0
$87,000
$15,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


114. The ending raw materials inventory was:
A) $3,000
B) $11,000
C) $15,000
D) $7,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Hard
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use...........................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................

$ 8,000
94,000
102,000
15,000 *
$87,000

* This item must be calculated by working backwards upward through the statements.
115. The beginning work in process inventory was:
A) $6,000
B) $9,000
C) $15,000
D) $2,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Hard

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Chapter 2 Cost Terms, Concepts, and Classifications


Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use...........................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................

$ 8,000
94,000
102,000
15,000 *
$87,000

Raw materials used..............................................


Direct labor...........................................................
Manufacturing overhead.......................................
Total manufacturing costs....................................
Add: Beginning work in process inventory.........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$ 87,000
80,000
44,000
211,000
9,000 *
220,000 *
14,000
$206,000

* These items must be calculated by working backwards upward through the


statements.

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Chapter 2 Cost Terms, Concepts, and Classifications


116. The cost of goods sold was:
A) $196,000
B) $206,000
C) $211,000
D) $190,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use...........................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................

$ 8,000
94,000
102,000
15,000 *
$ 87,000

Raw materials used..............................................


Direct labor...........................................................
Manufacturing overhead.......................................
Total manufacturing costs....................................
Add: Beginning work in process inventory.........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$ 87,000
80,000
44,000
211,000
9,000 *
220,000 *
14,000
$206,000

* These items must be calculated by working backwards upward through the


statements.
Beginning finished goods inventory....................
Add: Cost of goods manufactured........................
Goods available for sale.......................................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 25,000
206,000
231,000
35,000
$196,000

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Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 117-120:
The following data (in thousands of dollars) have been taken from the accounting records of
Karling Corporation for the just completed year.
Sales...........................................................
Raw materials inventory, beginning..........
Raw materials inventory, ending...............
Purchases of raw materials........................
Direct labor................................................
Manufacturing overhead............................
Administrative expenses............................
Selling expenses........................................
Work in process inventory, beginning.......
Work in process inventory, ending............
Finished goods inventory, beginning.........
Finished goods inventory, ending..............

$99
0
$40
$70
$12
0
$20
0
$23
0
$15
0
$14
0
$70
$50
$12
0
$16
0

117. The cost of the raw materials used in production during the year (in thousands of
dollars) was:
A) $190
B) $90
C) $150
D) $160
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use...........................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................

2-68

$
40
120
160
70
$90

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-69

Chapter 2 Cost Terms, Concepts, and Classifications


118. The cost of goods manufactured (finished) for the year (in thousands of dollars) was:
A) $540
B) $500
C) $570
D) $590
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Medium
Solution:

2-70

Beginning raw materials inventory......................


Add: Raw materials purchased.............................
Raw materials available for use...........................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................

$ 40
120
160
70
$ 90

Raw materials used..............................................


Direct labor...........................................................
Manufacturing overhead.......................................
Total manufacturing costs....................................
Add: Beginning work in process inventory.........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$ 90
200
230
520
70
590
50
$540

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


119. The cost of goods sold for the year (in thousands of dollars) was:
A) $700
B) $500
C) $660
D) $580
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use...........................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Raw materials used..............................................
Direct labor...........................................................
Manufacturing overhead.......................................
Total manufacturing costs....................................
Add: Beginning work in process inventory.........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................
Beginning finished goods inventory....................
Add: Cost of goods manufactured........................
Goods available for sale.......................................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 40
120
160
70
$90
$ 90
200
230
520
70
590
50
$540
$120
540
660
160
$500

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Chapter 2 Cost Terms, Concepts, and Classifications


120. The net operating income for the year (in thousands of dollars) was:
A) $150
B) $200
C) $490
D) $250
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 2,3,4 Level: Medium
Solution:

2-72

Beginning raw materials inventory......................


Add: Raw materials purchased.............................
Raw materials available for use...........................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................

$ 40
120
160
70
$90

Raw materials used..............................................


Direct labor...........................................................
Manufacturing overhead.......................................
Total manufacturing costs....................................
Add: Beginning work in process inventory.........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$ 90
200
230
520
70
590
50
$540

Beginning finished goods inventory....................


Add: Cost of goods manufactured........................
Goods available for sale.......................................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$120
540
660
160
$500

Sales.............................................................
Cost of goods sold........................................
Gross margin................................................
Selling and administrative expenses:
Administrative expense.............................$150
Selling expense......................................... 140
Net operating income...................................

$990
500
490
290
$200

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 121-125:
Mark is an engineer who has designed a telecommunications device. He is convinced that
there is a big potential market for the device. Accordingly, he has decided to quit his present
job and start a company to manufacture and market the device.
121. The salary that Mark earns at his present employ is:
A) a variable cost
B) a fixed cost
C) a product cost
D) an opportunity cost
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Easy
122. Mark purchased a machine two years ago to make experimental boards. The machine
will be used to manufacture the new board. The cost of this machine is:
A) an opportunity cost
B) a sunk cost
C) a differential cost
D) a period cost
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 7 Level: Easy
123. The cost of the raw materials that will be used in manufacturing the computer board is:
A) a sunk cost
B) a fixed cost
C) a period cost
D) a variable cost
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,5 Level: Easy
124. Rent on the administrative office space is:
A) a variable cost
B) an opportunity cost
C) a period cost
D) a product cost
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,5 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-73

Chapter 2 Cost Terms, Concepts, and Classifications


125. Property taxes on the building that will be purchased to house the manufacturing
facility are:
A) a product cost
B) a variable cost
C) an opportunity cost
D) a period cost
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2,5 Level: Easy
Use the following to answer questions 126-128:
Vignana Corporation manufactures and sells hand-painted clay figurines of popular sports
heroes. Shown below are some of the costs incurred by Vignana for last year:
Cost of clay used in production.......................................
Wages paid to the workers who paint the figurines.........
Wages paid to the sales managers secretary...................
Cost of junk mail advertising...........................................

$65,00
0
$90,00
0
$22,00
0
$47,00
0

126. What is the total of the direct costs above?


A) $65,000
B) $112,000
C) $155,000
D) $202,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Cost of clay used in production.......................................
Wages paid to the workers who paint the figurines.........
Total direct costs..............................................................

2-74

$ 65,000
90,000
$155,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


127. What is the total of the inventoriable (product) costs above?
A) $0
B) $69,000
C) $155,000
D) $159,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Cost of clay used in production.......................................
Wages paid to the workers who paint the figurines.........
Total product costs...........................................................

$ 65,000
90,000
$155,000

128. What is the total of the conversion costs above?


A) $65,000
B) $69,000
C) $90,000
D) $155,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 2 Level: Medium
Solution:
Only the wages paid to the works who paint the figurines ($90,000) are considered to
be conversion costs.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-75

Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 129-132:
Gaeddert Corporation reported the following data for the month of July:
Inventories:

Beginnin
g

Raw materials....................

$36,000

Work in process.................

$13,000

Finished goods...................

$36,000

Ending
$27,00
0
$16,00
0
$42,00
0

Sales.....................................................
Raw materials purchases.....................
Direct labor cost...................................
Manufacturing overhead cost..............
Selling expense....................................
Administrative expense.......................

$250,00
0
$76,000
$33,000
$81,000
$24,000
$29,000

Additional information:

129. The total manufacturing cost for July was:


A) $190,000
B) $114,000
C) $199,000
D) $81,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

2-76

$ 36,000
76,000
112,000
27,000
85,000
33,000
81,000
$199,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


130. The cost of goods manufactured for July was:
A) $196,000
B) $190,000
C) $202,000
D) $199,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 36,000
76,000
112,000
27,000
85,000
33,000
81,000
$199,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$199,000
13,000
212,000
16,000
$196,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-77

Chapter 2 Cost Terms, Concepts, and Classifications


131. The cost of goods sold for July was:
A) $244,000
B) $138,000
C) $190,000
D) $202,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Medium
Solution:

2-78

Beginning raw materials inventory......................


Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 36,000
76,000
112,000
27,000
85,000
33,000
81,000
$199,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$199,000
13,000
212,000
16,000
$196,000

Beginning finished goods inventory....................


Add: Cost of goods manufactured........................
Cost of goods available for sale...........................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 36,000
196,000
232,000
42,000
$190,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


132. The net operating income for July was:
A) $7,000
B) $60,000
C) $83,000
D) $9,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use...........................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................

$36,000
76,000
112,000
27,000
$85,000

Raw materials used..............................................


Direct labor...........................................................
Manufacturing overhead.......................................
Total manufacturing costs....................................
Add: Beginning work in process inventory.........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$ 85,000
33,000
81,000
199,000
13,000
212,000
16,000
$196,000

Beginning finished goods inventory....................


Add: Cost of goods manufactured........................
Goods available for sale.......................................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 36,000
196,000
232,000
42,000
$190,000

Sales........................................................
Cost of goods sold...................................
Gross margin...........................................
Selling and administrative expenses:
Administrative expenses......................$29,000
Selling expenses................................... 24,000
Net operating income..............................

$250,000
190,000
60,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

53,000
$ 7,000

2-79

Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 133-136:
Management of Jarva Corporation has asked your help as an intern in preparing some key
reports for May. The company started the month with raw materials inventories of $29,000.
During the month, the company made raw materials purchases amounting to $72,000. At the
end of the month, raw materials inventories totaled $33,000. Direct labor cost was $36,000
and manufacturing overhead cost was $57,000. The beginning balance in the work in process
account was $24,000 and the ending balance was $16,000. The beginning balance in the
finished goods account was $35,000 and the ending balance was $46,000. Sales totaled
$220,000. Selling expense was $14,000 and administrative expense was $36,000.
133. The total manufacturing cost for May was:
A) $93,000
B) $57,000
C) $165,000
D) $161,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

2-80

$ 29,000
72,000
101,000
33,000
68,000
36,000
57,000
$161,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


134. The cost of goods manufactured for May was:
A) $161,000
B) $165,000
C) $169,000
D) $153,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 29,000
72,000
101,000
33,000
68,000
36,000
57,000
$161,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$161,000
24,000
185,000
16,000
$169,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-81

Chapter 2 Cost Terms, Concepts, and Classifications


135. The cost of goods sold for May was:
A) $107,000
B) $180,000
C) $158,000
D) $209,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Medium
Solution:

2-82

Beginning raw materials inventory......................


Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 29,000
72,000
101,000
33,000
68,000
36,000
57,000
$161,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$161,000
24,000
185,000
16,000
$169,000

Beginning finished goods inventory....................


Add: Cost of goods manufactured........................
Cost of goods available for sale...........................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 35,000
169,000
204,000
46,000
$158,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


136. The net operating income for May was:
A) $77,000
B) $12,000
C) $62,000
D) $5,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use...........................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................

$ 29,000
72,000
101,000
33,000
$ 68,000

Raw materials used..............................................


Direct labor...........................................................
Manufacturing overhead.......................................
Total manufacturing costs....................................
Add: Beginning work in process inventory.........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$ 68,000
36,000
57,000
161,000
24,000
185,000
16,000
$169,000

Beginning finished goods inventory....................


