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web.groovymark@gmail.com
- December 8, 2024
Question 21
What is the equivalent units of production used for in process costing?
a) To calculate the number of units completed during the period
b) To calculate total fixed costs
c) To measure the amount of work done during the period
d) To determine labor efficiency
Answer: c) To measure the amount of work done during the period
Explanation: Equivalent units of production are used to measure the work done during the period in a process costing system, accounting for both completed and partially completed units.
Question 22
In job order costing, what is the journal entry to record direct labor costs?
a) Debit to manufacturing overhead, credit to work-in-process inventory
b) Debit to work-in-process inventory, credit to salaries and wages payable
c) Debit to raw materials inventory, credit to work-in-process inventory
d) Debit to finished goods inventory, credit to cost of goods sold
Answer: b) Debit to work-in-process inventory, credit to salaries and wages payable
Explanation: Direct labor costs are recorded by debiting work-in-process inventory, which represents the ongoing production, and crediting salaries and wages payable.
Question 23
What is the purpose of activity-based costing (ABC)?
a) To allocate costs more accurately to products or services
b) To reduce the total cost of production
c) To increase the profit margin
d) To decrease direct labor costs
Answer: a) To allocate costs more accurately to products or services
Explanation: ABC provides a more accurate method of allocating costs to products or services by using multiple cost drivers related to activities performed.
Question 24
In a job order costing system, how are manufacturing overhead costs applied to jobs?
a) Based on actual overhead costs incurred
b) Using a predetermined overhead rate
c) By directly tracing them to specific jobs
d) By allocating them equally to all jobs
Answer: b) Using a predetermined overhead rate
Explanation: Manufacturing overhead is applied to jobs using a predetermined overhead rate, which is based on estimates of future costs and activity levels.
Question 25
What are direct labor costs in manufacturing?
a) Costs of materials used in production
b) Costs of factory rent and utilities
c) Wages of employees working directly on the production of goods
d) Depreciation on machinery
Answer: c) Wages of employees working directly on the production of goods
Explanation: Direct labor costs are the wages of employees who are directly involved in the production of goods, as opposed to indirect labor like maintenance staff.
Question 26
What type of cost is depreciation on factory equipment classified as in manufacturing?
a) Direct labor
b) Manufacturing overhead
c) Direct materials
d) Selling expenses
Answer: b) Manufacturing overhead
Explanation: Depreciation on factory equipment is considered a manufacturing overhead cost because it cannot be directly traced to a specific product, but is necessary for production.
Question 27
How are overapplied manufacturing overhead costs typically disposed of at the end of a period?
a) Debited to cost of goods sold
b) Credited to finished goods inventory
c) Credited to work-in-process inventory
d) Credited to cost of goods sold
Answer: d) Credited to cost of goods sold
Explanation: When manufacturing overhead is overapplied, the excess amount is credited to cost of goods sold to adjust for the overestimated costs.
Question 28
Which of the following is an example of a cost driver in an activity-based costing system?
a) Machine hours used
b) Total sales revenue
c) Number of units produced
d) Total direct labor costs
Answer: a) Machine hours used
Explanation: In an activity-based costing system, machine hours used is an example of a cost driver, as it directly influences overhead costs associated with machine operations.
Question 29
When is process costing most appropriately used?
a) When producing large volumes of similar products
b) When producing custom-made products
c) When allocating direct labor costs to products
d) When production is completed on a per-job basis
Answer: a) When producing large volumes of similar products
Explanation: Process costing is ideal when a company produces large volumes of nearly identical products, such as in continuous production industries.
Question 30
What is the role of equivalent units in process costing?
a) To measure labor efficiency in production
b) To calculate the cost per unit for unfinished goods
c) To calculate the cost of raw materials
d) To measure the number of finished goods
Answer: b) To calculate the cost per unit for unfinished goods
Explanation: Equivalent units are used to assign a proportionate share of production costs to partially completed goods in process costing.
