Test Bank + Answers Ch6 Fundamentals of Product and Service

Fundamentals of Cost Accounting, 6e (Lanen)

Chapter 6 Fundamentals of Product and Service Costing

1) The term "product" often refers to an organization's output and includes both tangible items (e.g., chair, desk, etc.) and intangible items (e.g., services provided).

2) Individual product costs are relevant for managerial decision-making but irrelevant for preparing the financial statements.

3) One of the most common decisions facing managers is determining the price at which to sell one of their products or to provide their services.

4) It is important that cost management systems are designed using the cost-benefit principle so that the costs of gathering additional information are balanced against the benefits of that information.

5) In general, indirect costs are allocated, while direct costs are assigned.

6) Cost management systems should be designed to report the same costs to each decision-maker.

7) The only purpose of cost information is to determine the individual product cost on a per unit basis in order to value inventory.

8) "Beginning Balance (BB) plus Transfers Out (TO) equals Ending Balance (EB) plus Transfers In (TI)".

9) The Transfers In (TI) costs in the basic cost flow model of a manufacturing firm are direct materials, direct labor, and manufacturing overhead.

10) The basic cost flow model applies only to physical units and not to costs.

11) If the Beginning Balance (BB) equals the Ending Balance (EB), then the Transfers In (TI) equal the Transfers Out (TO).

12) The predetermined overhead rate is calculated by dividing the prior period's overhead cost by the prior period's allocation base (i.e., activity level).

13) Overestimating a period's allocation base will understate the predetermined overhead rate.

14) Regression analysis can be used to estimate the strength of the relationship between a cost and potential allocation bases for that cost.

15) The two-stage cost allocation process allocates costs to multiple cost pools and then to individual cost objects using different allocation bases.

16) If a company has three cost pools, it should have three different cost allocation bases.

17) The selection of an appropriate cost allocation base is more important for single-stage cost allocation systems than for two-stage cost allocation systems.

18) Hospitals are more likely to use a process costing system than a job costing system.

19) Process costing systems do not separate and record direct material and direct labor costs for each individual unit of product.

20) Operation costing is a hybrid system used in manufacturing goods that have some common characteristics and some individual characteristics.

21) Which of the following statements is (are) true regarding product costing?

(A) Individual product costs are relevant for managerial decision-making but irrelevant for preparing the financial statements.

(B) A common decision facing managers is determining the price at which to sell their products or provide their services.

A) Only A is true.

B) Only B is true.

C) Both of these are true

D) Neither of these is true.

22) A system that provides information about the costs of processes, products, and services used and produced by an organization is a:

A) continuous flow process.

B) cost management system.

C) two-stage allocation system.

D) operations cost.

23) Which of the following statements is (are) false regarding cost allocations and product costing?

(A) It is easier to determine the individual product cost for a manufacturer than it is for a wholesaler.

(B) In general, indirect costs are assigned, while direct costs are allocated.

A) Only A is false.

B) Only B is false.

C) Both of these are false.

D) None of these is false.

24) The Cost Flow Diagram for product costing includes all of the following costs except:

A) selling expenses.

B) direct materials.

C) direct labor.

D) fixed manufacturing overhead.

25) Which of the following statements does not reflect one of the fundamental themes underlying the design of cost systems for managerial purposes?

A) Cost systems should have a decision focus.

B) Different cost information is used for different purposes.

C) Cost information for managerial purposes must meet the cost-benefit principle.

D) The primary purpose of cost systems is to gather information to value inventory.

26)

For Case (A) above, what is the Beginning Balance (BB)?

A) $52,000.

B) $82,000.

C) $67,000.

D) $97,600.

27)

For Case (B) above, what is the amount Transferred Out (TO)?

A) $93,900.

B) $101,500.

C) $116,900.

D) $120,700.

28)

For Case (C) above, what is the amount Transferred In (TI)?

A) $12,800.

B) $20,700.

C) $21,500.

D) $29,400.

29) The basic cost flow model is:

A) BB + TO = TI + EB.

B) BB + TO – TI = EB.

C) EB = BB + TI – TO.

D) EB – BB = TO – TI.

30) The basic cost flow model is:

A) EB + TO = TI + BB.

B) BB + TO – TI = EB.

C) EB = BB – TI + TO.

D) EB − BB = TO – TI.

31) The basic cost flow model is:

A) EB + BB = TI + TO.

B) BB + EB = TI + TO.

C) EB − BB = TI − TO.

D) EB − BB = TO − TI.

32) The basic cost flow model is:

A) BB + TO − TI = EB.

B) BB + EB − TO = TI.

C) BB − TI − TO = EB.

D) BB + TI – TO = EB.

33)

For Case (A) above, what is the Ending Balance (EB)?

A) $36,920.

B) $36,520.

C) $34,720.

D) $38,320.

34)

For Case (B) above, what is the Transferred-In (TI)?

A) $96,900.

B) $119,700.

C) $89,500.

D) $66,700.

35)

For Case (C) above, what is the Transferred-Out (TO)?

A) $75,000.

B) $61,800.

C) $68,400.

D) $80,600.

36)

For Case (A) above, what is the Beginning Balance (BB)?

A) $36,400.

B) $32,560.

