Accounting for factory overhead costs involves averaging in

  1. Accounting for factory overhead costs involves averaging in



Job-order costing

Process costing













A: A.
B: B.
C: C.
D: D.


  1. Bowie Inc., a manufacturer of earrings, has accumulated the following cost information for products A and B:






Production volume




Engineering costs incurred




Engineering costs per batch




Batch size




Total direct manufacturing labor hours




Direct manufacturing labor hours/unit





Assuming activity-based costing (ABC) is used, what is the engineering cost per unit for products A and B?

















A: A.
B: B.
C: C.
D: D.

  1. Pendall Company manufactures products Dee and Eff from a joint process. Product Dee has been allocated $2,500 of total joint costs of $20,000 for the 1,000 units produced. Dee can be sold at the split-off point for $3 per unit, or it can be processed further with additional costs of $1,000 and sold for $5 per unit. If Dee is processed further and sold, the result would be


A: A breakeven situation.
B: An additional gain of $1,000 from further processing.
C: An overall loss of $1,000.
D: An additional gain of $2,000 from further processing.

  1. Which of the following statements about activity-based costing is not true?

A: Activity-based costing is useful for allocating marketing and distribution costs.
B: Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.
C: In activity-based costing, cost drivers are what cause cost to be incurred.
D: Activity-based costing differs from traditional costing systems in that products are not cross-subsidized.


  1. A company employs a process costing system for its two-department manufacturing operation using the first-in-first-out (FIFO) inventory method. When units are completed in department 1, they are transferred to department 2 for completion. Inspection takes place in department 2 immediately before the direct materials are added, when the process is 70% complete with respect to conversion. The specific identification method is used to account for lost units.


Generally the number of defective units (that is, those failing inspection) is below the normal tolerance limit of 4% of units inspected. Defective units have minimal value, and the company sells them without any further processing for whatever it can. Generally the amount collected equals, or slightly exceeds, the transportation cost. A summary of the manufacturing activity for department 2, in units for the current month, is presented below.



Physical flow (output units)

Beginning inventory


(60% complete with respect to conversion)


Units transferred in from department 1


Total units to account for




Units completed in department 2 during the month


Units found to be defective at inspection


Ending inventory


(80% complete with respect to conversion)


Total units accounted for



The equivalent units for direct materials for the current month would be

A: 175,000 units.
B: 181,500 units.
C: 195,000 units.
D: 200,000 units.

  1. The method for allocating service department costs that best recognizes the mutual services rendered to other service departments is the

A: Dual-rate allocation method.
B: Direct allocation method.
C: Step-down allocation method.
D: Reciprocal allocation method.


  1. Three commonly employed systems for product costing are job order costing, operations costing, and process costing. Match the type of production environment with the costing method used.



Job order costing

Operations costing

Process costing


Auto repair

Clothing manufacturing

Oil refining


Loan processing

Drug manufacturing

Custom printing


Custom printing

Paint manufacturing

Paper manufacturing


Engineering design

Auto assembly

Motion picture production

A: A
B: B
C: C
D: D

  1. A major justification for investments in computer integrated manufacturing (CIM) projects is

A: Reduction in the costs of spoilage, reworked units, and scrap.
B: Lower book value and depreciation expense for factory equipment.
C: Increased working capital.
D: Stabilization of market share.

  1. Black, Inc. employs a weighted-average method in its process costing system. Black’s work in process inventory on June 30 consists of 40,000 units. These units are 100% complete with respect to materials and 60% complete with respect to conversion costs. The equivalent unit costs are $5.00 for materials and $7.00 for conversion costs. What is the total cost of the June 30 work in process inventory?

A: $200,000
B: $288,000
C: $368,000
D: $480,000


  1. Jonathan Mfg. adopted a job-costing system. For the current year, budgeted cost driver activity levels for direct labor hours and direct labor costs were 20,000 and $100,000, respectively. In addition, budgeted variable and fixed factory overhead were $50,000 and $25,000, respectively. Actual costs and hours for the year were as follows:


Direct labor hours


Direct labor costs


Machine hours



For a particular job, 1,500 direct labor hours were used. Using direct labor hours as the cost driver, what amount of overhead should be applied to this job?

A: $3,214
B: $5,357
C: $5,625
D: $7,500


  1. DJ Co. has a job-order cost system. The following debits (credits) appeared in the Work in Process account for the month of March:


March 1, balance


March 31, direct materials


March 31, direct labor


March 31, manufacturing overhead applied


March 31, to finished goods



DJ Co. applies overhead at a predetermined rate of 90% of direct labor cost. Job No. 101, the only job still in process at the end of March, has been charged with manufacturing overhead of $2,250. What was the amount of direct materials charged to Job No. 101?

