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Exam 11: Product Costing in Service and Manufacturing Entities

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Question 41

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Coleridge Company estimates that its production workers will work 125,000 direct labor hours during the upcoming period and that overhead costs will amount to $750,000. Assume Overhead to be allocated on the basis of direct labor hours. What predetermined overhead rate would be used to apply overhead to production during the period?

A) $6.00 per direct labor hour
B) $0.67 per direct labor hour
C) $0.67 per unit
D) $6.00 per unit

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

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Question 42

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

A) determining the company's selling prices.
B) external reporting.
C) managerial decisions.
D) All of these.

E) All of the above
F) A) and D)

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Question 43

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Which is required for preparation of a company's external financial statements: absorption costing or variable costing? Which is frequently used for internal decision making?

At the beginning of the year, Hilliard Company estimated that its total overhead cost would be $250,000 and its production volume would be 80,000 units. Total actual overhead cost for the year was $246,000. The actual number of units produced during the year was 78,000.Required: 1) What amount of overhead was applied to the products Hilliard completed during the year? 2) Calculate the volume variance for the year. Indicate whether it is favorable or unfavorable. Do not round intermediate calculations.3) Calculate the spending variance for the year.

Which of the following statements regarding the schedule of cost of goods manufactured and sold is correct?

Washington Company made the following estimates for the current accounting period: Overhead costs: $250,000 Direct labor hours: 50,000 If 7,000 hours of labor are actually used in February, how much overhead cost would be allocated to work in process during the month? Assume Overhead to be allocated on the basis of direct labor hours.

Which of the following statements is true?

The cost of direct materials purchased on account is expensed at the time the:

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

Select the incorrect statement regarding service companies.

Lewes Company produced 8,000 units of inventory and sold 6,000. The company incurred the following production costs: Variable manufacturing cost: $12.00 per unit Fixed manufacturing overhead cost: $60,000 Assuming the company sells its product at a price of $25 per unit, and incurred $10,000 in selling and administrative cost, what is the amount of net income under variable costing?

Most companies initially record the cost of materials acquired in the Raw Materials Inventory account.

In calculating product costs, actual direct materials and actual direct labor are charged to the work in process account; however, an estimated amount of overhead is charged to the account. Why is overhead accounted for differently than the other costs of production?

Ting Company started the accounting period with the following beginning balances: Raw Materials Inventory, $21,000; Work in Process Inventory, $45,000; and Finished Goods Inventory, $10,000. During the accounting period, the company purchased $30,000 of raw materials and ended the period with $8,000 in raw material inventory. Direct labor costs for the period were $60,000 and $63,000 of manufacturing overhead costs was allocated to work in process. There was no over- or underapplied overhead. Ending work in process was $41,000 and ending finished goods was $17,500. Goods were sold during the period for $162,500. The amount of cost of goods manufactured (i.e., amount transferred from work in process to finished goods) would be:

The Work in Process inventory account is debited when raw materials are placed into production.

Ferguson Company sold goods that had cost $950 to manufacture. How does this transaction affect the financial statements? $\begin{array}{|c|c|c|c|c|c|c|c|c|c|}\hline \text { Assets } & = & \text { Liab. } & + & \text { Equity } & \text { Rev. } & - & \text { Exp. } & = & \text { Net Inc. } \\\hline\end{array}$

What characteristic or feature of a service company distinguishes such a business from a manufacturing company?

Pinkston Company completed 12,000 units of product at a total cost of $28,000. The recording of the product completed would include a decrease to:

If actual volume is smaller than the budgeted or expected volume, then a favorable volume variance will occur.

Many companies use variable costing for internal reporting and evaluation of managers.