Ch.4 – Test Questions & Answers – Accumulating and Assigning

Chapter 4

Accumulating and Assigning Cost

to Products

Learning Objectives―Coverage by question type

LO1 – Understand and be able to describe the cost flows that take place in manufacturing, service, and retail organizations.

True / False Multiple Choice Exercises, Problems & Short Answer

1, 2 1-4 None

LO2 – Understand the concepts of direct and indirect costs and appropriately classify a cost.

True / False Multiple Choice Exercises, Problems & Short Answer

3, 4 5-23 1

LO3 – Develop cost rates to apply overhead costs to products.

True / False Multiple Choice Exercises, Problems & Short Answer

5-11 24-57 2-9, 15-17

LO4 – Evaluate a cost system to determine whether it is likely to distort product costs.

True / False Multiple Choice Exercises, Problems & Short Answer

12-14 58 10-17

LO5 – Recognize how product and process characteristics define the appropriate structure of a costing system.

True / False Multiple Choice Exercises, Problems & Short Answer

15-17 59-63 18, 19

LO6 – Design and interpret basic job order and process costing systems.

True / False Multiple Choice Exercises, Problems & Short Answer

18-22 64-74 None

LO7 – Understand the methods of allocating service department costs to production departments

True / False Multiple Choice Exercises, Problems & Short Answer

23-25 75-79 20

Chapter 4: Accumulating and Assigning Cost to Products

True / False

LO1

Terms: Overhead cost

Difficulty: 1

1. Overhead costs such as factory rent and supervisory salaries are allocated to cost objects in a multi-product facility.

Difficulty: 1

2. In job order costing, only direct costs are used to determine the cost of a job.

Difficulty: 1

3. The raw material used in a product that can be easily traced to the product is generally classified as an indirect cost.

Difficulty: 1

4. An indirect cost will be traced to the cost object.

Difficulty: 2

5. The practical capacity of a cost driver is the short-term capacity made available by the amount of resources committed to an overhead activity.

Difficulty: 1

6. Determining cost pools and realistic cost driver rates is a relatively complex process.

Difficulty: 1

7. The costs grouped in a cost pool should be driven by the same activity.

Difficulty: 1

8. In a job order costing system, a cost driver rate is used to apply direct manufacturing costs to a specific product.

Difficulty: 1

9. Labor hours are always an appropriate cost driver in a manufacturing environment.

Difficulty: 2

10. The over-allocation of overhead to a product distorts the product's cost and therefore the evaluation of the product's profitability.

Difficulty: 2

11. In job order costing, individual jobs and products will usually be allocated different amounts of overhead costs depending on whether a single cost pool or multiple cost pools is used.

Difficulty: 2

12. If cost driver rates were based on actual short-term usage, periods of lower demand would result in lower cost driver rates.

Difficulty: 2

13. Use of a single cost driver rate will always distort product costs.

Difficulty: 2

14. Costing system distortions relate to the handling of indirect costs.

Difficulty: 1

15. Job order costing would be appropriate for the construction of a cruise liner.

Difficulty: 2

16. Increasing prices in the face of falling demand is never a good strategy and can cause what is called a death spiral.

Difficulty: 1

17. Direct labor and overhead are referred to as conversion costs because they convert direct materials into finished products.

Difficulty: 1

18. Job order costing is an approach to costing that estimates costs for specific customer orders because the orders vary from customer to customer.

Difficulty: 1

19. An example of a situation in which process costing might be used would be a consulting engagement.

Difficulty: 1

20. The goal of both job order costing and process costing is a reasonable product cost.

Difficulty: 1

21. Process costing systems are used when products manufactured are relatively homogeneous and there are few and relatively small differences in the production requirements for different products.

Difficulty: 1

22. While costs are measured for individual jobs in a job order costing system, they are measured for individual process stages in a process costing system.

Difficulty: 3

23. The direct allocation method recognizes possible interactions between service departments when allocating service departments’ costs to production departments.

Difficulty: 3

24. The direct method of allocating service department costs assigns indirect costs to products in two stages. In the first stage, production department costs are allocated to the service departments.

