1. Describe the nature of managerial accounting.

Problem #1 - Correct

Which of the following is true about financial accounting?

a.Financial accounting is not constrained by rules such as generally accepted accounting principles.

b.Under financial accounting, reports are mainly prepared to be used by internal parties.

c.Financial accounting information is reported as needed by management for its decision making.

d.Financial accounting information is required to be reported annually but may be reported monthly

or quarterly.

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Correct. Financial accounting information is required to be reported annually but may be reported monthly or quarterly.

Problem #11 - Correct

Which of the following statements is true about managerial accounting?

a.Under managerial accounting, transactions and events are required to be recorded and reported

using generally accepted accounting principles.

b.Managerial accounting is mainly used to generate financial information for external parties.

c.Reports generated using managerial accounting are required to be reported annually but may be

reported monthly or quarterly.

d.Under managerial accounting, reports are prepared as needed by management for its decision

making.

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Correct. Under managerial accounting, reports are prepared as needed by management for its decision making.

2. Describe and illustrate manufacturing operations, including different types and classifications of costs.

Problem #7 - Correct

Correct. The salary of a production supervisor is an example of a factory overhead cost.

b.Prime costs consist of indirect materials and indirect labor costs.

c.Prime costs consist of indirect materials and factory overhead costs.

d.Prime costs consist of indirect labor and factory overhead costs.

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Correct. Prime costs consist of direct materials and direct labor costs.

Correct. Prime cost = Direct materials cost + Direct labor cost = $150,000 + $100,000 = $250,000

Correct. Costs are often classified by their relationship to a segment of operations, called a cost object.

Correct. A process cost system provides product costs for each manufacturing department.

Problem #13 - Correct

A _____ cost system provides product costs for each quantity of product that is manufactured.

Correct. A job order cost system provides product costs for each quantity of product that is manufactured.

4. Describe and illustrate a job order cost accounting system for manufacturing operations.

Problem #8 - Correct

Which of the following statements is true about the raw materials inventory?

a.It consists of indirect materials costs that have entered the manufacturing process but are

associated with products that have not been completed.

b.It consists of the costs of the direct and indirect materials that have not yet entered the

manufacturing process.

c.It consists of direct materials costs that have entered the manufacturing process but are associated

with products that have not been completed.

d.It consists of the costs of the direct and indirect materials that have already entered the

manufacturing process.

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Correct. The materials inventory, sometimes called raw materials inventory, consists of the costs of the direct and indirect materials that have not yet entered the manufacturing process.

Problem #9 - Correct

Aster Inc., an electronic company, estimates a total factory overhead cost of $500,000 for the year and an activity base of 25,000 direct labor hours. Which of the following statements is correct if the actual labor hours are 29,000 and the actual factory overhead is $640,000?

a.The factory overhead is underapplied by $80,000.

b.The factory overhead is overapplied by $40,000.

c.The factory overhead is underapplied by $40,000.

d.The factory overhead is overapplied by $80,000.

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Correct. Predetermined factory overhead rate = Estimated total factory overhead costs / Estimated activity base =

$500,000 / 25,000 direct labor hours = $20 per direct labor hour Applied factory overhead = 29,000 direct labor hours × $20 per direct labor hour = $580,000 The actual factory overhead is $640,000. Therefore, the factory overhead is underapplied by $80,000.

Problem #10 - Correct

Which of the following statements is true about the work-in-process inventory?

a.It consists of direct materials costs, direct labor costs, and factory overhead costs that have entered

the manufacturing process but are associated with products that have not been completed.

b.It consists of completed jobs that have not been sold.

c.It consists of the costs of the direct and indirect materials that have not yet entered the

manufacturing process.

d.It consists of completed jobs that have already been sold.

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Correct. The work-in-process inventory consists of direct materials costs, direct labor costs, and factory overhead costs that have entered the manufacturing process but are associated with products that have not been completed.

d.television sets present in the stock of companies that manufacture electronic goods.

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Correct. Raw materials inventory includes the cost of rubber present in the stock of companies that manufacture tires.

5. Describe a job order cost accounting system for service operations.

Correct. When a job is completed and the client is billed, the costs are transferred to a cost of services account.

Problem #15 - Correct

Which of the following statements is true if a service business bills clients for services in advance?

a.The billed amount is treated as deferred revenue until the services are completed.

b.The billed amount is not at all recorded in the books.

c.The billed amount is directly transferred to the cost of services account.

d.The billed amount is transferred to the work-in-process account as and when it is billed.

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Correct. The billed amount is treated as deferred revenue until the services are completed.

6. Describe just-in-time manufacturing processing.

d.In a just-in-time manufacturing process, there are no service activities.

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Correct. In a just-in-time manufacturing process, service activities may be assigned to individual work centers.

Problem #6 - Correct

Which of the following is true about a just-in-time production process?

a.In a just-in-time production process, supervisors enter materials into manufacturing so as to keep all

the manufacturing departments operating.

b.It is a management approach that focuses more on labor intensive production than capital intensive

production.

c.It is a management approach that focuses on reducing time and cost and eliminating poor quality.

d.In a just-in-time production process, a worker typically performs only one function.

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Correct. Just-in-time processing is a management approach that focuses on reducing time and cost and eliminating poor quality.

7. Describe and illustrate activity based costing.

Correct. Housekeeping department’s activity rate = Budgeted activity cost / Activity-base usage = $900,000 / 27,000 hours = $33.33 per housekeeping hour

Problem #17 - Correct

Which of the following statements is true about the activity-based costing method?

a.In complex manufacturing systems, one way to avoid product costs distortion is by using the

activity-based costing method.

b.Service companies should never use the activity-based costing method to determine the cost of

providing services to customers.

c.Many service companies find that the activity-based costing method can lead to service cost

distortions.

d.Activity-based costing method allocates factory overhead less accurately than does the single,

plantwide overhead rate.

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Correct. In complex manufacturing systems, one way to avoid product costs distortion is by using the activity-based costing method.

d.Allocating overhead costs to patients based upon activity usage

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Correct. Identifying activity cost pools is the first step in allocating hospital overhead to patients.

8. Describe and illustrate the use of cost per unit for managerial decision making and performance analysis.

Problem #5 - Correct

Which of the following is an advantage of using job order cost accounting system?

a.A job order cost accounting system is the most effective method of allocating factory overhead.

b.A job order cost accounting system uses cost of activities to determine product costs.

c.A job order cost accounting system can be used by managers for cost evaluation, decision making,

and performance analysis.

d.A job order cost accounting system helps in avoiding service cost distortions.

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Correct. A job order cost accounting system can be used by managers for cost evaluation, decision making, and performance analysis.

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