Solution Manual for Cornerstones of Managerial Accounting 6th
Edition by Mowen Hansen Heitger
9781305103962
ISBN 1305103963
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1. Manufacturing and service firms producing unique products or services require job-order accounting systems.
a. True
b. False ANSWER: True
2. The key feature of job-order costing is that the cost of one job differs from that of another job and must be kept track of separately.
a. True
b. False ANSWER: True
3. Production costs consist of direct materials, direct labor, and overhead.
a. True
b. False ANSWER: True
4. The difference between actual overhead and applied overhead is called an overhead variance.
a. True
b. False ANSWER: True
5. If actual overhead is greater than applied overhead, the variance is called underapplied overhead.
a. True
b. False ANSWER: True
6. Costs reported on the financial statements must be estimated costs.
a. True
b. False ANSWER: False
7. If the overhead variance is immaterial, it is allocated among the ending balances of Work in Process, Finished Goods, and Cost of Goods Sold.
a. True
b. False ANSWER: False
Chapter 5 - Job-Order Costing
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8. Departmental overheads cannot be added together to get plantwide overhead.
a. True
b. False
ANSWER: False
RATIONALE: Departmental overheads can be added together to get plantwide overhead.
9. In an actual cost system, actual direct materials, actual direct labor and estimated overhead are used to determine unit cost.
a. True
b. False ANSWER: False
10. A job-order cost sheet is the source document where direct labor costs are assigned to individual jobs.
a. True
b. False ANSWER: False
11. Using a time ticket, the cost accounting department can enter the cost of direct materials onto the correct job-order cost sheet.
a. True
b. False ANSWER: False
12. The work-in-process account consists of all the job-order cost sheets for the completed jobs.
a. True
b. False ANSWER: False
RATIONALE: The work-in-process account consists of all the job-order costs sheets for the unfinished jobs.
13. There are other source documents besides the time ticket and the material requisition form used to fill out the joborder cost sheet.
a. True
b. False ANSWER: True
14. The raw materials account is an inventory account located on the income statement.
a. True
b. False ANSWER: False
15. The three manufacturing cost elements are direct materials, direct labor, and overhead.
a. True
b. False ANSWER: True
16. The use of normal costing means that actual overhead costs are assigned directly to jobs.
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a. True
b. False
Job-Order Costing
ANSWER: False
RATIONALE: The use of normal costing means that actual overhead costs are not assigned directly to jobs. Estimated overhead is used in a normal costing system. Actual overhead is recorded to the overhead control account and then at the end of the period if the variance is immaterial it is closed to cost of goods sold.
17. The use of a departmental rate has the advantage of being simple and reduces data collection requirements.
a. True
b. False
ANSWER: False
18. Actual overhead is reconciled with applied overhead at the beginning of the period.
a. True
b. False
ANSWER: False
RATIONALE: Actual overhead is reconciled with applied overhead at the end of the period.
19. In a normal costing system, actual overhead is used to arrive at the cost of goods manufactured.
a. True
b. False
ANSWER: False
20. The cost of goods sold appearing on the income statement as an expense, when using a normal costing system, is the normal cost of goods sold.
a. True
b. False
ANSWER: False
RATIONALE: The cost of goods sold before an adjustment for an overhead variance is called normal cost of goods sold. After the adjustment for the period’s overhead variance takes place it is called adjusted cost of goods sold, which is the amount that appears on the income statement.
21. When materials are put into production, they are taken from the Raw Materials account and put into the Work in Process account.
a. True
b. False
ANSWER: True
22. Overhead costs are assigned to Finished Goods using a predetermined rate.
a. True
b. False
ANSWER: False
RATIONALE: Overhead costs are assigned to Work in Process using a predetermined rate.
23. Actual overhead costs are accumulated in the overhead control account.
a. True
b. False
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Chapter 5 - Job-Order Costing
ANSWER: True
24. The cost of completed units is always debited to Work-in-Process and credited to Finished Goods.
a. True
b. False
ANSWER: False
RATIONALE: The cost of completed units is credited to Work-in-Process and debited to Finished Goods.
25. The journal entry for $17,000 materials purchased on account is:
a. True
b. False
26. In job-order costing, the journal entry for $7,200 raw materials requisitioned for use in production is:
b. False
True
27. In job-order costing, the journal entry for $1,700 of unpaid direct labor is:
a. True b. False
True
28. In job-order costing, the journal entry for overhead applied at the rate of $3 per direct labor hour when 210 direct labor hours were worked is:
a. True
b. False ANSWER: False
RATIONALE: The journal entry for overhead applied at the rate of $3 per direct labor hour when 210 direct labor hours were worked is:
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Raw Materials 17,000 Accounts Payable 17,000
ANSWER:
True
Work in Process 7,200 Raw Materials 7,200
a. True
ANSWER:
Work in Process 1,700 Wages Payable 1,700
ANSWER:
Work in Process 630 Applied Overhead 630
Work in Process 630 Overhead Control 630
Chapter 5 - Job-Order Costing
29. In job-order costing, the journal entry for a completed job costing $7,000 but not sold is: Finished Goods 7,000 Work in Process 7,000
a. True
b. False
ANSWER: True
30. The journal entry for $17 of underapplied overhead is: Cost of Goods Sold 17 Applied Overhead 17
a. True
b. False
ANSWER: False
RATIONALE: The journal entry for $17 of underapplied overhead is:
31. A is one distinct unit or set of units.
ANSWER: job
32. In a costs are accumulated by job.
ANSWER: Job-order costing system
33. is a costing system that accumulates production costs by process or by department for a given period of time.
ANSWER: Process-costing system
34. Strict are rarely used because they cannot provide accurate unit cost information on a timely basis.
ANSWER: actual cost systems
35. A(n) determines unit cost by adding actual direct materials, actual direct labor, and estimated overhead.
ANSWER: normal cost system
36. The is calculated at the beginning of the year by dividing the total estimated annual overhead by the total estimated level of cost driver.
ANSWER: predetermined overhead rate
37. is found by multiplying the predetermined overhead rate by the actual use of the associated activity for the period.
ANSWER: Applied overhead
38. The difference between actual overhead and applied overhead is called a (n) _________________.
ANSWER: overhead variance
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Cost of Goods Sold
Overhead Control 17
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39. If actual overhead is greater than applied overhead, then the variance is called ___________________.
ANSWER: underapplied overhead
40. A is a single overhead rate calculated by using all estimated overhead for a factory divided by the estimated activity level across the entire factory.
ANSWER: plantwide overhead rate
41. The is subsidiary to the work-in-process account and is the primary document for accumulating all costs related to a particular job.
ANSWER: job-order cost sheet
42. A is used by the cost accounting department to enter the cost of direct materials onto the correct job-order cost sheet.
ANSWER: materials requisition form
43. A source document by which direct labor costs are assigned to individual jobs is known as a _______________.
ANSWER: time ticket
44. The cost of goods sold before an adjustment for an overhead variance is called ____________________.
ANSWER: normal cost of goods sold
45. is the amount that appears as an expense on the income statement after the adjustment for the period’s overhead variance is recorded.
ANSWER: Adjusted cost of goods sold
46. When materials are requested for production the cost is removed from and added to ____________.
ANSWER: raw materials, work-in-process
47. Applied overhead costs are charged to ________________.
ANSWER: Work in Process
48. When units are sold, their total cost is debited to and credited to ____________.
ANSWER: Cost of Goods Sold, Finished Goods
49. are directly responsible for creating the products or services sold to customers.
ANSWER: Producing departments
50. The of allocation recognizes all interactions among support departments.
ANSWER: reciprocal method
51. Which of the following is not a characteristic of job-order costing?
a. Wide variety of distinct products.
b. Unit cost is computed by dividing process costs of the period by the units produced in the period.
c. Unit cost is computed by dividing total job costs by units produced on that job.
d. Costs accumulated by job.
e. Typically, the cost of one job is different from that of another job.
ANSWER: b
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52. How are unit costs calculated?
a. by dividing total cost associated with the units produced by the unit cost
b. by adding all variable costs per unit associated with the units produced
c. by dividing total fixed costs by the number of units produced
d. by dividing total cost associated with the units produced by the number of units produced
e. by adding unit variable costs to total fixed costs
ANSWER: d
53. Production costs do not include
a. direct materials.
b. direct labor.
c. variable overhead.
d. fixed overhead.
e. All of these are production costs.
ANSWER: e
54. Which of the following are easy to trace to individual jobs?
a. direct materials and overhead
b. direct materials and direct labor
c. direct labor and overhead
d. overhead and indirect labor
e. depreciation on machinery and indirect labor
ANSWER: b
55. Firms in the business are most likely to use a process-costing system.
a. printing
b. dental
c. construction
d. petroleum
e. automobile repair
ANSWER: d
56. Which of the following is the assignment process used with normal costing?
a. Actual direct materials, actual direct labor and actual overhead cost are assigned to products.
b. Actual direct materials cost is assigned to products, but direct labor and overhead costs are assigned using predetermined rates.
c. Actual direct labor cost is assigned to products, but direct material and overhead costs are assigned using predetermined rates.
d. Actual direct material and direct labor costs are assigned to products, but overhead costs are assigned using predetermined rates.
e. All manufacturing costs are assigned using predetermined rates.