C) $37,680.

D) $34,040.

37)

For Case (B) above, what is the Ending Balance (EB)?

A) $4,730.

B) $12,530.

C) $46,500.

D) $8,630.

38)

For Case (C) above, what is the Transferred-In (TI)?

A) $146,700.

B) $178,400.

C) $190,790.

D) $185,400.

39)

For Case (A) above, what is the Transferred-Out (TO)?

A) $185,600.

B) $192,600.

C) $126,100.

D) $178,890.

40)

For Case (B) above, what is the Ending Balance (EB)?

A) $139,300.

B) $136,260.

C) $62,950.

D) $56,730.

41)

For Case (C) above, what is the Beginning Balance (BB)?

A) $15,900.

B) $2,100.

C) $11,700.

D) $13,800.

42) Refresh produces soft drinks and sodas. Production of 100,000 liters was started in February, 85,000 liters were completed. Material costs were $38,220 for the month while conversion costs were $16,380. There was no beginning work-in-process; the ending work-in-process was 40% complete. What is the cost of the product that was completed and transferred to finished goods?

A) $54,600.

B) $51,000.

C) $46,410.

D) $38,220.

43) Refresh produces soft drinks and sodas. Production of 100,000 liters was started in February, 85,000 liters were completed. Material costs were $38,220 for the month while conversion costs were $16,380. There was no beginning work-in-process; the ending work-in-process was 40% complete. What is the cost of the product that remains in work-in-process?

A) $16,380.

B) $51,000.

C) $3,600.

D) $9,000.

44) MegaRock produces quick setting concrete mix. Production of 200,000 tons was started in April, 190,000 tons were completed. Material costs were $3,152,000 for the month while conversion costs were $591,000. There was no beginning work-in-process; the ending work-in-process was 70% complete. What is the cost of the product that was completed and transferred to finished goods?

A) $3,610,000.

B) $3,555,850.

C) $2,994,400.

D) $3,743,000.

45) MegaRock produces quick setting concrete mix. Production of 200,000 tons was started in April, 190,000 tons were completed. Material costs were $3,152,000 for the month while conversion costs were $591,000. There was no beginning work-in-process; the ending work-in-process was 70% complete. What is the cost of the product that remains in work-in-process?

A) $591,000.

B) $131,005.

C) $187,150.

D) $133,000.

46) MegaRock produces quick setting concrete mix. Production of 200,000 tons was started in April, 190,000 tons were completed. Material costs were $3,152,000 for the month while conversion costs were $591,000. There was no beginning work-in-process; the ending work-in-process was 70% complete. What is the material cost of the product that remains in work-in-process?

A) $315,200.

B) $157,600.

C) $112,000.

D) $160,000.

47) QuikCard processes credit card receipts for local banks. QuikCard processed 1,400,000 receipts in October. All receipts are processed the same day they are received. October costs were labor of $14,000 and overhead of $28,000. What is the cost to process 1,000 receipts?

A) $10.00.

B) $30.00.

C) $20.00.

D) $42.00.

48) Slider processes rebate requests for a large building supply firm. Slider processed 420,000 rebates in March. All rebates are processed the same day they are received. March costs were labor of $28,000 and overhead of $14,000. What is the cost to process 1,000 rebates?

A) $66.67.

B) $100.00.

C) $10.00.

D) $42.00.

49) When a manufacturing company has a highly automated manufacturing plant producing many different products, what is probably the most appropriate basis of applying overhead costs to work-in-process?

A) Direct labor hours.

B) Direct labor dollars.

C) Machine hours.

D) Cost of materials used.

50) Magnum Company uses direct labor cost as a basis for computing its predetermined overhead rate. In computing the predetermined overhead rate for 2020, the company misclassified a portion of direct labor cost as indirect labor. The effect of this misclassification will be to:

A) understate the predetermined overhead rate.

B) overstate the predetermined overhead rate.

C) there will be no effect on the predetermined overhead rate.

D) Can't tell from the information provided.

51) In a labor-intensive company in which more overhead is used by the more highly skilled and paid employees, which activity base would be most appropriate for applying overhead to production?

A) Direct labor cost.

B) Direct material cost.

C) Direct labor hours.

D) Machine hours.

52) The following information has been gathered for the Harrell Manufacturing Company for its fiscal year ending December 31:

What is the predetermined manufacturing overhead rate per direct labor hour?

A) $3.87.

B) $3.79.

C) $3.83.

D) $3.75.

53) The following information has been gathered for the Harrell Manufacturing Company for its fiscal year ending December 31:

What is the predetermined manufacturing overhead rate, assuming direct labor cost is used as the activity base?

A) 48.4%.

B) 47.2%.

C) 49.0%.

D) 47.8%.

54) The predetermined manufacturing overhead rate for 2020 was $4.00 per direct labor hour; employees were paid $5.00 per hour. If the estimated direct labor cost was $75,000, what was the estimated manufacturing overhead?

A) $15,000.

B) $60,000.

C) $75,000.

D) $93,750.

55) The Bondi Company uses a predetermined overhead rate in applying overhead to production orders on a direct labor cost basis in Department A and on a machine hour basis in Department B. At the beginning of the year, the company made the following estimates:

What predetermined overhead rate would be used in Department A and Department B, respectively?

