Ch02 Cost Terms Concepts and Classifications.docx

Chapter 2 Cost Terms, Concepts, and Classifications True/False Questions 1. The sum of all costs of manufacturing costs except direct materials is called manufacturing overhead. Ans:  False 2. Conversion cost is the sum of direct labor and manufacturing overhead. Ans:  True 3. Prime cost is the sum of direct labor and manufacturing overhead. Ans:  False 4. Thread used in the production of mattresses, an indirect material, is classified as manufacturing overhead. Ans:  True 5. Period costs are also known as inventoriable costs. Ans:  False 6. All costs in a merchandising company are period costs. Ans:  False 7. The cost of goods sold of a manufacturing company equals beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory. Ans:  True 8. A variable cost is constant if expressed on a per unit basis but the total dollar amount changes as the number of units increases or decreases. Ans:  True LO:  5 9. As activity increases within the relevant range, fixed costs remain constant on a per unit basis. Ans:  False LO:  5 10. Direct costs are often difficult to trace to the specific cost object under consideration. Ans:  False LO:  6 11. All of the following are examples of opportunity costs: salary given up to start a business; rental income given up when you live in a house you own; interest income that could be earned on money spent for a car. Ans:  True 12. The amount that was paid by a company for a building to house its operations is an example of a sunk cost. Ans:  True 13. The most effective way to minimize quality costs while maintaining high quality is to avoid having quality problems in the first place. This is the reason for incurring appraisal costs. Ans:  False LO:  9 14. External failure costs are limited to the costs of repairing defective products that are under warranty. Ans:  False LO:  9 15. The costs of lost sales arising from poor quality are always included in quality cost reports. Ans:  False Multiple Choice Questions 16. The cost of the cushions that are used to manufacture sofas is best described as a: A) manufacturing overhead cost. B) period cost. C) variable cost. D) conversion cost. Ans:  C 17. Chezpere Company manufactures and sells washing machines. In order to make assembly of the machines faster and easier, some of the metal parts in the machines are coated with grease. How should the cost of this grease be classified? Direct Material Cost Fixed Cost A) Yes Yes B) Yes No C) No Yes D) No No Ans:  D LO:  1,5,6 18. A security guard's wages at a factory would be an example of: Indirect labor Fixed manufacturing overhead A) No No B) Yes Yes C) Yes No D) No Yes Ans:  B LO:  1,5 Source:  CPA, adapted 19. Manufacturing overhead includes: A) all direct material, direct labor and administrative costs. B) all manufacturing costs except direct labor. C) all manufacturing costs except direct labor and direct materials. D) all selling and administrative costs. Ans:  C 20. Materials used in the operation of a factory, such as cleaning supplies, that are not an integral part of the final product should be classified as: A) direct materials. B) a period cost. C) administrative expense. D) manufacturing overhead. Ans:  D 21. The one cost that would be classified as part of both prime cost and conversion cost would be: A) indirect material. B) direct labor. C) direct material. D) indirect labor. Ans:  B 22. Direct costs: A) are incurred to benefit a particular accounting period. B) are incurred due to a specific decision. C) can be easily traced to a particular cost object. D) are the variable costs of producing a product. Ans:  C 23. Prime costs consist of: A) direct materials and the variable portion of manufacturing overhead. B) direct labor and indirect labor. C) indirect labor and the fixed portion of manufacturing overhead. D) direct labor and direct materials. Ans:  D 24. Which of the following is NOT a period cost? A) Monthly depreciation of the equipment in a fitness room used by factory workers. B) Salary of a billing clerk. C) Insurance on a company showroom, where current and potential customers can view new products. D) Cost of a seminar concerning tax law updates that was attended by the company's controller. Ans:  A 25. The annual insurance premium for the factory building would be a: A) fixed cost, period cost, and indirect cost with regard to units of product. B) fixed cost, product cost, and direct cost with regard to units of product. C) variable cost, product cost, direct cost with regard to units of product. D) fixed cost, product cost, indirect cost with regard to units of product. Ans:  D LO:  2,5,6 26. Factory supplies in a manufacturing plant are most likely: A) sunk costs. B) period costs. C) variable costs. D) excluded from product costs. Ans:  C LO:  2,5,7 27. All of the following are examples of product costs except: A) depreciation on the company's retail outlets. B) salary of the plant manager. C) insurance on the factory equipment. D) rental costs of the factory facility. Ans:  A 28. Inventoriable (i.e., product) costs that have become expenses can be found in: A) period costs. B) selling expenses. C) cost of goods sold. D) administrative expenses. Ans:  C 29. The fixed portion of the cost of electricity for a manufacturing plant is a: Period cost Product cost A) Yes No B) Yes Yes C) No Yes D) No No Ans:  C Source:  CPA, adapted 30. Which of the following statements about product costs is true? A) Product costs are deducted from revenue when the production process is completed. B) Product costs are deducted from revenue as expenditures are made. C) Product costs associated with unsold finished goods and work in process appear on the balance sheet as assets. D) Product costs appear on financial statements only when products are sold. Ans:  C 31. Conversion costs consist of: A) direct and indirect labor. B) direct labor and direct materials. C) direct labor and manufacturing overhead. D) prime costs and manufacturing overhead. Ans:  C 32. Which of the following is an example of a period cost? A) Fabric used to produce men's pants. B) Advertising cost for a new product campaign. C) Factory supervisor's salary. D) Monthly depreciation of production equipment. Ans:  B 33. In the preparation of the schedule of Cost of Goods Manufactured, the accountant incorrectly included as part of manufacturing overhead the rental expense on the firm's retail facilities. This inclusion would: A) overstate period expenses on the income statement. B) overstate the cost of goods sold on the income statement. C) understate the cost of goods manufactured. D) have no effect on the cost of goods manufactured. Ans:  B 34. Desco Electronics, Inc. manufactures car radios. The direct material cost assigned to car radios that Desco started during the period but did not fully complete would be found in the ending balance of: A) raw materials inventory. B) work in process inventory. C) finished goods inventory. D) both raw materials inventory and work in process inventory. Ans:  B 35. Rotonga Manufacturing Company leases a vehicle that it uses to deliver its finished products to customers. Which of the following terms could be used to correctly describe the monthly lease payments made on the delivery vehicle? Direct Cost Fixed Cost A) Yes Yes B) Yes No C) No Yes D) No No Ans:  C LO:  5,6 36. Within the relevant range, as the number of units produced increases: A) the variable cost per unit remains the same. B) fixed costs in total remain the same. C) variable costs increase in total. D) all of the above. Ans:  D LO:  5 37. Which of the following production costs, if expressed on a per unit basis, would be most likely to change significantly as the production level varies? A) Direct materials. B) Direct labor. C) Fixed manufacturing overhead. D) Responses A and B are both correct. Ans:  C LO:  5 38. When the level of activity decreases within the relevant range, the fixed cost per unit will: A) decrease. B) increase. C) remain the same. D) The effect cannot be predicted. Ans:  B LO:  5 39. Which of the following is correct concerning reactions to INCREASES in activity? Total Variable Cost Variable Cost Per Unit A) Increases Decreases B) Constant Decreases C) Decreases Constant D) Increases Constant Ans:  D LO:  5 40. The distinction between indirect and direct costs depends on: A) whether a cost differs between alternatives. B) whether a cost is variable or fixed. C) whether a cost is a product or a period cost. D) whether a cost can be easily traced to the cost object under consideration. Ans:  D LO:  6 41. An example of a fixed cost that would be considered a direct cost is: A) a cost accountant's salary when the cost object is a unit of product. B) the rental cost of a warehouse to store finished goods when the cost object is the Purchasing Department. C) a production supervisor's salary when the cost objective is the Production Department. D) Board of Directors' fees when the cost object is the Marketing Department. Ans:  C LO:  6 42. Which of the following statements concerning direct and indirect costs is NOT true? A) Whether a particular cost is classified as direct or indirect does not depend on the cost object. B) A direct cost is one that can be easily traced to the particular cost object. C) The factory manager's salary would be classified as an indirect cost of producing one unit of product. D) A particular cost may be direct or indirect, depending on the cost object. Ans:  A LO:  6 43. All of the cost categories listed below are usually found in a company's accounting records, except for: A) sunk costs. B) inventoriable costs. C) opportunity costs. D) marketing costs. Ans:  C 44. Cobra Mining Company spent $200 million five years ago to develop underground mining and milling operations in a remote area of a western state. Metals prices have since declined precipitously and the company is considering abandoning the operation. The term that would best describe the $200 million expenditure when considering the abandonment decision is: A) sunk cost. B) variable cost. C) differential cost. D) opportunity cost. Ans:  A 45. In a decision-making situation involving an asset, which of the following costs is generally NOT considered relevant to the decision and should be ignored? A) Incremental cost of selecting one alternative over another. B) Opportunity cost of using the asset in an alternative. C) Differential cost between two alternatives. D) The original cost of the asset. Ans:  D 46. A sunk cost is: A) a cost that is planned to be incurred in the near future. B) irrelevant for decision making. C) a cost connected with drilling for oil. D) affected by changes in the level of activity. Ans:  B 47. The potential benefit that is given up when one alternative is selected over another is called: A) A sunk cost. B) An opportunity cost. C) Both a sunk cost and an opportunity cost. D) Neither a sunk cost nor an opportunity cost. Ans:  B 48. A direct labor overtime premium should be charged to a specific job when the overtime is caused by the: A) increased overall level of activity in the factory. B) customer's requirement for early completion of the job. C) management's failure to include the job in the production schedule. D) management's requirement that the job be completed before the annual factory closure due to vacation. Ans:  B Source:  CPA, adapted 49. The idle time cost of assembly line workers in a manufacturing company is usually included as a part of: A) selling cost. B) direct labor cost. C) administrative cost. D) manufacturing overhead cost. Ans:  D 50. In preparing a quality cost report, the cost of employee's time spent in quality circles is part of: A) prevention costs. B) appraisal costs. C) internal failure costs. D) external failure costs. Ans:  A 51. Which of the following would be classified as a prevention cost on a quality cost report? A) Net cost of spoilage. B) Supervision of testing and inspection activities. C) Liability arising from defective products. D) Technical support provided to suppliers. Ans:  D 52. Which of the following would be classified as an internal failure cost on a quality cost report? A) Systems development. B) Returns and allowances arising from quality problems. C) Net cost of scrap. D) Final product testing and inspection. Ans:  C 53. Which of the following would be classified as an external failure cost on a quality cost report? A) Depreciation of test equipment. B) Repairs and replacements beyond the warranty period. C) Supplies used in testing and inspection. D) Re-entering data because of keying errors. Ans:  B 54. An increase in appraisal costs in a quality improvement program would usually have the following initial effects on internal and external failure costs: Internal failure costs External failure costs A) Increase Increase B) Increase Decrease C) Decrease Increase D) Decrease Decrease Ans:  B LO:  9 55. The cost of testing incoming materials received from suppliers would be classified as a(n): A) prevention cost. B) appraisal cost. C) internal failure cost. D) external failure cost. Ans:  B LO:  9 56. In classifying the costs of quality at a company that manufactures sonar equipment, which of the following is considered an external failure cost? A) the net cost of scrap and spoilage incurred during production. B) the cost of repairs and replacements made during the warranty period. C) the cost of debugging software errors found in the sonar equipment during inspection at the plant. D) both B and C above. E) none of the above. Ans:  B LO:  9 57. The four categories of quality costs in a quality cost report are: A) external failure, product liability, prevention, and carrying. B) external failure, internal failure, prevention, and appraisal. C) warranty, product liability, prevention, and appraisal. D) warranty, product liability, training, and appraisal. Ans:  B LO:  9 58. The following costs were incurred in July: Direct materials $35,000 Direct labor $13,000 Manufacturing overhead $15,000 Selling expenses $14,000 Administrative expenses $30,000 Prime costs during the month totaled: A) $48,000 B) $28,000 C) $107,000 D) $63,000 Ans:  A LO:  1,2 Solution: Direct materials $35,000 Direct labor  13,000 Total $48,000 59. Abel Company's manufacturing overhead is 20% of its total conversion costs. If direct labor is $38,000 and if direct materials are $47,000, the manufacturing overhead is: A) $152,000 B) $11,750 C) $21,250 D) $9,500 Ans:  D Solution: Conversion costs = Direct labor + Manufacturing overhead Conversion costs = $38,000 + Manufacturing overhead 0.20 × Conversion costs = Manufacturing overhead 0.20 × ($38,000 + Manufacturing overhead) = Manufacturing overhead $7,600 + 0.20 × Manufacturing overhead = Manufacturing overhead $7,600 = 0.80 × Manufacturing overhead Manufacturing overhead = $9,500 60. During the month of July, direct labor cost totaled $12,000 and direct labor cost was 30% of prime cost. If total manufacturing costs during July were $86,000, the manufacturing overhead was: A) $46,000 B) $40,000 C) $28,000 D) $74,000 Ans:  A Solution: 0.30 × Prime cost = Direct labor 0.30 × Prime cost = $12,000 Prime cost = $40,000 Prime cost = Direct materials + Direct labor $40,000 = Direct materials + $12,000 Direct materials = $28,000 Total manufacturing costs = Direct materials + Direct labor + Manufacturing Overhead $86,000 = $28,000 + $12,000 + Manufacturing Overhead Manufacturing overhead = $46,000 61. In July direct labor was 40% of conversion cost. If the manufacturing overhead cost for the month was $34,000 and the direct materials cost was $23,000, the direct labor cost was: A) $22,667 B) $15,333 C) $51,000 D) $34,500 Ans:  A Solution: 0.40 × Conversion costs = Direct labor 0.60 × Conversion costs = Manufacturing overhead 0.60 × Conversion costs = $34,000 Conversion costs = $56,667 Conversion costs = Direct labor + Manufacturing overhead $56,667 = Direct labor + $34,000 Direct labor = $22,667 62. Shown below are a number of costs incurred last year at Mecca Publishing Co., a manufacturer of elementary school textbooks: Solvents and cleaners used by the custodians to clean the textbook printing presses $500 Depreciation on the automobiles used by sales representatives $4,200 Fire insurance on factory building $2,000 Shipping costs on textbooks sold $3,700 What is the total of the manufacturing overhead costs above? A) $500 B) $2,500 C) $6,200 D) $6,700 Ans:  B Solution: Solvents and cleaners used by the custodians to clean the textbook printing presses Fire insurance on factory building Total ‘ 63. Mammoser Manufacturing Corporation rents a building for $8,000 per month and uses it for a number of different purposes. The building space is utilized by the various activities as follows: Receiving and storing raw materials 5% Production operations 70% Sales offices 15% Administrative offices 10% How much of the $8,000 monthly rent cost should be classified as manufacturing overhead? A) $5,600 B) $6,000 C) $6,800 D) $7,200 Ans:  B Solution: Receiving and storing raw materials (5% × $8,000) $   400 Production operations (70% × $8,000)   5,600 $6,000 64. Consider the following costs: Direct materials $33,000 Depreciation on factory equipment $12,000 Factory janitor’s salary $23,000 Direct labor $28,000 Utilities for factory $9,000 Selling expenses $16,000 Production supervisor’s salary $34,000 Administrative expenses $21,000 What is the total amount of manufacturing overhead included above? A) $78,000 B) $139,000 C) $44,000 D) $37,000 Ans:  A Solution: Depreciation on factory equipment $12,000 Factory janitor’s salary 23,000 Utilities for factory 9,000 Production supervisor’s salary  34,000 Total $78,000 65. The information below relates to Derby Manufacturing Company's operations for a recent month. (Assume that all raw materials are direct materials.): Purchases of raw materials $91,000 Direct labor cost $122,000 Selling costs (total) $42,000 Administrative costs (total) $56,000 Manufacturing overhead costs (total) $340,000 Raw materials inventory, beginning $22,000 Work in process inventory, beginning $27,000 Finished goods inventory, beginning $42,000 Raw materials inventory, ending $7,000 Work in process inventory, ending $35,000 Finished goods inventory, ending $15,000 What was Derby's cost of goods manufactured for the month? A) $545,000 B) $560,000 C) $568,000 D) $587,000 Ans:  B AICPA FN:  Measurement LO:  2,4 Solution: Derby Manufacturing Company Schedule of Cost of Goods Manufactured Direct materials: Beginning raw materials inventory $ 22,000 Add: Purchases of raw materials    91,000 Raw materials available for use 113,000 Deduct: Ending raw materials inventory      7,000 Raw materials used in production $106,000 Direct labor 122,000 Manufacturing overhead  340,000 Total manufacturing costs 568,000 Add: Beginning work in process inventory     27,000 595,000 Deduct: Ending work in process inventory     35,000 Cost of goods manufactured $560,000 66. Consider the following costs incurred in a recent period: Direct materials $33,000 Depreciation on factory equipment $12,000 Factory janitor’s salary $23,000 Direct labor $28,000 Utilities for factory $9,000 Selling expenses $16,000 Production supervisor’s salary $34,000 Administrative expenses $21,000 What was the total amount of the period costs listed above for the period? A) $78,000 B) $71,000 C) $46,000 D) $37,000 Ans:  D Solution: Selling expenses $16,000 Administrative expenses 21,000 Total $37,000 67. Using the following data for a recent period, calculate the beginning finished goods inventory: Sales $40,000 Beginning finished goods inventory ? Cost of goods manufactured $16,000 Ending finished goods inventory $5,000 Cost of goods sold ? Gross margin $17,000 Administrative and selling expenses ? Net operating income $10,000 The beginning finished goods inventory was: A) $24,000 B) $23,000 C) $7,000 D) $12,000 Ans:  D LO:  3,4 Solution: Cost of goods sold = Sales ? Gross margin Cost of goods sold = $40,000 ? $17,000 Cost of goods sold = $23,000 Beginning finished goods inventory + Cost of goods manufactured ? Ending finished goods inventory = Cost of goods sold Beginning finished goods inventory + $16,000 ? $5,000 = $23,000 Beginning finished goods inventory = $12,000 68. The following data are for a recent period's operations: Beginning finished goods inventory $150,475 Ending finished goods inventory $145,750 Sales $400,000 Gross margin $120,000 The cost of goods manufactured was: A) $115,275 B) $284,725 C) $275,275 D) $124,725 Ans:  C LO:  3,4 Solution: Sales ? Cost of goods sold = Gross margin $400,000 ? Cost of goods sold = $120,000 Cost of goods sold = $280,000 Beginning finished goods inventory + Cost of goods manufactured ? Ending finished goods inventory = Cost of goods sold $150,475 + Cost of goods manufactured ? $145,750 = $280,000 Cost of goods manufactured = $275,275 69. Last month a manufacturing company had the following operating results: Beginning finished goods inventory $77,000 Ending finished goods inventory $72,000 Sales $593,000 Gross margin $67,000 What was the cost of goods manufactured for the month? A) $588,000 B) $526,000 C) $521,000 D) $531,000 Ans:  C LO:  3,4 Solution: Sales ? Cost of goods sold = Gross margin $593,000 ? Cost of goods sold = $67,000 Cost of goods sold = $526,000 Beginning finished goods inventory + Cost of goods manufactured ? Ending finished goods inventory = Cost of goods sold $77,000 + Cost of goods manufactured ? $72,000 = $526,000 Cost of goods manufactured = $521,000 70. The following data pertain to a recent period's operations: Sales ? Beginning finished goods inventory $12,000 Cost of goods manufactured $36,000 Ending finished goods inventory $6,000 Cost of goods sold ? Gross margin 40% of Sales Administrative and selling expenses $10,000 Net operating income ? Net operating income was: A) $18,000 B) $10,000 C) $14,000 D) $46,000 Ans:  A LO:  3,4 Solution: Cost of goods sold = Beginning finished goods inventory + Cost of goods manufactured ? Ending finished goods inventory Cost of goods sold = $12,000 + $36,000 ? $6,000 Cost of goods sold = $42,000 Sales ? Cost of goods sold = Gross margin Sales ? $42,000 = Gross margin Gross margin = 40% × Sales Sales ? $42,000 = 40% × Sales 60% × Sales = $42,000 Sales = $70,000 Gross margin ? Administrative and selling expenses = Net operating income Gross margin = 40% × Sales Gross margin = $28,000 $28,000 ? $10,000 = Net operating income Net operating income = $18,000 71. The following inventory balances have been provided for the most recent year: Beginning Ending Raw materials $21,000 $15,000 Work in process $18,000 $29,000 Finished goods $57,000 $33,000 The cost of goods manufactured was $714,000. What was the cost of goods sold? A) $738,000 B) $693,000 C) $714,000 D) $733,000 Ans:  A LO:  3,4 Solution: Finished goods inventory, beginning $  57,000 Add: Cost of goods manufactured  714,000 Goods available for sale 771,000 Deduct: Finished goods inventory, ending     33,000 Cost of goods sold $738,000 72. The cost of goods manufactured for October at Toule Manufacturing Corporation was $907,000. The following changes occurred in Toule inventory accounts during October: Decrease in raw materials inventory $24,000 Decrease in work in process inventory $17,000 Increase in finished goods inventory $38,000 What was Toule's cost of goods sold for October? A) $869,000 B) $886,000 C) $928,000 D) $945,000 Ans:  A LO:  3,4 Solution: 73. Gabrio Inc. is a merchandising company. Last month the company's merchandise purchases totaled $87,000. The company's beginning merchandise inventory was $19,000 and its ending merchandise inventory was $11,000. What was the company's cost of goods sold for the month? A) $79,000 B) $87,000 C) $95,000 D) $117,000 Ans:  C Solution: Merchandise inventory, beginning $ 19,000 Add: Merchandise purchased    87,000 Goods available for sale 106,000 Deduct: Finished goods inventory, ending 11,000 Cost of goods sold $ 95,000 74. Haala Inc. is a merchandising company. Last month the company's cost of goods sold was $68,000. The company's beginning merchandise inventory was $11,000 and its ending merchandise inventory was $17,000. What was the total amount of the company's merchandise purchases for the month? A) $96,000 B) $62,000 C) $68,000 D) $74,000 Ans:  D Solution: Merchandise inventory, beginning $11,000 Add: Merchandise purchased ? Goods available for sale ? Deduct: Finished goods inventory, ending  17,000 Cost of goods sold $68,000 Goods available for sale = $68,000 + $17,000 Goods available for sale = $85,000 Merchandise purchased = $85,000 ? Merchandise inventory, beginning Merchandise purchased = $85,000 ? $11,000 Merchandise purchased = $74,000 75. During July, the cost of goods manufactured at Xxis Corporation was $70,000. The beginning finished goods inventory was $19,000 and the ending finished goods inventory was $15,000. What was the cost of goods sold for the month? A) $104,000 B) $74,000 C) $70,000 D) $66,000 Ans:  B Solution: Finished goods inventory, beginning $19,000 Add: Cost of goods manufactured 70,000 Goods available for sale 89,000 Deduct: Finished goods inventory, ending 15,000 Cost of goods sold $74,000 76. At the beginning of the most recent month's operations, finished goods inventory was $30,000. The cost of goods manufactured was $326,000 and ending finished goods inventory was $42,000. What was the cost of goods sold for the month? A) $320,000 B) $338,000 C) $314,000 D) Cannot be calculated. Ans:  C Solution: Finished goods inventory, beginning $?30,000 Add: Cost of goods manufactured 326,000 Goods available for sale 356,000 Deduct: Finished goods inventory, ending 42,000 Cost of goods sold $314,000 77. Given the following information, calculate the company's manufacturing overhead: Work in process, ending $8,000 Work in process, beginning $11,000 Cost of goods manufactured $70,000 Direct labor $25,000 Direct materials $20,000 The manufacturing overhead is: A) $22,000 B) $25,000 C) $28,000 D) $36,000 Ans:  A Solution: Schedule of Cost of Goods Manufactured Direct materials $20,000 Direct labor 25,000 Manufacturing overhead 22,000* Total manufacturing costs 67,000* Add: Work in process, beginning 11,000 78,000* Deduct: Work in process, ending 8,000 Cost of goods manufactured $70,000 * These items must be calculated by working backwards upward through the statements. 78. The following data have been provided for the most recent month's operations: Direct materials $8,000 Direct labor $25,000 Manufacturing overhead $9,000 Total manufacturing costs ? Beginning work in process inventory ? Ending work in process inventory $8,000 Cost of goods manufactured $45,000 The beginning work in process inventory is: A) $11,000 B) $42,000 C) $53,000 D) $37,000 Ans:  A Solution: Schedule of Cost of Goods Manufactured Direct materials $  8,000 Direct labor 25,000 Manufacturing overhead 9,000 Total manufacturing costs 42,000 Add: Work in process, beginning 11,000* 53,000* Deduct: Work in process, ending 8,000 Cost of goods manufactured $45,000 * These items must be calculated by working backwards upward through the statements. 79. Using the following data for July, calculate the cost of goods manufactured: Direct materials $31,000 Direct labor $22,000 Manufacturing overhead $29,000 Beginning work in process inventory $14,000 Ending work in process inventory $15,000 The cost of goods manufactured was: A) $83,000 B) $96,000 C) $81,000 D) $82,000 Ans:  C Solution: Schedule of Cost of Goods Manufactured Direct materials $31,000 Direct labor 22,000 Manufacturing overhead 29,000 Total manufacturing costs 82,000 Add: Work in process, beginning 14,000 96,000 Deduct: Work in process, ending 15,000 Cost of goods manufactured $81,000 80. During the month of April, LTP Company incurred $30,000 of manufacturing overhead, $40,000 of direct labor, and purchased $25,000 of raw materials. Between the beginning and the end of the month, the raw materials and work in process inventories decreased by $4,000 and $3,000, respectively. The total manufacturing costs used in the computation of cost of goods manufactured during the month of April was: A) $88,000 B) $91,000 C) $99,000 D) $102,000 Ans:  C Solution: First calculate raw materials used: Beginning inventory raw materials + Purchases ? Ending inventory raw materials = Raw materials used By rearranging: Purchases + ( Beginning inventory raw materials ? Ending inventory raw materials ) = Raw materials used Since raw material inventory decreased by $4,000, we know that: Beginning inventory raw materials ? Ending inventory raw materials = $4,000 Substituting into equation: $25,000 + $4,000 = Raw materials used $29,000 = Raw materials used Next, solve for total manufacturing costs: Raw materials used + Direct labor + Manufacturing overhead = Total manufacturing costs $29,000 + $40,000 + $30,000 = $99,000 81. The following information relates to Mako Manufacturing Company for the month of August: Cost of goods manufactured $78,000 Cost of goods sold $82,000 Total manufacturing costs $90,000 Cost of goods available for sale $95,000 What was the balance in Mako's Finished Goods Inventory account at the end of August? A) $4,000 B) $5,000 C) $8,000 D) $13,000 Ans:  D Solution: Goods available for sale - Ending finished goods inventory = Cost of goods sold Ending finished goods inventory = Goods available for sale - Cost of goods sold Ending finished goods inventory = $95,000 - $82,000 Ending finished goods inventory = $13,000 82. The following inventory balances relate to Komiza Manufacturing Corporation at the beginning and end of the year: Beginning Ending Raw materials $10,000 $21,000 Work in process $5,000 $3,000 Finished goods $41,000 $48,000 Komiza's cost of goods available for sale was $622,000. What was Komiza's cost of goods manufactured? A) $581,000 B) $615,000 C) $629,000 D) $663,000 Ans:  A Solution: Beginning finished goods inventory + Cost of goods manufactured = Goods available for sale $41,000 + Cost of goods manufactured = $622,000 Cost of goods manufactured = $581,000 83. Last year there was no change in either the raw materials or the work in process beginning and ending inventories. However, finished goods, which had a beginning balance of $25,000, increased by $15,000. If the manufacturing costs incurred totaled $600,000 during the year, the cost of goods available for sale must have been: A) $585,000 B) $600,000 C) $610,000 D) $625,000 Ans:  D Solution: Cost of goods available for sale = Beginning finished goods inventory + Cost of goods manufactured Cost of goods available for sale = $25,000 + $600,000 Cost of goods available for sale = $625,000 84. A company has provided the following cost data for its most recent accounting period: Direct labor $98,000 Administrative expenses $15,000 Manufacturing overhead $25,000 Direct materials $200,000 Selling expenses $22,000 What was the cost of goods manufactured for the period? Assume there were no beginning or ending inventories. A) $303,000 B) $323,000 C) $338,000 D) $360,000 Ans:  B Solution: Direct labor $ 98,000 Manufacturing overhead 25,000 Direct materials 200,000 Cost of goods manufactured $323,000 85. Beginning work in process was $145,000. Manufacturing cost incurred for the month was $810,000. The ending work in process was $200,000. What was the cost of goods manufactured during the month? A) $900,000 B) $810,000 C) $755,000 D) $1,155,000 Ans:  C Solution: Beginning work in process inventory $145,000  Add: Manufacturing costs 810,000  Deduct: Ending work in process inventory (200,000) Cost of goods manufactured $755,000  86. Last year, Vashanda Corporation incurred the following costs to produce 18,000 units: Cost of raw materials used $86,400 Property taxes on factory building $9,000 What should be the cost per unit for the above costs if 20,000 units of product are produced next year? Raw materials Property taxes A) $4.32 $0.45 B) $4.32 $0.50 C) $4.80 $0.45 D) $4.80 $0.50 Ans:  C LO:  5 Solution: Variable manufacturing costs: $86,400 18,000 = $4.80 Property taxes are a fixed cost: $9,000 At 20,000 units, fixed cost per unit = $9,000 20,000 units = $0.45 per unit 87. At a sales volume of 20,000 units, total costs are $55,000. The company's variable cost per unit is $1.50. What should be the total fixed cost at a sales volume of 30,000 units, assuming that is within the relevant range. A) $25,000 B) $30,000 C) $45,000 D) Cannot be determined. Ans:  A LO:  5 Solution: 88. A mattress manufacturer has provided the following cost data. The cost of fabric, foam, springs, and lumber is $68,000. The cost of indirect materials is $21,000. Labor cost of assembly workers is $52,000 and for production supervisors is $14,000. How much indirect cost is included in the above costs? A) $21,000 B) $35,000 C) $89,000 D) $103,000 Ans:  B LO:  6 Solution: Indirect materials $21,000 Production supervisors  14,000 Total indirect costs $35,000 89. How much sunk cost is represented in the following list? Annual operating cost $80,000 Fixed operating costs other than depreciation $14,000 Resale value, if sold now $25,000 Original cost of current machine $68,000 A) $80,000 B) $14,000 C) $25,000 D) $68,000 Ans:  D Solution: Only the original cost of the current machine is a sunk cost in the above list. 90. John Adams, an operator of a manufacturing machine, receives time-and-a-half for any time worked in excess of 40 hours per week. His rate of pay is $16 per hour. How much should be charged to direct labor if he worked 48 hours last week and had no idle time? A) $768 B) $640 C) $832 D) $192 Ans:  A Solution: 48 hours × $16 per hour = $768 91. During the last week in October, Harvey worked a total of 45 hours and had no idle time. Harvey is paid $10 per hour for regular time, and is paid time-and-a-half for all hours in excess of 35 hours per week. Given this information: A) $350 should be charged to direct labor B) $50 should be charged to manufacturing overhead C) $150 should be charged to manufacturing overhead D) $500 should be charged to direct labor. Ans:  B Solution: Overtime premium = $5 $10 × 1.5 = $15 overtime rate $15 overtime rate ? $10 regular rate = $5 overtime premium Total hours ? Regular work week hours = Overtime hours 45 ? 