Add: Cost of goods manufactured........................
Goods available for sale.......................................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 35,000
169,000
204,000
46,000
$158,000

Sales........................................................
Cost of goods sold...................................
Gross margin...........................................
Selling and administrative expenses:
Administrative expenses......................$36,000
Selling expenses................................... 14,000
Net operating income..............................

$220,000
158,000
62,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

50,000
$ 12,000

2-83

Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 137-139:
The following selected data for March were taken from Rubenstein Company's financial
statements:
Cost of goods available for sale....................
Manufacturing overhead...............................
Cost of goods manufactured.........................
Finished goods inventory, ending.................
Direct materials used....................................
Sales..............................................................
Selling and administrative expenses.............
Direct labor...................................................
Work in process inventory, beginning..........

$65,000
$20,000
$51,000
$10,000
$15,000
$105,00
0
$30,000
$20,000
$0

137. The gross margin was:


A) $55,000
B) $54,000
C) $50,000
D) $40,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Medium
Solution:

2-84

Step #1:
Cost of goods available for sale...........................
Less: Finished goods inventory, ending...............
Cost of goods sold................................................

$65,000
10,000
$55,000

Step #2:
Sales.....................................................................
Cost of goods sold................................................
Gross margin........................................................

$105,000
55,000
$ 50,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


138. The beginning finished goods inventory was:
A) $24,000
B) $9,000
C) $10,000
D) $14,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Finished goods inventory, beginning...................
Add: Cost of goods manufactured........................
Cost of goods available for sale...........................

$14,000*
51,000
$65,000

* This item must be calculated by working backwards upward through the statements.
139. The ending work in process inventory was:
A) $4,000
B) $8,000
C) $10,000
D) $0
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Beginning work in process inventory..................
Add: Direct materials...........................................
Add: Direct labor..................................................
Add: Manufacturing overhead.............................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

0
15,000
20,000
20,000
55,000
4,000 *
$51,000

* This item must be calculated by working backwards upward through the statements.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-85

Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 140-143:
Dauenhauer Corporation reported the following data for the month of April:
Inventories:

Beginnin
g

Raw materials....................

$27,000

Work in process.................

$10,000

Finished goods...................

$38,000

Ending
$20,00
0
$24,00
0
$28,00
0

Additional information:
Sales...........................................................
Raw materials purchases...........................
Direct labor cost.........................................
Manufacturing overhead cost....................
Selling expense..........................................
Administrative expense.............................

$230,00
0
$76,000
$30,000
$61,000
$22,000
$26,000

140. The total manufacturing cost for April was:


A) $61,000
B) $167,000
C) $91,000
D) $174,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

2-86

$ 27,000
76,000
103,000
20,000
83,000
30,000
61,000
$174,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


141. The cost of goods manufactured for April was:
A) $160,000
B) $174,000
C) $167,000
D) $188,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 27,000
76,000
103,000
20,000
83,000
30,000
61,000
$174,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$174,000
10,000
184,000
24,000
$160,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-87

Chapter 2 Cost Terms, Concepts, and Classifications


142. The cost of goods sold for April was:
A) $240,000
B) $170,000
C) $150,000
D) $113,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Medium
Solution:

2-88

Beginning raw materials inventory......................


Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 27,000
76,000
103,000
20,000
83,000
30,000
61,000
$174,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$174,000
10,000
184,000
24,000
$160,000

Beginning finished goods inventory....................


Add: Cost of goods manufactured........................
Cost of goods available for sale...........................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 38,000
160,000
198,000
28,000
$170,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


143. The net operating income for April was:
A) $60,000
B) $15,000
C) $12,000
D) $91,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use...........................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................

$27,000
76,000
103,000
20,000
$83,000

Raw materials used..............................................


Direct labor...........................................................
Manufacturing overhead.......................................
Total manufacturing costs....................................
Add: Beginning work in process inventory.........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$ 83,000
30,000
61,000
174,000
10,000
184,000
24,000
$160,000

Beginning finished goods inventory....................


Add: Cost of goods manufactured........................
Goods available for sale.......................................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 38,000
160,000
198,000
28,000
$170,000

Sales........................................................
Cost of goods sold...................................
Gross margin...........................................
Selling and administrative expenses:
Administrative expenses......................$26,000
Selling expenses................................... 22,000
Net operating income..............................

$230,000
170,000
60,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

48,000
$ 12,000

2-89

Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 144-145:
Juart Corporation reported the following data for the month of December:
Inventories:

Beginnin
g

Raw materials....................

$26,000

Work in process.................

$22,000

Finished goods...................

$54,000

Ending
$38,00
0
$21,00
0
$56,00
0

Additional information:
Sales...............................................
Raw materials purchases...............
Direct labor cost.............................
Manufacturing overhead cost........
Selling expense..............................
Administrative expense.................

$230,00
0
$78,000
$24,000
$58,000
$15,000
$45,000

144. The cost of goods sold for December was:


A) $147,000
B) $97,000
C) $228,000
D) $151,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3,4 Level: Medium

2-90

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................
Total manufacturing costs....................................
Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................
Beginning finished goods inventory....................
Add: Cost of goods manufactured........................
Cost of goods available for sale...........................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 26,000
78,000
104,000
38,000
66,000
24,000
58,000
$148,000
$148,000
22,000
170,000
21,000
$149,000
$ 54,000
149,000
203,000
56,000
$147,000

2-91

Chapter 2 Cost Terms, Concepts, and Classifications


145. The net operating income for December was:
A) $23,000
B) $83,000
C) $88,000
D) $10,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Medium
Solution:

2-92

Beginning raw materials inventory......................


Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 26,000
78,000
104,000
38,000
66,000
24,000
58,000
$148,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$148,000
22,000
170,000
21,000
$149,000

Beginning finished goods inventory....................


Add: Cost of goods manufactured........................
Cost of goods available for sale...........................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 54,000
149,000
203,000
56,000
$147,000

Sales........................................................
Cost of goods sold...................................
Gross margin...........................................
Selling and administrative expenses:
Administrative expenses......................$45,000
Selling expenses................................... 15,000
Net operating income..............................

$230,000
147,000
83,000
60,000
$ 23,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 146-147:
Steenbergen Corporation reported the following data for the month of June:
Inventories:

Beginnin
g

Raw materials....................

$39,000

Work in process.................

$24,000

Finished goods...................

$28,000

Ending
$32,00
0
$23,00
0
$30,00
0

Additional information:
Sales...............................................
Raw materials purchases...............
Direct labor cost.............................
Manufacturing overhead cost........
Selling expense..............................
Administrative expense.................

$250,00
0
$50,000
$44,000
$71,000
$21,000
$27,000

146. The total manufacturing cost for June was:


A) $165,000
B) $71,000
C) $115,000
D) $172,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 39,000
50,000
89,000
32,000
57,000
44,000
71,000
$172,000

2-93

Chapter 2 Cost Terms, Concepts, and Classifications


147. The net operating income for June was:
A) $37,000
B) $87,000
C) $79,000
D) $31,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Medium
Solution:

2-94

Beginning raw materials inventory......................


Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 39,000
50,000
89,000
32,000
57,000
44,000
71,000
$172,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$172,000
24,000
196,000
23,000
$173,000

Beginning finished goods inventory....................


Add: Cost of goods manufactured........................
Cost of goods available for sale...........................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 28,000
173,000
201,000
30,000
$171,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 148-151:
Management of Thede Corporation has asked your help as an intern in preparing some key
reports for July. The beginning balance in the raw materials inventory account was $29,000.
During the month, the company made raw materials purchases amounting to $55,000. At the
end of the month, the balance in the raw materials inventory account was $37,000. Direct
labor cost was $41,000 and manufacturing overhead cost was $61,000. The beginning balance
in the work in process account was $22,000 and the ending balance was $23,000. The
beginning balance in the finished goods account was $42,000 and the ending balance was
$55,000. Sales totaled $230,000. Selling expense was $13,000 and administrative expense
was $32,000.
148. The total manufacturing cost for July was:
A) $157,000
B) $149,000
C) $61,000
D) $102,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 29,000
55,000
84,000
37,000
47,000
41,000
61,000
$149,000

2-95

Chapter 2 Cost Terms, Concepts, and Classifications


149. The cost of goods manufactured for July was:
A) $149,000
B) $150,000
C) $148,000
D) $157,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:

2-96

Beginning raw materials inventory......................


Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 29,000
55,000
84,000
37,000
47,000
41,000
61,000
$149,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$149,000
22,000
171,000
23,000
$148,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


150. The cost of goods sold for July was:
A) $217,000
B) $135,000
C) $161,000
D) $115,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 29,000
55,000
84,000
37,000
47,000
41,000
61,000
$149,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$149,000
22,000
171,000
23,000
$148,000

Beginning finished goods inventory....................


Add: Cost of goods manufactured........................
Cost of goods available for sale...........................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 42,000
148,000
190,000
55,000
$135,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-97

Chapter 2 Cost Terms, Concepts, and Classifications


151. The net operating income for July was:
A) $28,000
B) $95,000
C) $50,000
D) $83,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Medium
Solution:

2-98

Beginning raw materials inventory......................


Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 29,000
55,000
84,000
37,000
47,000
41,000
61,000
$149,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$149,000
22,000
171,000
23,000
$148,000

Beginning finished goods inventory....................


Add: Cost of goods manufactured........................
Cost of goods available for sale...........................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 42,000
148,000
190,000
55,000
$135,000

Sales........................................................
Cost of goods sold...................................
Gross margin...........................................
Selling and administrative expenses:
Administrative expenses......................$32,000
Selling expenses................................... 13,000
Net operating income..............................

$230,000
135,000
95,000
45,000
$ 50,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 152-153:
The CFO of Claussen Corporation has provided the following data for June. The beginning
balance in the raw materials inventory account was $38,000. During the month, the company
made raw materials purchases amounting to $53,000. At the end of the month, the balance in
the raw materials inventory account was $27,000. Direct labor cost was $33,000 and
manufacturing overhead cost was $74,000. The beginning balance in the work in process
account was $24,000 and the ending balance was $23,000. The beginning balance in the
finished goods account was $57,000 and the ending balance was $55,000. Sales totaled
$290,000. Selling expense was $17,000 and administrative expense was $43,000.
152. The cost of goods sold for June was:
A) $174,000
B) $170,000
C) $292,000
D) $124,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3,4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 38,000
53,000
91,000
27,000
64,000
33,000
74,000
$171,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$171,000
24,000
195,000
23,000
$172,000

Beginning finished goods inventory....................


Add: Cost of goods manufactured........................
Cost of goods available for sale...........................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 57,000
172,000
229,000
55,000
$174,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-99

Chapter 2 Cost Terms, Concepts, and Classifications

2-100

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


153. The net operating income for June was:
A) $56,000
B) $123,000
C) $70,000
D) $116,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3,4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 38,000
53,000
91,000
27,000
64,000
33,000
74,000
$171,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$171,000
24,000
195,000
23,000
$172,000

Beginning finished goods inventory....................


