1. Which of the following statements about differences between financial and managerial accounting is incorrect?

a. Managerial accounting information is prepared primarily for external parties such as stockholders and creditors; financial accounting is directed at internal users.

b. Financial accounting is aggregated; managerial accounting is focused on products and departments.

c. Managerial accounting pertains to both past and future items; financial accounting focuses primarily on past transactions and events.

d. Financial accounting is based on generally accepted accounting practices; managerial accounting faces no similar constraining factors.

Answera. Managerial accounting information is prepared for internal users, while financial accounting information is directed primarily at external users such as stockholders and creditors. The other statements are all correct.

 

2. Which of the following functions is managerial accounting intended to facilitate?

a. Planning

b. Decision making

c. Control

d. All of these

Answerd. Planning, control, and decision making are all served by managerial accounting information.

 

3. Cost accounting information can be used for:

a. Budget control and evaluation.

b. Determining standard costs and variances.

c. Pricing and inventory valuation decisions.

d. All of these

Answerd. These functions are all served by, and in fact depend on, solid cost accounting information.

 

4. Acronyms are perhaps overused, but nonetheless important to know.  Which of the following acronyms is used to describe a process for an inventory management process that attempts to minimize the money invested in inventory?

a. CFM

b. TQM

c. ABC

d. JIT

Answerd. JIT is just-in-time inventory management. CFM is a professional designation for "certified financial manager." TQM refers to "total quality managment." ABC is "activity-based costing."

 

5. Manufacturing costs are also known as product costs. Which of the following best describes those costs which are considered to be manufacturing costs?

a. Direct materials, direct labor, and factory overhead.

b. Direct materials and direct labor only.

c. Direct materials, direct labor, factory overhead, and administrative overhead.

d. Direct labor and factory overhead.

Answer a. Direct materials, direct labor, and factory overhead are all included as a manufacturing cost. Administrative overhead is not included.

 

6. The 20X5 work in process inventories of Parkhurst, Inc., totaled $20,000 on January 1 and $15,000 on December 31. If total manufacturing cost was 90% of cost of goods sold, how much was cost of goods sold?

a. Cannot be determined from the information presented.

b. 110% of total manufacturing cost.

c. ($20,000 - $15,000)/0.90.

d. ($20,000 - $15,000) + 110% of total manufacturing cost.

Answer a. Not enough information is given to determine the required amount.

 

7. Machine lubricant used on processing equipment in a manufacturing plant would be classified as a:

a. period cost/manufacturing overhead.

b. period cost/SG&A.

c. product cost/manufacturing overhead.

d. product cost/SG&A.

Answer c. Machine lubricant is an indirect material that becomes part of manufacturing overhead. Manufacturing overhead is a product cost.

 

8. Factory overhead includes all manufacturing costs except direct material and direct labor. Which of the following items would not be considered to be a factory overhead cost?

a. Repainting the corporate office building.

b. Indirect labor.

c. Repair and maintenance expenditures on factory machinery.

d. Small expenditures pertaining to items like rags, screws, adhesives, etc., used in the production process.

Answera. Costs of repainting the corporate office is not a factory overhead cost. The other items are all typical factory overhead items.

 

9. Which of the following product costs is both a prime cost and conversion cost?

a. All of the following (a, b, and c).

b. Manufacturing overhead.

c. Direct material.

d. Direct labor.

Answerd. Direct labor is both a prime cost and a conversion cost. Direct material is only a prime cost and manufacturing overhead is only a conversion cost.

 

10. On a schedule of cost of goods manufactured:

a. Cost of goods manufactured and total manufacturing costs are always the same.

b. Cost of goods manufactured is calculated by adding the beginning work in process inventory to total manufacturing costs and subtracting the ending work in process inventory balance

c. Beginning raw materials inventory plus direct labor plus factory overhead yields total manufacturing costs.

d. All of the above are correct.

Answer b. Cost of goods manufactured is calculated by adding the beginning work in process inventory to total manufacturing costs and subtracting the ending work in process inventory balance. Cost of goods manufactured and total manufacturing costs are not necessarily the same. (They would be the same if there were no work in process inventory.) Total manufacturing costs consist of direct materials used (not beginning raw materials) plus direct labor plus factory overhead.