Exam 11: Product Costing in Service and Manufacturing Entities

If more overhead was applied than had been incurred,the balance in the Manufacturing Overhead account represents the amount of overapplied overhead.

Applied overhead costs are recorded as decreases in the Manufacturing Overhead account.

Which of the following statements is false?

Which of the following statements is true assuming the manufacturing overhead account is underapplied?

Which of the following statements is true for a company that uses variable costing?

Winken,Blinken,and Nod is a law firm specializing in real estate litigation.In addition to the three partners,the firm employs nine associates who work directly with clients.The average budgeted compensation for the twelve professionals is $240,000.Each lawyer is budgeted at 1,500 billable hours per year.All professional labor costs are included in a single direct cost pool and are traced to jobs on a per-hour basis.All non-professional labor costs are included in a single overhead cost pool and are allocated to jobs using professional labor hours as the allocation base.Budgeted overhead costs total $1,800,000.The firm is considering bidding on some work with a local university.The job is expected to require 100 hours of professional labor. Required: 1)Compute the budgeted direct cost rate per hour of professional labor. 2)Compute the budgeted (that is,predetermined)overhead cost rate per hour of professional labor. 3)Compute the budgeted cost for the university job.

Jackson Company estimated that its manufacturing employees would work 88,000 direct labor hours during the current year.During the year,its manufacturing employees actually worked 80,000 direct labor hours.Actual manufacturing overhead costs amounted to $344,000.Jackson applies overhead cost on the basis of direct labor hours.The manufacturing overhead account was overapplied by $16,000 during the current year.Based on this information the predetermined overhead rate was:

Actual overhead costs are charged to the Work in Process account as they occur.

Lake Manufacturing estimated its product costs and production volume for the upcoming year by quarter as follows: The company expects a significant increase in volume in the fourth quarter due to holiday sales.The company does not expect overhead costs,which are predominately fixed,to vary with production volume or to vary significantly from previous years.Selling prices are established using a cost-plus pricing strategy where cost is the product's estimated quarterly cost.However,the company finds the wide variations in short-term unit cost difficult to use.Specifically,unit cost fluctuations complicate pricing decisions and many other decisions where cost is a consideration. Required: 1)Compute the company's expected cost per unit for each quarter of the year. 2)How would you suggest that overhead costs be estimated to solve the company's unit cost problem? Calculate the unit cost per quarter based on your recommendation.

Ringgold Company had beginning finished goods of $36,000.During the period,the company produced goods that cost $150,000.If the ending balance in the Finished Goods Inventory account was $24,000,the amount of cost of goods sold was:

Ferguson Company recognized $400 of estimated manufacturing overhead costs at the end of the month.How does this transaction affect the financial statements?

Product costs are reported on the income statement above gross margin.

The Winchester Company estimates that its overhead costs will amount to $595,000 and the company's manufacturing employees will work 85,000 direct labor hours during the current year.If actual overhead costs for the year amounted to $599,000 and actual labor hours amounted to 87,000,then overhead would be:

A product costing system is needed to determine the amount of product costs that should be reported on the income statement as selling and administrative expenses.

Washington Company made the following estimates for the current accounting period: Overhead costs: $250,000 Direct labor hours: 50,000 If 7,000 hours of labor are actually used in February,how much overhead cost would be allocated to work in process during the month? Assume overhead to be allocated on the basis of direct labor hours.

The predetermined overhead rate is found by dividing total estimated overhead costs by the total estimated volume of the overhead allocation base.

The Work in Process account increases when production workers are paid.

The cost structure for Chiang Company,which began operations on January 1,is provided below: Direct materials \ 18 per unit Direct labor \ 14 per unit Manufacturing overhead: Variable \ 8 per unit Fixed \ 20,000(\ 5.00 per unit ) $\text { Fixed selling and administative } \quad\quad \$ 12,000$ Variable selling and administrative costs are $4 per unit sold. During the year,the company produced 4,000 units and sold 3,500 units at the $60 selling price. Required: 1)Prepare an income statement under absorption costing. 2)Prepare an income statement under variable costing. 3)Explain the difference between the two income amounts. 4)What absorption costing disadvantage does this exercise emphasize?

Cost information for services or products produced by a company is needed for:

Which is required for preparation of a company's external financial statements: absorption costing or variable costing? Which is frequently used for internal decision making?