Chapter 1 Introduction to Cost Accounting and
Cost Accounting Cycle
Exercises
TRUE or FALSE
1. Cost accounting systems are used to supply cost data information on the costs
incurred by a manufacturing process or department.
2. Period cost includes direct materials and direct labor.
3. A process cost accounting system is best used by manufacturers of like units of
product that are not distinguishable from each other during a continuous
production process.
4. Large inventories of raw materials must be maintained in just in time system.
5. The primary objective of activity based costing is more accurate and meaningful
product costs.
6. Financial accounting is considered as a subset of management accounting and
cost accounting.
7. Cost accounting involves the process of analyzing, recording, classifying,
summarizing and interpreting the details of costs of materials, labor and factory
overhead necessary to produce and sell the product.
8. Cost accounting helps the managers understand the costs of running the
business.
9. Financial Accounting is concerned with providing information to managers for
use in planning and controlling operations for decision making.
10. Management accounting involves financial analysis, , budgeting, and forecasting,
cost analysis, evaluation of business decisions.
11. A cost means a measurement in monetary terms, of the amount of resources used
for the purpose of production of goods or rendering services.
12. The cost accounting system provides management needed information to
estimate the cost of their products for profitability analysis, inventory valuation
and cost control.
13. The product costs in the standard costing system are determined as they occur
simultaneously with the manufacturing operation, but the total of product costs
is only known as the operation has been completed.
14. Under the standard costing system, direct material, direct labor and factory
overhead are applied using predetermined rate.
15. Under the normal costing system, direct materials and direct labor are
accumulated using standard costing and factory overhead are accumulated using
actual costing.
16. In throughput costing, only direct materials are recorded as part of the inventory.
17. Direct labor and factory overhead costs are charged as an expense in Direct
Costing.
18. The total sales less the costs of direct materials are known as throughput.
19. Throughput costing provides proper matching of cost and revenue.
20.In throughput costing, variable costs are part of the inventory.
21. Direct costing provides proper matching of cost and revenue.
22.Absorption costing provides proper matching of cost and revenue.
23.Hybrid costing is a combination of job order and process costing method.
24.Under hybrid costing, direct materials are accumulated using process costing and
conversion costs using job order costing.
25.Using the FIFO method, the goods last purchased are first sold.
26.Using the FIFO method, the goods purchased at the end of the accounting period
remain in ending inventory.
27. Using the LIFO method, the inventory is recorded in terms of older prices and the
cost of goods sold is recorded at recent prices.
28.The purpose of cost accounting is the control of cost.
29.The purpose of financial accounting is the financial reporting.
30.The periodic system requires maintenance of records called stock cards.
31. Period cost can be found in the balance sheet or in the income statement.
32.Finished goods inventory is an asset, but raw materials and work in process
inventory are not considered as assets until the production is completed.
33.Manufacturing costs are regarded as expenses of the current period and are
expensed when incurred.
34.A job order costing system is used by service firms to determine revenues,
expenses and ultimately the profit.
35.A process cost system is appropriate where few products are manufactured and
each product is made to customers' specifications.
36.A manufacturer may employ a job order cost system for some of its products and a
process cost system for others.
37. A perpetual inventory controlling accounts and subsidiary ledgers is maintained
for materials; work in process and finished goods in cost accounting systems.
38.A process cost accounting system accumulates costs for each of the departments
or processes within the factory.
39.All cost and expenses incurred by a manufacturing entity are considered product
costs rather than period costs.
40.A manufacturing company has three types of inventories: raw materials, work in
process and finished goods inventory.
41. When the goods are sold, their costs are transferred from Work in Process to
Finished Goods.
42.Raw materials inventory refers to direct materials on hand and available for use in
the manufacturing process.
43.Prime costs are the combination of direct materials and direct labor cost.
44.Conversion costs are the combination of direct labor, direct materials and factory
overhead.
45.Product costs are referred to as inventoriable costs.
46.Operating expenses are product costs and are expensed when the product is sold.
47. Only the value of the inventory that is sold will appear in the income statement.
48.All costs in merchandising company are period costs.
49.Period costs are operating costs that are expensed in the period in which the
goods are sold.
50.When finished goods are sold, the entry to record the cost of sales is to debit
Finished good inventory and credit to Cost of Sales.
51. The entry to record the cost of goods transferred from Department 1 to
Department 2 in process costing system is a debit to Work in process Department
2 and a credit Work in process Department 1.
