Managerial Accounting

Part 1: Introduction to Managerial Accounting

Instruction: True or False. Read the statement completely and determine if the statement is true or
false.
_____ 1. Although financial and managerial accounting differ in many ways, they are similar in that both
rely on the same underlying financial data.
_____ 2. Managerial accounting is a branch of financial accounting and serves essentially the same
purposes as financial accounting.
_____ 3. Managerial accounting places greater emphasis on the future than financial accounting, which
is primarily concerned with the past.
_____ 4. Management accounting focuses primarily on providing data for external uses by stockholders
and creditors.
_____ 5. Managerial accounting is not needed in a non-profit or governmental organization.
Part 2A: Cost Terms, Concepts, and Classifications
The PC Works assembles custom computers from components supplied by various manufacturers. The
company is very small and its assembly shop and retail sales store are housed in a single facility in a
Redmond, Washington, industrial park. Listed below are some of the costs that are incurred at the
company.
Instruction: For each cost, indicate whether it would most likely be classified as direct labor, direct
materials, manufacturing overhead, selling or administrative cost.
1. The cost of a hard drive installed in a computer.
2. The cost of advertising on the Puget Sound Computer User newspaper.
3. The wages of employees who assemble computers from components.
4. Sales commissions paid to the companys salespeople.
5. The wages of the assembly shops supervisor.
6. The wages of the companys accountant.
7. Depreciation on equipment used to test assembled computers before release to customers.
8. Rent on the facility in the industrial park.
9. Heat, water and power consumed in the facility.
10. Workers compensation insurance for the employees in number 3.



Part 2B: Cost Terms, Concepts, and Classifications
Instruction: Select the best answer to the following multiple choice questions.
1. Indirect labor is a part of:
A) Prime cost.
B) Conversion cost.
C) Period cost.
D) Nonmanufacturing cost.

2. The cost of lubricants used to grease a production machine in a manufacturing company is an
example of a(n):
A) period cost.
B) direct material cost.
C) indirect material cost.
D) none of the above.

3. Direct labor cost is a part of:
Conversion cost Prime cost
A) No No
B) No Yes
C) Yes Yes
D) Yes No

4. Direct material cost is a:
Conversion cost Prime cost
A) No No
B) No Yes
C) Yes Yes
D) Yes No

5. Prime cost and conversion cost share what common element of total cost?
A) Direct materials.
B) Direct labor.
C) Variable overhead.
D) Fixed overhead.



6. Prime cost consists of:
A) direct labor and manufacturing overhead.
B) direct materials and manufacturing overhead.
C) direct materials and direct labor.
D) direct materials, direct labor and manufacturing overhead.

7. Wages paid to a timekeeper in a factory are a:
Prime cost Conversion cost
A) Yes No
B) Yes Yes
C) No No
D) No Yes

8. Property taxes on a company's factory building would be classified as a(n):
A) product cost.
B) opportunity cost.
C) period cost.
D) variable cost.

9. All of the following would be classified as product costs except:
A) property taxes on production equipment.
B) insurance on factory machinery.
C) salaries of the advertising staff.
D) wages of machine operators.

10. Fixed costs expressed on a per unit basis:
A) will increase with increases in activity.
B) will decrease with increases in activity.
C) are not affected by activity.
D) should be ignored in making decisions since they cannot change.

11. The following costs were incurred in January:
Direct materials ............................. $33,000
Direct labor .................................... $28,000
Manufacturing overhead ................ $69,000
Selling expenses ............................ $16,000
Administrative expenses ................ $21,000

Conversion costs during the month totaled:
A) $97,000
B) $167,000
C) $102,000
D) $61,000



12. The following costs were incurred in February:
Direct materials ......................... $43,000
Direct labor ............................... $16,000
Manufacturing overhead ........... $37,000
Selling expenses ........................ $17,000
Administrative expenses ........... $26,000

Conversion costs during the month totaled:
A) $59,000
B) $80,000
C) $53,000
D) $139,000

13. The following costs were incurred in March:
Direct materials ............................. $39,000
Direct labor .................................... $24,000
Manufacturing overhead ................ $14,000
Selling expenses ............................ $11,000
Administrative expenses ................ $19,000

Prime costs during the month totaled:
A) $63,000
B) $107,000
C) $38,000
D) $77,000

14. Aable Company's manufacturing overhead is 20% of its total conversion costs. If direct labor is
$45,000 and if direct materials are $53,000, the manufacturing overhead is:
A) $11,250
B) $13,250
C) $180,000
D) $24,500