Add: Cost of goods manufactured........................
Cost of goods available for sale...........................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 57,000
172,000
229,000
55,000
$174,000

Sales........................................................
Cost of goods sold...................................
Gross margin...........................................
Selling and administrative expenses:
Administrative expenses......................$43,000
Selling expenses................................... 17,000
Net operating income..............................

$290,000
174,000
116,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

60,000
$ 56,000

2-101

Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 154-155:
Downin Corporation has provided the following data for May. The beginning balance in the
raw materials inventory account was $34,000. During the month, the company made raw
materials purchases amounting to $65,000. At the end of the month, the balance in the raw
materials inventory account was $29,000. Direct labor cost was $30,000 and manufacturing
overhead cost was $56,000. The beginning balance in the work in process account was
$15,000 and the ending balance was $16,000. The beginning balance in the finished goods
account was $41,000 and the ending balance was $57,000. Sales totaled $220,000. Selling
expense was $21,000 and administrative expense was $42,000.
154. The total manufacturing cost for May was:
A) $156,000
B) $86,000
C) $151,000
D) $56,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

2-102

$ 34,000
65,000
99,000
29,000
70,000
30,000
56,000
$156,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


155. The net operating income for May was:
A) $71,000
B) $81,000
C) $6,000
D) $18,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 34,000
65,000
99,000
29,000
70,000
30,000
56,000
$156,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$156,000
15,000
171,000
16,000
$155,000

Beginning finished goods inventory....................


Add: Cost of goods manufactured........................
Cost of goods available for sale...........................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 41,000
155,000
196,000
57,000
$139,000

Sales........................................................
Cost of goods sold...................................
Gross margin...........................................
Selling and administrative expenses:
Administrative expenses......................$42,000
Selling expenses................................... 21,000
Net operating income..............................

$220,000
139,000
81,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

63,000
$ 18,000

2-103

Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 156-157:
Yore Corporation has provided the following data for the month of June. The beginning
balance in the finished goods inventory account was $35,000 and the ending balance was
$26,000. Sales totaled $220,000. Cost of goods manufactured was $99,000, selling expense
was $15,000, and administrative expense was $46,000.
156. The cost of goods sold for June was:
A) $99,000
B) $160,000
C) $90,000
D) $108,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Easy
Solution:
Beginning finished goods inventory....................
Add: Cost of goods manufactured........................
Cost of goods available for sale...........................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 35,000
99,000
134,000
26,000
$108,000

157. The net operating income for June was:


A) $51,000
B) $60,000
C) $121,000
D) $130,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Easy

2-104

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


Solution:
Beginning finished goods inventory....................
Add: Cost of goods manufactured........................
Cost of goods available for sale...........................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 35,000
99,000
134,000
26,000
$108,000

Sales........................................................
Cost of goods sold...................................
Gross margin...........................................
Selling and administrative expenses:
Administrative expenses......................$46,000
Selling expenses................................... 15,000
Net operating income..............................

$220,000
108,000
112,000
61,000
$ 51,000

Use the following to answer questions 158-159:


Streif Inc., a local retailer, has provided the following data for the month of June:
Merchandise inventory, beginning balance.....................
Merchandise inventory, ending balance..........................
Sales.................................................................................
Purchases of merchandise inventory...............................
Selling expense................................................................
Administrative expense...................................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$46,000
$52,000
$260,00
0
$128,00
0
$13,000
$40,000

2-105

Chapter 2 Cost Terms, Concepts, and Classifications


158. The cost of goods sold for June was:
A) $128,000
B) $181,000
C) $122,000
D) $134,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Easy
Solution:
Beginning finished goods inventory....................
Add: Cost of goods manufactured........................
Cost of goods available for sale...........................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 46,000
128,000
174,000
52,000
$122,000

159. The net operating income for June was:


A) $132,000
B) $126,000
C) $85,000
D) $79,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 3 Level: Easy
Solution:

2-106

Beginning finished goods inventory....................


Add: Cost of goods manufactured........................
Cost of goods available for sale...........................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 46,000
128,000
174,000
52,000
$122,000

Sales........................................................
Cost of goods sold...................................
Gross margin...........................................
Selling and administrative expenses:
Administrative expenses......................$40,000
Selling expenses................................... 13,000
Net operating income..............................

$260,000
122,000
138,000
53,000
$ 85,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 160-161:
Mcclean Corporation reported the following data for the month of October:
Inventories:

Beginnin
g

Raw materials....................

$29,000

Work in process.................

$19,000

Finished goods...................

$55,000

Additional information:
Raw materials purchases...............
Direct labor cost.............................
Manufacturing overhead cost........
Selling expense..............................
Administrative expense.................

Ending
$36,00
0
$21,00
0
$53,00
0

$75,000
$45,000
$64,000
$16,000
$44,000

160. The total manufacturing cost for October was:


A) $177,000
B) $184,000
C) $64,000
D) $109,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 29,000
75,000
104,000
36,000
68,000
45,000
64,000
$177,000

2-107

Chapter 2 Cost Terms, Concepts, and Classifications


161. The cost of goods manufactured for October was:
A) $177,000
B) $175,000
C) $184,000
D) $179,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 29,000
75,000
104,000
36,000
68,000
45,000
64,000
$177,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$177,000
19,000
196,000
21,000
$175,000

Use the following to answer questions 162-163:


Vives Corporation reported the following data for the month of April:
Inventories:

Beginnin
g

Raw materials....................

$27,000

Work in process.................

$21,000

Finished goods...................

$48,000

Ending
$21,00
0
$10,00
0
$41,00
0

Additional information:
Raw materials purchases...............
Direct labor cost.............................
2-108

$79,00
0
$27,00
Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications

Manufacturing overhead cost........

0
$89,00
0

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-109

Chapter 2 Cost Terms, Concepts, and Classifications


162. The cost of goods manufactured for April was:
A) $212,000
B) $190,000
C) $201,000
D) $195,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 27,000
79,000
106,000
21,000
85,000
27,000
89,000
$201,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$201,000
21,000
222,000
10,000
$212,000

163. The cost of goods sold for April was:


A) $267,000
B) $205,000
C) $219,000
D) $132,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium

2-110

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 27,000
79,000
106,000
21,000
85,000
27,000
89,000
$201,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$201,000
21,000
222,000
10,000
$212,000

Beginning finished goods inventory....................


Add: Cost of goods manufactured........................
Cost of goods available for sale...........................
Deduct: Ending finished goods inventory............
Cost of goods sold................................................

$ 48,000
212,000
260,000
41,000
$219,000

Use the following to answer questions 164-165:


Server Corporation has provided the following data for July. The beginning balance in the raw
materials inventory account was $22,000. During the month, the company made raw materials
purchases amounting to $76,000. At the end of the month, the balance in the raw materials
inventory account was $36,000. Direct labor cost was $25,000 and manufacturing overhead
cost was $79,000. The beginning balance in the work in process account was $11,000 and the
ending balance was $20,000. The beginning balance in the finished goods account was
$43,000 and the ending balance was $39,000.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-111

Chapter 2 Cost Terms, Concepts, and Classifications


164. The total manufacturing cost for July was:
A) $166,000
B) $104,000
C) $79,000
D) $180,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium
Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 22,000
76,000
98,000
36,000
62,000
25,000
79,000
$166,000

165. The cost of goods manufactured for July was:


A) $166,000
B) $157,000
C) $180,000
D) $175,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 4 Level: Medium

2-112

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


Solution:
Beginning raw materials inventory......................
Add: Raw materials purchased.............................
Raw materials available for use............................
Deduct: Ending raw materials inventory..............
Raw materials used..............................................
Add: Direct labor costs.........................................
Add: Manufacturing overhead.............................
Total manufacturing costs....................................

$ 22,000
76,000
98,000
36,000
62,000
25,000
79,000
$166,000

Total manufacturing costs....................................


Add: Beginning work in process inventory..........
Subtotal................................................................
Deduct: Ending work in process inventory..........
Cost of goods manufactured.................................

$166,000
11,000
177,000
20,000
$157,000

Use the following to answer questions 166-167:


At a sales volume of 20,000 units, Choice Corporation's sales commissions (a cost that is
variable with respect to sales volume) total $132,000.
166. To the nearest whole dollar, what should be the total sales commissions at a sales
volume of 18,400 units? (Assume that this sales volume is within the relevant range.)
A) $126,720
B) $132,000
C) $121,440
D) $143,478
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
$132,000 20,000 = $6.60 per unit
18,400 units $6.60 = $121,440

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-113

Chapter 2 Cost Terms, Concepts, and Classifications


167. To the nearest whole cent, what should be the average sales commission per unit at a
sales volume of 18,500 units? (Assume that this sales volume is within the relevant
range.)
A) $6.60
B) $6.87
C) $7.17
D) $7.14
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
$132,000 20,000 = $6.60 per unit average cost
Use the following to answer questions 168-169:
At a sales volume of 38,000 units, Tirri Corporation's property taxes (a cost that is fixed with
respect to sales volume) total $733,400.
168. To the nearest whole dollar, what should be the total property taxes at a sales volume
of 37,200 units? (Assume that this sales volume is within the relevant range.)
A) $725,680
B) $733,400
C) $749,172
D) $717,960
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Fixed costs do not change with changes in volume; therefore, fixed costs will total
$733,400 at a sales volume of 37,200 units.

2-114

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Chapter 2 Cost Terms, Concepts, and Classifications


169. To the nearest whole cent, what should be the average property tax per unit at a sales
volume of 37,300 units? (Assume that this sales volume is within the relevant range.)
A) $19.30
B) $19.66
C) $19.72
D) $19.48
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
$733,400 37,300 units = $19.66 per unit (rounded)
Use the following to answer questions 170-171:
Leas Corporation staffs a helpline to answer questions from customers. The costs of operating
the helpline are variable with respect to the number of calls in a month. At a volume of 25,000
calls in a month, the costs of operating the helpline total $452,500.
170. To the nearest whole dollar, what should be the total cost of operating the helpline
costs at a volume of 23,900 calls in a month? (Assume that this call volume is within
the relevant range.)
A) $442,545
B) $452,500
C) $473,326
D) $432,590
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
$452,500 25,000 calls = $18.10 per call
$18.10 per call 23,900 calls = $432,590

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Chapter 2 Cost Terms, Concepts, and Classifications


171. To the nearest whole cent, what should be the average cost of operating the helpline
per call at a volume of 25,300 calls in a month? (Assume that this call volume is
within the relevant range.)
A) $18.93
B) $18.00
C) $17.89
D) $18.10
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
$452,500 25,000 calls = $18.10 per call (average)
Use the following to answer questions 172-173:
Batterson Corporation leases its corporate headquarters building. This lease cost is fixed with
respect to the company's sales volume. In a recent month in which the sales volume was
28,000 units, the lease cost was $697,200.
172. To the nearest whole dollar, what should be the total lease cost at a sales volume of
29,200 units in a month? (Assume that this sales volume is within the relevant range.)
A) $712,140
B) $697,200
C) $727,080
D) $668,548
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
Fixed costs do not change with changes in volume; therefore, fixed costs will total
$697,200 at all sales levels within the relevant range.

