CHAPTER 13 - MULTIPLE CHOICE QUESTIONS

1. Managerial accounting information is generally prepared for a. shareholders b. creditors c. managers d. regulatory agencies

C is correct. Section Management accounting basics Management accounting focuses mainly on the preparation of reports for the internal users of financial information, i.e. managers are all levels of the entity. 2. Managerial accounting information a. relates to the entity as a whole and is highly aggregated b. relates to sub-units of the entity and may be very detailed c. is prepared only once a year d. is constrained by the requirements of generally accepted accounting principles

B is correct. Section Management accounting basics Management accounting pertains to subunits of the entity and may be very detailed.

5.

Which of the following is not an internal user of management information? a. Creditor b. Department manager c. Controller d. Treasurer

A is correct. Section Management accounting basics Creditors are external to the entity. 6. Managerial accounting does not encompass a. calculating product cost b. calculating earnings per share c. determining cost behavior d. profit planning

B is correct.

Section Management accounting basics Calculating earnings per share is a function for external users of financial information. 7. Management accounting is applicable to a. service entities b. manufacturing entities c. not-for-profit entities d. all of these

D is correct. Section Management accounting basics Management accounting applies to any business entity.

10.

Financial statements for external users can be described as a. user-specific b. general-purpose c. special-purpose d. management reports

B is correct. Section Management accounting basics Financial statements prepared for external users are general purpose financial reports. 11. Management accounting reports can be described as a. general-purpose b. macro-reports c. special-purpose d. classified financial statements

C is correct. Section Management accounting basics Management accounting reports provide special purpose information for a particular user for a specific reason. 12. The reporting standard for external financial reports is a. industry-specific b. company-specific c. generally accepted accounting principles d. department-specific

C is correct.

Section Management accounting basics The reporting standard for external financial reports is generally accepted accounting principles. 15. Internal reports are generally a. aggregated b. detailed c. regulated d. unreliable

B is correct. Section Management accounting basics Internal reports are generally very detailed. 16. Planning is a function that involves a. hiring the right people for a particular job b. coordinating the accounting information system c. setting goals and objectives for an entity d. analysing financial statements

C is correct. Section Management accounting basics Planning requires management to look ahead and to establish objectives.

18.

Which of the following is not a management function? a. Demotivating b. Planning c. Controlling d. Directing

A is correct. Section Management accounting basics Management are concerned with directing and motivating, not demotivating. 19. A manager who is establishing objectives is performing which management function? a. Motivating b. Directing c. Planning d. Constraining

C is correct.

Section Management accounting basics Planning involves looking ahead and establishing objectives. 20. The document of an organisation that depicts authority relationships within the company is the a. chart of accounts b. ledger c. organisation chart d. constitution

C is correct. Section Management accounting basics An organisational chart depicts authority relationships within a company. 23. Both direct materials and indirect materials are classified as a. raw materials b. manufacturing overhead c. merchandise inventory d. non-current assets

A is correct. Section Management cost concepts Both direct and indirect materials are included in raw materials. 24. The work of factory employees that can be physically associated with converting raw materials into finished goods is classified as a. manufacturing overhead b. indirect materials c. indirect labour d. direct labour

D is correct. Section Management cost concepts The work of factory employees that can be physically and economically traced to converting raw materials into finished goods is considered direct labour.

25.

Which one of the following would not be classified as manufacturing overhead? a. Indirect labour b. Direct materials c. Insurance on factory building d. Indirect materials

B is correct. Section Management cost concepts Direct materials are classified as direct materials, not manufacturing overhead. 26. In manufacturing a product, prime costs are a. raw materials and manufacturing overhead b. indirect materials and manufacturing overhead c. indirect labour and manufacturing overhead d. direct materials and direct labour

D is correct. Section Management cost concepts Direct materials and direct labour are often referred to as prime costs because of their direct association with the manufacturing of the finished product.

29.