15. Abair Company's manufacturing overhead is 20% of its total conversion costs. If
direct labor is $38,000 and if direct materials are $35,000, the manufacturing overhead
is:
A) $18,250
B) $9,500
C) $8,750
D) $152,000

16. Abbey Company's manufacturing overhead is 60% of its total conversion costs. If
direct labor is $35,000 and if direct materials are $55,000, the manufacturing overhead
is:
A) $135,000
B) $23,333
C) $82,500
D) $52,500
17. During the month of January, direct labor cost totaled $17,000 and direct labor cost was 60% of
prime cost. If total manufacturing costs during January were $82,000, the manufacturing
overhead was:
A) $11,333
B) $53,667
C) $28,333
D) $65,000

18. During the month of February, direct labor cost totaled $13,000 and direct labor cost was 40%
of prime cost. If total manufacturing costs during February were $80,000, the manufacturing
overhead was:
A) $32,500
B) $19,500
C) $67,000
D) $47,500

19. During the month of March, direct labor cost totaled $17,000 and direct labor cost was 70% of
prime cost. If total manufacturing costs during March were $88,000, the manufacturing
overhead was:
A) $24,286
B) $71,000
C) $63,714
D) $7,286

20. Knowel Company's direct labor is 40 percent of its conversion cost. If the
manufacturing overhead cost for the last period was $60,000 and the direct materials
cost was $30,000, the direct labor cost was:
A) $90,000
B) $20,000
C) $60,000
D) $40,000

21. In January direct labor was 40% percent of conversion cost. If the manufacturing overhead cost
for the month was $78,000 and the direct materials cost was $22,000, the direct labor cost was:
A) $14,667
B) $52,000
C) $33,000
D) $117,000

22. In February direct labor was 60% percent of conversion cost. If the manufacturing overhead cost
for the month was $78,000 and the direct materials cost was $22,000, the direct labor cost was:
A) $52,000
B) $14,667
C) $117,000
D) $33,000

23. In March direct labor was 60% percent of conversion cost. If the manufacturing overhead cost
for the month was $38,000 and the direct materials cost was $32,000, the direct labor cost was:
A) $21,333
B) $48,000
C) $25,333
D) $57,000

24. Crossland Company's direct labor cost is 30% of its conversion cost. If the manufacturing
overhead cost for the last period was $49,000 and the direct materials cost was $20,000, the
direct labor cost was:
A) $ 6,000
B) $14,700
C) $21,000
D) $34,000

25. CF Company manufactures wooden rocking chairs. CF identified the following three material
costs in its production process for July: $100,000 for springs for the rocking mechanism; two
springs at a cost of $10 each are used in each chair; $1,700 for glue used as needed from one
gallon containers; and $500 for stain used to touch up spots on the chairs. The total cost that
should have been assigned to indirect material for July was:
A) $102,200
B) $500
C) $2,200
D) $1,700

26. Fab Co. manufactures textiles. Fab's manufacturing costs last year included the following
salaries and wages:
Loom operators .......................... $120,000
Factory foremen ........................ $45,000
Machinery repairmen ................ $30,000

What is the amount of direct labor included in this list?
A) $195,000
B) $165,000
C) $150,000
D) $120,000

27. A manufacturing company has provided the following cost data for a recent period:
Direct materials ............................................... $8,000
Manufacturing overhead .................................. $12,000
Direct labor ...................................................... $10,000
Increase in work-in-process ............................. $4,000

Prime cost for the period was:
A) $18,000
B) $26,000
C) $30,000
D) $34,000
28. Fixed costs expressed on a per unit basis:
A) will increase with increases in activity.
B) will decrease with increases in activity.
C) are not affected by activity.
D) should be ignored in making decisions since they cannot change.

29. CF Company manufactures wooden rocking chairs. CF identified the following three material
costs in its production process for July: $100,000 for springs for the rocking mechanism; two
springs at a cost of $10 each are used in each chair; $1,700 for glue used as needed from
one gallon containers; and $500 for stain used to touch up spots on the chairs. The total cost
that should have been assigned to indirect material for July was:
A) $102,200
B) $500
C) $2,200
D) $1,700

30. Marrell's employer offers fringe benefits that cost the company $4 for each hour of
employee time (either regular or overtime). During a given week, Marrell works 48 hours
but is idle for 3 hours due to material shortages. The company treats all fringe benefits as
part of manufacturing overhead. The allocation of Marrell's wages for the week between
the direct labor cost and manufacturing overhead would be:
Direct Labor Manufacturing
Overhead
A) $960 $64
B) $768 $256
C) $720 $304
D) $640 $320