Full Test Bank Job Costing Visualized Chapter 8

CHAPTER 8

JOB COSTING

CHAPTER LEARNING OBJECTIVES

1. Summarize the purpose of job costing, including important terminology on how to organize jobs.
2. Account for both actual and applied manufacturing overhead.
3. Follow cost flows through T-accounts to calculate costs for jobs and products.
4. Observe relationships between job costing and decision-making, including ethical considerations.
5. Describe how job costing works in service organizations.

Current count is:

Knowledge: 39

Comprehension: 26

Application: 32

Analysis: 5

Evaluation: 0

Synthesis: 0

Total: 102

Number and percentage of questions:

Easy: 17

Medium: 73

Hard: 12

Question types:

Multiple Choice: 102

Short Answer:

Brief Exercises:

Exercises:

Problems:

MULTIPLE CHOICE QUESTIONS

1. A “job”

a. can only be found in a manufacturing environment.

b. is a distinct unit of production (output) with unique costs assigned to it.

c. includes period costs but not product costs.

d. will never be used for determining costing in service firms.

Ans: B, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. The main difference between normal costing and actual costing is the treatment of
2. direct labor cost.
3. direct material cost.
4. manufacturing overhead cost.
5. period costs.

Ans: C, LO 1, Bloom: C, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation IMA: Cost Management.

1. A job cost sheet is

a. the control or overview document which compiles direct materials, direct labor, and applied manufacturing overhead costs used to complete each job.

b. the list of raw materials needed to manufacture the product.

c. the document that records the workers scheduled on a production run.

d. does not include manufacturing overhead costs.

Ans: A, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. Which of the following is not included in a job cost sheet?
2. Direct material Cost
3. Direct labor Cost
4. Product retail selling price
5. Applied manufacturing overhead Cost

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

1. Which of the following is equivalent to indirect costs?
2. Direct materials
3. Manufacturing overhead
4. Direct labor
5. Accounts Receivable

Ans: B, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management

1. Which of the following is an indirect cost?

a. Factory electric bill

b. Direct materials cost

c. Direct labor cost

d. Salesperson’s salary

Ans: A, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

1. Which of the following would typically never be considered an indirect cost?

a. Factory rent

b. Direct materials cost

c. Factory utility bills

d. Factory supplies

Ans: B, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

1. Raw materials cost on the balance sheet consists of
2. raw materials invoice cost plus freight-in cost.
3. raw materials invoice cost plus direct labor cost.
4. freight-in cost only.
5. indirect materials cost only.

Ans: A, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: Invoice cost for direct material and indirect material purchases plus freight-in costs are recorded in the raw materials inventory account. The raw materials inventory account is an asset on the balance sheet.

1. Raw Materials Inventory consists of
2. direct materials and direct labor.
3. direct materials only.
4. direct materials and indirect materials.
5. indirect materials only.

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: Both direct materials and indirect materials are included in the raw materials inventory account.

1. The Manufacturing Overhead Control account includes
2. actual manufacturing overhead only.
3. applied manufacturing overhead only.
4. both actual manufacturing overhead and applied manufacturing overhead.
5. direct material cost and direct labor cost.

Ans: C, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

Solution: Normal costing requires tracking of both actual MOH and applied MOH. This is done by using the manufacturing overhead control account.

1. The dollar amount of manufacturing overhead to “apply” to Work-In-Process (WIP)

Inventory is computed using which of the following formulas?

a. Budgeted Manufacturing Overhead Rate X Actual Usage of Cost Driver

b. Budgeted Manufacturing Overhead Rate X Budgeted Usage of Cost Driver

c. Actual Manufacturing Overhead Rate X Actual Usage of Cost Driver

d. Actual Manufacturing Overhead Rate X Budgeted Usage of Cost Driver

Ans: A, LO 2, Bloom: AP, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

1. Within the Manufacturing Overhead Control account, if no manufacturing overhead has been applied, the posted entries for “actual manufacturing overhead” will generate a
2. “debit balance” or “credit balance.”
3. “debit balance.”
4. “credit balance.”
5. zero balance, throughout the period.

Ans: B, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: During production, as we incur actual MOH costs, we debit the MOH Control account. All the actual MOH is on the debit side of the MOH Control account, and all applied MOH is on the credit side of the MOH Control account.

1. Within the manufacturing overhead control account, if no manufacturing entries have been posted for actual manufacturing overhead incurred, then the posted entries for “applied manufacturing overhead” will
2. generate a “debit balance” or “credit balance.”
3. generate a “debit balance.”
4. generate a “credit balance.”
5. not affect the account since “applied manufacturing overhead” amounts are not included in the manufacturing overhead control account.

Ans: C, LO 2, Bloom: C, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

1. The journal entry to record actual depreciation on factory is a
2. debit to Manufacturing Overhead Control and a credit to Applied Manufacturing Overhead.
3. debit to Applied Manufacturing Overhead and a credit to Manufacturing Overhead Control.
4. debit to Manufacturing Overhead Control and a credit to Work-In-Process Inventory.
5. debit to Manufacturing Overhead Control and a credit to Accumulated Depreciation-Factory.

Ans: D, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. In a normal costing system, another term for the budgeted overhead rate is the
2. predetermined manufacturing overhead rate.
3. actual manufacturing overhead rate.
4. cost-of-goods-sold rate.
5. work-in-process rate.

Ans: A, LO 2, Bloom: C, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. The journal entry to move a completed job out of production is a
2. debit to Work-In-Process Inventory and credit to Finished Goods Inventory.
3. debit to Work-In-Process Inventory and credit to Raw Materials Inventory.
4. debit to Finished Goods Inventory and credit to Work-In-Process Inventory.
5. debit to Cost of Goods Sold and credit to Finished Goods Inventory.

Ans: C, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. A “smart thermostat” learning a household’s schedule and then, adjusting the temperature, accordingly, is an example of
2. job costing.
3. process costing.
4. normal costing.
5. data analytics.

Ans: D, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Data Analytics.

1. The journal entry to assign direct materials into production involves a
2. debit to Accounts Payable and a Credit to Raw Materials Inventory.
3. debit to Raw Materials Inventory and a credit to Accounts Payable.
4. debit to Raw Materials Inventory and a credit to Cash.
5. debit to Work-In-Process Inventory and a credit to Raw Materials Inventory.

Ans: D, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. The journal entry to record the purchase of raw materials on account involves a
2. debit to Accounts Payable and a credit to Raw Materials Inventory.
3. debit to Raw Materials Inventory and a credit to Accounts Payable.
4. debit to Raw Materials Inventory and a credit to Cash.
5. debit to Work-In-Process Inventory and a credit to Raw Materials Inventory.

Ans: B, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. The journal entry to record the assignment of indirect materials into production involves a
2. debit to Manufacturing Overhead Control and a credit to Raw Materials Inventory.
3. debit to Manufacturing Overhead Control and a credit to Finished Goods Inventory.
4. debit to Manufacturing Overhead Control and a credit to Work-In-Process Inventory.
5. debit to Cost of Goods Sold and a credit to Raw Materials Inventory.

Ans: A, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. The journal entry to record direct labor worked on a particular job involves a
2. debit to Manufacturing Overhead Control and a credit to Salaries and Wages Payable.
3. debit to Salaries and Wages Payable and credit Work-In-Process Inventory.
4. debit to Work-In-Process Inventory and credit Finished Goods Inventory.
5. debit to Work-In-Process Inventory and credit Salaries and Wages Payable.

Ans: D, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. The budgeted manufacturing overhead rate is determined by dividing
2. actual manufacturing overhead costs for the year by total actual usage of cost driver.
3. actual manufacturing overhead costs for the year by total budgeted usage of cost driver.
4. budgeted manufacturing overhead costs for the year by total budgeted usage of cost driver.
5. budgeted manufacturing overhead costs for the year by total actual usage of cost driver.

Ans: C, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

1. The journal entry to assign applied manufacturing overhead to Work in Process inventory is a
2. debit to Work-in-Process Inventory and a credit to Manufacturing Overhead Control.
3. debit to Manufacturing Overhead Control and a credit to Work-in-Process Inventory.
4. debit to Finished Goods Inventory and a credit to Manufacturing Overhead Control.
5. debit to Raw Material Inventory and a credit to Manufacturing Overhead Control.

Ans: A, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. Which of the following costs would typically be considered an “actual manufacturing overhead” cost?
2. Salesperson’s vehicle expense
3. Factory supplies
4. Advertising expense
5. Sales commission

Ans: B, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. Which of the following costs would typically be considered an “actual manufacturing overhead” cost?
2. Depreciation on factory equipment
3. Salesperson’s salary
4. Advertising expense
5. Sales commission

Ans: A, LO 3, Bloom: K, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. Which of the following cost would typically be considered an “actual manufacturing overhead” cost?
2. Salesperson’s hourly wage
3. Newspaper advertising cost
4. Rent for factory.
5. Utility cost for sales showroom

Ans: C, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. Which of the following would typically be considered an “Actual Manufacturing Overhead” Cost?
2. Repairs and maintenance for factory.
3. Salary of vice president of marketing.
4. Advertising costs.
5. Wages for employees on sales floor.

Ans: A, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. Which of the following would typically be considered an “Actual Manufacturing Overhead” Cost?
2. Factory supervisor’s salary.
3. Salary of vice president of marketing.
4. Advertising costs.
5. Wages for employees on sales floor

Ans: A, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. Typically, a labor-intensive manufacturing process would most likely include which of the following as its cost driver?
2. Direct labor hours
3. Machine hours
4. Raw material pounds
5. Linear feet

Ans: A, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Business Economics.

1. The entry to move a completed job from production to Finished Goods Inventory, involves a
2. debit to Finished Goods Inventory and credit to Raw Materials Inventory.
3. debit to Finished Goods Inventory and a credit to Cost of Goods Sold.
4. debit to Cost of Goods Sold and a credit to Finished Goods Inventory.
5. debit to Finished Goods Inventory and a credit to Work-in-Process Inventory.

Ans: D, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. The entry to record a sale with the removal of the cost of the finished good involves a
2. debit to Finished Goods Inventory and credit to Raw Materials Inventory.
3. debit to Finished Goods Inventory and a credit to Cost of Goods Sold.
4. debit to Cost of Goods Sold and a credit to Finished Goods Inventory.
5. debit to Finished Goods Inventory and a credit to Work-in-Process Inventory.

Ans: C, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. Product costs are transferred from the balance sheet to the income statement only when the goods are ___________.
2. completed.
3. moved from Work-In-Process Inventory.
4. sold.
5. moved to Finished Goods Inventory.

Ans: C, LO 3, Bloom: C, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

1. When products are sold, the account, _________________, is debited.
2. Finished Goods Inventory
3. Work-in-Process Inventory
4. Cost of Goods Sold
5. Accounts payable

Ans: AP, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

1. Synergy Corporation applies manufacturing overhead based on direct labor hours. Synergy estimates its budgeted manufacturing overhead cost for the coming year to be $400,000 and its budgeted direct labor hours to be 100,000 hours. What is Synergy’s budgeted overhead rate?
2. $.25 per direct labor hour
3. $25 per direct labor hour
4. $250 per direct labor hour
5. $4 per direct labor hour

Ans: D, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Decision Analysis.

Solution: $400,000 Budgeted MOH / 100,000 direct labor hours = Budgeted MOH rate = $4 per direct labor hour.