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Chapter 2 Cost Terms, Concepts, and Classifications


173. To the nearest whole cent, what should be the average lease cost per unit at a sales
volume of 26,400 units in a month? (Assume that this sales volume is within the
relevant range.)
A) $25.66
B) $24.90
C) $23.88
D) $26.41
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 5 Level: Easy
Solution:
$697,200 26,400 units = $26.41 (rounded)
Use the following to answer questions 174-175:
The following cost data pertain to the operations of Ladwig Department Stores, Inc., for the
month of December.
Corporate legal office salaries..............................................
Shoe Department cost of sales--Brentwood Store................
Corporate headquarters building lease.................................
Store managers salary--Brentwood Store............................
Shoe Department sales commissions--Brentwood Store......
Store utilities--Brentwood Store...........................................
Shoe Department managers salary--Brentwood Store........
Central warehouse lease cost................................................
Janitorial costs--Brentwood Store........................................

$68,000
$66,000
$86,000
$10,000
$5,000
$11,000
$3,000
$3,000
$11,000

The Brentwood Store is just one of many stores owned and operated by the company. The
Shoe Department is one of many departments at the Brentwood Store. The central warehouse
serves all of the company's stores.

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Chapter 2 Cost Terms, Concepts, and Classifications


174. What is the total amount of the costs listed above that are direct costs of the Shoe
Department?
A) $66,000
B) $74,000
C) $106,000
D) $71,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Shoe Department cost of salesBrentwood Store.................
Shoe Department sales commissionsBrentwood Store......
Shoe Department Managers SalaryBrentwood Store........
Total direct costs...................................................................

$66,000
5,000
3,000
$74,000

175. What is the total amount of the costs listed above that are NOT direct costs of the
Brentwood Store?
A) $74,000
B) $32,000
C) $157,000
D) $86,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Corporate legal office salaries...................
Corporate headquarters building lease......
Central warehouse lease cost.....................
Total...........................................................

2-118

$ 68,000
86,000
3,000
$157,000

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Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 176-177:
The following cost data pertain to the operations of Quinonez Department Stores, Inc., for the
month of September.
Corporate headquarters building lease.............................................
Cosmetics Department sales commissionsNorthridge Store..........
Corporate legal office salaries..........................................................
Store managers salaryNorthridge Store.........................................
HeatingNorthridge Store.................................................................
Cosmetics Department cost of salesNorthridge Store....................
Central warehouse lease cost............................................................
Store securityNorthridge Store.......................................................
Cosmetics Department managers salaryNorthridge Store............

$77,00
0
$4,000
$59,00
0
$11,00
0
$10,00
0
$37,00
0
$16,00
0
$12,00
0
$4,000

The Northridge Store is just one of many stores owned and operated by the company. The
Cosmetics Department is one of many departments at the Northridge Store. The central
warehouse serves all of the company's stores.
176. What is the total amount of the costs listed above that are direct costs of the Cosmetics
Department?
A) $78,000
B) $45,000
C) $41,000
D) $37,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Easy
Solution:
Cosmetics Department sales commissionsNorthridge Store..........
Cosmetics Department cost of salesNorthridge Store....................
Cosmetics Department managers salaryNorthridge Store............
Total direct costs...............................................................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 4,00
0
37,000
4,000
$45,00

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Chapter 2 Cost Terms, Concepts, and Classifications


0

2-120

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Chapter 2 Cost Terms, Concepts, and Classifications


177. What is the total amount of the costs listed above that are NOT direct costs of the
Northridge Store?
A) $152,000
B) $33,000
C) $45,000
D) $77,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 6 Level: Medium
Solution:
Corporate headquarters building lease......
Corporate legal office salaries...................
Central warehouse lease cost.....................
Total costs which are NOT direct..............

$ 77,000
59,000
16,000
$152,000

Use the following to answer questions 178-180:


A trucking business is considering whether to give up its local delivery routes or to expand its
long haul (over 100 miles) operations.
178. In this decision, the original cost of any of the trucks that it currently owns can best be
described as a(n):
A) opportunity cost
B) conversion cost
C) sunk cost
D) differential (incremental) cost
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Decision Making LO: 7 Level: Easy
179. In this decision, the wage costs of the additional drivers that will have to be hired for
the long haul operations can best be described as a(n):
A) opportunity cost
B) administrative cost
C) sunk cost
D) differential (incremental) cost
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Decision Making LO: 7 Level: Easy

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Chapter 2 Cost Terms, Concepts, and Classifications


180. In this decision, the lost income from the local delivery routes given up can best be
described as a(n):
A) opportunity cost
B) conversion cost
C) sunk cost
D) differential (incremental) cost
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Decision Making LO: 7 Level: Easy
Use the following to answer questions 181-183:
Dominik Corporation purchased a machine 5 years ago for $527,000 when it launched
product M08Y. Unfortunately, this machine has broken down and cannot be repaired. The
machine could be replaced by a new model 310 machine costing $545,000 or by a new model
240 machine costing $450,000. Management has decided to buy the model 240 machine. It
has less capacity than the model 310 machine, but its capacity is sufficient to continue making
product M08Y. Management also considered, but rejected, the alternative of dropping product
M08Y and not replacing the old machine. If that were done, the $450,000 invested in the new
machine could instead have been invested in a project that would have returned a total of
$532,000.
181. In making the decision to buy the model 240 machine rather than the model 310
machine, the differential cost was:
A) $95,000
B) $5,000
C) $77,000
D) $18,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Decision Making LO: 7 Level: Easy
Solution:
Model 310 cost..............................
Model 240 cost..............................
Differential cost.............................

2-122

$545,000
450,000
$ 95,000

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Chapter 2 Cost Terms, Concepts, and Classifications


182. In making the decision to buy the model 240 machine rather than the model 310
machine, the sunk cost was:
A) $545,000
B) $450,000
C) $527,000
D) $532,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Decision Making LO: 7 Level: Easy
Solution:
The original cost of $527,000 is a sunk cost.
183. In making the decision to invest in the model 240 machine, the opportunity cost was:
A) $545,000
B) $450,000
C) $532,000
D) $527,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Decision Making LO: 7 Level: Easy
Solution:
The opportunity cost is the proceeds from the project that would have yielded
$532,000.
Use the following to answer questions 184-186:
Management of Plascencia Corporation is considering whether to purchase a new model 370
machine costing $360,000 or a new model 220 machine costing $340,000 to replace a
machine that was purchased 7 years ago for $348,000. The old machine was used to make
product I43L until it broke down last week. Unfortunately, the old machine cannot be
repaired.
Management has decided to buy the new model 220 machine. It has less capacity than the
new model 370 machine, but its capacity is sufficient to continue making product I43L.
Management also considered, but rejected, the alternative of simply dropping product I43L. If
that were done, instead of investing $340,000 in the new machine, the money could be
invested in a project that would return a total of $411,000.

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Chapter 2 Cost Terms, Concepts, and Classifications


184. In making the decision to buy the model 220 machine rather than the model 370
machine, the sunk cost was:
A) $348,000
B) $340,000
C) $360,000
D) $411,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Decision Making LO: 7 Level: Easy
Solution:
The original cost of the machine purchased 7 years ago for $348,000 is a sunk cost.
185. In making the decision to buy the model 220 machine rather than the model 370
machine, the differential cost was:
A) $20,000
B) $8,000
C) $12,000
D) $63,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Decision Making LO: 7 Level: Easy
Solution:
Cost of model 370 machine.......................
Cost of model 220 machine.......................
Differential cost.........................................

$360,000
340,000
$ 20,000

186. In making the decision to invest in the model 220 machine, the opportunity cost was:
A) $348,000
B) $340,000
C) $360,000
D) $411,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Decision Making LO: 7 Level: Easy
Solution:
The opportunity cost is the proceeds from the project that would have yielded
$411,000.

2-124

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Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 187-190:
(Appendix 2A) Debra works on the assembly line of a manufacturing company where she
installs a component part for one of the company's products. She is paid $16 per hour for
regular time and time and a half for all work in excess of 40 hours per week.
187. Debra works 42 hours during a week in which there was no idle time. The allocation
of Debra's wages for the week between direct labor cost and manufacturing overhead
cost would be:
Direct Labor Manufacturing Overhead
A)
$664
$24
B)
$688
$0
C)
$640
$48
D)
$672
$16
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Medium
Solution:
Total wages for the week:
Regular time: 40 hours $16 per hour..................
Overtime: 2 hours $24 per hour..........................
Total wages................................................................
Allocation of total wages:
Direct labor: 42 hours $16 per hour....................
Manufacturing overhead: 2 hours $8 per hour....
Total wages................................................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$640
48
$688
$672
16
$688

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Chapter 2 Cost Terms, Concepts, and Classifications


188. Debra works 43 hours in a given week but is idle for 4 hours during the week due to
equipment breakdowns. The allocation of Debra's wages for the week between direct
labor cost and manufacturing overhead cost would be:
Direct Labor Manufacturing Overhead
A)
$712
$0
B)
$688
$24
C)
$624
$88
D)
$640
$72
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Medium
Solution:
Total wages for the week:
Regular time: 40 hours $16 per hour..................
Overtime: 3 hours $24 per hour..........................
Total wages................................................................
Allocation of total wages:
Direct labor: 39 hours $16 per hour....................
Manufacturing overhead:
Idle time: 4 hours $16 per hour.......................
Overtime premium: 3 hours $8 per hour.........
Total wages................................................................

2-126

$640
72
$712
$624
$64
24

88
$712

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Chapter 2 Cost Terms, Concepts, and Classifications


189. Debra's employer offers fringe benefits that cost the company $3 for each hour of
employee time (both regular and overtime). During a given week, Debra works 42
hours but is idle for 3 hours due to material shortages. The company treats all fringe
benefits as part of manufacturing overhead. The allocation of Debra's wages and
fringe benefits for the week between direct labor cost and manufacturing overhead
would be:
Direct Labor Manufacturing Overhead
A)
$688
$126
B)
$624
$190
C)
$672
$142
D)
$640
$174
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Medium
Solution:
Total wages and fringe benefits for the week:
Regular time: 40 hours $16 per hour..................
Overtime: 2 hours $24 per hour..........................
Fringe benefits: 42 hours $3 per hour.................
Total wages and fringe benefits..........................
Allocation of wages and fringe benefits:
Direct labor: 39 hours $16 per hour....................
Manufacturing overhead:
Idle time: 3 hours $16 per hour.......................
Overtime premium: 2 hours $8 per hour.........
Fringe benefits: 42 hours $3 per hour..............
Total wages and fringe benefits.................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$640
48
126
$814
$624
$ 48
16
126

190
$814

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Chapter 2 Cost Terms, Concepts, and Classifications


190. Debra's employer offers fringe benefits that cost the company $3 for each hour of
employee time (both regular and overtime). During a given week, Debra works 42
hours but is idle for 3 hours due to material shortages. The company treats all fringe
benefits relating to direct labor as added direct labor cost and the remainder as part of
manufacturing overhead. The allocation of Debra's wages and fringe benefits for the
week between direct labor cost and manufacturing overhead would be:
Direct Labor Manufacturing Overhead
A)
$688
$126
B)
$624
$190
C)
$741
$73
D)
$672
$142
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Medium
Solution:
Allocation of wages and fringe benefits:
Direct labor:
Wage cost: 39 hours $16 per hour...................
Fringe benefits: 39 hours $3 per hour..............
Manufacturing overhead:
Idle time: 3 hours $16 per hour.......................
Overtime premium: 2 hours $8 per hour.........
Fringe benefits: 3 hours $3 per hour................
Total wages and fringe benefits.............................