Question 31
In job order costing, which document is used to track the costs of materials, labor, and overhead for a specific job?
a) Materials requisition form
b) Job cost sheet
c) Production schedule
d) Bill of materials
Answer: b) Job cost sheet
Explanation: A job cost sheet is used in job order costing to track the costs of materials, labor, and overhead for a specific job or order.
Question 32
In an activity-based costing system, what are cost pools?
a) A group of costs incurred due to direct labor
b) A group of costs incurred due to direct materials
c) A collection of overhead costs associated with a specific activity
d) A collection of selling and administrative expenses
Answer: c) A collection of overhead costs associated with a specific activity
Explanation: In ABC, cost pools group together overhead costs that are incurred by similar activities.
Question 33
How are indirect labor costs treated in a manufacturing environment?
a) They are included in work-in-process inventory
b) They are added to the cost of direct materials
c) They are part of manufacturing overhead
d) They are debited to finished goods inventory
Answer: c) They are part of manufacturing overhead
Explanation: Indirect labor costs, such as maintenance or supervisory salaries, are included in manufacturing overhead, not directly assigned to specific jobs.
Question 34
What is the formula for calculating cost of goods manufactured?
a) Beginning work-in-process inventory + total manufacturing costs – ending work-in-process inventory
b) Beginning finished goods inventory + cost of goods sold – ending finished goods inventory
c) Sales – cost of goods sold + administrative expenses
d) Direct materials + direct labor + overhead
Answer: a) Beginning work-in-process inventory + total manufacturing costs - ending work-in-process inventory
Explanation: Cost of goods manufactured represents the total production costs, adjusted for the change in work-in-process inventory.
Question 35
What does the term ‘underapplied overhead’ mean?
a) The overhead applied to jobs is greater than actual overhead
b) The overhead applied to jobs is less than actual overhead
c) The company has overspent on direct labor
d) The company has excess raw materials
Answer: b) The overhead applied to jobs is less than actual overhead
Explanation: Underapplied overhead occurs when the amount of overhead applied using a predetermined rate is less than the actual overhead incurred.
Question 36
Which of the following is a disadvantage of using activity-based costing?
a) It results in less accurate cost allocation
b) It is complex and costly to implement
c) It ignores indirect labor costs
d) It cannot be used in service industries
Answer: b) It is complex and costly to implement
Explanation: One disadvantage of ABC is that it can be complex and costly to implement, especially in smaller companies with fewer resources.
Question 37
How does a company apply overhead to work-in-process in a job order costing system?
a) By using actual overhead costs
b) By using a predetermined overhead rate
c) By assigning an equal amount to all jobs
d) By charging the direct materials used
Answer: b) By using a predetermined overhead rate
Explanation: A predetermined overhead rate is used to apply overhead costs to jobs based on an estimated activity level, such as labor hours or machine hours.
Question 38
In process costing, how is the cost of units completed and transferred out calculated?
a) By multiplying the cost per unit by the number of units completed
b) By summing the cost of direct labor and direct materials
c) By adding beginning inventory and current production costs
d) By using the predetermined overhead rate
Answer: a) By multiplying the cost per unit by the number of units completed
Explanation: In process costing, the cost of completed and transferred-out units is calculated by multiplying the cost per equivalent unit by the number of units transferred out.
Question 39
Which of the following costs is classified as a batch-level cost in an ABC system?
a) Quality inspection of finished goods
b) Depreciation of the factory
c) Machine setup for a production run
d) Advertising for a new product
Answer: c) Machine setup for a production run
Explanation: Batch-level costs, such as machine setup, are incurred every time a batch of products is produced, regardless of the number of units in the batch.
Question 40
What is the main advantage of using process costing?
a) It provides detailed cost information for custom jobs
b) It simplifies cost allocation for mass production of similar products
c) It accurately traces direct labor to specific jobs
d) It reduces the need for indirect cost allocation
Answer: b) It simplifies cost allocation for mass production of similar products
Explanation: Process costing is ideal for companies that produce large volumes of similar products because it simplifies cost allocation by averaging costs across units.