ANSWER: d
57. Which method of measuring costs associated with production is more widely used in practice?
a. normal costing
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b. actual costing
c. both are used equally.
d. neither one is used.
e. cannot be determined.
ANSWER: a
58. Which type of cost poses the most problems in using an actual cost system?
a. direct materials
b. overhead
c. direct labor
d. All of these are correct.
e. None of these are correct.
ANSWER: b
59. Which of the following statements is true about overhead?
a. Overhead costs are not incurred uniformly throughout the year.
b. Overhead costs have a definite, identifiable relationship with units produced.
c. Low production in one month would give rise to low unit overhead costs.
d. All of these are correct.
e. None of these are correct.
ANSWER: a
Figure 5-1.
Morrow Company applies overhead based on direct labor hours. At the beginning of the year, Morrow estimates overhead to be $620,000, machine hours to be 180,000, and direct labor hours to be 40,000. During February, Morrow has 4,200 direct labor hours and 8,000 machine hours.
60. Refer to Figure 5-1. What is the predetermined overhead rate?
a. $3.44 per machine hour
b. $147.62 per direct labor hour
c. $15.50 per direct labor hour
d. $77.50 per machine hour
e. None of these are correct.
ANSWER: c
RATIONALE: Predetermined overhead rate = $620,000 / 40,000 = $15.50 per direct labor hour
61. Refer to Figure 5-1. What is the amount of overhead applied for February?
a. $65,100
b. $42,000
c. $24,000
d. $78,200
e. $66,410
ANSWER: a
RATIONALE: Predetermined rate = $15.50 per direct labor hour
Applied overhead = $15.50 × 4,200 = $65,100
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62. Refer to Figure 5-1. If the actual overhead for February is $64,700, what is the overhead variance and is it overapplied or underapplied?
a. $400 underapplied
b. $200 overapplied
c. $1,000 underapplied
d. $400 overapplied
e. $600 overapplied
ANSWER: d
RATIONALE: $64,700 – $65,100 = $400 overapplied
Figure 5-2.
At the beginning of the year, Kyla Inc. estimated that overhead would be $880,000 and direct labor hours would be 220,000. At the end of the year, actual overhead was $920,600 and there were actually 230,000 direct labor hours.
63. Refer to Figure 5-2. What is the overhead variance?
a. $600 underapplied
b. $600 overapplied
c. $200 underapplied
d. $400 overapplied
e. $800 underapplied
ANSWER: a
RATIONALE: Predetermined overhead rate = $880,000 / 220,000 = $4 per direct labor hour
Applied overhead = $4 × 230,000 = $920,000
Overhead variance = $920,600 – $920,000 = $600 Underapplied overhead
64. Refer to Figure 5-2. What is the predetermined overhead rate?
a. $4 per direct labor hour
b. $2.63 per direct labor hour
c. $4.18 per direct labor hour
d. $880,000
e. None of these are correct.
ANSWER: a
RATIONALE: Predetermined overhead rate = $880,000 / 220,000 = $4 per direct labor hour
Figure 5-3.
Mitchell's Softball Gloves Company estimated the following at the beginning of the year:
Mitchell uses departmental overhead rates. In the assembly department, direct labor hours are used to apply overhead. Machine hours are used to apply overhead in the testing department.
Actual data for August is as follows:
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Assembly Department Testing Department Total Overhead $570,000 $130,000 $700,000 Direct Labor Hours 142,500 hrs. 32,500 hrs. 175,000 hrs. Machine Hours 32,000 hrs. 65,000 hrs. 97,000 hrs.
Assembly Department Testing Department Total
Chapter 5 -
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65. Refer to Figure 5-3. If Mitchell uses a plantwide overhead rate based on direct labor hours, instead of departmental rates, what is the predetermined overhead rate rounded to the nearest cent?
a. $5 per direct labor hour
b. $7.22 per machine hour
c. $4 per direct labor hour
d. $2.57 per direct labor hour
e. $0.52 per direct labor hour
ANSWER: c
RATIONALE: Predetermined overhead rate = $700,000 / $175,000 = $4 per direct labor hour
66. Refer to Figure 5-3. Using departmental overhead rates, which of the following is correct?
a. Applied overhead for the assembly department is $54,000.
b. Applied overhead for the testing department is $4,860.
c. Applied overhead for both departments combined is $63,720.
d. Overhead for the assembly department is underapplied.
e. None of these are correct.
ANSWER: a
RATIONALE: Assembly applied overhead = $4 per direct labor hour × 13,500 direct labor hours = $54,000
Testing applied overhead = $2 per machine hour × 11,000 = $22,000
Combined applied overhead = $54,000 + $22,000 = $76,000
Overhead for the assembly department is overapplied ($54,000 applied $42,000 actual)
67. Refer to Figure 5-3. Mitchell decides to continue using departmental overhead rates. What are the predetermined rates for the Assembly and Testing departments respectively?
a. assembly: $4 per direct labor hour; testing: $2 per machine hour
b. assembly: $2 per direct labor hour; testing: $4 per machine hour
c. assembly: $4 per direct labor hour; testing: $4 per direct labor hour
d. assembly: $7.22 per machine hour; testing: $7.22 per machine hour
e. None of these.
ANSWER: a
RATIONALE: Assembly: $570,000 / 142,500 = $4 per direct labor hour
Testing: $130,000 / 65,000 = $2 per machine hour
68. Refer to Figure 5-3. Mitchell decides to continue using departmental overhead rates. If a job spends 4 hours in assembly and 3 hours in testing, what is the amount of overhead charged to the job?
a. $22
b. $20
c. $28
d. $50.54
e. None of these.
ANSWER: a
RATIONALE: ($4 × 4 hrs) + ($2 × 3 hrs) = $22
10 Overhead $42,000 $12,000 $54,000 Direct Labor Hours 13,500 hrs. 2,430 hrs. 15,930 hrs. Machine Hours 4,020 hrs. 11,000 hrs. 15,020 hrs.
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69. The predetermined overhead rate is calculated by
a. estimated annual overhead/Estimated manufacturing cost.
b. actual annual overhead/Estimated annual activity level.
c. estimated annual overhead/Actual annual activity level.
d. actual annual overhead/Actual annual activity level.
e. estimated annual overhead/Estimated annual activity level.
ANSWER: e
70. The overhead variance is least likely to be
a. zero (actual overhead equals applied overhead).
b. underapplied.
c. overapplied.
d. immaterial.
e. underapplied and material.
ANSWER: a
71. The unit cost of a job consists of the total costs of
a. materials used on the job.
b. labor worked on the job.
c. applied overhead.
d. All of these are correct.
e. None of these are correct.
ANSWER: d
72. Smith has applied overhead of $73,000 and actual overhead of $87,600 for the month of November. It applies overhead based on direct labor hours and those equaled 14,600 in November. Overhead for the year was estimated to be $900,000. How many direct labor hours were estimated for the year?
a. 175,200
b. 180,000
c. $5
d. 150,000
e. $6
ANSWER: b
RATIONALE: Predetermined overhead rate = $73,000 / 14,600 = $5 per direct labor hour
Direct labor hours = $900,000 / $5 per direct labor hour = 180,000
73. At the beginning of the year, Wilson Company estimated the following:
Overhead $360,000
Direct labor hours 60,000 hrs.
Wilson used normal costing and applies overhead on the basis of direct labor hours. For the month of September, direct labor hours equaled 9,350 and actual overhead equaled $46,750.
Calculate the overhead applied to production in September.
a. $56,100
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Chapter 5 - Job-Order Costing
b. $30,000
c. $46,750
d. $5 per direct labor hour
e. None of these.
ANSWER: a
RATIONALE: Predetermined overhead rate = $360,000 / 60,000 = $6 per direct labor hour
Applied overhead = $6 × 9,350 = $56,100
74. On February 1, Job 12 had a beginning balance of $200. During February, direct materials of $500 and direct labor of $200 were added to the job. Overhead is applied to production at a rate of 55% of direct labor. There are 5 units in Job 12.
What is the unit cost?
a. $202
b. $1,010
c. $162
d. $810
e. None of these.
ANSWER: a
75. Manufacturing overhead
a. consists of all costs other than direct materials.
b. consists of all manufacturing costs other than direct materials.
c. consists of all costs other than direct materials and direct labor.
d. consists of all manufacturing costs other than direct materials and direct labor.
ANSWER: d
76. The predetermined overhead rate is usually calculated
a. at the end of each month.
b. at the beginning of each month.
c. at the beginning of the year.
d. at the end of the year.
ANSWER: c
77. A normal job-order costing system is a system that uses:
a. actual costs for direct materials and estimated costs for direct labor and overhead.
b. estimated costs for direct materials, direct labor, and overhead.
c. actual costs for direct materials and direct labor and estimated costs for overhead.
d. actual costs for direct materials and overhead, estimated costs for direct labor.
