Job Costing – Ch4 | Test Bank – 17th Global Ed

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Horngren's Cost Accounting: A Managerial Emphasis, 17e, Global Edition by Datar/Rajan

Chapter 4 Job Costing

Objective 4.1

1) A cost is considered direct if it can be traced to a particular cost object:

A) easily with the aid of technology

B) in a manner that is accurate

C) in an economically feasible way

D) in an accurate way with an investment in hardware and software

Diff: 1

Objective: 1

AACSB: Analytical thinking

2) A ________ is anything for which a measurement of costs is desired.

A) cost-allocation base

B) cost pool

C) cost object

D) cost-application base

Diff: 1

Objective: 1

AACSB: Analytical thinking

3) A ________ is a grouping of individual indirect cost items.

A) cost-allocation base

B) cost assignment

C) cost pool

D) job-costing system

Diff: 1

Objective: 1

AACSB: Analytical thinking

4) A manufacturer utilizes three separate indirect cost pools. Which of the following is true?

A) Each indirect cost pool utilizes a separate cost-allocation rate.

B) Each indirect cost pool is a subset of total direct costs.

C) Each indirect cost pool relates to multiple cost centers.

D) Each indirect cost pool utilizes the same cost-allocation rate for all costs incurred.

Diff: 1

Objective: 1

AACSB: Analytical thinking

5) Direct costs:

A) are anything for which a measurement of costs is desired

B) are costs related to a particular cost object that can be traced to that cost object in an economically feasible manner

C) focus specifically on the costing needs of the CFO

D) are costs related to a particular cost object that cannot be traced to that cost object in a cost-effective manner

Diff: 2

Objective: 1

AACSB: Analytical thinking

6) In a costing system:

A) cost tracing allocates indirect costs

B) cost allocation assigns direct costs

C) a cost-allocation base can be either financial or nonfinancial

D) a cost object should be a product and not a department or a geographic territory

Diff: 2

Objective: 1

AACSB: Analytical thinking

7) Assigning direct costs to a cost object is called:

A) cost allocation

B) cost assignment

C) cost pooling

D) cost tracing

Diff: 1

Objective: 1

AACSB: Analytical thinking

8) ________ is the process of assigning indirect costs to products.

A) Cost allocation

B) Job cost recording

C) Cost pooling

D) Cost tracing

Diff: 1

Objective: 1

AACSB: Analytical thinking

9) Allocating indirect costs to departments based on the relative revenue earned by those departments is done based on which of the following criterion?

A) direct hours utilized

B) benefits received

C) material resources used

D) cause-and-effect relationships

Diff: 1

Objective: 1

AACSB: Analytical thinking

10) Which of the following includes both traced direct costs and allocated indirect costs?

A) cost tracing

B) cost pools

C) cost assignments

D) cost allocations

Diff: 1

Objective: 1

AACSB: Analytical thinking

11) The cost allocation base:

A) is a grouping of individual indirect cost items

B) are costs related to a particular cost object that cannot be traced to that cost object in an economically feasible way

C) is anything for which a measurement of costs is desired

D) is a systematic way to link an indirect cost or group of indirect costs to cost objects

Diff: 1

Objective: 1

AACSB: Analytical thinking

12) Direct costs are allocated to the cost object using a cost-allocation method.

Diff: 1

Objective: 1

AACSB: Analytical thinking

13) A cost object is anything for which a measurement of costs is desired.

Diff: 1

Objective: 1

AACSB: Analytical thinking

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

Diff: 1

Objective: 1

AACSB: Analytical thinking

15) The cost-allocation base is a systematic way to link an indirect cost or group of indirect costs to cost objects.

Diff: 2

Objective: 1

AACSB: Analytical thinking

16) Cost objects may be jobs, products, or customers.

Diff: 1

Objective: 1

AACSB: Analytical thinking

17) When an organization allocated indirect costs to departments by relative size of the budgets, it is based on the criterion of benefits received.

Diff: 1

Objective: 1

AACSB: Analytical thinking

18) Cost pools can range from broad, such as all manufacturing-plant costs, to narrow, such as the costs of operating the sewing machines in a factory.

Diff: 1

Objective: 1

AACSB: Analytical thinking

19) For each item below indicate the source documents that would most likely authorize the journal entry in a job-costing system.

Required:

a. direct materials purchased

b. direct materials used

c. direct manufacturing labor

d. indirect manufacturing labor

e. finished goods control

f. cost of goods sold

a. purchase invoice

b. materials requisition record

c. labor time card/record

d. labor time card

e. job-cost record

f. sales invoice

Diff: 2

Objective: 1

AACSB: Analytical thinking

20) Differentiate between a cost pool and a cost-allocation base.

Diff: 2

Objective: 1

AACSB: Analytical thinking

Objective 4.2

1) Process costing is:

A) used to enhance employees' job satisfaction

B) used by businesses to price unique products or identical products produced in batches

C) used by businesses to price identical products

D) used by businesses when manufacturing goods above normal capacity

Diff: 1

Objective: 2

AACSB: Analytical thinking

2) Process costing:

A) allocates all product costs, including materials, and labor resulting in an average unit cost

B) results in different costs for different units produced to take into account nonuniformity

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

D) is used exclusively in manufacturing

Diff: 2

Objective: 2

AACSB: Analytical thinking

3) Job costing is:

A) used by businesses to price identical products

B) used by businesses to price unique products for different jobs

C) used to calculate equivalent units

D) used to calculate the percentage of work completed

Diff: 1

Objective: 2

AACSB: Analytical thinking

4) Job costing:

A) cannot be used by the service industry

B) records the flow of costs for each product or service

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

D) is used when each unit of output is identical

Diff: 2

Objective: 2

AACSB: Analytical thinking

5) Job-costing is likely to be used by:

A) oil refining companies

B) advertising agencies

C) mortgage payment processors

D) breakfast cereal producers

Diff: 2

Objective: 2

AACSB: Analytical thinking

6) Which of the following differentiates job costing from process costing?

A) Job costing is used when each unit of output is identical, and process costing deals with unique products.

B) Job costing is used when each unit of output is identical and not produced in batches, and process costing deals with unique products produced on large scale.

C) Process costing is used when each unit of output is identical, and job costing deals with unique products not produced in batches.

D) Job costing is used by manufacturing industries, and process costing is used by service industries.

Diff: 3

Objective: 2

AACSB: Analytical thinking

7) Which of the following companies will use a process costing system?

A) an oil refining company

B) a manufacturer of ships

C) a custom kitchen cabinet company

D) an advertising firm

Diff: 1

Objective: 2

AACSB: Analytical thinking

8) Which of the following products would be "costed" using a job costing system?

A) the restoration of 15 various antique Ford Motor cars

B) boxes of Kellogg's' corn flakes

C) hundreds of boxes of Expo Dry Erase Markers (low odor)

D) dozens of donuts to be sold in a local coffee shop franchise

Diff: 1

Objective: 2

AACSB: Analytical thinking

9) A company may use job costing to assign costs to different product lines and then use process costing to calculate unit costs within each product line.

Diff: 2

Objective: 2

AACSB: Analytical thinking

10) In each period, job costing divides the total cost of producing an identical or similar product produced in batches by the total number of units produced to obtain a per-unit cost.

Diff: 2

Objective: 2

AACSB: Analytical thinking

11) Oil refining companies primarily use job costing to estimate costs.

Diff: 1

Objective: 2

AACSB: Analytical thinking

12) In a job-costing system the cost object is an individual unit, batch, or lot of a distinct product or service.

Diff: 1

Objective: 2

AACSB: Analytical thinking

13) Process-costing systems divide the total costs of producing product or services by the total number of units produced to obtain a per-unit cost thereby deriving a per-unit average cost.

Diff: 1

Objective: 2

AACSB: Analytical thinking

14) Process costing is used to assign manufacturing costs to unique batches of a product.

Diff: 1

Objective: 2

AACSB: Analytical thinking

15) Using job costing would not be appropriate in the shipping industry.

Diff: 1

Objective: 2

AACSB: Analytical thinking

16) Whether a company chooses to use either a job costing system or process costing system depends on the nature of the product or service - whether the products or services are heterogeneous or homogeneous.

Diff: 2

Objective: 2

AACSB: Analytical thinking

17) Describe job-costing and process-costing systems. Explain when it would be appropriate to use each.

Diff: 2

Objective: 2

AACSB: Analytical thinking

Objective 4.3

1) Which of the following are reasons for using longer periods, such as a year, to calculate indirect cost rates?

A) shorter the period, the greater is the influence of seasonal patterns on the amount of costs

B) longer the period, the greater is the influence of seasonal patterns on the amount of costs

C) shorter the period, the smaller is the influence of seasonal patterns on the amount of opportunity costs

D) longer the period, the smaller is the influence of seasonal patterns on the amount of opportunity costs

Diff: 1

Objective: 3

AACSB: Analytical thinking

2) The actual indirect-cost rate is calculated by:

A) dividing actual total indirect costs by the actual total quantity of the cost-allocation base

B) multiplying actual total indirect costs by the actual total quantity of the cost-allocation base

C) dividing the actual total quantity of the cost allocation base by actual total indirect costs

D) multiplying the actual total quantity of the cost allocation base by actual total indirect costs

Diff: 1

Objective: 3

AACSB: Analytical thinking

3) Actual costing is a costing system that traces direct costs to a cost object by:

A) using the budgeted direct cost rates times the budgeted quantities of direct-cost inputs

B) using the actual direct costs rates times the budgeted quantities of the direct-cost inputs

C) using the actual direct cost rates times the actual quantities of the direct-cost inputs

D) using the budgeted direct cost rates times the actual quantities of the direct cost inputs

Diff: 1

Objective: 3

AACSB: Analytical thinking

4) An example of a numerator reason for calculating annual indirect-cost rates includes:

A) fewer production workdays in a month

B) cost of raw materials purchased

C) higher snow-removal costs during the winter

D) the number of units produced

Diff: 3

Objective: 3

AACSB: Analytical thinking

5) An example of a denominator reason for calculating annual indirect-cost rates includes:

A) budgeted annual indirect costs divided by actual quantity of cost-allocation base

B) semi-annual insurance payments in March and September

C) higher levels of output demanded during the fall months

D) prepaid rent in January for the months January through June

Diff: 3

Objective: 3

AACSB: Analytical thinking

6) When calculating indirect cost rates, the longer the time period, the greater the influence of seasonal patterns on the amount of costs.

Diff: 1

Objective: 3

AACSB: Analytical thinking

7) The formula for the predetermined indirect cost rate is:

A) budgeted annual indirect costs divided by actual quantity of cost-allocation base

B) budgeted annual indirect costs divided by budgeted annual quantity of cost-allocation base

C) actual annual indirect costs divided by budgeted annual quantity of cost-allocation base

D) actual annual indirect costs divided by actual annual quantity of cost-allocation base

Diff: 1

Objective: 3

AACSB: Analytical thinking

8) The actual indirect-cost rate is calculated by dividing actual total indirect costs by the budgeted total quantity of the cost-allocation base.