1. Linear Technologies Inc. applies manufacturing overhead based on machine hours. Budgeted manufacturing overhead cost for the coming year is $600,000 and budgeted machine hours are 300,000 hours. Actual manufacturing overhead totaled $80,000. Manufacturing overhead was overapplied by $20,000. How many machine hours were actually used during the year?
2. 300,000 machine hours
3. 30,000 machine hours
4. 50,000 machine hours
5. 600,000 machine hours

Ans: C, LO 3, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: Actual MOH $80,000 + Overapplied MOH $20,000 = Applied MOH $100,000.

Budgeted MOH, $600,000 / Budgeted MOH, 300,000 machine hours = Budgeted MOH rate $2 /machine hour. $2/machine hour X 50,000 machine hours = $100,000 Applied MOH. Therefore, $100,000 / $2 = 50,000 machine hours actually used

1. The account, Raw Materials Inventory, includes which of the following costs?
2. Indirect materials, direct materials, and manufacturing overhead costs
3. Only indirect materials cost
4. Only direct materials cost
5. Direct materials and indirect materials costs

Ans: D, LO 3, Bloom: C, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. The cost for the factory rent for a manufacturer would be
2. shown on the income statement as rent expense.
3. accounted for as a product cost, and then, assigned to the Work-in-Process Inventory.
4. expensed immediately, when incurred, regardless of when the product is sold.
5. shown on the balance sheet as rent expense.

Ans: B, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

1. All of the following costs will be accounted for as product costs, except
2. factory maintenance.
3. factory utility costs.
4. factory property taxes
5. rent on corporate headquarters

Ans: D, LO 3, Bloom: K, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

1. Because the Manufacturing Overhead Control account does not appear on the financial statements at the end of the period, this account must be
2. closed
3. increased
4. opened
5. expensed

Ans: A, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

1. The Manufacturing Overhead Control account will
2. appear on the balance sheet as a current asset.
3. appear on the balance sheet as part of Raw Materials Inventory.
4. appear on the balance sheet as part of accumulated depreciation.
5. not appear on any financial statement.

Ans: D, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Reporting.

1. If a company has a sound business idea and is successful at selling its products, at the end of the year, the majority of product costs should be in:
2. Work-in-Process Inventory.
3. Finished Goods Inventory
4. Cost of Goods Sold
5. Raw Materials Inventory

Ans: C, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. If a company chooses to “prorate and apportion” the difference between Actual Manufacturing Overhead and Applied Manufacturing Overhead, at end-of-period, the difference will be prorated and apportioned between which of the following three accounts?
2. Raw Materials Inventory, Work-In-Process Inventory, Finished Goods Inventory
3. Raw Materials Inventory, Work-In-Process Inventory, Cost of Goods Sold
4. Work-In-Process Inventory, Finished Goods Inventory, Cost of Goods Sold
5. Raw Materials Inventory, Finished Goods Inventory, Costs of Goods Sold

Ans: C, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. The two commonly used approaches to eliminate the balance of under- or over-applied manufacturing overhead costs are
2. “Direct Write-Off Method” and “Prorated Method”
3. “Expensing Method” and “Capitalizing Method”
4. “Direct Write-Off Method” and “Capitalizing Method”
5. “Prorated Method” and “Capitalizing Method”

Ans: A, LO 3, Bloom: K, Easy: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. In accordance with Generally Accepted Accounting Principles (GAAP), in which Balance Sheet account shown below, do we find a unit’s “product cost”?
2. Cash
3. Accounts Receivable
4. Finished Goods Inventory
5. Supplies

Ans: C, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Reporting.

1. In accordance with Generally Accepted Accounting Principles (GAAP), in which income statement account shown below, do we find a unit’s “product cost”?
2. Cost of Goods Sold
3. Revenue
4. General and Administrative Expense
5. Finished Goods Inventory

Ans: A, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Reporting.

1. For the most recent period, Ratesh Company recorded sales of $25,000 and Cost of Goods Sold of $5,000. What is Ratesh Company’s gross margin?
2. $30,000
3. $25,000
4. $20,000
5. $5,000

Ans: C, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Reporting.

Solution: Sales – COGM = GM; $25,000 - $5,000 = $20,000

1. For the most recent period, Chen Company recorded sales of $25,000 and reported a gross margin of $19,000. What is Chen Company’s Cost of Goods Sold?
2. $6,000
3. $19,000
4. $44,000
5. $25,000

Ans: A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Reporting.

Solution: Sales – COGS = GM; Restated, Sales – GM = COGS; $25,000 - $19,000 = $6,000

1. For the most recent period, Shanice Corporation recorded the following information:

Total sales = $100,000.

Selling price = $10/unit.

Product cost = $2/unit

What was Shanice Corporation’s gross margin for the period?

1. $120,000
2. $50,000
3. $80,000
4. $180,000

Ans: C, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Reporting.

Solution: (Unit SP – Unit product cost) X units sold; $100,000 ÷ $10 = 10,000 units sold; ($10 - $2) = $8 x

10,000 units = $80,000

1. For the most recent period, Zidan Company earned sales of $120,000 and a gross margin of $30,000. If the selling price per unit was $4, what is the product cost per unit?
2. $7
3. $6
4. $5
5. $3

Ans: D, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: Sales – GM = COGS; $120,000 – $30,000 = $90,000; $120,000/$4 per unit = 30,000 units; $90,000/30,000 units = $3

1. A footwear manufacturer using RFID (radio-frequency identification) to track inventory through the supply chain to determine which items are selling, is an example of implementing
   1. job costing.
   2. process costing.
   3. normal costing.
   4. data analytics.

Ans: D, LO 4, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Data Analytics.

1. Intentionally misrepresenting job costs is ____________
2. acceptable business practice.
3. allowable creative accounting.
4. fraud.
5. ethical.

Ans: C, LO 5, Bloom: C, Difficulty: Medium, AACSB: Ethics, AICPA: FC, Measurement, Analysis, and Interpretation, AICPA PC: Ethical Conduct, IMA: Business Applications.

1. An accounting firm is considered to be a
2. service firm.
3. manufacturer.
4. retailer.
5. wholesaler.

Ans: A, LO 5, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Business Economics.

1. Typically, a service firm would not have which of the following items on its income statement?
2. Cost of sales
3. Sales
4. Gross margin
5. Cost of Goods Sold

Ans: D, LO 5, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Reporting.

1. Typically, a service firm would not have which of the following accounts on its balance sheet?
2. Accounts Receivable
3. Accrued Liabilities
4. Wages Payable
5. Raw Materials Inventory

Ans: D, LO 5, Bloom: C, Difficulty: Medium, AACSB: none, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Reporting.

1. The three most commonly used “cost drivers” for manufacturers are
2. machine hours, direct labor hours and direct labor cost.
3. machine hours, direct labor hours and raw material cost.:
4. raw materials cost, direct Labor hours and direct labor cost.:
5. machine hours, raw material cost and direct labor cost.:

Ans: A, LO 2, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

1. The ____________________ is the home for all accounts in an accounting system.
2. Balance sheet
3. Income statement
4. General ledger
5. Job cost sheet

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Reporting.

1. A ____________ is simply a general ledger account that contains all transactions of a certain type.
2. sub-ledger
3. journal
4. job cost sheet
5. balance sheet

Ans: A, LO 1, Bloom: K, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Reporting.

1. The control document which compiles direct materials, direct labor and the applied manufacturing overhead is called the
2. bill of materials
3. labor timesheet
4. materials requisition sheet
5. job cost sheet

Ans: D, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

1. Akio Company uses the direct write-off method to eliminate the difference between actual MOH and applied MOH. At year-end, Akio makes this adjustment by debiting Manufacturing Overhead Control, $10,000. Assuming that at year-end, the total applied MOH was $80,000, what was the total for actual MOH, just prior to adjustment?
2. $90,000
3. $70,000
4. $80,000
5. $10,000

Ans: B, LO 3, Bloom: AN, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

Solution: $80,000 applied MOH - $10,000 overapplied MOH = $70,000 actual MOH

1. Kiara Corporation is a service company and uses the direct write-off method to eliminate the difference between actual overhead and applied overhead. At year-end, Kiara makes this adjustment by crediting Manufacturing Overhead Control, $20,000. Assuming that at year-end, the total for applied overhead was $60,000, what was the total for actual overhead, just prior to adjustment?
2. $60,000
3. $70,000
4. $10,000
5. $80,000

Ans: D, LO 6, Bloom: AN, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: $60,000 applied MOH + $20,000 underapplied MOH = $80,000 actual MOH

1. Assume that prior to period-end adjustments, Latonya Company reported Cost of Goods Sold of $15,000, and Sales of $85,000. If Latonya Company had underapplied manufacturing overhead of $5,000, what amount of gross margin will appear on the income statement, after adjustments?
2. $75,000
3. $80,000
4. $65,000
5. $85,000

Ans: C, LO 3, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

Solution: Sales, $85,000 - ($15,000, COGS + $5,000 under-applied MOH) = $65,000 Gross Margin

1. Recording too many costs for a job will result in
2. under-charging.
3. accurate charging.
4. over-charging.
5. balanced charging.

Ans: C, LO 4, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

1. Omitting costs for a job will result in
2. under-charging.
3. accurate charging.
4. over-charging.
5. balanced charging.

Ans: A, LO 4, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

1. Stating that a job is 90% complete, when it is in effect only 70% complete, results in
2. accurate costing.
3. balanced Charging.
4. correctly representing the completion of a job.
5. misrepresenting the completion of a job.

Ans: D, LO 4, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. Creative Accountant CPAs, LLC is a service firm, reporting a gross margin of $60,000 and adjusted Cost of Goods Sold of $50,000. What were their sales for this same period?
2. $10,000
3. $60,000
4. $110,000
5. $100,000

Ans: C, LO 6, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: FSA.

Solution: Sales – COGS = GM; Restated, GM + COGS = Sales; $60,000 + $50,000 = $110,000 Sales

1. Wessling Consultants, LLC is a service firm, reporting a negative gross margin of ($30,000) and adjusted Cost of Goods Sold of $60,000. What was Wessling Consultant’s sales for this same period?
2. $0
3. $60,000
4. $90,000
5. $30,000

Ans: D, LO 5, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: FSA.

Solution: Sales – COGS = GM; Restated, GM + COGS = Sales; -$30,000 Gross Margin + $60,000 COGS = Sales $30,000

1. Companies that use actual costing, include the actual MOH cost when costing a product or service, which indicates that they choose to prioritize
2. relevance/timeliness of information over the accuracy of information.
3. accuracy of information over the relevance/timeliness of that information.
4. inaccuracy of information over the relevance/timeliness of that information.
5. irrelevance of information without regard to timeliness of information.

Ans: B, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Reporting.

1. Product costs are classified as
2. direct materials, direct labor, and selling cost.
3. direct materials, direct labor, and administrative cost..
4. direct materials, direct labor, and manufacturing overhead cost.
5. selling costs, direct labor, and selling costs.

Ans: C, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. When a manufacturer makes purchases of raw materials, these purchases will normally include
2. both direct and indirect materials,
3. only direct materials,
4. only indirect materials,
5. neither indirect materials nor direct materials.

Ans: A, LO 1, Bloom: K, Difficulty: Easy, AACSB: none, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. Direct labor is tracked through
2. materials requisition forms.
3. overhead application forms.
4. labor timesheets.
5. finished goods forms.

Ans: K, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Reporting.

1. Production costs are expensed when they are sold to adhere to the
2. Expense Recognition Principle
3. Revenue Recognition Principle
4. Under-Charging Principle
5. Over-Charging Principle

Ans: A, LO 3, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: FSA.