A: $2,250
B: $2,500
C: $4,250
D: $4,725

  1. Parity checks, read-after-write checks, and duplicate circuitry are computer controls that are designed to detect


A: Erroneous internal handling of data.
B: Lack of sufficient documentation for computer processes.
C: Illogical programming commands.
D: Illogical uses of hardware.

  1. SQL is most directly related to


A: String question language processing.
B: The “grandfather, father, son” method of record retention.
C: Electronic commerce.
D: Relational databases.

  1. An input clerk enters a person’s employee number. The computer responds with a message that reads

“Employee number that you entered is NOT assigned to an active employee. Please reenter.

What technique is the computer using?

A: Optical character recognition (OCR).
B: Check digit.
C: Validity check.
D: Field (format) check.

  1. The primary objective of security software is to


A: Control access to information system resources.
B: Restrict access to prevent installation of unauthorized utility software.
C: Detect the presence of viruses.
D: Monitor the separation of duties within applications.

  1. Which of the following procedures should be included in the disaster recovery plan for an Information Technology department?

A: Replacement of personal computers for user departments.
B: Identification of critical applications.
C: Physical security of warehouse facilities.
D: Cross-training of operating personnel.

  1. In an accounting information system, which of the following types of computer files most likely would be a master file?

A: Inventory subsidiary.
B: Cash disbursements.
C: Cash receipts.
D: Payroll transactions.

  1. A client that recently installed a new accounts payable system assigned employees a user identification code (UIC) and a separate password. Each UIC is a person’s name, and the individual’s password is the same as the UIC. Users are not required to change their passwords at initial log-in nor do passwords ever expire. Which of the following statements does not reflect a limitation of the client’s computer-access control?

A: Employees can easily guess fellow employees’ passwords.
B: Employees are not required to change passwords.
C: Employees can circumvent procedures to segregate duties.
D: Employees are not required to take regular vacations.

19.  A manufacturing company that wanted to be able to place material orders more efficiently most likely would utilize which of the following?

A: Electronic check presentment.
B: Electronic data interchange.
C: Automated clearinghouse.
D: Electronic funds transfer.


20.  Which of the following statements is true regarding Transmission Control Protocol and Internet Protocol (TCP/IP)?

A: Every TCP/IP-supported transmission is an exchange of funds.
B: TCP/IP networks are limited to large mainframe computers.
C: Every site connected to a TCP/IP network has a unique address.
D: The actual physical connections among the various networks are limited to TCP/IP ports.


  1. Compared to online real-time processing, batch processing has which of the following disadvantages?

A: A greater level of control is necessary.
B: Additional computing resources are required.
C: Additional personnel are required.
D: Stored data are current only after the update process.


  1. Which of the following represents the procedure managers use to identify whether the company has information that unauthorized individuals want, how these individuals could obtain the information, the value of the information, and the probability of unauthorized access occurring?A: Disaster recovery plan assessment.
    B: Systems assessment.
    C: Risk assessment.
    D: Test of controls.


  1. Which of the following best describes a hot site?

A: Location within the company that is most vulnerable to a disaster.
B: Location where a company can install data processing equipment on short notice.
C: Location that is equipped with a redundant hardware and software configuration.
D: Location that is considered too close to a potential disaster area.


  1. In an income statement prepared as an internal report using the absorption costing method, which of the following terms should appear?


Contribution margin

Gross profit (margin)














A: A.
B: B.
C: C.
D: D.

  1. Which one of the following is the best characteristic concerning the capital budget? The capital budget is a(n)


A: Plan to insure that there are sufficient funds available for the operating needs of the company.
B: Exercise that sets the long-range goals of the company including the consideration of external influences caused by others in the market.
C: Plan that coordinates and communicates a company’s plan for the coming year to all departments and divisions.
D: Plan that assesses the long-term needs of the company for plant and equipment purchases.

  1. If a manufacturing company uses responsibility accounting, which one of the following items is least likely to appear in a performance report for a manager of an assembly line?

A: Materials.
B: Repairs and maintenance.
C: Direct labor.
D: Equipment depreciation.

  1. The budgeting tool or process where estimates of revenues are prepared for each product beginning with the product’s research and development phase and traced through to its customer support phase is a(n)

A: Master budget.
B: Activity-based budget.
C: Zero-based budget.
D: Life-cycle budget.