$624
117
48
16
9

$741

73
$814

Use the following to answer questions 191-194:


(Appendix 2A) Larry is a quality inspector on the assembly line of a manufacturing company.
He is paid $16 per hour for regular time and time and a half for all work in excess of 40 hours
per week. He is classified as a direct labor worker.

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Chapter 2 Cost Terms, Concepts, and Classifications


191. Larry works 44 hours during a week in which there was no idle time. The allocation of
Larry's wages for the week between direct labor cost and manufacturing overhead cost
would be:
Direct Labor Manufacturing Overhead
A)
$736
$0
B)
$640
$96
C)
$704
$32
D)
$688
$48
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Medium
Solution:
Total wages for the week:
Regular time: 40 hours $16 per hour..................
Overtime: 4 hours $24 per hour..........................
Total wages................................................................
Allocation of total wages:
Direct labor: 44 hours $16 per hour....................
Manufacturing overhead: 4 hours $8 per hour....
Total wages................................................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$640
96
$736
$704
32
$736

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Chapter 2 Cost Terms, Concepts, and Classifications


192. Larry works 45 hours in a given week but is idle for 4 hours during the week due to
equipment breakdowns. The allocation of Larry's wages for the week between direct
labor cost and manufacturing overhead cost would be:
Direct Labor Manufacturing Overhead
A)
$656
$104
B)
$760
$0
C)
$720
$40
D)
$640
$120
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Medium
Solution:
Total wages for the week:
Regular time: 40 hours $16 per hour..................
Overtime: 5 hours $24 per hour..........................
Total wages................................................................
Allocation of total wages:
Direct labor: 41 hours $16 per hour....................
Manufacturing overhead:
Idle time: 4 hours $16 per hour.......................
Overtime premium: 5 hours $8 per hour.........
Total wages................................................................

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$640
120
$760
$656
$64
40

104
$760

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Chapter 2 Cost Terms, Concepts, and Classifications


193. Larry's employer offers fringe benefits that cost the company $5 for each hour of
employee time (both regular and overtime). During a given week, Larry works 45
hours but is idle for 4 hours due to material shortages. The company treats all fringe
benefits as part of manufacturing overhead. The allocation of Larry's wages and fringe
benefits for the week between direct labor cost and manufacturing overhead would be:
Direct Labor Manufacturing Overhead
A)
$760
$225
B)
$640
$345
C)
$656
$329
D)
$720
$265
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 8 Level: Medium
Solution:
Total wages and fringe benefits for the week:
Regular time: 40 hours $16 per hour..................
Overtime: 5 hours $24 per hour..........................
Fringe benefits: 45 hours $5 per hour.................
Total wages and fringe benefits..........................
Allocation of wages and fringe benefits:
Direct labor: 41 hours $16 per hour....................
Manufacturing overhead:
Idle time: 4 hours $16 per hour.......................
Overtime premium: 5 hours $8 per hour.........
Fringe benefits: 45 hours $5 per hour..............
Total wages and fringe benefits.................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$640
120
225
$985
$656
$ 64
40
225

329
$985

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Chapter 2 Cost Terms, Concepts, and Classifications


194. Larry's employer offers fringe benefits that cost the company $5 for each hour of
employee time (both regular and overtime). During a given week, Larry works 45
hours but is idle for 4 hours due to material shortages. The company treats all fringe
benefits relating to direct labor as added direct labor cost and the remainder as part of
manufacturing overhead. The allocation of Larry's wages and fringe benefits for the
week between direct labor cost and manufacturing overhead would be:
A)
B)
C)
D)

Direct Labor Manufacturing Overhead


$720
$265
$861
$124
$760
$225
$656
$329

Ans: B AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting LO: 8 Level: Medium
Solution:
Allocation of wages and fringe benefits:
Direct labor:
Wage cost: 41 hours $16 per hour...................
Fringe benefits: 41 hours $5 per hour..............
Manufacturing overhead:
Idle time: 4 hours $16 per hour.......................
Overtime premium: 5 hours $8 per hour.........
Fringe benefits: 4 hours $5 per hour................
Total wages and fringe benefits.............................

2-132

$656
205
64
40
20

$861

124
$985

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Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 195-196:
(Appendix 2B) Circle K Toys, Inc. manufactures toys and children's clothing and sells these
products to retail outlets. The following costs were incurred in performing quality activities at
Circle K during the year:
Product recall activities.........................................
Quality training activities......................................
Quality improvement activities.............................
Warranty claim activities.......................................
Quality inspection and testing activities................
Rework activities...................................................
Quality data collection and reporting activities.....

$370,00
0
$240,00
0
$154,00
0
$109,00
0
$61,000
$38,000
$15,000

195. What is the total of the prevention costs for Circle K?


A) $394,000
B) $409,000
C) $455,000
D) $470,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9,10 Level: Medium
Solution:
Quality training activities......................................
Quality improvement activities.............................
Quality data collection and reporting activities.....
Total prevention costs............................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$240,00
0
154,000
15,000
$409,00
0

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Chapter 2 Cost Terms, Concepts, and Classifications


196. What is the total of the internal failure costs for Circle K?
A) $53,000
B) $99,000
C) $517,000
D) $38,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9,10 Level: Medium
Solution:
Rework activities. . .

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$38,000

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Chapter 2 Cost Terms, Concepts, and Classifications


Use the following to answer questions 197-200:
(Appendix 2B) Ean Company's quality cost report is to be based on the following data:
Quality circles..................................................................
Downtime caused by quality problems...........................
Debugging software errors..............................................
Statistical process control activities.................................
Test and inspection of in-process goods..........................
Final product testing and inspection................................
Cost of field servicing and handling complaints.............
Product recalls.................................................................
Maintenance of test equipment........................................

$57,000
$98,000
$98,000
$68,000
$24,000
$66,000
$87,000
$72,000
$75,000

197. What would be the total prevention cost appearing on the quality cost report?
A) $143,000
B) $125,000
C) $81,000
D) $129,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9,10 Level: Medium
Solution:
Quality circles........................................................
Statistical process control activities.......................
Total prevention costs............................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 57,00
0
68,000
$125,00
0

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Chapter 2 Cost Terms, Concepts, and Classifications


198. What would be the total appraisal cost appearing on the quality cost report?
A) $141,000
B) $165,000
C) $90,000
D) $164,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9,10 Level: Medium
Solution:
Test and inspection of in-process goods................
Final product testing and inspection......................
Maintenance of test equipment..............................
Total appraisal cost................................................

$ 24,00
0
66,000
75,000
$165,00
0

199. What would be the total internal failure cost appearing on the quality cost report?
A) $185,000
B) $196,000
C) $173,000
D) $170,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9,10 Level: Medium
Solution:
Downtime caused by quality problems.................
Debugging software errors....................................
Total internal failure cost.......................................

2-136

$ 98,00
0
98,000
$196,00
0

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Chapter 2 Cost Terms, Concepts, and Classifications


200. What would be the total external failure cost appearing on the quality cost report?
A) $170,000
B) $645,000
C) $159,000
D) $355,000
Ans: C AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9,10 Level: Medium
Solution:
Cost of field servicing and handling complaints...
Product recalls.......................................................
Total external failure cost......................................

$ 87,00
0
72,000
$159,00
0

Use the following to answer questions 201-204:


(Appendix 2B) Fagel Company's quality cost report is to be based on the following data:
Disposal of defective products........................................
Supervision of testing and inspection activities..............
Statistical process control activities.................................
Cost of field servicing and handling complaints.............
Re-entering data because of keying errors......................
Warranty repairs and replacements.................................
Supplies used in testing and inspection...........................
Quality circles..................................................................
Downtime caused by quality problems...........................

$42,000
$73,000
$78,000
$53,000
$46,000
$87,000
$89,000
$27,000
$14,000

201. What would be the total prevention cost appearing on the quality cost report?
A) $105,000
B) $80,000
C) $151,000
D) $116,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9,10 Level: Medium
Solution:
Statistical process control activities.................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 78,000

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Chapter 2 Cost Terms, Concepts, and Classifications


Quality circles..................................................................
Total prevention cost.......................................................

2-138

27,000
$105,000

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202. What would be the total appraisal cost appearing on the quality cost report?
A) $115,000
B) $135,000
C) $267,000
D) $162,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9,10 Level: Medium
Solution:
Supervision of testing and inspection activities..............
Supplies used in testing and inspection...........................
Total appraisal cost..........................................................

$ 73,000
89,000
$162,000

203. What would be the total internal failure cost appearing on the quality cost report?
A) $129,000
B) $67,000
C) $115,000
D) $102,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9,10 Level: Medium
Solution:
Disposal of defective products........................................
Re-entering data because of keying errors......................
Downtime caused by quality problems...........................
Total internal failure cost.................................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 42,000
46,000
14,000
$102,000

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Chapter 2 Cost Terms, Concepts, and Classifications


204. What would be the total external failure cost appearing on the quality cost report?
A) $509,000
B) $242,000
C) $101,000
D) $140,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9,10 Level: Medium
Solution:
Cost of field servicing and handling complaints.............
Warranty repairs and replacements.................................
Total external failure cost................................................

$ 53,000
87,000
$140,000

Use the following to answer questions 205-208:


(Appendix 2B) Faust Company's quality cost report is to be based on the following data:
Quality engineering.........................................................
Quality circles..................................................................
Supervision of testing and inspection activities..............
Net cost of scrap..............................................................
Test and inspection of in-process goods..........................
Liability arising from defective products........................
Warranty repairs and replacements.................................
Debugging software errors..............................................
Rework labor and overhead.............................................

2-140

$68,00
0
$35,00
0
$72,00
0
$76,00
0
$6,000
$3,000
$56,00
0
$68,00
0
$19,00
0

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205. What would be the total prevention cost appearing on the quality cost report?
A) $107,000
B) $41,000
C) $140,000
D) $103,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9,10 Level: Medium
Solution:
Quality engineering.........................................................
Quality circles..................................................................
Total prevention cost.......................................................