52.If the overapplied factory overhead amount is material, it is transferred to the cost
of goods sold at the end of the year.
53.Factory overhead cost includes all manufacturing costs except direct materials
and direct labor.
54.Labor costs that are not directly traceable to the product are part of factory
overhead
55.Conversion costs consist of product and period costs.
56.If factory overhead applied exceeds the actual costs, overhead is said to be
under-applied.
57. If the under-applied factory overhead amount is immaterial, it is transferred to
the cost of goods sold at the end of the year.
58.The sum of all costs of manufacturing costs except direct materials is called
factory overhead
59.The cost of goods sold of manufacturing company equals beginning finished
goods inventory + cost of goods manufactured - ending finished goods inventory.
60.The statement of cost of goods sold is an extension of the income statement for a
manufacturing company.
61. A manufacturing business reports only two types. of inventory on its balance
sheet: work in process and finished goods inventory.
MULTIPLE CHOICE
1. Which of the following is correct?
a. Costs incurred in one year are always meaningful in the following year.
b. Different cost concepts and classifications are used for different purposes.
c. All organizations incur the same type of costs.
d. The word "cost" has the same meaning in all situations in which it is used.
2. Management and financial accounting are used for which of the following
purposes?
Management Financial
a. Internal External
b. External Internal
c. Internal Internal
d. External External
3. One major difference between financial and management accounting is that
a. Financial accounting reports are prepared primarily for users external to
the company.
b. Management accounting is not under the jurisdiction of the Securities and
Exchange Commission.
c. Government regulations do not apply to management accounting.
d. All of the above are true
4. The cost of a manufactured product consists of which of the following costs?
a. Direct materials cost and factory overhead cost
b. Direct labor cost and factory overhead cost
c. Direct materials and direct labor
d. Direct materials, direct labor and factory overhead
5. Financial accounting
a. Is primarily concerned with internal reporting.
b. Is more concerned with verifiable, historical information than cost
accounting.
c. Focuses on the parts of the organization rather than the whole.
d. d. Is specifically directed at management decision making needs.
6. Cost accounting is directed toward the needs of
a. Regulatory agencies
b. External users
c. Internal users
d. Stockholders
7. Broadly speaking, cost accounting can be defined as a(n)
a. External reporting system that is based on activity based costs.
b. Systems used for providing the government and creditors with
information about a company's internal operations.
c. Internal reporting system that provides product costing and other
information used by managers in performing their functions
d. Internal reporting system needed by manufacturers to be in compliance
with Cost Accounting Standards Board pronouncements.
8. Which of the following are the two main types of cost accounting systems for
manufacturing operations?
a. Process cost and general accounting systems
b. Job order cost and process cost systems
c. Job order cost and general accounting systems
d. Process cost and backflushed costing system
9. Which of the following is incorrect?
a. A primary purpose of cost accounting is to determine valuations needed
for external financial statements.
b. A primary purpose of management accounting is to provide information to
managers for use in planning, controlling and decision making.
c. The act of converting production inputs into finished products or services
necessitates cost accounting.
d. Two primary hallmarks of cost and management accounting are
standardization of procedures and use of generally accepted accounting
principles.
10. Which of the following statements is correct?
a. Management accounting is a subset of both cost and financial accounting.
b. Financial accounting is a subset of cost accounting
c. Cost accounting is a subset of both management and financial accounting.
d. Management accounting is a subset of cost accounting.
11. Cost accounting is necessitated by
a. The high degree of conversion found in certain businesses.
b. External reporting requirements for manufacturing company
c. Management's need to be aware of all production activities.
d. Management's need for information to be used for planning and
controlling activities.
12. Financial and cost accounting are both highly concerned with
a. Preparing budgets
b. Providing managers with information necessary for control purposes.
c. Determining performance standards
d. Determining product cost
13. Cost and management accounting
a. Require an entirely separate group of accounts than financial accounting
uses.
b. Focus solely on determining how much it costs to manufacture a product
or provide a service.
c. Provide product/service cost information as well as information for
internal decision making.
d. Are required for business record keeping like financial and tax accounting.
14. Materials must have which two qualities in order to be classified as direct
materials?
a. They must be classified as both prime costs and conversion costs.
b. They must be introduced into the process in both work in process
inventories and finished goods inventories.
c. They must be an integral part of the finished product, and be a significant
portion of the total product cost.
d. They must be an integral part of the finished product, but can be an
insignificant portion of the total product cost.