Difficulty: 3

25. The direct method for service department cost allocations is likely to under cost low-volume products.

Difficulty: 1

1. Job order costing:

A) can only be used in manufacturing.

B) records the flow of costs for each customer.

C) allocates an equal amount of cost to each unit made during a time period.

D) is commonly used when each unit of output is identical.

Difficulty: 1

1. All the following create problems with reasonable product or job costing except:

A) incorrect job numbers are recorded on source documents.

B) bar coding is used to record materials used on the job.

C) using budgeted overhead costs to determine overhead cost allocation rates.

D) a computer screen requests an employee number before that employee is able to work on information related to a specific job.

Difficulty: 1

1. Which of the following items is not a component of job cost in job order costing?
2. Direct labour
3. Actual overhead
4. Direct materials
5. Overhead applied

Difficulty: 2

1. A job that shows low profitability may be the result of all the following except:

A) inefficient use of direct materials.

B) inefficient direct manufacturing labor.

C) overpricing the job.

D) over-allocating overhead costs.

Difficulty: 1

1. Which of the following is an example of variable manufacturing overhead?
2. Glue used in a factory that manufactures furniture
3. Machine lubricants used in an automobile repair shop
4. Thread used in a factory that manufactures clothes
5. All of the above

Difficulty: 1

1. Which of the following is not an example of fixed manufacturing overhead?
2. A production supervisor’s salary
3. The president’s salary
4. A factory accountant’s salary
5. A scheduling clerk’s salary

Difficulty: 1

1. Your text suggests which of the following is the major reason for using multiple indirect cost pools?
2. To provide more work for accountants
3. To meet the requirements of external reporting
4. To improve the ability of the costing system to more accurately reflect the cause-and-effect relationship between the cost object and the cost of the resources used by the cost object
5. None of the above

Difficulty: 1

1. An example of a direct cost for a service provided by an accounting firm, such as a tax return, would be:

A) depreciation on computer system.

B) labor of staff accountant who prepared the return.

C) labor of file clerk who filed copies of return.

D) rent on the office.

Difficulty: 1

1. An example of a direct cost in a car repair shop would include:

A) parts used in repair.

B) supervisory labor.

C) depreciation on tools.

D) property taxes on car repair shop.

Difficulty: 1

1. In a manufacturing environment, a cost such as ________ would usually be allocated or traced to a cost object.

A) utilities

B) raw materials

C) labor of employees who operate manufacturing equipment

D) labor of administrative secretaries

Difficulty: 1

1. In the manufacture of cans of beans, all the following would likely be allocated to a cost object except:

A) utilities.

B) supervisory labor.

C) depreciation on equipment used to can multiple products.

D) beans.

Difficulty: 1

1. A cost that depends on the amount of resource that is used is referred to as a

A) fixed cost.

B) variable cost.

C) direct cost.

D) indirect cost.

Difficulty: 1

1. Depreciation on factory equipment is best characterized as

A) direct cost

B) fixed manufacturing overhead.

C) variable overhead.

D) period cost

Difficulty: 1

1. Depreciation on computers at the corporate headquarters is best characterized as

A) direct costs.

B) fixed manufacturing overhead.

C) variable overhead.

D) period cost.

Difficulty: 1

1. Which of the following would be a reasonable cost driver to use to allocate indirect cost to a job in an organization that provides consulting services?
2. Total hours planned for the job
3. Actual hours used to complete the job
4. Average of all hours used to complete previous jobs
5. None of the above is reasonable

Difficulty: 1

1. Which of the following is the major advantage of using planned use as the numerator in computing a cost driver rate?
2. It is easy to use
3. It is recommended by financial reporting standards
4. If all expectations are realized actual and allocated overhead will be the same
5. None of the above

Difficulty: 1

1. If average capacity use is used to compute the cost driver rate and use is falling each year which of the following is true?
2. Overhead will tend to be consistently under allocated
3. Overhead will tend to be consistently over allocated
4. There will be no effect on the relationship between overhead incurred an overhead applied
5. None of the above is true

