Determine the Cost to Make One Product

Easy Practice Test

Easy Practice Test

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

1. The material quantity on the cost sheet is related to the material

a. purchased
b. actually used
c. expected to be used
d. none of the above

Answer

C. The quantity stated on the cost sheet is what is expected to be used to make one product.Companies often purchase more or less than what they will use. All information on a cost sheet is budget, expected or estimated.

2. A term that is used interchangeably with standard is

a. budget
b. prior year
c. estimated
d. both a. and c.

Answer

C. Standard means budget, estimated or expected.

3. The pre-determined manufacturing overhead rate is used to determine

a. the cost of direct labor
b. the total cost of manufacturing overhead
c. the estimated cost of manufacturing overhead for one product
d. the exact amount of manufacturing overhead required to make one product

Answer

C. Manufacturing overhead is an indirect cost and you can not determine how much it takes to make one product.The manufacturing overhead rate is an estimate of how many dollars of manufacturing overhead is incurred every time the activity that causes manufacturing overhead happens.The total cost is already estimated before the pre-determined manufacturing overhead rate is computed.

4. The quantity listed on the cost sheet for material is the quantity

a. required to make all products during the year
b. required to make one product
c. both a. and b.
d. none of the above

Answer

B. The cost sheet always lists an estimate required to make one product.

5. The production manager determines the standard for

a. direct labor quantity
b. direct material cost
c. the manufacturing overhead rate
d. all of the above

Answer

A. The production manager is involved in making the product and is directly responsible for how much material is used and how many direct labor hours it takes to make the product.The manufacturing overhead rate is determined by the managerial accountant.The purchasing manager is responsible for the cost of material.

6. The human resource manager determines the standard for

a. direct labor quantity
b. direct labor cost
c. the manufacturing overhead rate
d. all of the above

Answer

B. The human resource manager is responsible for hiring the highest quality direct labor workers at the lowest possible cost.The production manager is responsible for the time it takes to make the product (a.).The manufacturing overhead rate is determined by the managerial accountant.

7. The activity used to allocate manufacturing overhead should be the activity that

a. causes the company to incur direct labor dollars
b. causes the company to incur facility costs only
c. is the largest cost to the company
d. causes the company to incur the majority of manufacturing overhead costs

Answer

D. Manufacturing overhead should be allocated to individual products based on the activity that causes the company to incur most of their manufacturing overhead costs.The activity that causes the company to incur manufacturing overhead is not always the highest cost to the company (although it is possible that it is).

8. Which manager in the company should be the most knowledgeable relative to the total cost to make each product?

a. human resource manager
b. direct labor supervisors
c. production manager
d. chief executive officer

Answer

C. The production manager is the most knowledgeable about the cost the make each product.They are responsible for direct materials used, direct labor efficiency, and the indirect labor and facility to make the product. The human resource manager does not understand the materials and facilities required to make the product.Direct labor supervisors are most knowledgeable about their area of supervision only.The chief executive officer is not directly involved in making the product.

9. A unit is defined as

a. a piece of a product that is sold to a customer
b. the product that is sold to a customer
c. the quantity required for one
d. all of the above

Answer

B. A unit of production is the product that is sold to the customer.The cost sheet should show the estimated cost to make one product that is sold to the customer.

10. Which of the following would not be included in the costs stated on a cost sheet?

a. rent at the corporate headquarters
b. indirect materials
c. indirect labor
d. labor operating the machine that makes the product

Answer

A. Product costs are included on the cost sheet.All are product costs with the exception of rent at the corporate headquarters, which is an administrative period cost.

11. The company manufactures bibs for dental patients. The bibs are made of two pieces of material sewn together and a cotton tie sewed to each side of the top of the bib. The materials are cut by machine and sewed together by workers using individual sewing machines. The company allocates manufacturing overhead using total sewing hours.
The material expected to be used in the bib consists of 0.05 yards of blue nylon at an estimated cost of $1.50 per yard, 0.10 yards of white cotton at an estimated cost of $2.70 per yard and 4 feet of cotton string at a cost of $0.05 per foot.
It is expected to take 0.03 hours for the machine to cut the material for each bib and 0.06 hours to sew the bibs together. Cutting machine operators are expected to be paid $14 per hour and sewing machine operators are expected to be paid $12 per hour.
Cutting machine operators were actually paid $13.75 per hour and sewing machine operators were actually paid $11.50 per hour.
The company expects to manufacture 750,000 bibs in the current year and total manufacturing overhead costs are expected to be $325,000 for the year.

A. Compute the pre-determined manufacturing overhead rate per sewing hour.
B. Prepare a cost sheet for 1 Bib in proper format.

Answer

A.  Determine the pre-determined manufacturing overhead rate per sewing hour.

Determine the total manufacturing overhead activity, sewing hours, that is required to make all products:

            Quantity of sewing hours required to make 1                               0.06
            x Estimated total units to manufacture during the year    x   750,000
            = Total estimated annual sewing hours                             =     45,000

Compute only one pre-determined manufacturing overhead rate because only total MOH dollars is given.  

      Total MOH : per sewing hour

             Rate  =  Total Estimated Annual M O/H Dollars              $325,000  =  $7.22
                           Total Estimated Annual M O/H Activity                45,000

                                    The manufacturing O/H rate is per sewing hour
                                    The quantity put on the cost sheet is sewing hours for one

B.  Prepare the cost sheet in proper format

            Make sure the cost sheet is in proper format.  Do not put any extra
                calculations on the cost sheet.

