Question 1

(Appendix 3A)Basing predetermined overhead rate on capacity will almost certainly result in overapplied overhead.

Accepted Answer

A) True 
 B)False

Question 2

Under Lamprey Company's job-order costing system,manufacturing overhead is applied to Work in Process inventory using a predetermined overhead rate.During January,Lamprey's transactions included the following: 
$\begin{array} { l r } 
\text { Direct materials issued to production } & \$ 90,000 \
\text { Indirect matcrials issued to production } & \$ 8,000 \
\text { Manufacturing overhead cost incurred } & \$ 125,000 \
\text { Manufacturing overhead cost applied } & \$ 113,000 \
\text { Direct labour cost incurred } & \$ 107,000
\end{array}$
Lamprey Company had no beginning or ending inventories.What was the cost of goods manufactured for January?

Accepted Answer

A)  $318,000. 
B)  $310,000. 
C)  $322,000. 
D)  $330,000.

Question 3

Which of the following companies is most likely to use a job-order costing system rather than a process costing system?

Accepted Answer

A)  Fast food restaurant 
B)  Shipbuilder 
C)  Crude oil refinery 
D)  Candy maker

Question 4

In order to improve the accuracy of unit costs,most companies recalculate the predetermined overhead rate each month.

Accepted Answer

A) True 
 B)False

Question 5

Kanuck Company applies overhead to completed jobs on the basis of $0.70 per machine hour.If Job 501 shows $28,000 of manufacturing overhead applied,how many machine hours were used for the job?

Accepted Answer

A)  19,600. 
B)  28,000. 
C)  30,000. 
D)  40,000.

Question 6

Dotsero Technology, Inc., has a job-order costing system. The company uses predetermined overhead rates in applying manufacturing overhead cost to individual jobs. The predetermined overhead rate in Department A is based on machine hours, and the rate in Department B is based on direct materials cost. At the beginning of the most recent year, the company's management made the following estimates for the year:
 $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $ $\underline { \text { Department } }$
$\begin{array}{lrr}
&A&B\
\text { Machine-hours } & 70,000 & 19,000 \
\text { Direct labour-hours } & 30,000 & 60,000 \
\text { Direct materials cost } & \$ 195,000 & \$ 282,000 \
\text { Direct labour cost } & \$ 260,000 & \$ 520,000 \
\text { Manufacturing overhead cost } & \$ 420,000 & \$ 705,000
\end{array}$
Job 243 entered into production on April 1 and was completed on May 12. The company's cost records show the following information about the job:
  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $ $\underline { \text { Department } }$
$\begin{array}{lrr}
&A&B\
\text { Machine-hours } & 250 & 60 \
\text { Direct labour-hours } & 70 & 120 \
\text { Direct materials cost } & \$ 840 & \$ 1,100 \
\text { Direct labour cost } & \$ 610 & \$ 880
\end{array}$
At the end of the year, the records of Dotsero showed the following actual cost and operating data for all jobs worked on during the year:
 $ \quad $  $ \quad $  $ \quad $ $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $  $ \quad $ $\underline { \text { Department } }$
$\begin{array}{lrr}
&A&B\
\text { Machine-hours } & 61,000 & 20,000 \
\text { Direct labour-hours } & 28,000 & 66,000 \
\text { Direct materials cost } & \$ 156,000 & \$ 284,000 \
\text { Manufacturing overhead cost } & \$ 385,000 & \$ 705,000
\end{array}$
Required:
a.) Compute the predetermined overhead rates for Department A and Department B.
b.) Compute the total overhead cost applied to Job 243.
c.) Compute the amount of underapplied or overapplied overhead in each department at the end of the current year.

Accepted Answer

The answer of Dotsero Technology, Inc., has a job-order costing...

