Title: Costing Methods
Course: Question Banks

Q: R & D, production and sales and marketing are all:
- Overhead and not considered in the costing of products.
- Each individual steps in the process and stand alone.
- Components of the value chain.
A: Components of the value chain.

Q: A cost object is defined as:
- The direct materials that go into production.
- direct labor, materials and factory overhead.
- Anything you may need cost data for, such as a product, job or organizational subunit.
A: Anything you may need cost data for, such as a product, job or organizational subunit.

Q: A bookkeeper at a CPA firm tracks her time per client. Her hours are considered:
- Indirect labor
- Company overhead
- Direct labor
A: Direct labor

Q: Bicycle 1 is made of carbon fiber,and bicycle 2 is made of steel. The carbon fiber and steel would both be considered:
- Indirect materials
- Factory overhead
- Direct materials
A: Direct materials

Q: A construction company has many clients each with unique needs. What type of costing system would work best for this company?
- Process costing
- Either costing system would work.
- Job order costing
A: Job order costing

Q: In the process costing system, the job cost sheet helps the accounting department to:
- Calculate manufacturing overhead.
- Create paychecks for the staff who worked on the project.
- Make sure all costs are accounted for when pricing and billing the customer
A: Make sure all costs are accounted for when pricing and billing the customer

Q: If the estimated manufacturing overhead for a period is $50,000 and the estimated allocation base (direct labor hours in this case) is 2,500 the predetermined overhead rate to be applied to jobs is:
- $.05 per hour
- $20 per job
- $20 per hour
A: $20 per hour

Q: When calculating the manufacturing overhead for the next period, we will:
- Wait for all of the monthly bills to come in, and calculate overhead as soon as we have all of the data.
- Use the same overhead rate all year, and do an adjustment to actual at the end.
- Use estimated amounts based on historical data
A: Use estimated amounts based on historical data

Q: You are provided the following information:

Estimated fixed manufacturing overhead $20,000

Estimated variable manufacturing overhead $35,000

Estimated machine hours 5,000

What will the predetermined overhead rate be?
- $11 per job
- $.09 per unit of the allocation base.
- $11 per unit of the allocation base
A: $11 per unit of the allocation base

Q: Product costs include.
- Direct materials and direct labor only.
- All costs including selling and administrative
- Costs that go into the production process including raw materials, direct labor and manufacturing overhead
A: Costs that go into the production process including raw materials, direct labor and manufacturing overhead

Q: A materials requisition sheet is prepared:
- To follow the job through the production facility.
- To track the direct and indirect materials and labor needed for a job.
- Beginning with the information from the bill of materials and given to purchasing to requisition the items needed for the order
A: Beginning with the information from the bill of materials and given to purchasing to requisition the items needed for the order

Q: The job cost sheet includes:
- The calculation of the estimated manufacturing overhead for this job only.
- Timesheets for each employee who worked on the job.
- A tracking of direct materials, direct labor and manufacturing overhead in order to prepare a cost summary.
A: A tracking of direct materials, direct labor and manufacturing overhead in order to prepare a cost summary.

Q: When raw materials are purchased for a job, they initially are entered into what account?
- Debit to cost of goods sold on the income statement
- Credit to raw materials on the balance sheet
- Debit to raw materials on the balance sheet
A: Debit to raw materials on the balance sheet

Q: The work in process account is used to:
- Track all expenses including manufacturing overhead until the product is moved to finished goods inventory.
- Track only the direct materials for a job while it is on the production floor.
- Track materials that have been moved from raw materials to the production floor to be used in a job.
A: Track materials that have been moved from raw materials to the production floor to be used in a job.

Q: Manufacturing overhead is initially estimated. When all of the bills for the actual expenses come in the accounting department will:
- Redo all of the manufacturing overhead to the actual amounts and rebill all of the jobs.
- Leave any overage or shortage in the manufacturing overhead clearing account until the end of the year and then write it off.
- Use the manufacturing overhead clearing account to reconcile the actual expenses to the estimated expenses and make an adjustment
A: Use the manufacturing overhead clearing account to reconcile the actual expenses to the estimated expenses and make an adjustment

Q: As the accountant for a small manufacturing company, you have been tasked with determining whether job or process costing will be a better fit for your company. You produce two products on two separate production lines. There are seldom special orders, and the lines run continuously. Your best choice would be:
- Job order costing
- Either costing system would work
- Process costing
A: Process costing

Q: Your company currently uses process costing, but are starting to do some special orders of your product. What might be a good course of action for the special order products?
- Change the entire costing system to job order costing since you are adding special order items.
- Do not accepts the special orders, since you do not have a good costing system to accommodate the change.
- If they are similar to the basic product, continue to use process costing.
A: If they are similar to the basic product, continue to use process costing.