A) 150% and 300%.

B) 150% and $3.00.

C) $1.50 and 300%.

D) $1.50 and $3.00.

56) Fortify, Inc. uses a predetermined manufacturing overhead rate based on direct labor hours to apply its indirect product costs to jobs. The following information has been collected for the previous year:

Fortify used 25,000 direct labor hours and 50,000 machine hours during the previous year. What is the predetermined overhead rate per direct labor hour?

A) $24.00.

B) $15.00.

C) $14.00.

D) $10.00.

57) Rapid Enterprises applies manufacturing overhead to its cost objects on the basis of 75% of direct material cost. If Job 17X had $72,000 of manufacturing overhead applied to it during May, the direct materials assigned to Job 17X was:

A) $54,000.

B) $72,000.

C) $96,000.

D) $126,000.

58) The Titan Enterprises Company manufactures cleaning spray for public schools. During 2020, the company spent $600,000 on prime costs and $800,000 on conversion costs. Overhead is applied at a rate of 150% of direct labor costs. How much did the company allocate (apply) for manufacturing overhead during 2020?

A) $480,000.

B) $360,000.

C) $320,000.

D) $300,000.

59) Flare Co. manufactures textiles. Among Flare's 2020 manufacturing costs were the following salaries and wages:

What was the amount of Flare's 2020 direct labor? (CPA adapted)

A) $195,000.

B) $165,000.

C) $150,000.

D) $120,000.

60) Flare Co. manufactures textiles. Among Flare's 2020 manufacturing costs were the following salaries and wages:

What was the amount of Flare's 2020 indirect labor? (CPA adapted)

A) $75,000

B) $165,000

C) $150,000

D) $120,000

61) The following direct labor information pertains to the manufacture of product Scour:

What is the standard direct labor cost per unit of product Scour? (CPA adapted)

A) $30.

B) $24.

C) $15.

D) $12.

62) The following direct labor information pertains to the manufacture of product Glaze:

What is the standard direct labor cost per unit of product Glaze? (CPA adapted)

A) $19.44.

B) $25.28.

C) $58.33.

D) $75.83.

63) The cost per unit of the allocation base used to charge overhead to products is the:

A) job cost.

B) predetermined overhead rate.

C) operational cost.

D) process cost.

64) Arbor, Inc. has estimated overhead to be $300,000 and labor hours to be 30,000. Actual overhead turned out to be $310,000 when 30,500 labor hours were worked. The predetermined overhead rate would be:

A) 101.67%.

B) $10.00.

C) $10.16.

D) $10.33.

65) Arbor, Inc. had overhead of $310,000 during the year when $260,000 in labor costs were incurred. Estimates at the start of the year for overhead and labor costs were $300,000 for overhead and $250,000 for labor costs. The predetermined overhead rate would be:

A) 101.67%.

B) 104.00%.

C) 120.00%.

D) 83.33%.

66) The following information has been gathered for Catalyst Legal Services for its fiscal year ending December 31:

What is the predetermined office overhead rate per billable labor hour?

A) $28.60.

B) $26.57.

C) $22.50.

D) $24.22.

67) The following information has been gathered for Catalyst Legal Services for its fiscal year ending December 31:

What is the predetermined office overhead rate per billable labor dollar?

A) 118.10%.

B) 25.00%.

C) 32.21%.

D) 400.00%.

68) The following information has been gathered for Foxmoor Industries for its fiscal year ending December 31:

What is the predetermined factory overhead rate per labor dollar?

A) 178.54%.

B) 211.44%.

C) 118.43%.

D) 198.41%.

69) The following information has been gathered for Foxmoor Industries for its fiscal year ending December 31:

What is the predetermined factory overhead rate per labor hour?

A) $29.01.

B) $31.25.

C) $37.01.

D) $34.36.

70) The following information has been gathered for Foxmoor Industries for its fiscal year ending December 31:

What is the predetermined factory overhead rate per machine hour?

A) $15.625.

B) $14.620.

C) $18.504.

D) $17.314.

71) Savor Flavor Supplies applies manufacturing overhead to its products on the basis of 50% of direct material cost. If a job had $35,000 of manufacturing overhead applied to it during May, the direct materials assigned to the job was:

A) $17,500.

B) $35,000.

C) $70,000.

D) $140,000.

72) Trippett Industries manufactures cleaning products. During the year, the company spent $600,000 on chemicals and $728,000 on conversion costs. Overhead is applied at a rate of 180% of direct labor costs. How much did the company spend on manufacturing overhead during the year?

A) $260,000.

B) $468,000.

C) $128,000.

D) $404,444.

73) The predetermined manufacturing overhead rate for the year was $14.00 per direct labor hour; employees were paid $17.50 per hour. If the estimated direct labor cost was $315,000, what was the estimated manufacturing overhead?

A) $22,500.

B) $90,000.

C) $252,000.

D) $393,750.

74) The predetermined manufacturing overhead rate for the year was 140% of direct labor cost; employees were paid $17.50 per hour. If the estimated direct labor hours were 15,000, what was the estimated manufacturing overhead?

A) $210,000.

B) $187,500.

C) $262,500.

D) $367,500.