Diff: 1

Objective: 3

AACSB: Analytical thinking

9) A manufacturer estimates that it will incur variable indirect costs for the month of October of $70,000 and $30,000 of fixed costs. The company uses direct labor hours to calculate the predetermined overhead rate and predicted that 3,000 direct labor hours would be used in October. Actual direct labor hours amounted to 3,200.

Required:

A) What is the variable predetermined indirect rate for October?

B) What is the fixed predetermined indirect cost rate for October?

C) What is the total allocation rate per direct labor hour for October?

B) $30,000/3000 - $10.00 per direct labor hour

C) $23.33 + $10.00 = $33.33 per direct labor hour

Diff: 2

Objective: 3

AACSB: Analytical thinking

10) Define normal costing and explain the various ways it is used to not only track costs but to make other decisions in a company that manufactures custom-made products.

Diff: 2

Objective: 3

AACSB: Analytical thinking

Objective 4.4

1) A job that shows low profitability may be the result of:

A) excessive usage of direct materials

B) inefficient direct manufacturing labor

C) overpricing the job

D) insurance claim of the damaged goods

Diff: 2

Objective: 4

AACSB: Analytical thinking

2) For a given job the direct costs associated with the job are:

A) actual overhead that has been applied to the job

B) raw materials that can be traced to the job in an economically feasible way

C) All sunk costs that can be traced to the job in an economically feasible way

D) all fixed costs

Diff: 2

Objective: 4

AACSB: Analytical thinking

3) Place the following steps in the order suggested by the seven steps used to assign costs to individual jobs:

A. Identify indirect costs

B. Compute the total cost of the job

C. Select cost-allocation bases

D. Compute the indirect cost rate

A) ACDB

B) CADB

C) BACD

D) DCAB

Diff: 2

Objective: 4

AACSB: Analytical thinking

4) The basic source document for direct manufacturing labor is the:

A) job-cost record

B) materials-requisition record

C) labor-time record

D) labor-requisition record

Diff: 1

Objective: 4

AACSB: Analytical thinking

5) Problems with costing occur when:

A) incorrect job numbers are recorded on source documents

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

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

D) incorrect product delivery forms are entered into the system

Diff: 2

Objective: 4

AACSB: Analytical thinking

6) The budgeted indirect-cost rate for each cost pool is computed as:

A) budgeted annual indirect costs divided by budgeted annual quantity of cost allocation base

B) budgeted annual quantity of cost allocation base divided by budgeted annual indirect costs

C) actual annual indirect costs divided by budgeted annual quantity of cost allocation base

D) budgeted annual indirect costs divided by budgeted actual quantity of cost allocation base

Diff: 2

Objective: 4

AACSB: Analytical thinking

7) If indirect-cost rates are calculated monthly, distortions might occur because of:

A) rental costs paid monthly

B) property tax payments made in July and December

C) routine monthly preventive-maintenance costs that benefit future months

D) salary hikes at the beginning of the financial year

Diff: 2

Objective: 4

AACSB: Analytical thinking

8) Smith Office Equipment Company's budgeted manufacturing overhead is $4,200,000. Overhead is allocated on the basis of direct labor hours. The budgeted direct labor hours for the period are 40,000. What is the manufacturing overhead rate?

A) $8.75

B) $42.00

C) $113.75

D) $105.00

Diff: 2

Objective: 4

AACSB: Application of knowledge

9) X-Industries manufactures 3-D printers. For each unit, $3,100 of direct material is used and there is $2,500 of direct manufacturing labor at $25 per hour. Manufacturing overhead is applied at $30 per direct manufacturing labor hour. Calculate the profit earned on 45 units if each unit sells for $10,000.

A) $104,250

B) $81,750

C) $63,000

D) $3,000

Diff: 3

Objective: 4

AACSB: Application of knowledge

10) In a job-costing system, a manufacturing firm typically uses an indirect-cost rate to estimate the ________ allocated to a job.

A) direct materials

B) direct labor

C) manufacturing overhead costs

D) total costs

Diff: 2

Objective: 4

AACSB: Analytical thinking

11) A job-cost sheet details the:

A) direct materials purchased and paid

B) direct labor costs incurred

C) indirect labor costs incurred

D) actual indirect overhead costs incurred

Diff: 2

Objective: 4

AACSB: Analytical thinking

12) A job-cost record uses information from:

A) a materials-requisition record to record raw material purchases from suppliers

B) a materials-requisition report to record the type and quantity of item received in an order from a supplier

C) a labor-time card to record an employee's wage rate and hours spent on a particular job

D) the bill of materials to ensure the goods are of the prescribed quality

Diff: 2

Objective: 4

AACSB: Analytical thinking

13) ________ is used to record and accumulate all the costs assigned to a specific job.

A) Job-cost record

B) Materials-requisition record

C) Cost-allocation base

D) Labor-requisition record

Diff: 1

Objective: 4

AACSB: Analytical thinking

14) An increase in direct labor cost per unit:

A) increases the fixed cost

B) increases profits

C) increases the variable cost

D) increases overhead costs

Diff: 2

Objective: 4

AACSB: Analytical thinking

15) Fixed costs remain constant at $400,000 per month. During high-output months variable costs are $320,000, and during low-output months variable costs are $80,000. What are the respective high and low indirect-cost rates if budgeted professional labor-hours are 16,000 for high-output months and 4,000 for low-output months?

A) $45.00 per hour; $120.00 per hour

B) $45.00 per hour; $45.00 per hour

C) $25.00 per hour; $20.00 per hour

D) $20.00 per hour; $120.00 per hour

Diff: 2

Objective: 4

AACSB: Application of knowledge

16) Managers and accountants collect most of the cost information that goes into their systems through:

A) an information data bank

B) computer programs

C) source documents

D) time surveys

Diff: 1

Objective: 4

AACSB: Analytical thinking

17) For 2020, Rest-Well Bedding uses machine-hours as the only overhead cost-allocation base. The direct cost rate is $3.00 per unit. The selling price of the product is $18.00. The estimated manufacturing overhead costs are $240,000 and estimated 40,000 machine hours. The actual manufacturing overhead costs are $300,000 and actual machine hours are 50,000.

Using job costing, the 2020 actual indirect-cost rate is:

A) $6.00 per machine-hour

B) $4.80 per machine-hour

C) $7.50 per machine-hour

D) $7.20 per machine-hour

Diff: 2

Objective: 4

AACSB: Application of knowledge

18) For 2020, Winters Manufacturing uses machine-hours as the only overhead cost-allocation base. The direct cost rate is $3.00 per unit. The selling price of the product is $18.00. The estimated manufacturing overhead costs are $240,000 and estimated 40,000 machine hours. The actual manufacturing overhead costs are $300,000 and actual machine hours are 50,000. What is the profit margin earned if each unit requires two machine-hours?

A) 40.00%

B) 16.67%

C) 50.00%

D) 80.00%

Diff: 2

Objective: 4

AACSB: Application of knowledge

19) Better Products Company manufactures insulation and applies manufacturing overhead costs to production at a budgeted indirect-cost rate of $19 per direct labor-hour. The following data are obtained from the accounting records for October 2020:

Direct materials $410,000

Direct labor (3,400 hours @ $12/hour) 40,800

Indirect labor 21,000

Plant facility rent 51,000

Depreciation on plant machinery and equipment 42,000

Sales commissions 18,000

Administrative expenses 25,000

The actual amount of manufacturing overhead costs incurred in October 2020 totals:

A) $262,400

B) $114,000

C) $157,000

D) $118,000

Diff: 2

Objective: 4

AACSB: Application of knowledge

20) Smith and Jones CPA firm employs 12 accountants and 10 paraprofessionals. Direct and indirect costs are applied on a professional labor-hour basis that includes both accountant and paraprofessional hours. Following is information for 2020:

Budget Actual

Indirect costs $320,000 $330,000

Annual salary of each accountant $120,000 $130,000

Annual salary of each paraprofessional $35,000 $36,000

Total professional labor-hours 40,000 dlh 50,000 dlh

What are the actual direct-cost rate and the actual indirect-cost rate, respectively, per professional labor-hour?

A) $38.40; $6.40

B) $44.75; $8.00

C) $48.00; $6.60

D) $38.40; $6.60

Diff: 2

Objective: 4

AACSB: Application of knowledge

21) Francis and Hartley Law Office employs 12 full-time attorneys and 10 paraprofessionals. Direct and indirect costs are applied on a professional labor-hour basis that includes both attorney and paraprofessional hours. Following is information for 2020:

Budget Actual

Indirect costs $290,000 $310,000

Annual salary of each attorney $90,000 $105,000

Annual salary of each paraprofessional $32,000 $33,000

Total professional labor-hours 20,000 dlh 25,000 dlh

How much should the client be billed in an actual costing system if 220 professional labor-hours are used?

A) $13,992

B) $18,590

C) $20,218

D) $16,720

Diff: 3

Objective: 4

AACSB: Application of knowledge

22) Which of the following is NOT a characteristic of an Electronic Data Interchange?

A) Relies on the internet or a private network for communications

B) Replaces paper documents associated with business transactions

C) Uses a dedicated communication system between the computer systems of customers and vendors

D) Eliminates the need for an operator on the production floor to request materials

Diff: 2

Objective: 4

AACSB: Analytical thinking

23) If indirect-cost rates were based on actual short-term usage, periods of lower demand would result in lower costs per unit.

Diff: 2

Objective: 4

AACSB: Analytical thinking

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

Diff: 1

Objective: 4

AACSB: Analytical thinking

25) Indirect manufacturing costs should be allocated equally to each job.

Diff: 2

Objective: 4

AACSB: Analytical thinking

26) Each cost pool will have one cost-allocation base.

Diff: 2

Objective: 4

AACSB: Analytical thinking

27) Rally Company manufactures garage storage systems for homeowners. It uses a normal costing system with two direct cost categories - direct materials and direct labor - an one indirect-cost pool, manufacturing overhead costs.

For 2020:

Budgeted manufacturing overhead costs $1,000,000

Budgeted manufacturing labor-hours 20,000 hours

Actual manufacturing overhead costs $1,100,000

Actual direct manufacturing labor-hours 22,000

Actual direct material costs $10,000

Actual direct manufacturing labor hours 200

Actual direct manufacturing labor rate $20 per hour

Required:

Calculate the total manufacturing costs using normal costing.

Diff: 2

Objective: 4

AACSB: Application of knowledge

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

Diff: 1

Objective: 4

AACSB: Analytical thinking

29) A materials-requisition record is an example of a source document.

Diff: 2

Objective: 4

AACSB: Application of knowledge

30) All costs other than direct materials and direct manufacturing labor are classified as indirect costs.

Diff: 1

Objective: 4

AACSB: Analytical thinking

31) To smooth fluctuating levels of output, separate indirect-cost rates should be calculated for each month.

Diff: 2

Objective: 4

AACSB: Analytical thinking

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

Diff: 2

Objective: 4

AACSB: Analytical thinking

33) One reason for using longer time periods to calculate indirect-cost rates is seasonal cost fluctuations.

Diff: 2

Objective: 4

AACSB: Analytical thinking

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

Diff: 2

Objective: 4

AACSB: Analytical thinking

35) What is the difference between an actual cost system and a normal cost system?

