Chapter 1 Assessment
Multiple Choice: Select the best answer for each of the following questions. 1 point
theories, 3 points problems.
1. Indirect labor is a part of:
A) Prime cost.
B) Conversion cost.
C) Period cost.
D) Nonmanufacturing cost.
2. The cost of lubricants used to grease a production machine in a manufacturing company is an
example of a(n):
A) period cost.
B) direct material cost.
C) indirect material cost.
D) none of the above.
3. The salary paid to the president of King Company would be classified on the income statement as
a(n):
A) administrative expense.
B) direct labor cost.
C) manufacturing overhead cost.
D) selling expense.
4. Direct labor cost is a part of:
Conversion cost Prime cost
A) No No
B) No Yes
C) Yes Yes
D) Yes No
5. Direct material cost is a:
Conversion cost Prime cost
A) No No
B) No Yes
C) Yes Yes
D) Yes No
6. Prime cost and conversion cost share what common element of total cost?
A) Direct materials.
B) Direct labor.
C) Variable overhead.
D) Fixed overhead.
7. Prime cost consists of:
A) direct labor and manufacturing overhead.
B) direct materials and manufacturing overhead.
C) direct materials and direct labor.
D) direct materials, direct labor and manufacturing overhead.
8. Wages paid to a timekeeper in a factory are a:
Prime cost Conversion cost
A) Yes No
B) Yes Yes
C) No No
D) No Yes
9. Property taxes on a company's factory building would be classified as a(n):
A) product cost.
B) opportunity cost.
C) period cost.
D) variable cost.
10. Depreciation on a personal computer used in the marketing department of a manufacturing firm
would be classified as:
A) a product cost that is fixed with respect to the company's output.
B) a period cost that is fixed with respect to the company's output.
C) a product cost that is variable with respect to the company's output.
D) a period cost that is fixed with respect to the company's output.
11. The nursing station on the fourth floor of Central Hospital is responsible for the care of patients
who have undergone orthopedic surgery. The costs of drugs administered by the nursing station
to patients would be classified as:
A) direct costs of the patients.
B) indirect costs of the patients.
C) overhead costs of the nursing station.
D) period costs of the hospital.
12. All of the following would be classified as product costs except:
A) property taxes on production equipment.
B) insurance on factory machinery.
C) salaries of the advertising staff.
D) wages of machine operators
13. Product costs appear on the balance sheet:
A) only if goods are partially completed at the end of the period.
B) only if goods are unsold at the end of a period.
C) only if goods are partially completed or are unsold at the end of a period.
D) only in merchandising firms.
14. Ross Corporation shipped finished goods to a customer on credit, but the sale was not recorded
and the costs of the finished goods were incorrectly included on the period's balance sheet as
part of the finished goods inventory. Which one of the following statements is correct concerning
the effects of this error?
A) Accounts receivable was not affected, inventory was overstated, sales were understated, and
cost of goods sold was understated.
B) Accounts receivable was understated, inventory was not affected, sales were understated,
and cost of goods sold was understated.
C) Accounts receivable was understated, inventory was overstated, sales were understated,
and cost of goods sold was overstated.
D) Accounts receivable was understated, inventory was overstated, sales were understated,
and cost of goods sold was understated.
15. Data for Cost A and Cost B are as follows:
Number of
Units Produced Unit Cost Total Cost
Cost A
1 ? P10
10 ? P100
100 ? P1,000
1,000 ? P10,000
Cost B
1 P5,000 ?
10 P500 ?
100 P50 ?
1,000 P5 ?
Which of the above best describes the behavior of Costs A and B?
A) Cost A is fixed, Cost B is variable.
B) Cost A is variable, Cost B is fixed.
C) Both Cost A and Cost B are variable.
D) Both Cost A and Cost B are fixed.
16. Fixed costs expressed on a per unit basis:
A) will increase with increases in activity.
B) will decrease with increases in activity.