75) In computing its predetermined overhead rate, Stiles Company inadvertently left its indirect labor costs out of the computation. This oversight will cause:

A) Manufacturing Overhead to be overapplied.

B) the Cost of Goods Manufactured to be understated.

C) the debits to the Manufacturing Overhead account to be understated.

D) the ending balance in Work-in-Process to be overstated.

76) Which of the following is the correct formula to compute the predetermined overhead rate?

A) Estimated total units in the allocation base divided by estimated total manufacturing overhead costs.

B) Estimated total manufacturing overhead costs divided by estimated total units in the allocation base.

C) Actual total manufacturing overhead costs divided by estimated total units in the allocation base.

D) Estimated total manufacturing overhead costs divided by actual total units in the allocation base.

77) Which of the following would probably be the least appropriate allocation base for allocating overhead in a highly automated manufacturer of specialty valves?

A) Machine-hours.

B) Power consumption.

C) Direct labor-hours.

D) Machine setups.

78) At the beginning of the year, manufacturing overhead for the year was estimated to be $267,500. At the end of the year, actual direct labor-hours for the year were 22,100 hours, the actual manufacturing overhead for the year was $262,500, and manufacturing overhead for the year was overapplied by $13,750. If the predetermined overhead rate is based on direct labor-hours, then the estimated direct labor-hours at the beginning of the year used in the predetermined overhead rate must have been:

A) 22,100 direct labor-hours.

B) 19,900 direct labor-hours.

C) 21,000 direct labor-hours.

D) 21,400 direct labor-hours.

79) The Work in Process inventory account of a manufacturing firm shows a balance of $3,000 at the end of an accounting period. The job cost sheets of two uncompleted jobs show charges of $500 and $300 for materials, and charges of $400 and $600 for direct labor. From this information, it appears that the company is using a predetermined overhead rate, as a percentage of direct labor costs, of:

A) 83%.

B) 120%.

C) 40%.

D) 300%.

80) Markham Corporation uses a job-order costing system. The following data are for last year:

Markham applies overhead using a predetermined rate based on direct labor-hours. What predetermined overhead rate was used last year?

A) $3.55 per direct labor-hour.

B) $3.25 per direct labor-hour.

C) $3.08 per direct labor-hour.

D) $3.36 per direct labor-hour.

81) Hyu Corporation bases its predetermined overhead rate on the estimated labor-hours for the upcoming year. At the beginning of the most recently completed year, the company estimated the labor-hours for the upcoming year at 52,000 labor-hours. The estimated variable manufacturing overhead was $2.78 per labor-hour and the estimated total fixed manufacturing overhead was $1,192,360. The actual labor-hours for the year turned out to be 52,600 labor-hours. The predetermined overhead rate for the recently completed year was closest to:

A) $2.78.

B) $25.45.

C) $25.71.

D) $22.93.

82) Marvel Company uses a predetermined overhead rate in applying overhead to production orders on a labor-cost basis in Department A and on a machine-hours basis in Department B. At the beginning of the most recently completed year, the company made the following estimates:

What predetermined overhead rate would be used in Department A and Department B, respectively?

A) 83% and $5.

B) 83% and $3.

C) 120% and $3.

D) 120% and $5.

83) Moore Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. Data for the most recently completed year appear below:

The predetermined overhead rate for the recently completed year was closest to:

A) $7.89.

B) $30.95.

C) $24.52.

D) $32.41.

84) Ashland Corporation estimates its manufacturing overhead costs to be $160,000 and its direct labor costs to be $320,000 for 2020. The actual manufacturing labor costs were $80,000 for job 1, $120,000 for job 2 and $160,000 for job 3 during 2020. Manufacturing overhead is applied to jobs on the basis of direct labor costs using a predetermined overhead rate. The actual manufacturing overhead cost for the year was $172,000.

The amount of overhead assigned to Job 3 during 2020 was:

A) $80,000.

B) $320,000.

C) $160,000.

D) $71,110.

85) The predetermined overhead rate for manufacturing overhead for Ashland Corporation was $8.00 per direct labor hour. The estimated labor rate was $10.00 per hour. If the estimated direct labor cost was $150,000, what was the estimated manufacturing overhead?

A) $93,750.

B) $75,000.

C) $120,000.

D) $15,000.

86) The Crater Company uses predetermined overhead rates to apply manufacturing overhead to jobs. The predetermined overhead rate is based on labor cost in Dept. A and machine-hours in Dept. B. At the beginning of the year, the company made the following estimates:

What predetermined overhead rates would be used in Dept A and Dept B, respectively?

A) 71% and $4.00.

B) 140% and $4.00.

C) 140% and $4.80.

D) 71% and $4.80.

87) Flambe Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. At the beginning of the most recently completed year, the company estimated the machine-hours for the upcoming year at 22,000 machine-hours. The estimated variable manufacturing overhead was $8.65 per machine-hour and the estimated total fixed manufacturing overhead was $609,400. The predetermined overhead rate for the recently completed year was closest to:

A) $36.35 per machine-hour.

B) $27.70 per machine-hour.

C) $33.32 per machine-hour.

D) $8.65 per machine-hour.