35 = 10 10 hours × $5 per hour = $50 amount to be charged to manufacturing overhead 92. Sandra Pietro installs mufflers at Dethtrapp Motorcycle Company. Sandra is paid $14 per hour and an extra $7 per hour for every hour over 40 that is worked in a given week. Last week Sandra worked 50 hours with 2 of these hours correctly classified as idle time. How much of Sandra's wages last week should be included in manufacturing overhead cost? A) $28 B) $70 C) $98 D) $168 Ans:  C Solution: Overtime premium charged to manufacturing overhead: (50 total hours ? 40 regular hours) × $7 overtime premium = $70 2 hours of idle time × $14 per hour = $28 Total wages to be included in manufacturing overhead = $70 + $28 = $98 Use the following to answer questions 93-96: Mendoza, Inc. manufactures and sells aluminum dishes for camping and outdoor enthusiasts through a mail order catalog operation. Large rectangular sheets of aluminum are purchased by Mendoza. These sheets are cut down into smaller squares and are then fed into a machine where they are trimmed down into a circular shape. These aluminum circles are then fed into a stamping machine where they are formed into plates and bowls. After production, the dishes are shipped to warehouses where they are packed and then shipped to customers. 93. Which of the following terms could be used to correctly describe the cost of the aluminum sheets? A) fixed cost B) period cost C) direct cost D) conversion cost Ans:  C LO:  1,2,5,6 94. Which of the following terms could be used to correctly describe the wages paid to the machine operator who operates the stamping machine? A) direct labor cost B) administrative cost C) opportunity cost D) manufacturing overhead cost Ans:  A LO:  1,2,5,6 95. Which of the following terms could be used to correctly describe the cost of electricity used to run the stamping machine? A) variable cost B) indirect cost C) manufacturing overhead cost D) all of the above Ans:  D LO:  1,2,5,6 96. Which of the following terms could be used to correctly describe the straight-line depreciation cost on the stamping machine? A) period cost B) variable cost C) inventoriable cost D) both A and C above Ans:  C LO:  1,2,5,6 Use the following to answer questions 97-99: A partial listing of costs incurred at Archut Corporation during September appears below: Direct materials $113,000 Utilities, factory $5,000 Administrative salaries $81,000 Indirect labor $25,000 Sales commissions $48,000 Depreciation of production equipment $20,000 Depreciation of administrative equipment $30,000 Direct labor $129,000 Advertising $135,000 97. The total of the manufacturing overhead costs listed above for September is: A) $586,000 B) $50,000 C) $292,000 D) $30,000 Ans:  B Solution: Utilities, factory $  5,000 Indirect labor 25,000 Depreciation of production equipment  20,000 Total manufacturing overhead costs $50,000 98. The total of the product costs listed above for September is: A) $292,000 B) $294,000 C) $50,000 D) $586,000 Ans:  A Solution: Direct materials $113,000 Utilities, factory 5,000 Indirect labor 25,000 Depreciation of production equipment 20,000 Direct labor 129,000 Total product costs $292,000 99. The total of the period costs listed above for September is: A) $294,000 B) $344,000 C) $292,000 D) $50,000 Ans:  A Solution: Administrative salaries $ 81,000 Sales commissions 48,000 Depreciation of administrative equipment 30,000 Advertising 135,000 Total period costs $294,000 Use the following to answer questions 100-102: A partial listing of costs incurred during March at Febbo Corporation appears below: Factory supplies $9,000 Administrative wages and salaries $85,000 Direct materials $126,000 Sales staff salaries $30,000 Factory depreciation $33,000 Corporate headquarters building rent $43,000 Indirect labor $26,000 Marketing $65,000 Direct labor $99,000 100. The total of the period costs listed above for March is: A) $68,000 B) $293,000 C) $291,000 D) $223,000 Ans:  D Solution: Administrative wages and salaries $ 85,000 Sales staff salaries 30,000 Corporate headquarters building rent 43,000 Marketing     65,000 Total period costs $223,000 101. The total of the manufacturing overhead costs listed above for March is: A) $68,000 B) $35,000 C) $516,000 D) $293,000 Ans:  A Solution: Factory supplies $  9,000 Factory depreciation 33,000 Indirect labor   26,000 Total manufacturing overhead $68,000 102. The total of the product costs listed above for March is: A) $516,000 B) $68,000 C) $293,000 D) $223,000 Ans:  C Solution: Factory supplies $   9,000 Direct materials 126,000 Factory depreciation 33,000 Indirect labor 26,000 Direct labor     99,000 Total product costs $293,000 Use the following to answer questions 103-105: The following data pertain to Graham Company's operations in May: May 1 May 31 Work in process inventory $7,000 $12,000 Raw materials inventory $15,000 ? Finished goods inventory ? $20,000 Other data: Raw materials used $40,000 Sales $200,000 Cost of goods manufactured $135,000 Manufacturing overhead cost $60,000 Raw materials purchases $30,000 Gross Margin $60,000 103. The ending materials inventory was: A) $5,000 B) $10,000 C) $15,000 D) $20,000 Ans:  A LO:  1,3,4 Solution: Beginning raw materials inventory $15,000 Add: Raw materials purchases 30,000 Raw materials available for use 45,000 Deduct: Ending raw materials inventory 5,000 * Raw materials used $40,000 *Calculate this item by working backwards, as shown: Raw materials used = Raw materials available ? Ending raw materials inventory $40,000 = $45,000 ? Ending raw materials inventory Ending raw materials inventory = $5,000 104. The beginning finished goods inventory was: A) $5,000 B) $15,000 C) $25,000 D) $30,000 Ans:  C LO:  1,3,4 Solution: Sales ? Cost of goods sold = Gross margin Cost of goods sold = Sales ? Gross margin Cost of goods sold = $200,000 ? $60,000 Cost of goods sold = $140,000 Next, solve backwards for beginning finished goods inventory: Beginning raw materials inventory $ 25,000 * Add: Cost of goods manufactured 135,000 Cost of goods available for sale 160,000 * Deduct: Ending finished goods inventory 20,000 Cost of goods sold $140,000 * These items must be calculated by working backwards upward through the statements. 105. The direct labor cost for May was: A) $35,000 B) $40,000 C) $30,000 D) $25,000 Ans:  B LO:  1,3,4 Solution: Graham Company Schedule of Cost of Goods Manufactured Direct materials $40,000 Direct labor 40,000* Manufacturing overhead 60,000 Total manufacturing costs 140,000* Add: Work in process, beginning 7,000 147,000* Deduct: Work in process, ending 12,000 Cost of goods manufactured $135,000 * These items must be calculated by working backwards upward through the statements. Use the following to answer questions 106-107: Demeglio Corporation reported the following data for the month of September: Inventories: Beginning Ending Raw materials $30,000 $34,000 Work in process $23,000 $22,000 Finished goods $32,000 $35,000 106. If the raw materials purchased during September totaled $63,000, what was the cost of the raw materials used in production for the month? A) $67,000 B) $63,000 C) $59,000 D) $64,000 Ans:  C LO:  1,3 Solution: Beginning raw materials inventory $30,000 Add: Raw materials purchased 63,000 Raw materials available for use 93,000 Deduct: Ending raw material inventory 34,000 Raw materials used in production $59,000 107. If the company transferred $222,000 of completed goods from work in process to finished goods inventory during September, what was the cost of goods sold for the month? A) $219,000 B) $225,000 C) $222,000 D) $221,000 Ans:  A LO:  1,3 Solution: Beginning finished goods inventory $ 32,000 Add: Cost of goods manufactured 222,000 Goods available for sale 254,000 Deduct: Ending finished inventory 35,000 Cost of goods sold $219,000 Use the following to answer questions 108-109: Boardman Company reported the following data for the month of January: Inventories: 1/1 1/31 Raw materials $32,000 $31,000 Work in process $18,000 $12,000 Finished goods $30,000 $35,000 Additional information: Sales revenue $210,000 Direct labor costs $40,000 Manufacturing overhead costs $70,000 Selling expenses $25,000 Administrative expenses $35,000 108. If raw materials costing $35,000 were purchased during January, the total manufacturing costs for the month would be: A) $145,000 B) $144,000 C) $151,000 D) $146,000 Ans:  D Solution: Beginning raw materials inventory $ 32,000 Add: Raw materials purchased 35,000 Raw materials available for use 67,000 Deduct: Ending raw materials inventory 31,000 Raw materials used 36,000 Direct labor 40,000 Manufacturing overhead 70,000 Total manufacturing costs $146,000 109. Boardman Company's total conversion cost for January would be: A) $110,000 B) $170,000 C) $135,000 D) $130,000 Ans:  A Solution: Direct labor $  40,000 Manufacturing overhead 70,000 Total conversion costs $110,000 Use the following to answer questions 110-111: Fassino Corporation reported the following data for the month of November: Inventories: Beginning Ending Raw materials $23,000 $30,000 Work in process $19,000 $20,000 Finished goods $55,000 $29,000 Additional information: Raw materials purchases $58,000 Direct labor cost $54,000 Manufacturing overhead cost $82,000 Selling expense $18,000 Administrative expense $42,000 110. The conversion cost for November was: A) $187,000 B) $112,000 C) $136,000 D) $140,000 Ans:  C Solution: Direct labor $  54,000 Manufacturing overhead 82,000 Total conversion costs $136,000 111. The prime cost for November was: A) $136,000 B) $60,000 C) $105,000 D) $112,000 Ans:  C Solution: Beginning raw materials inventory $  23,000 Add: Raw materials purchased 58,000 Raw materials available for use 81,000 Deduct: Ending raw materials inventory 30,000 Raw materials used 51,000 Direct labor 54,000 Total prime cost $105,000 Use the following to answer questions 112-113: Management of Mcgibboney Corporation has asked your help as an intern in preparing some key reports for November. The beginning balance in the raw materials inventory account was $25,000. During the month, the company made raw materials purchases amounting to $54,000. At the end of the month, the balance in the raw materials inventory account was $37,000. Direct labor cost was $25,000 and manufacturing overhead cost was $62,000. The beginning balance in the work in process account was $22,000 and the ending balance was $23,000. The beginning balance in the finished goods account was $44,000 and the ending balance was $50,000. Selling expense was $21,000 and administrative expense was $38,000. 112. The conversion cost for November was: A) $116,000 B) $79,000 C) $87,000 D) $129,000 Ans:  C Solution: Direct labor $25,000 Manufacturing overhead 62,000 Total conversion costs $87,000 113. The prime cost for November was: A) $79,000 B) $59,000 C) $67,000 D) $87,000 Ans:  C Solution: Beginning raw materials inventory $25,000 Add: Raw materials purchased 54,000 Raw materials available for use 79,000 Deduct: Ending raw materials inventory 37,000 Raw materials used 42,000 Direct labor 25,000 Total prime cost $67,000 Use the following to answer questions 114-116: Yokum Company has provided the following data for the month of August: August 1 August 31 Raw materials inventory $8,000 ? Work in process inventory ? $14,000 Finished goods inventory $25,000 $35,000 Other Data: Sales $350,000 Manufacturing overhead costs $44,000 Direct labor $80,000 Purchase of raw materials $94,000 Administrative expenses $40,000 Cost of goods manufactured $206,000 Raw materials used in production $87,000 Selling expenses $15,000 114. The ending raw materials inventory was: A) $3,000 B) $11,000 C) $15,000 D) $7,000 Ans:  C LO:  2,3,4 Solution: Beginning raw materials inventory $ 8,000 Add: Raw materials purchased 94,000 Raw materials available for use 102,000 Deduct: Ending raw materials inventory 15,000 * Raw materials used $87,000 * This item must be calculated by working backwards upward through the statements. 115. The beginning work in process inventory was: A) $6,000 B) $9,000 C) $15,000 D) $2,000 Ans:  B LO:  2,3,4 Solution: Beginning raw materials inventory $ 8,000 Add: Raw materials purchased 94,000 Raw materials available for use 102,000 Deduct: Ending raw materials inventory 15,000 * Raw materials used $87,000 Raw materials used $ 87,000 Direct labor 80,000 Manufacturing overhead 44,000 Total manufacturing costs 211,000 Add: Beginning work in process inventory 9,000 * Subtotal 220,000 * Deduct: Ending work in process inventory 14,000 Cost of goods manufactured $206,000 * These items must be calculated by working backwards upward through the statements. 116. The cost of goods sold was: A) $196,000 B) $206,000 C) $211,000 D) $190,000 Ans:  A LO:  2,3,4 Solution: Beginning raw materials inventory $ 8,000 Add: Raw materials purchased 94,000 Raw materials available for use 102,000 Deduct: Ending raw materials inventory 15,000 * Raw materials used $ 87,000 Raw materials used $ 87,000 Direct labor 80,000 Manufacturing overhead 44,000 Total manufacturing costs 211,000 Add: Beginning work in process inventory 9,000 * Subtotal 220,000 * Deduct: Ending work in process inventory 14,000 Cost of goods manufactured $206,000 * These items must be calculated by working backwards upward through the statements. Beginning finished goods inventory $ 25,000 Add: Cost of goods manufactured 206,000 Goods available for sale 231,000 Deduct: Ending finished goods inventory 35,000 Cost of goods sold $196,000 Use the following to answer questions 117-120: The following data (in thousands of dollars) have been taken from the accounting records of Karling Corporation for the just completed year. Sales $990 Raw materials inventory, beginning $40 Raw materials inventory, ending $70 Purchases of raw materials $120 Direct labor $200 Manufacturing overhead $230 Administrative expenses $150 Selling expenses $140 Work in process inventory, beginning $70 Work in process inventory, ending $50 Finished goods inventory, beginning $120 Finished goods inventory, ending $160 117. The cost of the raw materials used in production during the year (in thousands of dollars) was: A) $190 B) $90 C) $150 D) $160 Ans:  B LO:  2,3,4 Solution: Beginning raw materials inventory $ 40 Add: Raw materials purchased 120 Raw materials available for use 160 Deduct: Ending raw materials inventory 70 Raw materials used $90 118. The cost of goods manufactured (finished) for the year (in thousands of dollars) was: A) $540 B) $500 C) $570 D) $590 Ans:  A LO:  2,3,4 Solution: Beginning raw materials inventory $ 40 Add: Raw materials purchased  120 Raw materials available for use 160 Deduct: Ending raw materials inventory    70 Raw materials used $ 90 Raw materials used $ 90 Direct labor 200 Manufacturing overhead  230 Total manufacturing costs 520 Add: Beginning work in process inventory    70 Subtotal 590 Deduct: Ending work in process inventory    50 Cost of goods manufactured $540 119. The cost of goods sold for the year (in thousands of dollars) was: A) $700 B) $500 C) $660 D) $580 Ans:  B LO:  2,3,4 Solution: Beginning raw materials inventory $ 40 Add: Raw materials purchased 120 Raw materials available for use 160 Deduct: Ending raw materials inventory 70 Raw materials used $90 Raw materials used $ 90 Direct labor 200 Manufacturing overhead 230 Total manufacturing costs 520 Add: Beginning work in process inventory 70 Subtotal 590 Deduct: Ending work in process inventory 50 Cost of goods manufactured $540 Beginning finished goods inventory $120 Add: Cost of goods manufactured 540 Goods available for sale 660 Deduct: Ending finished goods inventory 160 Cost of goods sold $500 120. The net operating income for the year (in thousands of dollars) was: A) $150 B) $200 C) $490 D) $250 Ans:  B LO:  2,3,4 Solution: Beginning raw materials inventory $ 40 Add: Raw materials purchased 120 Raw materials available for use 160 Deduct: Ending raw materials inventory 70 Raw materials used $90 Raw materials used $ 90 Direct labor 200 Manufacturing overhead 230 Total manufacturing costs 520 Add: Beginning work in process inventory 70 Subtotal 590 Deduct: Ending work in process inventory 50 Cost of goods manufactured $540 Beginning finished goods inventory $120 Add: Cost of goods manufactured 540 Goods available for sale 660 Deduct: Ending finished goods inventory 160 Cost of goods sold $500 Sales          $990 Cost of goods sold          500 Gross margin          490 Selling and administrative expenses: Administrative expense $150 Selling expense   140 290 Net operating income          $200 Use the following to answer questions 121-125: Mark is an engineer who has designed a telecommunications device. He is convinced that there is a big potential market for the device. Accordingly, he has decided to quit his present job and start a company to manufacture and market the device. 