Principles Of Cost Accounting 17th Edition By Edward J Vanderbeck Maria R Mitchell – Test bank

1. Which of the following is a characteristic of a service organization?
a. Provides a tangible product
b. Carries large inventories
c. Receives payments for physical properties
d. Service is consumed at time it is provided
ANSWER: d
RATIONALE: Answers a, b, and d all involve tangible products; only answer c involves a service.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PRIN.EDWA.16.1 – Introduction
ACCREDITING STANDARDS: AACSB Analytic
ACCT.AICPA.FN.03 – Measurement
BUSPROG.03 – Analytic
IMA-Business Applications
OTHER: Bloom’s: Remembering

2. Which of the following is generally not considered a service organization?
a. Hair stylists
b. Lawyers
c. Autoparts stores
d. Plumbers
ANSWER: c
RATIONALE: An auto parts store has as its principle function the selling of automobile parts rather than a service. Although physical items are obtained from hair stylists, lawyers, and plumbers, the principle function they perform is a service.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PRIN.EDWA.16.1 – Introduction
ACCREDITING STANDARDS: AACSB Reflective Thinking
ACCT.AICPA.FN.03 – Measurement
BUSPROG.06 – Reflective Thinking
IMA-Business Applications
OTHER: Bloom’s: Understanding

3. Examples of service businesses that would use job order costing would include all of the following except:
a. an accounting firm that has audit clients of various sizes and complexities.
b. a “quick oil change” shop that offers only basic maintenance services.
c. an automotive body repair shop specializing in collision repair.
d. a high end salon offering hair, manicure and spa services.
ANSWER: b
RATIONALE: The accounting firm, collision repair shop and the salon would have customers (jobs) with varying complexities and sizes. Job order costing would be beneficial in these cases. The oil change shop that offers only basic maintenance services such as oil changes, would not have as many complexities among its customers as the others and would be more akin to process costing.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PRIN.EDWA.16.64 – LO 9:1
ACCREDITING STANDARDS: AACSB Reflective Thinking
ACCT.AICPA.FN.03 – Measurement
BUSPROG.06 – Reflective Thinking
IMA-Cost Management
OTHER: Bloom’s: Understanding

4. A service firm, such as a law firm, would choose direct labor dollars over direct labor hours as a cost driver for overhead because:
a. Overhead is more related to dollars charged than hours worked.
b. Labor hours are harder to track.
c. Labor rates change and thus overhead is automatically updated.
d. Partners and managers incur overhead equally.
ANSWER: a
RATIONALE: Overhead based on labor dollars takes into account that the higher paid individual often incurs more overhead than someone with a smaller salary. A partner in a law firm uses more administrative time and has a nice office than does a new attorney, although they both may work the same number of hours.
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PRIN.EDWA.16.64 – LO 9:1
ACCREDITING STANDARDS: AACSB Reflective Thinking
ACCT.AICPA.FN.03 – Measurement
BUSPROG.06 – Reflective Thinking
IMA-Cost Management
OTHER: Bloom’s: Understanding

5. An example of a direct cost that can be specifically identified with a job and does not have to be allocated to the job using an overhead rate is:
a. travel expenses.
b. fringe benefits.
c. utilities.
d. office machine lease costs.
ANSWER: a
RATIONALE: Travel expenses can usually be specifically identified with a job.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PRIN.EDWA.16.64 – LO 9:1
ACCREDITING STANDARDS: AACSB Reflective Thinking
ACCT.AICPA.FN.03 – Measurement
BUSPROG.06 – Reflective Thinking
IMA-Cost Management
OTHER: Bloom’s: Understanding

6. Lots of Locks is an upscale hair salon with eight stylists. Its budget information follows:
Budgeted direct labor cost $320,000
Budgeted overhead 160,000
Budgeted labor rate per hour $20

Since all of the stylists are paid the same rate, the proprietor allocates overhead to jobs based on direct labor hours. Angela Arnold brought her wedding party to Lots of Locks for styling. It took four designers two hours each and the supplies totaled $50. How much overhead was applied to the Arnold job?
a. $50
b. $80
c. $160
d. $500
ANSWER: b
RATIONALE: Predetermined overhead rate = Budgeted overhead / Budgeted cost driver Predetermined overhead rate = $160,000 / 16,000 direct labor hours* = $10 per hour. Applied overhead = Predetermined overhead rate x actual cost driver for job Applied overhead = $10 x 8 hours = $80. (2 designers x 4 hours) * Budgeted direct labor cost / Budgeted labor rate = Budgeted direct labor hours $320,000 / $20 = 16,000 hours
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PRIN.EDWA.16.64 – LO 9:1
ACCREDITING STANDARDS: AACSB Analytic
ACCT.AICPA.FN.03 – Measurement
BUSPROG.06 – Reflective Thinking
IMA-Cost Management
OTHER: Bloom’s: Applying

