Chapter 2 Part 2

Section No.
3 Cost Accounting (1) Level 2
Chapter 2 – Part 2
First: MCQs
1) Which of the following formulas determine cost of goods sold in a manufacturing
entity?
A) Beginning work-in-process inventory + Cost of goods manufactured – Ending

work-in-process inventory = Cost of goods sold
B) Beginning work-in-process inventory + Cost of goods manufactured + Ending work-
in-process inventory = Cost of goods sold
C) Cost of goods manufactured - Beginning finished goods inventory - Ending finished
goods inventory = Cost of goods sold
D) Cost of goods manufactured + Beginning finished goods inventory - Ending finished
goods inventory = Cost of goods sold
Answer: D
2) A company reported revenues of $377,000, cost of goods sold of $122,000, selling
expenses of $12,000, and total operating costs of $72,000. Gross margin for the year is
.
A) $255,000
B) $243,000
C) $171,000
D) $293,000
Answer: A
Explanation: $377,000 − $122,000 = $255,000
3) All Rite Manufacturing reported the following:
Revenue $460,000
Beginning inventory of direct materials, January 1,
2015 26,000
Purchases of direct materials 156,000
Ending inventory of direct materials, December 31,
2015 14,000
Direct manufacturing labor 30,000
Indirect manufacturing costs 41,000
Beginning inventory of finished goods, January 1,
2015 46,000
Cost of goods manufactured 239,000
Ending inventory of finished goods, December 31,
2015 45,000
Operating costs 150,000
Section No.3 Cost Accounting (1) Level 2
What is Leslie's cost of goods sold?

A) $390,000
B) $240,000
C) $239,000
D) $389,000
Answer: B
Explanation: $46,000 + $239,000 − $45,000 = $240,000
4) All Rite Manufacturing reported the following:
Revenue $450,000
Beginning inventory of direct materials, January 1,
2015 30,000
Purchases of direct materials 153,000
Ending inventory of direct materials, December 31,
2015 18,000
Direct manufacturing labor 26,000
Indirect manufacturing costs 42,000
Beginning inventory of finished goods, January 1,
2015 47,000
Ending inventory of finished goods, December 31,
2015 41,000
Operating costs 157,000
What is All Rite's gross margin (or gross profit)?

A) $54,000
B) $217,000
C) $211,000
D) $60,000
Answer: C
Explanation: $450,000 − ($47,000 + $233,000 − $41,000) = $211,000
5) For last year, Watson Limited reported revenues of $420,000, cost of goods sold of
$118,000, cost of goods manufactured of $105,000, and total operating costs of $60000.
Operating income for that year was
A) $315,000
B) $302,000
C) $255,000
D) $242,000
Answer: D
Explanation: $420,000 - $118,000 - $60,000 = $242,000
6) Prime costs include .
A) direct materials and direct manufacturing labor costs

B) direct manufacturing labor and manufacturing overhead costs
C) direct materials and manufacturing overhead costs
D) only direct materials
Answer: A
7) Conversion costs include .
A) direct materials and direct manufacturing labor costs

B) direct manufacturing labor and manufacturing overhead costs
C) direct materials and manufacturing overhead costs
D) only direct materials
Answer: B
8) The following information pertains to the Ruby Corp:
Beginning work-in-process inventory $74,000

Ending work-in-process inventory 82,000
Beginning finished goods inventory 172,000
Ending finished goods inventory 209,000
Cost of goods manufactured 1,202,000
What is cost of goods sold?

A) $1,210,000
B) $1,165,000
C) $1,157,000
D) $1,239,000
Answer: B
Explanation: Cost of goods sold = $172,000 + $1,202,000 − $209,000 = $1,165,000
9) The following information pertains to Expert System Corporation:
Beginning work-in-process inventory $18,000

Ending work-in-process inventory 25,000
Beginning finished goods inventory 36,000
Ending finished goods inventory 31,000
Sales 302,000
What is the gross profit margin earned by the company?

