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web.groovymark@gmail.com
- December 8, 2024
Question 01
What is the journal entry to record the direct materials used in production?
a) Debit finished goods inventory, credit raw materials inventory
b) Debit raw materials inventory, credit work-in-process inventory
c) Debit work-in-process inventory, credit raw materials inventory
d) Debit manufacturing overhead, credit raw materials inventory
Answer: c) Debit work-in-process inventory, credit raw materials inventory
Explanation: Direct materials used in production are debited to work-in-process inventory, indicating that the materials have been used, and credited to raw materials inventory to reduce the balance of materials on hand.
Question 02
Which of the following is an example of a product cost?
a) Administrative salaries
b) Advertising expenses
c) Direct labor
d) Depreciation on office equipment
Answer: c) Direct labor
Explanation: Product costs include all costs related to the manufacturing of a product, such as direct labor, direct materials, and manufacturing overhead. Administrative and advertising expenses are considered period costs.
Question 03
What is the purpose of predetermined overhead rates in manufacturing?
a) To allocate indirect costs to individual jobs
b) To track direct materials used
c) To assign variable costs to production
d) To estimate sales revenue
Answer: a) To allocate indirect costs to individual jobs
Explanation: A predetermined overhead rate is used to allocate indirect costs, such as utilities and supervisor salaries, to jobs based on a selected cost driver like machine hours or labor hours.
Question 04
What is an example of a cost driver in activity-based costing?
a) Number of units sold
b) Amount of time worked by employees
c) Number of machine setups
d) Total variable costs
Answer: c) Number of machine setups
Explanation: In activity-based costing, cost drivers are the activities that cause overhead costs to be incurred. Machine setups can be used to allocate costs to products based on the number of setups required.
Question 05
Which of the following is true about fixed costs?
a) They vary with production levels
b) They remain constant in total regardless of production levels
c) They decrease per unit as production increases
d) They increase per unit as production increases
Answer: b) They remain constant in total regardless of production levels
Explanation: Fixed costs, such as rent and salaries, do not change with the level of production. However, fixed costs per unit decrease as production increases because the total fixed cost is spread over more units.
Question 06
In a process costing system, where are costs accumulated?
a) By job
b) By department or process
c) By finished goods
d) By direct labor
Answer: b) By department or process
Explanation: In process costing, costs are accumulated by department or process since it is used for industries that produce large quantities of identical items, such as chemicals or beverages.
Question 07
What is the formula to calculate the predetermined overhead rate?
a) Estimated manufacturing overhead / expected annual sales
b) Actual manufacturing overhead / actual machine hours
c) Estimated manufacturing overhead / expected annual activity level
d) Actual labor costs / actual direct materials costs
Answer: c) Estimated manufacturing overhead / expected annual activity level
Explanation: The predetermined overhead rate is calculated by dividing estimated total manufacturing overhead costs by the expected activity level (e.g., machine hours, labor hours) for the year.
Question 08
What is the primary focus of cost-volume-profit (CVP) analysis?
a) To determine break-even points
b) To track the costs of production
c) To allocate overhead costs
d) To calculate depreciation
Answer: a) To determine break-even points
Explanation: Cost-volume-profit (CVP) analysis focuses on understanding how changes in costs, sales volume, and price affect profits, which is critical for calculating break-even points and making pricing decisions.
Question 09
What is the journal entry to record the completion of a job in a job order costing system?
a) Debit work-in-process inventory, credit raw materials inventory
b) Debit finished goods inventory, credit work-in-process inventory
c) Debit cost of goods sold, credit finished goods inventory
d) Debit raw materials inventory, credit finished goods inventory
Answer: b) Debit finished goods inventory, credit work-in-process inventory
Explanation: When a job is completed, the total costs associated with it are transferred from work-in-process to finished goods inventory, indicating that the goods are ready for sale.
Question 10
What is the correct formula to calculate the contribution margin?
a) Sales revenue – total costs
b) Sales revenue – fixed costs
c) Sales revenue – variable costs
d) Sales revenue – direct labor
Answer: c) Sales revenue - variable costs
Explanation: The contribution margin is the amount remaining after variable costs have been deducted from sales revenue. It contributes to covering fixed costs and generating profit.