ANSWER: c
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RATIONALE: Beginning balance $ 200 DM 500 DL 200 OH 110 Total $1,010 $1,010
$202
/ 5 =
Chapter 5 -
Job-Order Costing
78. The Kraig Corporation manufactures custom-made purses. The following data pertains to Job XY5:
Direct materials placed into production
$4,000
Direct labor hours worked 50 hours
Direct labor rate per hour $15
Machine hours worked 100 hours
Plantwide overhead is applied using a plant-wide rate based on direct labor hours. Plantwide overhead was budgeted at $60,000 for the year and the direct labor hours were estimated to be 15,000. Job XY5 consists of 50 units. What is overhead cost assigned to Job XY5?
a. $200
b. $400
c. $750
d. $1,500
ANSWER: a
RATIONALE: SUPPORTING CALCULATIONS:
$60,000 / 15,000 = $4; $4 × 50 = $200
79. Carlson Company uses a predetermined rate to apply overhead. At the beginning of the year, Carlson estimated its overhead costs at $240,000, direct labor hours at 40,000, and machine hours at 10,000. Actual overhead costs incurred were $249,280, actual direct labor hours were 41,000, and actual machine hours were 11,000.
If the predetermined overhead rate is based on machine hours, what is the total amount credited to the plantwide overhead account for the year for Carlson?
a. $249,280
b. $246,000
c. $240,000
d. $264,000
ANSWER: d
RATIONALE: SUPPORTING CALCULATIONS: $24 × 11,000 = $264,000
80. The document that lists the total cost for a single job is a
a. job-order cost sheet.
b. materials requisition form.
c. time ticket.
d. purchase order.
e. None of these are correct.
ANSWER: a
81. Which of the following is true about the job-order cost sheet?
a. It is prepared for every job.
b. It is subsidiary to the work-in-process account.
c. It is the primary document for accumulating all costs related to a particular job.
d. It contains all information pertinent to a job.
e. All of these are correct.
ANSWER: e
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82. Which of the following is not on a time ticket?
a. employee's name
b. employee's wage rate
c. hours worked on each job
d. cost of materials
e. All of these are on a time ticket.
ANSWER: d
83. Which form asks for type, quantity, unit price of direct materials issued, and for the number of the job?
a. time ticket
b. materials requisition form
c. job-order cost sheet
d. None of these are correct.
e. All of these are correct.
ANSWER: b
84. A source document that would not be used to help decide the cost of a job when using normal costing is (are)
a. a material requisition form.
b. a time ticket for direct labor.
c. a time ticket for indirect labor.
d. a material requisition form and a time ticket for direct labor.
e. all items listed are helpful to decide the cost of a job.
ANSWER: c
85. Which of the following costs is not included on a job-order cost sheet?
a. direct material costs
b. applied plantwide overhead costs
c. direct labor costs
d. actual plantwide overhead costs
ANSWER: d
86. What items may be on a materials requisition form to maintain proper control over a firm's inventory of direct materials?
a. cost of supplies
b. cost of lubricants for production machinery
c. the date and a signature
d. All of these are correct.
e. None of these are correct.
ANSWER: c
87. Time tickets are filled out for
a. indirect laborers.
b. direct laborers.
c. both direct laborers and indirect laborers.
Chapter 5 -
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Chapter 5 - Job-Order Costing
d. direct materials.
e. supervisors.
ANSWER: b
88. Which of the following is not true about job-order costing?
a. It is used in firms that produce homogeneous products.
b. The cost of each job is accumulated on the job-order cost sheet.
c. The key document for accumulating manufacturing costs is the job-order cost sheet.
d. All of these are correct.
e. None of these are correct.
ANSWER: a
89. Which of the following can serve as a subsidiary ledger for the finished goods inventory?
a. job-order cost sheets for completed jobs
b. job-order cost sheets for incomplete jobs
c. work-in-process inventory
d. raw material inventory
e. All of these are correct.
ANSWER: a
90. Which of the following statements is true?
a. There will be many different jobs on a job-order cost sheet.
b. Direct labor is allocated to jobs along with overhead using a cost driver.
c. Work-in-process consists of all complete work.
d. Time tickets are used to post the cost of direct labor to individual jobs.
e. None of these.
ANSWER: d
91. Labor cost flows reflect
a. direct labor cost.
b. indirect labor cost.
c. administration cost.
d. both indirect and direct labor cost.
e. administration cost and indirect cost.
ANSWER: a
92. Sanders Manufacturing has the following amounts listed before reconciling the overhead variance.
Assuming that any overhead variance is immaterial, calculate the adjusted Cost of Goods Sold after adjusting for the overhead variance.
a. $919,000
b. $951,000
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Estimated overhead $760,000 Applied overhead 756,000 Actual overhead 740,000 Cost of goods sold 935,000
Chapter 5 -
Job-Order Costing
c. $939,000
d. $955,000
e. $915,000
ANSWER:
93. Using normal costing requires that
a. actual overhead costs are not assigned directly to jobs.
b. predetermined rates are not used to assign overhead.
c. applied overhead is not calculated on a job specific basis.
d. Neither plantwide or departmental rates can be used to assign overhead.
e. All of these are correct.
ANSWER: a
94. Using normal costing, which costs never enter the work-in-process account?
a. applied overhead
b. actual overhead
c. direct materials
d. direct labor
e. None of these.
ANSWER: b
95. Using normal costing, which of the following is false about actual overhead?
a. Actual overhead is recorded to the overhead control account during the period.
b. It is reconciled at the end of a period with applied overhead.
c. It is separated into many smaller accounts, such as indirect labor, supplies, etc.
d. All of these are correct.
e. None of these.
ANSWER: c
96. When a job is completed but not sold, the accounts affected are
a. Raw Materials and Work-in-Process.
b. Work-in-Process and Finished Goods.
c. Work-in-Process and Cost of Goods Sold.
d. Finished Goods and Cost of Goods Sold.
e. Finished Goods and Overhead Control.
ANSWER: b
97. A schedule that is used to ensure accuracy in computing product costs is (are)
a. the schedule of the cost of goods manufactured.
b. the schedule of the cost of goods sold.
c. the schedules of the cost of goods manufactured and cost of goods sold.
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a RATIONALE: Applied Overhead $756,000 Actual Overhead 740,000 Overapplied Overhead $ 16,000 Adjusted Cost of Goods Sold = $935,000 $16,000 = $919,000
Chapter 5 -
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d. the schedule of raw materials used.
e. None of the schedules listed here.
ANSWER: a
98. Which account can sometimes be skipped when a good is produced for a particular customer?
a. raw materials
b. work-in-process
c. finished goods
d. cost of goods sold
e. accounts can never be skipped
ANSWER: c
99. The order that cost elements flow through accounts until they are recognized as an expense is
a. Work-in-Process, Cost of Goods Sold, Finished Goods
b. Finished Goods, Work-in-Process, Cost of Goods Sold
c. Finished Goods, Cost of Goods Sold, Work-in-Process
d. Work-in-Process, Finished Goods, Cost of Goods Sold
ANSWER: d
100. Which of the following is not a manufacturing cost element?
a. direct materials
b. direct labor
c. advertising expense
d. overhead
e. All of these are correct.
ANSWER: c
101. Which of the following sentences is not true?
a. Actual overhead costs always enter the Work-in-Process account.
b. The cost of a job includes direct materials, direct labor, and applied overhead.
c. When a job is complete, it must leave Work-in-Process and be entered into Finished Goods or Cost of Goods Sold.
d. All of these are correct.
e. None of these are correct.
ANSWER: a
102. Which of the following is true?
a. The adjusted cost of goods sold is equal to normal cost of goods sold plus or minus the overhead variance.
b. If the overhead variance shows overapplied overhead, then that amount would be subtracted from normal cost of goods sold.
c. Variances in overhead are expected every month.
d. All of these.
e. None of these.
ANSWER: d
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Chapter 5 - Job-Order Costing
103. Costs associated with selling and general administrative activities are not
a. period costs.
b. nonmanufacturing costs.
c. manufacturing costs.
d. period costs and nonmanufacturing costs.
e. any of these.
ANSWER: c
104. Ring Company designs and builds jewelry. During June it had applied overhead of $120,000. Overhead is applied at the rate of 75% of direct labor cost. Direct labor wages average $20 per hour.
How many direct labor hours did Ring Company have for the month of June?
a. 12,000
b. 6,000
c. 10,000
d. 8,000
e. 9,000
ANSWER: d
RATIONALE: $120,000 / 75% = $160,000 direct labor cost
$160,000 / $20 per hour = 8,000 direct labor hours
105. Bryant Company designs and builds fancy dining room tables for individual customers. On July 1, there were two jobs in process: Job 391 with a beginning balance of $21,700 and Job 392 with a beginning balance of $8,790. Overhead costs are applied by using a rate of 70% of direct labor costs. Both jobs are unfinished on July 31. Data on July costs for both jobs are as follows:
What is the total of the work-in-process account at July 31?
a. $28,000
b. $58,490
c. $68,080
d. $37,590
e. none of these
c
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Page
Job 391 Job 392 Direct materials $5,100 $ 9,200 Direct labor cost 2,700 11,000
ANSWER:
RATIONALE: Job 391 Job 392 BWIP $21,700 $ 8,790 DM 5,100 9,200 DL 2,700 11,000 OH 1,890 7,700 Total $31,390 $36,690 $31,390 + $36,690 = $68,080
Chapter 5 - Job-Order Costing
106. Ending Work-in-Process for Lee's Carpentry was $64,000 for January. Direct labor and direct materials together for the month were $39,000. Direct labor was twice as much as direct materials. The overhead rate is 70% of direct labor. No jobs were finished during the month. What was beginning Work-in-Process?
