Question 1

Direct costs of a cost object are costs related to a particular cost object that can be allocated to that cost object in an economically feasible (cost-effective)way.

Accepted Answer

A) True 
 B)False  False

Question 2

Marblex manufactures marble statues.In March,the two production departments had budgeted allocation bases of 4,000 machine-hours in Department X and 8,000 direct manufacturing labor-hours in Department Y.The budgeted manufacturing overheads for the month were $60,000 and $64,000,respectively.For Job A,the actual costs incurred in the two departments were as follows:
 $\begin{array}{lrr}&\text { Department } X&\text { Department } Y\
\text { Direct materials purchased on account } & \$ 110,000 & \$ 177,500 \
\text { Direct materials used } & 40,000 & 13,500 \
\text { Direct manufacturing labor } & 55,000 & 53,500 \
\text { Indirect manufacturing labor } & 11,000 & 9,000 \
\text { Indirect materials used } & 5,000 & 4,750 \
\text { Lease on equipment } & 16,250 & 3,750 \
\text { Utilities } & 1,000 & 1,250
\end{array}$ Job A incurred 800 machine-hours in Department X and 300 manufacturing labor-hours in Department Y.The company uses a budgeted overhead rate for applying overhead to production.
Required:
a.Determine the budgeted manufacturing overhead rate for each department.
b.Prepare the necessary journal entries to summarize the March transactions for Department X.
c.What is the total cost of Job A?

Accepted Answer

a.
$\begin{aligned}
\text { Manufacturing overhead rate Department } X & =\$ 60,000 / 4,000 \text { hours } \
& =\$ 15 \text { per machine-hour }\\
\text { Manufacturing overhead rate Department } Y &=\$ 64,000 / 8,000 \text { hours } \
&=\$ 8 \text { per labor-hour }
\end{aligned}$
b.
$\begin{array}{lr}
\text { Materials Control Department X } & 110,000 \
\quad \text { Accounts Payable Control } &&110,000 \
\text { Work-in-Process Control Department X } & 40,000 \
\text { Manufacturing Overhead Control Department X } & 5,000 \
\quad \text { Materials Control Department X } &&45,000\\
\text { Work-in-Process Control Department X } & 55,000 \
\text { Manufacturing Overhead Control Department X } & 11,000 \
\quad \text { Wages Payable Control } &&66,000\
& \
\text { Manufacturing Overhead Control Department X } & 17,250\
\text { Leaseholds Payable Control }&&16,250\\text { Utilities Payable Control }&&1,000\\
\text { Work-in-Process Control Department } X^{*}&12,000\
\text { Manufacturing Overhead Allocated }&&12,000\\times(\$ 15 \times 800 \mathrm{hrs})
\end{array}$
c.
$\begin{array}{lr}\text { Job A: }\
\text { Direct materials Dept. } X & \$ 40,000 \
\text { Direct materials Dept. } Y & 13,500 \
\text { Direct manufacturing labor Dept. X } & 55,000 \
\text { Direct manufacturing labor Dept. } Y & 53,500 \
\text { Manufacturing overhead Dept. } X(\$ 15 \times 800) & 12,000 \
\text { Manufacturing overhead Dept. } Y(\$ 8 \times 300) & 2,400\
\text { Total }&\$176,400
\end{array}$

Question 3

What are the direct costs of a job and in which source documents are they recorded?

Accepted Answer

The direct costs of a job are direct materials and direct labor.Direct materials are recorded in a basic source document called a materials-requisition record,which contains information about the cost of direct materials used on a specific job and in a specific department.Direct manufacturing labor is recorded in a labor-time sheet,which contains information about the amount of labor time used for a specific job in a specific department.

Question 4

Normal costing is a costing system that traces direct costs to a cost object by using the actual direct-cost rates times the actual quantities of the direct-cost inputs.

Accepted Answer

A) True 
 B)False

Question 5

Grounds-maintenance costs incurred during the summer months will distort indirect-cost rates that are computed monthly.