Diff: 2

Objective: 4

AACSB: Analytical thinking

36) For each item below indicate the source documents that would most likely authorize the journal entry in a job-costing system.

Required:

a. direct materials purchased

b. direct materials used

c. direct manufacturing labor

d. indirect manufacturing labor

e. finished goods control

f. cost of goods sold

a. purchase invoice

b. Materials requisition record

c. labor time card/record

d. labor time card

e. job-cost record

f. sales invoice

Diff: 2

Objective: 4

AACSB: Analytical thinking

37) Normal costing is a method of job costing that allocates an indirect cost based on the actual indirect-cost rate times the actual quantity of the cost-allocation base.

Diff: 2

Objective: 4

AACSB: Analytical thinking

Objective 4.5

1) The budgeted indirect-cost rate is calculated:

A) at the beginning of the year

B) during the year

C) at the end of each quarter

D) at the end of the year

Diff: 1

Objective: 5

AACSB: Analytical thinking

2) The difference between actual costing and normal costing is:

A) normal costing uses actual quantities of direct-costs

B) actual costing uses actual quantities of direct-costs

C) normal costing uses budgeted indirect-costs

D) actual costing uses actual quantities of cost-allocation bases

Diff: 1

Objective: 5

AACSB: Analytical thinking

3) Which of the following statements about normal costing is true?

A) Direct costs and indirect costs are traced using an actual rate.

B) Direct costs and indirect costs are traced using budgeted rates.

C) Direct costs are traced using a budgeted rate, and indirect costs are allocated using an actual rate.

D) Direct costs are traced using an actual rate, and indirect costs are allocated using a budgeted rate.

Diff: 2

Objective: 5

AACSB: Analytical thinking

4) When using a normal costing system, manufacturing overhead is allocated using the ________ manufacturing overhead rate and the ________ quantity of the allocation base.

A) budgeted; actual

B) budgeted; budgeted

C) actual; budgeted

D) actual; actual

Diff: 1

Objective: 5

AACSB: Analytical thinking

5) Which of the following statements about actual costing is true?

A) Manufacturing costs of a job are available earlier under actual costing.

B) Corrective actions can be implemented sooner under actual costing.

C) Actual costing uses budgeted indirect-cost rates calculated annually.

D) Actual costing uses actual indirect-cost rates calculated annually.

Diff: 1

Objective: 5

AACSB: Analytical thinking

6) For 2020, Franklin Manufacturing uses machine-hours as the only overhead cost-allocation base. The estimated manufacturing overhead costs are $220,000 and estimated machine hours are 25,000. The actual manufacturing overhead costs are $360,000 and actual machine hours are 40,000.

Using job costing, the 2020 budgeted manufacturing overhead rate is: (Round the final answer to the nearest cent.)

A) $14.40 per machine-hour

B) $5.50 per machine-hour

C) $9.00 per machine-hour

D) $8.80 per machine-hour

Diff: 2

Objective: 5

AACSB: Application of knowledge

7) For 2020, Franklin Manufacturing uses machine-hours as the only overhead cost-allocation base. The estimated manufacturing overhead costs are $210,000 and estimated machine hours are 20,000. The actual manufacturing overhead costs are $330,000 and actual machine hours are 30,000. What is the difference between the budgeted and the actual manufacturing overhead using job costing? (Round interim and the final answer to the nearest cent.)

A) $6.00

B) $4.00

C) $0.50

D) $5.50

Diff: 2

Objective: 5

AACSB: Application of knowledge

8) Sky High Company has two departments, X and Y. The following estimates are for the coming year:

X Y

Direct manufacturing labor-hours 50,000 70,000

Machine-hours 70,000 50,000

Manufacturing overhead $350,000 $490,000

A single indirect-cost rate based on direct manufacturing labor-hours for the entire plant is:

A) $12.00 per direct labor-hour

B) $7.00 per direct labor-hour

C) $16.80 per direct labor-hour

D) $9.80 per direct labor-hour

Diff: 2

Objective: 5

AACSB: Application of knowledge

9) Sky High Company has two departments, X and Y. The following estimates are for the coming year:

X Y

Direct manufacturing labor-hours 30,000 50,000

Machine-hours 50,000 30,000

Manufacturing overhead $180,000 $360,000

The budgeted indirect-cost driver rate for Y based on the number of machine-hours is in excess of X by: (Round interim and the final answer to the nearest cent.)

A) $8.40 per machine-hour

B) $14.40 per machine-hour

C) $6.00 per machine-hour

D) $12.00 per machine-hour

Diff: 2

Objective: 5

AACSB: Application of knowledge

10) Manton Manufacturing applies manufacturing overhead costs to products at a budgeted indirect-cost rate of $55 per direct manufacturing labor-hour. A retail outlet has requested a bid on a special order of the Toy Bear product. Estimates for this order include: Direct materials of $65,000; 610 direct manufacturing labor-hours at $35 per hour; and a 35% markup rate on total manufacturing costs. Manufacturing overhead cost estimates for this special-order total:

A) $56,300

B) $54,900

C) $33,550

D) $42,250

Diff: 2

Objective: 5

AACSB: Application of knowledge

11) Lancelot Manufacturing is a small textile manufacturer using machine-hours as the single indirect-cost rate to allocate manufacturing overhead costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for the Case High School band jacket job.

Company Case High School Job

Direct materials $53,000 $2,100

Direct labor $15,000 $500

Manufacturing overhead costs $40,000

Machine-hours 80,000 mh 800 mh

For Lancelot Manufacturing, what is the annual manufacturing overhead cost-allocation rate?

A) $0.85

B) $1.35

C) $0.50

D) $50.00

Diff: 2

Objective: 5

AACSB: Application of knowledge

12) Lancelot Manufacturing is a small textile manufacturer using machine-hours as the single indirect-cost rate to allocate manufacturing overhead costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for the Case High School band jacket job.

Company Case High School Job

Direct materials $67,000 $2,400

Direct labor $32,000 $800

Manufacturing overhead costs $55,000

Machine-hours 100,000 mh 800 mh

What amount of manufacturing overhead costs will be allocated to this job?

A) $440

B) $1,232

C) $280

D) $696

Diff: 2

Objective: 5

AACSB: Application of knowledge

13) Lancelot Manufacturing is a small textile manufacturer using machine-hours as the single indirect-cost rate to allocate manufacturing overhead costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for the Case High School band jacket job.

Company Case High School Job

Direct materials $67,000 $2,400

Direct labor $32,000 $800

Manufacturing overhead costs $55,000

Machine-hours 100,000 mh 800 mh

What are the total manufacturing costs of this job?

A) $3,200

B) $3,640

C) $3,896

D) $2,760

Diff: 3

Objective: 5

AACSB: Application of knowledge

14) Lancelot Manufacturing is a small textile manufacturer using machine-hours as the single indirect-cost rate to allocate manufacturing overhead costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for the Case High School band jacket job.

Company Case High School Job

Direct materials $55,000 $2,300

Direct labor $22,000 $600

Manufacturing overhead costs $49,000

Machine-hours 70,000 mh 700 mh

What is the bid price for the Case High School job if the company uses a 40% markup of total manufacturing costs?

A) $4,060

B) $1,356

C) $1,160

D) $4,746

Diff: 3

Objective: 5

AACSB: Application of knowledge

15) Apple Valley Corporation uses a job cost system and has two production departments, A and B. Budgeted manufacturing costs for the year are:

Department A Department B

Direct materials $800,000 $120,000

Direct manufacturing labor $200,000 $200,000

Manufacturing overhead $400,000 $500,000

The actual material and labor costs charged to Job #432 were as follows:

Total

Direct materials: $21,000

Direct labor:

Department A $11,000

Department B $7,000

$18,000

Apple Valley applies manufacturing overhead costs to jobs on the basis of direct manufacturing labor cost using departmental rates determined at the beginning of the year.

For Department A, the manufacturing overhead allocation rate is:

A) 50.0%

B) 250.0%

C) 200.0%

D) 225.0%

Diff: 2

Objective: 5

AACSB: Application of knowledge

16) Apple Valley Corporation uses a job cost system and has two production departments, A and B. Budgeted manufacturing costs for the year are:

Department A Department B

Direct materials $750,000 $100,000

Direct manufacturing labor $500,000 $500,000

Manufacturing overhead $1,000,000 $800,000

The actual material and labor costs charged to Job #432 were as follows:

Total

Direct materials: $24,000

Direct labor:

Department A $7,000

Department B $9,000

$16,000

Apple Valley applies manufacturing overhead costs to jobs on the basis of direct manufacturing labor cost using departmental rates determined at the beginning of the year.

For Department B, the manufacturing overhead allocation rate is:

A) 160.0%

B) 180.0 %

C) 62.5%

D) 200.0%

Diff: 2

Objective: 5

AACSB: Application of knowledge

17) Apple Valley Corporation uses a job cost system and has two production departments, A and B. Budgeted manufacturing costs for the year are:

Department A Department B

Direct materials $650,000 $150,000

Direct manufacturing labor $100,000 $900,000

Manufacturing overhead $400,000 $450,000

The actual material and labor costs charged to Job #432 were as follows:

Total

Direct materials: $20,000

Direct labor:

Department A $9,000

Department B $11,000

$20,000

Apple Valley applies manufacturing overhead costs to jobs on the basis of direct manufacturing labor cost using departmental rates determined at the beginning of the year.

Manufacturing overhead costs allocated to Job #432 total:

A) $41,500

B) $4,000

C) $49,500

D) $44,000

Diff: 3

Objective: 5

AACSB: Application of knowledge

18) Elite Stationary Inc. employs 20 full-time employees and 10 trainees. Direct and indirect costs are applied on a professional labor-hour basis that includes both employee and trainee hours. Following is information for 2020:

Budget Actual

Indirect costs $200,000 $300,000

Annual salary of each employee $100,000 $110,000

Annual salary of each trainee $25,000 $30,000

Total professional labor-hours 50,000 dlh 60,000 dlh

What are the budgeted direct-cost rate and the budgeted indirect-cost rate, respectively, per professional labor-hour? (Round the final answers to the nearest cent.)

A) $40.00; $4.50

B) $45.00; $4.00

C) $41.67; $5.00

D) $30.00; $5.00

Diff: 2

Objective: 5

AACSB: Application of knowledge

19) Elite Stationary employs 20 full-time employees and 10 trainees. Direct and indirect costs are applied on a professional labor-hour basis that includes both employee and trainee hours. Following is information for 2020:

Budget Actual

Indirect costs $200,000 $300,000

Annual salary of each employee $100,000 $110,000

Annual salary of each trainee $25,000 $30,000

Total professional labor-hours 50,000 dlh 60,000 dlh

How much should a client be billed in a normal costing system when 1,400 professional labor-hours are used?