a. $6,800
b. $25,000
c. $4,250
d. $15,250
e. $0
107. Wright's Construction builds custom houses for individual buyers. On June 1, it had one job started with a beginning Work-in-Process of $56,000. During June the job was finished and sold. Direct labor for the job in June was $75,000 and direct materials used were $57,000. Overhead is computed at a rate of 65% of direct labor. There is a markup of 35% on all sales. What was the selling price of the house?
a. $319,612.50
b. $236,750
c. $82,862.5
d. $272,600
e. 262,087.5
108. Wright Corporation had the following information available for December of the current year:
Plantwide overhead rate is 150% of direct labor costs. Job cost sheets had the following balances:
Jobs Z3 and Z4 were not completed at the end of December. What is the balance in work-in process for Wright at the end of December?
a. $85,000
b. $87,500
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ANSWER: a RATIONALE: DM $13,000 DL 26,000 OH 18,200 $57,200 $64,000 $57,200 = 6,800
ANSWER: a RATIONALE: BWIP $ 56,000 DM 57,000 DL 75,000 OH 48,750 Total Cost $236,750 $236,750 × 135%
$319,612.50
=
Work in process, December 1 $20,000 Materials placed into production, December 27,500 Direct labor, December 37,500
Job Z1 $32,500 Job Z2 55,000 Job Z3 35,000 Job Z4 18,750
Chapter 5 - Job-Order Costing
c. $56,250
d. $53,750
ANSWER: d
RATIONALE: SUPPORTING CALCULATIONS: $35,000 + $18,750 = $53,750
Figure 5-4. Hill Company uses job-order costing. At the end of the month, the following data was gathered:
yes
no
Hill's selling price is cost plus 50% for each of its products.
109. Refer to Figure 5-4. What is the total in the work-in-process account?
110. Refer to Figure 5-4. What is the total in Finished Goods?
20
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Page
Job # Total Cost Complete? Sold? 803 $611 yes
804 423 yes
805 805 no
806 682 yes yes 807 525 yes
808 250 no no 809 440 yes yes 810 773 yes
811 267 no no 812 341 no
no
no
no
no
$1,663 d. $1,840 e. $1,163 ANSWER: c RATIONALE: Job # Total Cost 805 $ 805 808 250 811 267 812 341 Total WIP $1,663
a. $1,980 b. $2,510 c.
a.
b. $2,230 c. $1,700 d. $1,860 e. $2,163 ANSWER: a RATIONALE: Job # Total Cost 804 $ 423 807 525 810 773 Total finished goods $1,721
$1,721
Chapter 5 - Job-Order Costing
111. Refer to Figure 5-4. What is Cost of Goods Sold for the month?
a. $1,760
b. $1,181
c. $1,733
d. $1,353
e. $2,440 ANSWER: c
112. Refer to Figure 5-4. What is the selling price of Job 806?
a. $682
b. $1,320
c. $1,440
d. $920
e. $1,023
ANSWER: e
RATIONALE: Selling price = $682 × 1.50 = $1,023
Figure 5-5.
Brillant Design Company makes custom chairs for individual customers. On October 1, there was one job in process, Job 243, with a cost of $1,300. Jobs 244, 245, and 246 were started during the month of October. Data on costs added during the month are as follows:
Overhead is applied to production at the rate of 70% of direct labor cost. Job 245 was completed on October 14 and the client was billed at cost plus 55%. All other jobs remained in process.
113. Refer to Figure 5-5. Calculate the balance in Work-in-Process on October 31.
a. $17,717
b. $22,875
c. $36,653
d. $32,820
e. $15,820
c
114. Refer to Figure 5-5. What is the price of Job 245?
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RATIONALE: Job # Total Cost 803 $ 611 806 682 809 440 Total Cost of Goods Sold $1,733
Job 243 Job 244 Job 245 Job 246 Direct Materials $8,400 $2,300 $5,550 $9,200 Direct Labor 3,100 980 2,200 5,010
ANSWER:
RATIONALE: Job 243 Job 244 Job 246 Total BWIP $ 1,300 DM 8,400 $2,300 $ 9,200 DL 3,100 980 5,010 OH 2,170 686 3,507 Total $14,970 $3,966 $17,717 $36,653
Chapter 5 - Job-Order Costing
a. $20,204.20
b. $10,627.70
c. $22,310.50
d. $18,761.20
e. $14,399.50
ANSWER: e RATIONALE: Job 245
115. Refer to Figure 5-5. If selling and administrative expense for the month of October equaled $ 2,000, what is operating income for the month of October?
a. $14,399.50
b. $3,109.50
c. $5,109.50
d. $2,000.00
ANSWER: b
RATIONALE: Only Job 245 was completed and sold during the month.
Figure 5-6. Stutz, Inc. designs and builds basketball gymnasiums. Each gymnasium is custom-built to individual customers’ specifications. Stutz uses job-order costing to keep track of its costs. In February it worked on three jobs. Data for these jobs are as follows:
Overhead is applied to jobs at the rate of $25 per machine hour. By February 28, Job 178 is the only one unfinished. The balance of Finished Goods on February 1 is $94,000 (consisting of Job 177). Jobs 177 and 179 are sold during February. Stutz sells its product at cost plus 40%.
116. Refer to Figure 5-6. Calculate the balance in Work-in-Process on February 28.
a. $23,600
b. $16,100
c. $212,390
d. $0
ANSWER: a
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DM $5,550.00 DL 2,200.00 OH 1,540.00 Total cost $9,290.00 Price $14,399.50
Price $14,399.50 Cost (9,290.00) Profit $ 5,109.50 Selling & admin exp. (2,000.00) Operating income $ 3,109.50
Job 175 Job 178 Job 179 Balance 2/1 $13,790 $ 0 $ 0 Direct Materials 16,200 8,500 30,500 Direct Labor Cost 23,300 7,600 45,000 Machine Hours 400 hrs. 300 hrs. 2,000 hrs.
Chapter 5 - Job-Order Costing
RATIONALE: Job 178 is the only job in Work-in-Process.
$ 8,500
7,600
7,500 ($25 × 300) $23,600
117. Refer to Figure 5-6. Calculate the balance of Finished Goods at February 28.
a. $63,290
b. $39,500
c. $53,290
d. $63,690
e. $0
ANSWER: a
RATIONALE: Job 175 is the only one in Finished Goods. $13,790 + $16,200 + $23,300 + $10,000 (OH = $25 × 400) = $63,290
118. Refer to Figure 5-6. What is Cost of Goods Sold for February?
a. $125,500
b. $219,500
c. $307,300
d. $175,700
e. $310,100
ANSWER: b
RATIONALE: Cost of Goods Sold consists of Jobs 177 and 179. Job 179 = $30,500 + $45,000 + $50,000 = $125,500 $125,500 + $94,000 = $219,500 total cost of both jobs
119. Refer to Figure 5-6. What is sales revenue for February?
a. $219,500
b. $175,700
c. $131,600
d. $307,300
e. $237,300
ANSWER: d
RATIONALE: Cost of Goods Sold = ($30,500 + $45,000 + $50,000) + $94,000 = $219,500 Sales revenue = $219,500 × 140% = $307,300
Figure 5-7.
Laudermilk produces dairy equipment. Most of its jobs have a number of units per job. The company has two different departments through which all jobs pass. Overhead is applied using a plantwide rate of $13 per direct labor hour. Direct labor wages average $8 an hour. Data for Job #3 for the year is:
Direct materials $40,000
Direct labor costs
Dept. A $60,000
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DM
DL
OH
Chapter 5 - Job-Order Costing
120. Refer to Figure 5-7. Compute the total cost of Job #3.
a. $229,000
b. $112,000
c. $134,600
d. $145,800
e.
121. Refer to Figure 5-7. Compute the cost per unit.
a. $11.58
b. $5.60
c. $5.73
d. $11.45
e. none of these
Figure 5-8.
John's Water Slides makes custom water slides for hotels. On September 1, there were three jobs in process, Jobs 812, 813, and 814. Two more jobs were started during September, Jobs 815 and 816. By September 30, Jobs 812, 814, and 816 were finished. The following data has been collected:
Overhead is applied at the rate of 120% of direct labor cost. Jobs are sold at cost plus 60%. Selling and administrative expenses for September totaled $2,950. By September 30, Jobs 812 were 816 are sold, but the customer who ordered Job 814 decided he did not want the slide so it is still in the warehouse.
122. Refer to Figure 5-8. Calculate the ending balance in Work-in-Process as of September 30. a. $2,222
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Page 24 Dept. B 12,000 Machine hours used Dept. A 200 hrs. Dept. B 2,400 hrs. Units produced 20,000 units
ANSWER: a RATIONALE: DM $ 40,000 DL 72,000 OH 117,000 (72,000 / $8) = 9,000 direct labor hours × $13 per hour Total $229,000
$231,600
ANSWER: d RATIONALE: DM $ 40,000 DL 72,000 OH 117,000 9,000 direct labor hours × $13 per hour Total $229,000 $229,000 / 20,000 units = $11.45
Job 812 Job 813 Job 814 Job 815 Job 816 9/1 Balance $615 $830 $ 945 Direct materials 750 235 1,280 $200 $915 Direct labor 420 115 560 320 875
$1,961
b. $1,700 c.
