Determine the Cost to Make One Product

Self Test

Cost Accounting

Self Test

Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.

1. Budget is often called

a. approximated
b. standard
c. unexpected
d. expensed

Answer

B. Budget is often called standard. Standard and budget means what is estimated or expected to occur.

2. Which of the following is stated on the cost sheet?

a. the quantity required to make one unit of product.
b. the cost of one quantity
c. the total cost to make one unit of product
d. all of the above

Answer

D. The cost sheets states the quantity and cost of one quantity for all product costs required to make the product. Quantity x cost for one quantity = total cost. All components must be reported on the cost sheet. Showing the total cost only is not enough information to do analysis of costs and usage in the future.

3. A quantity standard stated on the cost sheet is the amount that is

a. expected to be used to make all the products during the year
b. expected to be used to make one product
c. actual that was used to make all the products during the year
d. actual that was used to make one product

Answer

B. A cost sheet only states an estimate (standard or budget). Actual information is not stated on the cost sheet. The cost sheet is for one product only.

4. A cost standard stated on the cost sheet is the amount that is

a. expected to be purchased during the entire year
b. expected to be paid for one quantity used to make one product
c. actually purchased during the entire year
d. actually paid for one quantity used to make one product

Answer

B. The cost sheet shows the expected cost for one quantity of whatever is used to make the product. Cost sheets do not have actual amounts.

5. Practical standards

a. are tight and unattainable
b. do not include waste
c. are attainable under perfect circumstances
d. include waste and time for breaks

5. Practical standards

a. are tight and unattainable
b. do not include waste
c. are attainable under perfect circumstances
d. include waste and time for breaks

Answer

D. Practical standards include waste and time for breaks and all other down time that occurs when making the product. It is not practical to assume that there will be no waste of materials or employees will work for 8 hours without stopping. Practical standards are tight to encourage employees to be efficient, but achievable. Ideal standards can only be achieved under perfect circumstances.

6. Which of the following costs will not be included on the cost sheet?

a. selling expenses
b. materials used to make the product
c. labor that operates the machine that makes the product
d. indirect labor

Answer

A. The cost sheet includes product costs only; direct material, direct labor and manufacturing overhead. Indirect labor is part of manufacturing overhead. Labor that operates the machine that makes the product is direct labor. Selling expenses are period costs and will not be stated on the costs sheet.

7. Which of the following will not be stated on the cost sheet for direct materials?

a. Each of the different types of direct material required
b. The cost for one quantity of each type of material required
c. The quantity of each type of material that is required
d. None of the above.

Answer

D. The cost sheet lists each type of material required to make the product, the quantity of each type of material required to make the product and the cost for one quantity (inches, ounces, pounds, etc.). All are stated on the cost sheet.

8. Which of the following will not be stated on the cost sheet for labor?

a. The different types of direct labor required
b.  Hours required to make one unit for each type of labor used to make the product
c. The total expected cost of direct labor for the year
d. The cost per hour that is paid for each type of labor

Answer

C. The cost sheet states what is required for one product. It does not give total amounts for all production during the year.

9. Manufacturing Overhead is allocated to one product based on

a. the different types of materials used to make the product
b. the activity the company does that causes the company to incur
c. the number of customers the product is sold to
d. warehouse square feet

Answer

B. Manufacturing overhead (MOH) is an indirect cost and it is difficult to determine exactly how much it costs in MOH to make one product. MOH is allocated to one product using an activity that causes the company to incur MOH. The activity should be a part of the manufacturing process.

10. The cost sheet states

a. quantity for all x cost for all = total cost
b. quantity for one product x cost for one quantity = total cost
c. only the total average cost for each of the 3 product costs
d. none of the above

Answer

B. The cost sheet gives the information required to make one unit. The quantity for one x cost for one gives the total cost for each type of product cost incurred to make one product.

11. The standard quantity of direct labor hours is determined by

a. the purchasing manager
b. the production manager
c. watching the direct labor employees work
d. both b. and c.

Answer

D. The standard quantity of direct labor hours is an estimate of how much time it takes to make one product. This is determined by watching direct labor employees work and the judgment of the production manager regarding direct labor efficiency. The purchasing manager is involved with direct materials and not direct labor.

12. The standard quantity of direct materials is determined by

a. the purchasing manager
b. the production manager
c. looking at the product or design specifications
d. both b. and c.

Answer

D. The standard quantity of direct materials required is determined by looking at the product and design specification and the production manager who determines the appropriate level of waste. The purchasing manager determines the cost of direct materials, not the quantity used.

13. The cost of manufacturing overhead to make one product is determined by

a. watching the costs go directly into the product
b. watching the direct labor employees make the product
c.  using an estimate based on an activity that causes the company to incur manufacturing overhead dollars
d. none of the above

Answer

C. Manufacturing overhead (MOH) is an indirect cost and you can not tell by looking at the product or manufacturing process how much it costs in MOH. You can not see the costs go directly into the product. The cost for one product must be estimated by using an activity that occurs as the product is made.

14. The total estimated annual activity used to determine the pre-determined manufacturing overhead rate is

a. last year’s actual activity
b. the estimated quantity of activity required for 1 product x the number of products estimated to be sold
c. the estimated quantity of activity required for 1 product x the number of products estimated to be manufactured
d. none of the above

Answer

C. The total estimated annual activity is the quantity of the activity that causes the company to incur manufacturing overhead costs to make all the products expected to be made during the year. The quantity sold is never used to determine the cost of making products.

15. The formula for the pre-determined manufacturing overhead (MOH) rate is

a. last year’s activity x the percent increase in total costs expected for this year divided by units expected to be made
b. the activity required for one divided by the total MOH costs
c. the activity required to make all products divided by total MOH costs
d. total estimated manufacturing overhead costs for the year divided by total estimated activity for the year

Answer

D. The formula for determining what it costs for one activity that causes the company to incur manufacturing overhead is total estimated manufacturing overhead costs for the year divided by total estimated activity for the year. The formula uses only total estimated amounts for the year.