A) $61,600

B) $65,333.333,3

C) $63,933.333,3

D) $49,000

Diff: 3

Objective: 5

AACSB: Application of knowledge

20) Elite Stationary employs 20 full-time employees and 10 trainees. Direct and indirect costs are applied on a professional labor-hour basis that includes both employee and trainee hours. Following is information for 2020:

Budget Actual

Indirect costs $300,000 $400,000

Annual salary of each employee $200,000 $210,000

Annual salary of each trainee $35,000 $40,000

Total professional labor-hours 20,000 dlh 40,000 dlh

When a normal costing system is used, clients using proportionately more full-time employees than trainees will:

A) be over billed for actual resources used

B) be under billed for actual resources used

C) be billed accurately for actual resources used

D) result in an under allocation of direct costs

Diff: 3

Objective: 5

AACSB: Application of knowledge

21) In calculating the cost of a landscaping rake produced in a factory, the actual hours worked by a machine operator are multiplied by the actual hours the machine operator worked to derive:

A) cost of direct labor under actual costing only

B) cost of direct labor under normal costing and actual costing

C) cost of indirect labor under normal costing and actual costing

D) cost of indirect labor under normal costing only

Diff: 3

Objective: 5

AACSB: Application of knowledge

22) Actual costing helps managers get information earlier and take corrective measures to improve labor efficiency.

Diff: 2

Objective: 5

AACSB: Analytical thinking

23) The budgeted indirect cost rate is actual indirect costs divided by budgeted quantity of the cost allocation base.

Diff: 2

Objective: 5

AACSB: Analytical thinking

24) Direct costs are traced the same way for actual costing and normal costing.

Diff: 1

Objective: 5

AACSB: Analytical thinking

25) Normal costing assigns indirect costs based on an actual indirect-cost rate.

Diff: 1

Objective: 5

AACSB: Analytical thinking

26) A budgeted indirect-cost rate is computed for each cost pool using budgeted indirect costs and the budgeted quantity of the cost-allocation base.

Diff: 1

Objective: 5

AACSB: Analytical thinking

27) For normal costing, even though the indirect-cost rate is based on actual, indirect costs are allocated to products based on the normal capacity of the cost-allocation base.

Diff: 2

Objective: 5

AACSB: Analytical thinking

28) Chief Manufacturing is a small textile manufacturer using machine-hours as the single indirect-cost rate to allocate manufacturing overhead costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for the Somerset High School Science Olympiad Jacket job.

Company Somerset High School Job

Direct materials $25,000 $600

Direct manufacturing labor $5,000 $200

Manufacturing overhead costs $20,000

Machine-hours 40,000 mh 800 mh

Required:

a. For Chief Manufacturing, determine the annual manufacturing overhead cost-allocation rate.

b. Determine the amount of manufacturing overhead costs allocated to the Somerset High School job.

c. Determine the estimated total manufacturing costs for the Somerset High School job.

a. Manufacturing overhead cost-allocation rate = $0.50 per mh

= $20,000/40,000 mh

b. $400 estimated manufacturing overhead costs = 800 mh × $0.50 per mh

c. Direct materials $500

Direct manufacturing labor $200

Manufacturing overhead costs $400

Estimated total manufacturing costs $1,100

Diff: 2

Objective: 4, 5

AACSB: Analytical thinking

29) Hill Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to products. Manufacturing overhead costs are applied on the basis of machine-hours in the Machining Department and on the basis of direct labor-hours in the Assembly Department. At the beginning of 2020, the following estimates were provided for the coming year:

Machining Assembly

Direct labor-hours 10,000 dlh 90,000 dlh

Machine-hours 100,000 mh 5,000 mh

Direct labor cost $ 80,000 $720,000

Manufacturing overhead costs $250,000 $360,000

The accounting records of the company show the following data for Job #846:

Machining Assembly

Direct labor-hours 50 dlh 120 dlh

Machine-hours 170 mh 10 mh

Direct material cost $2,700 $1,600

Direct labor cost $ 400 $ 900

Required:

a. Compute the manufacturing overhead allocation rate for each department.

b. Compute the total cost of Job #846.

c. Provide possible reasons why Hill Manufacturing uses two different cost allocation rates.

a. Machining Department cost-allocation rate: $2.50 / mh = $250,000/100,000 mh

Assembly Department cost-allocation rate: $4.00 / dlh = $360,000/90,000 dlh

b. Total cost of Job #846 is $6,505 = Direct materials $4,300 + Direct labor $1,300 + Manufacturing overhead costs $905 (Machining $425 + Assembly $480).

c. Ideally, the cost-allocation base should reflect the factors that cause manufacturing overhead costs to increase. Apparently, Hill regards the use of machines as the principal cause of manufacturing overhead costs (such as depreciation and repairs) in the Machining Department. In contrast, Hill regards direct labor-hours as the principal cause of manufacturing overhead costs (such as indirect labor) in the Assembly Department.

Diff: 2

Objective: 4, 5

AACSB: Analytical thinking

Objective 4.6

1) In a normal costing system, the Manufacturing Overhead Control account:

A) is increased by allocated manufacturing overhead

B) is credited with amounts transferred to Work-in-Process

C) is decreased by allocated manufacturing overhead

D) is debited with actual overhead costs

Diff: 2

Objective: 6

AACSB: Analytical thinking

2) The Materials Control account is increased when:

A) direct materials are purchased

B) indirect materials are sold

C) materials are requisitioned for production

D) materials are converted to finished goods

Diff: 1

Objective: 6

AACSB: Analytical thinking

3) Which of the following is true of the Work-in-Process Control account?

A) It tracks all direct material purchases.

B) Its balance is the sum of amounts from all in-process individual job-cost records.

C) It is an expense account.

D) It tracks overhead costs in-process from beginning through completion.

Diff: 2

Objective: 6

AACSB: Analytical thinking

4) Which of the following general ledger accounts will have a subsidiary ledger account?

A) Cost of Goods Sold account

B) Work-in-Process Control account

C) Joe's Accounts Receivable subsidiary account

D) Operating Expenses account

Diff: 1

Objective: 6

AACSB: Analytical thinking

5) Which of the following increases (are debited to) the Work-in-Process Control account?

A) actual plant insurance costs

B) customer services costs

C) marketing expenses

D) direct manufacturing labor costs

Diff: 2

Objective: 6

AACSB: Analytical thinking

6) When $10,0000 direct materials are requisitioned, which of the following would be the correct journal entry?

A) Manufacturing Overhead Control $10,000

Materials Control $10,000

B) Work-in-Process Control $10,000

Materials Control $10,000

C) Materials Control $10,000

Work-in-Process Control $10,000

D) Accounts Payable Control $10,000

Materials Control $10,000

Diff: 2

Objective: 6

AACSB: Application of knowledge

7) Payment of the factory rent would require debits and credits to which accounts?

A) Debit: Work-in-Process Control account

Credit: Cash

B) Debit: Manufacturing Overhead Control account

Credit: Cash

C) Debit: Cost of Goods Sold account

Credit: Prepaid Rent

D) Debit: Factory Depreciation account

Credit: Accumulated Depreciation Control

Diff: 2

Objective: 6

AACSB: Application of knowledge

8) Which of the following is true of plant utility costs?

A) It increases the Materials Control account.

B) It increases the Manufacturing Overhead Control account.

C) It increases the Work-in-Process Control account.

D) It is a direct cost.

Diff: 1

Objective: 6

AACSB: Analytical thinking

9) Actual (rather than allocated) manufacturing overhead costs are first recorded in the:

A) Work-in-Process Control account

B) Finished Goods Control account

C) Manufacturing Overhead Control account

D) Cost of Goods Sold account

Diff: 2

Objective: 6

AACSB: Analytical thinking

10) The ending balance in the Work-in-Process Control account represents the costs of all jobs that:

A) have not been completed

B) have been completed but not sold

C) have been completed and sold to customers

D) are reported on the income statement

Diff: 1

Objective: 6

AACSB: Analytical thinking

11) For externally reported inventory costs, the Work-in-Process Control account is increased (debited) by:

A) marketing costs

B) allocated plant utility costs

C) the purchase costs of direct and indirect materials

D) customer-service costs

Diff: 2

Objective: 6

AACSB: Analytical thinking

12) Which account is debited if materials costing $100,000 are sold?

A) Revenues account

B) Work-in-Process Control account

C) Materials Control account

D) Cost of Goods Sold account

Diff: 2

Objective: 6

AACSB: Analytical thinking

13) Which account is credited if direct materials of $29,000 and indirect materials of $7,000 are sent to the manufacturing plant floor?

A) Manufacturing Overhead Control for $36,000

B) Work-in-Process Control for $36,000

C) Accounts Payable Control for $22,000

D) Materials Control for $36,000

Diff: 2

Objective: 6

AACSB: Analytical thinking

14) Which of the following items is debited to the Work-in-Process account?

A) allocated manufacturing overhead

B) completed goods transferred out of the plant

C) accumulated depreciation on fixed assets

D) accounts receivable

Diff: 2

Objective: 6

AACSB: Analytical thinking

15) Which account would be credited if the following labor wages were incurred in a furniture manufacturing company?

Assembly workers $30,000

Janitors $9,000

A) Work-in-Process Control, 39,000

B) Manufacturing Overhead Control, 39,000

C) Wages Payable Control, 39,000

D) Accounts Payable Control, 39,000

Diff: 2

Objective: 6

AACSB: Analytical thinking

16) Manufacturing overhead costs incurred for the month are:

Utilities $37,000

Depreciation on equipment $29,500

Repairs $14,500

Which account is debited assuming utilities and repairs were on account?

A) Manufacturing Overhead Control, 81,000

B) Utilities Overhead Control, 37,000

C) Accumulated Depreciation Control, 29,500

D) Accounts Payable Control, 51,500

Diff: 2

Objective: 6

AACSB: Analytical thinking

17) Which of the following statements regarding manufacturing overhead allocation is true?

A) It includes all manufacturing costs that cannot be directly traced to a product or service.

B) The costs can be grouped only as a single indirect-cost pool.

C) Total costs are unknown at the end of the accounting period.

D) Allocated amounts are debited to Manufacturing Overhead Control.

Diff: 2

Objective: 6

AACSB: Analytical thinking

18) When a job is complete:

A) actual indirect manufacturing labor is excluded from the total cost of the job

B) Finished Goods Control is debited

C) the cost of the job is transferred to Manufacturing Overhead Control

D) it is reduced from Manufacturing Overhead Control account

Diff: 2

Objective: 6

AACSB: Analytical thinking

19) A company has $25,000 of depreciation on plant assets and paid $12,000 for repairs also to plant assets. Which of the following journal entries would be required?

A) Depreciation Expense $25,000

Repairs Expense $12,000

Cash $37,000

B) Manufacturing overhead control $37,000

Accumulated Depreciation Control $25,000

Cash $12,000

C) Depreciation Expense $25,000

Repairs Expense $12,000

Accumulated Depreciation Control $37,000

D) Depreciation Expense $25,000

Repairs Expense $12,000

Manufacturing Overhead Control $37,000

Diff: 1

Objective: 6

AACSB: Analytical thinking

20) The advantage of using normal costing instead of actual costing is:

A) indirect costs are assigned at the end of the year when they are known

B) the job cost is more accurate under normal costing

C) indirect costs are assigned to a job on a timely basis

D) normal costing provides a higher gross profit margin

Diff: 1

Objective: 6

AACSB: Analytical thinking

21) Crandle Corp. applies manufacturing overhead costs to products at a budgeted indirect-cost rate of $75 per direct manufacturing labor-hour. A retail outlet has requested a bid on a special order of a necklace. Estimates for this order include: Direct materials of $39,000; 300 direct manufacturing labor-hours at $10 per hour; and a 20% markup rate on total manufacturing costs.