1. Which of the following documents is used to make a formal request to remove items from the raw materials storage area?
2. Bill of materials.
3. Labor timesheet
4. Job cost sheet
5. Materials requisition sheet

Ans D, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. The journal entry to apply manufacturing overhead involves a
2. debit to Manufacturing Overhead Control and a credit to Work-in-Process Inventory.
3. debit to Work-in-Process Inventory and a credit to Manufacturing Overhead Control.
4. debit to Work-in-Process Inventory and a credit to Finished Goods Inventory.
5. debit to Work-in-Process Inventory and a credit to Cost of Goods Sold.

Ans B, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. At the start of each new accounting period, the Manufacturing Overhead Control account will have a ____________ balance.
2. debit
3. credit
4. zero
5. impossible to determine

Ans: C, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. When purchasing raw materials, the cost will include items such as
2. freight-in and non-recoverable taxes.
3. advertising and salesperson’s salaries.
4. direct labor cost.
5. salaries of administrators.

Ans: A LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. Indirect labor cost is part of
2. direct Labor.
3. raw materials.
4. advertising.
5. manufacturing overhead.

Ans: D, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

1. The Manufacturing Overhead Account is considered to be a(n):
2. Clearing account
3. Asset
4. Liability
5. Selling expense

Ans: A, LO 3, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Reporting.

1. An automated manufacturing process would most likely include which of the following as its cost driver?
2. Direct labor cost
3. Machine hours
4. Raw materials pounds
5. Linear feet

Ans: B, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. Which of the following terms best describes the concept of a cause-and-effect relationship when determining the MOH predetermined rate in a job cost environment?
2. Raw materials
3. Direct materials
4. Direct labor
5. Cost driver

Ans: D, LO 2, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. The best place to find the amounts that specific customers owe the company is in the
2. General Ledger
3. Balance Sheet
4. Income Statement
5. Accounts Receivable Sub-Ledger

Ans: D, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Reporting.

1. The ________________________ is the home of all accounts in an accounting system.
2. General Ledger
3. Balance Sheet
4. Income Statement
5. Job Cost Sheet

Ans: A, LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Reporting.

1. The document that records the workers scheduled on production runs, on which job number they’re working, and the actual hours worked on each job, is referred to as
2. Bill of materials
3. Labor timesheet
4. Materials requisition form
5. General ledger

Ans: B LO 1, Bloom: K, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Internal Control.

1. Selling Expenses are considered
2. product costs.
3. period costs.
4. manufacturing overhead costs.
5. work-in-process costs.

Ans: B, LO 1, Bloom: K, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

1. In examining the relationship between a ledger and a sub-ledger, going from the ledger to the sub-ledger is
2. going one level, deeper in detail.
3. staying at the same level of detail.
4. decreasing the level of detail.
5. an unknown relationship.

Ans; A, LO 1, Bloom: C, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Reporting.

1. Stingray Corporation has recorded the following costs for Job #101:

Total Cost: $1,200

Direct Materials: $ 600

Direct Labor: $ 400

What is the amount of manufacturing overhead cost for Job #101?

1. $2,200
2. $1,200
3. $2,200
4. $ 200

Ans; D, LO 1, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: Total Cost – (Direct Materials + Direct Labor) = $1,200 – ($600 + $400) = $200 MOH cost

1. Foster Company, a labor-intensive manufacturer, compiled the following data for the current period:

Assuming that Foster Company uses direct labor hours as a cost driver, determine the budgeted manufacturing overhead rate for the current period?

1. $2/direct labor hour
2. $3/direct labor hour
3. $6/direct labor hour
4. $8/direct labor hour

Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: $600,000 budgeted MOH/200,000 budgeted DLH = $3/direct labor hour

1. Jesse Company, a labor-intensive manufacturer, compiled the following data for the current period:

Assuming that Jesse Company uses direct labor cost as a cost driver, determine the manufacturing overhead application rate for the current period?

1. $2/direct labor dollar
2. $3/direct labor dollar
3. $6/direct labor dollar
4. $8/direct labor dollar

Ans: A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and

Interpretation, IMA: Cost Management.

Solution: $600,000 budgeted MOH/$300,000 budgeted DL cost = $2/direct labor dollar

1. Advanced Analytics Corporation utilizes robotics in its manufacturing process and uses machine hours as a cost driver. Determine the budgeted manufacturing overhead rate for the current period?

1. $2/machine hour
2. $3/ machine hour
3. $6/ machine hour
4. $8/ machine hour

Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: $600,000 budgeted MOH/100,000 budgeted MHs = $6/machine hour

1. Brianna Corporation compiled the following information for the current period. Brianna Corporation uses Direct Labor Hours as a cost driver. How much Manufacturing Overhead did Brianna Corporation apply during the current period?

1. $350,000
2. $600,000
3. $450,000
4. $500,000

Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: ($600,000 budgeted MOH/200,000 budgeted DLHs) x 150,000 actual DLHs = $450,000 applied MOH

1. Algo Corporation utilizes robotics in its manufacturing process and uses machine hours as a cost driver. How much manufacturing overhead did Algo Corporation apply during the current period?

1. $720,000
2. $600,000
3. $480,000
4. $500,000

Ans: C, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: ($600,000 budgeted MOH/100,000 budgeted MHs) x 80,000 actual MHs = $480,000

1. Moor Cowbell Corporation compiled the following information for the current period. Moor Cowbell uses direct labor cost as a cost driver. How much manufacturing overhead did Moor Cowbell apply during the current period?

1. $350,000
2. $600,000
3. $450,000
4. $650,000

Ans: D, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: ($600,000 budgeted MOH/300,000 budgeted DL cost) x $325,000 actual DL cost = $650,000 applied MOH

1. Hernandez Company, a labor-intensive manufacturer and compiled the following data for the current period:

Assuming that Hernandez Company uses direct labor hours as a cost driver, determine the amount of underapplied or overapplied overhead for the current period?

1. Underapplied by $50,000
2. Overapplied by $150,000
3. Underapplied by $50,000
4. Underapplied by $100,000

Ans: D, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: Actual MOH $550,000 - (Applied MOH ($600,000 budgeted MOH/200,000 budgeted DLHs) x 150,000 actual DLHs) = $100,000 underapplied MOH

1. Shannon Company, a labor-intensive manufacturer, compiled the following data for the current period:

Assuming that Shannon Company uses direct labor cost as a cost driver, determine the amount of overapplied or underapplied overhead for the current period?

1. Underapplied by $50,000
2. Overapplied by $150,000
3. Underapplied by $50,000
4. Underapplied by $100,000

Ans: B, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: Actual MOH $500,000 - (Applied MOH ($600,000 budgeted MOH/$300,000 budgeted DL cost) x $325,000 actual DL cost) = $150,000 overapplied MOH

1. TracyWood Company, a highly automated manufacturer, compiled the following data for the current period:

Assuming that TracyWood Company uses machine hours as a cost driver, determine the amount of overapplied or underapplied overhead for the current period?

1. Underapplied by $20,000
2. Overapplied by $150,000
3. Underapplied by $50,000
4. Underapplied by $100,000

Ans: A, LO 2, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: Actual MOH $500,000 - (Applied MOH ($600,000 budgeted MOH/100,000 budgeted MHs) x 80,000 actual MHs) = $20,000 underapplied MOH

1. For a manufacturer, the numerator to determine the budgeted MOH rate for overhead application, is
2. budgeted direct labor hours.
3. budgeted direct labor cost.
4. budgeted manufacturing overhead cost.
5. budgeted raw material usage.

Ans: C, LO 2, Bloom: K, Difficulty: Medium, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Business Economics.

1. Caitlin Company has the following cost information pertaining to their Raw Materials Inventory account:

• December 31, balance (Ending) $20,000
• Material purchases $70,000
• Materials used during year $60,000

What was the Raw Materials Inventory balance on January 1 (Beginning)?

1. $ 5,000
2. $ 50,000
3. $100,000
4. $ 10,000

Ans: D, LO 3, Bloom: AN, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Reporting.

Solution: (Materials used during the year + December 31, ending balance) – Materials purchases = Raw Materials January 1, balance (Beginning) = ($60,000 + $20,000) - $70,000 = $10,000

1. Creative Accountant CPAs, LLC is a service firm and applies overhead based upon direct labor cost. For the year 2025, the actual overhead cost incurred totaled $50,000. Creative Accountant CPAs, LLC had underapplied overhead cost of $10,000. The company utilized an overhead application rate of 50% of direct labor cost. What was the total direct labor cost incurred for the year?
2. $20,000
3. $50,000
4. $80,000
5. $40,000

Ans: C, LO 5, Bloom: AN, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: Actual MOH cost – Underapplied MOH = Applied MOH = ($50,000 - $10,000) = $40,000; Applied MOH/DL MOH rate = $40,000/50% = $80,000 actual direct labor cost incurred

1. A manufacturer that utilizes numerous robots and very few human workers in its manufacturing process would most likely use which of the following as a cost driver for applying manufacturing overhead?
2. Direct labor hours
3. Direct labor cost
4. Machine hours
5. Raw materials pounds

Ans: C, LO 3, Bloom: C, Difficulty: Easy, AACSB: None, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Business Economics.

1. Genesis Corporation eliminates its overapplied or underapplied overhead by using the prorated method. For the year 2025, Genesis had the following balances:

- Cost of Goods Sold, $50,000

- Finished Goods Inventory, $20,000

- Work-in-Process Inventory, $30,000

- Actual Manufacturing Overhead, $70,000

- Applied Manufacturing Overhead, $60,000

After adjustment, what will be the impact on the account balances in Work-in-Process Inventory, Finished Goods Inventory, and Cost of Goods Sold using the prorated method?

1. Work-in-Process Inventory, increases by $3,000; Finished Goods Inventory, increases by $2,000; and Cost of Goods Sold increases by $5,000.
2. Work-in-Process Inventory, decreases by $3,000; Finished Goods Inventory decreases by $2,000; and Cost of Goods Sold decreases by $5,000.
3. Work-in-Process Inventory, increases by $2,000; Finished Goods Inventory increases by $3,000; and Cost of Goods Sold increases by $5,000.
4. Work-in-Process Inventory, increases by $5,000; Finished Goods Inventory increases by $2,000; and Cost of Goods Sold increases by $5,000.

Ans: A, LO 3, Bloom: AN, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Prorated percentages for Work-in-Process, Finished Goods and Cost of Goods Sold, respectively are: (COGS, $50,000 + FG, $20,000 + WIP, $30,000 = $100,000 total); $30,000/$100,000 = 30%, WIP; $20,000/$100,000 = 20%, FG; $50,000/$100,000 = 50%, COGS. 30% x $10,000 = $3,000 WIP; 20% x $10,000 = $2,000 FG; 50% x $10,000 = $5,000 COGS

1. Garcia Company uses the direct write-off method to eliminate its under-applied overhead. Assume that Garcia incurred actual overhead costs, totaling $85,000 and applied overhead costs of $80,000. Unfortunately, at year-end, Garcia’s chief cost accountant inadvertently forgot to adjust Cost of Goods Sold for the required adjustment amount. What effect will this error have on Garcia’s Cost of Goods Sold and Gross Margin?
2. Cost of Goods Sold will be overstated by $5,000, and Gross Margin will be understated by $5,000.
3. Cost of Goods Sold will be understated by $5,000, and Gross Margin will be overstated by $5,000.
4. Cost of Goods Sold will be understated by $5,000, and Gross Margin will be understated by $5,000.
5. Cost of Goods Sold will be overstated by $5,000, and Gross Margin will be overstated by $5,000.

Ans: B, LO 3, Bloom: AN, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: $85,000, Actual MOH - $80,000, Applied MOH = $5,000 under-applied overhead. The adjustment to Cost of Goods Sold should have increased Cost of Goods Sold by $5,000 and correspondingly, decreased Gross Margin by this same amount.