15. If the cost of direct materials is a small portion of total production cost, it may
be classified as part of:
a. Miscellaneous cost
b. Selling costs
c. Administrative cost
d. Factory overhead cost
16. Which of the following accounts would not appear on a worksheet for a
merchandising company that uses the periodic inventory system?
a. Cost of goods sold
b. Purchases
c. Sales return and allowances
d. Freight in
17. Costs other than direct material and direct labor cost incurred in the
manufacturing process are classified as:
a. Other manufacturing costs
b. Product costs
c. Factory overhead costs
d. Administrative costs
18. Which of the following accounts would appear on a worksheet for a
merchandising company that uses the periodic inventory system?
a. Cost of goods sold
b. Income summary
c. Purchase return and allowances
d. All of the above
19. Which of the following accounts would appear on a worksheet for
merchandising company that uses the perpetual inventory system?
a. Income summary
b. Cost of goods sold
c. Purchases
d. Purchase return and allowances
20. The cost of wages paid to employees directly involved in the manufacturing
process in converting materials into a finished product is classified as:
a. Wages expenses
b. Direct labor cost
c. Factory overhead cost
d. Indirect labor
21. What term is used to refer to the cost of changing direct materials into finished
manufactured product?
a. Period cost
b. Prime cost
c. Product cost
d. Conversion cost
22. The purchases of raw materials account is debited when
a. Direct materials are placed into production
b. Direct materials are purchased
c. Indirect materials are placed into production
d. Raw materials are returned to the vendor
23. All costs related to the manufacturing function in a company are:
a. Period cost
b. Conversion cost
c. Prime cost
d. Product cost
24. The payroll account is debited
a. When employees' salaries are incurred and paid
b. When a new employee is hired
c. When the related labor costs are transferred into the work in process
account
d. When goods are manufactured are completed
25. Prime costs are
a. Direct materials and direct labor
b. Direct labor and factory overhead
c. Direct materials and factory overhead
d. Direct materials, direct labor and factory overhead
26. Another term often used to refer factory overhead is:
a. Indirect materials
b. Indirect labor
c. Factory burden
d. Period costs
27. Which of the following is the correct flow of manufacturing costs?
a. Cost of goods sold, work in process, finished goods, raw materials
b. Raw materials, finished goods, cost of goods sold, work in process
c. Finished goods, work in process, cost of goods sold, raw materials
d. Raw materials, work in process, finished goods, cost of goods sold
28. Which of the following is not a prime cost?
a. Machine operator wages
b. Supervisor's wages
c. Direct labor wages
d. Assembly line wages
29. Goods that are partially completed by a manufacturer are referred to as:
a. Materials inventory
b. Finished goods inventory
c. Work in process inventory
d. Cost of goods sold
30. Costs on the income statement for both a merchandiser and manufacturer
would include:
a. Direct materials
b. Direct labor
c. Factory overhead
d. Operating expenses
31. Cost of goods manufactured is equal to:
a. Total manufacturing cost plus ending materials less beginning materials
inventory
b. Total manufacturing cost plus ending work in process less beginning work
in process inventory
c. Total manufacturing cost plus beginning work in process less ending work
in process inventory
d. Total manufacturing cost plus ending finished goods less beginning
finished goods inventory
32. Product costs
a. Appear only on the balance sheet
b. Appear only on the income statement
c. Are expensed as costs are incurred for direct labor, direct material and
factory overhead.
d. Appear on both the income statement and balance sheet
33. All of the following would probably be considered a direct material except:
a. Steel
b. Fabric
c. Glue
d. Lumber
34. Finished goods inventory is reported on the:
a. Income statement as period cost
b. Balance sheet as non-current asset
c. Balance sheet as current asset
d. Income statement as operating expense
35. Cost of goods sold to a manufacturer is equal to the cost of goods
manufactured plus:
a. Work in process inventory beg. less ending work in process inventory
b. Work in process inventory ending less beginning work in process
inventory
c. Finished goods beg. less ending finished goods inventory
d. Finished goods ending less beginning finished goods inventory
36. Which one of the following will not be found on the balance sheet of a
manufacturing company?
