Homework #2Due Tuesday, January 31 1. In cost terminology, conversion costs consist of A. Direct and indirect labor B.

Direct labor and direct materials C. Direct labor and factory overhead D. Indirect labor and variable factory overhead Inventoriable costs A. Include only the prime costs of manufacturing a product B. Include only the conversion costs of manufacturing a product C. Are expensed when products become part of the finished goods inventory D. Are regarded as assets before the products are sold Which of the following items is a product cost for a manufacturing company? A. Insurance on the corporate headquarters building B. Property taxes on a factory C. Depreciation on salespersons automobiles D. Salary of a sales manager The cost of the direct labor associated with the manufacture of a product should be classified as an expense when the A. Labor is performed B. Product is transferred to finished goods inventory C. Product is sold D. Employees are paid All costs related to the manufacturing function in a company are A. Prime costs B. Direct costs C. Product costs D. Conversion costs Period costs A. Are always expensed in the same period in which they are incurred B. Are costs that vary from one period to the next C. Remain unchanged over a given period of time D. Are associated with the periodic inventory method Which one of the following costs is classified as a period cost? A. The wages of the workers on the shipping docks who load completed products onto outgoing trucks B. The wages of a worker paid for idle time resulting from a machine breakdown in the molding operation C. The payments for employee fringe benefits paid on behalf of the workers in the manufacturing plant D. The wages paid to workers for rework on defective products A fixed cost that would be considered a direct cost is A. A cost accountants salary when the cost object is a unit of product B. The rental cost of a warehouse to store inventory when the cost object is the Purchasing Department C. A production supervisors salary when the cost object is the Production Department D. Board of directors fees when the cost object is the Marketing Department In a traditional manufacturing operation, direct costs normally include A. Machine repairs in an automobile factory B. Electricity in an electronics plant C. Wood in a furniture factory D. Commissions paid to sales personnel

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10. The wages of the factory janitorial staff should be classified as A. Factory overhead cost B. Direct labor cost C. Period cost D. Prime cost

11. HIGH-LOW METHOD At the high level of activity in November, 7,000 machine hours were run and power costs were $12,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $6,000. Answer the following questions using the high-low method.

1. What is the variable cost per machine hour? 2. What are the estimated fixed costs per month? 3. If the company expects to run 8,000 machine hours next month, what is the estimated cost for the month? 4. If the company expects run 80,000 machine hours next year, what is the estimated cost for the year?

If you got $99,600 for your answer to part 4 of the high-low problem, you need to look again. 12. Rhett Company has two departments, Machining and Assembly. The following estimates are for the coming year: Machining Assembly Direct labor hours 10,000 50,000 Machine hours 40,000 20,000 Manufacturing overhead $200,000 $400,000 A single predetermined overhead rate based on direct labor hours for the entire plant is a. $ 8 per direct labor-hour. b. $10 per direct labor-hour. c. $20 per direct labor-hour. d. none of the above.

13. Mason Co. uses a job-order cost system and applies manufacturing overhead to jobs using a predetermined overhead rate based on direct-labor dollars. The rate for the current year is 200% of direct-labor dollars ($2.00 of overhead is applied for every $1.00 of direct labor cost). This rate was calculated last December and will be used throughout the current year. Mason had one job, No. 150, in process on August 1 with raw materials costs of $3,000. During August, raw materials and direct labor added to jobs were as follows: Raw materials Direct labor Job #150 $ -$1,500 Job #151 $4,000 $5,000 Job #152 $1,000 $2,500

Actual manufacturing overhead for the month of August was $20,000. During the month, Mason completed Jobs Nos. 150 and 151. For August, manufacturing overhead was a. b. c. d. Overapplied by $4,000 Underapplied by $7,000 Underapplied by $2,000 Underapplied by $1,000