Estimated total product costs for this special order equal:

A) $77,400

B) $61,500

C) $42,000

D) $64,500

Diff: 2

Objective: 6

AACSB: Application of knowledge

22) Candle Corp. applies manufacturing overhead costs to products at a budgeted indirect-cost rate of $90 per direct manufacturing labor-hour. A retail outlet has requested a bid on a special order of a necklace. Estimates for this order include: Direct materials of $47,000; 350 direct manufacturing labor-hours at $15 per hour; and a 30% markup rate on total manufacturing costs.

The bid price for this special order is:

A) $73,250

B) $108,875

C) $102,050

D) $67,925

Diff: 2

Objective: 6

AACSB: Application of knowledge

23) Franklin Inc. manufactures pipes and applies manufacturing overhead costs to production at a budgeted indirect-cost rate of $17 per direct labor-hour. The following data are obtained from the accounting records for June 2020:

Direct materials $200,000

Direct labor (4,500 hours @ $13/hour) 58,500

Indirect labor 11,000

Plant facility rent 28,000

Depreciation on plant machinery and equipment 26,500

Sales commissions 28,000

Administrative expenses 39,000

The amount of manufacturing overhead allocated to all jobs during June 2020 totals:

A) $104,500

B) $76,500

C) $97,500

D) $65,500

Diff: 2

Objective: 6

AACSB: Application of knowledge

24) Franklin Inc. manufactures pipes and applies manufacturing overhead costs to production at a budgeted indirect-cost rate of $15 per direct labor-hour. The following data are obtained from the accounting records for June 2020:

Direct materials $100,000

Direct labor (4,700 hours @ $12/hour) 56,400

Indirect labor 10,000

Plant facility rent 26,000

Depreciation on plant machinery and equipment 25,000

Sales commissions 20,000

Administrative expenses 39,000

For June 2020, manufacturing overhead is:

A) overallocated by $9,500

B) underallocated by $29,500

C) overallocated by $29,500

D) underallocated by $9,500

Diff: 2

Objective: 6

AACSB: Application of knowledge

25) Bauer Manufacturing uses departmental cost driver rates to allocate manufacturing overhead costs to products. Manufacturing overhead costs are allocated on the basis of machine-hours in the Machining Department and on the basis of direct labor-hours in the Assembly Department. At the beginning of 2020, the following estimates were provided for the coming year:

Machining Assembly

Direct labor-hours 60,000 70,000

Machine-hours 20,000 30,000

Direct labor cost $575,000 $800,000

Manufacturing overhead costs $300,000 $210,000

The accounting records of the company show the following data for Job #316:

Machining Assembly

Direct labor-hours 120 95

Machine-hours 50 5

Direct material cost $250 $225

Direct labor cost $250 $300

For Bauer Manufacturing, what is the annual manufacturing overhead cost-allocation rate for the Machining Department?

A) $3.00

B) $6.00

C) $5.00

D) $15.00

Diff: 2

Objective: 6

AACSB: Application of knowledge

26) Bauer Manufacturing uses departmental cost driver rates to allocate manufacturing overhead costs to products. Manufacturing overhead costs are allocated on the basis of machine-hours in the Machining Department and on the basis of direct labor-hours in the Assembly Department. At the beginning of 2020, the following estimates were provided for the coming year:

Machining Assembly

Direct labor-hours 40,000 50,000

Machine-hours 20,000 25,000

Direct labor cost $475,000 $875,000

Manufacturing overhead costs $450,000 $250,000

The accounting records of the company show the following data for Job #316:

Machining Assembly

Direct labor-hours 120 95

Machine-hours 85 5

Direct material cost $425 $150

Direct labor cost $200 $400

What amount of manufacturing overhead costs will be allocated to Job #316?

A) $2,862.50

B) $1,906.25

C) $2,387.50

D) $1,325.00

Diff: 3

Objective: 6

AACSB: Application of knowledge

27) Bauer Manufacturing uses departmental cost driver rates to allocate manufacturing overhead costs to products. Manufacturing overhead costs are allocated on the basis of machine-hours in the Machining Department and on the basis of direct labor-hours in the Assembly Department. At the beginning of 2020, the following estimates were provided for the coming year:

Machining Assembly

Direct labor-hours 30,000 60,000

Machine-hours 80,000 20,000

Direct labor cost $625,000 $775,000

Manufacturing overhead costs $420,000 $240,000

The accounting records of the company show the following data for Job #316:

Machining Assembly

Direct labor-hours 120 100

Machine-hours 85 5

Direct material cost $350 $275

Direct labor cost $250 $475

What are the total manufacturing costs of Job #316?

A) $2,107.00

B) $1,571.25

C) $2,196.25

D) $1,350.00

Diff: 3

Objective: 6

AACSB: Application of knowledge

28) River Falls Manufacturing uses a normal cost system and had the following data available for 2020:

Direct materials purchased on account $157,000

Direct materials requisitioned 88,000

Direct labor cost incurred 135,000

Factory overhead incurred 147,000

Cost of goods completed 291,000

Cost of goods sold 260,000

Beginning direct materials inventory 28,000

Beginning WIP inventory 62,000

Beginning finished goods inventory 60,000

Overhead application rate, as a percent of direct-labor costs 150 percent

The journal entry to record the materials placed into production would include a:

A) credit to Direct Materials Inventory for $88,000

B) debit to Direct Materials Inventory for $157,000

C) credit to WIP Inventory for $88,000

D) debit to WIP Inventory for $157,000

Diff: 2

Objective: 6

AACSB: Analytical thinking

29) River Falls Manufacturing uses a normal cost system and had the following data available for 2020:

Direct materials purchased on account $154,000

Direct materials requisitioned 90,000

Direct labor cost incurred 134,000

Factory overhead incurred 142,000

Cost of goods completed 299,000

Cost of goods sold 251,000

Beginning direct materials inventory 27,000

Beginning WIP inventory 67,000

Beginning finished goods inventory 53,000

Overhead application rate, as a percent of direct-labor costs 105 percent

The ending balance of direct materials inventory is:

A) $91,000

B) $181,000

C) $90,000

D) $117,000

Diff: 2

Objective: 6

AACSB: Application of knowledge

30) River Falls Manufacturing uses a normal cost system and had the following data available for 2020:

Direct materials purchased on account $159,000

Direct materials requisitioned 81,000

Direct labor cost incurred 129,000

Factory overhead incurred 142,000

Cost of goods completed 289,000

Cost of goods sold 260,000

Beginning direct materials inventory 26,000

Beginning WIP inventory 66,000

Beginning finished goods inventory 55,000

Overhead application rate, as a percent of direct-labor costs 140 percent

The ending balance of work-in-process inventory is:

A) $456,600

B) $167,600

C) $129,000

D) $418,000

Diff: 3

Objective: 6

AACSB: Application of knowledge

31) River Falls Manufacturing uses a normal cost system and had the following data available for 2020:

Direct materials purchased on account $153,000

Direct materials requisitioned 87,000

Direct labor cost incurred 129,000

Factory overhead incurred 140,000

Cost of goods completed 289,000

Cost of goods sold 251,000

Beginning direct materials inventory 33,000

Beginning WIP inventory 63,000

Beginning finished goods inventory 56,000

Overhead application rate, as a percent of direct-labor costs 120 percent

The ending balance of finished goods inventory is:

A) $56,000

B) $38,000

C) $94,000

D) $289,000

Diff: 3

Objective: 6

AACSB: Application of knowledge

32) Beta Corporation uses a job cost system and has two production departments, A and B. Budgeted manufacturing costs for the year are:

Department A Department B

Direct materials $790,000 $190,000

Direct manufacturing labor $200,000 $800,000

Manufacturing overhead $520,000 $410,000

The actual material and labor costs charged to Job #432 were as follows:

Total

Direct materials: $27,000

Direct labor:

Department A $13,000

Department B $12,000

$25,000

Beta applies manufacturing overhead costs to jobs on the basis of direct manufacturing labor cost using departmental rates determined at the beginning of the year.

Proportion of manufacturing overhead with respect to the total cost of the job is: (Round your final answer to two decimal places.)

A) 43.45%

B) 29.36%

C) 27.19%

D) 42.13%

Diff: 3

Objective: 6

AACSB: Application of knowledge

33) Work-in-Process Control will be decreased (credited) for the amount of direct-labor costs incurred.

Diff: 1

Objective: 6

AACSB: Analytical thinking

34) The Cost of Goods Sold account tracks job costs from the time jobs are started until they are completed.

Diff: 2

Objective: 6

AACSB: Analytical thinking

35) Purchases of materials are credited to materials control.

Diff: 1

Objective: 6

AACSB: Analytical thinking

36) The Salaries Payable Control account has underlying subsidiary ledgers.

Diff: 1

Objective: 6

AACSB: Analytical thinking

37) The sum of all entries in underlying subsidiary ledgers equals the total amount in the corresponding general ledger control accounts.

Diff: 1

Objective: 6

AACSB: Analytical thinking

38) When manufacturing overhead is allocated to jobs, the Manufacturing Overhead Allocated account is debited.

Diff: 2

Objective: 6

AACSB: Application of knowledge

39) Indirect manufacturing costs are credited to Manufacturing Overhead Control.

Diff: 1

Objective: 6

AACSB: Analytical thinking

40) When goods are finished, the Finished Goods Control account is debited while the Work-in-Process Control account is credited.

Diff: 2

Objective: 6

AACSB: Application of knowledge

41) The ending balance in Work-in-Process Control represents the total costs of all jobs that have NOT yet been completed.

Diff: 1

Objective: 6

AACSB: Analytical thinking

42) Direct materials and direct manufacturing labor become a part of work-in-process inventory on the balance sheet because the direct manufacturing labor transforms the direct materials to another asset, work-in-process inventory.

Diff: 1

Objective: 6

AACSB: Analytical thinking

43) When goods are sold, the Cost of Goods Sold account is debited while the Finished Goods Control account is credited.

Diff: 2

Objective: 6

AACSB: Application of knowledge

44) Direct materials and direct manufacturing labor can be easily traced to jobs as they become initially become part of the finished goods inventory asset entry on the balance sheet.

