Question

24. Emco Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for last year, the company misclassified a portion of direct labor cost as indirect labor. The effect of this misclassification will be to:

    1. Understate the predetermined overhead rate

    2. Overstate the predetermined overhead rate

    3. Have no effect on the predetermined overhead rate

    4. Cannot be determined from this information

    5. Overstate direct labor costs

25. Which of the following is an example of a cost that is variable with respect to the number of units produced?

    1. Rent on the corporate headquarters

    2. Rent on the manufacturing facility

    3. Direct labor costs, where the direct labor workforce is adjusted to the actual production of the period.

    4. Salaries of top marketing executives

    5. Manufacturing supervisor’s salaries

26. . In a manufacturing company, direct labor costs combined with direct materials costs are known as:

A.period costs.

B.conversion costs.

C. prime costs.

D.Sunk costs

E. opportunity costs.

27. If the level of activity increases within the relevant range:

A.variable cost per unit and total fixed costs also increase.

B.Variable cost per unit and total fixed costs remain the same

C.fixed cost per unit and total variable cost also increase.

D. total cost will increase and fixed cost per unit will decrease.

E.variable cost per unit and total cost also increase.

In a statement of cash flows, a change in an income taxes payable account would be recorded in the:

28. 1. Stockholder’s equity section

    2. Financing activities section

    3. Investing activities section

    4. Not on the cash flow statement

    5. Operating activities section

29. Which of the following would be added to net income in the operating activities section of a statement of cash

flows prepared using the indirect method?

1. A decrease in accounts payable

2. A gain on sale of property plan and equipment

3. An increase in prepaid expenses

4. An increase in accrued liabilities

5. An increase in property plant and equipment

30. Manufacturing overhead includes:

1. all direct material, direct labor and administrative costs.

2. all manufacturing costs except direct labor.

3. all manufacturing costs except direct labor and direct materials.

4. all material and labor, direct and indirect

5. all selling and administrative costs.

Answer 1

:- The effect of this misclassification will be to overstate the predetermined overhead rate;

:- Direct labor costs, where the direct labor workforce is adjusted to the actual production of the period;

:- In a manufacturing company, direct labor costs combined with direct materials costs are known as prime costs;

:- If the level of activity increases within the relevant range variable cost per unit and total fixed costs remain the same;

:- In a statement of cash flows, a change in an income taxes payable account would be recorded in the operating activities section;

:- An increase in accrued liabilities would be added to net income in the operating activities section of a statement of cash flows prepared using the indirect method;

:- Manufacturing overhead includes all manufacturing costs except direct labor and direct materials.

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