BRIEF EXERCISES

101. Futuristic Analytics Inc. reports the following cost information for the period, utilizing normal costing and applying overhead based upon machine hours:

Determine the amount of underapplied or overapplied overhead.

Ans: N/A, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution:

Underapplied Overhead = $20,000

$800,000/100,000 machine hours = Budgeted MOH Rate $8/MH X 110,000 actual machine

hours = $880,000 Applied MOH – Actual MOH ($200,000 + $300,000 + $120,000 + $90,000 + $80,000 + $50,000 + $60,000) = $880,000, Applied MOH - $900,000, Actual

MOH = Underapplied MOH, $20,000.

102. Sustainable Consulting, LLC is a service firm that applies overhead based upon direct labor hours. The information below was provided for the current period.

Determine the budgeted manufacturing overhead rate for the most recent period.

Ans: N/A, LO 2, Bloom: AN, Difficulty: Easy, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution:

$800,000 Budgeted MOH/100,000 budgeted DL hours = $8/Direct Labor Hour

103. Akito Yamamoto, an accounting manager at Precision Ball Bearings Inc. has been asked to determine information that was lost due to a recent computer hack of the company’s Information Technology system. Specifically, Akito’s task is to determine the total budgeted manufacturing overhead cost for the most recent period. Precision Ball Bearings is a highly automated company that applies manufacturing overhead, based upon machine hours. In conducting an internal audit, Akito found the following journal entry, eliminating any overapplied or underapplied overhead for the period:

Akito, also had access to the additional information, for the most recent period.

Based upon the information provided, determine the Estimated Manufacturing Overhead

Cost for the period.

Ans: N/A, LO 3, Bloom: AN, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution:

$600,000

Since the Manufacturing Overhead Control account has been debited, it must have had overapplied MOH of $20,000 (credit balance). Working backwards, Actual MOH of $500,000 plus overapplied MOH of $20,000 = Total Applied MOH of $520,000. Then, $520,000 Applied MOH/ 260,000 actual machine hours used = Budgeted MOH Rate of $2/machine hour. Lastly, $2/machine hour X 300,000 Budgeted machine hours = Total Budgeted Manufacturing Overhead of $600,000.

104. Maria Sanchez was recently hired as a financial consultant at Vandelay Industries.

Vandelay eliminates any overapplied or underapplied manufacturing overhead by using the “Prorated Method.” For the most recent year, Vandelay recorded the following information:

Due to the severe shortage of Cost Accountants, Maria was asked to assist the

Accounting Department in allocating any underapplied or overapplied overhead to the appropriate accounts.

After adjustment using the Prorated Method, what will the new account balances be in

Work-in- Process Inventory, Finished Goods Inventory and Cost of Goods Sold?

Ans: N/A, LO 3, Bloom: AN, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, Reporting.

Solution:

Adjusted ending amounts:

WIP Inventory: $21,000

FG Inventory: $84,000

COGS: $105,000

MOH is underapplied by $10,000 = Total Actual MOH, $90,000 – Total Applied MOH, $80,000

Using the “Prorated Method”, allocation percentages are determined as follows:

($20,000, WIP + $80,000, FG + $100,000, COGS) = $200,000 total

WIP Inventory: $20,000/$200,000 = 10%

FG Inventory: $80,000/$200,000 = 40%

COGS: $100,000/$200,000 = 50%

Adjusted balances are computed as follows:

WIP Inventory: $20,000 + (10% X $10,000) = $21,000

FG Inventory: $80,000 + (40% X $10,000) = $84,000

COGS: $100,000 + (50% X $10,000) = $105,000

105. Ahmed Karim recently began working at Luce Laminating Company as a Cost

Accountant. In order to prepare financial statements, Ahmed was provided the following information for the most recent period.

Based upon the information provided, determine the Cost of Goods Manufactured for the period.

Ans: N/A, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution:

To determine Cost of Goods Manufactured:

[(Direct Materials Used + Direct Labor + Applied Manufacturing Overhead) + Beginning WIP Inventory] – Ending WIP Inventory = Cost of Goods Manufactured

Hence:

[($10,000 + $10,000 + $20,000) + $25,000] - $35,000 = $30,000

106. Ahmed Karim recently began working at Luce Laminating Company as a Cost Accountant.

In order to prepare financial statements, Ahmed was provided the following information for the most recent period.

Based upon the information provided, determine the Cost of Goods Sold for the period.

Ans: N/A, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution:

Cost of Goods Manufactured must first be determined:

[(Direct Materials Used + Direct Labor + Applied Manufacturing Overhead) + Beginning WIP Inventory] – Ending WIP Inventory = Cost of Goods Manufactured (COGM)

Hence to determine Cost of Goods Manufactured (COGM):

(($10,000 + $10,000 + $20,000) + $25,000) - $35,000 = $30,000

Cost of Goods Sold (COGS) = Beginning FG Inventory + COGM – Ending FG Inventory

Cost of Goods Sold (COGS) = ($60,000 + $30,000) - $45,000 = $45,000

107. Jose Sanchez is assisting to prepare financial statements for Kramerica Publishing, a company that publishes books about coffee tables.

Assume the following information for the most recent period:

Given that Kramerica Publishing uses the “Direct Write-Off Method” to eliminate any underapplied or overapplied overhead, determine the amount of gross margin that will appear on Kramerica’s income statement after adjustments.

Ans: N/A, LO 3, Bloom: AN, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, Reporting.

Solution:

Sales - Adjusted COGS = Gross Margin

Hence: Overapplied MOH, $2,000 = Actual MOH, $70,000 - $72,000, Applied MOH

$850,000 – ($600,000 – overapplied MOH $2,000) = $252,000

108. Jose Sanchez is assisting to prepare financial statements for Kramerica Publishing, a company that publishes books about coffee tables. Assume the following information for the most recent period:

Given that Kramerica Publishing uses the “Direct Write-Off Method” to eliminate any underapplied or overapplied overhead, provide the journal entry to close any underapplied or overapplied MOH.

Ans: N/A, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution:

MOH is Overapplied by $2,000 = Actual MOH $70,000 – Applied MOH $72000 = $2,000, Overapplied MOH

109. Britany Wellington, CPA, an accountant at Advanced Macro Device Corporation has been asked to determine the amount of Applied MOH for Job #101. She was provided with the information below, pertaining to the job:

Total Cost: $1,000

Direct Materials: $ 500

Direct Labor: $ 100

What was the amount of Applied Manufacturing Overhead Cost?

Ans: N/A, LO 2, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution:

Total Cost – (Direct Materials + Direct Labor) = $1,000 – ($500 + $100) = $400

110. Don Chess, CMA, a cost accountant at Bridgewater Industries, has been asked to determine the Beginning Raw Material Inventory value, based upon the following provided information:

What was the value of the Beginning Raw Material Inventory?

Ans: N/A, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution:

(Raw Materials used during the period + Raw Materials Inventory, Ending Balance) – Raw Materials Purchases for the period = Raw Materials Inventory, Beginning Balance = ($80,000 + $40,000) - $70,000 = $50,000

111. Chris Regington, an entry-level accountant at Global Foods Inc., has been asked to provide the required journal entry to indicate the cost of completed jobs moved from production to the Finished Goods Inventory. Chris was provided with the cost information below:

Based upon provided information, prepare the journal entry indicating Global Food’s, Cost of Goods Manufactured for the period.

Ans: N/A, LO 3, Bloom: AN, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution:

The transfer of cost between Work-in-Process and Finished Goods Inventory represents the Cost of Goods Manufactured.

To determine Cost of Goods Manufactured:

[(Direct Materials Used + Direct Labor + Applied Manufacturing Overhead) + Beginning WIP Inventory] – Ending WIP Inventory = Cost of Goods Manufactured

Hence to determine Cost of Goods Manufactured:

[($15,000 + $15,000 + $10,000) + $6,000] - $7,000 = $39,000

112. Marconi Industries manufactures WiFi enabled digital radios. Below is cost information for the current period.

Based upon provided information, determine Marconi’s Cost of Goods Manufactured.

Ans: N/A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution: Cost of Goods Manufactured:

(RM Inventory, Beginning, $10,000 + RM Purchases, $15,000) – RM Inventory, Ending, $5,000 = $20,000, Direct Materials used; [(Direct Material used, $20,000 + Direct Labor, $10,000 + Applied MOH, $40,000) + Beginning Work-in-Process Inventory, $20,000] – Ending Work-In-Process Inventory, $30,000 = $60,000, Cost of Goods Manufactured.

113. Marconi Industries manufactures WiFi enabled digital radios. Below is cost information for the current period.

Based upon provided information, determine Marconi’s Cost of Goods Sold.

Ans: N/A, LO 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, Reporting.

Solution:

Cost of Goods Manufactured must be computed first as follows:

(RM Inventory, Beginning, $10,000 + RM Purchases, $15,000) – RM Inventory, Ending, $5,000 = $20,000, Direct Materials used; [(Direct Material used, $20,000 + Direct Labor, $10,000 + Applied MOH, $40,000) + Beginning Work-in-Process Inventory, $20,000] – Ending Work-In-Process Inventory, $30,000 = $60,000*, Cost of Goods Manufactured.

Cost of Goods Sold can then be computed using the Cost of Goods Manufactured from above:

Beginning FG Inventory, $40,000 + Cost of Goods Manufactured, $60,000* – Ending FG Inventory, $10,000 = Cost of Goods Sold, $90,000.

EXERCISES

114. Regington Computers uses a job-order costing system. The following transactions occurred during May. While interning at Regington Computers, Nicki Olson was asked to prepare journal entries, in good form, for the following transactions:

1. Raw materials purchased on account, $200,000.
2. Raw materials used in production, $180,000 ($170,000 direct materials and $10,000 indirect materials).
3. Direct labor cost of $70,000 and indirect labor cost of $20,000.
4. Depreciation recorded on factory equipment, $60,000.
5. Other manufacturing overhead costs accrued during May, $50,000.
6. The company applies manufacturing overhead cost to production using a predetermined rate of $30 per direct labor hour. A total of 5,000 direct labor hours were used in May.
7. Jobs costing $500,000 according to their job cost sheets were completed during May and transferred to Finished Goods.
8. Jobs that had cost $400,000 to complete according to their job cost sheets were shipped to customers during the month. These jobs were sold on account at 130% of manufacturing cost.
9. Prepare journal entries to record the transactions provided above.
10. Determine the amount of overapplied MOH or underapplied MOH.
11. Prepare the journal entry to eliminate any overapplied MOH or underapplied MOH, using the direct write-off method.

Ans: N/A, LO 1, 2 and 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution:

a. Debit Credit

115. Honest Auto Repairs is a service firm that uses a job costing system. Direct labor consists of mechanics’ pay. Direct materials consist of auto parts. Manufacturing overhead costs include items such as the shop manager’s salary, utilities, insurance and other sundry indirect costs. As the shop is highly labor-intensive, Honest Auto Repairs has decided to apply manufacturing overhead on the basis of direct labor hours.

The following estimates for the coming year were made at the start of the year:

• 1. Determine the Budgeted MOH rate.
  2. A long-time customer scheduled work to be done on her vehicle. Honest Auto Repairs, recorded the work on job cost sheet #1402. The following cost information was recorded on this customer’s job.

Determine the cost of this customer’s repair job.

• 1. If Honest Auto Repairs maintains a markup of 130% of manufacturing cost, what amount will the customer be billed for?
  2. Calculate the gross margin that Honest Auto earned on this particular repair job.