Difficulty: 2

1. Which of the following is not discussed in your text as possible numerator in computing the cost driver rate?
2. Previous year’s revenue
3. Planned capacity use
4. Average capacity use
5. Theoretical capacity

Difficulty: 2

1. Which of the following does your text recommend as the denominator in computing a cost driver rate to allocate indirect manufacturing cost?
2. Planned level of capacity use
3. Practical capacity
4. Theoretical capacity
5. Average level of capacity use

Difficulty: 2

1. Which of the following items would not be included in indirect manufacturing cost?
2. Heating costs
3. Salary paid to accounts receivable clerk
4. Lighting
5. Depreciation on factory equipment

Difficulty: 2

1. Which of the following statements is true about indirect manufacturing cost applied?
2. Indirect manufacturing cost applied will always equal indirect manufacturing cost incurred
3. Indirect manufacturing cost applied will always be less than indirect manufacturing cost incurred
4. Indirect manufacturing cost applied will always be more than indirect manufacturing cost incurred
5. None of the above is true

Difficulty: 2

1. A cost that is always uniquely and unequivocally attributable to a single cost object is a:

A) capacity related resource.

B) consumable resource.

C) indirect cost.

D) direct cost.

Difficulty: 2

1. Which of the following is an alternative that the course text indicates can be used to dispose of the difference between actual and allocated manufacturing indirect cost?
2. Assign the entire difference to ending work in process
3. Assign the entire difference to cost of goods sold
4. Prorate the difference between finished goods inventory and cost of goods sold
5. Prorate the difference between cost of goods sold and work in process ending inventory

Difficulty: 1

1. Which of the following statements is true about the numerator used in computing a predetermined indirect cost rate?

Use actual manufacturing overhead

Use budgeted manufacturing overhead

Use average manufacturing overhead

None of the above

Difficulty: 1

1. In a job order costing system, a manufacturing firm typically uses a cost driver rate to estimate the ________ used for a job.

A) direct materials

B) direct labor

C) variable overhead

D) total costs

Difficulty: 1

1. For each cost pool, a(n) ________ is identified that is the primary factor causing overhead costs to increase during the accounting period.

A) activity

B) job

C) level

D) process

Difficulty: 2

1. For the activity cost driver rate, overhead costs ________ should be used in the calculation.

A) actually consumed

B) made available

C) based on a seasonal average

D) None of the above is correct.

Difficulty: 2

1. The predetermined overhead cost driver rate is calculated using ________ overhead costs.

A) actual

B) allocated

C) direct

D) estimated

Difficulty: 2

1. Which of the following does the course text indicate is the most important consideration in choosing a cost driver to allocate an indirect cost?
2. It should be a reasonable predictor of the long run behaviour of indirect costs
3. It must be approved by the company auditor
4. It must be straight-forward and easy to use
5. It must always be machine hours

Difficulty: 2

1. Which of the following would not be a reasonable choice of a cost driver to allocate indirect manufacturing costs?
2. Machine hours
3. Labour hours
4. Selling and administrative costs
5. Cost of materials

Difficulty: 2

1. A single predetermined manufacturing cost driver rate based on total plant direct labor hours is:

A) $ 4 per direct labor hour.

B) $10 per direct labor hour.

C) $20 per direct labor hour.

D) $40 per direct labor hour.

Difficulty: 2

1. A predetermined manufacturing cost driver rate for the Machining Department based on the number of machine hours in that department is:

A) $ 4 per machine hour.

B) $10 per machine hour.

C) $20 per machine hour.

D) $40 per direct labor hour.

Difficulty: 2

1. Using job order costing, the 2020 predetermined manufacturing overhead cost driver rate is:

A) $4.00 per machine hour.

B) $4.80 per machine hour.

C) $5.00 per machine hour.

D) $6.00 per machine hour.

Difficulty: 2

1. Using job order costing, the amount of manufacturing overhead costs allocated to jobs during 2020 is:

A) $150,000.

B) $125,000.

C) $120,000.

D) $100,000.

Difficulty: 2

1. Manufacturing overhead cost estimates for this special order total:

A) $7,000.