Chapter 5 -
Job-Order Costing
d. $3,555.20
e. $1,392
ANSWER: a
RATIONALE: Jobs 813 and 815 are the only jobs left in process.
123. Refer to Figure 5-8. What is the ending balance of Finished Goods if the beginning balance was $0?
a. $3,457
b. $5,531.20
c. $8,206.40
d. $13,737.60
e. $2,785
ANSWER: a
RATIONALE: Job 814 is the only one in Finished Goods.
Total cost = $945 + $1,280 + $560 + $672 = $3,457
124. Refer to Figure 5-8. What is the selling price of Job 816?
a. $4,544
b. $2,840
c. $2,864
d. $3,408
e. $0, it is not completed yet.
ANSWER: a
RATIONALE: Total cost of Job 816 is $2,840. $2,840 × 160% = $4,544.
125. Refer to Figure 5-8. What is the cost of goods sold for September?
a. $5,129
b. $8,206.40
c. $5,720
d. $3,575
e. $8,586
ANSWER: a
RATIONALE: Jobs 812 and 816 are the only jobs that have been sold.
25
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Job
Job
BWIP $ 830 $ 0 Direct materials 235 200 Direct labor 115 320 Overhead 138 384 Total $1,318 $904 $1,318 + $904
$2,222
813
815
=
Job
BWIP $ 615 $
DM 750 915
812 Job 816
0
Chapter 5 -
Job-Order Costing
126. Refer to Figure 5-8. What is John's operating income for the month of September?
a. $127.40
b. $8,206.40
c. $3,077.40
d. $0
e. None of these.
ANSWER:
Figure 5-9.
Warwick Company has the following transactions for the month of September:
Purchased materials on account for $220,384.
Materials requisitioned for $91,562.
Direct labor for the month was incurred (but not yet paid) of $69,000.
Actual overhead for the month was $41,000. It has not been paid yet. (Charge to various payables.)
Overhead is applied to production at the rate of 65% of direct labor.
Jobs totaling $42,500 were transferred from Work-in-Process to Finished Goods. Jobs costing $23,000 were sold.
were:
127. Refer to Figure 5-9. Calculate the Ending Balance of Raw Materials.
a. $220,384
b. $151,582
c. $185,320
d. $22,760
e. 91,562
ANSWER: b
RATIONALE: Ending raw materials = $220,384 + $22,760 – $91,562 = $151,582
128. Refer to Figure 5-9. What is the ending balance in Work-in-Process?
a. $162,912
b. $113,083
c. $166,414
d. $123,870
Page 26 DL 420 875 OH 504 1,050 Total $2,289 $2,840 $2,289 + $2,840 = 5,129
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Sales (COGS × 1.60) $8,206.40 Less: Cost of goods sold 5,129.00 Gross margin $3,077.40 Less: Operating expenses 2,950.00 Operating income $ 127.40
a RATIONALE:
Materials 22,760 Work-in-Process 0 Finished Goods 10,040
Balances at the beginning of the month
Chapter 5 - Job-Order Costing
e. $0 ANSWER: a
RATIONALE: $69,000 × 65% = $44,850
129. Refer to Figure 5-9. What is the correct journal entry to record actual overhead for the month?
130. Refer to Figure 5-9. What is the journal entry to record applied overhead for the month? a.
131. Refer to Figure 5-9. What is the ending balance of Finished Goods?
a. $23,321
b. $29,540
c. $64,321
d. $0
e. $10,040
ANSWER: b
RATIONALE: Ending Balance = $10,040 + $42,500 – 23,000 = $29,540
Figure 5-10.
The King Corporation manufactures custom-made furniture. The following data pertains to Job X4A:
Plantwide overhead rate is $22.50 per machine hour.
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Ending WIP = $69,000 + $91,562 +
$44,850 – $42,500 = $162,912
a. Overhead Control 41,000 Various Payables 41,000 b. Work-in-Process 41,000 Various Payables 41,000 c. Various Payables 41,000 Work-in-Process 41,000 d. Various Payable 41,000 Overhead Control 41,000
none of these are correct ANSWER: a
e.
Work-in-Process 44,850 Overhead Control 44,850 b. Various Payables 44,850 Overhead Control 44,850 c. Overhead Control 44,850 Work-in-Process 44,850 d. Overhead Control 44,850 Various Payables 44,850 ANSWER: a
Direct materials placed into production $9,000 Direct labor hours worked 300 hours Direct labor rate per hour $15 Machine hours worked 100 hours
Chapter 5 - Job-Order Costing
132. Refer to Figure 5-10. One-half of Job X4A was sold for $10,000. What is the total amount of costs assigned to Job X4A?
a. $9,000
b. $20,250
c. $13,500
d. $15,750
ANSWER: d
RATIONALE: SUPPORTING CALCULATIONS:
$9,000 + ($15 × 300) + ($22.50 × 100) = $15,750
133. Refer to Figure 5-10. Job X4A consists of 500 units. One-half of Job X4A was sold for $10,000. What is the cost per unit for Job X4A?
a. $18
b. $31.50
c. $27
d. $40.50
ANSWER: b
RATIONALE: SUPPORTING CALCULATIONS:
$9,000 + ($15 × 300) + ($22.50 × 100) = $15,750 / 500 = $31.50
134. When the work-in-process account is debited for direct labor, what account is usually credited?
a. Cost of Goods Sold
b. Sales Revenue
c. Wages Payable
d. Overhead Control
e. Accounts Receivable
ANSWER: c
135. When overhead is debited to Overhead Control, what is the credit?
a. Various payable accounts
b. Cost of Goods Sold
c. Work in Process
d. Finished Goods
e. Accounts Receivable
ANSWER: a
136. Which of the following accounts is debited when goods are sold?
a. Finished Goods
b. Overhead Control
c. Raw Materials
d. Cost of Goods Sold
e. Sales Revenue
ANSWER: d
137. What account is credited when goods are sold?
a. Accounts receivable
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Chapter 5 -
Job-Order Costing
b. Cost of Goods Sold
c. Finished Goods
d. Raw materials
e. Work-in-process
ANSWER: c
138. What type of event would cause two separate journal entries to be made?
a. Transferring the good to Finished Goods
b. Applied overhead to production based on direct labor hours
c. Transferring the goods from Raw Materials to Work-in-Process
d. Closing overapplied overhead to Cost of Goods Sold
e. Selling the good
ANSWER: e
139. When purchasing raw materials on account, what type of accounts would increase?
a. Assets and equity
b. Liabilities and expenses
c. Liabilities and revenues
d. Assets and liabilities
e. Assets and expenses
ANSWER: d
140. When a job costing $5,000 is completed, the following journal entry is made:
141. On April 9 of the current year, Job XX4 was completed. The job cost sheet showed a total of $4,000 in direct materials and $6,000 in direct labor at a rate of $20 per direct labor hour. Plantwide overhead is applied at $30 per direct labor hour. The debit to Finished Goods Inventory to record the completion of Job XX4 is
a. $13,000.
b. $9,000.
c. $4,000.
d. $19,000.
ANSWER: d
RATIONALE: SUPPORTING CALCULATIONS: $4,000 + $6,000 + [$30 × ($6,000 / $20)] = $19,000
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a. Finished Goods 5,000 Cost of Goods Sold 5,000
Cost of Goods Sold 5,000 Finished Goods 5,000 c. Work-in-Process 5,000 Finished Goods 5,000 d. Finished Goods 5,000 Work-in-Process 5,000 e. Cost of Goods Sold 5,000 Sales 5,000 ANSWER: d
b.
Chapter 5 -
Job-Order Costing
142. At the beginning of the year, Fluman Corporation estimates overhead will be $150,000. If the actual overhead for the year is $152,000 and the applied overhead for the year is $143,000, what is the journal entry needed to reconcile the overhead variance? Assume that the overhead variance is immaterial.
Figure 5-11.
Olson Corporation constructs new homes. Assume that Olson uses a job costing system. During May of the current year, the following transactions occurred:
Olson purchased $4,500 of lumber on account. Olson used $3,750 of lumber in production and incurred 50 hours of direct labor hours at $15 per hour. Depreciation of $1,500 on equipment used to build new houses was recorded. A house that was completed last period at a cost of $150,000 was sold for $180,000 in cash.
143. Refer to Figure 5-11. The journal entry to record the requisition of lumber for Olson would include a
a. debit to Work-in-Process of $4,500.
b. debit to Materials Inventory of $3,750.
c. credit to Finished Goods of $3,750.
d. debit to Work-in-Process of $3,750.
ANSWER: d
144. Refer to Figure 5-11. The journal entry to record labor for Olson would include a
a. debit to Finished Goods of $750.
b. debit to Wages Payable of $750.
c. credit to Finished Goods of $750.
d. debit to Work-in-Process of $750.
ANSWER: d
RATIONALE: SUPPORTING CALCULATIONS: Labor is recorded as a debit to Work-in-Process: $15 × 50 = $750
Figure 5-12.