a. Work in process
b. Finished goods
c. Cost of goods sold
d. Materials
37. Beginning work in process is equal to:
a. Total manufacturing cost incurred minus ending work in process
b. Cost of goods manufactured plus ending work in process minus total
manufacturing costs incurred
c. Cost of goods manufactured minus ending work in process plus total
manufacturing costs incurred
d. Ending work in process plus total manufacturing costs incurred
38. Indirect labor and indirect materials are classified as:
a. Operating costs and period costs
b. Operating costs and product costs
c. Factory overhead and product costs
d. Factory overhead and period costs
39. The recording of factory labor incurred for general factory use would include
debit to:
a. Wages payable
b. Factory overhead
c. Wages expense
d. Cost of goods sold
40. The recording of application of factory overhead cost to jobs would include a
debit to:
a. Cost of goods sold
b. Work in process
c. Factory overhead
d. Payroll
41. Which of the following is not a factory overhead cost?
a. Property tax on factory building
b. Salaries of production supervisor
c. Insurance on factory building
d. Materials used directly in the manufacturing process
42. The recording of the units completed would include a debit to:
a. Cost of goods sold
b. Finished goods
c. Work in process
d. Raw materials
43. The recording of goods shipped and customers billed would include a credit to:
a. Accounts receivable
b. Finished goods
c. Cost of goods sold
d. Work in process
44. During the period, labor costs incurred on account amounted to P250,000
including P200,000 for production orders and P50,000 for general factory use, In
addition, factory overhead applied to production was P23,000. From the following,
selects the entry to record the actual factory overhead cost incurred.
a. Accounts Payable 50,000
Factory overhead 50,000
b. Factory overhead 23,000
Accounts payable 23,000
c. Work in process 50,000
Wages payable 50,000
d. Factory overhead 50,000
Wages payable 50,000
45. The costs which are reported on the income statement as part of the cost of
goods sold are referred to as:
a. Operating expenses
b. Period cost
c. Cost of good manufactured
d. Administrative expenses
46. The journal entry to record the purchase of raw materials on account would
be:
a. Credit Raw materials
b. Debit Raw materials
c. Credit Cash
d. Debit Accounts Payable
47. Direct labor and direct materials are classified as:
a. Product costs and expensed when the goods are sold
b. Product costs and expensed when incurred
c. Period costs and expensed when incurred
d. Period costs and expensed when the goods are sold
48. The recording of jobs completed would include a credit to:
a. Finished goods
b. Raw materials
c. Work in process
d. Cost of goods sold
49. Buboy is a merchandising company. Last month the company's merchandise
purchases totalled P278,400. The company's beginning merchandise inventory
was P60,800 and its ending merchandise inventory was P35,200. What was the
cost of goods sold?
a. P278,400
b. P252,800
c. P374,400
d. P304,000
50. Gay Corporation is a merchandising company. Last month the company's cost
of goods sold was P68,000. The company's beginning merchandise inventory was
P11,000 and its ending merchandise inventory was P17,000.
How much were the company's purchases?
a. P96,000
b. P68,000
c. Р74,000
d. P62,000
51. During the month of September, FX Corporation incurred P30,000 of factory
overhead, P40,000 of direct labor, and purchased P25,000 of raw materials.
Between the beginning and end of the month, the raw materials and work in
process inventories decrease by P4,000 and P3,000, respectively. How much are
the total manufacturing costs used?
a. P91,000
b. P99,000
c. P88,000
d. P102,000
52. The following data pertain to X-men Corporation operations in July.
July 1 July 31
Work in Process 7,000 12,000
Raw Materials 15,000 ?
Finished Goods ? 20,000
Other data:
Cost of goods manufactured 135,000
Factory overhead cost 60,000
Gross margin 60,000
Raw materials purchases 30,000
Raw materials used 40,000
Sales 200,000
Req. 1: The beginning finished goods inventory was:
a. P30,000
b. P5,000
c. P25,000
d. P15,000
Req. 2: The total direct labor cost was:
a. P25,000
b. P35,000
c. P40,000
d. P30,000
Req. 3: The ending materials inventory was:
a. P10,000
b. P5,000
c. P15,000
d. P20,000
Req. 4: The total cost of goods sold
a. P140,000
b. P135,000
c. . P200,000
d. P160,000
Req. 5: The total prime cost
a. P45,000
b. P80,000
c. P100,000
d. P140,000
Req. 6: Total conversion cost
a. P60,000
b. P100,000
c. P40,000
d. P140,000
53. Selfie Corporation began operations on January 1, 2030, with all of its activities
conducted from a single facility. The company's accountant concluded that the
year's building depreciation should be allocated as follows: selling activities 30%;
administrative activities 25%; and manufacturing activities 45%. If Selfie sold
70% of 2030 production during that year, what percentage of depreciation would
appear (either directly or indirectly) on the 2030 income statement?