B) $36,000.

C) $45,990.

D) $63,000.

Difficulty: 2

1. Estimated total product costs for this special order equal:

A) $77,000.

B) $97,000.

C) $140,000.

D) $175,000.

Difficulty: 3

1. The bid price for this special order is:

A) $77,000.

B) $97,000.

C) $121,250.

D) $175,000.

Difficulty: 2

1. The actual amount of manufacturing overhead costs incurred last month total:

A) $2,180,000

B) $ 480,000

C) $ 420,000

D) $ 160,000

Difficulty: 3

1. The amount of manufacturing overhead costs applied to all jobs last month total:

A) $ 102,000.

B) $400,000.

C) $620,000.

D) $1,240,000.

Difficulty: 2

1. The estimated direct labor cost for this order is:

A) $30,000.

B) $40,000.

C) $80,000.

D) $115,000.

Difficulty: 2

1. The estimated manufacturing overhead cost assigned to this order totals:

A) $30,000.

B) $40,000.

C) $80,000.

D) $115,000.

Difficulty: 3

1. Assume the company adds a 10% markup to arrive at a selling price. The bid price for this order totals:

A) $203,500.

B) $185,000.

C) $115,500.

D) $80,000.

Difficulty: 2

1. For East Asia Manufacturing, what is the annual manufacturing overhead cost driver rate?

A) $0.50 per machine hour

B) $0.80 per machine hour

C) $0.30 per machine hour

D) $33.33 per machine hour

Difficulty: 2

1. What amount of manufacturing overhead costs will be allocated to the Finger Lakes job?

A) $270

B) $720

C) $450

D) $30,000

Difficulty: 2

1. What are the total manufacturing costs of this job?

A) $1,200

B) $1,470

C) $1,650

D) $1,920

Difficulty: 2

1. What is the bid price for the Finger Lakes High School Job if the company uses a 40% markup of total manufacturing costs?

A) $2,310

B) $588

C) $1,680

D) $2,058

Difficulty: 2

1. For Department A, the manufacturing overhead cost driver rate is:

A) 33% of direct labor costs.

B) 66% of direct labor costs.

C) 300% of direct labor costs.

D) None of the above is correct.

Difficulty: 2

1. For Department B, the manufacturing overhead cost driver rate is:

A) 50% of direct labor costs.

B) 80% of direct labor costs.

C) 100% of direct labor costs.

D) 200% of direct labor costs.

Difficulty: 2

1. Manufacturing overhead costs applied to Job #432 equal:

A) $12,000.

B) $24,000.

C) $36,000.

D) None of the above is correct.

Difficulty: 2

1. Total manufacturing costs associated with Job #432 equal:

A) $55,000.

B) $65,000.

C) $70,000.

D) $75,000.

Difficulty: 2

1. For the Machining Department, what is the manufacturing overhead cost driver rate?

A) $4.00 per machine hour

B) $4.20 per machine hour

C) $4.67 per machine hour

D) $5.25 per machine hour

Difficulty: 2

1. How much manufacturing overhead cost will be allocated to Job #316?

A) $439

B) $502

C) $595

D) $532

Difficulty: 2

1. What are the total manufacturing costs of Job #316?

A) $715

B) $880

C) $1,595

D) $1,000

Difficulty: 1

1. At Yonge Manufacturing each cost pool:

A) uses a separate cost driver rate.

B) is a subset of total labor costs.

C) can be associated with several normal levels of activity.

D) All of the above are correct.

Difficulty: 1

1. In job order costing, the optimal number of cost pools is always ________.

A) one

B) more than one

C) 1,000

D) None of the above

Difficulty: 1

1. More cost pools:

A) always result in better estimates of overhead costs.

B) seldom result in better estimates of overhead costs.

C) are usually beneficial if the pattern of demand varies across resources.

D) result in lower estimates of total overhead costs.

Difficulty: 1

1. Different products consume different proportions of manufacturing overhead costs because of differences in all of the following except:

A) design.

B) product size.

C) setup time.

D) sales prices.