88) Horton Industries Company uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for next year:

Horton estimates that 5,000 direct labor-hours and 10,000 machine-hours will be worked during the year. The predetermined overhead rate per hour will be:

A) $6.80.

B) $6.40.

C) $3.40.

D) $8.20.

89) Spring Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. Data for the upcoming year appear below:

The predetermined overhead rate for the recently completed year was closest to:

A) $6.68.

B) $25.02.

C) $25.59.

D) $18.34.

90) The following data have been recorded for recently completed Job 674 on its job cost sheet. Direct materials cost was $2,039. A total of 32 direct labor-hours and 175 machine-hours were worked on the job. The direct labor wage rate is $14 per labor-hour. The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $15 per machine-hour. The total cost for the job on its job cost sheet would be:

A) $2,967.

B) $2,487.

C) $2,068.

D) $5,112.

91) Job 731 was recently completed. The following data have been recorded on its job cost sheet:

The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $14 per machine-hour. The total cost that would be recorded on the job cost sheet for Job 731 would be:

A) $3,288.

B) $5,094.

C) $4,254.

D) $2,418.

92) Under Pierre Company's job-order costing system, manufacturing overhead is applied to Work in Process inventory using a predetermined overhead rate. During January, Pierre's transactions included the following:

Pierre Company had no beginning or ending inventories. What was the cost of goods manufactured for January? (CMA adapted)

A) $302,000.

B) $310,000.

C) $322,000.

D) $330,000.

93) Buster Corporation, a manufacturing company, has provided data concerning its operations for September. The beginning balance in the raw materials account was $37,000 and the ending balance was $29,000. Raw materials purchases during the month totaled $57,000. Manufacturing overhead cost incurred during the month was $102,000, of which $2,000 consisted of raw materials classified as indirect materials. The direct materials cost for September was:

A) $63,000.

B) $57,000.

C) $65,000.

D) $49,000.

94) Morton Inc. has provided the following data for the month of November. The balance in the Finished Goods inventory account at the beginning of the month was $49,000 and at the end of the month was $45,000. The cost of goods manufactured for the month was $226,000. The actual manufacturing overhead cost incurred was $74,000 and the manufacturing overhead cost applied to Work in Process was $70,000. The adjusted cost of goods sold that would appear on the income statement for November is:

A) $226,000.

B) $230,000.

C) $222,000.

D) $234,000.

95) A company is considering the use of a single-stage cost allocation process. Under what conditions would this choice be justified?

A) The company has many service departments but only one production department.

B) The company produces a few products with similar characteristics in a few departments.

C) The company has no service departments but many production departments.

D) The company produces a wide selection of differing products.

96) Which of the following statements regarding the two-stage cost allocation process is (are) false? 

(A) If a company has three cost pools, then it should also have three different cost allocation bases.

(B) The selection of an appropriate cost allocation base is more important for single-stage cost allocation systems than for two-stage cost allocation systems.

A) Only A is false.

B) Only B is false.

C) Both of these are false.

D) Neither of these is false.

97) Cost pools are:

A) costs that are accumulated before being allocated to cost objects on some common basis.

B) costs that are relevant to decision-making but irrelevant to financial reporting.

C) product costs that are assigned to cost objects using direct labor or machine hours.

D) accounts in the product life cycle from research and development to customer service.

98) The process of first allocating costs to intermediate cost pools and then to the individual cost objects using different allocation bases is a(n):

A) continuous flow process.

B) cost management system.

C) two-stage allocation system.

D) operations cost.

99) Which of the following would be the least appropriate allocation base for allocating overhead in a highly automated (i.e., capital-intensive) manufacturing company?

A) Electricity used.

B) Machine hours.

C) Direct labor hours.

D) Material consumed.

100) A system that mass-produces a single, homogeneous output in a continuous process is a(n):

A) continuous flow process.

B) cost management system.

C) two-stage allocation system.

D) operation costing.

101) A hybrid costing system that is often used when manufacturing goods that have some common characteristics plus some individual characteristics is called:

A) continuous flow process.

B) cost management system.

C) two-stage allocation system.

D) operations costing.

102) Which of the following statements is true?

A) Job costing can only be used when a single unit is produced rather than a batch.

B) Process costing is used when products are customized.

C) Job costing must be used in a continuous flow processing environment.

D) Process costing does not separately record the costs for each unit.

103) For which of the following businesses would a job costing system be appropriate?

A) Law office.

B) Crude oil refinery.

C) Baby formula manufacturer.

D) Soft drink producer.

104) The loan department of a financial corporation makes loans to businesses. The costs of processing these loans are often several thousand dollars. All loans are initially evaluated using the same financial analysis software, but some require outside services such as appraisals and legal services. Which is the most appropriate costing system for the loan department?

A) Job costing.

B) Process costing.

C) Operation costing.

D) Batch costing.

105) The Paris Manufacturing Company produces a single uniform product throughout the year. Which of the following product costing systems should be used by Paris?

A) Job costing.

B) Process costing.

C) Operation costing.

D) Batch costing.