A) $56,000
B) $63,000
C) $68,000
D) $66,000
Answer: A
Explanation: $36,000 + $241,000 − $31,000 = $246,000
Sales = $302,000
Profit = $302,000 - 246,000 = $56,000
10) What is the cost of goods manufactured for 2018?
Beginning finished good, 1/1/2018 $84,000

Ending finished goods, 12/31/2018 79,000
Cost of goods sold 306,000
Sales revenue 450,000
Operating expenses 98,000
A) $404,000
B) $399,000
C) $301,000
D) $311,000
Answer: C
Explanation: $306,000 + $79,000 − $84,000 = $301,000
11) What is operating income for 2018?
Beginning finished good, 1/1/2018 $50,000

Ending finished goods, 12/31/2018 35,000
Cost of goods sold 251,000
Sales revenue 485,000
Operating expenses 109,000
A) $199,000
B) $110,000
C) $125,000
D) $140,000
Answer: C
Explanation: $485,000 − $251,000 − $109,000 = $125,000
Second: T&F
1) A cost object is anything for which a cost measurement is desired.

Answer: TRUE
2) Costs are accounted for in two basic stages: assignment followed by accumulation.
Answer: FALSE
Explanation: Costs are accounted for in two basic stages: accumulation followed by
assignment.
3) Accountants define a cost as the amount of money spent on a resource.

Answer: FALSE
4) Assigning indirect costs is easier than assigning direct costs.

Answer: FALSE
5) A direct cost of one cost object cannot be an indirect cost of another cost object.
Answer: FALSE
6) The broader the cost object definition (i.e., plant versus product), the more confident
the manager will be about the accuracy of the direct cost amounts.
Answer: TRUE
7) A fixed cost is fixed only in relation to a given wide range of total activity or volume
and only for a given time span, usually a particular budget period.
Answer: TRUE
8) A cost driver is a variable, such as the level of activity or volume that causally
affects costs over a given time span.
Answer: TRUE
9) Fixed cost per unit falls with an increase in production volume.

Answer: TRUE
10) Variable costs per unit vary with the level of production or sales volume.
Answer: FALSE
11) Wood used to manufacture chairs is considered a direct variable cost when the cost
object is the chair.
Answer: TRUE
12) A lease for a store calls for a base monthly rent of $1,500 up to $10,000 of sales with a
possible additional monthly cost of 2% of sales over $10,000. The rent is a fixed cost for
the month for a relevant range of zero to $10,000 sales.
Answer: TRUE
Brief EX:
1- What are the factors that affect the classification of a cost as direct orindirect?
Answer:
Several factors affect whether a cost is classified as direct or indirect:
1- The materiality of the cost in question. The smaller the amount of a cost–that is, the
more immaterial the cost is–the less likely it is economically feasible to trace it to a
particular cost object.
2- Available information-gathering technology. Improvements in information gathering

technology make it possible to consider more and more costs as direct costs.
3- Design of operations. Classifying a cost as direct is easier if a company's facility (or

some part of it) is used exclusively for a specific cost object, such as a specific product or
a particular customer.
2- Butler Hospital wants to estimate the cost for each patient stay. It is a general
health care facility offering only basic services and not specialized services such as
organ transplants.
Required:
a. Classify each of the following costs as either direct or indirect with respect to
each patient.
b. Classify each of the following costs as either fixed or variable with respect
tohospital costs per day.

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Section No.

3 Cost Accounting (1) Level 2

A) Beginning work-in-process inventory + Cost of goods manufactured – Ending

3) All Rite Manufacturing reported the following:

What is Leslie's cost of goods sold?

4) All Rite Manufacturing reported the following:

What is All Rite's gross margin (or gross profit)?

6) Prime costs include .

A) direct materials and direct manufacturing labor costs

7) Conversion costs include .

A) direct materials and direct manufacturing labor costs

8) The following information pertains to the Ruby Corp:

Beginning work-in-process inventory $74,000

What is cost of goods sold?

9) The following information pertains to Expert System Corporation:

Beginning work-in-process inventory $18,000

What is the gross profit margin earned by the company?

10) What is the cost of goods manufactured for 2018?

Beginning finished good, 1/1/2018 $84,000

11) What is operating income for 2018?

Beginning finished good, 1/1/2018 $50,000

1) A cost object is anything for which a cost measurement is desired.

3) Accountants define a cost as the amount of money spent on a resource.

4) Assigning indirect costs is easier than assigning direct costs.

9) Fixed cost per unit falls with an increase in production volume.

2- Available information-gathering technology. Improvements in information gathering

3- Design of operations. Classifying a cost as direct is easier if a company's facility (or

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