Difficulty: 1

1. If a business offers both routine and specialized services, a single cost driver rate will overprice:

A) the routine service.

B) the specialized service.

C) both the routine and the specialized service.

D) neither the routine nor the specialized service.

Difficulty: 1

1. If overhead cost driver rates are calculated monthly, distortions might occur because of:

A) rental costs paid monthly.

B) property tax payments made in July and December.

C) routine, monthly preventive maintenance costs that benefit future months.

D) property tax payments made in July and December, and routine, monthly preventative maintenance costs that benefit future months.

Difficulty: 1

1. Fixed manufacturing overhead costs remain constant at $400,000 per month and are allocated based on a monthly professional labor-hour allocation rate. Professional labor hours are estimated at 12,000 for high-output months and 3,000 for low-output months. The final customer price includes a markup of 50% of cost. As a result:

A) low-output months will allocate less manufacturing overhead costs to each job.

B) low-output months will deter customers due to the higher prices.

C) the high-output months present a more accurate method of pricing.

D) an annual allocation rate would result in lower prices during the high-output months than the monthly allocation rate.

Difficulty: 1

1. Conversion costs:

A) include all the factors of production.

B) include direct materials.

C) in process costing are usually considered to be added evenly throughout the production process.

D) include direct materials, and in process costing are usually considered to be added

Difficulty: 3

1. The conversion costs for P1, the juicing process, total:

A) $120,000.

B) $160,000.

C) $100,000.

D) $180,000.

Difficulty: 3

1. The conversion cost per unit of output for stage P1 for the Kiwi Company totals:

A) $84 per unit.

B) $36 per unit.

C) $64 per unit.

D) $20 per unit.

Difficulty: 1

1. Costing systems that are used for the costing of like or similar units of products in mass production are called:

A) inventory-costing systems.

B) job order costing systems.

C) process-costing systems.

D) conversion costing systems.

Difficulty: 1

1. Process costing:

A) allocates conversion costs.

B) results in different costs for different jobs.

C) is commonly used by general contractors who construct custom-built homes.

D) assigns costs to unique jobs based on an overhead cost driver.

Difficulty: 1

1. Which of the following manufactured products would use process costing?

A) polo shirts imprinted with individualized logos

B) picnic packs containing ketchup, mustard, and relish

C) customized boats used for racing

D) handmade stained-glass lamps for recreational rooms

Difficulty: 1

1. Process costing should be used to assign costs to products when:

A) the units produced are similar.

B) the units produced are dissimilar.

C) the calculation of unit costs requires the averaging of all manufacturing costs over all units produced.

D) Either A or C are present.

Difficulty: 1

1. Which one of the following statements is false?

A) In a job order costing system, individual jobs use different quantities of production resources.

B) In a process-costing system, each unit uses approximately the same amount of resources.

C) An organization that manufactures several types of cereal would use a job order costing system.

D) A corporation whose sole business activity is processing the customer deposits of several banks would use a process-costing system.

Difficulty: 1

1. For which of the following settings would process costing be best suited?
2. Computing the cost of an automobile
3. Computing the cost of a visit to the hospital
4. Computing the cost of a computer repair
5. None of the above

Difficulty: 1

1. Which of the following is true about conversion cost in process costing?
2. Conversion cost is the sum of direct materials and direct labour
3. Conversion cost is the sum of direct materials and overhead
4. Conversion cost is the sum of direct labour and overhead
5. Conversion cost is the sum of direct materials, direct labour, and overhead

Difficulty: 2

1. A company had 1,000 units in work in process at the start of a period, started 5,000 units into production during the period, and had 800 units in work in process at the end of the period and were 90% complete with respect to conversion costs.

The total work done this period in equivalent units of conversion cost was:

1. 5,800
2. 5,920
3. 6,000
4. 6,800

Difficulty: 2

1. The reason for using the concept of equivalent units of production in process costing is:
2. To ensure that costing reports do not include general administrative costs
3. To properly reflect the effects of inflation
4. To account for partially completed units of production
5. To ensure that all production is fully completed at the end of each period

Difficulty: 2

1. In the most recent accounting period records indicated that conversion cost in opening work in process was $15,000 and that there were 5,000 units in opening work in process. During the period 120,000 units entered production and conversion costs of $120,000 were incurred. At the end of the period there were 10,000 units in ending work in process that were 80% completed with respect to conversion cost.