106) Logansville Manufacturing produces lamps for large department stores. For 2020, the two production departments had budgeted allocation bases of 100,000 machine hours in Department 1 and 50,000 direct labor hours in Department 2. The budgeted manufacturing overhead for 2020 was $1,200,000 for Department 1 and $1,000,000 for Department 2. For Job 100, the actual costs incurred in the two departments were as follows:

Job 100 incurred 700 machine hours in Department 1 and 75 in Department 2, and 200 direct labor hours in Department 1 and 250 in Department 2. The company uses a budgeted departmental overhead rate for applying overhead to production. Job 100 consisted of 3,000 lamps.

Required:

Calculate the total cost and per unit cost of Job 100.

107) Job 434 was recently completed. The following data have been recorded on its job cost sheet:

The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $12 per machine-hour.

Required:

Compute the unit product cost that would appear on the job cost sheet for this job.

108) Job 599 was recently completed. The following data have been recorded on its job cost sheet:

The company applies manufacturing overhead on the basis of direct labor-hours. The predetermined overhead rate is $20 per direct labor-hour.

Required:

Compute the unit product cost that would appear on the job cost sheet for this job.

109) Assume that the following events occurred at a division of Sawyer Enterprises for the current year.

(1) Purchased $900,000 in direct materials.

(2) Incurred direct labor costs of $520,000.

(3) Determined that manufacturing overhead was $820,000.

(4) Transferred 75% of the materials purchased to Work-in-Process Inventory.

(5) Completed work on 60% of the work in process. Costs assigned equally across all work-in-process.

(6) The inventory accounts have no beginning balances. All costs incurred were debited to the appropriate account and credited to Accounts Payable.

Required:

Compute the following amounts in the Work-in-Process Inventory account:

(a) Transfers-in (TI).

(b) Transfers-out (TO).

(c) Ending balance (EB).

110) Assume that the following events occurred at a division of Advanced Enterprises for the current year.

(1) Purchased $450,000 in direct materials.

(2) Incurred direct labor costs of $260,000.

(3) Determined that manufacturing overhead was $410,000.

(4) Transferred 70% of the materials purchased to Work-in-Process Inventory.

(5) Completed work on 65% of the work in process. Costs assigned equally across all work-in-process.

(6) The inventory accounts have no beginning balances.

Required:

Compute the following amounts in the Work-in-Process Inventory account:

(a) Transfers-in (TI).

(b) Transfers-out (TO).

(c) Ending balance (EB).

111) Determine the missing values from the table below:

112) Determine the missing values from the table below:

113) Flynn and Morgan Refiners began business on July 1. The following operations data are available for July and the one product the company produces:

All production at Flynn and Morgan is sold as it is produced (i.e., there are no finished goods inventories).

Required:

(a) Compute cost of goods sold for July.

(b) What is the value of the work-in-process inventory on July 31?

114) Mason Industries restarted operations on September 1 after a 3-month shutdown. There were no beginning inventories. The following operations data are available for September and the one product the company refines:

All production at Mason is sold immediately. 

Required:

(a) Compute cost of goods sold for September.

(b) What is the value of the work-in-process inventory on September 30?

115) Hindsville produces a cleaning solvent. Production of 200,000 gallons was started in February, 170,000 gallons were completed. Material costs were $138,220 for the month while conversion costs were $116,380. There was no beginning work-in-process; the ending work-in-process was 60% complete.

Required:

(a) What is the total cost of the product that was completed and transferred to finished goods?

(b) What is the value of the ending work-in-process?

116) Fender Magic produces a paint solvent. Production of 400,000 pounds was started in February, 350,000 pounds were completed. Material costs were $260,130 for the month while conversion costs were $312,620. There was no beginning work-in-process; the ending work-in-process was 90% complete.

Required:

(a) What is the total cost of the product that was completed and transferred to finished goods?

(b) What is the value of the ending work-in-process?

117) EZ Set produces a quick setting concrete powder. Production of 15,000 tons was started in September, 14,000 tons were completed. Material costs were $394,670 for the month while conversion costs were $201,730. There was no beginning work-in-process; the ending work-in-process was 20% complete.

Required:

(a) What is the total cost of the product that was completed and transferred to finished goods?

(b) What is the value of the ending work-in-process?

118) Fill in the missing items for the following inventories:

119) Fill in the missing items for the following inventories:

120) Assume that the following T-accounts represent data from the Morgensen Corporation's accounting records.

Required:

(a) Find the missing amounts represented by the letters a, b, c, d and e.

(b) Determine the company's predetermined overhead rate, based on labor cost.

BB = Beginning Balance; EB = Ending Balance TO = Transferred Out

(1) Denotes materials purchased 

121) Smooth Sailing Company experienced the following events during 2020:

(1) Purchased $1,800,000 of lumber and other materials for building boats.

(2) Incurred $200,000 for advertising.

(3) Paid $60,000 to have lumber transported to its factory.

(4) Had sales revenue of $6,000,000 during the year.

(5) Incurred $400,000 of general and administrative expenses.

(6) Took a periodic inventory at year-end and determined that material costing $400,000 was on hand. The inventory at the beginning of the year was $200,000.

(7) All costs incurred were added to the appropriate accounts. All sales were on credit.

Required:

Solve for the following items in the company's Raw Materials inventory account:

a) Transfers in (TI).

b) Beginning balance (BB).

c) Transfers out (TO).

d) Ending balance (EB).