Walter Company uses a job-order costing system to account for product costs. The following information pertains to the current year:
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a. Cost of Goods Sold 9,000 Overhead Control 9,000 b. Overhead Control 9,000 Cost of Goods Sold 9,000 c. Cost of Goods Sold 7,000 Overhead Control 7,000 d. Overhead Control 7,000 Cost of Goods Sold 7,000 e. none of these ANSWER: a RATIONALE: Actual Overhead $152,000 Applied Overhead 143,000 Underapplied overhead $ 9,000
Materials placed into production $140,000 Indirect labor 40,000 Direct labor (10,000 hours) 160,000
Job-Order Costing
Plantwide overhead rate is $18 per direct labor hour.
145. Refer to Figure 5-12. What is the total amount credited to Materials Inventory for Walter in the current year?
a. $480,000
b. $170,000
c. $140,000
d. $110,000
ANSWER: c
RATIONALE: SUPPORTING CALCULATIONS: Materials used in production = $140,000
146. Refer to Figure 5-12. What is the total amount debited to Finished Goods Inventory in the current year?
a. $490,000
b. $510,000
c. $450,000
d. $550,000
ANSWER: c
RATIONALE: SUPPORTING CALCULATIONS: $140,000 + $160,000 + ($18 × 10,000) $30,000 = $450,000
147. McElligott Doll Company had the following overhead costs and production for two months. The dolls are identical to each other.
A. What is the overhead cost per doll per month?
B. What type of costing is McElligott using? What is the main issue with using this type of costing?
ANSWER:
A. For September the unit overhead cost per doll is $4 ($12,000 / 3,000). For January the unit overhead cost per doll is $6 ($12,000 / 2,000).
B. The type of costing being used here is Actual Costing. The problem with assigning actual overhead to units is that the number of units produced per month varies. This makes the costs of the dolls different because of the different number of units produced. The doll produced in January will be more expensive because of this.
148. Williams Incorporated estimated overhead to be $440,000 and direct labor hours to be 100,000 for the year. Actual direct labor ended up being 120,000 hours. Actual overhead for the year amounted to $500,000.
A. What is the predetermined overhead rate?
B. What is the applied overhead for the year?
C. What is the amount of under- or over-applied overhead at the end of the year?
ANSWER:
Chapter 5 -
Page 31 Depreciation of factory building 60,000 Other plantwide overhead 100,000 Increase in work-in-process inventory 30,000
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September January Actual overhead $12,000 $12,000 Number of dolls 3,000 2,000
Chapter 5 - Job-Order Costing
A. predetermined overhead rate = $440,000 / 100,000 = $4.40 per direct labor hour
B. applied overhead = $4.40 × 120,000 = $528,000
C. $528,000 $500,000 = $28,000 over-applied overhead
149. At the beginning of the year Grey Corporation estimated the following:
Grey uses departmental overhead rates. In the assembly department , overhead is applied on direct labor hours. In the packaging department, overhead is applied on the basis of machine hours. Actual data for the month of April are as follows:
Department Packaging Department Overhead $ 42,759 $ 20,400
A.) Calculate the predetermined overhead rate for the assembly and packaging departments.
B.) Calculate the overhead applied to production in each department for the month of April.
C.) Calculate how much each department's overhead is overapplied/underapplied.
ANSWER: A.)
Assembly department overhead: $840,000 / 80,000 = $10.50
Packaging department overhead: $210,000 / 12,000 = $17.50
B.) Assembly department: $10.50 × 4,000 = $42,000
Packaging department: $17.50 × 1,200 = $21,000
C.)Assembly department: $42,759 – 42,000 = $759 underapplied
Packaging department: $20,400 – 21,000 = $600 overapplied
150. A company has two departments that all goods pass through, machining and assembly. Machining overhead is applied based on machine hours and assembly overhead is applied based on direct labor hours. Data on each department is as follows:
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Assembly
Overhead $ 840,000 $ 210,000 Direct labor hours 80,000 hrs. 4,000 hrs. Machine hours 20,000 hrs. 12,000 hrs.
Department Packaging Department
Direct labor hours 4,000 hrs. 300 hrs. Machine hours 1,000 hrs. 1,200 hrs.
Assembly
Required:
Machining Assembly Budgeted overhead $75,000 $40,000 Budgeted direct labor hours 5,000 hrs. 10,000 hrs. Budgeted machine hours 25,000 hrs. 1,000 hrs. Actual overhead $75,400 $39,200 Actual direct labor hours 5,203 hrs. 9,980 hrs.
Chapter 5 -
Job-Order Costing
Actual machine hours 25,040 hrs. 850 hrs.
A. Calculate the overhead rate for each department.
B. What is each department's applied overhead?
C. Calculate each department's overhead variance. Specify whether it is overapplied or underapplied.
ANSWER:
A. Machining OH rate = $75,000 / 25,000 = $3 per machine hour Assembly OH rate = $40,000 / 10,000 = $4 per direct labor hour
B. Machining applied OH = $3 × 25,040 = $75,120 Assembly applied OH = $4 × 9,980 = $39,920
C. Machining OH variance = $75,400 $75,120 = $280 underapplied Assembly OH variance = $39,920 $39,200 = $720 overapplied
151. Elf Company produces ornamental trees and uses normal costing. Elf applies overhead based on direct labor hours. The following data are provided:
A. Calculate applied overhead.
B. Calculate the unit cost.
ANSWER:
A. Predetermined OH rate = $400,000 / 16,000 = $25 per direct labor hour $25 × 17,840 = $446,000 applied overhead
B. Unit cost = ($521,000 + $410,000 + $446,000) / 10,000 = $137.70 per ornamental tree
152. Pribil Farm Equipment is a job-order costing manufacturer that uses a plantwide overhead rate based on direct labor hours. Estimations for the year include $420,000 in overhead and 30,000 direct labor hours. Pribil worked on five jobs in March. Data are as follows:
By March 31, Jobs 89 and 91 were completed and sold. The rest of the jobs remained in process.
A. Calculate the plantwide overhead rate.
B. Calculate the Work in Process on March 31.
C. Calculate the cost of goods sold for March.
D. Assume Pribil marks up cost by 40%. What is the selling price of Jobs 89 and 91?
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Budgeted Actual Overhead $400,000 $392,000 Machine hours 20,000 hrs. 18,000 hrs. Direct labor hours 16,000 hrs. 17,840 hrs. Direct materials cost $521,000 Direct labor cost $410,000 Units
10,000 units
produced
Job 89 Job 90 Job 91 Job 92 Job 93 Balance, 3/1 $23,110 $18,240 $ 9,510 $ 0 $ 0 Direct materials 13,000 17,210 22,900 15,240 8,210 Direct labor cost 8,075 11,500 16,250 9,750 4,860 Direct labor hours 1,615 hrs. 2,300 hrs. 3,250 hrs. 1,950 hrs. 972 hrs.
ANSWER:
Costing
A. $420,000 / 30,000 = $14 per direct labor hour
B. $79,150 + $52,290 + $26,678 =
D.
153. Fowler Company is a job-order costing company that produces customized bicycles. During the month of October, Fowler had three jobs in process, Jobs 3, 4, & 5. By the end of the month all three jobs had been completed, with Job 3 being sold for $435. The following costs belong to each job:
A. Overhead is applied based on direct labor dollars. What is the overhead rate?
B. What rate does Fowler use to price its jobs?
C. What is the gross margin on Job 3?
ANSWER:
A. $120 / $100 = 1.20 = 120% of direct labor cost (This was using Job 3. Jobs 4 & 5 result in the same answer.)
B. $435 / $300 = 1.45 (Fowler prices its jobs at cost plus 45%.)
C. $435 $300 = $135
154. Feline Company uses a normal job-order costing system. Currently, a plantwide overhead rate based on direct labor is used. Lola Katz, the plant manager, has heard that departmental overhead rates can offer significantly better cost assignments than a plantwide rate can offer. Some jobs spend most of their time in Department A, while others spend most of their time in Department B. Feline has the following data for its two departments for the coming year:
Department A Department B
Expected overhead cost $75,000 $33,000
Expected direct labor hours 30,000 hrs. 24,000 hrs.
A. Compute the plantwide overhead rate.
B. Compute the departmental overhead rates. (Carry out your answers to 3 decimal places.)
C. Which overhead rate would you recommend and why?
Chapter 5 -
Page 34
Job-Order
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Job 90 Job 92 Job 93 Balance, 3/1 $18,240 $ 0 $ 0 Direct materials 17,210 15,240 8,210 Direct labor cost 11,500 9,750 4,860 Overhead 32,200 27,300 13,608 Total $79,150 $52,290 $26,678 C. Job 89: ($23,110 + $13,000 + $8,075) + (1,615 × $14) = $66,795 Job 91: ($9,510 + $22,900 + $16,250) + (3,250 × $14) = $94,160 COGS = $66,795 + $94,160 = $160,955
$158,118
Job 89: $66,795 × 1.4
$93,513 Job 91: $94,160
1.4
$131,824
=
×
=
Job 3 Job 4 Job 5 Direct materials $ 80 $ 75 $ 85 Direct labor 100 110 95 Applied overhead 120 132 114 Total $300 $317 $294
Chapter 5 -
ANSWER:
Job-Order Costing
A.
$108,000 / 54,000 = $2 per direct labor hour
B. Dept. A = $75,000 / 30,000 = $2.50 per direct labor hour
Dept. B = $33,000 / 24,000 = $1.375 per direct labor hour
C. The departmental rate would provide more accuracy. Department A appears to be more overhead intensive, so jobs spending more time in Department A ought to receive more overhead.