Accepted Answer

A) True 
 B)False

Question 6

Answer the following questions using the information below:
Comfort Manufacturing is a small textile manufacturer using machine-hours as the single indirect-cost rate to allocate manufacturing overhead costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for the Winton High School band jacket job.
 $\begin{array}{llc}&\text { Company }&\text { Winton High School Job }\
\text { Direct materials } & \$ 40,000 & \$ 2,000 \
\text { Direct labor } & \$ 10,000 & \$ 400 \
\text { Manufacturing overhead costs } & \$ 45,000 & \
\text { Machine-hours } & 100,000 \mathrm{mh} & 900 \mathrm{mh}
\end{array}$
-What is the bid price for the Winton High School job if the company uses a 40% markup of total manufacturing costs?

Accepted Answer

A)  $2,310 
B)  $2,880 
C)  $2,058 
D)  $3,927 
A)  $2,310 
B)  $2,880 
C)  $2,058 
D)  $3,927

Question 7

The approach often used when dealing with small amounts of underallocated or overallocated overhead is the ________.

Accepted Answer

A)  adjusted allocation-rate approach 
B)  proration approach 
C)  write-off to cost of goods sold approach 
D)  adjusted write-off approach 
A)  adjusted allocation-rate approach 
B)  proration approach 
C)  write-off to cost of goods sold approach 
D)  adjusted write-off approach

Question 8

Answer the following questions using the information below:
Roiann and Dennett Law Office employs 12 full-time attorneys and 10 paraprofessionals. Direct and indirect costs are applied on a professional labor-hour basis that includes both attorney and paraprofessional hours. Following is information for 2014:
 $\begin{array}{lcc}&\text { Budget }&\text { Actual }\
\text { Indirect costs } & \$ 270,000 & \$ 300,000 \
\text { Annual salary of each attorney } & \$ 100,000 & \$ 110,000 \
\text { Annual salary of each paraprofessional } & \$ 29,000 & \$ 30,000 \
\text { Total professional labor-hours } & 50,000 \mathrm{dlh} & 60,000 \mathrm{dlh}
\end{array}$
-What are the actual direct-cost rate and the actual indirect-cost rate,respectively,per professional labor-hour?

Accepted Answer

A)  $27.00; $4.17 
B)  $29.80; $5.40 
C)  $32.40; $5.00 
D)  $27.00; $5.00 
A)  $27.00; $4.17 
B)  $29.80; $5.40 
C)  $32.40; $5.00 
D)  $27.00; $5.00

Question 9

Answer the following questions using the information below:
Wayland Manufacturing uses a normal cost system and had the following data available for 2010:
 $\begin{array}{lr}
\text { Direct materials purchased on account } & \$ 148,000 \
\text { Direct materials requisitioned } & 82,000 \
\text { Direct labor cost incurred } & 130,000\\
\text { Factory overhead incurred } & 146,000 \
\text { Cost of goods completed } & 292,000 \
\text { Cost of goods sold } & 256,000\\
\text { Beginning direct materials inventory } & 26,000 \
\text { Beginning WIP inventory } & 64,000 \
\text { Beginning finished goods inventory } & 58,000 \
\text { Overhead application rate, as a percent of direct-labor costs } & 125 \text { percent }
\end{array}$
-The journal entry to record the materials placed into production would include a ________.

Accepted Answer

A)  credit to Direct Materials Inventory for $82,000 
B)  debit to Direct Materials Inventory for $148,000 
C)  credit to WIP Inventory for $82,000 
D)  debit to WIP Inventory for $148,000 
A)  credit to Direct Materials Inventory for $82,000 
B)  debit to Direct Materials Inventory for $148,000 
C)  credit to WIP Inventory for $82,000 
D)  debit to WIP Inventory for $148,000

Question 10

Companies often use multiple cost-allocation bases to allocate indirect costs because different indirect costs have different cost drivers.