121. The salary that Mark earns at his present employ is: A) a variable cost B) a fixed cost C) a product cost D) an opportunity cost Ans:  D 122. Mark purchased a machine two years ago to make experimental boards. The machine will be used to manufacture the new board. The cost of this machine is: A) an opportunity cost B) a sunk cost C) a differential cost D) a period cost Ans:  B 123. The cost of the raw materials that will be used in manufacturing the computer board is: A) a sunk cost B) a fixed cost C) a period cost D) a variable cost Ans:  D LO:  2,5 124. Rent on the administrative office space is: A) a variable cost B) an opportunity cost C) a period cost D) a product cost Ans:  C LO:  2,5 125. Property taxes on the building that will be purchased to house the manufacturing facility are: A) a product cost B) a variable cost C) an opportunity cost D) a period cost Ans:  A LO:  2,5 Use the following to answer questions 126-128: Vignana Corporation manufactures and sells hand-painted clay figurines of popular sports heroes. Shown below are some of the costs incurred by Vignana for last year: Cost of clay used in production $65,000 Wages paid to the workers who paint the figurines $90,000 Wages paid to the sales manager’s secretary $22,000 Cost of junk mail advertising $47,000 126. What is the total of the direct costs above? A) $65,000 B) $112,000 C) $155,000 D) $202,000 Ans:  C LO:  6 Solution: Cost of clay used in production $  65,000 Wages paid to the workers who paint the figurines 90,000 Total direct costs $155,000 127. What is the total of the inventoriable (product) costs above? A) $0 B) $69,000 C) $155,000 D) $159,000 Ans:  C Solution: Cost of clay used in production $  65,000 Wages paid to the workers who paint the figurines 90,000 Total product costs $155,000 128. What is the total of the conversion costs above? A) $65,000 B) $69,000 C) $90,000 D) $155,000 Ans:  C Solution: Only the wages paid to the works who paint the figurines ($90,000) are considered to be conversion costs. Use the following to answer questions 129-132: Gaeddert Corporation reported the following data for the month of July: Inventories: Beginning Ending Raw materials $36,000 $27,000 Work in process $13,000 $16,000 Finished goods $36,000 $42,000 Additional information: Sales $250,000 Raw materials purchases $76,000 Direct labor cost $33,000 Manufacturing overhead cost $81,000 Selling expense $24,000 Administrative expense $29,000 129. The total manufacturing cost for July was: A) $190,000 B) $114,000 C) $199,000 D) $81,000 Ans:  C Solution: Beginning raw materials inventory $  36,000 Add: Raw materials purchased 76,000 Raw materials available for use 112,000 Deduct: Ending raw materials inventory 27,000 Raw materials used 85,000 Add: Direct labor costs 33,000 Add: Manufacturing overhead 81,000 Total manufacturing costs $199,000 130. The cost of goods manufactured for July was: A) $196,000 B) $190,000 C) $202,000 D) $199,000 Ans:  A Solution: Beginning raw materials inventory $  36,000 Add: Raw materials purchased 76,000 Raw materials available for use 112,000 Deduct: Ending raw materials inventory 27,000 Raw materials used 85,000 Add: Direct labor costs 33,000 Add: Manufacturing overhead 81,000 Total manufacturing costs $199,000 Total manufacturing costs $199,000 Add: Beginning work in process inventory 13,000 Subtotal 212,000 Deduct: Ending work in process inventory 16,000 Cost of goods manufactured $196,000 131. The cost of goods sold for July was: A) $244,000 B) $138,000 C) $190,000 D) $202,000 Ans:  C Solution: Beginning raw materials inventory $  36,000 Add: Raw materials purchased 76,000 Raw materials available for use 112,000 Deduct: Ending raw materials inventory 27,000 Raw materials used 85,000 Add: Direct labor costs 33,000 Add: Manufacturing overhead 81,000 Total manufacturing costs $199,000 Total manufacturing costs $199,000 Add: Beginning work in process inventory 13,000 Subtotal 212,000 Deduct: Ending work in process inventory 16,000 Cost of goods manufactured $196,000 Beginning finished goods inventory $  36,000 Add: Cost of goods manufactured 196,000 Cost of goods available for sale 232,000 Deduct: Ending finished goods inventory 42,000 Cost of goods sold $190,000 132. The net operating income for July was: A) $7,000 B) $60,000 C) $83,000 D) $9,000 Ans:  A Solution: Beginning raw materials inventory $36,000 Add: Raw materials purchased 76,000 Raw materials available for use 112,000 Deduct: Ending raw materials inventory 27,000 Raw materials used $85,000 Raw materials used $  85,000 Direct labor 33,000 Manufacturing overhead 81,000 Total manufacturing costs 199,000 Add: Beginning work in process inventory 13,000 Subtotal 212,000 Deduct: Ending work in process inventory 16,000 Cost of goods manufactured $196,000 Beginning finished goods inventory $  36,000 Add: Cost of goods manufactured 196,000 Goods available for sale 232,000 Deduct: Ending finished goods inventory 42,000 Cost of goods sold $190,000 Sales               $250,000 Cost of goods sold               190,000 Gross margin               60,000 Selling and administrative expenses: Administrative expenses $29,000 Selling expenses   24,000 53,000 Net operating income               $   7,000 Use the following to answer questions 133-136: Management of Jarva Corporation has asked your help as an intern in preparing some key reports for May. The company started the month with raw materials inventories of $29,000. During the month, the company made raw materials purchases amounting to $72,000. At the end of the month, raw materials inventories totaled $33,000. Direct labor cost was $36,000 and manufacturing overhead cost was $57,000. The beginning balance in the work in process account was $24,000 and the ending balance was $16,000. The beginning balance in the finished goods account was $35,000 and the ending balance was $46,000. Sales totaled $220,000. Selling expense was $14,000 and administrative expense was $36,000. 133. The total manufacturing cost for May was: A) $93,000 B) $57,000 C) $165,000 D) $161,000 Ans:  D Solution: Beginning raw materials inventory $  29,000 Add: Raw materials purchased 72,000 Raw materials available for use 101,000 Deduct: Ending raw materials inventory 33,000 Raw materials used 68,000 Add: Direct labor costs 36,000 Add: Manufacturing overhead 57,000 Total manufacturing costs $161,000 134. The cost of goods manufactured for May was: A) $161,000 B) $165,000 C) $169,000 D) $153,000 Ans:  C Solution: Beginning raw materials inventory $  29,000 Add: Raw materials purchased 72,000 Raw materials available for use 101,000 Deduct: Ending raw materials inventory 33,000 Raw materials used 68,000 Add: Direct labor costs 36,000 Add: Manufacturing overhead 57,000 Total manufacturing costs $161,000 Total manufacturing costs $161,000 Add: Beginning work in process inventory 24,000 Subtotal 185,000 Deduct: Ending work in process inventory 16,000 Cost of goods manufactured $169,000 135. The cost of goods sold for May was: A) $107,000 B) $180,000 C) $158,000 D) $209,000 Ans:  C Solution: Beginning raw materials inventory $  29,000 Add: Raw materials purchased 72,000 Raw materials available for use 101,000 Deduct: Ending raw materials inventory 33,000 Raw materials used 68,000 Add: Direct labor costs 36,000 Add: Manufacturing overhead 57,000 Total manufacturing costs $161,000 Total manufacturing costs $161,000 Add: Beginning work in process inventory 24,000 Subtotal 185,000 Deduct: Ending work in process inventory 16,000 Cost of goods manufactured $169,000 Beginning finished goods inventory $  35,000 Add: Cost of goods manufactured 169,000 Cost of goods available for sale 204,000 Deduct: Ending finished goods inventory 46,000 Cost of goods sold $158,000 136. The net operating income for May was: A) $77,000 B) $12,000 C) $62,000 D) $5,000 Ans:  B Solution: Beginning raw materials inventory $ 29,000 Add: Raw materials purchased 72,000 Raw materials available for use 101,000 Deduct: Ending raw materials inventory 33,000 Raw materials used $ 68,000 Raw materials used $  68,000 Direct labor 36,000 Manufacturing overhead 57,000 Total manufacturing costs 161,000 Add: Beginning work in process inventory 24,000 Subtotal 185,000 Deduct: Ending work in process inventory 16,000 Cost of goods manufactured $169,000 Beginning finished goods inventory $  35,000 Add: Cost of goods manufactured 169,000 Goods available for sale 204,000 Deduct: Ending finished goods inventory 46,000 Cost of goods sold $158,000 Sales               $220,000 Cost of goods sold               158,000 Gross margin               62,000 Selling and administrative expenses: Administrative expenses $36,000 Selling expenses   14,000 50,000 Net operating income               $  12,000 Use the following to answer questions 137-139: The following selected data for March were taken from Rubenstein Company's financial statements: Cost of goods available for sale $65,000 Manufacturing overhead $20,000 Cost of goods manufactured $51,000 Finished goods inventory, ending $10,000 Direct materials used $15,000 Sales $105,000 Selling and administrative expenses $30,000 Direct labor $20,000 Work in process inventory, beginning $0 137. The gross margin was: A) $55,000 B) $54,000 C) $50,000 D) $40,000 Ans:  C Solution: Step #1: Cost of goods available for sale $65,000 Less: Finished goods inventory, ending 10,000 Cost of goods sold $55,000 Step #2: Sales $105,000 Cost of goods sold 55,000 Gross margin $  50,000 138. The beginning finished goods inventory was: A) $24,000 B) $9,000 C) $10,000 D) $14,000 Ans:  D Solution: Finished goods inventory, beginning $14,000* Add: Cost of goods manufactured 51,000   Cost of goods available for sale $65,000   * This item must be calculated by working backwards upward through the statements. 139. The ending work in process inventory was: A) $4,000 B) $8,000 C) $10,000 D) $0 Ans:  A Solution: Beginning work in process inventory $ 0 Add: Direct materials 15,000 Add: Direct labor 20,000 Add: Manufacturing overhead 20,000 55,000 Deduct: Ending work in process inventory 4,000 * Cost of goods manufactured $51,000 * This item must be calculated by working backwards upward through the statements. Use the following to answer questions 140-143: Dauenhauer Corporation reported the following data for the month of April: Inventories: Beginning Ending Raw materials $27,000 $20,000 Work in process $10,000 $24,000 Finished goods $38,000 $28,000 Additional information: Sales $230,000 Raw materials purchases $76,000 Direct labor cost $30,000 Manufacturing overhead cost $61,000 Selling expense $22,000 Administrative expense $26,000 140. The total manufacturing cost for April was: A) $61,000 B) $167,000 C) $91,000 D) $174,000 Ans:  D Solution: Beginning raw materials inventory $  27,000 Add: Raw materials purchased 76,000 Raw materials available for use 103,000 Deduct: Ending raw materials inventory 20,000 Raw materials used 83,000 Add: Direct labor costs 30,000 Add: Manufacturing overhead 61,000 Total manufacturing costs $174,000 141. The cost of goods manufactured for April was: A) $160,000 B) $174,000 C) $167,000 D) $188,000 Ans:  A Solution: Beginning raw materials inventory $  27,000 Add: Raw materials purchased 76,000 Raw materials available for use 103,000 Deduct: Ending raw materials inventory 20,000 Raw materials used 83,000 Add: Direct labor costs 30,000 Add: Manufacturing overhead 61,000 Total manufacturing costs $174,000 Total manufacturing costs $174,000 Add: Beginning work in process inventory 10,000 Subtotal 184,000 Deduct: Ending work in process inventory 24,000 Cost of goods manufactured $160,000 142. The cost of goods sold for April was: A) $240,000 B) $170,000 C) $150,000 D) $113,000 Ans:  B Solution: Beginning raw materials inventory $  27,000 Add: Raw materials purchased 76,000 Raw materials available for use 103,000 Deduct: Ending raw materials inventory 20,000 Raw materials used 83,000 Add: Direct labor costs 30,000 Add: Manufacturing overhead 61,000 Total manufacturing costs $174,000 Total manufacturing costs $174,000 Add: Beginning work in process inventory 10,000 Subtotal 184,000 Deduct: Ending work in process inventory 24,000 Cost of goods manufactured $160,000 Beginning finished goods inventory $  38,000 Add: Cost of goods manufactured 160,000 Cost of goods available for sale 198,000 Deduct: Ending finished goods inventory 28,000 Cost of goods sold $170,000 143. The net operating income for April was: A) $60,000 B) $15,000 C) $12,000 D) $91,000 Ans:  C Solution: Beginning raw materials inventory $27,000 Add: Raw materials purchased 76,000 Raw materials available for use 103,000 Deduct: Ending raw materials inventory 20,000 Raw materials used $83,000 Raw materials used $  83,000 Direct labor 30,000 Manufacturing overhead 61,000 Total manufacturing costs 174,000 Add: Beginning work in process inventory 10,000 Subtotal 184,000 Deduct: Ending work in process inventory 24,000 Cost of goods manufactured $160,000 Beginning finished goods inventory $  38,000 Add: Cost of goods manufactured 160,000 Goods available for sale 198,000 Deduct: Ending finished goods inventory 28,000 Cost of goods sold $170,000 Sales               $230,000 Cost of goods sold               170,000 Gross margin               60,000 Selling and administrative expenses: Administrative expenses $26,000 Selling expenses   22,000 48,000 Net operating income               $  12,000 Use the following to answer questions 144-145: Juart Corporation reported the following data for the month of December: Inventories: Beginning Ending Raw materials $26,000 $38,000 Work in process $22,000 $21,000 Finished goods $54,000 $56,000 Additional information: Sales $230,000 Raw materials purchases $78,000 Direct labor cost $24,000 Manufacturing overhead cost $58,000 Selling expense $15,000 Administrative expense $45,000 144. The cost of goods sold for December was: A) $147,000 B) $97,000 C) $228,000 D) $151,000 Ans:  A LO:  3,4 Solution: Beginning raw materials inventory $  26,000 Add: Raw materials purchased 78,000 Raw materials available for use 104,000 Deduct: Ending raw materials inventory 38,000 Raw materials used 66,000 Add: Direct labor costs 24,000 Add: Manufacturing overhead 58,000 Total manufacturing costs $148,000 Total manufacturing costs $148,000 Add: Beginning work in process inventory 22,000 Subtotal 170,000 Deduct: Ending work in process inventory 21,000 Cost of goods manufactured $149,000 Beginning finished goods inventory $  54,000 Add: Cost of goods manufactured 149,000 Cost of goods available for sale 203,000 Deduct: Ending finished goods inventory 56,000 Cost of goods sold $147,000 145. The net operating income for December was: A) $23,000 B) $83,000 C) $88,000 D) $10,000 Ans:  A Solution: Beginning raw materials inventory $  26,000 Add: Raw materials purchased 78,000 Raw materials available for use 104,000 Deduct: Ending raw materials inventory 38,000 Raw materials used 66,000 Add: Direct labor costs 24,000 Add: Manufacturing overhead 58,000 Total manufacturing costs $148,000 Total manufacturing costs $148,000 Add: Beginning work in process inventory 22,000 Subtotal 170,000 Deduct: Ending work in process inventory 21,000 Cost of goods manufactured $149,000 Beginning finished goods inventory $  54,000 Add: Cost of goods manufactured 149,000 Cost of goods available for sale 203,000 Deduct: Ending finished goods inventory 56,000 Cost of goods sold $147,000 Sales               $230,000 Cost