155. What are the three steps of overhead application?
ANSWER:
1. Calculate the predetermined overhead rate.
2. Apply overhead to production throughout the year.
3. Reconcile the difference between the total actual overhead incurred during the year and the total overhead applied to production.
156. Jocarro Company has a job costing system. The following items appeared in the Work-in-Process account during February of the current year:
$ 20,000
?
Jocarro applies overhead to production on the basis of direct labor hours. Job XX, the only job in process on February 28, has been charged $10,600 materials cost and has 100 labor hours of direct labor time assigned to it.
Required:
A. Determine the predetermined plantwide overhead rate for Jocarro Company.
B. Determine the amounts of materials, direct labor, and plantwide overhead included in the February 28 work in process.
C. Determine the amount of materials placed into production during February. ANSWER:
A. Plantwide overhead rate = $96,000 / 4,000 = $24 per direct labor hour
B. Costs assigned to Job XX:
* $120,000 / 4,000 = $30 per hour
Page 35
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February 1
balance
Materials placed into production
Direct labor (4,000 hours) 120,000 Plantwide overhead applied 96,000 Cost of goods manufactured 400,000 February 28 balance 16,000
Materials
Direct
3,000 Plantwide
2,400 Work
$16,000
$10,600
labor (100 × $30*)
overhead applied (100 × $24)
in process, February 28
Chapter 5 -
Job-Order Costing
C. X + $120,000 + $96,000 + $20,000 $16,000 = $400,000 X = $180,000 Cost of
157. Reed Incorporated uses a job-order costing system and a predetermined overhead rate based on machine hours.
At the beginning of the year, the company estimated manufacturing overhead for the year would be $240,000 and machine hours would be 8,000.
The following information pertains to December of the current year:
Actual manufacturing overhead cost incurred in December was $61,000.
Required:
A. Compute the predetermined overhead application rate.
B. Determine the total cost associated with each job.
C. If Jobs 10 and 12 were completed, prepare the journal entry to move the cost.
D. If Job 10 was delivered to customers that paid $50,000 cash, prepare the journal entries.
E. What is the gross margin for Job 10?
F. What is the cost assigned to ending work in process?
G. Assuming no beginning finished goods what is the cost assigned to ending finished goods?
H. How much was overhead over/underapplied?
ANSWER:
A. $240,000 / 8,000 = $30
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Direct Materials Used in Production $ ? Direct Labor 120,000 Manufacturing Overhead 96,000 Total Mfg Costs for February 396,000 Plus WIP, Feb. 1 20,000 Less WIP, Feb. 28 (16,000) Cost of Goods Manufactured, February $400,000
Goods Manufactured:
Job 10 Job 11 Job 12 Total Work-in-process, Dec. 1 $16,000 $26,000 $38,000 $80,000 December production activity: Materials requisitioned $4,000 $4,800 $7,200 $16,000 Direct labor cost 2,400 3,600 4,000 10,000 Machine hours 400 hrs. 700 hrs. 900 hrs. 2,000 hrs. Labor hours 120 hrs. 180 hrs. 200 hrs. 500 hrs.
Chapter 5 -
Costing
+ Job 12 = $34,400 + $76,200 = $110,600 (the cost of goods manufactured)
158. Ski Company produces various types of snow skis. Estimated overhead for the year was $720,000 and estimated direct labor hours were 240,000. During the month of June, 17,400 direct labor hours were worked, $50,400 of direct materials were used and the average wage was $12 per hour. In June, 15,000 pairs of skis were produced.
A. Calculate the predetermined overhead rate.
B. Calculate the overhead applied to production for June.
C. Calculate the unit cost for each pair of skis.
ANSWER:
A. $720,000 / 240,000 = $3 per direct labor hour
B. $3 × 17,400 = $52,200
C. $311,400 / 15,000 = $20.76 per pair of skis
Page 37 B. Job 10 Job 11 Job 12 Total WIP, Dec. 1 $16,000 $26,000 $38,000 $80,000 Matl Req'd 4,000 4,800 7,200 $16,000 DL cost 2,400 3,600 4,000 $10,000 OH Applied: 400 × $30 12,000 700 × $30 21,000 900 × $30 27,000 Total $34,400 $55,400 $76,200
Job
Finished goods 110,600 Work in process 110,600
Record a sale: Cash 50,000 Sales 50,000 Cost of goods sold 34,400 Finished goods 34,400 E. Sales $50,000 Cost of goods sold 34,400 Gross margin $15,600
Job 11 is still in production = $55,400
Finished goods has one job Job 12 = $76,200 H. Actual overhead $61,000 Applied overhead 60,000 = ($12,000 + $21,000 + $27,000) Underapplied overhead $ 1,000
Job-Order
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C.
10
D.
F.
G.
DM $ 50,400 DL 208,800
Job-Order Costing
159. Wisteria Company provided the following data:
Budgeted overhead
Budgeted direct labor hours
A. What is applied overhead?
B. What is the overhead variance? Is it overapplied or underapplied?
ANSWER: Predetermined overhead rate = $80,000 / 10,000 = $8 per direct labor hour
A. $8 × 10,860 = $86,880.
B. $86,880 $86,000 = $880 overapplied
160. Budgeted overhead is $60,000, budgeted direct labor hours are 3,000, actual overhead is $64,000, and direct labor hours are 3,230. Unadjusted cost of goods sold is $135,670.
A. Calculate the overhead variance.
B. What is adjusted cost of goods sold?
ANSWER: Predetermined overhead rate = $60,000 / 3,000 = $20 per direct labor hour. Applied overhead = $20 × 3,230 = $64,600
A. $64,600 $64,000 = $600 overapplied
B. $135,670 $600 = $135,070
Figure 5-13.
During February, Alexander, Inc., worked on two jobs with the following data:
Overhead is assigned on the basis of direct labor hours at a rate of $12. During February, Job 12 was completed and transferred to finished goods. Job 13 is the only unfinished job at the end of the month.
161. Refer to Figure 5-13.
A. Calculate the per-unit cost of Job 12.
B. Calculate the ending balance in the work-in-process account. ANSWER:
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Cengage Learning Testing, Powered by Cognero Page 38 OH 52,200 Total $311,400
$80,000
10,000
$86,000
10,860
hrs. Actual overhead
Actual direct labor hours
hrs.
Job 12 Job 13 Units in each order 100 units 200 units Units sold 100 units Materials requisitioned $ 2,480 $ 1,970 Direct labor hours 820 hrs. 1,166 hrs. Direct labor cost $12,300 $17,490
A. Unit cost = ($ 2,480 + $12,300 + $9,840) / 100 = $246.20 per unit B. Ending WIP = Job 13 = $1,970 + $17,490 + $13,992 = $33,452
Chapter 5 - Job-Order Costing
162. Refer to Figure 5-13.
A. Prepare the journal entries for requisitioning all materials used during the month.
B. Prepare the journal entries for direct labor for the month. Assume the workers have not been paid yet.
163. Refer to Figure 5-13. Prepare the journal entries reflecting the completion and sale on account of Job 12. The selling price is 160% of cost.
164. If actual overhead for the year is $33,451 and applied overhead is $32,000, is the overhead variance overapplied or underapplied? Prepare the journal entry necessary to reconcile overhead. Assume the variance is immaterial.
ANSWER: Actual overhead is more than applied overhead so the overhead variance of $1,451 is underapplied. The journal entry would be:
165. The following information was taken from the job cost sheet for Job 101 for Scott Manufacturing Company:
Date started: July 5
Date completed: August 21
Job 101 was sold on account on August 25 for 160% of its cost.
Required:
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ANSWER: A. Work in Process 4,450 Raw Materials 4,450 B. Work in Process 29,790 Wages Payable 29,790
ANSWER: Finished Goods 24,620 Work in Process 24,620 Cost of Goods Sold 24,620 Finished Goods 24,620 Accounts Receivable 39,392 Sales 39,392
Cost of Goods Sold 1,451 Overhead Control 1,451
Direct Direct Factory Job Date materials labor overhead Total July 5 $3,000 July 15 $ 900 $450 July 17 1,500 July 22 1,350 675 August 1 1,500 August 21 600 300
Chapter 5 - Job-Order Costing
A. Prepare summary journal entries to record the costs incurred for Job 101 in the current year for direct materials, direct labor, and factory overhead.
B. Prepare the journal entry to record the completion of Job 101.
C. What is the predetermined factory overhead rate for Scott?
D. Prepare the journal entries to record the sale of Job 101.
C. $1,425 / $2,850 = 50% of direct labor costs
166. Brady Corporation has estimated overhead to be $250,000 for the year based on an estimated amount of direct labor hours of 40,000. Actual direct labor hours for the year are 41,500 and actual overhead is $258,900.
Required:
A.) Calculate the predetermined overhead rate.
B.) Calculate how much overhead has been applied.
C.) Calculate the overhead variance.
D.) Assuming that the variance is immaterial, prepare the journal entry to close the variance.
ANSWER:
A.) Overhead rate = $250,000 / 40,000 = $6.25
B.) $6.25 × 41,500 direct labor hours = $259,375
C.) $259,375 – $258,900 = 475 overapplied
D.)