Which of the following is closest to the cost per equivalent unit of conversion costs this period?

1. $1.000
2. $1.080
3. $1.100
4. $1.200

Difficulty: 3

1. The manager of Brandon Company is reviewing a process costing report for the current period. As she is reviewing the report the company accountant calls to say that the production manager has overestimated the percentage completion of conversion costs in ending work in process.

Which of the following is the result when the error is corrected?

1. Cost of ending work in process will decrease and cost of units transferred out will increase.
2. Cost of ending work in process will increase and cost of units transferred out will decrease
3. There will be no change in cost of ending work in process or cost of units transferred out
4. Cannot be determined from the information provided.

Difficulty: 2

1. Under the reciprocal cost allocation method:

A) the first step is to develop a reciprocal cost equation.

B) the first step is to allocate the service department costs to the production departments.

C) one service department is chosen to allocate costs first.

D) service department costs are allocated directly to the production departments.

Difficulty: 2

1. Under the sequential method of cost allocation:

A) the first step is to develop a reciprocal cost equation.

B) the first step is to allocate the service department costs to the production departments.

C) one service department is chosen to allocate costs first.

D) service department costs are allocated directly to the production departments.

Difficulty: 2

1. Under the direct method of cost allocation:

A) the first step is to develop a reciprocal cost equation.

B) the first step is to allocate the service department costs to the production departments.

C) one service department is chosen to allocate costs first.

D) service department costs are allocated directly to the production departments.

Difficulty: 2

1. Using the direct method of service department cost allocation, how much is to be allocated from S2 to P2 if calculations are rounded to the nearest dollar?

A) $5,720

B) $6,480

C) $8,640

D) $4,430

Difficulty: 2

1. Using the reciprocal method of service department cost allocation, how much is the total overhead cost for P1 for the period if calculations are rounded to the nearest dollar?

A) $25,210

B) $33,188

C) $25,120

D) $25,188

Difficulty: 2

1. Distinguish between direct and indirect costs. Give examples of each with regard to a specific product.

Difficulty: 2

2. Cynthia Manufacturing is a small clothing manufacturer using machine hours as the single cost driver 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 Broward County School Uniform job.

Required:

a. For Cynthia Manufacturing, determine the annual manufacturing overhead cost driver rate.

b. Determine the amount of manufacturing overhead costs estimated for the Broward County job.

c. Determine the bid price for the Broward County job.

Difficulty: 2

3. Singh Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to products. Manufacturing overhead costs are applied based on machine hours in the Machining Department and based on direct labor dollars in the Assembly Department. At the beginning of the year, the following estimates were provided for the upcoming year:

The accounting records of the company show the following data for Product #A273:

Required:

a. Compute the predetermined manufacturing overhead cost driver rate for each department.

b. Compute the total cost of Product #A273.

c. Provide possible reasons why Singh Manufacturing uses two different cost drivers.

Difficulty: 3

4. Willow Enterprises uses three cost pools to allocate manufacturing overhead costs. The following estimates were provided for the coming year.

The accounting records show the Severn job consumed the following resources.

Required:

a. If direct labor hours are considered the only manufacturing overhead cost driver, compute:

1. the single cost driver rate for Willow Enterprises; and

2. the amount of manufacturing overhead costs allocated to the Severn job.

b. If Willow Enterprises uses the three cost pools to allocate manufacturing overhead costs, compute:

1. the cost driver rate for each of the three overhead activities above; and

2. the amount of manufacturing overhead costs allocated to the Severn job.

c. Review the amount of manufacturing overhead costs allocated in (a2) and (b2). Why do the two estimates differ? Which method of allocation probably best estimates the actual manufacturing overhead costs used? Why?.