Q: Both costing systems are designed to:
- Accumulate the direct costs involved in making each product to price for profitability.
- Accumulate the indirect costs involved in making each product for pricing purposes.
- Accumulate all of the costs involved in production in order to price for profitability.
A: Accumulate all of the costs involved in production in order to price for profitability.

Q: A processing department is defined as:
- A step in the job that adds value
- A step where raw materials are added to the product.
- A step in the process where materials, labor or overhead are added
A: A step in the process where materials, labor or overhead are added

Q: Of the two methods to calculate equivalent units of production:
- FIFO is easier because we don’t need to calculate the equivalent units of production on the ending inventory.
- Both methods will arrive at the same number of equivalent units of production.
- Weighted average is easier because we don’t need to calculate the equivalent units of production on the beginning inventory
A: Weighted average is easier because we don’t need to calculate the equivalent units of production on the beginning inventory

Q: Using the weighted-average method of equivalent units, if you have 500 units transferred from process 1 to process 2, and 250 units, that are 50% complete, how many equivalent units of production do you have for process 1?
- 750
- 375
- 625
A: 625

Q: Your company uses the FIFO method of calculating equivalent units. You are provided the following information:

500 units- beginning inventory at 50% complete

1000 units- started and finished during the period

1000 units- 25% complete at the end of the period.

What is the equivalent units of production for this department?
- 1750
- 2500
- 1500
A: 1500

Q: Using the FIFO method, you are provided the following information:

Beginning WIP 500 needing 25% yet to complete

Units started and completed and moved to the next process- 1000 units

Ending WIP of 500 units that are 50% complete.

What is your equivalent units of production for the period?
- 1750
- 1625
- 1375
A: 1375

Q: Using the FIFO method, you are provided the following information:

Beginning WIP 500 needing 50% yet to complete

Units started and completed and moved to the next process- 1000 units

Ending WIP of 500 units that are 50% complete.

What is your equivalent units of production for the period?
- 2000
- 1250
- 1500
A: 1500

Q: The direct method of allocating service costs:
- Allocates first to the other service departments and then to the operating departments.
- Is the most complicated method of allocating service costs.
- Ignores the fact that service departments may offer services to other service departments.
A: Ignores the fact that service departments may offer services to other service departments.

Q: Allocation of service costs is needed in order to:
- Make sure each operating department pays its fair share of the service department costs.
- Subtract those costs from overhead costs, so they are not counted twice.
- Insure that all costs of operating a business are allocated to the product, so we are pricing correctly.
A: Insure that all costs of operating a business are allocated to the product, so we are pricing correctly.

Q: If the human resources department provides services to the custodial staff by preparing their payroll and hiring staff, using the step-down method of allocation the human resources costs would be:
- Allocated directly to the operating departments.
- Allocated based on square footage, since that is an easier method.
- Allocated first to the custodial department, and the remaining costs to the operating departments.
A: Allocated first to the custodial department, and the remaining costs to the operating departments.

Q: Activity based costing looks at:
- Direct costs only
- Both direct and indirect costs
- Indirect costs only
A: Indirect costs only

Q: As a manager of a business that manufactures jackets, you have been asked to look at costing methods. Currently, two lines, the basic jacket and the deluxe jacket. When deciding whether to use activity based costing, what might you consider?
- If there are activities that are more time consuming with one line, then activity based costing makes sense.
- Since they are both jackets, staying with a traditional costing method is probably more cost effective.
- If there are activities which are more time consuming with one of the lines, and if the benefits of implementing the ABC system outweigh the additional costs.
A: If there are activities which are more time consuming with one of the lines, and if the benefits of implementing the ABC system outweigh the additional costs.

Q: Assume you have two product lines, the basic line and the deluxe line. The basic line has 12 components that need to be sourced and purchased through the purchasing department, while the deluxe line has 75 components to source and purchase. Which costing method may be more effective?
- Traditional costing, since the purchasing department is most likely paid on salary.
- Activity based costing since the raw materials for the deluxe line will be more costly.
- Activity based costing would give a clearer picture of the cost of purchasing components
A: Activity based costing would give a clearer picture of the cost of purchasing components

Q: An advantage of ABC may be:
- It is the simplest method to implement.
- Unitizing fixed costs is a helpful process.
- It provides more accurate cost information
A: It provides more accurate cost information

Q: A possible reason to implement ABC in a company with two distinct product lines would be:
- The two product lines use the same amount of indirect resources.
- The managers are not willing to use the data provided by the costing process.
- The two product lines use very different amounts of indirect resources.
A: The two product lines use very different amounts of indirect resources.