Diff: 2

Objective: 6

AACSB: Application of knowledge

45) Jordan Company has two departments, Assembly and Machining. Overhead is applied based on direct labor cost in Department Assembly and machine-hours in Department Machining. The following additional information is available:

Budgeted Amounts Assembly Machining

Direct labor cost $200,000 $165,000

Factory overhead $300,000 $180,000

Machine-hours 51,000 mh 30,000 mh

Actual data for Job #10 Assembly Machining

Direct materials requisitioned $10,000 $16,000

Direct labor cost $11,000 $14,000

Machine-hours 5,000 mh 3,000 mh

Required:

a. Compute the budgeted factory overhead rate for Assembly.

b. Compute the budgeted factory overhead rate for Machining.

c. What is the total overhead cost of Job 10?

d. If Job 10 consists of 50 units of product, what is the unit cost of this job?

a. $300,000/$200,000 = 150%

b. $180,000/30,000 hrs. = $6.00 per hour

c. ($11,000 × 150 percent) + ($6.00 × 3,000 hrs.) = $34,500

d. $10,000 + $16,000 + $11,000 + $14,000 + $34,500 = $85,500/50 units = $1,710 per unit

Diff: 2

Objective: 4, 6

AACSB: Application of knowledge

46) Job-cost records for Boucher Company contained the following data:

Total Cost

Date Date Date of Job

Job No. Started Finished Sold at June 30

220 May 18 June 12 June 20 $6,000

221 May 20 June 19 June 21 4,000

222 June 7 July 5 July 12 7,000

223 June 10 June 28 July 1 6,500

224 June 19 July 16 July 25 8,000

Required:

a. Compute WIP inventory at June 30.

b. Compute finished goods inventory at June 30.

c. Compute cost of goods sold for June.

a. $7,000 + $8,000 = $15,000

b. $6,500

c. $6,000 + $4,000 = $10,000

Diff: 2

Objective: 4, 6

AACSB: Analytical thinking

47) Benny Industries allocates manufacturing overhead at a predetermined rate of 160% of direct labor cost. Any overallocated or underallocated overhead is closed to the cost of goods sold at the end of the month. Below is information on job 205 that was in process at the end of the month of October

Direct materials $4,000

Direct labor $3,000

Allocated manufacturing overhead $4,800

Jobs 206, 207, and 208 were started in November. Direct materials that were used in November were $26,000 and direct labor costs were $21,000. For the month of November, actual manufacturing overhead was $32,000. The only job still in process on the last day of November was job 104 with the following costs: $3,000 for direct materials and $1,500 for direct labor.

Required:

Calculate the cost of goods manufacturered for November.

+ Direct labor for the month of November $21,000

+ Allocated manufacturing overhead $33,600 ($21,000 × 1.6)

+ Direct materials $26,000

- Ending work-in-process $6,900 ($3,000 + $1,500 + ($1,500 × 1.6)

= Cost of goods manufactured $99,300

Diff: 3

Objective: 4, 6

AACSB: Application of knowledge

48) Cowley County Hospital uses a job-costing system for all patients who have surgery. In March, the pre-operating room (PRE-OP) and operating room (OR) had budgeted allocation bases of 4,000 nursing hours and 2,000 nursing hours, respectively. The budgeted nursing overhead charges for each department for the month were $168,000 and $132,000, respectively. The hospital floor for surgery patients had budgeted overhead costs of $1,200,000 and 15,000 nursing hours for the month. For patient Fred Adams, actual hours incurred were eight and four hours, respectively, in the PRE-OP and OR rooms. He was in the hospital for 4 days (96 hours). Other costs related to Adams were:

PRE-OP OR In-room

Costs Costs Costs

Patient medicine $ 200 $ 500 $2,400

Direct nursing time $1,000 $2,000 $3,000

The hospital uses a budgeted overhead rate for applying overhead to patient stays.

Required:

What is the total cost of the stay of patient Fred Adams?

= $42 per hr.

Nursing overhead rate OR = $132,000/2,000 hrs.

= $66 per hr.

Overhead rate for surgery floor = $1,200,000/15,000 hrs.

= $80 per hr.

Patient Fred Adams:

PRE-OP OR In-room Totals

Patient medicine $ 200 $ 500 $2,400 $3,100

Direct nursing time 1,000 2,000 3,000 6,000

Nursing overhead:

PRE-OP ($42 × 8) 336 336

OR ($66 × 4) 264 264

In-room ($80 × 96) 0 0 7,680 7,680

Total $1,536 $2,764 $13,080 $17,380

Diff: 3

Objective: 4, 6

AACSB: Analytical thinking

49) The Dougherty Furniture Company manufactures tables. In March, the two production departments had budgeted allocation bases of 4,000 machine-hours in Department 100 and 8,000 direct manufacturing labor-hours in Department 200. The budgeted manufacturing overheads for the month were $57,500 and $62,500, respectively. For Job A, the actual costs incurred in the two departments were as follows:

Department 100 Department 200

Direct materials purchased on account $110,000 $177,500

Direct materials used 32,500 13,500

Direct manufacturing labor 52,500 53,500

Indirect manufacturing labor 11,000 9,000

Indirect materials used 7,500 4,750

Lease on equipment 16,250 3,750

Utilities 1,000 1,250

Job A incurred 800 machine-hours in Department 100 and 300 manufacturing labor-hours in Department 200. The company uses a budgeted overhead rate for applying overhead to production.

Required:

a. Determine the budgeted manufacturing overhead rate for each department.

b. Prepare the necessary journal entries to summarize the March transactions for Department 100.

c. What is the total cost of Job A?

a. Manufacturing overhead rate Department 100 = $57,500/4,000 hours

= $14.375 per machine-hour

Manufacturing overhead rate Department 200 = $62,500/8,000 hours

= $7.8125 per labor-hour

b. Materials Control Department 100 110,000

Accounts Payable Control 110,000

Work-in-Process Control Department 100 32,500

Manufacturing Overhead Control Department 100 7,500

Materials Control Department 100 40,000

Work-in-Process Control Department 100 52,500

Manufacturing Overhead Control Department 100 11,000

Wages Payable Control 63,500

Manufacturing Overhead Control Department 100 17,250

Leaseholds Payable Control 16,250

Utilities Payable Control 1,000

Work-in-Process Control Dept. 100 ($14.375 × 800 hrs) 11,500

Manufacturing Overhead Allocated 11,500

c. Job A:

Direct materials Dept. 100 $ 32,500

Direct materials Dept. 200 13,500

Direct manufacturing labor Dept. 100 52,500

Direct manufacturing labor Dept. 200 53,500

Manufacturing overhead Dept. 100 ($14.375 × 800) 11,500

Manufacturing overhead Dept. 200 ($7.8125 × 300) 2,344

Total $165,844

Diff: 3

Objective: 6

AACSB: Analytical thinking

50) Explain the procedure how overhead indirect costs become a part of work-in process inventory.

Diff: 2

Objective: 6

AACSB: Analytical thinking

51) Explain how the following statement be true: Often the manufacturing overhead control account (debit) does not equal the manufacturing overhead allocated account (credit).

Diff: 2

Objective: 6

AACSB: Analytical thinking

52) What are three possible ways to dispose of underallocated or overallocated overhead costs at the end of a fiscal year? Briefly comment on the theoretical correctness or incorrectness of each method.

Diff: 3

Objective: 6

AACSB: Analytical thinking

Objective 4.7

1) The spreading of underallocated or overallocated overhead among ending work-in-process, finished goods, and cost of goods sold is called:

A) the adjusted allocation rate approach

B) the proration approach

C) the write-off of cost of goods sold approach

D) the weighted-average cost approach

Diff: 1

Objective: 7

AACSB: Analytical thinking

2) The method that restates all overhead entries in the general ledger and subsidiary ledgers using actual cost rates rather than budgeted cost rates is called:

A) the adjusted allocation rate approach

B) the proration approach

C) the write-off of cost of goods sold approach

D) the weighted-average cost approach

Diff: 1

Objective: 7

AACSB: Analytical thinking

3) ABC Manufacturing Inc. ends the month with two jobs still in progress. Job 5 has $10,000 of materials, $2,000 of direct labor and $8,000 of manufacturing overhead allocated. Job 6 has $30,000 of materials, $2,000 of direct labor and $12,000 of manufacturing overhead allocated. The cost of goods sold for the month was $40,000 and there was no finished goods in stock as the month ended. If the manufacturing overhead was underallocated by $10,000, which of the following choices would be the correct way to prorate it based on ending balances before proration? (Round any allocation percentages to one decimal place, X.X%.)

A) The entire $10,000 of underallocated manufacturing overhead should be allocated to cost of goods sold.

B) $6,150 of the underallocated manufacturing overhead should be allocated to work-in-process.

C) $6,150 of the underallocated manufacturing overhead should be split between Job 6 and cost of goods sold.

D) The entire $10,000 of underallocated manufacturing overhead should be added to operating expenses for the month.

Diff: 2

Objective: 7

AACSB: Application of knowledge

4) Global Manufacturing Inc. uses normal costing during the year to allocate manufacturing overhead to jobs in a job costing system. At year end, it uses the adjusted allocation rate approach to account for underallocated or overallocated overhead. During 2020, Global's manufacturing overhead was underallocated by 10%. Job 117 had the following costs:

Direct materials $1,500

Direct labor $3,300

Manufacturing overhead allocated $1,600

Which of the following would be the after adjustment cost of Job 117?

A) $6,730

B) $6,560

C) $7,040

D) $5,760

Diff: 3

Objective: 7

AACSB: Application of knowledge

5) The ________ adjusts individual job-cost records to account for underallocated or overallocated overhead.

A) adjusted allocation-rate

B) proration approach

C) write-off to cost of goods sold approach

D) weighted-average cost approach

Diff: 1

Objective: 7

AACSB: Analytical thinking

6) The adjusted allocation approach yields the benefits of:

A) timeliness and convenience of normal costing

B) allocating budgeted manufacturing overhead costs at the end of the year

C) write-off to the cost of goods sold approach

D) the proration approach

Diff: 1

Objective: 7

AACSB: Analytical thinking

7) The approach often used when dealing with small amounts of underallocated or overallocated overhead is the:

A) adjusted allocation-rate approach

B) proration approach

C) write-off to cost of goods sold approach

D) adjusted write-off approach

Diff: 1

Objective: 7

AACSB: Analytical thinking

8) The Robinson Corporation manufactures automobile parts. During the year, the company sold $5,100,000 of parts that had a cost of $3,600,000. At year end, these are the balances for cost of goods sold and its manufacturing overhead accounts:

Cost of goods sold $3,600,000

Manufacturing overhead allocated $1,000,000

Manufacturing overhead control $1,495,000

What would be the correct journal entry to close out the overhead accounts assuming that the write-off to cost of goods sold approach is used?

A) Manufacturing overhead control $1,495,000

Cost of goods sold $495,000

Manufacturing overhead allocated $1,000,000

B) Sales $5,100,000

Cost of goods sold $3,600,000

Gross profit $1,500,000

C) Finished goods $495,000

Manufacturing overhead allocated $1,000,000

Manufacturing overhead control $1,495,000

D) Cost of goods sold $495,000

Manufacturing overhead allocated $1,000,000

Manufacturing overhead control $1,495,000

Diff: 2

Objective: 7

AACSB: Analytical thinking

9) A company would use multiple cost-allocation bases:

A) if managers believed the benefits exceeded the additional costs of that costing system

B) because there is more than one way to allocate overhead

C) because this is a simpler approach than using one cost allocation base

D) if managers believe that using multiple cost-allocation bases is the only acceptable method

Diff: 2

Objective: 7

AACSB: Analytical thinking

Filippucci Company used a budgeted indirect-cost rate for its manufacturing operations, the amount allocated ($200,000) is different from the actual amount incurred ($225,000).