Question 7

The following partially completed T-accounts summarize last year's transactions for Kelshaw Company:
$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$\text { Raw Materials }$
$\begin{array}{lr|r}
\hline\text { Beg Bal } & 4,000 & 20,000 &(2)\
\text { (1) } & 18,000 &
\end{array}$

$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$\text { Work in Process }$
$\begin{array}{lr|r}
\hline \text { Beg Bal } & 8,000 & 50,000 &(7)\
\text { (2) } & 12,000 & \
\text { (4) } & 15,000 & \
\text { (6) } & 28,000 &
\end{array}$

$ \quad $$\text { Manufacturing Overhead }$
$\begin{array}{lr|r}
\hline\text { (2) } & 8,000 & 28,000&(6) \
\text { (3) } & 12,000 \
\text { (4) } & 5,000 \
\text { (5) } & 4,000
\end{array}$

$\text { Cost of Goods Sold }$
$\begin{array}{lr|r}
\hline & \
& &
\end{array}$

At the end of the year, the company closes out the balance in the Manufacturing Overhead account to Cost of Goods Sold.
-What is the cost of direct materials used?

Accepted Answer

A)  $11,000. 
B)  $12,000. 
C)  $15,000. 
D)  $20,000.

Question 8

Lucy Sportswear manufactures a specialty line of T-shirts.The company uses a job-order costing system.During March,the following costs were incurred on Job ICU2: 
Direct materials: $ \quad $$ \quad $$\$ 13,700$
Direct labour: $ \quad $$ \quad $$ \quad $$\$ 4,800$
In addition,selling and shipping costs of $7,000 were incurred on the job.Manufacturing overhead was applied at the rate of $25 per machine hour,and Job ICU2 required 800 machine hours.If Job ICU2 consisted of 7,000 shirts,what was the Cost of Goods Sold per shirt?

Accepted Answer

A)  $5.50. 
B)  $5.70. 
C)  $6.00. 
D)  $6.50.

Question 9

The following partially completed T-accounts summarize last year's transactions for Kelshaw Company:
$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$\text { Raw Materials }$
$\begin{array}{lr|r}
\hline\text { Beg Bal } & 4,000 & 20,000 &(2)\
\text { (1) } & 18,000 &
\end{array}$

$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$\text { Work in Process }$
$\begin{array}{lr|r}
\hline \text { Beg Bal } & 8,000 & 50,000 &(7)\
\text { (2) } & 12,000 & \
\text { (4) } & 15,000 & \
\text { (6) } & 28,000 &
\end{array}$

$ \quad $$\text { Manufacturing Overhead }$
$\begin{array}{lr|r}
\hline\text { (2) } & 8,000 & 28,000&(6) \
\text { (3) } & 12,000 \
\text { (4) } & 5,000 \
\text { (5) } & 4,000
\end{array}$

$\text { Cost of Goods Sold }$
$\begin{array}{lr|r}
\hline & \
& &
\end{array}$

At the end of the year, the company closes out the balance in the Manufacturing Overhead account to Cost of Goods Sold.
-What is the cost of goods manufactured?

Accepted Answer

A)  $50,000. 
B)  $55,000. 
C)  $56,000. 
D)  $61,000.

Question 10

The following data are for Potras Company:
$\begin{array} { l r r } 
& \text { Beginning } & \text { Ending } \
\text { Finished goods inventory } & \$ 30,000 & \$ 40,000 \
\text { Work-in-process inventory } & \$ 20,000 & \$ 13,000 \
\text { Raw materials inventory } & \$ 21,000 & \$ 26,000 \
\text { Purchases of raw materials } & \$ 71,000 & \
\text { Factory depreciation } & \$ 5,000 & \
\text { Other factory costs } & \$ 10,000 \
\text { Direct labour } & \$ 27,000 \
\text { Indirect labour } & \$ 6,000 \
\text { Selling expense } & \$ 12,000 & \
\text { Over- or underapplied overhead } & - 0 - &
\end{array}$
-What is the cost of goods manufactured?

Accepted Answer

A)  $114,000. 
B)  $133,000. 
C)  $121,000. 
D)  $138,000.

Question 11

In a normal job-order costing system,the journal entry to record the application of overhead cost to jobs includes which of the following?

Accepted Answer

A)  A credit to the Work in Process inventory account. 
B)  A credit to the Manufacturing Overhead account. 
C)  A debit to Cost of Goods Sold. 
D)  A debit to the Manufacturing Overhead account.