of goods sold               147,000 Gross margin               83,000 Selling and administrative expenses: Administrative expenses $45,000 Selling expenses   15,000 60,000 Net operating income               $ 23,000 Use the following to answer questions 146-147: Steenbergen Corporation reported the following data for the month of June: Inventories: Beginning Ending Raw materials $39,000 $32,000 Work in process $24,000 $23,000 Finished goods $28,000 $30,000 Additional information: Sales $250,000 Raw materials purchases $50,000 Direct labor cost $44,000 Manufacturing overhead cost $71,000 Selling expense $21,000 Administrative expense $27,000 146. The total manufacturing cost for June was: A) $165,000 B) $71,000 C) $115,000 D) $172,000 Ans:  D Solution: Beginning raw materials inventory $  39,000 Add: Raw materials purchased 50,000 Raw materials available for use 89,000 Deduct: Ending raw materials inventory 32,000 Raw materials used 57,000 Add: Direct labor costs 44,000 Add: Manufacturing overhead 71,000 Total manufacturing costs $172,000 147. The net operating income for June was: A) $37,000 B) $87,000 C) $79,000 D) $31,000 Ans:  D Solution: Beginning raw materials inventory $  39,000 Add: Raw materials purchased 50,000 Raw materials available for use 89,000 Deduct: Ending raw materials inventory 32,000 Raw materials used 57,000 Add: Direct labor costs 44,000 Add: Manufacturing overhead 71,000 Total manufacturing costs $172,000 Total manufacturing costs $172,000 Add: Beginning work in process inventory 24,000 Subtotal 196,000 Deduct: Ending work in process inventory 23,000 Cost of goods manufactured $173,000 Beginning finished goods inventory $  28,000 Add: Cost of goods manufactured 173,000 Cost of goods available for sale 201,000 Deduct: Ending finished goods inventory 30,000 Cost of goods sold $171,000 Use the following to answer questions 148-151: Management of Thede Corporation has asked your help as an intern in preparing some key reports for July. The beginning balance in the raw materials inventory account was $29,000. During the month, the company made raw materials purchases amounting to $55,000. At the end of the month, the balance in the raw materials inventory account was $37,000. Direct labor cost was $41,000 and manufacturing overhead cost was $61,000. The beginning balance in the work in process account was $22,000 and the ending balance was $23,000. The beginning balance in the finished goods account was $42,000 and the ending balance was $55,000. Sales totaled $230,000. Selling expense was $13,000 and administrative expense was $32,000. 148. The total manufacturing cost for July was: A) $157,000 B) $149,000 C) $61,000 D) $102,000 Ans:  B Solution: Beginning raw materials inventory $  29,000 Add: Raw materials purchased 55,000 Raw materials available for use 84,000 Deduct: Ending raw materials inventory 37,000 Raw materials used 47,000 Add: Direct labor costs 41,000 Add: Manufacturing overhead 61,000 Total manufacturing costs $149,000 149. The cost of goods manufactured for July was: A) $149,000 B) $150,000 C) $148,000 D) $157,000 Ans:  C Solution: Beginning raw materials inventory $  29,000 Add: Raw materials purchased 55,000 Raw materials available for use 84,000 Deduct: Ending raw materials inventory 37,000 Raw materials used 47,000 Add: Direct labor costs 41,000 Add: Manufacturing overhead 61,000 Total manufacturing costs $149,000 Total manufacturing costs $149,000 Add: Beginning work in process inventory 22,000 Subtotal 171,000 Deduct: Ending work in process inventory 23,000 Cost of goods manufactured $148,000 150. The cost of goods sold for July was: A) $217,000 B) $135,000 C) $161,000 D) $115,000 Ans:  B Solution: Beginning raw materials inventory $  29,000 Add: Raw materials purchased 55,000 Raw materials available for use 84,000 Deduct: Ending raw materials inventory 37,000 Raw materials used 47,000 Add: Direct labor costs 41,000 Add: Manufacturing overhead 61,000 Total manufacturing costs $149,000 Total manufacturing costs $149,000 Add: Beginning work in process inventory 22,000 Subtotal 171,000 Deduct: Ending work in process inventory 23,000 Cost of goods manufactured $148,000 Beginning finished goods inventory $  42,000 Add: Cost of goods manufactured 148,000 Cost of goods available for sale 190,000 Deduct: Ending finished goods inventory 55,000 Cost of goods sold $135,000 151. The net operating income for July was: A) $28,000 B) $95,000 C) $50,000 D) $83,000 Ans:  C Solution: Beginning raw materials inventory $  29,000 Add: Raw materials purchased 55,000 Raw materials available for use 84,000 Deduct: Ending raw materials inventory 37,000 Raw materials used 47,000 Add: Direct labor costs 41,000 Add: Manufacturing overhead 61,000 Total manufacturing costs $149,000 Total manufacturing costs $149,000 Add: Beginning work in process inventory 22,000 Subtotal 171,000 Deduct: Ending work in process inventory 23,000 Cost of goods manufactured $148,000 Beginning finished goods inventory $  42,000 Add: Cost of goods manufactured 148,000 Cost of goods available for sale 190,000 Deduct: Ending finished goods inventory 55,000 Cost of goods sold $135,000 Sales               $230,000 Cost of goods sold               135,000 Gross margin               95,000 Selling and administrative expenses: Administrative expenses $32,000 Selling expenses   13,000 45,000 Net operating income               $  50,000 Use the following to answer questions 152-153: The CFO of Claussen Corporation has provided the following data for June. The beginning balance in the raw materials inventory account was $38,000. During the month, the company made raw materials purchases amounting to $53,000. At the end of the month, the balance in the raw materials inventory account was $27,000. Direct labor cost was $33,000 and manufacturing overhead cost was $74,000. The beginning balance in the work in process account was $24,000 and the ending balance was $23,000. The beginning balance in the finished goods account was $57,000 and the ending balance was $55,000. Sales totaled $290,000. Selling expense was $17,000 and administrative expense was $43,000. 152. The cost of goods sold for June was: A) $174,000 B) $170,000 C) $292,000 D) $124,000 Ans:  A LO:  3,4 Solution: Beginning raw materials inventory $  38,000 Add: Raw materials purchased 53,000 Raw materials available for use 91,000 Deduct: Ending raw materials inventory 27,000 Raw materials used 64,000 Add: Direct labor costs 33,000 Add: Manufacturing overhead 74,000 Total manufacturing costs $171,000 Total manufacturing costs $171,000 Add: Beginning work in process inventory 24,000 Subtotal 195,000 Deduct: Ending work in process inventory 23,000 Cost of goods manufactured $172,000 Beginning finished goods inventory $  57,000 Add: Cost of goods manufactured 172,000 Cost of goods available for sale 229,000 Deduct: Ending finished goods inventory 55,000 Cost of goods sold $174,000 153. The net operating income for June was: A) $56,000 B) $123,000 C) $70,000 D) $116,000 Ans:  A LO:  3,4 Solution: Beginning raw materials inventory $  38,000 Add: Raw materials purchased 53,000 Raw materials available for use 91,000 Deduct: Ending raw materials inventory 27,000 Raw materials used 64,000 Add: Direct labor costs 33,000 Add: Manufacturing overhead 74,000 Total manufacturing costs $171,000 Total manufacturing costs $171,000 Add: Beginning work in process inventory 24,000 Subtotal 195,000 Deduct: Ending work in process inventory 23,000 Cost of goods manufactured $172,000 Beginning finished goods inventory $  57,000 Add: Cost of goods manufactured 172,000 Cost of goods available for sale 229,000 Deduct: Ending finished goods inventory 55,000 Cost of goods sold $174,000 Sales               $290,000 Cost of goods sold               174,000 Gross margin               116,000 Selling and administrative expenses: Administrative expenses $43,000 Selling expenses   17,000 60,000 Net operating income               $  56,000 Use the following to answer questions 154-155: Downin Corporation has provided the following data for May. The beginning balance in the raw materials inventory account was $34,000. During the month, the company made raw materials purchases amounting to $65,000. At the end of the month, the balance in the raw materials inventory account was $29,000. Direct labor cost was $30,000 and manufacturing overhead cost was $56,000. The beginning balance in the work in process account was $15,000 and the ending balance was $16,000. The beginning balance in the finished goods account was $41,000 and the ending balance was $57,000. Sales totaled $220,000. Selling expense was $21,000 and administrative expense was $42,000. 154. The total manufacturing cost for May was: A) $156,000 B) $86,000 C) $151,000 D) $56,000 Ans:  A Solution: Beginning raw materials inventory $  34,000 Add: Raw materials purchased 65,000 Raw materials available for use 99,000 Deduct: Ending raw materials inventory 29,000 Raw materials used 70,000 Add: Direct labor costs 30,000 Add: Manufacturing overhead 56,000 Total manufacturing costs $156,000 155. The net operating income for May was: A) $71,000 B) $81,000 C) $6,000 D) $18,000 Ans:  D Solution: Beginning raw materials inventory $  34,000 Add: Raw materials purchased 65,000 Raw materials available for use 99,000 Deduct: Ending raw materials inventory 29,000 Raw materials used 70,000 Add: Direct labor costs 30,000 Add: Manufacturing overhead 56,000 Total manufacturing costs $156,000 Total manufacturing costs $156,000 Add: Beginning work in process inventory 15,000 Subtotal 171,000 Deduct: Ending work in process inventory 16,000 Cost of goods manufactured $155,000 Beginning finished goods inventory $  41,000 Add: Cost of goods manufactured 155,000 Cost of goods available for sale 196,000 Deduct: Ending finished goods inventory 57,000 Cost of goods sold $139,000 Sales               $220,000 Cost of goods sold               139,000 Gross margin               81,000 Selling and administrative expenses: Administrative expenses $42,000 Selling expenses   21,000 63,000 Net operating income               $  18,000 Use the following to answer questions 156-157: Yore Corporation has provided the following data for the month of June. The beginning balance in the finished goods inventory account was $35,000 and the ending balance was $26,000. Sales totaled $220,000. Cost of goods manufactured was $99,000, selling expense was $15,000, and administrative expense was $46,000. 156. The cost of goods sold for June was: A) $99,000 B) $160,000 C) $90,000 D) $108,000 Ans:  D Solution: Beginning finished goods inventory $  35,000 Add: Cost of goods manufactured 99,000 Cost of goods available for sale 134,000 Deduct: Ending finished goods inventory 26,000 Cost of goods sold $108,000 157. The net operating income for June was: A) $51,000 B) $60,000 C) $121,000 D) $130,000 Ans:  A Solution: Beginning finished goods inventory $  35,000 Add: Cost of goods manufactured 99,000 Cost of goods available for sale 134,000 Deduct: Ending finished goods inventory 26,000 Cost of goods sold $108,000 Sales               $220,000 Cost of goods sold               108,000 Gross margin               112,000 Selling and administrative expenses: Administrative expenses $46,000 Selling expenses   15,000 61,000 Net operating income               $  51,000 Use the following to answer questions 158-159: Streif Inc., a local retailer, has provided the following data for the month of June: Merchandise inventory, beginning balance $46,000 Merchandise inventory, ending balance $52,000 Sales $260,000 Purchases of merchandise inventory $128,000 Selling expense $13,000 Administrative expense $40,000 158. The cost of goods sold for June was: A) $128,000 B) $181,000 C) $122,000 D) $134,000 Ans:  C Solution: Beginning finished goods inventory $  46,000 Add: Cost of goods manufactured 128,000 Cost of goods available for sale 174,000 Deduct: Ending finished goods inventory 52,000 Cost of goods sold $122,000 159. The net operating income for June was: A) $132,000 B) $126,000 C) $85,000 D) $79,000 Ans:  C Solution: Beginning finished goods inventory $  46,000 Add: Cost of goods manufactured 128,000 Cost of goods available for sale 174,000 Deduct: Ending finished goods inventory 52,000 Cost of goods sold $122,000 Sales               $260,000 Cost of goods sold               122,000 Gross margin               138,000 Selling and administrative expenses: Administrative expenses $40,000 Selling expenses   13,000 53,000 Net operating income               $  85,000 Use the following to answer questions 160-161: Mcclean Corporation reported the following data for the month of October: Inventories: Beginning Ending Raw materials $29,000 $36,000 Work in process $19,000 $21,000 Finished goods $55,000 $53,000 Additional information: Raw materials purchases $75,000 Direct labor cost $45,000 Manufacturing overhead cost $64,000 Selling expense $16,000 Administrative expense $44,000 160. The total manufacturing cost for October was: A) $177,000 B) $184,000 C) $64,000 D) $109,000 Ans:  A Solution: Beginning raw materials inventory $  29,000 Add: Raw materials purchased 75,000 Raw materials available for use 104,000 Deduct: Ending raw materials inventory 36,000 Raw materials used 68,000 Add: Direct labor costs 45,000 Add: Manufacturing overhead 64,000 Total manufacturing costs $177,000 161. The cost of goods manufactured for October was: A) $177,000 B) $175,000 C) $184,000 D) $179,000 Ans:  B Solution: Beginning raw materials inventory $  29,000 Add: Raw materials purchased 75,000 Raw materials available for use 104,000 Deduct: Ending raw materials inventory 36,000 Raw materials used 68,000 Add: Direct labor costs 45,000 Add: Manufacturing overhead 64,000 Total manufacturing costs $177,000 Total manufacturing costs $177,000 Add: Beginning work in process inventory 19,000 Subtotal 196,000 Deduct: Ending work in process inventory 21,000 Cost of goods manufactured $175,000 Use the following to answer questions 162-163: Vives Corporation reported the following data for the month of April: Inventories: Beginning Ending Raw materials $27,000 $21,000 Work in process $21,000 $10,000 Finished goods $48,000 $41,000 Additional information: Raw materials purchases $79,000 Direct labor cost $27,000 Manufacturing overhead cost $89,000 162. The cost of goods manufactured for April was: A) $212,000 B) $190,000 C) $201,000 D) $195,000 Ans:  A Solution: Beginning raw materials inventory $  27,000 Add: Raw materials purchased 79,000 Raw materials available for use 106,000 Deduct: Ending raw materials inventory 21,000 Raw materials used 85,000 Add: Direct labor costs 27,000 Add: Manufacturing overhead 89,000 Total manufacturing costs $201,000 Total manufacturing costs $201,000 Add: Beginning work in process inventory 21,000 Subtotal 222,000 Deduct: Ending work in process inventory 10,000 Cost of goods manufactured $212,000 163. The cost of goods sold for April was: A) $267,000 B) $205,000 C) $219,000 D) $132,000 Ans:  C Solution: Beginning raw materials inventory $  27,000 Add: Raw materials purchased 79,000 Raw materials available for use 106,000 Deduct: Ending raw materials inventory 21,000 Raw materials used 85,000 Add: Direct labor costs 27,000 Add: Manufacturing overhead 89,000 Total manufacturing costs $201,000 Total manufacturing costs $201,000 Add: Beginning work in process inventory 21,000 Subtotal 222,000 Deduct: Ending work in process inventory 10,000 Cost of goods manufactured $212,000 Beginning finished goods inventory $  48,000 Add: Cost of goods manufactured 212,000 Cost of goods available for sale 260,000 Deduct: Ending finished goods inventory 41,000 Cost of goods sold $219,000 Use the following to answer questions 164-165: Server Corporation has provided the following data for July. The beginning balance in the raw materials inventory account was $22,000. During the month, the company made raw materials purchases amounting to $76,000. At the end of the month, the balance in the raw materials inventory account was $36,000. Direct labor cost was $25,000 and manufacturing overhead cost was $79,000. The beginning balance in the work in process account was $11,000 and the ending balance was $20,000. The beginning balance in the finished goods account was $43,000 and the ending balance was $39,000. 