Ending balances in the relevant accounts are:

Work-in-Process $ 10,000

Finished Goods 20,000

Cost of Goods Sold 170,000

10) Under the write-off approach, the difference between Manufacturing Overhead Control and Manufacturing Overhead Allocated is adjusted in the:

A) Cost of Goods Sold account

B) Work-in Process account

C) Manufacturing Overhead account

D) Miscellaneous Expenses account

Diff: 2

Objective: 7

AACSB: Analytical thinking

11) Which account is credited to write off the difference between allocated and actual overhead using the proration approach?

A) Work-in Process Control

B) Manufacturing Overhead Allocated

C) Finished Goods Control

D) Manufacturing Overhead Control

Diff: 2

Objective: 7

AACSB: Analytical thinking

12) Financial Planning Partners Inc., employs 12 full-time CPAs and 10 paraprofessionals. Direct and indirect costs are applied on a professional labor-hour basis that includes both attorney and paraprofessional hours. Following is information for 2020:

Budget Actual

Indirect costs $250,000 $311,000

Annual salary of each attorney $109,000 $119,000

Annual salary of each paraprofessional $25,000 $26,000

Total professional labor-hours 40,000 dlh 54,000 dlh

When using a normal costing system, year-end accounting records will show that indirect costs are:

A) perfectly allocated

B) underallocated

C) within budget

D) overallocated

Diff: 3

Objective: 7

AACSB: Application of knowledge

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

Diff: 2

Objective: 7

AACSB: Analytical thinking

14) ABC Manufacturing Inc. ends the month with two jobs still in progress. Job 5 has $10,000 of materials, $2,000 of direct labor and $8,000 of manufacturing overhead allocated. Job 6 was $30,000 of materials, $2,000 of direct labor and $10,000 of manufacturing overhead allocated. The cost of goods sold for the month was $40,000 and of that 30% was overhead. There were no finished goods in stock as the month ends. If the manufacturing overhead is underallocated by $10,000, which of the following choices would be the correct way to prorate it, assuming the proration is based on the allocated overhead in the ending balances of work-in-process, finished goods, and cost of goods sold? (Round any allocation percentages to one decimal​ place, X.X%.)

A) Job 5 should be allocated another $6,000 of cost

B) Job 6 should be allocated another $6,000 of cost

C) Cost of goods sold should be reduced by $4,000

D) Cost of goods sold should be increased by $4,000

Diff: 1

Objective: 7

AACSB: Application of knowledge

15) Management wants to prepare a profitability analysis of the company's customers and therefore the most accurate choice of disposing of underallocated or overallocated manufacturing overhead at year-end is the proration based on final balances of work-in-process, finished goods, and cost of goods sold.

Diff: 2

Objective: 7

AACSB: Analytical thinking

16) The proration approach to allocating overapplied or underapplied overhead adjusts individual job-cost records.

Diff: 2

Objective: 7

AACSB: Analytical thinking

17) For financial accounting purposes, companies are allowed under Generally Accepted Accounting Principles to report results in the financial statements based on applied overhead costs.

Diff: 2

Objective: 7

AACSB: Analytical thinking

18) The adjusted-allocation rate approach offers the benefit of a costing system that provides overhead cost data during the year so that pricing, budgeting, and interim reporting can occur and a year-end adjustment to manufacturing overhead allocations to individual jobs that are better aligned with actual manufacturing overhead costs that are known at year-end.

Diff: 2

Objective: 7

AACSB: Analytical thinking

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

Diff: 2

Objective: 7

AACSB: Analytical thinking

20) The actual costs of all individual overhead categories are recorded in the Manufacturing Overhead Control account.

Diff: 1

Objective: 7

AACSB: Analytical thinking

21) Proration is the spreading of underallocated or overallocated overhead among ending work in process, finished goods, and costs of goods sold.

Diff: 1

Objective: 7

AACSB: Analytical thinking

22) It is appropriate for service organizations such as public accounting firms to use job costing.

Diff: 1

Objective: 7

AACSB: Analytical thinking

23) Innovative Metal Products Company manufactures pipes and applies manufacturing costs to production at a budgeted indirect-cost rate of $12 per direct labor-hour. The following data are obtained from the accounting records for June 2020:

Direct materials $400,000

Direct labor (16,000 hours @ $11/hour) $ 240,000

Indirect labor $ 25,000

Plant facility rent $ 100,000

Depreciation on plant machinery and equipment $ 42,000

Sales commissions $ 30,000

Administrative expenses $ 40,000

Required:

a. What actual amount of manufacturing overhead costs was incurred during June 2020?

b. What amount of manufacturing overhead was allocated to all jobs during June 2020?

c. For June 2020, was manufacturing overhead underallocated or overallocated? Explain.

a. $25,000 + $100,000 + $42,000 = $167,000

b. 16,000 × $12 per dlh = $192,000

c. Underallocated by $25,000: Only allocated $192,000 of the $167,000 of actual overhead

Diff: 2

Objective: 7

AACSB: Application of knowledge

24) Moira Company has just finished its first year of operations and must decide which method to use for adjusting cost of goods sold. Because the company used a budgeted indirect-cost rate for its manufacturing operations, the amount that was allocated ($435,000) to cost of goods sold was different from the actual amount incurred ($425,000).

Ending balances in the relevant accounts were:

Work-in-Process $ 40,000

Finished Goods 80,000

Cost of Goods Sold 680,000

Required:

a. Prepare a journal entry to write off the difference between allocated and actual overhead directly to Cost of Goods Sold. Be sure your journal entry closes the related overhead accounts.

b. Prepare a journal entry that prorates the write-off of the difference between allocated and actual overhead using ending account balances. Be sure your journal entry closes the related overhead accounts.

a. Manufacturing Overhead Allocated 435,000

Cost of Goods Sold 10,000

Manufacturing Overhead Control 425,000

b. Work-in-process $ 40,000 5 % × $10,000 = $500

Finished goods 80,000 10 × $10,000 = 1,000

Cost of goods sold 680,000 85 × $10,000 = 8,500

Total $800,000 100 %

Manufacturing Overhead Allocated 435,000

Work-in-Process 500

Finished Goods 1,000

Cost of Goods Sold 8,500

Manufacturing Overhead Control 425,000

Diff: 3

Objective: 7

AACSB: Analytical thinking

25) Jacobs Company manufactures refrigerators. The company uses a budgeted indirect-cost rate for its manufacturing operations and during 2020 allocated $1,000,000 to work-in-process inventory. Actual overhead incurred was $1,100,000.

Ending balances in the following accounts are:

Work-in-Process $ 100,000

Finished Goods 750,000

Cost of Goods Sold 4,150,000

Required:

a. Prepare a journal entry to write off the difference between allocated and actual overhead directly to Cost of Goods Sold. Be sure your journal entry closes the related overhead accounts.

b. Prepare a journal entry that prorates the write-off of the difference between allocated and actual overhead using ending account balances. Be sure your journal entry closes the related overhead accounts.

a. Manufacturing Overhead Allocated 1,000,000

Cost of Goods Sold 100,000

Manufacturing Overhead Control 1,100,000

b. Work-in-process $100,000 2.0% × $100,000 = $2,000

Finished goods 750,000 15.0 × $100,000 = $15,000

Cost of goods sold 4,150,000 83.0 × $100,000 = $83,000

Total $5,000,000 100.0%

Manufacturing Overhead Allocated 1,000,000

Work-in-Process 2,000

Finished Goods 15,000

Cost of Goods Sold 83,000

Manufacturing Overhead Control 1,100,000

Diff: 3

Objective: 7

AACSB: Application of knowledge

26) The following information was gathered for Longview Company for the year ended December 31, 2020:

Budgeted Actual

Direct labor-hours 75,000 dlh 80,000 dlh

Factory overhead $600,000 $625,000

Assume that direct labor-hours are the cost-allocation base.

Required:

a. Compute the budgeted factory overhead rate.

b. Compute the factory overhead applied.

c. Compute the amount of over/underapplied overhead.

a. $600,000/75,000 hrs. = $8.00 per hour

b. $8.00 × 80,000 hrs. = $640,000

c. $640,000 - $625,000 = $15,000 overapplied

Diff: 2

Objective: 7

AACSB: Application of knowledge

27) Excellent Products, Inc., uses a budgeted factory overhead rate to apply overhead to production. The following data are available for the year ended December 31, 2020.

Budgeted Actual

Factory overhead $675,000 $716,000

Direct labor costs $450,000 $432,000

Direct labor-hours 12,500 dlh 13,325 dlh

Required:

a. Determine the budgeted factory overhead rate based on direct labor-hours.

b. What is the applied overhead based on direct labor-hours?

c. Is overhead overapplied or underapplied? Explain.

a. $675,000/12,500 hrs. = $54.00 per hour

b. $54.00 × 13,325 hrs. = $719,550

c. $716,000 - $719,550 = $3,550 overapplied

Diff: 2

Objective: 7

AACSB: Application of knowledge

28) Schulz Corporation applies overhead based upon machine-hours. Budgeted factory overhead was $266,400 and budgeted machine-hours were 18,500. Actual factory overhead was $287,920 and actual machine-hours were 19,050. Before disposition of under/overapplied overhead, the cost of goods sold was $560,000 and ending inventories were as follows:

Direct materials $ 60,000

WIP 190,000

Finished goods 250,000

Total $500,000

Required:

a. Determine the budgeted factory overhead rate per machine-hour.

b. Compute the over/underapplied overhead.

c. Prepare the journal entry to dispose of the variance using the write-off to cost of goods sold approach.

d. Prepare the journal entry to dispose of the variance using the proration approach.

a. $266,400/18,500 hrs. = $14.40 per hour

b. $14.40 × 19,050 hours = $274,320 - $287,920 = $13,600 underapplied overhead

c. Cost of Goods Sold 13,600

Factory Department Overhead Control 13,600

d. $560,000 + $190,000 + $250,000 = $1,000,000

Cost of Goods Sold:

$560,000/$1,000,000 = 56% × $13,600 = $7,616

WIP:

$190,000/$1,000,000 = 19% × $13,600 = $2,584

Finished Goods:

$250,000/$1,000,000 = 25% × $13,600 = $3,400

Cost of Goods Sold 7,616

WIP Inventory 2,584

Finished Goods Inventory 3,400

Factory Department Overhead Control 13,600

Diff: 3

Objective: 7

AACSB: Application of knowledge

29) Sedgwick County Hospital uses an indirect job-costing system for all patients. In June, the budgeted nursing care charges for each department and budgeted allocation bases of nursing days are as follows:

June Critical Care Special Care General Care

Budgeted nursing costs $2,480,000 $1,644,000 $1,280,400

Budgeted nursing days 5,000 4,000 8,000

Patient Ms. Graves spent six days in critical care and eight days in special care during June. The remainder of the 30-day month was spent in the general care area.

Required:

a. Determine the budgeted overhead rate for each department.

b. What are the total charges to Ms. Graves if she was in the facility the entire month?

a. Overhead rate critical care = $2,480,000/5,000 nursing days = $496.00 per day.