Accepted Answer

A) True 
 B)False

Question 11

Cowley County Hospital uses a job-costing system for all patients who have surgery.In March,the pre-operating room (PRE-OP)and operating room (OR)had budgeted allocation bases of 4,000 nursing hours and 2,000 nursing hours,respectively.The budgeted nursing overhead charges for each department for the month were $168,000 and $132,000,respectively.The hospital floor for surgery patients had budgeted overhead costs of $1,200,000 and 15,000 nursing hours for the month.For patient Fred Adams,actual hours incurred were eight and four hours,respectively,in the PRE-OP and OR rooms.He was in the hospital for 4 days (96 hours).Other costs related to Adams were:
 $$\begin{array} { l c c c } 
& \text { PRE-OP } & \text { OR } & \text { In-room } \
& \text { Costs } & \text { Costs } & \text { Costs } \
\text { Patient medicine } & \$ 200 & \$ 500 & \$ 2,400 \
\text { Direct nursing time } & \$ 1,000 & \$ 2,000 & \$ 3,000
\end{array}$$ The hospital uses a budgeted overhead rate for applying overhead to patient stays.
Required:
What is the total cost of the stay of patient Fred Adams?

Accepted Answer

Nursing overhead rat

Question 12

Schulz Corporation applies overhead based upon machine-hours.Budgeted factory overhead was $266,400 and budgeted machine-hours were 18,500.Actual factory overhead was $287,920 and actual machine-hours were 19,050.Before disposition of under/overapplied overhead,the cost of goods sold was $560,000 and ending inventories were as follows:
 $$\begin{array} { l r } 
\text { Direct materials } & \$ 60,000 \
\text { WIP } & 190,000 \
\text { Finished goods } & 250,000 \
\text { Total } & \$ 500,000 \
\hline
\end{array}$$ Required:
a.Determine the budgeted factory overhead rate per machine-hour.
b.Compute the over/underapplied overhead.
c.Prepare the journal entry to dispose of the variance using the write-off to cost of goods sold approach.
d.Prepare the journal entry to dispose of the variance using the proration approach.

Accepted Answer

The answer of Schulz Corporation applies overhead based upon machine-hours.Budgeted...

Question 13

Answer the following questions using the information below:
Mark Papers employs 15 full-time employees and 10 trainees. Direct and indirect costs are applied on a professional labor-hour basis that includes both employee and trainee hours. Following is information for 2014:
 $\begin{array}{lcc}&\text { Budget }&\text { Actual }\
\text { Indirect costs } & \$ 200,000 & \$ 300,000 \
\text { Annual salary of each employee } & \$ 100,000 & \$ 110,000 \
\text { Annual salary of each trainee } & \$ 25,000 & \$ 30,000 \
\text { Total professional labor-hours } & 50,000 \mathrm{dlh} & 60,000 \mathrm{dlh}
\end{array}$
-What are the budgeted direct-cost rate and the budgeted indirect-cost rate,respectively,per professional labor-hour?

Accepted Answer

A)  $30.00; $4.50 
B)  $35.00; $4.00 
C)  $32.40; $5.00 
D)  $27.00; $5.00 
A)  $30.00; $4.50 
B)  $35.00; $4.00 
C)  $32.40; $5.00 
D)  $27.00; $5.00

Question 14

Overhead costs allocated each month are expected to equal actual overhead costs incurred each month.

Accepted Answer

A) True 
 B)False

Question 15

Under the proration approach,the sum of the amounts shown in the subsidiary ledgers will not match the amounts shown in the general ledger because no adjustments from budgeted to actual manufacturing overhead rates are made in the individual job-cost records.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is true of plant utility costs?

Accepted Answer

A)  It increases the Materials Control account. 
B)  It increases the Manufacturing Overhead Control account. 
C)  It increases the Work-in-Process Control account. 
D)  It is a direct cost. 
A)  It increases the Materials Control account. 
B)  It increases the Manufacturing Overhead Control account. 
C)  It increases the Work-in-Process Control account. 
D)  It is a direct cost.

Question 17

Answer the following questions using the information below:
Mark Papers employs 15 full-time employees and 10 trainees. Direct and indirect costs are applied on a professional labor-hour basis that includes both employee and trainee hours. Following is information for 2014:
 $\begin{array}{lcc}&\text { Budget }&\text { Actual }\
\text { Indirect costs } & \$ 200,000 & \$ 300,000 \
\text { Annual salary of each employee } & \$ 100,000 & \$ 110,000 \
\text { Annual salary of each trainee } & \$ 25,000 & \$ 30,000 \
\text { Total professional labor-hours } & 50,000 \mathrm{dlh} & 60,000 \mathrm{dlh}
\end{array}$
-How much should a client be billed in a normal costing system when 1,000 professional labor-hours are used?

