Cost of Goods Manufactured
Self Test
Self Test
Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
1. Cost of goods manufactured represents
b. cost of all products that were started during the period
c. total cost to manufacture completed finished goods during the period
d. total cost for everything paid for at the manufacturing plant during the period.
Answer
C. Cost of goods manufactured is the cost of all finished goods completed during the period. Work in process that is not complete at the end of the period is taken out of the calculation so it does not represent all costs paid for. Beginning work in process was not started this period and it is included, so (b.) is not correct. Cost of goods sold is only the cost of items sold this period and products sold does not usually equal products made (a.)
2. The formula to calculate cost of goods sold is
b. beginning work in process less ending work in process plus cost of goods manufactured
c. beginning raw materials purchased plus cost of goods manufactured less ending raw materials
d. beginning finished goods plus cost of goods manufactured less ending finished goods
Answer
D. The cost of finished goods available (beginning FG plus CGM) less what you have left (ending FG) is the cost of what you have sold.
3. The formula to calculate cost of goods manufactured is
b. beginning work in process less ending work in process plus all costs this period to manufacture products
c. beginning raw materials purchased plus cost of goods manufactured less ending raw materials
d. beginning finished goods plus cost of goods manufactured less ending finished goods
Answer
B. You start with the costs at the beginning of the period already in process (beginning WIP) that get finished first and add all the costs for this period and subtract the cost of the products that are not yet finished. Cost of goods manufactured is for finished products only.
4. Direct materials used
b. is not a part of cost of goods sold
c. is included in the cost of making products
d. is not included in the cost of making products
Answer
C. It is direct materials used that is part of the cost of making the product. Materials can be purchased and not used and are not part of the cost of goods made (a.). Cost of goods manufactured is part of cost of goods sold, so direct materials is also part of cost of goods sold (b.).
5. Direct labor would include
b. a worker who inspects the product after it is complete
c. a worker who cleans the manufacturing facility
d. a worker who supervises assembly workers
Answer
A. Direct labor touches the product to make it or operates the machine that makes the product. All other answers are part of manufacturing overhead.
6. Manufacturing overhead would not include
b. utilities at the manufacturing facility
c. quality inspectors at the manufacturing facility
d. human resources at the corporate office
Answer
D. Human resources at the corporate office is a cost of managing the entire organization and is a general and administrative cost. Manufacturing overhead costs must be incurred at the manufacturing facility.
7. What types of costs are included in cost of goods manufactured?
b. only indirect costs
c. direct costs plus manufacturing overhead
d. direct material used, beginning work in process and ending work in process
Answer
C. Product costs are included in cost of goods manufactured. Product costs are direct material, direct labor, and manufacturing overhead. Work in process also includes these three types of cost, the products are just not finished.
8. Ending work in process is subtracted from total manufacturing costs to get cost of goods manufactured because
b. it is not complete and cost of goods manufactured is completed products only
c. cost of goods sold can include unfinished products
d. manufacturing overhead would be counted twice if it was not taken out
Answer
B. Cost of goods manufactured is the cost of goods completed during the period. Ending work in process is not completed and must be taken out. Cost of goods sold is the cost of finished goods sold to the customer because unfinished products are not sold to the customer.
9. Indirect material and indirect labor
b. are included as part of material used and labor used in cost of goods manufactured
c. are included in cost of goods manufactured as manufacturing overhead
d. are never part of work in process
Answer
C. Indirect material and indirect labor are part of manufacturing overhead. All product costs are part of cost of goods manufactured and work in process (d.).
10. Which of the following costs would not be part of cost of goods sold on the income statement?
b. marketing costs
c. manufacturing supplies
d. material that is part of the product
Answer
B. Product costs become inventory which become cost of goods sold when the product is sold. Product costs are direct labor (a.), direct material (d.) and manufacturing overhead (c.). Marketing costs are operating costs that are expensed as incurred and not part of inventory.
11. Which of the following items would not be reported on the balance sheet?
b. the cost of raw materials that are in the warehouse
c. the cost of products sold to the customer
d. the cost of products that are not yet complete
Answer
C. Cost of goods sold is reported on the income statement. (a.) is finished goods inventory, (b.) is raw materials inventory, and (d.) is work in process inventory. All inventory is reported on the balance sheet.
12. Cost of goods manufactured includes
b. direct labor, indirect labor, and salesperson commission
c. plant manager’s salary and executive management salary
d. rent on the manufacturing facility and rent on corporate headquarters
Answer
A. Cost of goods manufactured includes only product costs. All listed in (a.) are product costs. All other answers include either a selling expense or an administrative expense which are not product costs.
13. Write the formula for cost of goods manufactured. If you can’t write it out, you don’t really know it.
Answer
Beginning Raw Materials Inventory
+ Purchases of Raw Materials
– Ending Raw Materials Inventory
=Materials Used in Production
+ Direct Labor
+ Manufacturing Overhead (list all costs)
= Total Manufacturing Costs
+ Beginning Work in Process Inventory
– Ending Work in Process Inventory
= Cost of Goods Manufactured – Finished Goods
14. Write the formula for cost of goods sold. If you can’t write it out, you don’t really know it.
Answer
+ Cost of goods manufactured
=Goods Available for Sale
– Ending Finished Goods Inventory
=Cost of Goods Sold
15. Write the format of the income statement. If you can’t write it out, you don’t really know it.
Answer
– Cost of Goods Sold
= Gross Profit
– General & Administrative Expenses
– Selling Expenses
= Operating Income