Difficulty: 3

5. Sunfish Company produces customized sailboats. The company uses a job order costing system. Its plant has three production departments: cutting, machining, and assembly. The estimated manufacturing overhead cost and direct labor cost for each department for 2020 follow:

In May 2020, the company received an invitation from Minnesota Sailing Company to bid on an order of five luxury sailboats that must be delivered by the end of September 2020. This Minnesota job would require direct manufacturing costs in the three departments as follows:

continued

Required:

a. Assume that a single, plantwide predetermined manufacturing cost driver rate based on direct labor cost is used. Determine the manufacturing cost driver rate and manufacturing overhead costs applied to the Minnesota job.

b. Assume that separate, departmental predetermined manufacturing cost driver rates based on direct labor cost are used in each department. Determine the departmental manufacturing cost driver rates and manufacturing overhead costs applied to the Minnesota job.

c. Assume that Sunfish has a policy to add a 60% markup to estimated job costs to arrive at the bid price. Determine the bid price for the Minnesota job using:

1. a plantwide manufacturing overhead cost driver rate; and

2. departmental manufacturing overhead cost driver rates.

d. Review the bid prices computed in (c). Why do the two bids differ?

e. What are the possible consequences of overbidding a job? Underbidding a job?

Difficulty: 2

6. In a job order costing system, explain why it is necessary to apply overhead costs to production through the use of a predetermined activity cost driver rate.

Difficulty: 2

7. Explain how an activity cost driver rate is determined.

Difficulty: 2

8. Why is a reasonable product cost important?

Difficulty: 2

9. Does adding more cost pools always result in better overhead costs estimates? Why or why not?

Difficulty: 2

10. Three types of product costs are estimated on a job bid sheet. List each of these costs and explain how each is estimated.

Difficulty: 2

11. On a job bid sheet, four items are added together to arrive at a bid price. List each of these items and explain why each is necessary to arrive at the bid price.

Difficulty: 2

12. The markup rate on a job bid sheet includes amounts for certain items. Discuss these items.

Difficulty: 2

13. List at least three factors taken into consideration when determining the markup rate.

Difficulty: 2

14. In job order costing, explain how comparing actuals to the estimates for direct material and direct labor costs can be helpful to management.

Difficulty: 3

15. Custom Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2020, overhead cost estimates total $420,000 for an annual production capacity of 12 million pages.

For 2020 Custom Printers has decided to evaluate the use of additional cost pools. After analyzing overhead costs, it was determined that the number of design changes, setups, and inspections are the primary overhead cost drivers. The following information was gathered during the analysis.

During 2020, two customers, Southwest Managers and Health Systems, are expected to use the following printing services.

Required:

a. Calculate the cost driver rate if overhead costs are considered one large cost pool and are assigned based on 12 million pages of production capacity.

b. Using the cost driver rate determined in (a), calculate the overhead cost estimate for Southwest Managers during 2020.

c. Assuming cost pools for design changes, setups, and inspections are used, calculate the cost driver rates for each of the three cost pools.

d. Using the cost driver rates determined in (c), calculate the overhead cost estimate for Southwest Managers during 2020.

e. Review the overhead costs estimates computed in (b) and (d). Discuss what conclusions can be drawn from this exercise in regard to the use of cost pools.

Difficulty: 2

16. Explain why more than one cost pool usually results in more realistic overhead cost estimates.

Difficulty: 2

17. Explain what accounts for the difference between each amount reported on the job bid sheet and the job cost sheet for an individual job.

Difficulty: 3

18. Patel Company uses a manufacturing process that has two distinct stages: P1 and P2. Raw material is consumed in P1 at the beginning of the process. No additional material is required in the second stage of the process (in P2). The following information pertains to the production of 10,000 units of output in March of last year:

Assume all units are completed at the end of March. Assume all costs are added in March.

Required:

a. Determine the direct material cost per unit of output.

b. Determine the conversion cost per unit of output for Stage P1 and Stage P2.

Difficulty: 2

19. What considerations are important in estimating product costs in continuous processing plants?

Difficulty: 2

20. Why do product costing systems using the direct method, sequential method, and reciprocal method allocate service department overhead costs first to the production departments before assigning them to individual jobs?