A manufacturing process requires small amounts of glue. The glue used in the process is classified as a. a prime cost b. an indirect material c. a direct material d. miscellaneous expense

B is correct. Section Management cost concepts The glue would be classified as an indirect material as the physical association with the finished product is too small in terms of cost. 30. The wages of a maintenance worker in a manufacturing plant would be classified as a. a prime cost b. direct labour c. indirect labour d. compliance costs

C is correct. Section Management cost concepts These wages would be classified as indirect labour. 31. Which of the following is not a manufacturing cost category? a. Cost of goods sold b. Direct materials c. Direct labour

d.

Manufacturing overhead

A is correct. Section Management cost concepts The three manufacturing categories are direct materials, direct labour and manufacturing overhead. 35. Lubricants, used irregularly in a production process, are classified as a. miscellaneous expense b. direct materials c. indirect materials d. immaterial items

C is correct. Section Management cost concepts Lubricants used in a production process are classified as overhead because they do not physically become part of the finished product. 36. Which of the following is not another name for the term manufacturing overhead? a. Factory overhead b. Pervasive costs c. Burden d. Indirect manufacturing costs

B is correct. Section Management cost concepts Terms such as factory overhead, indirect manufacturing costs and burden as sometimes used instead of manufacturing overhead.

37.

Because of automation, which component of product cost is declining? a. Direct labour b. Direct materials c. Manufacturing overhead d. Advertising

A is correct. Section Management cost concepts Automation often replaces direct labour in the product cost. 38. The product cost that is most difficult to associate with a product is a. direct materials b. direct labour c. manufacturing overhead d. raw materials

C is correct. Section Management cost concepts Manufacturing overhead is most difficult to associate with a product because the costs are indirectly associated with the manufacture of the finished product.

40.

Which one of the following costs would not be included in inventory? a. Period costs b. Prime costs c. Conversion costs d. Indirect labour costs

A is correct. Section Management cost concepts Period costs are costs that are identified with a specific time period rather than with a saleable product and therefore do not become part of inventory.

41.

Prime costs of a company are $3,000,000, manufacturing overhead is $1,500,000 and direct labour is $750,000. What is the amount of direct materials? a. $1,500,000 b. $750,000 c. $2,250,000 d. Cannot be determined from the information provided

C is correct. Section Management cost concepts Prime costs include direct labour and direct materials therefore direct materials = $2,250,000 ($3,000,000 - $750,000 = $2,250,000).

44.

Sales commissions are classified as a. prime costs b. period costs c. product costs d. indirect labour

B is correct. Section Management cost concepts Sales commissions are included in selling expenses and therefore are classified as a period cost.

45.

Product costs consist of a. conversion costs and unexpired expenses b. prime costs and manufacturing overhead c. selling and administrative expenses d. period costs

B is correct. Section Management cost concepts Product costs include direct materials, direct labour (collectively known as prime costs) and manufacturing overhead.. 46. Product costs are also called a. direct costs b. prime costs c. inventoriable costs d. capitalisable costs

C is correct. Section Manufacturing costs in financial statements Product costs are also called inventoriable costs because they will eventually become part of finished goods inventory. 47. For inventoriable costs to become expenses under the matching principle a. the product must be finished and included in inventory b. the product must be expensed based on percentage-of-completion c. the product to which they attach must be sold d. all accounts payable for inventory acquisition costs must be settled

C is correct. Section Manufacturing costs in financial statements For inventoriable costs to become expenses under the matching principle the product to which they attach must be sold. 48. As inventoriable costs expire, they become a. selling expenses b. gross profit c. cost of goods sold d. sales revenue

C is correct. Section Manufacturing costs in financial statements As inventoriable costs expire they become cost of goods sold.

50.

A manufacturing company calculates cost of goods sold as follows: a. Beginning FG inventory + cost of goods purchased ending inventory b. Ending FG inventory cost of goods manufactured + beginning inventory c. Beginning FG inventory cost of goods manufactured ending inventory d. Beginning FG inventory + cost of goods manufactured ending inventory

FG FG FG FG

D is correct. Section Manufacturing costs in financial statements A manufacturing entity determines the cost of goods sold by adding beginning FG inventory to the cost of goods manufactured and finally deducting ending FG inventory.

52.