$ 68,000
35,000
$103,000

206. What would be the total appraisal cost appearing on the quality cost report?
A) $78,000
B) $181,000
C) $81,000
D) $74,000
Ans: A AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9,10 Level: Medium
Solution:
Supervision of testing and inspection activities..............
Test and inspection of in-process goods..........................
Total appraisal cost..........................................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$72,000
6,000
$78,000

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207. What would be the total internal failure cost appearing on the quality cost report?
A) $71,000
B) $163,000
C) $74,000
D) $132,000
Ans: B AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9,10 Level: Medium
Solution:
Net cost of scrap............................
Debugging software errors............
Rework labor and overhead...........
Total internal failure cost...............

$ 76,000
68,000
19,000
$163,000

208. What would be the total external failure cost appearing on the quality cost report?
A) $222,000
B) $403,000
C) $79,000
D) $59,000
Ans: D AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting LO: 9,10 Level: Medium
Solution:
Liability arising from defective products........................
Warranty repairs and replacements.................................
Total external failure cost................................................

2-142

$ 3,000
56,000
$59,000

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Chapter 2 Cost Terms, Concepts, and Classifications


Essay Questions
209. The information below relates to Guzzardi Manufacturing Company. (Assume that all
raw materials are direct materials.):
Purchases of raw materials........................
Direct labor cost.........................................
Selling costs (total)....................................
Administrative costs (total).......................
Manufacturing overhead costs (total)........
Raw materials inventory, beginning..........
Work in process inventory, beginning.......
Finished goods inventory, beginning.........
Raw materials inventory, ending...............
Work in process inventory, ending............
Finished goods inventory, ending..............

$362,00
0
$207,00
0
$61,000
$84,000
$775,00
0
$37,000
$19,000
$62,000
$44,000
$3,000
$77,000

Required:
What is Guzzardi's cost of goods sold?
Ans:
Purchases of raw materials..............................................
Add: Raw materials inventory, beginning......................
Deduct: Raw materials inventory, ending.......................
Raw materials used in production...................................
Direct labor cost..............................................................
Manufacturing overhead costs (total).............................
Total manufacturing cost................................................
Add: Work in process inventory, beginning...................
Deduct: Work in process inventory, ending...................
Cost of goods manufactured...........................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$ 362,00
0
37,00
0
399,000
44,00
0
355,000
207,000
775,00
0
1,337,000
19,00
0
1,356,000
3,00
0
$1,353,00

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0
Finished goods inventory, beginning..............................
Add: Cost of goods manufactured..................................
Goods available for sale..................................................
Deduct: Finished goods inventory, ending.....................
Cost of goods sold...........................................................
AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement LO: 1,2,3,4

2-144

$ 62,000
1,353,000
1,415,000
77,000
$1,338,00
0

Level: Medium

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Chapter 2 Cost Terms, Concepts, and Classifications


210. Miyose Corporation, a manufacturing company, has provided the following data for
the month of June:
Inventories:

Beginnin
g

Raw materials....................

$23,000

Finished goods...................

$32,000

Ending
$21,00
0
$37,00
0

Raw materials purchased during June totaled $67,000 and the cost of goods
manufactured totaled $124,000.
Required:
a. What was the cost of raw materials used in production during June? Show your
work.
b. What was the cost of goods sold for June? Show your work.
Ans:
a.
Beginning materials inventory.........................................
Add: Purchases of raw materials.....................................
Raw materials available for use.......................................
Deduct: Ending raw materials inventory.........................
Raw materials used in production...................................

$23,00
0
67,000
90,000
21,000
$69,00
0

b.
Cost of goods manufactured............................................
Add: Beginning finished goods inventory.......................
Goods available for sale..................................................
Deduct: Ending finished goods inventory.......................
Cost of goods sold...........................................................

$124,00
0
32,00
0
156,000
37,00
0
$119,00
0

AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting, Measurement LO: 1,3 Level: Easy

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211. During the month of May, Russnak Corporation, a manufacturing company, purchased
raw materials costing $73,000. The cost of goods manufactured for the month was
$102,000. The beginning balance in the raw materials account was $26,000 and the
ending balance was $39,000. The beginning balance in the finished goods account was
$42,000 and the ending balance was $46,000.
Required:
a. What was the cost of raw materials used in production during May? Show your
work.
b. What was the cost of goods sold for May? Show your work.
Ans:
a.
Beginning materials inventory.........................................
Add: Purchases of raw materials.....................................
Raw materials available for use.......................................
Deduct: Ending raw materials inventory.........................
Raw materials used in production...................................

$26,00
0
73,000
99,000
39,000
$60,00
0

b.
Cost of goods manufactured............................................
Add: Beginning finished goods inventory.......................
Goods available for sale..................................................
Deduct: Ending finished goods inventory.......................
Cost of goods sold...........................................................

$102,00
0
42,00
0
144,000
46,00
0
$ 98,00
0

AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting, Measurement LO: 1,3 Level: Easy

2-146

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212. Mary Tappin, an assistant Vice President at Galaxy Toys, was disturbed to find on her
desk a memo from her boss, Gary Resnick, to the controller of the company. The
memo appears below:
Galaxy Toys Internal Memo
Sept 15
To: Harry Wilson, Controller
Fm: Gary Resnick, Executive Vice President
As you know, we won't start recording many sales until October when stores start
accepting shipments from us for the Christmas season. Meanwhile, we are producing
flat-out and are building up our finished goods inventories so that we will be ready to
ship next month.
Unfortunately, we are in a bind right now since it looks like the net income for the
quarter ending on Sept 30 is going to be pretty awful. This may get us in trouble with
the bank since they always review the quarterly financial reports and may call in our
loan if they don't like what they see. Is there any possibility that we could change the
classification of some of our period costs to product costs--such as the rent on the
finished goods warehouse?
Please let me know as soon as possible. The President is pushing for results.
Mary didn't know what to do about the memo. It wasn't intended for her, but its
contents were alarming.
Required:
a. Why has Gary Resnick suggested reclassifying some period costs as product costs?
b. Why do you think Mary was alarmed about the memo?
Ans:
a. Gary Resnick has suggested reclassifying some period costs as product costs since
the company is building up large finished goods inventories in anticipation of the
Christmas selling season. Product costs are inventoried and flow through to the
income statement only when products are sold. Period expenses, in contrast, flow
directly to the income statement. Since most of the finished goods inventories will
be held over to the next quarter, reclassifying period costs as product costs will
effectively defer recognition of expenses until next quarter and therefore will
improve the current quarter's net operating income.

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Chapter 2 Cost Terms, Concepts, and Classifications


b. Mary Tappin is probably alarmed by both the economic situation the company
finds itself in and by the apparent willingness of top management to bend the rules.
Improperly reclassifying costs is an indication that top management does not feel
like it has to play by the rules or be honest in its dealings with the bank. With such
loose ethical standards, Mary may wonder what other things they are doing that
are unethical and/or illegal.
AACSB: Analytic AICPA BB: Critical Thinking
LO: 2 Level: Medium

2-148

AICPA FN: Decision Making

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Chapter 2 Cost Terms, Concepts, and Classifications


213. A partial listing of costs incurred at Boylen Corporation during March appears below:
Direct materials................................................................
Utilities, factory...............................................................
Sales commissions...........................................................
Administrative salaries....................................................
Indirect labor....................................................................
Advertising......................................................................
Depreciation of production equipment............................
Direct labor......................................................................
Depreciation of administrative equipment......................

$181,00
0
$10,000
$69,000
$99,000
$32,000
$75,000
$28,000
$120,00
0
$49,000

Required:
a. What is the total amount of product cost listed above? Show your work.
b. What is the total amount of period cost listed above? Show your work.
Ans:
a. Product costs consist of direct materials, direct labor, and manufacturing overhead:
$181,00
Direct materials......................................................
0
Direct labor............................................................
120,000
Manufacturing overhead:
$10,00
Utilities, factory..................................................
0
Indirect labor...................................................... 32,000
70,00
Depreciation of production equipment............... 28,000
0
$371,00
Total product cost..................................................
0
b. Period costs consist of all costs other than product costs:
$ 99,00
Administrative salaries..........................................
0
Sales commissions.................................................
69,000
Depreciation of administrative equipment............
49,000
75,00
Advertising............................................................
0
$292,00
Total period cost....................................................
0

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AACSB: Analytic AICPA BB: Critical Thinking
LO: 2 Level: Medium

2-150

AICPA FN: Reporting

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Chapter 2 Cost Terms, Concepts, and Classifications


214. Marquess Corporation has provided the following partial listing of costs incurred
during May:
Marketing salaries......................................
Property taxes, factory...............................
Administrative travel.................................
Sales commissions.....................................
Indirect labor..............................................
Direct materials..........................................
Advertising................................................
Depreciation of production equipment......
Direct labor................................................

$39,000
$8,000
$102,00
0
$73,000
$31,000
$197,00
0
$145,00
0
$39,000
$78,000

Required:
a. What is the total amount of product cost listed above? Show your work.
b. What is the total amount of period cost listed above? Show your work.
Ans:
a. Product costs consist of direct materials, direct labor, and manufacturing overhead:
$197,00
Direct materials......................................................
0
Direct labor............................................................
78,000
Manufacturing overhead:
Property taxes, factory........................................ $ 8,000
Indirect labor...................................................... 31,000
78,00
Depreciation of production equipment............... 39,000
0
$353,00
Total product cost..................................................
0
b. Period costs consist of all costs other than product costs:
$102,00
Administrative travel.....................
0
Sales commissions.........................
73,000
Marketing salaries..........................
39,000
Advertising.................................... 145,000
$359,00
Total period cost............................
0

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AACSB: Analytic AICPA BB: Critical Thinking
LO: 2 Level: Medium

2-152

AICPA FN: Reporting

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Chapter 2 Cost Terms, Concepts, and Classifications


215. Classify the following costs for an auto manufacturer as either direct materials, direct
labor, manufacturing overhead, or period costs.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.

Steel used in automobiles


Assembly department employee wages
Utility costs used in executive building
Travel costs used by sales personnel
Cost of shipping goods to customers
Property taxes on assembly plant
Glass used in automobiles
Maintenance supplies
Depreciation on assembly plant
Plant manager's salary
CEO's salary
Depreciation on executive building
Salary of marketing executive
Tires installed on automobiles
Advertising

Required:
Complete the answer sheet above by placing an X under each heading that identifies
the cost involved.
Direct Materials Direct Labor Manufacturing Overhead Period Cost
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.

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Chapter 2 Cost Terms, Concepts, and Classifications


Ans:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.

Direct Materials Direct Labor Manufacturing Overhead Period Cost


X
X
X
X
X
X
X
X
X
X
X
X
X
X
X

AACSB: Analytic AICPA BB: Critical Thinking


LO: 2 Level: Medium

2-154

AICPA FN: Reporting

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216. The following costs relate to one month's activity in Carr Company:
Indirect labor..................................
Rent on factory building................
Maintenance of equipment............
Direct material used.......................
Utilities on factory.........................
Direct labor....................................
Selling expense..............................
Administrative expense.................
Work in process, beginning...........
Work in process, ending................
Finished goods, beginning.............
Finished goods, ending..................