Ans: N/A, LO 1, 2 and 3, Bloom: AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, Reporting.

Solution:

a. $100,000 budgeted MOH /2,500 Direct labor hours = $40/DLH Budgeted MOH rate

b. DM, $420 + DL, $120 + Applied MOH [4 DLHs x $40/DLH (from a)] = $700

c. $700 job cost (from b) x 1.30 markup factor = $910 Sales Revenue (billed customer)

d. Sales – Cost of Goods Sold = Gross Margin = $910 - $700 = $210

116. Luca Pacioli, CPA, founder of Double-Entry Accountants, LLC, a service firm, provides the following information for the most recent year of operations.

Double-Entry Accountants, LLC, applies overhead at a rate of 20% of Direct Labor Cost.

Any underapplied or overapplied overhead is eliminated by closing the amount out to Cost of Sales, using the Direct Write-Off Method.

Instructions: Students should compute the following items based upon the provided information.

1. Determine the amount of underapplied or overapplied manufacturing overhead.
2. Prepare the journal entry to dispose of any overapplied or underapplied manufacturing overhead.
3. Compute firm’s gross margin that will appear on Double-Entry Accountant’s income statement, after adjustments are made.

Ans: N/A, LO 5, Bloom: AP, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, Reporting, Cost Measurement.

Solution:

1. $6,000 Overapplied Manufacturing Overhead

Actual Manufacturing Overhead (given) $84,000 – Applied Manufacturing Overhead, $90,000 (20 % X $450,000) = $6,000

1. $446,000

Gross Margin = Sales – Cost of Sales

Hence, the Gross Margin will be $440,000, before adjustment of the $6,000 Overapplied Manufacturing Overhead: $980,000 – [($450,000 + ($450,000 X 20%)] = $440,000

Cost of Sales will be reduced by the $6,000 of Overapplied Overhead, correspondingly, causing Gross Margin to increase by $6,000.

Gross Profit before adjustment for Overapplied Overhead + Overapplied Overhead = Adjusted Gross Margin $440,000 + $6,000 = $446,000

117. Cool Vision Inc. produces polarized sunglasses. During the most recent period, Cool Vision incurred the following costs (amounts are in thousands):

Required:

1. Complete the above table by classifying each cost as either a product cost or a period cost; for costs classified as product costs, further classify as a direct or an indirect costs.
2. Calculate total direct costs and total indirect (MOH) costs.
3. Assume Cool Vision used a budgeted MOH rate to apply MOH costs this year of $400,000.

How much did the company underapply or overapply for its MOH costs? How could this difference happen?

Ans: N/A, LO 1, Bloom: AN, AP Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, Reporting.

Solution: (a)

b. Total direct costs = ($400 + $210 + $320) = $930

Total indirect costs (MOH) = ($110 + $68 + $180 + $55) = $413

c. MOH costs were underapplied by $13,000 ($413,000, actual MOH- $400,000 applied MOH) his happened because the applied MOH amount was based on budgeted MOH and actual MOH costs exceeded this amount.

118. Alexa Anderson, the manager of Aromatic Air Purifiers, is analyzing the company’s MOH costs from last year. Alexa has always followed an actual costing system when determining the costs of its air purifiers but Alexa is wondering if it would be better to switch to a normal costing system, as she had recently read about its advantages in an industry trade magazine.

As Aromatic Air Purifiers has a highly machine-intensive operation, machine hours are used as its MOH cost driver. Here are the costs and other MOH information Alexa is analyzing:

Required:

1. Determine the actual MOH rate and the budgeted MOH rate Aromatic would have used last year under actual costing and normal costing, respectively.
2. Calculate total applied MOH under normal costing for last year.
3. How much would Aromatic have been underapplied or overapplied in its MOH costs if it had followed a normal costing system?
4. What are the key advantages and disadvantages of both of these systems, and what would that mean for Aromatic’s ability to price its products if it bases its selling price on cost?

Ans: N/A, LO 1, 2, 3 and 4, Bloom: AN, AP Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, FSA.

Solution:

a. Actual MOH rate = $390,000 actual MOH / 39,000 MHS = $10/MH

Budgeted MOH rate = $380,000 budgeted MOH /47,500 MHS = $8/MH

b. Total applied MOH under normal costing:

$8/MH X 39,000 MHS = $312,000

c. Under Normal Costing MOH was underapplied by $78,000

Actual MOH $390,000 – Applied MOH $312,000

d. Key advantage of Actual Costing: Companies that use actual costing include the actual MOH cost when costing a product or service; this means they choose to prioritize accuracy of information over the relevance/timeliness of that information.

Key Advantage of Normal Costing: Companies that use normal costing utilize an estimate of MOH, which means they prioritize timeliness and relevance over accuracy of information.

Because Normal Costing provides more timely costing information, companies that use Normal Costing are better positioned to adjust prices during the period.

119. Precision Construction Company is concerned about ongoing, large differences between MOH costs actually incurred and budgeted MOH costs. Hoping that a consultant could Recommend improved procedures, Precision retained Stephanie Storlazzi, CMA.

Stephanie immediately requested a listing of construction overhead costs that included, nails, staples drywall tape, supervisory salaries, plaster patches, glue, depreciation on factory equipment and several miscellaneous items. It immediately became evident that these MOH costs, totaling $380,000, substantially exceeded Precision’s budgeted MOH of $290,000.

In the past, Precision assigned MOH costs to individual jobs based on the direct labor (DL) hours of its employees. At the beginning of the year, based on the work they had planned and still hoped to earn at that time, Precision budgeted for 110,000 DL hours. In reviewing the payroll records of their employees, Precision now sees that they actually worked 125,000 hours this year while receiving an average wage of $20 per hour.

Required:

1. Based on the above information, determine the budgeted MOH rate based on direct labor hours, apply MOH for the year, and determine underapplied or overapplied MOH for the year.
2. Precision wondered if they should consider a different allocation base, since this construction business is both labor-intensive and material-intensive. Stephanie agrees and determines that total DM costs incurred for the jobs worked on this year amounted to $1,306,897. At the beginning of the year, Precision’s budgeted DM costs (for the projects he knew about at the time) were $1,000,000. Determine what the budgeted MOH rate would have been if Precision had used direct material cost as the cost driver, the applied MOH, and underapplied or overapplied MOH.
3. Which cost driver would you recommend Precision use going forward? Why?

Ans: N/A, LO 1, 2, 3 and 4, Bloom: AN, AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, FSA, Business Economics.

Solution:

a. Budgeted MOH rate

$290,000 budgeted MOH / 110,000 budgeted DLHs = $2.64/DLH

Applied MOH

$2.64 X actual DLHs, 125,000 = $330,000

Underapplied MOH

$380,000, actual MOH - $330,000, applied MOH = underapplied MOH, $50,000

b. Budgeted MOH rate = $290,000 budgeted MOH / $1,000,000 budgeted DM costs = $.29/DM$

Applied MOH = $1,306,897 actual DM costs X $.29/DM$ = $379,000

Underapplied MOH = $380,000 - $379,000 = $1,000 underapplied MOH

c. Precision should switch their cost driver to Direct Material Cost as the differential between actual and applied MOH, is reduced significantly (from $50,000 to $1,000).

120. In its job costing system, Jupiter Co. applies MOH to jobs using a budgeted MOH rate based on direct labor (DL) cost. The rate,100% of direct labor cost, was calculated last December, and will be used throughout the current year. On July 1, Jupiter had one job, #101, in process, with direct material costs of $1,000 and direct labor costs of $2,000.

During July, direct material and direct labor costs were added to Job #101, as well as new Jobs #102 and #103, as follows:

Actual MOH cost for the month of July was $9,000. During the month, Jupiter completed Jobs #101 and #102.

Required:

1. What was Jupiter’s Cost of Goods Manufactured for the month of July?
2. What was the balance in Work-in-Process Inventory at the end of July?
3. Was MOH underapplied or overapplied for the month of July? What does this mean for any balances in WIP Inventory and Finished Goods Inventory on the balance sheet? What does this mean for COGS on the income statement?

Ans: N/A, LO 1, 2 and 3, Bloom: AN,AP, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, Reporting, FSA.

Solution:

Cost of goods manufactured = Beg. WIP + Total manufacturing costs – End. WIP

$16,000 = $5,000 + $16,000 - $5,000

Beg WIP (Job #101) = $1,000 + $2,000 + $2,000 = $5,000

Tot. manufacturing costs = Costs added during July

$16,000 = (Job #101: $2,000 + $2,000) + (Job #102: $1,000 + $3,000 +

$3,000) + (Job #103: $2,000 + $1,500 + $1,500)

End. WIP (Job #103) = $2,000 + $1,500 + $1,500 = $5,000

WIP Beg. Inv. = DM + DL + MOH

$5,000 = $1,000 + $2,000 + $2,000 (Job #101)

Added WIP cost during July:

Job #101

DM + DL + MOH

0 + $2,000 + $2,000 = $4,000

Job #102

DM + DL + MOH

$1,000 + $3,000 + $3,000 = $7,000

Job #103

DM + DL + MOH

$2,000 + $1,500 + $1,500 = $5,000

Completed jobs = Cost of Goods Manufactured

Job 101 + Job 102

($5,000 + $4,000) = $9,000, Job #101 + $7,000, Job #102 = $16,000

b. Balance in WIP

Job 103

DM + DL + MOH

$5,000 = $2,000 + $1,500 + $1,500

c. MOH is underapplied by $500

Actual MOH – Applied MOH

$9,000 – ($2,000 + $3,000 + $1,500) = $2,500 underapplied

The underapplication of MOH will impact accounts differently depending on which approach is used to eliminate the underapplied MOH.

If the Direct Write-Off method is used, Cost of Goods Sold on the income statement will be increased, and there will be no change in the balance sheet accounts of Work-In-Process Inventory and Finished Goods Inventory.

Use of the Prorated Method will result in an increase in Cost of Goods Sold in the income statement and increases in Work-in-Process Inventory and Finished Goods Inventory on the balance sheet.

121. In 2025, Bancroft Company was the victim of a serious data breach. Due to the data breach into their I.T. system, Bancroft was unable to determine their January 1, 2025 balances in Raw Materials Inventory, Work-in-Process Inventory and Finished Goods Inventory. Additionally, due to the breach, Bancroft could not determine the amount of actual manufacturing overhead incurred during 2025. To resolve these issues, Bancroft Company hired famed forensic accountant, Pacioli Columbo, CPA to recreate selected accounting records.

Pacioli was provided with the following information that includes the debit balances in its trial balance for the selected accounts, dated December 31, 2025:

In the process of working backwards to recreate the beginning balances for several accounts for the year, Pacioli uncovered the additional following information:

Required:

1. Determine beginning RM Inventory as of Jan. 1, 2025.
2. Calculate beginning WIP Inventory as of Jan. 1, 2025.
3. Determine beginning FG Inventory as of Jan. 1, 2025.
4. Determine the actual MOH cost incurred in 2025.

Ans: N/A, LO 1, 2, 3 and 4, Bloom: AN, AP Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, FSA.

