Medium to Hard Practice Test
Answers
Product vs Period Costs

1. Indirect materials are manufacturing overhead because
       a. it is easy to determine how much is used to make one product
       b. they are so insignificant that you don’t have to use them to make the product
       c. they are difficult to track and a necessary cost to make the product
       d. they are expensed as incurred      
C.   It is much too costly to track how much of indirect materials is used to make
       one product, so company’s do not track it, and (a.) they are necessary to make the
       product (b.). They are a product cost and are not expensed as incurred. (d.)
2. Manufacturing overhead can be summarized as follows:
       a. direct costs to make the products
       b. costs of the facilities and management at the manufacturing plant
       c. all the people working to make the product with the exception of
           workers touching the product
       d. all costs incurred at corporate headquarters 
B.   Manufacturing overhead by definition is all the other costs that must be incurred
       to make the product other than direct materials and direct labor, which is 
       mostly related to the facility and management to operate the facility. Direct
       costs of material and labor is not correct because all manufacturing overhead
       is indirect (a). (c) covers only part of manufacturing overhead costs and leaves 
       out the facility related costs. Costs incurred at corporate headquarters are period
       costs and not manufacturing overhead. (d) 
3. Low cost materials used to make the product that are not traceable are called
       a. direct materials
       b. indirect materials
       c. manufacturing overhead
       d. both b. and c.
D.   The difference in direct and indirect materials is how easy it is to determine and
       track the amount that is used to make the product. Both direct and indirect        
       materials can be low cost. Indirect material are not traceable and they are
       part of manufacturing overhead.
4. Accounting and human resource personnel working at the plant 
       a. are considered period costs
       b. are considered administrative costs
       c. are considered manufacturing overhead costs
       d. are considered direct labor costs
C.   All other costs at the manufacturing plant that are not direct materials or
       direct labor are manufacturing overhead. Since the people are working
       at the plant they are part of manufacturing overhead. If they were working
       at the corporate office, they would be considered period, administrative costs 
       a. or b. They are not direct labor since they do not touch the product to make it. d.
5. Indirect labor is
       a. directly involved in all products made at the plant
       b. involved in making the product, but don’t touch it to make it
       c. always a higher total cost to the company than direct labor
       d. not someone who would inspect the product
B.    Indirect labor by definition is b. Indirect labor is not directly involved in the
       products made as they do not touch the product to make it. (a.) Inspectors are
       considered indirect labor (d.) Indirect labor may or may not cost more than
       direct labor, depending on the manufacturing process and what is required. (c.) 
6. The cost of windows to a homebuilder would be what type of cost?
       a. period, direct materials
       b. period, indirect materials
       c. product, direct materials
       d. product, indirect materials
C.   The windows become part of the house that is sold to the customer, therefore,
       they are direct materials which are a product cost. It is easy to determine how
       many windows are put in the house, so it is not indirect (d.). All materials used
       to make the product are product costs and not period costs (a. & b.).
7. Costs that are incurred to move inventory around are
       a. period, manufacturing overhead
       b. product, manufacturing overhead
       c. period, indirect costs
       d. period, direct costs
C.   Warehouse and inventory movement costs are period costs. It is difficult to tell
       how much cost is incurred to support one product, therefore they are indirect.
       They are not product costs and are not part of inventory or manufacturing overhead.
8. The plant manager’s salary is considered 
       a. an administrative expense because they are an executive
       b. a period cost that is indirect
       c. a product cost that is direct
       d. a product cost that is indirect 
D.   The plant manager does not touch the product to make it and is a necessary cost
       to manufacture the product, therefore it is a product cost. It is indirect, and
       is part of manufacturing overhead, because it is difficult to determine how much
       of the cost must be incurred to make one product. Costs that occur at the plant are 
       not administrative costs or period costs. (a. & b.) 
9. Manufacturing overhead is
       a. an indirect cost that can be directly traced to the products
       b. a direct cost that can not be directly traced to one product
       c. a product cost that can be traced easily to the products
       d. a product cost that can not be directly traced to one product
D. By definition, manufacturing overhead occurs at the plant and is a product cost.
       It is costs incurred to support the overall operations at the plant and can not
       be traced or easily identified to one product.(c). Direct costs can be traced
       to one product.(b.) Indirect cost can not be directly traced to products. (a.)
10. Which of the following would not generally be considered a manufacturing
       overhead cost?
       a. supervisors for the production line
       b. inspectors that inspect in the middle of the production line
       c. shipping the product
       d. materials that cost a very small amount
C.   Shipping the product to customers is a period, selling expense and is not
       manufacturing overhead. All a., b, and d, are manufacturing overhead.
11. Inventory is reported on the balance sheet until
       a. the materials are taken to the production line
       b. the inventory is sold to the customer
       c. the inventory is stored in the warehouse ready to ship to the customer
       d. the cost of the inventory is determined
B.   Inventory is reported on the balance sheet as a current asset until it is sold to
       the customer and then the cost is reported on the income statement as cost
       of goods sold. Materials on the production line are inventory – work in process.
       Inventory ready to ship to the customer is finished goods. The company should
       always be able to estimate the cost of inventory and it is not moved to the income
       statement when the cost is determined, it is moved to the income statement when sold.
12. The difference in administrative costs and selling costs is that generally
       a. administrative has to do with attracting the customer and selling
           has to do with shipping to the customer
       b. administrative is related to operating the organization and
           selling is related to identifying the customer and getting the product
           to the customer
       c. there is no real difference
       d. selling is related to the salaries of the sales force only
B.   Gives the distinction between selling and administrative costs. Both are period
       costs but are incurred for very different activities (c.) Selling costs also include
       the costs of direct marketing, advertising, and shipping. (d.)
13. Conversion costs would consist of
       a. wood in a table and the worker that makes the table
       b. wood in a table and the cost of utilities at the plant
       c. the supervisors salary and the worker that makes the table
       d. the traceable nails in the chair and the worker that makes the table
 