164. The total manufacturing cost for July was: A) $166,000 B) $104,000 C) $79,000 D) $180,000 Ans:  A Solution: Beginning raw materials inventory $  22,000 Add: Raw materials purchased 76,000 Raw materials available for use 98,000 Deduct: Ending raw materials inventory 36,000 Raw materials used 62,000 Add: Direct labor costs 25,000 Add: Manufacturing overhead 79,000 Total manufacturing costs $166,000 165. The cost of goods manufactured for July was: A) $166,000 B) $157,000 C) $180,000 D) $175,000 Ans:  B Solution: Beginning raw materials inventory $  22,000 Add: Raw materials purchased 76,000 Raw materials available for use 98,000 Deduct: Ending raw materials inventory 36,000 Raw materials used 62,000 Add: Direct labor costs 25,000 Add: Manufacturing overhead 79,000 Total manufacturing costs $166,000 Total manufacturing costs $166,000 Add: Beginning work in process inventory 11,000 Subtotal 177,000 Deduct: Ending work in process inventory 20,000 Cost of goods manufactured $157,000 Use the following to answer questions 166-167: At a sales volume of 20,000 units, Choice Corporation's sales commissions (a cost that is variable with respect to sales volume) total $132,000. 166. To the nearest whole dollar, what should be the total sales commissions at a sales volume of 18,400 units? (Assume that this sales volume is within the relevant range.) A) $126,720 B) $132,000 C) $121,440 D) $143,478 Ans:  C LO:  5 Solution: $132,000 ÷ 20,000 = $6.60 per unit 18,400 units × $6.60 = $121,440 167. To the nearest whole cent, what should be the average sales commission per unit at a sales volume of 18,500 units? (Assume that this sales volume is within the relevant range.) A) $6.60 B) $6.87 C) $7.17 D) $7.14 Ans:  A LO:  5 Solution: $132,000 ÷ 20,000 = $6.60 per unit average cost Use the following to answer questions 168-169: At a sales volume of 38,000 units, Tirri Corporation's property taxes (a cost that is fixed with respect to sales volume) total $733,400. 168. To the nearest whole dollar, what should be the total property taxes at a sales volume of 37,200 units? (Assume that this sales volume is within the relevant range.) A) $725,680 B) $733,400 C) $749,172 D) $717,960 Ans:  B LO:  5 Solution: Fixed costs do not change with changes in volume; therefore, fixed costs will total $733,400 at a sales volume of 37,200 units. 169. To the nearest whole cent, what should be the average property tax per unit at a sales volume of 37,300 units? (Assume that this sales volume is within the relevant range.) A) $19.30 B) $19.66 C) $19.72 D) $19.48 Ans:  B LO:  5 Solution: $733,400 ÷ 37,300 units = $19.66 per unit (rounded) Use the following to answer questions 170-171: Leas Corporation staffs a helpline to answer questions from customers. The costs of operating the helpline are variable with respect to the number of calls in a month. At a volume of 25,000 calls in a month, the costs of operating the helpline total $452,500. 170. To the nearest whole dollar, what should be the total cost of operating the helpline costs at a volume of 23,900 calls in a month? (Assume that this call volume is within the relevant range.) A) $442,545 B) $452,500 C) $473,326 D) $432,590 Ans:  D LO:  5 Solution: $452,500 ÷ 25,000 calls = $18.10 per call $18.10 per call × 23,900 calls = $432,590 171. To the nearest whole cent, what should be the average cost of operating the helpline per call at a volume of 25,300 calls in a month? (Assume that this call volume is within the relevant range.) A) $18.93 B) $18.00 C) $17.89 D) $18.10 Ans:  D LO:  5 Solution: $452,500 ÷ 25,000 calls = $18.10 per call (average) Use the following to answer questions 172-173: Batterson Corporation leases its corporate headquarters building. This lease cost is fixed with respect to the company's sales volume. In a recent month in which the sales volume was 28,000 units, the lease cost was $697,200. 172. To the nearest whole dollar, what should be the total lease cost at a sales volume of 29,200 units in a month? (Assume that this sales volume is within the relevant range.) A) $712,140 B) $697,200 C) $727,080 D) $668,548 Ans:  B LO:  5 Solution: Fixed costs do not change with changes in volume; therefore, fixed costs will total $697,200 at all sales levels within the relevant range. 173. To the nearest whole cent, what should be the average lease cost per unit at a sales volume of 26,400 units in a month? (Assume that this sales volume is within the relevant range.) A) $25.66 B) $24.90 C) $23.88 D) $26.41 Ans:  D LO:  5 Solution: $697,200 ÷ 26,400 units = $26.41 (rounded) Use the following to answer questions 174-175: The following cost data pertain to the operations of Ladwig Department Stores, Inc., for the month of December. Corporate legal office salaries $68,000 Shoe Department cost of sales--Brentwood Store $66,000 Corporate headquarters building lease $86,000 Store manager’s salary--Brentwood Store $10,000 Shoe Department sales commissions--Brentwood Store $5,000 Store utilities--Brentwood Store $11,000 Shoe Department manager’s salary--Brentwood Store $3,000 Central warehouse lease cost $3,000 Janitorial costs--Brentwood Store $11,000 The Brentwood Store is just one of many stores owned and operated by the company. The Shoe Department is one of many departments at the Brentwood Store. The central warehouse serves all of the company's stores. 174. What is the total amount of the costs listed above that are direct costs of the Shoe Department? A) $66,000 B) $74,000 C) $106,000 D) $71,000 Ans:  B LO:  6 Solution: Shoe Department cost of sales–Brentwood Store $66,000 Shoe Department sales commissions–Brentwood Store 5,000 Shoe Department Manager’s Salary–Brentwood Store 3,000 Total direct costs $74,000 175. What is the total amount of the costs listed above that are NOT direct costs of the Brentwood Store? A) $74,000 B) $32,000 C) $157,000 D) $86,000 Ans:  C LO:  6 Solution: Corporate legal office salaries $  68,000 Corporate headquarters building lease 86,000 Central warehouse lease cost 3,000 Total $157,000 Use the following to answer questions 176-177: The following cost data pertain to the operations of Quinonez Department Stores, Inc., for the month of September. Corporate headquarters building lease $77,000 Cosmetics Department sales commissions–Northridge Store $4,000 Corporate legal office salaries $59,000 Store manager’s salary–Northridge Store $11,000 Heating–Northridge Store $10,000 Cosmetics Department cost of sales–Northridge Store $37,000 Central warehouse lease cost $16,000 Store security–Northridge Store $12,000 Cosmetics Department manager’s salary–Northridge Store $4,000 The Northridge Store is just one of many stores owned and operated by the company. The Cosmetics Department is one of many departments at the Northridge Store. The central warehouse serves all of the company's stores. 176. What is the total amount of the costs listed above that are direct costs of the Cosmetics Department? A) $78,000 B) $45,000 C) $41,000 D) $37,000 Ans:  B LO:  6 Solution: Cosmetics Department sales commissions–Northridge Store $  4,000 Cosmetics Department cost of sales–Northridge Store 37,000 Cosmetics Department manager’s salary–Northridge Store 4,000 Total direct costs $45,000 177. What is the total amount of the costs listed above that are NOT direct costs of the Northridge Store? A) $152,000 B) $33,000 C) $45,000 D) $77,000 Ans:  A LO:  6 Solution: Corporate headquarters building lease $  77,000 Corporate legal office salaries 59,000 Central warehouse lease cost 16,000 Total costs which are NOT direct $152,000 Use the following to answer questions 178-180: A trucking business is considering whether to give up its local delivery routes or to expand its long haul (over 100 miles) operations. 178. In this decision, the original cost of any of the trucks that it currently owns can best be described as a(n): A) opportunity cost B) conversion cost C) sunk cost D) differential (incremental) cost Ans:  C 179. In this decision, the wage costs of the additional drivers that will have to be hired for the long haul operations can best be described as a(n): A) opportunity cost B) administrative cost C) sunk cost D) differential (incremental) cost Ans:  D 180. In this decision, the lost income from the local delivery routes given up can best be described as a(n): A) opportunity cost B) conversion cost C) sunk cost D) differential (incremental) cost Ans:  A Use the following to answer questions 181-183: Dominik Corporation purchased a machine 5 years ago for $527,000 when it launched product M08Y. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 310 machine costing $545,000 or by a new model 240 machine costing $450,000. Management has decided to buy the model 240 machine. It has less capacity than the model 310 machine, but its capacity is sufficient to continue making product M08Y. Management also considered, but rejected, the alternative of dropping product M08Y and not replacing the old machine. If that were done, the $450,000 invested in the new machine could instead have been invested in a project that would have returned a total of $532,000. 181. In making the decision to buy the model 240 machine rather than the model 310 machine, the differential cost was: A) $95,000 B) $5,000 C) $77,000 D) $18,000 Ans:  A Solution: Model 310 cost $545,000 Model 240 cost 450,000 Differential cost $  95,000 182. In making the decision to buy the model 240 machine rather than the model 310 machine, the sunk cost was: A) $545,000 B) $450,000 C) $527,000 D) $532,000 Ans:  C Solution: The original cost of $527,000 is a sunk cost. 183. In making the decision to invest in the model 240 machine, the opportunity cost was: A) $545,000 B) $450,000 C) $532,000 D) $527,000 Ans:  C Solution: The opportunity cost is the proceeds from the project that would have yielded $532,000. Use the following to answer questions 184-186: Management of Plascencia Corporation is considering whether to purchase a new model 370 machine costing $360,000 or a new model 220 machine costing $340,000 to replace a machine that was purchased 7 years ago for $348,000. The old machine was used to make product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product I43L. Management also considered, but rejected, the alternative of simply dropping product I43L. If that were done, instead of investing $340,000 in the new machine, the money could be invested in a project that would return a total of $411,000. 184. In making the decision to buy the model 220 machine rather than the model 370 machine, the sunk cost was: A) $348,000 B) $340,000 C) $360,000 D) $411,000 Ans:  A Solution: The original cost of the machine purchased 7 years ago for $348,000 is a sunk cost. 185. In making the decision to buy the model 220 machine rather than the model 370 machine, the differential cost was: A) $20,000 B) $8,000 C) $12,000 D) $63,000 Ans:  A Solution: Cost of model 370 machine $360,000 Cost of model 220 machine 340,000 Differential cost $  20,000 186. In making the decision to invest in the model 220 machine, the opportunity cost was: A) $348,000 B) $340,000 C) $360,000 D) $411,000 Ans:  D Solution: The opportunity cost is the proceeds from the project that would have yielded $411,000. Use the following to answer questions 187-190: (Appendix 2A) Debra works on the assembly line of a manufacturing company where she installs a component part for one of the company's products. She is paid $16 per hour for regular time and time and a half for all work in excess of 40 hours per week. 187. Debra works 42 hours during a week in which there was no idle time. The allocation of Debra's wages for the week between direct labor cost and manufacturing overhead cost would be: Direct Labor Manufacturing Overhead A) $664 $24 B) $688 $0 C) $640 $48 D) $672 $16 Ans:  D Solution: Total wages for the week: Regular time: 40 hours × $16 per hour $640 Overtime: 2 hours × $24 per hour    48 Total wages $688 Allocation of total wages: Direct labor: 42 hours × $16 per hour $672 Manufacturing overhead: 2 hours × $8 per hour    16 Total wages $688 188. Debra works 43 hours in a given week but is idle for 4 hours during the week due to equipment breakdowns. The allocation of Debra's wages for the week between direct labor cost and manufacturing overhead cost would be: Direct Labor Manufacturing Overhead A) $712 $0 B) $688 $24 C) $624 $88 D) $640 $72 Ans:  C Solution: Total wages for the week: Regular time: 40 hours × $16 per hour $640 Overtime: 3 hours × $24 per hour     72 Total wages $712 Allocation of total wages: Direct labor: 39 hours × $16 per hour $624 Manufacturing overhead: Idle time: 4 hours × $16 per hour $64 Overtime premium: 3 hours × $8 per hour  24     88 Total wages $712 189. Debra's employer offers fringe benefits that cost the company $3 for each hour of employee time (both regular and overtime). During a given week, Debra works 42 hours but is idle for 3 hours due to material shortages. The company treats all fringe benefits as part of manufacturing overhead. The allocation of Debra's wages and fringe benefits for the week between direct labor cost and manufacturing overhead would be: Direct Labor Manufacturing Overhead A) $688 $126 B) $624 $190 C) $672 $142 D) $640 $174 Ans:  B Solution: Total wages and fringe benefits for the week: Regular time: 40 hours × $16 per hour $640 Overtime: 2 hours × $24 per hour 48 Fringe benefits: 42 hours × $3 per hour   126 Total wages and fringe benefits $814 Allocation of wages and fringe benefits: Direct labor: 39 hours × $16 per hour $624 Manufacturing overhead: Idle time: 3 hours × $16 per hour $ 48 Overtime premium: 2 hours × $8 per hour 16 Fringe benefits: 42 hours × $3 per hour  126   190 Total wages and fringe benefits $814 190. Debra's employer offers fringe benefits that cost the company $3 for each hour of employee time (both regular and overtime). During a given week, Debra works 42 hours but is idle for 3 hours due to material shortages. The company treats all fringe benefits relating to direct labor as added direct labor cost and the remainder as part of manufacturing overhead. The allocation of Debra's wages and fringe benefits for the week between direct labor cost and manufacturing overhead would be: Direct Labor Manufacturing Overhead A) $688 $126 B) $624 $190 C) $741 $73 D) $672 $142 Ans:  C Solution: Allocation of wages and fringe benefits: Direct labor: Wage cost: 39 hours × $16 per hour $624 Fringe benefits: 39 hours × $3 per hour  117 $741 Manufacturing overhead: Idle time: 3 hours × $16 per hour 48 Overtime premium: 2 hours × $8 per hour 16 Fringe benefits: 3 hours × $3 per hour     9     73 Total wages and fringe benefits $814 Use the following to answer questions 191-194: (Appendix 2A) Larry is a quality inspector on the assembly line of a manufacturing company. He is paid $16 per hour for regular time and time and a half for all work in excess of 40 hours per week. He is classified as a direct labor worker. 