Overhead rate special care = $1,644,000/4,000 nursing days = $411.00 per day

Overhead rate general = $1,280,400/8,000 nursing days = $160.05 per day

b. Ms. Graves:

Critical care $496.00 × 6 days = $2,976.00

Special care $411.00 × 8 days = 3,288.00

General care $160.05 × 16 days = 2,560.80

Total overhead charges $8,824.80

Diff: 2

Objective: 7

AACSB: Application of knowledge

30) Hammond and Jarrett provide tax consulting for estates and trusts. Their job-costing system has a single direct-cost category (professional labor) and a single indirect-cost pool (research support). The indirect-cost pool contains all the costs except direct personnel costs. All budgeted indirect costs are allocated to individual jobs using actual professional labor-hours.

Required:

a. Discuss the reasons a consulting firm might use a normal costing system rather than an actual costing system.

b. What might be some reasons for the firm to change from a one-pool to a multiple-pool allocation concept?

a. Budget rates are normally used because actual costs may not be available until sometime after a job is completed. Decisions about billing a client for services rendered generally must be made immediately after the job is completed. Also, actual costs may reflect short-run changes in the environment that may distort the billing process. Budgeted costs are affected by weekly or monthly fluctuations and, therefore, offer a stable comparison and assignment of costs throughout the accounting cycle.

b. Having separate professional labor-hour rates assists in assigning the personnel costs to jobs closest to their real values. This helps to maintain different costs for jobs that have the same number of hours but a different mix of professionals doing the job. Seldom is there only one cause-and-effect relationship between a job and the tasks performed on the job; therefore, it may also be a good idea to develop multiple indirect-cost assignments (i.e., one for staff support and others for such items as computer support or general administrative support).

Diff: 3

Objective: 7

AACSB: Analytical thinking

31) Benny Industries allocates manufacturing overhead at a predetermined rate of 160% of direct labor cost. Any overallocated or underallocated overhead is closed to the cost of goods sold at the end of the month. Below is information on job 205 that was in process at the end of the month of October

Direct materials $4,000

Direct labor $3,000

Allocated manufacturing overhead $4,800

Jobs 206, 207, and 208 were started in November. Direct materials that were used in November were $26,000 and direct labor costs were $21,000. For the month of November, actual manufacturing overhead was $32,000. The only job still in process on the last day of November was job 104 with the following costs: $3,000 for direct materials and $1,500 for direct labor.

Required:

a. Calculate the cost of goods manufacturered for November.

b. Calculate the amount of overallocated or underallocated manufacturing overhead that should be closed to cost of goods sold on November 30. Be sure to label the answer as either overallocated or underallocated.

c. What are the accounting entries to close the overallocated or underallocated manufacturing overhead on November 30?

a. Beginning work-in-process $11,800 (Job 205 in process at the end of October)

+ Direct labor for the month of November $21,000

+ Allocated manufacturing overhead $33,600 ($21,000 × 1.6)

+ Direct materials $26,000

- Ending work-in-process $6,900 ($3,000 + $1,500 + ($1,500 × 1.6)

= Cost of goods manufactured $99,300

b. The amount of allocated overhead was $33,600 while the actual manufacturing overhead was $32,000. The difference is $1,600 which is overallocated.

c. Manufacturing Overhead Allocated $1,600

Cost of goods sold $1,600

Diff: 3

Objective: 7

AACSB: Application of knowledge

32) What are three possible ways to dispose of underallocated or overallocated overhead costs at the end of a fiscal year? Briefly comment on the theoretical correctness or incorrectness of each method.

Diff: 3

Objective: 7

AACSB: Analytical thinking

Objective 4.8

1) In the service sector:

A) direct labor costs are always easy to trace to jobs

B) a budgeted direct-labor cost rate may be used to apply direct labor to jobs

C) normal costing may not be used

D) overhead is generally applied using an actual cost-allocation rate

Diff: 2

Objective: 8

AACSB: Analytical thinking

2) In the service sector, to achieve timely reporting on the profitability of an engagement, a company will use:

A) budgeted rates for all direct costs

B) budgeted rates for indirect costs

C) actual costing

D) budgeted rates for some direct costs and indirect costs

Diff: 2

Objective: 8

AACSB: Analytical thinking

3) Advantage Inc. employs 22 professional cleaners. Budgeted costs total $1,856,400 of which $1,606,500 is direct costs. Budgeted indirect costs are $809,200 and actual indirect costs were $797,200. Budgeted professional labor-hours are 1,190,000 and actual hours were 1,326,000. What is the budgeted direct cost-allocation rate? (Round the final answer to the nearest cent.)

A) $1.56 per hour

B) $1.40 per hour

C) $0.68 per hour

D) $1.35 per hour

Diff: 2

Objective: 8

AACSB: Application of knowledge

4) The budgeted direct-labor cost rate includes:

A) budgeted total costs in indirect cost pool

B) budgeted total direct-labor costs in the denominator

C) budgeted total direct-labor costs in the numerator

D) budgeted total direct-labor hours in the numerator

Diff: 2

Objective: 8

AACSB: Analytical thinking

5) The accounting firm of Smith & Jones LLC has a staff of 32 staff accountants and auditors and administrative staff. Budgeted total costs of the firm total $4,800,000 of which $2,700,000 is direct-labor costs. Assuming that the remaining costs are indirect and direct-labor cost is the allocation base, calculate the budgeted indirect cost rate. (Round the final answer to the nearest whole percent.)

A) 44% of direct-labor cost

B) 78% of direct-labor cost

C) 56% of direct-labor cost

D) 178% of direct-labor cost

Diff: 2

Objective: 8

AACSB: Application of knowledge

6) A local accounting firm employs 27 full-time professionals. The budgeted annual compensation per employee is $40,000. The average chargeable time is 400 hours per client annually. All professional labor costs are included in a single direct-cost category and are allocated to jobs on a per-hour basis.

Other costs are included in a single indirect-cost pool, allocated according to professional labor-hours. Budgeted indirect costs for the year are $782,000, and the firm expects to have 75 clients during the coming year.

What is the budgeted direct labor cost rate per hour? (Round the final answer to the nearest cent.)

A) $36.00 per hour

B) $26.07 per hour

C) $3.70 per hour

D) $100.00 per hour

Diff: 2

Objective: 8

AACSB: Application of knowledge

7) A local accounting firm employs 24 full-time professionals. The budgeted annual compensation per employee is $49,500. The average chargeable time is 400 hours per client annually. All professional labor costs are included in a single direct-cost category and are allocated to jobs on a per-hour basis.

Other costs are included in a single indirect-cost pool, allocated according to professional labor-hours. Budgeted indirect costs for the year are $780,000, and the firm expects to have 90 clients during the coming year.

What is the budgeted indirect-cost rate per hour? (Do not round intermediary calculations and round the final calculation to the nearest cent.)

A) $6.57 per hour

B) $81.25 per hour

C) $33.00 per hour

D) $21.67 per hour

Diff: 2

Objective: 8

AACSB: Application of knowledge

8) A local accounting firm employs 25 full-time professionals. The budgeted annual compensation per employee is $44,000. The average chargeable time is 410 hours per client annually. All professional labor costs are included in a single direct-cost category and are allocated to jobs on a per-hour basis.

Other costs are included in a single indirect-cost pool, allocated according to professional labor-hours. Budgeted indirect costs for the year are $781,000, and the firm expects to have 100 clients during the coming year.

If ten clients are lost and the workforce stays at 25 employees, then the direct labor cost rate per hour: (Do not round intermediary calculations and round the final calculation to the nearest cent.)

A) $26.83 per hour

B) $19.05 per hour

C) $29.81 per hour

D) $17.32 per hour

Diff: 2

Objective: 8

AACSB: Application of knowledge

9) James Ford an architect charges $150 per hour for his time spent drawing blueprints for clients. His budgeted annual cost to run his office is $25,200 a year (rent and utilities) and he allocates these indirect costs based on direct labor hours. Ford predicts that he will work about 1,400 billable hours per year for his clients. Recently, Ford completed a set of blueprints for a garage for one of his clients and involving 28 hours of work, how much indirect costs should ford allocate to the garage blueprints job when considering how much to charge his client and cover his costs?

A) $560

B) $448

C) $504

D) $644

Diff: 1

Objective: 8

AACSB: Analytical thinking

10) In an accounting firm that conducts audits, how would the costs of secretarial support, office staff, rent, and depreciation be classified if the audit of a particular client is the cost object?

A) Not allocated to any of the audits because there is no reasonable allocation base.

B) Indirect costs because they do not support the performance of audits.

C) Indirect costs because these costs cannot easily be traced to jobs.

D) Direct costs because they can be accurately calculated.

Diff: 1

Objective: 8

AACSB: Analytical thinking

11) In some variations of normal costing, organizations use budgeted rates to assign direct costs as well as indirect costs to jobs.

Diff: 2

Objective: 8

AACSB: Analytical thinking

12) In some service organizations, a variation of normal costing is used to provide timely information during the progression of the year, using budgeted direct labor costs and allocated budgeted overhead.

Diff: 2

Objective: 8

AACSB: Analytical thinking

13) An accounting firm completes an audit for a local union and has the following cost information for the year.

Indirect labor $60,000

Office lease $22,000

Depreciation on office equipment $8,000

Marketing expense $20,000

Utilities $15,000

The firm's direct labor costs are budgeted at $500,000 for the year and overhead is allocated based on direct labor costs. The firm used 1 partner and 2 audit associates on the audit. Partners are paid $150 per hour while audit associates earn $50 per hour. The partner spent 6 hours on the engagement while the audit associates spent a total of 40 hours.

Required:

What is the cost of the audit?

Diff: 2

Objective: 8

AACSB: Analytical thinking

14) A local engineering firm is bidding on a design project for a new client. The total budgeted direct-labor costs for the firm are $400,000. The total budgeted indirect costs are $600,000. It is estimated that there are 8,000 billable hours in total.

Required:

a. What is the budgeted direct-labor cost rate?

b. What is the budgeted indirect-cost rate assuming direct-labor cost is the allocation base?

c. What should be the engineering firm bid on the project if the direct labor hours are estimated at

a. $400,000/8,000 = $50/hour

b. $600,000/$400,000 = 150% of direct labor cost

c. (300 × 50) + (15,000 × 1.5) = $37,500

Diff: 3

Objective: 8

AACSB: Analytical thinking

15) A local CPA employs ten full-time professionals. The budgeted compensation per employee is $50,000. The maximum billable hours for each client are 400. Clients always receive their full amount of time. All professional labor costs are included in a single direct-cost category and are traced to jobs on a per-hour basis. Any other costs are included in a single indirect-cost pool, allocated according to professional labor-hours. Budgeted indirect costs for the year are $200,000 and the firm had 20 clients.

Required:

a. What is the direct-labor-cost rate per hour?

b. What is the indirect-cost rate per hour?

a. Total direct cost = $50,000 × 10 = $500,000

Total hours = 400 × 20 = 8,000

Direct-cost rate per unit = $500,000/8,000 = $62.50 per hour

b. Indirect-cost rate per unit = $200,000/8,000 = $25.00 per hour

Diff: 2

Objective: 8

AACSB: Analytical thinking