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Costs and Direct Labor

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To begin, download the practice Midterm Exam from Doc Sharing to access questions and topics for review. For multiple-choice questions, please explain why the answer chosen is correct, and why the other choices would not be correct. Please support your response. Let’s begin with the questions on Page 1. Page 1

1. Indirect labor is a part of:
B. Conversion cost. Labor that cannot be physically traced to particular product is treated as indirect labor and as manufacturing overhead. Conversion cost is the sum of direct labor and manufacturing overhead. These costs are incurred to convert materials into the finished product. Indirect labor is treated as part of manufacturing overhead.

2. Prime cost and conversion cost share what common element of total cost? B. Direct labor. Prime cost is the sum of direct materials and direct labor, likewise Conversion cost is the sum of direct labor and manufacturing overhead.

3. On the Schedule of Cost of Goods manufactured, the final Cost of Goods Manufactured figure represents: A. The amount of cost charged to work in process during the period. When goods are completed, their costs are transferred from work in process to finished goods. The amount transferred from work in process to finished goods is referred to as the cost of goods manufactured.

4. Which of the following would most likely be included as part of manufacturing overhead in the production of wooden table? A. The amount paid to the individual who stains the table. Manufacturing overhead includes all manufacturing costs except direct materials and direct labor. Manufacturing overhead includes items such as indirect materials; indirect labor; etc. But these costs are not included as part of manufacturing overhead. Only those costs associated with operating the factory are included in manufacturing overhead. The commission paid to the salesperson who sold the table is included in the selling costs. Selling cost and administrative cost are the two categories of the Nonmanufacturing costs. The cost of the glue used in the table and the cost of the wood used in the table are treated as direct costs.

1. Overapplied overhead means that:
B. The applied overhead cost was greater than the actual overhead cost. Manufacturing overhead cost is applied according to the amount of the allocation base that is incurred in the department. Because the predetermined overhead rate is established before the period begins and is based entirely on estimated data, the overhead cost applied to work in process will differ from the amount of overhead cost actually incurred.

2. Departmental overhead rates are generally preferred to plant-wide overhead rates when: A. The activities of the various departments in the plant are not homogeneous. Plant-wide overhead rate is the traditional system means the amount of overhead funds per direct labor hour. Whereas Departmental overhead rate is the individual amount of overhead funds per direct labor hour.

3. Discretionary fixed costs:
E. None of these. Discretionary fixed costs are fixed costs that are decided by management staff to allocate determined areas to include advertisement and experimentation.

4. An example of committed fixed cost is:
B. A long-term equipment lease. Committed fixed costs are fixed costs that are not easy to alter and that have connection with the investment in facilities, materials, and the primary business structure of the organization.

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