191. Larry works 44 hours during a week in which there was no idle time. The allocation of Larry's wages for the week between direct labor cost and manufacturing overhead cost would be: Direct Labor Manufacturing Overhead A) $736 $0 B) $640 $96 C) $704 $32 D) $688 $48 Ans:  C Solution: Total wages for the week: Regular time: 40 hours × $16 per hour $640 Overtime: 4 hours × $24 per hour     96 Total wages $736 Allocation of total wages: Direct labor: 44 hours × $16 per hour $704 Manufacturing overhead: 4 hours × $8 per hour    32 Total wages $736 192. Larry works 45 hours in a given week but is idle for 4 hours during the week due to equipment breakdowns. The allocation of Larry's wages for the week between direct labor cost and manufacturing overhead cost would be: Direct Labor Manufacturing Overhead A) $656 $104 B) $760 $0 C) $720 $40 D) $640 $120 Ans:  A Solution: Total wages for the week: Regular time: 40 hours × $16 per hour $640 Overtime: 5 hours × $24 per hour   120 Total wages $760 Allocation of total wages: Direct labor: 41 hours × $16 per hour $656 Manufacturing overhead: Idle time: 4 hours × $16 per hour $64 Overtime premium: 5 hours × $8 per hour  40   104 Total wages $760 193. Larry's employer offers fringe benefits that cost the company $5 for each hour of employee time (both regular and overtime). During a given week, Larry works 45 hours but is idle for 4 hours due to material shortages. The company treats all fringe benefits as part of manufacturing overhead. The allocation of Larry's wages and fringe benefits for the week between direct labor cost and manufacturing overhead would be: Direct Labor Manufacturing Overhead A) $760 $225 B) $640 $345 C) $656 $329 D) $720 $265 Ans:  C Solution: Total wages and fringe benefits for the week: Regular time: 40 hours × $16 per hour $640 Overtime: 5 hours × $24 per hour 120 Fringe benefits: 45 hours × $5 per hour   225 Total wages and fringe benefits $985 Allocation of wages and fringe benefits: Direct labor: 41 hours × $16 per hour $656 Manufacturing overhead: Idle time: 4 hours × $16 per hour $ 64 Overtime premium: 5 hours × $8 per hour 40 Fringe benefits: 45 hours × $5 per hour  225   329 Total wages and fringe benefits $985 194. Larry's employer offers fringe benefits that cost the company $5 for each hour of employee time (both regular and overtime). During a given week, Larry works 45 hours but is idle for 4 hours due to material shortages. The company treats all fringe benefits relating to direct labor as added direct labor cost and the remainder as part of manufacturing overhead. The allocation of Larry's wages and fringe benefits for the week between direct labor cost and manufacturing overhead would be: Direct Labor Manufacturing Overhead A) $720 $265 B) $861 $124 C) $760 $225 D) $656 $329 Ans:  B Solution: Allocation of wages and fringe benefits: Direct labor: Wage cost: 41 hours × $16 per hour $656 Fringe benefits: 41 hours × $5 per hour 205 $861 Manufacturing overhead: Idle time: 4 hours × $16 per hour 64 Overtime premium: 5 hours × $8 per hour 40 Fringe benefits: 4 hours × $5 per hour    20   124 Total wages and fringe benefits $985 Use the following to answer questions 195-196: (Appendix 2B) Circle K Toys, Inc. manufactures toys and children's clothing and sells these products to retail outlets. The following costs were incurred in performing quality activities at Circle K during the year: Product recall activities $370,000 Quality training activities $240,000 Quality improvement activities $154,000 Warranty claim activities $109,000 Quality inspection and testing activities $61,000 Rework activities $38,000 Quality data collection and reporting activities $15,000 195. What is the total of the prevention costs for Circle K? A) $394,000 B) $409,000 C) $455,000 D) $470,000 Ans:  B Solution: Quality training activities $240,000 Quality improvement activities 154,000 Quality data collection and reporting activities 15,000 Total prevention costs $409,000 196. What is the total of the internal failure costs for Circle K? A) $53,000 B) $99,000 C) $517,000 D) $38,000 Ans:  D Solution: Rework activities $38,000 Use the following to answer questions 197-200: (Appendix 2B) Ean Company's quality cost report is to be based on the following data: Quality circles $57,000 Downtime caused by quality problems $98,000 Debugging software errors $98,000 Statistical process control activities $68,000 Test and inspection of in-process goods $24,000 Final product testing and inspection $66,000 Cost of field servicing and handling complaints $87,000 Product recalls $72,000 Maintenance of test equipment $75,000 197. What would be the total prevention cost appearing on the quality cost report? A) $143,000 B) $125,000 C) $81,000 D) $129,000 Ans:  B Solution: Quality circles $  57,000 Statistical process control activities 68,000 Total prevention costs $125,000 198. What would be the total appraisal cost appearing on the quality cost report? A) $141,000 B) $165,000 C) $90,000 D) $164,000 Ans:  B Solution: Test and inspection of in-process goods $  24,000 Final product testing and inspection 66,000 Maintenance of test equipment 75,000 Total appraisal cost $165,000 199. What would be the total internal failure cost appearing on the quality cost report? A) $185,000 B) $196,000 C) $173,000 D) $170,000 Ans:  B Solution: Downtime caused by quality problems $  98,000 Debugging software errors 98,000 Total internal failure cost $196,000 200. What would be the total external failure cost appearing on the quality cost report? A) $170,000 B) $645,000 C) $159,000 D) $355,000 Ans:  C Solution: Cost of field servicing and handling complaints $  87,000 Product recalls 72,000 Total external failure cost $159,000 Use the following to answer questions 201-204: (Appendix 2B) Fagel Company's quality cost report is to be based on the following data: Disposal of defective products $42,000 Supervision of testing and inspection activities $73,000 Statistical process control activities $78,000 Cost of field servicing and handling complaints $53,000 Re-entering data because of keying errors $46,000 Warranty repairs and replacements $87,000 Supplies used in testing and inspection $89,000 Quality circles $27,000 Downtime caused by quality problems $14,000 201. What would be the total prevention cost appearing on the quality cost report? A) $105,000 B) $80,000 C) $151,000 D) $116,000 Ans:  A Solution: Statistical process control activities $  78,000 Quality circles 27,000 Total prevention cost $105,000 202. What would be the total appraisal cost appearing on the quality cost report? A) $115,000 B) $135,000 C) $267,000 D) $162,000 Ans:  D Solution: Supervision of testing and inspection activities $  73,000 Supplies used in testing and inspection 89,000 Total appraisal cost $162,000 203. What would be the total internal failure cost appearing on the quality cost report? A) $129,000 B) $67,000 C) $115,000 D) $102,000 Ans:  D Solution: Disposal of defective products $  42,000 Re-entering data because of keying errors 46,000 Downtime caused by quality problems 14,000 Total internal failure cost $102,000 204. What would be the total external failure cost appearing on the quality cost report? A) $509,000 B) $242,000 C) $101,000 D) $140,000 Ans:  D Solution: Cost of field servicing and handling complaints $  53,000 Warranty repairs and replacements 87,000 Total external failure cost $140,000 Use the following to answer questions 205-208: (Appendix 2B) Faust Company's quality cost report is to be based on the following data: Quality engineering $68,000 Quality circles $35,000 Supervision of testing and inspection activities $72,000 Net cost of scrap $76,000 Test and inspection of in-process goods $6,000 Liability arising from defective products $3,000 Warranty repairs and replacements $56,000 Debugging software errors $68,000 Rework labor and overhead $19,000 205. What would be the total prevention cost appearing on the quality cost report? A) $107,000 B) $41,000 C) $140,000 D) $103,000 Ans:  D Solution: Quality engineering $  68,000 Quality circles 35,000 Total prevention cost $103,000 206. What would be the total appraisal cost appearing on the quality cost report? A) $78,000 B) $181,000 C) $81,000 D) $74,000 Ans:  A Solution: Supervision of testing and inspection activities $72,000 Test and inspection of in-process goods 6,000 Total appraisal cost $78,000 207. What would be the total internal failure cost appearing on the quality cost report? A) $71,000 B) $163,000 C) $74,000 D) $132,000 Ans:  B Solution: Net cost of scrap $  76,000 Debugging software errors 68,000 Rework labor and overhead 19,000 Total internal failure cost $163,000 208. What would be the total external failure cost appearing on the quality cost report? A) $222,000 B) $403,000 C) $79,000 D) $59,000 Ans:  D Solution: Liability arising from defective products $  3,000 Warranty repairs and replacements 56,000 Total external failure cost $59,000 Essay Questions 209. The information below relates to Guzzardi Manufacturing Company. (Assume that all raw materials are direct materials.): Purchases of raw materials $362,000 Direct labor cost $207,000 Selling costs (total) $61,000 Administrative costs (total) $84,000 Manufacturing overhead costs (total) $775,000 Raw materials inventory, beginning $37,000 Work in process inventory, beginning $19,000 Finished goods inventory, beginning $62,000 Raw materials inventory, ending $44,000 Work in process inventory, ending $3,000 Finished goods inventory, ending $77,000 Required: What is Guzzardi's cost of goods sold? Ans: Purchases of raw materials $   362,000 Add: Raw materials inventory, beginning        37,000 399,000 Deduct: Raw materials inventory, ending        44,000 Raw materials used in production 355,000 Direct labor cost 207,000 Manufacturing overhead costs (total)      775,000 Total manufacturing cost 1,337,000 Add: Work in process inventory, beginning        19,000 1,356,000 Deduct: Work in process inventory, ending          3,000 Cost of goods manufactured $1,353,000 Finished goods inventory, beginning $    62,000 Add: Cost of goods manufactured  1,353,000 Goods available for sale 1,415,000 Deduct: Finished goods inventory, ending       77,000 Cost of goods sold $1,338,000 LO:  1,2,3,4 210. Miyose Corporation, a manufacturing company, has provided the following data for the month of June: Inventories: Beginning Ending Raw materials $23,000 $21,000 Finished goods $32,000 $37,000 Raw materials purchased during June totaled $67,000 and the cost of goods manufactured totaled $124,000. Required: What was the cost of raw materials used in production during June? Show your work. What was the cost of goods sold for June? Show your work. Ans: a. Beginning materials inventory $23,000 Add: Purchases of raw materials  67,000 Raw materials available for use 90,000 Deduct: Ending raw materials inventory  21,000 Raw materials used in production $69,000 b. Cost of goods manufactured $124,000 Add: Beginning finished goods inventory     32,000 Goods available for sale 156,000 Deduct: Ending finished goods inventory     37,000 Cost of goods sold $119,000 LO:  1,3 211. During the month of May, Russnak Corporation, a manufacturing company, purchased raw materials costing $73,000. The cost of goods manufactured for the month was $102,000. The beginning balance in the raw materials account was $26,000 and the ending balance was $39,000. The beginning balance in the finished goods account was $42,000 and the ending balance was $46,000. Required: What was the cost of raw materials used in production during May? Show your work. What was the cost of goods sold for May? Show your work. Ans: a. Beginning materials inventory $26,000 Add: Purchases of raw materials  73,000 Raw materials available for use 99,000 Deduct: Ending raw materials inventory  39,000 Raw materials used in production $60,000 b. Cost of goods manufactured $102,000 Add: Beginning finished goods inventory     42,000 Goods available for sale 144,000 Deduct: Ending finished goods inventory     46,000 Cost of goods sold $  98,000 LO:  1,3 212. Mary Tappin, an assistant Vice President at Galaxy Toys, was disturbed to find on her desk a memo from her boss, Gary Resnick, to the controller of the company. The memo appears below: Galaxy Toys Internal Memo Sept 15 To: Harry Wilson, Controller Fm: Gary Resnick, Executive Vice President As you know, we won't start recording many sales until October when stores start accepting shipments from us for the Christmas season. Meanwhile, we are producing flat-out and are building up our finished goods inventories so that we will be ready to ship next month. Unfortunately, we are in a bind right now since it looks like the net income for the quarter ending on Sept 30 is going to be pretty awful. This may get us in trouble with the bank since they always review the quarterly financial reports and may call in our loan if they don't like what they see. Is there any possibility that we could change the classification of some of our period costs to product costs--such as the rent on the finished goods warehouse? Please let me know as soon as possible. The President is pushing for results. Mary didn't know what to do about the memo. It wasn't intended for her, but its contents were alarming. Required: Why has Gary Resnick suggested reclassifying some period costs as product costs? Why do you think Mary was alarmed about the memo? Ans: Gary Resnick has suggested reclassifying some period costs as product costs since the company is building up large finished goods inventories in anticipation of the Christmas selling season. Product costs are inventoried and flow through to the income statement only when products are sold. Period expenses, in contrast, flow directly to the income statement. Since most of the finished goods inventories will be held over to the next quarter, reclassifying period costs as product costs will effectively defer recognition of expenses until next quarter and therefore will improve the current quarter's net operating income. Mary Tappin is probably alarmed by both the economic situation the company finds itself in and by the apparent willingness of top management to bend the rules. Improperly reclassifying costs is an indication that top management does not feel like it has to play by the rules or be honest in its dealings with the bank. With such loose ethical standards, Mary may wonder what other things they are doing that are unethical and/or illegal. 213. A partial listing of costs incurred at Boylen Corporation during March appears below: Direct materials $181,000 Utilities, factory $10,000 Sales commissions $69,000 Administrative salaries $99,000 Indirect labor $32,000 Advertising $75,000 Depreciation of production equipment $28,000 Direct labor $120,000 Depreciation of administrative equipment $49,000 Required: What is the total amount of product cost listed above? Show your work. What is the total amount of period cost listed above? Show your work. Ans: a. Product costs consist of direct materials, direct labor, and manufacturing overhead: Direct materials $181,000 Direct labor 120,000 Manufacturing overhead: Utilities, factory $10,000 Indirect labor 32,000 Depreciation of production equipment  28,000     70,000 Total product cost $371,000 b. Period costs consist of all costs other than product costs: Administrative salaries $  99,000 Sales commissions 69,000 Depreciation of administrative equipment 49,000 Advertising     75,000 Total period cost $292,000 214. Marquess Corporation has provided the following partial listing of costs incurred during May: Marketing salaries $39,000 Property taxes, factory $8,000 Administrative travel $102,000 Sales commissions $73,000 Indirect labor $31,000 Direct materials $197,000 Advertising $145,000 Depreciation of production equipment $39,000 Direct labor $78,000 Required: What is the total amount of product cost listed above? Show your work. What is the total amount of period cost listed above? Show your work. Ans: a. Product costs consist of direct materials, direct labor, and manufacturing overhead: Direct materials $197,000 Direct labor 78,000 Manufacturing overhead: Property taxes, factory $ 8,000 Indirect labor 31,000 Depreciation of production equipment  39,000     78,000 Total product cost $353,000 b. Period costs consist of all costs other than product costs: Administrative travel $102,000 Sales commissions 73,000 Marketing salaries 39,000 Advertising  145,000 Total period cost $359,000 215. Classify the following costs for an auto manufacturer as either direct materials, direct labor, manufacturing overhead, or period costs. Steel used in automobiles Assembly department employee wages Utility costs used in executive building Travel costs used by sales personnel Cost of shipping goods to customers Property taxes on assembly plant Glass used in automobiles Maintenance supplies Depreciation on assembly plant Plant manager's salary CEO's salary Depreciation on executive building Salary of marketing executive Tires installed on automobiles Advertising Required: Complete the answer sheet above by placing an “X” under each heading that identifies the cost involved. Direct Materials Direct Labor Manufacturing Overhead Period Cost a. b. c. d. e. f. g. h. i. j. k. l. m. n. o. Ans: Direct Materials Direct Labor Manufacturing Overhead Period Cost a. X b. X c. X d. X e. X f. X g. X h. X i. X j. X k. X l. X m. X n. X o. X 216. The following costs relate to one month's activity in Carr Company: Indirect labor $400 Rent on factory building $300 Maintenance of equipment $100 Direct material used $1,200 Utilities on factory $200 Direct labor $1,500 Selling expense $500 Administrative expense $300 Work in process, beginning $800 Work in process, ending $600 Finished goods, beginning $500 Finished goods, ending $250 Required: Prepare a schedule of Cost of Goods Manufactured in good form. Determine the Cost of Goods Sold for the month. Ans: a. Direct materials $1,200 Direct labor 1,500 Manufacturing overhead: Indirect labor $400 Rent 300 Maintenance 100 Utilities  200  1,000 Total manufacturing cost 3,700 Add: WIP, beginning     800 4,500 Deduct: WIP, ending     600 Cost of goods manufactured $3,900 b. Finished goods, beginning $  500 Add: Cost of goods manufactured  3,900 Goods available for sale 4,400 Finished goods, ending      250 Cost of goods sold $4,150 LO:  3,4 217. Nish Corporation has provided the following data for the month of April: Sales $220,000 Raw materials purchases $50,000 Direct labor cost $23,000 Manufacturing overhead cost $59,000 Selling expense $18,000 Administrative expense $43,000 Inventories: Beginning Ending Raw materials $26,000 $35,000 Work in process $18,000 $22,000 Finished goods $42,000 $29,000 Required: Prepare a Schedule of Cost of Goods Manufactured in good form for April. Prepare an Income Statement in good form for April. Ans: a. Schedule of Cost of Goods Manufactured Direct materials: Beginning materials inventory $26,000 Add: Purchases of raw materials  50,000 Raw materials available for use 76,000 Deduct: Ending raw materials inventory  35,000 Raw materials used in production $  41,000 Direct labor 23,000 Manufacturing overhead     59,000 Total manufacturing costs 123,000 Add: Beginning work in process inventory     18,000 141,000 Deduct: Ending work in process inventory     22,000 Cost of goods manufactured $119,000 b. Income Statement Sales $220,000 Cost of goods sold: Beginning finished goods inventory $ 42,000 Add: Cost of goods manufactured  119,000 Goods available for sale 161,000 Deduct: Ending finished goods inventory   29,000  132,000 Gross margin 88,000 Selling and administrative expenses: Selling expenses 18,000 Administrative expenses 43,000    61,000 Net operating income $ 27,000 LO:  3,4 218. The following data have been provided the Monster Manufacturing Company for the most recent period: Sales $16,800 Raw materials inventory, beginning $900 Raw materials inventory, ending $750 Purchases of raw materials $8,400 Direct labor $1,240 Manufacturing overhead $2,070 Administrative expenses $1,890 Selling expenses $1,000 Work in process inventory, beginning $700 Work in process inventory, ending $1,050 Finished goods inventory, beginning $970 Finished goods inventory, ending $1,120 Required: Calculate the cost of goods manufactured and prepare an income statement. Ans: Cost of goods manufactured: Direct materials = $900+$8,400-$750 = $8,550 Total manufacturing costs = $8,550+$1,240+$2,070 = $11,860 Cost of goods manufacturing = $11,860+$700-$1,050 = $11,510 Monster Manufacturing Company Income Statement Sales $16,800 Cost of goods sold: Beginning finished goods inventory $    970 Plus cost of goods manufactured  11,510 Cost of goods available for sale 12,480 Less ending finished goods inventory    1,120 Cost of goods sold   11,360 Gross margin 5,440 Selling and administrative expenses: Administrative expenses 1,890 Selling expenses    1,000 Total selling and administrative expense    2,890 Net operating income $ 2,550 LO:  3,4 219. In December, Vollick Corporation had sales of $245,000, selling expenses of $23,000, and administrative expenses of $26,000. The cost of goods manufactured was $190,000. The beginning balance in the finished goods inventory account was $59,000 and the ending balance was $56,000. Required: Prepare an Income Statement in good form for December. Ans: Income Statement Sales $245,000 Cost of goods sold: Beginning finished goods inventory $ 59,000 Add: Cost of goods manufactured  190,000 Goods available for sale 249,000 Deduct: Ending finished goods inventory    56,000   193,000 Gross margin 52,000 Selling and administrative expenses: Selling expenses 23,000 Administrative expenses    26,000    49,000 Net operating income $   3,000 220. In April, Holderness Inc., a merchandising company, had sales of $221,000, selling expenses of $14,000, and administrative expenses of $25,000. The cost of merchandise purchased during the month was $155,000. The beginning balance in the merchandise inventory account was $34,000 and the ending balance was $48,000. Required: Prepare an Income Statement in good form for April. Ans: Income Statement Sales $221,000 Cost of goods sold: Beginning merchandise inventory $ 34,000 Add: Purchases  155,000 Goods available for sale 189,000 Deduct: Ending merchandise inventory    48,000  141,000 Gross margin 80,000 Selling and administrative expenses: Selling expenses 14,000 Administrative expenses    25,000    39,000 Net operating income $ 41,000 221. The following data were taken from the cost records of Morrey Company for last year: Depreciation, factory $60,000 Indirect labor $100,000 Utilities, factory $40,000 Insurance, factory $10,000 Lubricants for machines $15,000 Direct labor $200,000 Purchases of raw materials $150,000 Inventories at the beginning and at the end of the year were as follows: Beginning Ending Raw materials $10,000 $20,000 Work in process $25,000 $5,000 Finished goods $30,000 $50,000 Required: Prepare a schedule of cost of goods manufactured in good form. Ans: Morrey Company Schedule of Cost of Goods Manufactured Direct materials: Raw materials inventory, beginning $ 10,000 Add: Purchases of raw materials  150,000 Raw materials available for use 160,000 Deduct: Raw materials inventory, ending    20,000 Raw materials used in production $140,000 Direct labor 200,000 Manufacturing overhead: Depreciation, factory 60,000 Indirect labor 100,000 Utilities, factory 40,000 Insurance, factory 10,000 Lubricants for machines    15,000 Total manufacturing overhead cost   225,000 Total manufacturing costs 565,000 Add: Work in process inventory, beginning     25,000 590,000 Deduct: Work in process inventory, ending       5,000 Cost of Goods Manufactured $585,000 222. Pamer Corporation has provided the following data for the month of September: Raw materials purchases $60,000 Direct labor cost $27,000 Manufacturing overhead cost $76,000 Inventories: Beginning Ending Raw materials $20,000 $23,000 Work in process $24,000 $18,000 Finished goods $43,000 $32,000 Required: Prepare a Schedule of Cost of Goods Manufactured in good form for September. Ans: Schedule of Cost of Goods Manufactured Direct materials: Beginning materials inventory $20,000 Add: Purchases of raw materials  60,000 Raw materials available for use 80,000 Deduct: Ending raw materials inventory  23,000 Raw materials used in production $ 57,000 Direct labor 27,000 Manufacturing overhead    76,000 Total manufacturing costs 160,000 Add: Beginning work in process inventory    24,000 184,000 Deduct: Ending work in process inventory    18,000 Cost of goods manufactured $166,000 223. A number of costs and measures of activity are listed below. Cost Description Possible Measure of Activity 1. Cost of vaccine used at a clinic Vaccines administered 2. Building rent at a taco shop Dollar sales 3. Salary of production manager at a snowboard manufacturer Snowboards produced 4. Cost of electricity for production equipment at a snowboard manufacturer Snowboards produced 5. Ferry captain’s salary on a regularly scheduled passenger ferry Number of passengers 6. Cost of glue used in furniture production Units produced 7. Janitorial wages at a snowboard manufacturer Snowboards produced 8. Depreciation on factory building at a snowboard manufacturer Snowboards produced 9. Cost of advertising at a snowboard company Snowboards sold 10. Cost of shipping bags of fertilizer to a customer at a chemical plant Bags shipped Required: For each item above, indicate whether the cost is MAINLY fixed or variable with respect to the possible measure of activity listed next to it. Ans: Cost of vaccine used at a clinic; Vaccines administered; Variable Building rent at a taco shop; Dollar sales; Fixed Salary of production manager at a snowboard manufacturer; Snowboards produced; Fixed Cost of electricity for production equipment at a snowboard manufacturer; Snowboards produced; Variable Ferry captain's salary on a regularly scheduled passenger ferry; Number of passengers; Fixed Cost of glue used in furniture production; Units produced; Variable Janitorial wages at a snowboard manufacturer; Snowboards produced; Fixed Depreciation on factory building at a snowboard manufacturer; Snowboards produced; Fixed Cost of advertising at a snowboard company; Snowboards sold; Fixed Cost of shipping bags of fertilizer to a customer at a chemical plant; Bags shipped; Variable LO:  5 224. A number of costs are listed below. Cost Description Cost Object 1. Wages of carpenters on a home building site A particular home 2. Cost of wiring used in making a personal computer A particular personal computer 3. Manager’s salary at a hotel run by a chain of hotels A particular hotel guest 4. Manager’s salary at a hotel run by a chain of hotels The particular hotel 5. Cost of aluminum mast installed in a yacht at a yacht manufacturer A particular yacht 6. Monthly lease cost of X-ray equipment at a hospital The Radiology (X-Ray) Department 7. Cost of screws used to secure wood trim in a yacht at a yacht manufacturer A particular yacht 8. Cost of electronic navigation system installed in a yacht at a yacht manufacturer A particular yacht 9. Cost of a replacement battery installed in a car at the auto repair shop of an automobile dealer The auto repair shop 10. Cost of a measles vaccine administered at an outpatient clinic at a hospital A particular patient Required: For each item above, indicate whether the cost is direct or indirect with respect to the cost object listed next to it. Ans: Wages of carpenters on a home building site; A particular home; Direct Cost of wiring used in making a personal computer; A particular personal computer; Indirect Manager's salary at a hotel run by a chain of hotels; A particular hotel guest; Indirect Manager's salary at a hotel run by a chain of hotels; The particular hotel; Direct Cost of aluminum mast installed in a yacht at a yacht manufacturer; A particular yacht; Direct Monthly lease cost of X-ray equipment at a hospital; The Radiology (X-Ray) Department; Direct Cost of screws used to secure wood trim in a yacht at a yacht manufacturer; A particular yacht; Indirect Cost of electronic navigation system installed in a yacht at a yacht manufacturer; A particular yacht; Direct Cost of a replacement battery installed in a car at the auto repair shop of an automobile dealer; The auto repair shop; Direct Cost of a measles vaccine administered at an outpatient clinic at a hospital; A particular patient; Direct LO:  6 225. A direct labor worker at Ude Corporation is paid $24 per hour for regular time and time and a half for all work in excess of 40 hours per week. This employee works 44 hours during a week in which there was no idle time. Required: Determine how much of the worker's wages for the week would be classified as direct labor cost and how much would be classified as manufacturing overhead cost. Show your work. Ans: Direct labor: $24 per hour × 44 hour = $1,056 Manufacturing overhead: Overtime premium: $12 per hour × 4 hours = $48 226. A direct labor worker at Bodreau Corporation is paid $14 per hour for regular time and time and a half for all work in excess of 40 hours per week. This employee works 48 hours in a given week but is idle for 4 hours during the week due to equipment breakdowns. Required: Determine how much of the worker's wages for the week would be classified as direct labor cost and how much would be classified as manufacturing overhead cost. Show your work. Ans: Direct labor: $14 per hour × 44 hours $616 Manufacturing overhead: Idle time: $14 per hour × 4 hours $  56 Overtime premium: $7 per hour × 8 hours     56 Total manufacturing overhead $112 227. A direct labor worker at Chiarini Corporation is paid $14 per hour for regular time and time and a half for all work in excess of 40 hours per week. The company's fringe benefits cost $4 for each hour of employee time (both regular and overtime). Last week this employee worked 45 hours but was idle for 3 hours due to material shortages. The company treats all fringe benefits as part of manufacturing overhead. Required: Determine how much of the worker's wages for the week would be classified as direct labor cost and how much would be classified as manufacturing overhead cost. Show your work. Ans: Direct labor: $14 per hour × 42 hours $588 Manufacturing overhead: Idle time: $14 per hour × 3 hours $ 42 Overtime premium: $7 per hour × 5 hours 35 Fringe benefits: $4 per hour × 45 hours  180 Total manufacturing overhead $257 228. A direct labor worker at Kimmer Corporation is paid $18 per hour for regular time and time and a half for all work in excess of 40 hours per week. The company's fringe benefits cost $4 for each hour of employee time (both regular and overtime). Last week this employee worked 42 hours but was idle for 4 hours due to material shortages. The company treats all fringe benefits relating to direct labor as added direct labor cost and the remainder as part of manufacturing overhead. Required: Determine how much of the worker's wages for the week would be classified as direct labor cost and how much would be classified as manufacturing overhead cost. Show your work. Ans: Direct labor: Wages: $18 per hour × 38 hours $684 Fringe benefits: $4 per hour ×38 hours 152 Total direct labor $836 Manufacturing overhead: Idle time: $18 per hour ×4 hours $ 72 Overtime premium: $9 per hour × 2 hours 18 Fringe benefits: $4 per hour × 4 hours    16 Total manufacturing overhead $106 229. Toole Manufacturing Company manufactures and sells ceiling fans. Toole incurred the following costs related to quality for the year: Cost of warranty repairs $35,000 Cost of employee quality training $27,000 Cost incurred to rework fans $18,000 Spoilage cost (net) $15,000 Cost of handling customer complaints $11,000 Depreciation cost of test equipment $6,000 Cost of quality circles $5,000 Maintenance cost of test equipment $3,000 Cost of retesting reworked fans $2,000 Cost of final testing of fans $1,000 Required: Prepare a Quality Cost Report for Toole Manufacturing Company showing both dollars and percents. Assume that sales were $2,000,000. Ans: Toole Manufacturing Company Quality Cost Report Amount Percent Prevention costs: Cost of employee quality training $  27,000 1.35 Cost of quality circles       5,000 0.25 Total prevention cost     32,000 1.60 Appraisal costs: Depreciation cost of test equipment 6,000 0.30 Maintenance cost of test equipment 3,000 0.15 Cost of final testing of fans       1,000 0.05 Total appraisal cost     10,000 0.50 Internal failure costs: Cost incurred to rework fans 18,000 0.90 Spoilage cost (net) 15,000 0.75 Cost of retesting reworked fans       2,000 0.10 Total internal failure cost     35,000 1.75 External failure costs: Cost of warranty repairs 35,000 1.75 Cost of handling customer complaints     11,000 0.55 Total external failure cost     46,000 2.30 Total quality cost $123,000 6.15 230. Gad Company's quality cost report is to be based on the following data: Re-entering data because of keying errors $17,000 Net cost of spoilage $88,000 Supervision of testing and inspection activities $78,000 Lost sales due to poor quality $17,000 Warranty repairs and replacements $92,000 Depreciation of test equipment $12,000 Maintenance of test equipment $75,000 Systems development $79,000 Quality training $19,000 Required: Prepare a Quality Cost Report in good form with separate sections for prevention costs, appraisal costs, internal failure costs, and external failure costs. Ans: Prevention costs Quality training $  19,000 Systems development    79,000 Total prevention cost    98,000 Appraisal costs Depreciation of test equipment 12,000 Supervision of testing and inspection activities 78,000 Maintenance of test equipment    75,000 Total appraisal cost  165,000 Internal failure costs Re-entering data because of keying errors 17,000 Net cost of spoilage    88,000 Total internal failure cost  105,000 External failure costs Lost sales due to poor quality 17,000 Warranty repairs and replacements    92,000 Total external failure cost  109,000 Total quality cost $477,000 231. Hartz Company's quality cost report is to be based on the following data: Lost sales due to poor quality $86,000 Net cost of spoilage $35,000 Final product testing and inspection $19,000 Net cost of scrap $88,000 Systems development $83,000 Supplies used in testing and inspection $94,000 Rework labor and overhead $72,000 Quality data gathering, analysis, and reporting $43,000 Product recalls $53,000 Required: Prepare a Quality Cost Report in good form with separate sections for prevention costs, appraisal costs, internal failure costs, and external failure costs. Ans: Prevention costs Systems development $ 83,000 Quality data gathering, analysis, and reporting    43,000 Total prevention cost  126,000 Appraisal costs Final product testing and inspection 19,000 Supplies used in testing and inspection    94,000 Total appraisal cost  113,000 Internal failure costs Rework labor and overhead 72,000 Net cost of scrap 88,000 Net cost of spoilage    35,000 Total internal failure cost  195,000 External failure costs Lost sales due to poor quality 86,000 Product recalls    53,000 Total external failure cost  139,000 Total quality cost $573,000