$400
$300
$100
$1,20
0
$200
$1,50
0
$500
$300
$800
$600
$500
$250

Required:
a. Prepare a schedule of Cost of Goods Manufactured in good form.
b. Determine the Cost of Goods Sold for the month.
Ans:
a.
$1,20
0
1,500

Direct materials..............................
Direct labor....................................
Manufacturing overhead:
Indirect labor..............................
Rent.............................................
Maintenance...............................
Utilities.......................................
Total manufacturing cost...............
Add: WIP, beginning.....................

$40
0
300
100
200

Deduct: WIP, ending.....................


Cost of goods manufactured..........

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

1,000
3,700
800
4,500
600
$3,90
0

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Chapter 2 Cost Terms, Concepts, and Classifications


b.
Finished goods, beginning.........................
Add: Cost of goods manufactured.............
Goods available for sale............................
Finished goods, ending..............................
Cost of goods sold.....................................

$ 500
3,900
4,400
25
0
$4,15
0

AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting, Measurement LO: 3,4 Level: Medium
217. Nish Corporation has provided the following data for the month of April:
Sales...............................................
Raw materials purchases...............
Direct labor cost.............................
Manufacturing overhead cost........
Selling expense..............................
Administrative expense.................
Inventories:

Beginnin
g

Raw materials........

$26,000

Work in process.....

$18,000

Finished goods.......

$42,000

$220,00
0
$50,000
$23,000
$59,000
$18,000
$43,000
Ending
$35,00
0
$22,00
0
$29,00
0

Required:
a. Prepare a Schedule of Cost of Goods Manufactured in good form for April.
b. Prepare an Income Statement in good form for April.
Ans:
a. Schedule of Cost of Goods Manufactured
Direct materials:
Beginning materials inventory...........................
Add: Purchases of raw materials........................

2-156

$26,00
0
50,000

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Chapter 2 Cost Terms, Concepts, and Classifications


Raw materials available for use..........................
Deduct: Ending raw materials inventory............
Raw materials used in production.........................
Direct labor............................................................
Manufacturing overhead........................................
Total manufacturing costs.....................................
Add: Beginning work in process inventory...........

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

76,000
35,000
$ 41,00
0
23,000
59,00
0
123,000
18,00
0
141,000

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Chapter 2 Cost Terms, Concepts, and Classifications


22,00
0
$119,00
0

Deduct: Ending work in process inventory...........


Cost of goods manufactured..................................
b. Income Statement

$220,00
0

Sales.......................................................................
Cost of goods sold:
Beginning finished goods inventory...................
Add: Cost of goods manufactured......................
Goods available for sale.....................................
Deduct: Ending finished goods inventory..........
Gross margin..........................................................
Selling and administrative expenses:
Selling expenses.................................................
Administrative expenses.....................................
Net operating income.............................................

$ 42,00
0
119,00
0
161,000
29,000
18,000
43,000

132,000
88,000
61,000
$ 27,000

AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting, Measurement LO: 3,4 Level: Medium
218. The following data have been provided the Monster Manufacturing Company for the
most recent period:
Sales.................................................................................
Raw materials inventory, beginning................................
Raw materials inventory, ending.....................................
Purchases of raw materials..............................................
Direct labor......................................................................
Manufacturing overhead..................................................
Administrative expenses..................................................
Selling expenses..............................................................
Work in process inventory, beginning.............................
Work in process inventory, ending..................................
Finished goods inventory, beginning...............................
Finished goods inventory, ending....................................

2-158

$16,80
0
$900
$750
$8,400
$1,240
$2,070
$1,890
$1,000
$700
$1,050
$970
$1,120

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Chapter 2 Cost Terms, Concepts, and Classifications

Required:
Calculate the cost of goods manufactured and prepare an income statement.

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Chapter 2 Cost Terms, Concepts, and Classifications


Ans:
Cost of goods manufactured:
Direct materials = $900+$8,400-$750 = $8,550
Total manufacturing costs = $8,550+$1,240+$2,070 = $11,860
Cost of goods manufacturing = $11,860+$700-$1,050 = $11,510
Monster Manufacturing Company
Income Statement
Sales.......................................................................
Cost of goods sold:
Beginning finished goods inventory...................
Plus cost of goods manufactured........................
Cost of goods available for sale..........................
Less ending finished goods inventory................
Cost of goods sold.................................................
Gross margin..........................................................
Selling and administrative expenses:
Administrative expenses.....................................
Selling expenses.................................................
Total selling and administrative expense...............
Net operating income.............................................

$16,80
0
$ 970
11,510
12,480
1,120
11,36
0
5,440
1,890
1,000
2,890
$ 2,550

AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting, Measurement LO: 3,4 Level: Easy

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219. In December, Vollick Corporation had sales of $245,000, selling expenses of $23,000,
and administrative expenses of $26,000. The cost of goods manufactured was
$190,000. The beginning balance in the finished goods inventory account was $59,000
and the ending balance was $56,000.
Required:
Prepare an Income Statement in good form for December.
Ans:
Income Statement
$245,00
0

Sales....................................................................
Cost of goods sold:.............................................
Beginning finished goods inventory................
Add: Cost of goods manufactured...................
Goods available for sale..................................
Deduct: Ending finished goods inventory.......
Gross margin.......................................................
Selling and administrative expenses:
Selling expenses.................................................
Administrative expenses.....................................
Net operating income..........................................

$ 59,00
0
190,00
0
249,000
56,00
0
23,000
26,00
0

193,00
0
52,000

49,000
$ 3,000

AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting, Measurement LO: 3 Level: Easy
220. In April, Holderness Inc., a merchandising company, had sales of $221,000, selling
expenses of $14,000, and administrative expenses of $25,000. The cost of
merchandise purchased during the month was $155,000. The beginning balance in the
merchandise inventory account was $34,000 and the ending balance was $48,000.
Required:
Prepare an Income Statement in good form for April.

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Chapter 2 Cost Terms, Concepts, and Classifications


Ans:
Income Statement
Sales.................................................................
Cost of goods sold:
Beginning merchandise inventory................
Add: Purchases.............................................
Goods available for sale...............................
Deduct: Ending merchandise inventory.......
Gross margin....................................................
Selling and administrative expenses:
Selling expenses...........................................
Administrative expenses...............................
Net operating income.......................................

$221,000
$ 34,000
155,000
189,000
48,000
14,000
25,000

141,000
80,000
39,000
$ 41,000

AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting, Measurement LO: 3 Level: Easy

2-162

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221. The following data were taken from the cost records of Morrey Company for last year:
Depreciation, factory.....................
Indirect labor..................................
Utilities, factory.............................
Insurance, factory..........................
Lubricants for machines................
Direct labor....................................
Purchases of raw materials............

$60,000
$100,00
0
$40,000
$10,000
$15,000
$200,00
0
$150,00
0

Inventories at the beginning and at the end of the year were as follows:
Beginnin
g
Raw materials....................
Work in process.................

$10,000
$25,000

Finished goods...................

$30,000

Ending
$20,00
0
$5,000
$50,00
0

Required:
Prepare a schedule of cost of goods manufactured in good form.
Ans:
Morrey Company
Schedule of Cost of Goods Manufactured
Direct materials:
Raw materials inventory, beginning................ $ 10,000
Add: Purchases of raw materials..................... 150,000
Raw materials available for use....................... 160,000
Deduct: Raw materials inventory, ending.......
20,000
Raw materials used in production...................
Direct labor.........................................................
Manufacturing overhead:
Depreciation, factory.......................................
60,000
Indirect labor................................................... 100,000
Utilities, factory...............................................
40,000
Insurance, factory............................................
10,000
Lubricants for machines..................................
15,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$140,000
200,000

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Chapter 2 Cost Terms, Concepts, and Classifications


Total manufacturing overhead cost....................
Total manufacturing costs..................................
Add: Work in process inventory, beginning.......
Deduct: Work in process inventory, ending.......
Cost of Goods Manufactured..............................

225,000
565,000
25,000
590,000
5,000
$585,000

AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting, Measurement LO: 4 Level: Medium
222. Pamer Corporation has provided the following data for the month of September:
Raw materials purchases...............
Direct labor cost.............................
Manufacturing overhead cost........

$60,00
0
$27,00
0
$76,00
0

Inventories:

Beginnin
g

Raw materials....................

$20,000

Work in process.................

$24,000

Finished goods...................

$43,000

Ending
$23,00
0
$18,00
0
$32,00
0

Required:
Prepare a Schedule of Cost of Goods Manufactured in good form for September.
Ans:
Schedule of Cost of Goods Manufactured
Direct materials:
$20,00
Beginning materials inventory...........................
0
Add: Purchases of raw materials........................ 60,000
Raw materials available for use.......................... 80,000
Deduct: Ending raw materials inventory............ 23,000
Raw materials used in production.........................
Direct labor............................................................
Manufacturing overhead........................................
Total manufacturing costs.....................................

2-164

$ 57,000
27,000
76,000
160,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


Add: Beginning work in process inventory...........
Deduct: Ending work in process inventory...........
Cost of goods manufactured..................................

24,000
184,000
18,000
$166,00
0

AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting, Measurement LO: 4 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-165

Chapter 2 Cost Terms, Concepts, and Classifications


223. A number of costs and measures of activity are listed below.

1.
2.
3.
4.
5.
6.
7.
8.
9.
10
.

2-166

Cost Description
Cost of vaccine used at a clinic
Building rent at a taco shop
Salary of production manager at a snowboard manufacturer
Cost of electricity for production equipment at a snowboard
manufacturer
Ferry captains salary on a regularly scheduled passenger
ferry
Cost of glue used in furniture production
Janitorial wages at a snowboard manufacturer
Depreciation on factory building at a snowboard
manufacturer
Cost of advertising at a snowboard company
Cost of shipping bags of fertilizer to a customer at a
chemical plant

Possible Measure of
Activity
Vaccines administered
Dollar sales
Snowboards produced
Snowboards produced
Number of passengers
Units produced
Snowboards produced
Snowboards produced
Snowboards sold
Bags shipped

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


Required:
For each item above, indicate whether the cost is MAINLY fixed or variable with
respect to the possible measure of activity listed next to it.
Ans:
1.
2.
3.