a. 100%
b. 55%
c. 45%
d. 86.5%
54. The December 31, 2030 trial balance of Marie Corporation showed the
following information:
January 1 December 31
Materials 55,250 61,750
Work in Process 39,000 42,250
Finished Goods 201,500 149,500
Freight in 9,750 Advertising expense 48,750
Purchases 780,000 Factory overhead 611,000
Sales 4,550,000 Sales return and allowances 6,500
Delivery expense 19,500 Sales Salaries 65,000
Direct labor 1,040,000
Req. 1: Compute the total cost of goods sold
a. P2,483,000
b. P2,616,250
c. P2,398,500
d. P2,479,750
Req. 2: The total manufacturing cost is:
a. P2,567,500
b. P2,424,500
c. P2,434,250
d. P2,447,500
Req. 3: The total prime cost is:
a. P1,013,500
b. P1,823,250
c. P2,434,250
d. P1,101,750
Reg. 4: Total expenses
a. P133,250
b. P2,616,250
c. P2,483,000
d. P68,250
55. Casino Filipino reported the following data for the month of July:
July 1 July 31
Work in Process 19,000 20,000
Raw Materials 23,000 30,000
Finished Goods 55,000 29,000
Other data:
Direct Labor Cost 135,000
Factory overhead cost 60,000
Selling expenses 60,000
Raw materials purchases 30,000
Administrative expenses 40,000
Req. 1: The total conversion cost for the month was:
a. P140,000
b. 112,000
c. P187,000
d. P136,000
Req. 2: The total prime cost was:
a. P112,000
b. P60,000
c. P136,000
d. P105,000
Req. 3: The total product cost was:
a. P241,000
b. P166,000
c. P187,000
d. P194,000
Req. 4: Total expenses
a. P60,000
b. P272,000
c. P42,000
d. P18,000
56. Last year there was no change in either the raw materials or work in process
beginning and ending inventories. However, finished goods, which had a
beginning balance of P25,000, increase by P15,000. If the manufacturing cost
incurred totaled P600,000 during the year, the cost of goods available for sale
must have been:
a. P610,000
b. P625,000
c. P585,000
d. P600,000
57. Cassy Corporation reports production costs for 2030 as follows:
Operating expenses 870,000
Factory overhead incurred 2,400,000
Direct materials used 2,250,000
Direct labor cost 1,500,000
Req. 1: The total period costs for 2030 amount to:
a. P2,250,000
b. P870,000
c. P2,400,000
d. P3,270,000
Req. 2: The total product costs for 2030 amount to:
a. P870,000
b. P3,270,000
c. P6,150,000
d. P3,750,000
58. You have been trying to reconstruct the records of the BMS Corporation. Some
employees are suspected of having taken some inventories. Any are missing.
Nevertheless, you have obtained the following data regarding the current year:
Administrative expenses 1,125,000
Cost of goods sold 6,000,000
Direct labor 2,250,000
Direct materials used 1,875,000
Factory overhead 2,625,000
Finished goods inventory, end 2,850,000
Gross profit 9,375,000
Raw materials purchases 3,000,000
Sales 15,375,000
Selling expenses 1,500,000
Work in process, beg. 750,000
Work in process, end. 937,500
Req. 1: The total finished goods inventory beginning is:
a. P2,250,000
b. P1,162,500
c. P2,287,500
d. P187,500
Req. 2: The total cost of goods put into process is:
a. P6,750,000
b. P7,500,000
c. P6,562,500
d. P8,850,000
59. The following information is available:
Work in process, end. 63,000
Work in process, beg 98,000
Factory overhead cost 112,000
Direct labor costs 192,500
Cost of materials used 140,000
What is the cost of goods manufactured?
a. P409,500
b. P479,500
c. P605,500
d. P339,500
60. The following data have been provided for the most recent month's
operations:
Beginning work in process inventory ?
Cost of goods manufactured 216,000
Direct labor 120,000
Direct materials 38,400
Ending work in process inventory 38,400
Factory overhead 43,200
Total manufacturing cost ?
The beginning work in process inventory is:
a. P177,600
b. P52,800
c. P254,400
d. P201,600
Chapter 2 Cost Classification and Estimation 65-139
Exercises
Chapter 3 Materials Procurement, Use and Control 140-195
Exercises
Chapter 4 Accounting For Labor 196 - 226
Exercises