Question 12

The Bus Company uses a job-order costing system. The following information was recorded for September:

Added During September
$\begin{array} { l r r r } 
  \text { Iob Number } &  \begin{array} { r } 
\text { September 1 } \
\text { Inventory }
\end{array} & \begin{array} { r } 
\text { Direct } \
\text { Materials }
\end{array} & \begin{array} { r } 
\text { Direct } \
\text { I.abour }
\end{array} \
1 & \$ 1,000 & \$ 300 & \$ 200 \
2 & \$ 1,400 & \$ 250 & \$ 300 \
3 & \$ 500 & \$ 1,500 & \$ 150 \
4 & \$ 750 & \$ 4,000 & \$ 400
\end{array}$
The direct labour wage rate is $10 per hour. Overhead is applied at the rate of $5 per direct labour hour. Jobs 1, 2, and 3 have been completed and transferred to finished goods. Job 2 has been delivered to the customer.
-What is the cost of goods sold for September (before disposition of any under- or overapplied overhead)?

Accepted Answer

A)  $2,100. 
B)  $5,925. 
C)  $3,700. 
D)  $1,950.

Question 13

In a normal job-order costing system,the use of indirect materials would usually be recorded as a debit to which account?

Accepted Answer

A)  Raw Materials. 
B)  Work in Process. 
C)  Manufacturing Overhead. 
D)  Finished Goods.

Question 14

The Tse Manufacturing Company uses a job-order costing system and applies overhead to jobs using a predetermined overhead rate. The company closes out any balance in the Manufacturing Overhead account to Cost of Goods Sold. During the year the company's Finished Goods inventory account was debited for $125,000 and credited for $110,000. The ending balance in the Finished Goods inventory account was $28,000. At the end of the year, manufacturing overhead was overapplied by $4,500.
-Which of the following cost elements is generally absent in professional service organizations such as public accounting firms?

Accepted Answer

A)  Direct labour. 
B)  Overhead. 
C)  Raw material. 
D)  Indirect labour.

Question 15

Arthur Manufacturing Company produces a single product.The controller has asked for your help in preparing a schedule of cost of goods manufactured for the month just ended.The following information is available:
1.)Eleven thousand units were sold at $22 per unit.
2.)Thirteen thousand units requiring one unit each of raw materials were produced.
3.)Raw materials inventory at the beginning of the month was 1,100 units at $4 each.
4.)During the month,two purchases of raw materials were made:
Purchase #1: 7,000 units at $5.00 each
Purchase #2: 6,000 units at $5.50 each
5.)The company uses the first-in,first-out method of determining raw materials inventories.
6.)The work-in-process inventories were:
$\begin{array}{lccc}
  \text { Beginning of the month:  } & 1,500 \text { units valued at } \$ 17,000 \
 \text { End of the month:} & 1,500 \text { units valued at } \$ 19,000
\end{array}$

7.)Direct labour cost was $110,000.
8.) Overhead is applied to production on the basis of 65% of direct labour cost.
Required:
Prepare a schedule of cost of goods manufactured for the month.

Accepted Answer

The answer of Arthur Manufacturing Company produces a single product.The...

Question 16

Which of the following statements is true if a company applies overhead to jobs on the basis of a predetermined overhead rate and reports a credit balance in the Manufacturing Overhead account at the end of any period?

Accepted Answer

A)  More overhead cost has been charged to jobs than has been incurred during the period. 
B)  More overhead cost has been incurred during the period than has been charged to jobs. 
C)  The amount of overhead cost charged to jobs is greater than the estimated cost for the period. 
D)  The amount of overhead cost charged to jobs is less than the estimated overhead cost for the period.

Question 17

The following journal entries (without dollar data) were taken from the accounting records of Case Company. Case Company has a job-order costing system and applies overhead to jobs using a predetermined overhead rate.
$\begin{array}{lccc}
 \text { 1. Work in Process}&\mathrm{XXX}\
\text { Manufacturing Overhead}&\mathrm{XXX}\ 
\text { Wages Payable}&&\mathrm{XXX}\
\
\text { 2. Salary Expense}&\mathrm{XXX}\
\text { Wages Payable}&&\mathrm{XXX}\
\
\text { 3. Manufacturing Overhead }&\mathrm{XXX}\
\text { Accumulated Amortization}&&\mathrm{XXX}\
\
\text { 4. Work in Process}&\mathrm{XXX}\
\text { Raw Materials}&&\mathrm{XXX}\
\
\text { 5. Work in Process}&\mathrm{XXX}\
\text { Manufacturing Overhead}&&\mathrm{XXX}\
\end{array}$

