ACT 220 1st EditionFinal Exam (Exam #4) Study Guide Chapters: 1,2,4,5,6, sustainability, 7,8,9 & 10***ATTENTION***This final exam will be ALL multiple-choice questions! The questions will be VERY similar to those ALREADY seen on the past three exams. I will go through each question and explain in detail how we find the correct answer (if there are questions that are similar to one another I will combine them in one to shorten the study process). GOOD LUCK!Exam 1 (Version C):1. Engines attached in the production of lawn mowers.ANSWER: A (Direct Materials)- There are a few indicators this is an example of DM.Look at the verbiage. It says “engines”, “in production”, and “each lawn mower.” Thedefinition of DM is any material that is used in the production process that can be directly traced back to the individual product.2. Depreciation on autos used by sales force.ANSWER: D (Selling, General and Administrative Expense)- The definition of an SG&A Expense are the costs incurred to provide customers with information or supply them with the fished good and the costs related to the management team of theorganization. This one is tricky because we see “depreciation”, don’t jump ahead. This depreciation is for the sales force NOT the production process; therefore it is classified as an SG&A expense. 3. Salary of the President’s secretary.ANSWER: D (Selling, General and Administrative Expense)- Again, as defined above, we know that any expense related to the administrative team is labeled as an SG&A expense. Since the question clearly states “secretary” this should be a HUGE indicator that the expense is no way related to the production process so it cannot be DM, DL, or OH, which leaves only SG&A expense.4. Wages of employees engaged in installing engines in lawn mowers.ANSWER: B (Direct Labor)- This question directly states the employees are workingdirectly (touching) the engines.5. Salary of the quality control engineer in the factory.ANSWER: C (Manufacturing OH)- This is a confusing statement. Everyone’s first instinct is to label this as DL, but salaries related to the production process are OH. 6. Managerial accounting deals with gathering and presenting quantitative and qualitative information that helps individuals within an organization make decisions.ANSWER: True- This statement is one of the many definitions of managerial accounting (in the slides it is listed as a benefit)7. When comparing financial and managerial accounting, managerial accounting is considered timelier and less precise, while financial accounting is less timely and more precise.ANSWER: True- Managerial accounting uses estimating and past information to helpwith future decisions (as said above). Managerial accounting is also VERY informal but it is used to ONLY help the company. Whereas, financial accounting is PRIMARILY created because it is REQUIRED by the GAAP 8. Period costs are inventoriable costs.ANSWER: False- The definition of a period cost is all SG&A expenses summed together. These costs are also expensed as they are incurred. With these two key pieces of information in mind, SG&A expenses do not keep track of the expenses of products until they are sold. In this situation the products are not being sold they are being held (i.e. inventory) so this is NOT a period cost.9. Because estimates are used to arrive at the predetermined overhead rate, overhead will typically be over-applied or under-applied in a normal costing system.ANSWER: True- This statement is pretty self-explanatory. Since we use estimated (i.e. unknown/ unreliable) values, then we can’t find/ predict the EXACT values one year from now (if you can then you should be paid millions) SO with this said, OH will always be either over or under-applied.10. All period costs are included in cost of goods sold on the income statement for the period incurred.ANSWER: False- Whenever you see a true/ false statement with the word “ALL”, you should immediately begin to question its validity. Period costs are all SG&A expenses and are recorded on the income statement BUT they are NOT considered “costs of goods sold.” Think about what an income statement looks like. Remember the definition of SG&A when you see this statement. All costs that are NOT related tothe production process, which includes goods, sold. 11. Activity-based costing perfectly measures overhead costs associated with a product.ANSWER: False- Like I said above, whenever a true/ false question uses a word like “perfectly”, question its validity. Above I said, “Managerial Accounting uses a estimated values.” ABC is a managerial cost method, meaning it uses estimates NOT exact/ known values so it is NOT perfect.12. Total overhead is significantly less using activity-based costing compared to traditional costing methods.ANSWER: False- THIS IS VERY IMPORTANT! No matter which costing method you choose, total OH will ALWAYS equal the same amount in the end (i.e. Total OH will not be less or more it will be equal).13. A customized cabinet builder would be likely to use a job costing system.ANSWER: True- A part of the definition for a job costing system is, this type of costing method is better suited for organizations that provide CUSTOM products and services. Since the likelihood of producing the same exact table for anther customer israre (you are designing these products from scratch), it is better to track the costs of the job since there is no constant amount of labor, materials, or selling price. 14. Predetermined overhead rates are used because overhead costs are typically not known in advance and product cost information is needed as goods are produced.ANSWER: True- Remember, predetermined OH rates use estimated values NOT exact. So this should answer the question immediately. Don’t over think it.15. Under traditional overhead allocation, higher volume products are often “over-costed” and complex products requiring more resources are “under-costed.”ANSWER: True- This statement is a tricky common sense question. Talk yourself through this statement. “High volume products” means an organization is making a lot of the same product maybe because demand is SUPER high or they predict they are going to sell a lot! Without being able to see a year down the road, they feel it willcost a lot more than what it will ACTUALLY cost in the long run. The same goes for “complex products.” Lets say I manufacture roller coasters (a