122) Gentry Cabinetry produces two models of home shelving, the Basic and the Mega. Data on operations and costs for November are:

Required:

Compute the predetermined overhead rate, assuming Gentry Cabinetry uses:

(a) Direct labor hours to allocate overhead costs.

(b) Direct labor costs to allocate overhead costs.

(c) Machine hours to allocate overhead costs.

(d) Compute the unit cost for each model using direct labor costs to allocate overhead.

123) Gentry Cabinetry produces two models of home shelving, the Basic and the Mega. Data on operations and costs for November are:

Required:

Compute the unit cost for each model, assuming Gentry Cabinetry uses:

(a) Direct labor hours to allocate overhead costs. 

(b) Direct labor costs to allocate overhead costs. 

(c) Machine hours to allocate overhead costs.

124) Barton Carts produces two models of push carts, the Standard and the Deluxe. Data on operations and costs for the month are:

Required:

Compute the total cost for each model, assuming Barton Carts uses:

(a) Direct labor hours to allocate overhead costs.

(b) Direct labor costs to allocate overhead costs.

(c) Machine hours to allocate overhead costs.

125) Misner Office Products produces three models of commercial shelving, the Basic, the Advanced and the Superior. Data on operations and costs for the month are:

Required:

Compute the predetermined overhead rate, assuming Misner Office Products uses:

(a) Direct labor hours to allocate overhead costs.

(b) Direct labor costs to allocate overhead costs.

(c) Machine hours to allocate overhead costs.

(d) Compute the unit cost for each model using direct labor costs to allocate overhead.

126) Misner Office Products produces three models of commercial shelving, the Basic, the Advanced and the Superior. Data on operations and costs for the month are:

Required:

Compute the unit cost for each model, assuming Misner Office Products uses:

(a) Direct labor hours to allocate overhead costs.

(b) Direct labor costs to allocate overhead costs.

(c) Machine hours to allocate overhead costs.

127) Pierce Carts produces three models of push carts, the Economy, the Standard, and the Deluxe. Data on operations and costs for the month are:

Required:

Compute the total cost for each model, assuming Pierce Carts uses:

(a) Direct labor hours to allocate overhead costs.

(b) Direct labor costs to allocate overhead costs.

(c) Machine hours to allocate overhead costs.

128) The management of Marysville Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 48,000 machine-hours. In addition, capacity is 53,000 machine-hours and the actual activity for the year is 47,700 machine-hours. All of the manufacturing overhead is fixed and is $1,144,800 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year, as well as the manufacturing overhead at capacity, and the actual amount of manufacturing overhead for the year. Job J42O, which required 40 machine-hours, is one of the jobs worked on during the year.

Required:

(a) Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated amount of the allocation base.

(b) Determine how much overhead would be applied to Job J42O if the predetermined overhead rate is based on the estimated amount of the allocation base.

(c) Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.

(d) Determine how much overhead would be applied to Job J42O if the predetermined overhead rate is based on the amount of the allocation base at capacity.

129) The management of Norbert Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the year. The company's controller has provided an example to illustrate how this new system would work. In this example, the allocation base is machine-hours and the estimated amount of the allocation base for the upcoming year is 70,000 machine-hours. In addition, capacity is 82,000 machine-hours and the actual activity for the year is 72,900 machine-hours. All of the manufacturing overhead is fixed and is $4,132,800 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year. Job O65A, which required 300 machine-hours, is one of the jobs worked on during the year.

Required:

(a) Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of the allocation base at capacity.

(b) Determine how much overhead would be applied to Job O65A if the predetermined overhead rate is based on the amount of the allocation base at capacity.

130) Linger Products uses a two-stage allocation method to assign costs to its products. The following information has been provided for March:

Required:

(a) Allocate the manufacturing overhead to two cost pools: machine-related and labor-related.

(b) Compute the predetermined overhead rate for the two pools, using machine hours and direct labor hours as the bases.

(c) Compute the total costs of production for each of the two products.

131) Airborne Industries uses a two-stage allocation method to assign costs to its products. The following information has been provided for the month:

Required:

(a) Allocate the manufacturing overhead to two cost pools: machine-related and labor-related.

(b) Compute the predetermined overhead rate for the two pools, using machine hours and direct labor hours as the bases.

(c) Compute the total costs of production for each of the three products.

132) Airborne Industries uses a two-stage allocation method to assign costs to its products. The following information has been provided for the month:

Required:

(a) Allocate the manufacturing overhead to two cost pools: machine-related and labor-related.

(b) Compute the predetermined overhead rate for the two pools, using machine hours and direct labor cost as the bases.

(c) Compute the unit cost of production for each of the three products.

133) Adolphus Instruments manufactures two models of calculators. The research model is the RES-1 and the student model is the AS-2. Both models are assembled in the same plant and require the same assembling operations. The difference is in the cost of the internal components. The following data are available for February.

Adolphus uses operations costing and assigns conversion costs on the number of units assembled.

Required:

Compute the cost of the RES-1 and AS-2 models for February.

134) Carter Furniture manufactures three models of tables: oak, cherry, and walnut. All models are assembled in the same plant and require the same assembling operations. The difference is in the cost of the wood. The following data are available for July.

Carter uses operations costing and assigns conversion costs on the number of tables built.