$\begin{array}{lccc}
 \text { 6. Manufacturing Overhead }&\mathrm{XXX}\
 \text { Raw Materials}&&\mathrm{XXX}\
\
 \text { 7. Finished Goods }&\mathrm{XXX}\
 \text { Work in Process}&&\mathrm{XXX}\
\
 \text { 8. Raw Materials}&\mathrm{XXX}\
 \text { Accounts Payable}&&\mathrm{XXX}\
\end{array}$

-Which entry records amortization on manufacturing equipment?

Accepted Answer

A)  1. 
B)  3. 
C)  4. 
D)  5.

Question 18

The Milo Company's records for May contain the following information:
$\begin{array} { l r } 
\text { Actual direct labour hours } & 9,000 \text { hours } \
\text { Actual direct labour cost } & \$ 47,000 \
\text { Direct material purchased } & \$ 16,000 \
\text { Direct material used } & \$ 14,000 \
\text { Cost of goods sold } & \$ 100,000 \
\text { Overapplied overhead } & \$ 5,000
\end{array}$
Ending inventories:
$\begin{array}{l}
\begin{array}{l}
\text { Raw materials } \
\text { Work in proeess } \
\text { Finished goods }
\end{array}
\begin{array}{l}
\$ 30,000 \
\$ 50,000 \
\$ 70,000
\end{array}
\end{array}$
The company uses a predetermined overhead rate of $5.00 per direct labour hour to apply manufacturing overhead to jobs.
-What was the actual overhead cost incurred during the month?

Accepted Answer

A)  $50,000. 
B)  $55,000. 
C)  $40,000. 
D)  $45,000.

Question 19

Scanlon Company has a job-order costing system and applies manufacturing overhead cost to products on the basis of machine hours.The following estimates were used in preparing the predetermined overhead rate for the most recent year:
$\begin{array} { l r } 
\text { Machine hours } & 95,000 \
\text { Manufacturing overhead cost } & \$ 1,710,000
\end{array}$
During the most recent year, a severe recession in the company's industry caused the curtailment of production and a buildup of inventory in the company's warehouses. The company's cost records revealed the following actual cost and operating data for the year:
$\begin{array} { l r } 
\text { Machine hours } & 75,000 \
\text { Manufacturing overhead cost } &\$ 1,687,500
\end{array}$

$\text { Amount of applied overhead in inventories at year-end: }$
$\begin{array} { l r } 
\text { Work in process } &  \$ 337,500\
\text { Finished goods} &253,125
\end{array}$
$\text { Amount of applied overhead in }$
$\text { cost of goods sold for the year } 759.375$
Required:
(a.) Compute the company's predetermined overhead rate for the year and the amount of under- or overapplied overhead for the year.
(b.) Determine the difference between net income for the year if the under- or overapplied overhead is allocated to the appropriate accounts rather than closed out directly to Cost of Goods Sold.

Accepted Answer

The answer of Scanlon Company has a job-order costing system...

Question 20

Raw materials can be direct materials,but NOT all direct materials need to be raw materials.

Accepted Answer

A) True 
 B)False

Exam 3: Systems Design: Job-Order Costing

(Appendix 3A)Basing predetermined overhead rate on capacity will almost certainly result in overapplied overhead.

Which of the following companies is most likely to use a job-order costing system rather than a process costing system?

In order to improve the accuracy of unit costs,most companies recalculate the predetermined overhead rate each month.

Kanuck Company applies overhead to completed jobs on the basis of $0.70 per machine hour.If Job 501 shows $28,000 of manufacturing overhead applied,how many machine hours were used for the job?

In a normal job-order costing system,the journal entry to record the application of overhead cost to jobs includes which of the following?

In a normal job-order costing system,the use of indirect materials would usually be recorded as a debit to which account?

Which of the following statements is true if a company applies overhead to jobs on the basis of a predetermined overhead rate and reports a credit balance in the Manufacturing Overhead account at the end of any period?

Raw materials can be direct materials,but NOT all direct materials need to be raw materials.