  1. Under a standard cost system, the material price variances are usually the responsibility of the

A: Production manager.
B: Cost accounting manager.
C: Sales manager.
D: Purchasing manager.

29.  Virgil Corp. uses a standard cost system. In May, Virgil purchased and used 17,500 pounds of materials at a cost of $70,000. The materials usage variance was $2,500 unfavorable and the standard materials allowed for May production was 17,000 pounds. What was the materials price variance for May?

A: $17,500 favorable.
B: $17,500 unfavorable.
C: $15,000 favorable.
D: $15,000 unfavorable.


  1. What is the required unit production level given the following factors?




Projected sales


Beginning inventory


Desired ending inventory


Prior year beginning inventory



A: 915
B: 1,015
C: 1,100
D: 1,215

31.  The CPA reviewed the minutes of a board of directors’ meeting of LQR Corp., an audit client. An order for widget handles was outsourced to SDT Corp. because LQR could not fill the order. By having SDT produce the order, LQR was able to realize $100,000 in sales profits that oth­erwise would have been lost. The outsourcing added a cost of $10,000, but LQR was ahead by $90,000 when the order was completed. Which of the following statements is cor­rect regarding LQR’s action?

A: The use of resource markets outside of LQR involves opportunity cost.
B: Accounting profit is total revenue minus explicit costs and implicit costs.
C: Implicit costs are not opportunity costs because they are internal costs.
D: Explicit costs are opportunity costs from purchasing widget handles from resource market.


  1. Crisper, Inc. plans to sell 80,000 bags of potato chips in June, and each of these bags requires five potatoes. Pertinent data includes:



Bags of potato chips


Actual June 1 inventory

15,000 bags

27,000 potatoes

Desired June 30 inventory

18,000 bags

23,000 potatoes


What number of units of raw material should Crisper plan to purchase?

A: 381,000
B: 389,000
C: 411,000
D: 419,000


  1. Quick Co. was analyzing variances for one of its operations. The initial budget forecast production of 20,000 units during the year with a variable manufacturing overhead rate of $10 per unit. Quick produced 19,000 units during the year. Actual variable manufacturing costs were $210,000. What amount would be Quick’s flexible budget variance for the year?

A: $10,000 favorable.
B: $20,000 favorable.
C: $10,000 unfavorable.
D: $20,000 unfavorable.


34.  Selected information concerning the operations of a company for the year ended December 31 is as follows:


Units produced


Units sold


Direct materials used


Direct labor incurred


Fixed factory overhead


Variable factory overhead


Fixed selling and administrative expenses


Variable selling and administrative expenses



Finished goods inventory under variable (direct) costing is equal to

A: $23,900
B: $19,400
C: $17,000
D: $14,400


  1. The difference between standard hours at standard wage rates and actual hours at standard wage rates is referred to as which of the following types of variances?

A: Labor rate.
B: Labor usage.
C: Direct labor spending.
D: Indirect labor spending.

  1. Which of the following statements is true regarding the payback method?

A: It does not consider the time value of money.
B: It is the time required to recover the investment and earn a profit.
C: It is a measure of how profitable one investment project is compared to another.
D: The salvage value of old equipment is ignored in the event of equipment replacement.


  1. Harvey Co. is evaluating a capital investment proposal for a new machine. The investment proposal shows the fol­lowing information:


Initial cost



10 years

Annual net cash inflows


Salvage value



If acquired, the machine will be depreciated using the straight-line method. The payback period for this invest­ment is

A: 3.25 years.
B: 2.67 years.
C: 2.5 years.
D: 2 years.

38.  An American importer expects to pay a British supplier 500,000 British pounds in three months. Which of the following hedges is best for the importer to fix the price in dollars?

A: Buying British pound call options.
B: Buying British pound put options.
C: Selling British pound put options.
D: Selling British pound call options.


  1. A company purchases an item for $43,000. The salvage value of the item is $3,000. The cost of capital is 8%. Pertinent information related to this purchase is as follows:



Net cash flows

Present value factor at 8%

Year 1



Year 2



Year 3



Year 4




What is the discounted payback period in years?

A: 3.10
B: 3.25
C: 2.90
D: 3.14

  1. Which of the following events would decrease the internal rate of return of a proposed asset purchase?

A: Decrease tax credits on the asset.
B: Decrease related working capital requirements.
C: Shorten the payback period.
D: Use accelerated, instead of straight-line depreciation.




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