7. Boyle’s Body Shop repairs automobiles that have been involved in collisions. Its budget information follows:
Budgeted direct labor cost $200,000
Budgeted overhead 500,000
Budgeted labor rate per hour $10

Since all of Boyle’s technicians are paid the same rate, Boyle allocates overhead to jobs based on direct labor hours. Paul Evans brought his car to Boyle for fender repair. It took 6 hours and the new parts for the job totaled $200. What was the total cost of the Evans job?
a. $410
b. $200
c. $260
d. $325
ANSWER: a
RATIONALE: Predetermined overhead rate = Budgeted overhead / Budgeted cost driver Predetermined overhead rate = $500,000 / 20,000 direct labor hours* = $25 per hour. Applied overhead = Predetermined overhead rate x actual cost driver for job Applied overhead = $25 x 6 hours = $150. * Budgeted direct labor cost / Budgeted labor rate = Budgeted direct labor hours $200,000 / $10 = 20,000 hours
Direct materials $200
Direct labor (6 hours x $10) 60
Applied overhead 150
Total for job $410

POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PRIN.EDWA.16.64 – LO 9:1
ACCREDITING STANDARDS: AACSB Analytic
ACCT.AICPA.FN.03 – Measurement
BUSPROG.03 – Analytic
IMA-Cost Management
OTHER: Bloom’s: Applying

8. Boyle’s Body Shop repairs automobiles that have been involved in collisions. Its budget information follows:
Budgeted direct labor cost $200,000
Budgeted overhead 500,000
Budgeted labor rate per hour $10

Since all of Boyle’s technicians are paid the same rate, Boyle allocates overhead to jobs based on direct labor hours. Paul Evans brought his car to Boyle for fender repair. It took 5 hours and the new parts for the job totaled $200. If Evans was charged $500, what was the percentage of profit to the selling price?
a. 35%
b. 60%
c. 50%
d. 25%
ANSWER: d
RATIONALE: Predetermined overhead rate = Budgeted overhead / Budgeted cost driver Predetermined overhead rate = $500,000 / 20,000 direct labor hours* = $25 per hour. Applied overhead = Predetermined overhead rate x actual cost driver for job Applied overhead = $25 x 5 hours = $125. * Budgeted direct labor cost / Budgeted labor rate = Budgeted direct labor hours $200,000 / $10 = 20,000 hours
Direct materials $200
Direct labor (5 hours x $10) 50
Applied overhead 125
Total for job $375
Profit for job = $500 – $375 = $125 Profit percentage = $125 / $500 = 25%
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PRIN.EDWA.16.64 – LO 9:1
ACCREDITING STANDARDS: AACSB Analytic
ACCT.AICPA.FN.03 – Measurement
BUSPROG.03 – Analytic
IMA-Cost Management
OTHER: Bloom’s: Applying

9. A report that compares the budgeted costs for the job to the actual costs incurred and indicates the variances is a:
a. Budget analysis.
b. Job cost sheet.
c. Cost analysis.
d. Cost performance report.
ANSWER: d
RATIONALE: A cost performance report compares budgeted cost to actual costs incurred for a job, and indicates the variances.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PRIN.EDWA.16.64 – LO 9:1
ACCREDITING STANDARDS: AACSB Analytic
ACCT.AICPA.FN.03 – Measurement
BUSPROG.03 – Analytic
IMA-Cost Management
OTHER: Bloom’s: Remembering

10. The first budget to be prepared for a professional services firm should be the:
a. Direct expense budget.
b. Labor budget.
c. Overhead budget.
d. Revenue budget.
ANSWER: d
RATIONALE: The revenue budget should be the first budget prepared because the amount of client business must be projected before estimating the labor hours and overhead required.
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PRIN.EDWA.16.65 – LO 9:2
ACCREDITING STANDARDS: AACSB Reflective Thinking
ACCT.AICPA.FN.03 – Measurement
BUSPROG.06 – Reflective Thinking
IMA-Budget Preparation
OTHER: Bloom’s: Remembering