Required:

Compute the cost of the each of the three models for July.

135) When designing a cost system, what points should you consider before starting the design?

136) If costs are allocated on a somewhat arbitrary base, what purpose does computing product costs have?

137) What is each component of the basic cost flow model? Describe each component.

138) Why might a company use direct labor cost as an overhead allocation base rather than using direct labor hours?

139) Describe the two-stage allocation method. When is it important to use a two-stage approach rather than a single-stage approach?

140) How does job costing differ from process costing?

141) Why is operations costing often called a "hybrid" system?

142) Thompson Metal Corporation (TMC) supplies various types of machine tools to manufacturing companies. TMC has always paid a lot of attention to the quality of its products. Recently, an outside supplier has approached TMC to supply an important and intricate component of one of its more advanced tools that TMC has been manufacturing in-house. Sam Weiss, a junior accountant at TMC, has collected the following information regarding this proposal.

The costs of manufacturing one unit of this component internally are as follows:

The outside supplier has quoted a price of $90 per unit for supplying this component. The following is a conversation that took place among the manufacturing manager (Dana Rice), the buyer (Emily Scanlon), and Sam Weiss.

Weiss: I think that we should continue to manufacture internally because we can save $1.90 per unit on this component.

Rice: According to your report, we would save $1.90 per unit, but I do not agree with those numbers.

Weiss: What do you mean? I have followed the same costing guidelines this company has used for years. I have even cross-checked my numbers with historical data and know for sure that the overhead rates which I have used are correct.

Rice: I am sure you have done your job thoroughly, but I think that our costing system is archaic. This component is complex and difficult to manufacture. I believe that our overhead allocation method does not accurately capture the production difficulties and the additional resources that are devoted to the manufacture of this component. For example, a significant portion of our quality problems are due to this component. We spend close to a third of our quality inspection time on just this component alone, but that is not reflected. These quality problems cause delays in getting this component to the assembly department, and that causes a delay in getting the final product to the customers. Many of our customers are expecting just-in-time deliveries, and they get upset when we're late.

Scanlon: I know that the supplier that has approached us has a strong reputation for quality. Therefore, we can rest assured that we will have negligible quality problems.

Rice: Sam, your report does not consider this additional benefit from buying outside. I would appreciate it if you can rework your numbers to more accurately reflect the true costs associated with manufacturing this component internally.

Required:

(a) Assume the role of Sam Weiss. What are the different elements of costs that are likely to be associated with the manufacture of the component? Does the current costing system capture these costs?

(b) Recommend improvements in the costing system.

(c) How can Weiss quantify "qualitative" benefits such as quality and on-time delivery?

143) Silverton Manufacturing Company builds highly sophisticated engine parts for cars competing in stock racing and drag racing. The company uses a normal costing system that applies factory overhead on the basis of direct labor-hours. For 2020, the company estimated that it would incur $256,000 in factory overhead costs and 16,000 direct labor-hours. The April 1, 2020, balance in inventory accounts follow:

Job Y12 is the only job in process on April 1, 2020. The following transactions were recorded for the month of April:

(1) Purchased materials on account, $180,000.

(2) Issued $182,000 of materials to production, $8,000 of which was for indirect materials.

Cost of direct materials issued:

(3) Incurred and paid payroll cost of $40,920; Direct labor cost ($20/hour; total 1,196 hours):

(4) Recognized depreciation for the month:

Manufacturing asset $4,400

Selling and administrative asset 3,400 

(5) Paid advertising expenses $12,000.

(6) Incurred factory utility costs 2,600.

(7) Incurred other factory overhead costs 3,200.

(8) Applied factory overhead to production on the basis of direct labor-hours.

(9) Completed Job Y12 during the month and transferred it to the finished goods warehouse.

(10) Sold Job Z11 on account for $118,000.

(11) Received $50,000 of collections on account from customers during the month.

Required:

(a) Calculate the company's predetermined overhead rate.

(b) What was the balance of the Materials Inventory account on April 30, 2020?

(c) What was the balance of the Work-in-Process Inventory control account on April 30?

144) Ryan & Marks, Design Consultants, has the following budget for the year:

The firm uses direct labor as the cost driver to apply overhead to clients. During January, the firm worked for many clients; data for two of them follow:

Required:

(a) Compute the company'sRyan & Marks budgeted overhead rate. Explain how this is used.

(b) Compute the amount of overhead to be charged to the Henderson and Fisher accounts using the predetermined overhead rate calculated in requirement (a).

(c) Compute the separate job cost for the Henderson and Fisher accounts.

145) The following information is for Ogden Company for the month of November: 

1. Factory overhead costs are applied to jobs at the predetermined rate of $80 per labor-hour. Job X-14 incurred 2,300 labor-hours; Job SM-4 used 1,850 labor-hours.

2. Job X-14 was shipped to customers during November. Job X-14 had a gross margin of 24 percent based on manufacturing cost.

3. Job SM-4 was still in process at the end of November.

4. Factory utilities, factory depreciation, and factory insurance incurred is summarized by these factory vouchers, invoices, and cost memos:

5. The Company purchased the following direct materials and indirect materials:

6. Direct materials and indirect materials used are as follows: