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Exam 1: Management Accounting and Corporate Governance

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Question 1

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For a manufacturing company,product costs include all of the following except:

A) indirect material costs.
B) warehousing costs.
C) direct labor costs.
D) All of these are product costs.

E) All of the above
F) C) and D)

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Question 2

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Unlike direct material and direct labor costs,overhead costs must be allocated to products.

A) True
B) False

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Question 3

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Choose the answer that is not a distinguishing characteristic of financial accounting information.

Management accountants have a responsibility to be objective.What does this ethical standard require of management accountants?

With respect to income taxes,managers would prefer to classify costs as assets rather than expenses.

The Jacobson Manufacturing Company was started at the beginning of the current year when it acquired $200,000 from its owners.During the year,the company incurred the following costs,all for cash: $\begin{array} { | l | r | } \hline \text { Direct material costs } & \$ 80,000 \\\hline \text { Direct labor costs } & 100,000 \\\hline \text { Overhead costs } & 40,000 \\\hline \text { Selling and administrative costs } & 60,000 \\\hline\end{array}$ The company produced 10,000 units of product and sold 8,000 units.The average selling price was $34 per unit;all sales were for cash.The accountant who prepared the firm's financial statements misclassified the selling and administrative costs as product costs. Required: Demonstrate the impact of the error on the company's income statement and balance sheet by completing the following schedule: $\begin{array} { | l | l | l | } \hline & \text { Scenario 1: With the error } & \text { Scenario 2: Without the error } \\\hline \text { Income statement: } & & \\\hline \text { Revenue } & & \\\hline \text { Less: Cost of goods sold } & & \\\hline \text { Gross margin } & & \\\hline \begin{array} { c } \text { Less: Selling, general, and } \\\text { administrative expenses }\end{array} & & \\\hline \text { Net income } & & \\\hline & & \\\hline \text { Balance sheet: } & & \\\hline \text { Assets } & & \\\hline \text { Cash } & & \\\hline \text { Inventory } & & \\\hline \text { Total assets } & & \\\hline \text { Equity } & & \\\hline \text { Common stock } & & \\\hline \text { Retained earnings } & & \\\hline \text { Total equity } & & \\\hline\end{array}$

Is depreciation on manufacturing equipment expensed in the period incurred? Explain why or why not.

Which of the following statements concerning manufacturing costs is incorrect?

Which of the following items would be reported directly on the income statement as a period cost?

The time spent moving a product from one processing department to the next processing department is an example of a value-added activity.

Which of the following statements is true with regard to product costs versus general, selling, and administrative costs?

What benefits may result from use of a just in time system?

What are period costs? How does the accounting for period costs differ from the accounting for product costs?

Manufacturing costs that cannot be traced to specific units of product in a cost-effective manner include:

All of the following are downstream costs except:

Assuming that the inventory on hand at the end of the period is sold during the following period,misclassifying a period cost as a product cost during a period will usually correct itself in the following period.

Costs such as transportation-out,sales commissions,uncollectible accounts receivable,and advertising costs are sometimes called:

The Szakos Company engaged in the following transactions during the current year: a)Acquired $50,000 of cash by issuing common stock to owners b)Paid $10,000 to acquire manufacturing equipment c)Paid $5,000 cash for materials used in production d)Paid $2,000 for wages of production workers e)Paid $8,000 in general,selling,and administrative costs f)Recognized $1,000 of depreciation on the manufacturing equipment g)Sold inventory for $18,000 cash h)The cost of the inventory sold was $6,500 Required: Show the balance sheet and income statement effects of the transactions by completing the financial statement model provided.

Howard Lumber Company mistakenly classified a product cost as an expense that totaled $20,000.The company produced 2,000 units of product and sold 1,000 of them during the year.Management is paid a bonus equal to 2% of net income.In the year in which the mistake was made:

Which of the following is not classified as manufacturing overhead?