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Exam 1: Management Accounting and Corporate Governance

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Question 51

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Identify the false statement regarding how product costs in a manufacturing company differ from product costs in a service or merchandising company.

A) Both manufacturing companies and service companies incur costs for supplies.
B) Manufacturing companies accumulate product costs in inventory accounts, while service companies do not.
C) Products of service companies such as restaurants are consumed immediately.
D) Most labor costs for merchandising companies are treated as product costs.

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

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Question 52

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How does the Sarbanes-Oxley Act of 2002 affect the responsibilities of the managers of publicly held US corporations?

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Under the terms of the...

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Question 53

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Does the term "cost" mean the same thing as the term "expense?" Explain your answer.

The objective of a just-in-time inventory system is to totally eliminate all inventories.

Which of the following costs should be recorded as an expense?

During her first year with the company, Ann mistakenly accumulated some of the company's period costs in ending inventory. Which of the following indicates how this error affects the company's financial statements assuming number of units produced exceeded number of units sold during the period?

According to the Sarbanes-Oxley Act, a company's audit committee is responsible for its system of internal controls.

Which of the following is not classified as manufacturing overhead?

Costs that are not classified as product costs are normally expensed in the period incurred.

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

The benefits of a just-in-time system would include all of the following except:

Which of the following transactions would cause net income for the period to decrease?

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

During its first year of operations, a company that incurred $1,000 in production costs reported cost of goods sold of $800 and selling costs of $100. Its ending finished goods inventory was $300.

Steuben Company produces dog houses. During the current year, Steuben Company incurred the following costs: Based on the above information, the amount of period costs shown on Steuben's income statement is: $\begin{array}{|l|r|}\hline\text { Rent on manufacturing facility } & \$ 250,000 \\\hline\text { Office manager's salary } & 150,000 \\\hline \text { Wages of factory machine operators } & 110,000 \\\hline \text { Depreciation on manufacturing equipment } & 50,000 \\\hline\text { Insurance and taxes on selling and administrative offices } & 30,000 \\\hline \text { Direct materials purchased and used } & 170,000\\\hline\end{array}$

How does the level of aggregation differ between financial accounting information and managerial accounting information?

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: 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: $\begin{array} { | l | r | } \hline \text { Direct material costs } & \$ 80,000 \\\hline \text { Direct labor costs } & 100,000 \\\hline \text { Overhead costs } & 40,000 \\\hline \text { Selling and administrative costs } & 60,000 \\\hline\end{array}$ $\begin{array} { | l | l | l | } \hline & \text { Scenario 1: With the error } & \text { Scenario 2: Without the error } \\\hline \text { Income statement: } & & \\\hline \text { Revenue } & & \\\hline \text { Less: Cost of goods sold } & & \\\hline \text { Gross margin } & & \\\hline \begin{array} { c } \text { Less: Selling, general, and } \\\text { administrative expenses }\end{array} & & \\\hline \text { Net income } & & \\\hline & & \\\hline \text { Balance sheet: } & & \\\hline \text { Assets } & & \\\hline \text { Cash } & & \\\hline \text { Inventory } & & \\\hline \text { Total assets } & & \\\hline \text { Equity } & & \\\hline \text { Common stock } & & \\\hline \text { Retained earnings } & & \\\hline \text { Total equity } & & \\\hline\end{array}$

Randall Company manufactures chocolate bars. The following were among Randall's manufacturing costs during the current year: Randall's direct materials amounted to: $\begin{array}{ll}\text { Wages }\\\text { Machine operators } & \$ 300,000 \\\text { Selling and administrative personnel } & \$ 75,000\\\\\text { Materials used }\\\text { Lubricant for oiling machinery } & \$ 25,000 \\\text { Cocoa, sugar, and other raw materials } & \$ 225,000 \\\text { Packaging materials } & \$ 190,000\end{array}$

Which of the following best represents a characteristic of managerial accounting?

Select the incorrect statement regarding service companies.