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Principles of Accounting, Volume 2: Managerial Accounting

Chapter 5

Principles of Accounting, Volume 2: Managerial AccountingChapter 5

Chapter 5

Multiple Choice

1.

C

3.

A

5.

D

7.

A

9.

C

11.

B

13.

C

15.

C

17.

C

19.

C

Questions

1.

Answers will vary but should include the following:

Area Process Job Order
Types of jobs Identical Custom order
Quantity within each job Large volume Small volume
Cost accumulation In each department In each job
3.

The weighted-average method assigns the beginning inventory and the costs added during the period. The weighted-average method does not differentiate between the beginning inventory and the units started in production. This is different from the FIFO method that accounts for the beginning inventory differently and separately from current period costs.

5.

Prime costs and conversion costs both include labor. Prime costs are the direct costs, other than equipment, used in manufacturing and therefore are direct material and direct labor. Conversion costs are the costs involved in converting the direct material into the product and therefore are direct labor and manufacturing overhead.

7.

Job order costing and process costing are the accounting systems used to record the costs expended to produce a product. Conversion costs are the direct labor and manufacturing overhead involved in the production process and exist regardless of the accounting system used.

9.

While conversion typically occurs evenly throughout the process, materials are not typically added evenly, so the ending work in process can be different. For example, when materials are added at the beginning of the process, materials can be 100% complete and conversion can be 50% complete. Different completion percentages result in different equivalent units.

11.

Step 1: Determine the units to which costs are assigned. Step 2: Compute the equivalent units of production. Step 3: Determine the cost per equivalent unit. Step 4: Allocate the costs to the units transferred out and the units partially completed.

13.

The costs transferred in are treated in the same way as direct material that is added to production at the beginning of the process.

15.

A. iv; B. ii; C. vi; D. vii; E. iii; F. v; G. i; H. viii.

17.

Prior to the new year, a company computes the estimates of the annual overhead per department divided by the estimated driver for that department. A driver is the measure that increases the cost of overhead and is commonly direct labor hours, direct labor cost, or machine hours. The result is the predetermined overhead rate. Costs are accumulated in an account called manufacturing overhead. At the end of each period, the overhead is removed from the overhead account and applied to the department.

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