Cost Sheet for One Bib
  Quantity 
x
Cost for One 
=
Total Cost
Direct Material  
      
 
      
 
  Blue Nylon 0.05 yds
x
$1.50 per yd
=
$0.08
  White Cotton 0.10 yds
x
$2.70 per yd
=
$0.27
  Cotton String 4 ft
x
$0.05 per foot
=
$0.20
      Total Direct Materials  
 
$0.55
   
 
 
Direct Labor  
 
 
  Cutting .03 hours
x
$14.00 per hr
=
$0.42
  Sewing .06 hours
x
$12.00 per hr
=
$0.72
      Total Direct Labor  
 
$1.14
   
 
 
Manufacturing O/H .06 sew hrs
x
$7.22
=
$0.43
   
 
 
Total Cost   
 
$2.12
   
 
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12. The company manufactures 500,000 stop signs (only the sign and not the post) per year and sells them to cities. The stop signs are made out of pressed aluminum and painted by machine. Each stop sign is estimated to require 2.6 square feet of aluminum and 3 ounces of paint. Aluminum is estimated to cost $4.85 per square foot and paint is estimated to cost $1.40 per ounce. It takes the cutting machine 0.008 hours to cut the aluminum into the shape of the stop sign and the paint machine 0.04 hours to paint the sign. Machine operators are paid $16 per hour. Manufacturing overhead is allocated based on total machine hours. The pre-determined manufacturing overhead rate per machine hour is $6.72. One direct labor hour is required for each hour the machine is operating.

A. Determine the total machine hours required to make all stop signs for the year.
B. Determine the total manufacturing overhead expected to be incurred for the year.
C. Prepare a cost sheet for one stop sign in proper format.

Answer

A.  Determine the total machine hours required to make all stop signs for the year.

                        0.008 cutting machine hours
                 +     0.04 paint machine hours
                   =   0.048 total machine hours
                   x   500,000 stop signs estimated to be manufactured during the year
                   =    24,000  total machine hours to make all the stop signs

B.  Determine the total manufacturing overhead expected to be incurred for the year.

                Use the pre-determined manufacturing O/H formula

                        Total MOH $  = Rate                               ???              =  $6.72 given
                        Total activity                                     24,000 hours
                        Multiply 24,000 x $6.72 to get $161,280 total M O/H dollars

C.  Prepare a cost sheet for one stop sign in proper format.

Cost Sheet for One Stop Sign
  Quantity
x
Cost for One
=
Total Cost
Direct Material  
     
 
     
 
   Aluminum 2.6
x
$4.85
=
$12.61
   Paint 3
x
$1.40
=
$  4.20
      Total Direct Materials  
 
$16.81
 
Direct Labor  
 
 
   Cut .008 hours
x
$16.00
=
$0.13
   Paint .04 hours
x
$16.00
=
$0.64
      Total Direct Labor  
 
$0.77
   
 
 
Manufacturing O/H .048 mach hrs
x
$6.72
=
$0.32
   
 
 
      Total Cost  
 
$17.90
   
 
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13. The company manufactures nylon shoe laces. The material required for one package of two shoe laces is 5 feet of ¼ inch nylon, 4 plastic tips, and 1 plastic pre-printed package. A worker cuts the rope in 2.5 feet increments and another worker attaches the plastic tips to each end of the nylon. It takes approximately 0.07 hours to cut 2 pieces of nylon and 0.014 hours to attach one plastic tip. Manufacturing overhead is allocated using total direct labor hours.
The following information is available:

 Expected This Year   Actual Prior Year
 Nylon Rope, per foot  $0.15   $0.13
 Plastic Tips, each  $0.02   $0.015
 Package, each   $0.10   $0.09
 Direct labor, per hour   $12.00   $11.00
 Total Manufacturing Overhead  $126,000   $117,200
 Packages manufactured  650,000  627,980

A. Determine total direct labor hours required to manufacture all shoe laces for the year.
B. Compute the pre-determined manufacturing overhead rate.
C. Prepare a cost sheet in proper form.

Answer

A.  Determine total direct labor hours required to manufacture all shoe laces for the year.

            Cut nylon        0.070   to cut the two pieces required
            Attach tips     0.056   (0.014 each x 4 required for one package)
              Total             0.126   total direct labor hours required for one package

B.  Compute the pre-determined manufacturing overhead rate.

First:  Identify the activity that will be used to allocate MOH:
             Total direct labor hours is given.

Second:  Determine the total manufacturing overhead activity that is required to
                  make all products:

               Quantity of total direct labor hours required to make 1            0.126
            x Estimated total units to manufacture during the year      x   650,000
            = Total estimated annual direct labor hours                       =     81,900

Third:  Use the formula for the pre-determined manufacturing overhead rate. 
              Do one rate because only total MOH dollars is given.  

      Total       

             Rate  =  Total Estimated Annual M O/H Dollars           $126,000  =  $1.54
                            Total Estimated Annual M O/H Activity               81,900

                        The manufacturing O/H rate is per total direct labor hours
                          The quantity stated on the cost sheet for MOH is the quantity of
                        total direct labor hours required to make one.

C.  Prepare a cost sheet in proper form.

        The cost sheet is for one package of shoe laces because that is the
             product that is sold to the customer.

Cost Sheet for One Package of Shoe Laces
  Quantity
x
Cost for One
=
Total Cost
Direct Material  
     
 
     
 
   ¼ inch nylon 5
x
$0.15
=
$0.75
   Plastic tips 4
x
$0.02
=
$0.08
   Plastic package 1
x
$0.10
=
$0.10
      Total Direct Materials  
 
$0.93
   
 
 
Direct Labor  
 
 
   Cut .07 hours
x
$12.00
=
$0.84
   Attach .056 hours
x
$12.00
=
$0.67
      Total Direct Labor  
 
$1.51
   
 
 
Manufacturing O/H 0.126 DL hrs
x
$1.54
=
$0.19
   
 
 
      Total Cost  
 
$2.63
   
 
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