Homework #2—Due Tuesday, January 31

1. In cost terminology, conversion costs consist ofA. Direct and indirect laborB. Direct labor and direct materialsC. Direct labor and factory overheadD. Indirect labor and variable factory overhead

2. Inventoriable costsA. Include only the prime costs of manufacturing a productB. Include only the conversion costs of manufacturing a productC. Are expensed when products become part of the finished goods inventoryD. Are regarded as assets before the products are sold

3. Which of the following items is a product cost for a manufacturing company?A. Insurance on the corporate headquarters buildingB. Property taxes on a factoryC. Depreciation on salespersons’ automobilesD. Salary of a sales manager

4. The cost of the direct labor associated with the manufacture of a product should be classified as an expense when theA. Labor is performedB. Product is transferred to finished goods inventoryC. Product is soldD. Employees are paid

5. All costs related to the manufacturing function in a company areA. Prime costsB. Direct costsC. Product costsD. Conversion costs

6. Period costsA. Are always expensed in the same period in which they are incurredB. Are costs that vary from one period to the nextC. Remain unchanged over a given period of timeD. Are associated with the periodic inventory method

7. Which one of the following costs is classified as a period cost?A. The wages of the workers on the shipping docks who load completed products onto outgoing trucksB. The wages of a worker paid for idle time resulting from a machine breakdown in the molding operationC. The payments for employee fringe benefits paid on behalf of the workers in the manufacturing plantD. The wages paid to workers for rework on defective products

8. A fixed cost that would be considered a direct cost isA. A cost accountant’s salary when the cost object is a unit of productB. The rental cost of a warehouse to store inventory when the cost object is the Purchasing DepartmentC. A production supervisor’s salary when the cost object is the Production DepartmentD. Board of directors’ fees when the cost object is the Marketing Department

9. In a traditional manufacturing operation, direct costs normally includeA. Machine repairs in an automobile factoryB. Electricity in an electronics plantC. Wood in a furniture factoryD. Commissions paid to sales personnel

10. The wages of the factory janitorial staff should be classified asA. Factory overhead costB. Direct labor costC. Period costD. Prime cost

11. HIGH-LOW METHODAt the high level of activity in November, 7,000 machine hours were run and power costs were $12,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $6,000. Answer the following questions using the high-low method.

1. What is the variable cost per machine hour?2. What are the estimated fixed costs per month?3. If the company expects to run 8,000 machine hours next month, what is the estimated cost for the

month?4. If the company expects run 80,000 machine hours next year, what is the estimated cost for the

year?

If you got $99,600 for your answer to part 4 of the high-low problem, you need to look again.

12. Rhett Company has two departments, Machining and Assembly. The following estimates are for the coming year:Machining Assembly

Direct labor hours 10,000 50,000Machine hours 40,000 20,000Manufacturing overhead $200,000 $400,000

A single predetermined overhead rate based on direct labor hours for the entire plant isa. $ 8 per direct labor-hour.b. $10 per direct labor-hour.c. $20 per direct labor-hour.d. none of the above.

13. Mason Co. uses a job-order cost system and applies manufacturing overhead to jobs using a predetermined overhead rate based on direct-labor dollars. The rate for the current year is 200% of direct-labor dollars ($2.00 of overhead is applied for every $1.00 of direct labor cost). This rate was calculated last December and will be used throughout the current year. Mason had one job, No. 150, in process on August 1 with raw materials costs of $3,000. During August, raw materials and direct labor added to jobs were as follows:

Job #150 Job #151 Job #152Raw materials $ -- $4,000 $1,000Direct labor $1,500 $5,000 $2,500

Actual manufacturing overhead for the month of August was $20,000. During the month, Mason completed Jobs Nos. 150 and 151. For August, manufacturing overhead was

a. Overapplied by $4,000b. Underapplied by $7,000c. Underapplied by $2,000d. Underapplied by $1,000