Solution:

1. RM Inv., Jan. 1, 2025 = $18,000
2. (RM requisitioned, $47,000 + end. RM, $12,000) - RM purchased, $41,000 = $18,000
3. WIP Inv., Jan. 1, 2025 = $7,400

(Cost of Goods Manufactured, $110,000 + WIP end inv., $32,400) – (manufacturing costs added during year, MOH applied, $48,000 + DM, $47,000 + DL, $40,000) = $7,400

Note: To determine Direct Labor Cost - MOH is applied at 120% of Direct Labor, therefore, Applied MOH of $48,000 / 1.2 = Direct Labor Cost of $40,000

1. FG Inv., Jan. 1, 2025 = $12,400
2. (Cost of Goods Sold, $72,000 + FG end inv. $50,400) – Cost of Goods Manufactured, $110,000 = $12,400
3. Actual MOH cost incurred = $54,000
4. (Applied MOH $48,000 + underapplied MOH as indicated by debit MOH balance, $6,000) = $54,000

122. Caitlin’s Custom Decorations provides a service, decorating homes. Its Direct Material Inventory consists primarily of festive, seasonal decorations. MOH costs are low due to the nature of the business. The applied MOH rate is $10 per direct labor hour.

As of November 30, the company the following balances in its inventory accounts:

During December, the following events occurred:

1. Purchased direct materials costing $10,000 on account.
2. Used $12,600 of direct materials for jobs. No indirect material costs were incurred during the month.
3. Paid wages for 100 hours of labor ($25/hr).
4. Applied MOH cost to jobs.
5. Actually incurred $1,800 in MOH costs.
6. Completed all jobs by the end of the month.
7. Billed clients $50,000 for jobs completed.

Required:

1. Calculate the ending balances in all inventory accounts as of December 31.
2. Close any underapplied or overapplied MOH directly to COGS.
3. Determine the company’s total cost of goods completed and COGS in December.
4. How much gross margin did the company earn in December?

Ans: N/A, LO 1, 2, 3 and 5, Bloom: AN, AP Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, Reporting.

Solution:

1. RM end. Inventory = $3,400

(DM Inventory, $6,000 + RM purchases, $10,000) – DM used, $12,600 = $3,400

WIP end. inv. = $0 since all jobs were completed by end of period.

FG end. inv. = $0 due to the nature of the industry.

1. Underapplied MOH = $800

Applied MOH, $1,000 (100 DLHs X $10/DLH) – Actual MOH, $1,800 = $800

1. Cost of Goods completed and Cost of Goods Sold will both be $23,700 as there is no Finished Goods ending Inventory. WIP Inventory, $7,600 + DM used, $12,600 + DL, $2,500 (100 DHLs X $25/DLH) + $1,000 Applied MOH (100 DHLs X $10/DLH) = $23,700
2. Gross Margin = $26,300

Billed Sales Revenue, $50,000 – COGS, $23,700 (from c) = $26,300

123. Smartbells Inc. manufactures intelligent, Wi-Fi enabled dumbbells, allowing users to record workout data onto the cloud. Smartbell’s CEO, Arnold, is trying to strengthen his analytical skills by better understanding the relationships between accounts and working backwards to determine account balances. This year’s manufacturing costs are as follows:

From taking an introductory accounting course, in college, Arnold recalls the importance of gross margin and that gross margin percentage is determined by dividing gross margin by sales.

Required:

1. How much direct labor cost was incurred last year?
2. What was the cost of direct materials used?
3. What was the ending balance in WIP Inventory last year?
4. If Finished Goods Inventory had no ending balance and Cost of Goods Sold was $650,000, what was the beginning balance in Finished Goods Inventory last year?
5. Given the company’s goal to generate a very high gross margin percentage on these products (70%), how much revenue does the company need to earn on its COGS ($650,000) (round to nearest whole dollar)?

Ans: N/A, LO 1, 2 and 3, Bloom: AN, AP, Difficulty: Hard, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, Reporting.

Solution:

a. DL = $100,000

Applied MOH / $2/DL$; $200,000 / $2 = $100,000

b. DM = $300,000

Total Manufacturing costs – DL – Applied MOH; $600,000 - $100,000 - $200,000

c. WIP end. balance = $212,000

(Beg. WIP $42,000 + Total manufacturing costs, $600,000 – Cost of goods completed $430,000 = $212,000

d. Beg. FG balance = $220,000

(COGS $650,000 + End. FG 0) – Cost of goods completed, $430,000 = $220,000

1. Total required sales revenue = $2,166,667

If gross margin percentage is 70%, therefore, COGS % must be 30% (100% - 70%) of sales revenue.

COGS / 30% = Total required sales revenue

$650,000 / 30% = $2,1666,667

124. TempTech manufactures digital thermometers. During the most recent year, TempTech’s cost of goods sold, totaled $300,000. The company’s Finished Goods Inventory and Work-in-Process Inventory are typically low. However, due to shortages of vital electronic parts, TempTech has been maintaining relatively higher inventories of raw materials. The ending inventories in Work-In-Process and Finished Goods are $20,000 and $30,000, respectively. The ending inventory in Raw Materials (all Direct Materials) is $90,000.

TempTech uses normal costing and its budgeted MOH rate is $2/direct labor hour. Budgeted MOH at the beginning of the year was $200,000; actual MOH costs incurred during the year were $120,000. TempTech actually used 50,000 direct labor hours during the year.

Required:

1. Was TempTech’s MOH cost for the year underapplied or overapplied? By how much?
2. Record the journal entry to close out that MOH difference by using the direct write-off method.
3. Record the journal entry to close out the MOH difference by prorating it to the appropriate inventory/cost accounts based on their ending balances, before proration (round proportions to four decimal places if needed).
4. Which of these closing entries is most appropriate for TempTech this year? Explain.
   • • • • Note that TempTech considers any percentage of underapplied or overapplied MOH over 2% to be relatively significant.

Ans: N/A, LO 1, 2, and 3 Bloom: AN, AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution:

1. Underapplied MOH = $20,000

Actual MOH, $120,000 – Applied MOH,(50,000 DLHs X $2/DLH) = $120,000 – $100,000 = $20,000

c.

Step One: Determine relative percentages (each individual balance, before adjustment / Total)

Step Two: Multiple relative percentages by amount of underapplied or overapplied MOH, resulting in “relative allocation” amounts.

Step Three: If eliminating “underapplied MOH”, add these amounts to original balances to determine “new adjusted balances”. If disposing of “overapplied MOH”, subtract these amounts from original balances to determine “new adjusted balances”.

1. Significance test:
2. underapplied MOH / Total Actual MOH $20,000/$120,000 = 16.67%

Since 16.67% is significantly more than the 2% threshold, the Prorated Method to eliminate underapplied or overapplied MOH should be used.

125. Tabatha Tablets, Inc. manufactures hand-held electronic devices. The following T-accounts provide selected data about Tabatha Tablet’s financial results for the year. Unfortunately, several key components were lost after a hacker broke into Tabatha’s I.T. system.

You have been hired to determine the missing amounts below.

Required:

1. What is the amount of indirect material cost incurred during this period?
2. Determine the COGS amount for this period (before any MOH difference would have been closed out).
3. Specify whether MOH for the period was underapplied or overapplied, and by how much. Also, prepare the journal entry to close out the MOH difference, given that the company wants to prorate it to the appropriate accounts based on their ending balances (before proration) (round proportions to 4 decimal places, if necessary.

Ans: N/A, LO 1, 2 and 3, Bloom: AN, AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution:

1. $20,400
2. RM beg. Inv., $21,400 + RM purchases, $77,000 – RM end Inv., $16,000 = $82,400, total cost of RM transferred out., $82,400 – DM, $62,000 = Indirect Materials, $20,400.
3. $198,000 (FG beg. Inv., $70,000 + cost of goods manufactured, $200,000) – FG end. Inv., $72,000 = $198,000
4. MOH is underapplied by $13,000

Actual MOH, $111,000 – Applied MOH, $98,000 = $13,000

Step One: Determine relative percentages (each individual balance, before adjustment / Total)

Step Two: Multiple relative percentages by amount of underapplied or overapplied MOH, resulting in “relative allocation” amounts.

Step Three: If eliminating “underapplied MOH”, add these amounts to original balances to determine “new adjusted balances”. If disposing of “overapplied MOH”, subtract these amounts from original balances to determine “new adjusted balances”.

126. Samantha Stephens, CPA is owner of Witches’ Brew, a producer of enchanting, holistic herbal teas. The following T-accounts provide selected data about Witches’ Brew financial results for the year. Unfortunately, several key components were lost after a hacker broke into their I.T. system.

You have been hired to determine the missing amounts below.

Required:

1. What is the amount of indirect material cost incurred during this period?
2. Determine the COGS amount for this period (before any MOH difference would have been closed out).
3. Specify whether MOH for the period was underapplied or overapplied, and by how much.

Prepare the journal entry to close out the MOH difference, given that the company uses the direct write-off method.

Ans: N/A, LO 1, 2 and 3, Bloom: AN, AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, FSA.

Solution:

1. $22,000

RM beg. Inv., $22,000 + RM purchases, $78,000 – RM end Inv., $18,000 = $82,000 total cost of RM transferred out. $82,000 – DM, $60,000 = Indirect Materials, $22,000.

1. $188,000

(WIP beg balance, $61,000 + DM, $60,000 + DL, $70,000 + Applied MOH $96,000) – End. WIP inventory, $87,000 = Cost of Goods Manufactured, $200,000.

(FG beg balance, $70,000 + Cost of Goods Manufactured (from above calculation), $200,000) – FG end inventory, $82,000 = COGS, $188,000

1. MOH is overapplied by $16,000

Actual MOH, $80,000 – Applied MOH, $96,000 = $16,000

127. Pedalless Bicycle Corporation, manufactures motor-assisted bicycles. Pedalless began operations on January 1, 2025. During 2025, Pedalless incurred the following costs:

Required:

1. Complete the above table by classifying each cost as either a product cost or a period cost; for items classified as product costs, further classify as a direct cost or an indirect cost.
2. Calculate total direct costs and total indirect (MOH) costs.
3. For year ended December 31, 2025, determine gross margin and operating income. Assume that all units started were completed and sold during the year, and that there were no ending inventories in any manufacturing related accounts. Assume that total actual MOH = total applied MOH. Revenue for 2025 totaled, $2,100,000.

Ans: N/A, LO 1, 2 and 3, Bloom: AN, AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, Reporting.

Solution:

a.

b. Total direct costs = $1,540,000

$300,000 + $240,000 + $510,000 + $130,000 + $50,000 + $310,000 = $1,540,000

Total indirect costs (MOH) = $288,000

$69,000 + $160,000 + $59,000 = $288,0000

c. Gross margin = $272,000

Sales revenue, $2,100,000 – COGS, ($1,540,000 + $288,000) = $272,000

Operating income (loss) = ($62,000)

Gross margin, $272,000 – Selling, Gen. & Admin. Costs/Period Costs, $334,000

($62,000) (Note: This is a net loss.)

Total Period costs = ($85,000 + $25,000 + $22,000 +$202,000) = $334,000

128. Atlas Analytics Inc. produces voice-activated navigation systems. A competitor committed a willful act of sabotage, breaching Atlas Analytics weak internal control systems.

Significant data, including intellectual properties, research and financial information, was compromised. Unfortunately, Atlas did not backup its data.

The following T-accounts provide data about Atlas Analytics financial results for the year. Management is aware that you graduated with a degree from one of the top accounting programs in our region and has asked you to recreate selected account information and provide relevant journal entries.

Required:

1. What is the amount of indirect material cost incurred during this period?
2. In good form, provide the journal entry, indicating the cost of goods manufactured for the period.
3. In good form, provide the journal entry, indicating the Cost of Goods Sold (before any MOH difference would have been closed out).

Specify whether MOH for the period was underapplied or overapplied, and by how much. Prepare the journal entry to close out the MOH difference, given that the company uses the direct write-off method.