C.   Conversion costs are direct labor and manufacturing overhead. (c.) is the
       only answer that consists of direct labor and manufacturing overhead.
       (a.) is direct material and direct labor, which are prime costs. (b.) is direct
       material and manufacturing overhead. (d.) is direct material and direct labor.

14. A manufacturing company makes cell phones. Materials that became part of the
finished products cost $869,000. Insurance at the manufacturing plant cost $56,000.
Plant management were paid $202,000. Rent on corporate headquarters was
$48,000. Salespeople were paid $250,000 in salary and $62,000 in commissions.
The screws used in the phone that are hard to keep track of costs $7,500. The
workers on the production line were paid $1,250,000. Depreciation on the
manufacturing equipment cost $155,000. Utilities at the manufacturing plant cost
$132,000. Advertising of the products cost $37,000. Supplies for the corporate
office cost $12,000. Glue used to put the back and front of the cell phone together
cost $3,900.         
Compute the total amount of each of the following costs:
Direct
Material
Direct
Labor
Manufacturing
Overhead
All
Period
Total
Product
869,000
1,250,000
155,000
132,000
56,000
202,000
3,900
7,500
556,400
48,000
250,000
62,000
37,000
12,000
409,000
2,675,400

15. Zachery Surf Shop produces and sells beach clothing. Costs incurred were:

 

Cost of material used to make clothing
567,000
Wages paid to the workers using sewing machines
298,000
Salaries of clothing designer
89,000
Salaries/commission paid to salespersons
112,000
Wages paid to workers who maintain sewing machines
56,000
Cost of electricity used for the production area
67,000
Cost of advertising nationally
42,000
Cost of health insurance for production employees
35,000
Cost of health insurance for corporate employees
14,000
Cost of rent for the manufacturing building
108,000
Depreciation expense on the corporate office building
51,000
Salary to the chief executive officer
150,000
Cost of thread that is not tracked by use
18,000
Cost of oil for sewing machines
7,000

Put the amounts in the proper categories:

Direct
Material
Direct
Labor
Manufacturing
Overhead
All
Period
Total
Inventoriable
567,000
298,000
56,000
67,000
35,000
108,000
18,000
7,000
291,000
89,000
112,000
42,000
14,000
51,000
150,000
458,000
1,156,000

16. For each of the following types of costs, identify them first as Product (PR) or Period (PD), then as Direct Labor (DL), Direct Material (DM), Manufacturing Overhead (OH), Selling (S), Administrative (A), or Warehouse (W). State the abbreviation for each one.

Type Name
1. PR, DM rubber that becomes part of the product
2. PR, DL labor that touches the product to make the product
3. PR, DL labor that operates the machine that makes the product
4. PR, OH screws that become part of the product, too small to track
5. PR, OH electricity used at the factory
6. PD, A property taxes at the corporate headquarters
7. PD, W wages of those who handle inventory
8. PR, OH quality inspector salaries
9. PD, S depreciation on salespersons automobiles
10. PD, A accounting office personnel at the corporate office
11. PD, A product design salaries at corporate headquarters
12. PR, OH plant management salaries
13. PR, OH janitor wages at the manufacturing facility
14. PD, S cost to ship to the customers
15. PD, W cost of tracking inventory in the warehouse
16. PD, S advertising expenses
17. PR, OH insurance for the manufacturing plant
18. PR, DL wages for those who pack individual products
19. PR, OH equipment maintenance at the factory
20. PR, DM wire used in the products, a traceable part