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Exam 1: Management Accounting and Corporate Governance

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Question 1

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Which of the following statements concerning product costs versus general, selling, and administrative costs is false?

A) Product costs incurred during the period will initially appear as inventory on the balance sheet.
B) General, selling, and administrative costs are always expensed when paid.
C) Product costs may be divided between the balance sheet and income statement.
D) General, selling, and administrative costs never appear as inventory on the balance sheet.

E) None of the above
F) B) and C)

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Question 2

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During its first year of operations, Connor Company paid $50,000 for direct materials and $36,000 in wages for production workers. Lease payments and utilities on the production facilities amounted to $14,000. General, selling, and administrative expenses were $16,000. The company produced 5,000 units and sold 4,000 units for $30.00 a unit. The average cost to produce one unit is which of the following amounts?

A) $20.00
B) $16.00
C) $18.40
D) $25.00

E) C) and D)
F) B) and D)

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Question 3

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During its first year of operations, Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages. Lease payments and utilities on the production facilities amounted to $17,000 while general, selling, and administrative expenses totaled $8,000. The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit.What is the amount of gross margin for the first year?

Average costs are used for internal decision-making, but actual costs are required for calculating cost of goods sold.

The four Standards of Ethical Conduct for Management Accountants relate to competence, confidentiality, integrity, and objectivity.

Which of the following costs is not considered to be a period cost?

The Giga Company produces tablet computers. The following information is provided: Required: Classify each of the company's costs as a period cost (general, selling, and administrative cost) or as a direct or indirect product cost. Enter the dollar amount of the cost in the appropriate column. After entering all amounts, calculate the total general, selling, and administrative cost, the total direct product cost, and the total indirect product cost. $\begin{array}{lr}\text { a) Materials used } & \$ 216,000 \\\text { b) Advertising } & \$ 40,000 \\\text { c) Insurance, factory } & \$ 20,000 \\\text { d) Administrative salaries } & \$ 50,000 \\\text { e) Property taxes, factory } & \$ 12,000 \\\text { f) Utilities, administrative building } & \$ 22,000 \\\text { g) Factory labor } & \$ 80,000 \\\text { h) Sales commissions } & \$ 56,000 \\\text { i) Factory supervisor's salary } & \$ 60,000 \\\text { j) Research and development } & \$ 18,000 \\\text { k) Depreciation, factory } & \$ 12,000 \\\text { 1) Depreciation, office } & \$ 8,000 \\\text { m) Indirect materials } & \$ 14,000\end{array}$ $\begin{array} { | l | l | l | l | } \hline { \text { Item } } & \text { Period cost } & \text { Direct product cost } & \text { Indirect product cost } \\\hline \text { a) } & & & \\\hline \text { b) } & & & \\\hline \text { c) } & & & \\\hline \text { d) } & & & \\\hline \text { e) } & & & \\\hline \text { f) } & & & \\\hline \text { g) } & & & \\\hline \text { h) } & & & \\\hline \text { i) } & & & \\\hline \text { i) } & & & \\\hline \text { k) } & & & \\\hline \text { l) } & & & \\\hline \text { m) } & & & \\\hline \text { Total } & & & \\\hline\end{array}$

Under the terms of the Sarbanes-Oxley Act, a company and its external auditor are required to report on the effectiveness of the company's system of internal controls.

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

Transportation costs incurred to transfer products to customers are downstream costs.

Product costs are immediately recorded in expense accounts when the products are manufactured.

Levenworth Company incurs unnecessary costs each period because of the excess quantities of inventory maintained to meet unexpected customer demand. The costs of inventory financing, storage, supervision, and obsolescence could most likely be reduced by which of the following practices?

The following information relates to Marshall Manufacturing's current accounting period: Based on this information, what is the company's net income? $\begin{array} { |l | r | } \hline \text { Raw materials used } & \$ 34,000 \\\hline \text { Direct labor wages } & 66,000 \\\hline \text { Sales salaries and commissions } & 50,000 \\\hline \text { Depreciation on production equipment } & 6,000 \\\hline \text { Rent on manufacturing facilities } & 4,000 \\\hline \text { Administrative supplies and utilities } & 10,000 \\\hline \text { Sales revenue } & 210,000 \\\hline \text { Units produced } & 10,000 \\\hline \text { Units sold } & 10,000 \\\hline\end{array}$

Costs associated with holding inventory often include:

Product costs flow from the balance sheet to the income statement.

For what activities do an organization's managers need accounting information?

Upstream costs are classified as product costs and downstream costs are classified as period costs for financial reporting purposes.

As a Certified Management Accountant, Grace is bound by the standards of ethical conduct issued by the Institute of Management Accountants. If she accepts an expensive gift from a vendor trying to win a contract with her firm, which of the following standards will she violate?

What inventory holding costs would be incurred by a business that holds a large amount of inventory?

Assuming that the number of units produced exceeds the number of units sold, misclassifying period costs as product costs will overstate net income relative to what net income would be without this error.