C) are not affected by activity.
D) should be ignored in making decisions since they cannot change.
17. The costs of staffing and operating the accounting department at Central Hospital would be
considered by the Department of Surgery to be:
A) direct costs.
B) indirect costs.
C) incremental costs.
D) opportunity costs.
18. A cost incurred in the past that is not relevant to any current decision is classified as a(n):
A) period cost.
B) opportunity cost.
C) sunk cost.
D) differential cost.
19. Differential costs can:
A) only be fixed costs.
B) only be variable costs.
C) be either fixed or variable.
D) be incremental but not decremental.
20. John Johnson decided to leave his former job where he earned P12 per hour to go to a new job
where he will earn P13 per hour. In the decision process, the former wage of P12 per hour would
be classified as a(n):
A) sunk cost.
B) direct cost.
C) fixed cost.
D) opportunity cost.
21. The term that refers to costs incurred in the past that are not relevant to a decision is:
A) marginal cost.
B) indirect cost.
C) period cost.
D) sunk cost.
22. Lathe operators at KF Manufacturing are hourly employees who are paid time and a half for hours
worked in excess of 40 hours per week. Lester is a lathe operator who worked 45 hours during
the current week and had no idle time. The correct accounting for the amounts paid to Lester
would be:
A) charge only the overtime premium earned to the overhead account.
B) charge the hourly wage earned plus the overtime premium earned to the overhead account.
C) charge only the overtime premium earned to the direct labor cost for the project Lester was
working on when the overtime was incurred.
D) charge the hourly wage earned plus the overtime premium earned to the direct labor cost for
the project Lester was working on when the overtime was incurred.
23. The controller of the recently organized Crandall Company is considering the two methods listed
below for accounting for labor fringe benefits. Which of the two methods is considered
acceptable?
Method A: Treat all labor fringe benefits as indirect labor by adding them in total to
manufacturing overhead.
Method B: Treat labor fringe benefits that relate to direct labor as additional direct
labor cost and fringe benefits relating to indirect labor as part of
manufacturing overhead.
A) Only Method A is acceptable.
B) Only Method B is acceptable.
C) Both Method A and Method B are acceptable.
D) Neither Method A nor Method B is acceptable; labor fringe benefits should be treated as
period expenses and should be charged off as incurred.
24. The following costs were incurred in January:
Direct materials .................................. P33,000
Direct labor......................................... P28,000
Manufacturing overhead .................... P69,000
Selling expenses ................................ P16,000
Administrative expenses .................... P21,000
Conversion costs during the month totaled:
A) P97,000 B) P167,000 C) P102,000 D) P61,000
25. The following costs were incurred in February:
Direct materials.............................. P43,000
Direct labor .................................... P16,000
Manufacturing overhead ................ P37,000
Selling expenses ........................... P17,000
Administrative expenses................ P26,000
Conversion costs during the month totaled:
A) P59,000 B) P80,000 C) P53,000 D) P139,000
26. The following costs were incurred in March:
Direct materials P21,000
Direct labor P17,000
Manufacturing overhead P67,000
Selling expenses P16,000
Administrative expenses P15,000
Conversion costs during the month totaled:
A) P88,000 B) P38,000 C) P136,000 D) P84,000
27. The following costs were incurred in January:
Direct materials P39,000
Direct labor P26,000
Manufacturing overhead P21,000
Selling expenses P14,000
Administrative expenses P27,000
Prime costs during the month totaled:
A) P86,000
B) P65,000
C) P47,000
D) P127,000
28. The following costs were incurred in February:
Direct materials P39,000
Direct labor P18,000
Manufacturing overhead P14,000
Selling expenses P13,000
Administrative expenses P29,000
Prime costs during the month totaled:
A) P71,000
B) P32,000
C) P113,000
D) P57,000
29. The following costs were incurred in March:
Direct materials P39,000
Direct labor P24,000
Manufacturing overhead P14,000
Selling expenses P11,000
Administrative expenses P19,000
Prime costs during the month totaled:
A) P63,000
B) P107,000
C) P38,000
D) P77,000
30. Aable Company's manufacturing overhead is 20% of its total conversion costs. If direct labor is
P45,000 and if direct materials are P53,000, the manufacturing overhead is:
A) P11,250
B) P13,250
C) P180,000
D) P24,500
31. Abair Company's manufacturing overhead is 20% of its total conversion costs. If direct labor is
P38,000 and if direct materials are P35,000, the manufacturing overhead is:
A) P18,250
B) P9,500
C) P8,750
D) P152,000
32. Abbey Company's manufacturing overhead is 60% of its total conversion costs. If direct labor is
P35,000 and if direct materials are P55,000, the manufacturing overhead is:
A) P135,000
B) P23,333
C) P82,500
D) P52,500
33. During the month of January, direct labor cost totaled P17,000 and direct labor cost was 60% of
prime cost. If total manufacturing costs during January were P82,000, the manufacturing
overhead was:
A) P11,333
B) P53,667
C) P28,333
D) P65,000
34. During the month of February, direct labor cost totaled P13,000 and direct labor cost was 40% of
prime cost. If total manufacturing costs during February were P80,000, the manufacturing
overhead was:
A) P32,500
B) P19,500
C) P67,000
D) P47,500
35. During the month of March, direct labor cost totaled P17,000 and direct labor cost was 70% of
prime cost. If total manufacturing costs during March were P88,000, the manufacturing overhead
was:
A) P24,286 B) P71,000 C) P63,714 D) P7,286
36. Knowel Company's direct labor is 40 percent of its conversion cost. If the manufacturing
overhead cost for the last period was P60,000 and the direct materials cost was P30,000, the
direct labor cost was:
A) P90,000
B) P20,000
C) P60,000
D) P40,000
37. In January direct labor was 40% percent of conversion cost. If the manufacturing overhead cost
for the month was P78,000 and the direct materials cost was P22,000, the direct labor cost was:
A) P14,667
B) P52,000
C) P33,000
D) P117,000
38. In February direct labor was 60% percent of conversion cost. If the manufacturing overhead cost
for the month was P78,000 and the direct materials cost was P22,000, the direct labor cost was:
A) P52,000
B) P14,667
C) P117,000
D) P33,000
39. In March direct labor was 60% percent of conversion cost. If the manufacturing overhead cost for
the month was P38,000 and the direct materials cost was P32,000, the direct labor cost was:
A) P21,333
B) P48,000
C) P25,333
D) P57,000
40. Crossland Company's direct labor cost is 30% of its conversion cost. If the manufacturing
overhead cost for the last period was P49,000 and the direct materials cost was P20,000, the
direct labor cost was:
A) P 6,000
B) P14,700
C) P21,000
D) P34,000
41. CF Company manufactures wooden rocking chairs CF identified the following three material costs
in its production process for July: P100,000 for springs for the rocking mechanism; two springs at
a cost of P10 each are used in each chair; P1,700 for glue used as needed from one gallon
containers; and P500 for stain used to touch up spots on the chairs The total cost that should
have been assigned to indirect material for July was:
A) P102,200 B) P500 C) P2,200 D) P1,700
42. Fab Co. manufactures textiles. Fab's manufacturing costs last year included the following salaries
and wages:
Loom operators P120,000
Factory foremen P45,000
Machinery repairmen P30,000
What is the amount of direct labor included in this list?
A) P195,000 B) P165,000 C) P150,000 D) P120,000
43. A manufacturing company has provided the following cost data for a recent period:
Direct materials P8,000
Manufacturing overhead P12,000
Direct labor P10,000
Increase in work-in-process P4,000
Prime cost for the period was:
A) P18,000
B) P26,000
C) P30,000
D) P34,000