475
475
Figure 5-14
Deluxe Design Company makes custom furniture. On December 1, there were two jobs in process, Job 683, with a cost of $14,200 and Job 684 with a cost of $23,500. Jobs 685, 686, and 687 were started during the month of December. Data on costs added during the month are as follows:
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A. Work in Process 6,000 Raw Materials 6,000 Work in Process 2,850 Wages Payable 2,850 Work in Process 1,425 Overhead Control 1,425 B. Finished Goods 10,275 Work in Process 10,275
ANSWER:
Accounts Receivable 16,440 Sales (160% × $10,275) 16,440 Cost of Goods Sold 10,275 Finished Goods 10,275
D.
Overhead Control
Cost of Goods Sold
Job 683 Job 684 Job 685 Job 686 Job 687 Direct materials $11,000 $8,000 $31,400 $16,700 $6,000 Direct labor 21,000 6,000 12,300 8,450 2,500
Job-Order Costing
Overhead is applied to production at the rate of 80% of direct labor cost. Job 685 was completed on December 17. Job 684 was completed on December 21 and the client was billed at cost plus 45%. All other jobs remained in process.
167. Refer to Figure 5-14.
Required:
A.) Determine the amount of overhead to apply to each job for the period.
B.) Calculate the cost of work-in-process at the end of the month.
C.) Calculate the cost of finished goods, assuming that finished goods inventory on December 1st was zero. ANSWER: A.)
168. Refer to Figure 5-14
Required:
A.) The actual overhead for December was $41,100, calculate the variance.
B.) Calculate the sales price for Job #684.
C.) Calculate the adjusted cost of goods sold for the month of December.
D.) If selling and administrative expenses for the month totaled $5,600, what is the company's operating income for December?
ANSWER: A.) $41,100 - 40,200 = $900 underapplied
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Chapter 5 -
Page 41
Job 683 Job 684 Job 685 Job 686 Job 687 Total Direct labor $21,000 $6,000 $12,300 $8,450 $2,500 $50,250 Overhead rate 80% 80% 80% 80% 80% 80% Applied overhead $16,800 $4,800 $9,840 $6,760 $2,000 $40,200 B.) Job 683 Job 686 Job 687 Total BWIP $14,200 Direct materials 11,000 $16,700 $6,000 Direct labor 21,000 8,450 2,500 Overhead 16,800 6,760 2,000 Total $63,000 $31,910 $10,500 $105,410 C.) Job 685 Direct materials $31,400 Direct labor 12,300 Overhead 9,840 Total finished goods $53,540
Job 683 Job 684 Job 685 Job 686 Job 687 Total Direct labor $21,000 $6,000 $12,300 $8,450 $2,500 $50,250 Overhead rate 80% 80% 80% 80% 80% 80% Applied overhead $16,800 $4,800 $9,840 $6,760 $2,000 $40,200
Job-Order Costing
169. Refer to Figure 5-14. Prepare the journal entries to record the following:
A.) Requisitioning of raw materials
B.) Direct labor costs
C.) Applied overhead
D.) Transfer to finished goods
E.) Sale of finished goods (assume sale was made on account)
F.) Closing underapplied/overapplied variance (all variances are immaterial)
Chapter 5 -
Page 42 B.) Job 684 BWIP $23,500 Direct materials 8,000 Direct labor 6,000 Overhead 4,800 Total cost $42,300 Sales mark-up × 45% Sales price $61,335 C.) Job 684 BWIP $23,500 Direct materials 8,000 Direct labor 6,000 Overhead 4,800 $42,300 Underapplied overhead 900 Total cost of goods sold $43,200 D.) Sales $61,335 Cost of goods sold 43,200 Gross profit $18,135 Less: selling and admin. expense 5,600 Operating income $12,535
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ANSWER: A Work in Process 73,100 Raw Materials 73,100 B Work in Process 50,250 Wages Payable 50,250 C Work in Process 40,200 Overhead Control 40,200 D Finished Goods 95,840 Work in Process 95,840 E Cost of Goods Sold 42,300 Finished Goods 42,300
Job-Order Costing
170. Bower Company manufactures a product in a factory that has two producing departments, Cutting and Stitching, and two support departments, D1 and D2. The activity driver for D1 is number of employees, and the activity driver for D2 is number of machine hours. The following data pertain to Bower:
Required:
A. Calculate the cost assignment ratios to be used under the direct method for departments D1 and D2.
B. Allocate the support department costs to the producing departments by using the direct method. ANSWER: A.
Allocation ratios for D1 based on number of employees:
Cutting = 80 / 250 = 0.32
Stitching = 170 / 250 = 0.68
Allocation ratios for D2 based on number of machine hours: Cutting = 15,000 / 20,000 = 0.75
Stitching = 5,000 / 20,000 = 0.25
171. There are two major types of companies: those that use a job-order costing system and those that use process-costing systems.
A. Explain the differences between the two types of companies.
B. List 3 examples of each type of company.
Chapter 5 -
Cengage Learning Testing, Powered by Cognero Page 43 E Accounts Receivable 61,335 Sales 61,335 F Cost of Goods Sold 900 Overhead Control 900
Support Departments Producing Departments D1 D2 Cutting Stitching Direct costs $210,000 $165,000 $130,000 $78,500 Normal activity: Number of employees 40 80 170 Machine hours 800 15,000 5,000
B. Support Departments Producing Departments D1 D2 Cutting Stitching Direct costs $ 210,000 $ 165,000 $130,000 $ 78,500 Allocate D1 (210,000) 67,200 142,800 D2 (165,000) 123,750 41,250 Total $0 $0 $320,950 $262,550
ANSWER:
A.
Manufacturing and service firms producing unique products or services require a job-order accounting system. The cost of one job differs from that of another job and must be kept separate. Firms producing very similar products or services can use a process-costing system. The cost of one unit is identical to the cost of another unit.
B.
Common job-order businesses include: printing, construction, furniture making, medical and dental services, automobile repair, and beautician services.
Common process manufacturers include: food canning and manufacturing, cement, petroleum, and pharmaceutical and chemical firms.
172. Consider two costing systems, normal costing and actual costing.
A. Which costing system do most firms use to assign costs to units of product or service? What does this costing system include?
B. What is the other costing system? What does this costing system include?
ANSWER:
A. Most firms use normal costing systems to assign costs to units of product or service. This system includes actual direct materials, actual direct labor, and applied overhead.
B. The other costing system is the actual costing system. It includes actual direct materials, actual direct labor, and actual overhead.
You Decide
173. You are the senior cost accountant at Adventure Industries and you have been asked to explain to the new staff accountant how the company keeps track of job costs through source documents. Also you need to inform the staff accountant how these source documents are important in determining inventory, expense and revenue amounts at the end of the period.
ANSWER: Since the company produces a wide variety of products that are distinct from each other, every time a new job is started a job-order cost sheet needs to be prepared. The job-order cost sheet lists the total cost of materials, labor and overhead for a single job. In order to track the cost of direct materials for each job a source document known as a materials requisition form is used. On this form the type, quantity and unit price of the direct materials issued is listed as well as the job order number. The source document used to track direct labor is a time ticket. On the time ticket the employee indicates the amount of time worked on a particular job as well as his or her wage rate. Other source documents may be needed if overhead is being applied based on an activity other than direct labor hours to ensure the proper amount of overhead is being applied to each job.
These source documents are the basis used by the company to determine their work-in-process and finished goods inventory balances. Work-in-process inventory will consist of all the job-order cost sheets for the unfinished jobs. Finished inventory will be comprised of all job-order cost sheets that have been completed but not yet sold. Job-order cost sheets are also used to determine the company's cost of goods sold when the company actually sells the products related to a particular job order. Many times companies will set the price of a particular job to total cost plus a percentage above cost. Therefore job-order cost sheets are extremely important when determining the sales price for the job. If the costs were not accurately tracked then the company could be over charging or under charging the customer.
Match each item with the correct statement below.
a. actual cost system
Chapter 5 -
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Job-Order Costing Cengage Learning Testing, Powered by Cognero
Chapter 5 -
Job-Order Costing
b. job-order costing system
c. normal cost system
d. process-costing system
174. An approach that assigns the actual costs of direct materials and direct labor to products but uses a predetermined rate to assign overhead costs ANSWER: c
175. An approach that assigns actual costs of direct materials, direct labor, and overhead to products ANSWER: a
176. A costing system in which costs are collected and assigned to units of production for each individual job ANSWER: b
177. A costing system that accumulates production costs by process or by department for a given period of time ANSWER: d
Match each item with the correct statement below.
a. predetermined overhead rate
b. plantwide overhead rate
c. departmental overhead rate
d. overhead variance
e. overapplied overhead
f. underapplied overhead
g. applied overhead
h. normal cost of goods sold
178. Overhead assigned to production using predetermined rates ANSWER: g
179. An overhead rate computed using estimated data ANSWER: a
180. The amount by which actual overhead exceeds applied overhead ANSWER: f
181. The difference between actual overhead and applied overhead ANSWER: d
182. The amount by which applied overhead exceeds actual overhead ANSWER: e
183. A single overhead rate calculated using all estimated overhead for a factory divided by the estimated activity level across the entire factory ANSWER: b
184. Estimated overhead for a single department divided by the estimated activity level for that same department ANSWER: c
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