Cost of vaccine used at a clinic; Vaccines administered; Variable


Building rent at a taco shop; Dollar sales; Fixed
Salary of production manager at a snowboard manufacturer; Snowboards
produced; Fixed
4.
Cost of electricity for production equipment at a snowboard manufacturer;
Snowboards produced; Variable
5.
Ferry captain's salary on a regularly scheduled passenger ferry; Number of
passengers; Fixed
6.
Cost of glue used in furniture production; Units produced; Variable
7.
Janitorial wages at a snowboard manufacturer; Snowboards produced;
Fixed
8.
Depreciation on factory building at a snowboard manufacturer;
Snowboards produced; Fixed
9.
Cost of advertising at a snowboard company; Snowboards sold; Fixed
10.
Cost of shipping bags of fertilizer to a customer at a chemical plant; Bags
shipped; Variable
AACSB: Analytic AICPA BB: Critical Thinking
LO: 5 Level: Easy

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

AICPA FN: Reporting

2-167

Chapter 2 Cost Terms, Concepts, and Classifications


224. A number of costs are listed below.
Cost Description
1. Wages of carpenters on a home building site
2. Cost of wiring used in making a personal computer
3. Managers salary at a hotel run by a chain of hotels
4. Managers salary at a hotel run by a chain of hotels
5. Cost of aluminum mast installed in a yacht at a yacht
manufacturer
6. Monthly lease cost of X-ray equipment at a hospital
7. Cost of screws used to secure wood trim in a yacht at a
yacht manufacturer
8. Cost of electronic navigation system installed in a yacht at a
yacht manufacturer
9. Cost of a replacement battery installed in a car at the auto
repair shop of an automobile dealer
10 Cost of a measles vaccine administered at an outpatient
. clinic at a hospital

Cost Object
A particular home
A particular personal
computer
A particular hotel guest
The particular hotel
A particular yacht
The Radiology (X-Ray)
Department
A particular yacht
A particular yacht
The auto repair shop
A particular patient

Required:
For each item above, indicate whether the cost is direct or indirect with respect to the
cost object listed next to it.
Ans:
1. Wages of carpenters on a home building site; A particular home; Direct
2. Cost of wiring used in making a personal computer; A particular personal
computer; Indirect
3. Manager's salary at a hotel run by a chain of hotels; A particular hotel guest;
Indirect
4. Manager's salary at a hotel run by a chain of hotels; The particular hotel; Direct
5. Cost of aluminum mast installed in a yacht at a yacht manufacturer; A particular
yacht; Direct
6. Monthly lease cost of X-ray equipment at a hospital; The Radiology (X-Ray)
Department; Direct
7. Cost of screws used to secure wood trim in a yacht at a yacht manufacturer; A
particular yacht; Indirect
8. Cost of electronic navigation system installed in a yacht at a yacht manufacturer; A
particular yacht; Direct

2-168

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


9. Cost of a replacement battery installed in a car at the auto repair shop of an
automobile dealer; The auto repair shop; Direct
10. Cost of a measles vaccine administered at an outpatient clinic at a hospital; A
particular patient; Direct
AACSB: Analytic AICPA BB: Critical Thinking
LO: 6 Level: Easy

AICPA FN: Reporting

225. A direct labor worker at Ude Corporation is paid $24 per hour for regular time and
time and a half for all work in excess of 40 hours per week. This employee works 44
hours during a week in which there was no idle time.
Required:
Determine how much of the worker's wages for the week would be classified as direct
labor cost and how much would be classified as manufacturing overhead cost. Show
your work.
Ans:
Direct labor: $24 per hour 44 hour = $1,056
Manufacturing overhead:
Overtime premium: $12 per hour 4 hours = $48
AACSB: Analytic AICPA BB: Critical Thinking
Appendix: 2A LO: 8 Level: Easy

AICPA FN: Reporting

226. A direct labor worker at Bodreau Corporation is paid $14 per hour for regular time and
time and a half for all work in excess of 40 hours per week. This employee works 48
hours in a given week but is idle for 4 hours during the week due to equipment
breakdowns.
Required:
Determine how much of the worker's wages for the week would be classified as direct
labor cost and how much would be classified as manufacturing overhead cost. Show
your work.

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

2-169

Chapter 2 Cost Terms, Concepts, and Classifications


Ans:
Direct labor:
$14 per hour 44 hours......................................
Manufacturing overhead:
Idle time: $14 per hour 4 hours.......................
Overtime premium: $7 per hour 8 hours.........
Total manufacturing overhead...............................
AACSB: Analytic AICPA BB: Critical Thinking
Appendix: 2A LO: 8 Level: Easy

$61
6
$ 5
6
56
$11
2
AICPA FN: Reporting

227. A direct labor worker at Chiarini Corporation is paid $14 per hour for regular time and
time and a half for all work in excess of 40 hours per week. The company's fringe
benefits cost $4 for each hour of employee time (both regular and overtime). Last
week this employee worked 45 hours but was idle for 3 hours due to material
shortages. The company treats all fringe benefits as part of manufacturing overhead.
Required:
Determine how much of the worker's wages for the week would be classified as direct
labor cost and how much would be classified as manufacturing overhead cost. Show
your work.
Ans:
Direct labor:
$14 per hour 42 hours......................................
Manufacturing overhead:
Idle time: $14 per hour 3 hours.......................
Overtime premium: $7 per hour 5 hours.........
Fringe benefits: $4 per hour 45 hours.............
Total manufacturing overhead...............................
AACSB: Analytic AICPA BB: Critical Thinking
Appendix: 2A LO: 8 Level: Medium

2-170

$58
8
$ 42
35
180
$25
7
AICPA FN: Reporting

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


228. A direct labor worker at Kimmer Corporation is paid $18 per hour for regular time and
time and a half for all work in excess of 40 hours per week. The company's fringe
benefits cost $4 for each hour of employee time (both regular and overtime). Last
week this employee worked 42 hours but was idle for 4 hours due to material
shortages. The company treats all fringe benefits relating to direct labor as added
direct labor cost and the remainder as part of manufacturing overhead.
Required:
Determine how much of the worker's wages for the week would be classified as direct
labor cost and how much would be classified as manufacturing overhead cost. Show
your work.
Ans:
Direct labor:
Wages: $18 per hour 38 hours.........................
Fringe benefits: $4 per hour 38 hours..............
Total direct labor...................................................
Manufacturing overhead:
Idle time: $18 per hour 4 hours........................
Overtime premium: $9 per hour 2 hours.........
Fringe benefits: $4 per hour 4 hours...............
Total manufacturing overhead...............................
AACSB: Analytic AICPA BB: Critical Thinking
Appendix: 2A LO: 8 Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

$68
4
152
$83
6
$ 72
18
16
$10
6
AICPA FN: Reporting

2-171

Chapter 2 Cost Terms, Concepts, and Classifications


229. Toole Manufacturing Company manufactures and sells ceiling fans. Toole incurred the
following costs related to quality for the year:
Cost of warranty repairs............................
Cost of employee quality training.............
Cost incurred to rework fans.....................
Spoilage cost (net).....................................
Cost of handling customer complaints......
Depreciation cost of test equipment..........
Cost of quality circles................................
Maintenance cost of test equipment..........
Cost of retesting reworked fans.................
Cost of final testing of fans........................

$35,00
0
$27,00
0
$18,00
0
$15,00
0
$11,00
0
$6,000
$5,000
$3,000
$2,000
$1,000

Required:
Prepare a Quality Cost Report for Toole Manufacturing Company showing both
dollars and percents. Assume that sales were $2,000,000.
Ans:
Toole Manufacturing Company
Quality Cost Report
Amount

Percent

Prevention costs:
Cost of employee quality training..........
Cost of quality circles.............................
Total prevention cost.................................
Appraisal costs:
Depreciation cost of test equipment.......
Maintenance cost of test equipment.......
Cost of final testing of fans....................
Total appraisal cost....................................
Internal failure costs:

2-172

$ 27,00
0
5,00
0
32,00
0
6,000
3,000
1,00
0
10,00
0

1.35
0.25
1.60
0.30
0.15
0.05
0.50

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


Cost incurred to rework fans..................
Spoilage cost (net)..................................
Cost of retesting reworked fans..............
Total internal failure cost...........................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

18,000
15,000
2,00
0
35,00
0

0.90
0.75
0.10
1.75

2-173

Chapter 2 Cost Terms, Concepts, and Classifications


External failure costs:
Cost of warranty repairs.........................
Cost of handling customer complaints...
Total external failure cost..........................
Total quality cost.......................................

35,000
11,00
0
46,00
0
$123,00
0

AACSB: Analytic AICPA BB: Critical Thinking


AICPA FN: Reporting, Measurement Appendix: 2B

1.75
0.55
2.30
6.15
LO: 9,10

Level: Easy

230. Gad Company's quality cost report is to be based on the following data:
Re-entering data because of keying errors............
Net cost of spoilage...............................................
Supervision of testing and inspection activities....
Lost sales due to poor quality................................
Warranty repairs and replacements.......................
Depreciation of test equipment..............................
Maintenance of test equipment..............................
Systems development............................................
Quality training......................................................

$17,00
0
$88,00
0
$78,00
0
$17,00
0
$92,00
0
$12,00
0
$75,00
0
$79,00
0
$19,00
0

Required:
Prepare a Quality Cost Report in good form with separate sections for prevention
costs, appraisal costs, internal failure costs, and external failure costs.
Ans:
Prevention costs
Quality training.............................................................

2-174

$ 19,00
0

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


Systems development...................................................
Total prevention cost.......................................................
Appraisal costs
Depreciation of test equipment.....................................
Supervision of testing and inspection activities...........
Maintenance of test equipment.....................................
Total appraisal cost..........................................................
Internal failure costs
Re-entering data because of keying errors...................
Net cost of spoilage......................................................
Total internal failure cost.................................................

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

79,000
98,000
12,000
78,000
75,000
165,000
17,000
88,000
105,000

2-175

Chapter 2 Cost Terms, Concepts, and Classifications


External failure costs
Lost sales due to poor quality.......................................
Warranty repairs and replacements..............................
Total external failure cost................................................
Total quality cost.............................................................
AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement Appendix: 2B
Level: Medium

17,000
92,000
109,000
$477,00
0

LO: 9,10

231. Hartz Company's quality cost report is to be based on the following data:
Lost sales due to poor quality..........................................
Net cost of spoilage.........................................................
Final product testing and inspection................................
Net cost of scrap..............................................................
Systems development......................................................
Supplies used in testing and inspection...........................
Rework labor and overhead.............................................
Quality data gathering, analysis, and reporting...............
Product recalls.................................................................

$86,000
$35,000
$19,000
$88,000
$83,000
$94,000
$72,000
$43,000
$53,000

Required:
Prepare a Quality Cost Report in good form with separate sections for prevention
costs, appraisal costs, internal failure costs, and external failure costs.
Ans:
Prevention costs
Systems development...................................................
Quality data gathering, analysis, and reporting............
Total prevention cost.......................................................
Appraisal costs
Final product testing and inspection.............................
Supplies used in testing and inspection........................
Total appraisal cost..........................................................
Internal failure costs
Rework labor and overhead..........................................
Net cost of scrap...........................................................
Net cost of spoilage......................................................
Total internal failure cost.................................................

2-176

$ 83,000
43,000
126,000
19,000
94,000
113,000
72,000
88,000
35,000
195,000

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

Chapter 2 Cost Terms, Concepts, and Classifications


External failure costs
Lost sales due to poor quality.......................................
Product recalls..............................................................
Total external failure cost................................................
Total quality cost.............................................................
AACSB: Analytic AICPA BB: Critical Thinking
AICPA FN: Reporting, Measurement Appendix: 2B
Level: Medium

Garrison/Noreen/Brewer, Managerial Accounting, Twelfth Edition

86,000
53,000
139,000
$573,00
0

LO: 9,10

2-177