Accepted Answer

A)  $33,600 
B)  $29,800 
C)  $39,000 
D)  $41,000 
A)  $33,600 
B)  $29,800 
C)  $39,000 
D)  $41,000

Question 18

Answer the following questions using the information below:
A local accounting firm employs 20 full-time professionals. The budgeted annual compensation per employee is $40,500. The average chargeable time is 500 hours per client annually. All professional labor costs are included in a single direct-cost category and are allocated to jobs on a per-hour basis.
Other costs are included in a single indirect-cost pool, allocated according to professional labor-hours. Budgeted indirect costs for the year are $787,500, and the firm expects to have 90 clients during the coming year.
-What is the budgeted direct labor cost rate per hour?

Accepted Answer

A)  $18.00 per hour 
B)  $17.50 per hour 
C)  $4.05 per hour 
D)  $2,000 per hour 
A)  $18.00 per hour 
B)  $17.50 per hour 
C)  $4.05 per hour 
D)  $2,000 per hour

Question 19

One reason indirect costs may be underapplied is if actual indirect costs are less than budgeted indirect costs.

Accepted Answer

A) True 
 B)False

Question 20

When the allocated amount of indirect costs are less than the actual amount,indirect costs have been ________.

Accepted Answer

A)  within budget 
B)  overallocated 
C)  underallocated 
D)  perfectly allocated 
A)  within budget 
B)  overallocated 
C)  underallocated 
D)  perfectly allocated

Direct costs of a cost object are costs related to a particular cost object that can be allocated to that cost object in an economically feasible (cost-effective)way.

What are the direct costs of a job and in which source documents are they recorded?

Normal costing is a costing system that traces direct costs to a cost object by using the actual direct-cost rates times the actual quantities of the direct-cost inputs.

Grounds-maintenance costs incurred during the summer months will distort indirect-cost rates that are computed monthly.

The approach often used when dealing with small amounts of underallocated or overallocated overhead is the ________.

Companies often use multiple cost-allocation bases to allocate indirect costs because different indirect costs have different cost drivers.

Overhead costs allocated each month are expected to equal actual overhead costs incurred each month.

Under the proration approach,the sum of the amounts shown in the subsidiary ledgers will not match the amounts shown in the general ledger because no adjustments from budgeted to actual manufacturing overhead rates are made in the individual job-cost records.

Which of the following is true of plant utility costs?

One reason indirect costs may be underapplied is if actual indirect costs are less than budgeted indirect costs.

When the allocated amount of indirect costs are less than the actual amount,indirect costs have been ________.

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, direct-Cost Variances, and Management Control

Flexible Budgets, overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, just-In-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, transfer Pricing, and Multinational Considerations

Performance Measurement, compensation, and Multinational Considerations

Filters

Exam 4: Job Costing

Direct costs of a cost object are costs related to a particular cost object that can be allocated to that cost object in an economically feasible (cost-effective)way.

What are the direct costs of a job and in which source documents are they recorded?

Normal costing is a costing system that traces direct costs to a cost object by using the actual direct-cost rates times the actual quantities of the direct-cost inputs.

Grounds-maintenance costs incurred during the summer months will distort indirect-cost rates that are computed monthly.

The approach often used when dealing with small amounts of underallocated or overallocated overhead is the ________.

Companies often use multiple cost-allocation bases to allocate indirect costs because different indirect costs have different cost drivers.

Overhead costs allocated each month are expected to equal actual overhead costs incurred each month.

Under the proration approach,the sum of the amounts shown in the subsidiary ledgers will not match the amounts shown in the general ledger because no adjustments from budgeted to actual manufacturing overhead rates are made in the individual job-cost records.

Which of the following is true of plant utility costs?

One reason indirect costs may be underapplied is if actual indirect costs are less than budgeted indirect costs.

When the allocated amount of indirect costs are less than the actual amount,indirect costs have been ________.

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, direct-Cost Variances, and Management Control

Flexible Budgets, overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, just-In-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, transfer Pricing, and Multinational Considerations

Performance Measurement, compensation, and Multinational Considerations

Filters