Ans: N/A, LO 1, 2, 3 and 4, Bloom: AN, AP Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution:

1. $30,000

RM beg. Inv., $20,000 + RM purchases, $68,000 – RM end Inv., $8,000 = $80,000, cost of RM transferred out; $80,000 – DM, $50,000 = Indirect materials, $30,000.

$206,000

(WIP beg. balance, $61,000 + DM, $50,000 + DL, $60,000 + Applied MOH, $86,000) – End. WIP inventory, $51,000 = Cost of Goods Manufactured, $206,000

$204,000

(FG beg. balance, $80,000 + Cost of Goods Manufactured (from above calculation) $206,000) – FG end. Inventory, $82,000 = COGS, $204,000

1. MOH is overapplied by $4,000

Actual MOH, $82,000 – Applied MOH, $86,000 = $4,000

129. Wright Bros. Inc. manufacturers retro bicycles. Their accountant, left unexpectedly, resulting in incomplete processing of ledger postings. Wilbur, one of the owners, has asked you to determine selected information based upon the following incomplete data. Assume that no indirect material cost was incurred during the period.

Additionally, the following journal entries were made available to you.

Required:

1. Determine the cost of direct materials used for the period.
2. Determine total actual MOH cost for the period.
3. Does Wright Bros. Inc. use the direct write-off method or the prorated method to eliminate any overapplied or underapplied MOH? How can you tell? Explain.

Ans: N/A, LO 1, 2 and 3, Bloom: AN, AP, Difficulty: Medium, AACSB: Analytic, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution:

1. $14,000
2. RM beg. Inv., $4,000 + RM purchases, $16,000 – RM end. inv., $6,000 = $14,000
3. $21,000
4. Applied MOH $20,000 + underapplied MOH (found in journal entry) $1,000 = $21,000
5. Direct write-off method.
6. Because the entire amount of underapplied MOH is eliminated by debiting COGS, we can ascertain that the direct write-off method was used.

PROBLEMS

130. Ketogenic Inc. produces delicious, healthy snack bars, based on the Keto diet. Ketogenic’s factory is highly automated, utilizing numerous robots and employs very few human workers. Machine hours are used as the cost driver. The company determines a budgeted OH rate at the beginning of the year. This year’s MOH rate is budgeted at $2.80/machine hour. Ketogenic uses the direct write-off method to eliminate any underapplied or overapplied MOH. The following events occurred this year (amounts are in thousands):

The following balances existed in these accounts at the beginning of the year: (amounts are in thousands)

Required:

a. Does Ketogenic utilize an actual costing system or a normal costing system? How can you tell?

b. Of the three commonly used cost drivers for manufacturers, why do you think Ketogenic chose Machine Hours?

c. Record the journal entries to account for the production-related events described above.

d. Post your journal entries to all inventory and Cost of Goods Sold accounts, and then calculate ending balances for each. Cost of Goods Sold should be calculated after adjustment for any overapplied or underapplied MOH.

e. How much gross margin did this company generate this year?

f. Would Ketogenic consider this a significant MOH difference? Explain.

Ans: N/A, LO 1, 2, 3, 4 Bloom: AN, AP, Difficulty: Medium, AACSB: Analytic, Communication, AICPA: PC, Communication, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: FSA, Business Economics

Solution

1. Ketogenic utilizes a normal costing system as it records applied MOH.
2. Ketogenic chose machine hours as its cost driver since its operations are highly automated.

Raw Materials ending inventory: $458,000 (RM beg. Inv., $400,000 + RM purchases, $500,000) – (RM used, $420,000 +22,000) = RM end. inv., $458,000

Work-In-Process ending inventory: $290,00 (WIP beg. inv., $500,000 + DM, $420,000 + DL, $290,000 + MOH $280,000) – Cost of Goods Manufactured, $1,200,000 = $290,000

Finished Goods ending inventory: $100(FG beg. Inv., $400,000 + Cost of Goods Manufactured, $1,200,000) – Cost of Goods Sold, $1,500,000 = $100,000

Cost of Goods Sold: $1,499 = Unadjusted COGS (given) $1,500,000 – overapplied MOH, $1,000 = $1,499,000 (see solution “f” for overapplied MOH calculation)

e. Gross Margin: $2,055,000

Sales Revenue, $3,555,000 – COGS, $1,499,000 = $2,056,000

f. MOH overapplied by $1,000

Applied MOH, $280,000 (100,000 MHS X $2.80/MH) – Actual MOH, $279,000 = $1,000

Ketogenic would not consider this amount to be significant as it is less than 1% of

Actual MOH. $1,000/$279,000 = .0036

131. PPE Inc. manufactures highly specialized, custom protective personal equipment for hospitals and research labs. Due to chronic product shortages, orders are incomplete. PPE is concerned about maintaining a competitive profit margin while also maintaining the highest quality standards.

The following are the job cost sheets for their custom face shields, reflecting work in January and so far in February:

Required:

a. What MOH budgeted rate is PPE using to apply MOH costs to their jobs? (Hint: Their allocation base is direct labor cost).

b. Based on the job cost sheet information, what is the total cost of direct materials requisitioned in January?

c. What is the total amount of direct labor cost, direct material cost and MOH cost incurred during the month of January?

d. Assuming there was no beginning WIP Inventory balance in January, what is the ending WIP Inventory balance as of January 31?

e. What is PPE’s Cost of Goods sold in January? February? Assume that in both months total actual MOH equaled total applied MOH.

f. What is PPE’s current WIP Inventory balance as of 2/6/24?

Is PPE pricing custom items by using a steady mark-up based on product cost? Provide evidence to support your answer. What would need to be done differently if PPE wanted to use a steady mark-up percentage based on costs.

Ans: N/A, LO 1, 2, 3, 4 Bloom: AN, AP, Difficulty: Hard, AACSB: Analytic, Communication, AICPA: PC, Communication, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, Reporting.

Solution

1. PPE is using a MOH budgeted rate of 50% of direct labor cost.

Proof: Job #4490

1/30/24 Direct Labor = $130

1/30/24 MOH applied = $65

$65/$130 = 50%

1. The total cost of direct materials requisitioned during January is $82.50

Job #8745, $30 + Job #4490, $52.50 = $82.50

1. Total amount of direct material cost, direct labor cost and MOH cost for January is $307.50
2. ($30 + $20 + $10 + $52.50 + $130 + $65)
3. Total ending WIP Inventory for January is also $307.50 (see above) as there was no beginning, WIP inventory, $307.50 of additional cost was incurred in January and no products were sold.
4. January COGS is zero as no jobs were sold during January.

February COGS is $579

Job #8745, $179 + Job # 4490, $400 = $579

1. PPE’s current balance in WIP on 2/6/24 is $180

Job #3772: $90 + $60 + $30

PPE is not using a steady markup percentage as indicated by a 75% markup on Job #8745 selling price − cost / cost = ($313.25 − $179) / $179 = $75% and a markup of markup of only 50% on Job #4490 selling price - cost / cost = ($600 - $400) / $400 = 50%.

As there is a market shortage of units, PPE should achieve the highest, reasonable markup on all custom jobs, without price gouging its customers. To ensure this, controls can be enacted, ensuring that jobs are priced correctly based upon the job cost sheets.

132. Pizza3.144 Inc. produces tactical laser-guided pizza cutters, resulting in perfect straight-line cuts! As Pizza3.144 holds a patent on this item, it enjoys monopolistic favor within the high-tech pizza cutter industry sector.

On December 31, 2024, Pizza3.144 reported the following for its Inventory section of the Balance Sheet:

The first few items from the company’s income statement are as follows:

Required:

1. In 2025, the following information summarizes the key product-related transactions throughout the year:
   • Total material purchases, $165,000
   • Total materials used in production, $127,000
   • Total direct labor costs, $60,000
   • Total applied MOH, $28,000
   • Cost of Goods Manufactured, $210,000
   • Cost of Goods Sold, $180,000
   • Sales Revenue, $360,000

Present the Inventory section of the Balance Sheet for 2025.

1. Present a partial Income Statement through gross margin for the year ended December 31, 2025.
2. Assuming that no indirect materials were used during 2025, and that MOH was underapplied by $2,000. What was the total actual MOH cost incurred?
3. Assuming that Pizza3.144 applies MOH based upon direct labor cost, what was the budgeted MOH rate for 2025?

Ans: N/A, LO 1, 2, 3, 4 Bloom: AP, Difficulty: Hard, AACSB: Analytic, Communication, AICPA: PC, Communication, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, Reporting.

Solution

1. 2025 inventory section, Balance Sheet presentation:

Raw materials inventory: $6,000 + $165,000 - $127,000 = $44,000

WIP inventory: $6,000 + $127,000 + $60,000 + $28,000 - $210,000 = $11,000

Finished goods inventory: $9,500 + $210,000 - $180,000 = $39,500

1. 2025 partial Income Statement through gross margin:

1. $30,000
2. Applied MOH, $28,000 + underapplied MOH, $2,000 = $30,000
3. 46.67% of Direct labor cost
4. MOH Applied, $28,000/Direct labor cost, $60,000 = 46.67%

133. The Sunshine Corporation produces solar panels. At the end of the most recent fiscal year, Sunshine’s cost accountant, Beth, reviewed relevant cost data, focusing on MOH. Since her company uses normal costing, she anticipated a difference in the amount of MOH that was applied compared to the amount that was actually incurred. However, Beth was shocked at the size of the differential. Here is what she found within the MOH account, as well as detail from the beginning of the year when the budgeted MOH rate was determined:

Beth is aware of the following company policy regarding any MOH difference: “any MOH difference that is deemed not significant should be written off in full, in the current period; any MOH difference that is deemed significant should be prorated to the appropriate

accounts so as to better approximate actual costs”.

Beth also accessed the following additional information related to the inventory

accounts.

While she does not yet have a clear understanding of what amount might be considered

significant yet, Beth knows she must first calculate the difference between actual MOH

and applied MOH.

Required:

1. Calculate the budgeted MOH rate for Beth’s company, assuming that direct labor hours is the cost driver.
2. Determine whether the MOH is under or overapplied, and by how much.
3. Since Beth is unsure if the amount of overapplied or underapplied would be considered significant, she decides to do the work for both options so that she can bring it to her supervisor and ask for additional guidance regarding significance.

(For the following, round any rates or proportions to four decimal places, and round final dollar amounts to the nearest dollar).

• 1. Prepare the journal entry if the MOH difference between MOH applied and MOH actually incurred is to be written off entirely in the current period.
  2. Prepare the calculations and journal entry necessary if the difference between MOH applied and MOH actually incurred is to be prorated to the appropriate inventory and cost accounts based on their ending balances.

Ans: N/A, LO 2, 3 Bloom: AP, Difficulty: Hard, AACSB: Analytic, Communication, AICPA: PC, Communication, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management.

Solution

1. Budgeted MOH rate = $2/DLH

Budgeted MOH, $40,000 / Budgeted DLHs, 20,000 DLHs = $2/DLH

1. MOH is underapplied by $30,000

Actual MOH, $50,000 – Applied MOH, $20,000 = $30,000

[Applied MOH = $5,000 + $5,000 = $10,000]

1.

2.

Step One: Determine relative percentages (each individual balance, before adjustment / Total).

Step Two: Multiply relative percentages by amount of underapplied or overapplied MOH, resulting in “relative allocation” amounts.

134. Boston Bean Counter Corporation produces advanced, highly accurate, laser-enabled,digital bean counters for the food industry. For years, they have been plagued by cost overruns and excessive inventory levels. Management is determined to remedy these issues by using Cost Accounting techniques for improved management decision making.