Question 11
In which case would a company use job order costing?
a) When producing large quantities of identical products
b) When manufacturing unique, custom-made products
c) When tracking costs by process rather than by job
d) When allocating overhead costs based on machine hours
Answer: b) When manufacturing unique, custom-made products
Explanation: Job order costing is used when each job or product is unique, such as in construction or custom manufacturing, where costs are accumulated for each individual job.
Question 12
What is the break-even point in units if fixed costs are $200,000 and the contribution margin per unit is $25?
a) 5,000 units
b) 8,000 units
c) 10,000 units
d) 20,000 units
Answer: c) 8,000 units
Explanation: The break-even point in units is calculated by dividing total fixed costs by the contribution margin per unit. In this case, $200,000 / $25 = 8,000 units.
Question 13
Which of the following costs would be classified as a period cost?
a) Factory rent
b) Depreciation on manufacturing equipment
c) Administrative salaries
d) Direct materials
Answer: c) Administrative salaries
Explanation: Period costs are costs that are not directly related to the production process, such as administrative salaries, marketing expenses, and office rent.
Question 14
What happens to variable costs per unit as production increases?
a) They increase
b) They decrease
c) They remain constant
d) They fluctuate unpredictably
Answer: c) They remain constant
Explanation: Variable costs per unit remain constant regardless of production levels, but total variable costs increase as more units are produced.
Question 15
In a process costing system, how are partially completed units accounted for?
a) They are considered fully complete
b) They are included in work-in-process inventory
c) They are transferred to finished goods inventory
d) They are expensed immediately
Answer: b) They are included in work-in-process inventory
Explanation: Partially completed units are accounted for in the work-in-process inventory, with costs assigned based on the percentage of completion.
Question 16
Which of the following is true about overapplied overhead?
a) It occurs when actual overhead is greater than applied overhead
b) It occurs when applied overhead is greater than actual overhead
c) It increases the cost of goods sold
d) It has no effect on financial statements
Answer: b) It occurs when applied overhead is greater than actual overhead
Explanation: Overapplied overhead occurs when the amount of overhead allocated to jobs exceeds the actual overhead incurred, leading to an adjustment that decreases the cost of goods sold.
Question 17
What is the purpose of a job cost sheet?
a) To record the direct labor used in production
b) To track the costs of individual jobs
c) To allocate indirect materials to jobs
d) To calculate the total overhead applied
Answer: b) To track the costs of individual jobs
Explanation: A job cost sheet is used in job order costing to track the costs of direct materials, direct labor, and overhead for a specific job.
Question 18
How is underapplied overhead treated at the end of the period?
a) It is credited to cost of goods sold
b) It is debited to cost of goods sold
c) It is credited to work-in-process inventory
d) It is debited to finished goods inventory
Answer: b) It is debited to cost of goods sold
Explanation: Underapplied overhead occurs when actual overhead exceeds applied overhead. To close this, the difference is debited to cost of goods sold, increasing the expense.
Question 19
What is the formula to calculate equivalent units of production?
a) Units started and completed + units in beginning inventory
b) Units completed + percentage completion of ending inventory
c) Units completed + total units produced
d) Units transferred to finished goods + total variable costs
Answer: b) Units completed + percentage completion of ending inventory
Explanation: Equivalent units of production account for both completed units and partially completed units, measured as a percentage of completion.
Question 20
What is the main difference between direct and indirect costs?
a) Direct costs are fixed, and indirect costs are variable
b) Direct costs can be traced directly to products, while indirect costs cannot
c) Indirect costs are included in manufacturing overhead, and direct costs are expensed
d) Direct costs are variable, and indirect costs are fixed
Answer: b) Direct costs can be traced directly to products, while indirect costs cannot
Explanation: Direct costs, such as direct materials and labor, can be traced directly to products, while indirect costs, such as factory utilities, are allocated through manufacturing overhead.