The subtotal, Cost of goods manufactured appears on a. a merchandising company's income statement b. a manufacturing company's income statement c. both a manufacturing and a merchandising company's income statement d. neither a merchandising nor a manufacturing company's income statement

B is correct. Section Manufacturing costs in financial statements Cost of goods manufactured appears on a manufacturing companys income statement. 53. Cost of goods manufactured in a manufacturing company is analogous to a. ending inventory in a merchandising company b. beginning inventory in a merchandising company c. cost of goods available for sale in a merchandising company d. cost of goods purchased in a merchandising company

D is correct. Section Manufacturing costs in financial statements Cost of goods manufactured in a manufacturing company is analogous to cost of goods purchased in a merchandising company. 54. Cost of goods sold

a. b. c. d.

only appears on merchandisers' income statements only appears on manufacturers' income statements appears on both manufacturers and merchandisers' income statements is calculated in the same way for merchandisers and manufacturers

C is correct. Section Manufacturing costs in financial statements Cost of goods sold appears on the income statements of manufacturers and merchandisers.

56.

If the amount of Cost of goods manufactured during a period exceeds the amount of Total manufacturing costs for the period, then a. ending work in process inventory is greater than or equal to the amount of the beginning work in process inventory b. ending work in process is greater than the amount of the beginning work in process inventory c. ending work in process is equal to the cost of goods manufactured d. ending work in process is less than the amount of the beginning work in process inventory

D is correct. Section Manufacturing costs in financial statements If the amount of Cost of goods manufactured during a period exceeds the amount of Total manufacturing costs for the period, then ending work in process is less than the amount of the beginning work in process inventory.

58.

On the costs of goods manufactured schedule, the item raw materials inventory (ending) appears as a. an addition to raw materials purchases b. an addition to raw materials available for use c. a subtraction from raw materials available for use

d.

a subtraction from raw material purchases

C is correct. Section Manufacturing costs in financial statements If the amount of Cost of goods manufactured during a period exceeds the amount of Total manufacturing costs for the period, then ending work in process is less than the amount of the beginning work in process inventory. Use the following information for questions 5961. Craft Manufacturing Company's accounting records reflect the following inventories: Dec. 31, 2010 Dec. 31, 2009 Raw materials inventory $310,000 $260,000 Work in process inventory 300,000 160,000 Finished goods inventory 190,000 150,000 During 2010, $500,000 of raw materials were purchased, direct labour costs amounted to $600,000, and manufacturing overhead incurred was $480,000. 59. The total raw materials available for use during 2010 for Craft Manufacturing Company is a. $810,000 b. $260,000 c. $450,000 d. $760,000

D is correct. Section Manufacturing costs in financial statements Raw materials available for use equals beginning RM inventory plus RM purchased: $260,000 + $500,000 = $760,000 60. Craft Manufacturing Company's total manufacturing costs incurred in 2007 amounted to a. $1,530,000 b. $1,490,000 c. $1,390,000 d. $1,580,000

A is correct. Section Manufacturing costs in financial statements Total manufacturing costs equals RM used, DM cost and OH cost: $450,000 + $600,000 + $480,000 = $1,530,000 61. If Craft Manufacturing Company's cost of goods manufactured for 2007 amounted to $1,390,000, its cost of goods sold for the year is a. $1,500,000

b. c. d.

$1,250,000 $1,350,000 $1,430,000

C is correct. Section Manufacturing costs in financial statements Cost of Goods Sold: $150,000 + $1,390,000 - $190,000 = $1,350,000 .

67.

Which one of the following does not appear on the balance sheet of a manufacturing company? a. Finished goods inventory b. Work in process inventory c. Cost of goods manufactured d. Raw materials inventory

C is correct. Section Manufacturing costs in financial statements Cost of goods manufactured fors not appear on the balance sheet of a manufacturing company. 68. The equivalent of finished goods inventory for a merchandising firm is referred to as a. purchases b. cost of goods purchased c. merchandise inventory d. raw materials inventory

C is correct. Section Manufacturing costs in financial statements The equivalent of finished goods inventory for a merchandising firm is referred to as merchandise inventory.