Below are selected inventory balances for the year 2024:

Below are selected journal entries for activities occurring during the year 2025:

Additional information:

No indirect materials used during 2025.

Boston consistently maintains a 40% gross margin percentage.

Required:

1. Determine ending inventory amounts in Raw Materials, Work-In-Process and Finished Goods Inventories.
2. Based upon the provided information, was Boston successful in lowering inventory levels in 2025? Explain.
3. What was Boston’s Cost of Goods Sold for 2025?
4. Does Boston use Actual Costing or Normal Costing? Explain.
5. Recently, during a routine audit, Boston Bean Counter’s auditor expressed a concern that in the past, Boston’s amount of overapplied or underapplied MOH was significant and recommended that if this situation continues, Boston should not eliminate this differential by closing the entire amount out to the Cost of Goods Sold account. If Boston is not able to significantly reduce the difference between applied MOH relative to actual MOH, what other method should Boston use to eliminate overapplied or underapplied MOH? Explain.

Ans: N/A, LO 1, 2, 3, 4 Bloom: AP, Difficulty: Hard, AACSB: Analytic, Communication, AICPA: PC, Communication, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, Reporting.

Solution

a.

Raw Materials ending inventory: $10,000 (see optional T-account below)

(RM beg. Inv., $50,000 + RM purchases, $30,000) – RM used, $70,000 = RM end. inv. $10,000

Work-In-Process ending inventory: $5,000 (see optional T-account below)

(WIP beg. inv., $60,000 + DM, $70,000 + DL, $20,000 + MOH applied, $10,000) – Cost of Goods Manufactured, $155,000 = $5,000

Finished Goods ending inventory: $10,000 (see T-account below)

(FG beg. Inv., $70,000 + Cost of Goods Manufactured, $155,000) – Cost of Goods Sold, $186,000 (see below) = $39,000

Cost of Goods Sold: $186,000

Since Boston has a gross margin percentage of 40% (given), then COGS must be 60% of Sales (100% - 40%). Thus, COGS = 60% X $310,000, Sales = $186,000

(OPTIONAL T-ACCOUNTS)

b. Yes, based upon the information in solution “a”, clearly, Boston was successful in lowering 2025 inventory levels.

c. Cost of Goods Sold: $186,000

Since Boston has a gross margin percentage of 40% (given), then COGS must be 60% of Sales (100% - 40%) = 60% X $310,000, Sales = $186,000, COGS

d. Boston must use normal costing as the company applies MOH.

e. If Boston were to continue to experience large differentials between applied MOH and actual MOH, then it should eliminate this differential by using the prorated method.

135. In 2025, for the second time in two years, Costanza Corporation was the victim of a serious data breach. This time a foreign crime syndicate was able to break into Costanza’s I.T. system and compromise its ledger system.

The crime was perpetrated by sending a fraudulent email message to one of Costanza’s accountants, who had posted his company email address along with personal information on a social media site. The email message contained a link to the site of a fictitious company that sells lines of clothing, promising to make accountants look cool. When the employee clicked on the phishing link, malware was immediately distributed throughout Costanza’s corporate I.T. system, eliminating its general ledger. The hacker also included ransomware, demanding the payment of ten million dollars from Costanza in order to restore their ledger information.

Costanza Corporation is determined not to pay the ransom and once again retained the services of famed forensic accountant, Pacioli Columbo, CPA to recreate their ledger.

Ledger information from the 2024 ledger was not compromised and selected account ending balance information is provided below:

Additional information:

No indirect materials used during 2025.

Costanza maintains a gross profit percentage of 30%.

Below are selected journal entries for activities occurring during the year 2025:

Required:

1. Based upon the above provided information, determine the 2025 ending balances in Raw Materials, Work-In-Process, and Finished Goods Inventories.
2. What was Costanza’s Cost of Goods Sold for 2025?

Ans: N/A, LO 1, 2, 3, 4, Bloom: AP, Difficulty: Hard, AACSB: Analytic, Communication, AICPA: PC, Communication, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, Reporting

Solution

Raw Materials ending inventory: $120,000 (see T-account below)

(RM beg. Inv., $140,000 + RM purchases, $40,000) – RM used, $60,000 = RM end. inv., $120,000

Work-In-Process ending inventory: $80,000 (see T-account below)

(WIP beg. inv., $150,000 + DM, $60,000 + DL, $30,000 + Applied MOH, $40,000) – Cost of Goods Manufactured, $200,000 = $80,000

Finished Goods ending inventory: $153,000 (see T-account below)

(FG beg. Inv., $170,000 + Cost of Goods Manufactured, $200,000) – Cost of Goods Sold, $217,000 (see below) = $153,000

Cost of Goods Sold: $217,000

Since Boston has a gross margin percentage of 30% (given), then COGS must be 70% of Sales (100% - 30%) = 70% X $310,000, Sales = $217,000

1. Cost of Goods Sold: $217,000
2. Since Costanza has a gross margin percentage of 30% (given), then COGS must be 70% of Sales (100% - 30%) = 70% X $310,000, Sales = $217,000

136. Jurassic Manufacturing Inc., located in Flint, Michigan, produces custom stone tools. On the afternoon of April 20, 2024, a dog wondered onto Jurassic’s factory floor and bit off the lower right-hand corner of the completed job cost sheet for Job #1302, an order of custom stone tools for the Bedrock Company.

Because Jurassic still maintains a manual accounting system, using paper-bound journals, ledgers and paper job cost sheets, none of this information could be replicated from computer records. While Fred, the owner of Jurassic Manufacturing Inc., is considered to be “technologically challenged,” he is nevertheless one of the first individuals in his industry to use a tablet (it was a hammer and chisel).

As all other organizations now use computerized accounting systems, Fred could not find a CPA who understands how a manual accounting system operates. Fred was told by a colleague that you have excellent cost accounting and analytic skills and are attending a school with one of the best accounting programs in the region. He has asked you to replicate, lost information from the job cost sheet.

As Jurassic Manufacturing uses cost-plus pricing to determine revenue on its custom orders, it is crucial that they can promptly recreate the information contained on the job cost sheet.

Upon beginning the engagement, you requested job cost sheets from recent, previous jobs. Jurassic provided you with the completed job cost sheet from Job #1301, below:

The customer, Barney Company was billed $750 for the job.

You were able to ascertain the following additional information:

For the year 2024, budgeted annual MOH cost was $100,000, budgeted direct labor hour usage was 2,080 hours and budgeted direct labor cost was $200,000. Because Jurassic Manufacturing has no machines, it does not use machine hours to apply MOH.

Fred was the only employee who worked on these jobs, #1301 and #1302.

Jurassic uses cost-plus pricing and has a policy of maintaining a consistent markup percentage on all completed jobs.

Below are the remains of job #1302’s completed job cost sheet.

Required:

1. Does Jurassic use an actual costing system or a normal costing system. How can this be determined? Why is the particular system chosen by Jurassic, important, given the nature of their business?
2. What does Jurassic use as a cost driver to apply MOH cost? How can you determine this? What was Jurassic’s budgeted MOH rate for the year.
3. Assuming that both jobs were completed by one employee, Fred. What is Fred’s hourly wage rate? How can this be ascertained?
4. How much direct labor cost was charged to job #1302?
5. How much MOH cost was applied to job #1302?
6. What was the total cost of job #1302?
7. What is Jurassic’s markup percentage? How can this be ascertained?
8. How much was the Bedrock Company billed for this job?
9. What can Jurassic do to prevent this issue from recurring?

Ans: N/A, LO 1, 2, 3, 4 Bloom: AP, Difficulty: Hard, AACSB: Analytic, Communication, AICPA: PC, Communication, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Cost Management, FSA, Reporting.

Solution

1. Jurassic must be using a normal costing system, since it recognized the cost of MOH in real-time as jobs are completed. As Jurassic produces custom items, normal costing allows them to determine the approximate MOH cost, immediately, allowing for price determination and prompt billing.
2. Jurassic uses direct labor cost as its cost driver to determine applied MOH.
3. Jurassic’s MOH budgeted rate is determined by dividing budgeted MOH by the budgeted cost driver units. The problem states that machine hours are not used as a cost driver.

$100,000 budgeted MOH/ $200,000 budgeted DL cost = 50% of DL cost MOH rate Based upon information presented in Job #1301’s job cost sheet, it can be ascertained that direct labor cost must be the cost driver as $180 X 50% = MOH applied of $90.

1. $20 per hour.
2. Based upon information provided in Job #1301’s cost sheet, direct labor cost of $180 divided by 9 hours = $20/hour.
3. $200
4. $20/hour X 10 hours.
5. $100
6. DL cost of $200 X MOH budgeted rate of 50% of DL$
7. $570
8. DM, $270 + DL, $200 (from e) + Applied MOH, $100 (from e)
9. 50%
10. Barney was billed $750 based on a total job cost (found on job #1301’s job cost sheet) of $500. There are several acceptable ways of algebraically determining the markup percentage, including the following approach:

Markup % = ((revenue – cost) / cost)

(($750 - $500) / $500) = .50 or 50%

1. $855
2. Cost of job, $570 (from f) X markup factor 1.50
3. Jurassic should implement a computerized accounting system to track costs. Data should be backed up regularly.

SHORT ANSWER

137. Companies that use normal costing, apply manufacturing overhead by using a cost driver. Typically, these cost drivers will either be machine hours, direct labor hours or direct labor cost. The selection of a particular cost driver should be based primarily on what consideration?

Ans: N/A, LO 1, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Business Economics.

Solution: There should be a strong correlation between the cost driver chosen and incurrence of overhead cost within that department. For example, capital-intensive departments that utilize machinery and robotics and have relatively few human employees, would most likely select “machine hours” as their chosen cost driver as there is a direct correlation between the incurrence of machine hours and overhead costs such as electricity to power the machinery. Alternatively, a labor-intensive department that has a lot of human workers and relatively few machines, would most likely opt to choose either direct labor hours or direct labor cost as its cost driver. An example of a labor-intensive department would be a hand-polishing department, with many workers polishing the products and very few machines present. Overhead costs would include rags, polishing compound etc. The more hours (or cost) of labor incurred, would normally result in more overhead cost for that department directly correlated to the hours worked by the laborers.

Hence, there is a cause and effect relationship.

138. “Normal Costing” and “Actual Costing” are two allowable costing systems in job costing.

1. What is the primary difference between the two systems?
2. Which approach is generally considered better for managerial decision-making and why?

Ans: N/A, LO 1, Bloom: C, Difficulty: Medium, AACSB: Communication, AICPA: FC, Measurement, Analysis, and Interpretation, IMA: Business Economics, Cost Management.

Solution:

a. The primary difference between “Normal Costing” and “Actual Costing” is the treatment of overhead cost. Under both approaches, direct materials cost and direct labor costs will be the same and determined in real time.

Under “Actual Costing,” the manufacturing overhead cost component will not be determined until the end of the year, whereby, under “Normal Costing,” manufacturing overhead will be applied throughout the year based upon estimates determined at the start of the year.

b. Normal Costing” provides the following benefits over “Actual Costing”:

• Product and service costs can better be determined on a real-time basis during production as opposed to determining costs at the end of the year, under “Actual Costing.”
• Pricing and invoicing decisions are benefited by realizing product or service cost, immediately.
• Allows for better control, enhancing managerial decision-making.

139. There are three commonly used cost drivers to apply manufacturing overhead cost.

A labor-intensive operation typically may use which two of these cost drivers?

1. Name the two cost drivers that would be preferable for a labor-intensive operation.
2. Briefly, explain why a labor-intensive operation would choose to select these cost drivers to apply manufacturing overhead cost?