Managerial Accounting Creating Value in a Dynamic Business Environment 9Th Edition By Hilton – Test Bank
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Sample Test
Chapter 03
Product Costing and Cost Accumulation in a Batch Production
Environment
True / False Questions
1. Manufacturing
overhead is a pool of indirect production costs that must somehow be attached
to each unit manufactured.
True False
2. Electricity
costs that were incurred by a company’s production processes should be debited
to Utilities Expense.
True False
3. The
final step in recognizing the completion of production requires a company to
debit Finished-Goods Inventory and credit Work-in-Process Inventory.
True False
4. Under-
or overapplied manufacturing overhead at year-end is most commonly charged or
credited to Work-in-Process Inventory.
True False
5. The
term “normal costing” refers to the use of job-costing systems.
True False
Multiple Choice Questions
6. Product
costing in a manufacturing firm is the process of:
7. accumulating
the company’s period costs.
8. allocating
costs among the firm’s departments.
9. placing
a value on the company’s fixed assets.
10. assigning
costs to the firm’s inventory.
11. assigning
costs to the company’s managers.
7. Which
of the following statements is true?
8. Service
firms have little need for determining the cost of their services.
9. The
concept of product costing is relevant only for manufacturing firms.
10. The
cost of year-end inventory appears on the balance sheet as an expense.
11. Service
companies use cost information for planning and control purposes.
12. Mining
and petroleum companies have no inventoriable costs.
8. Which
of the following manufacturers would most likely use job-order costing?
9. Chemical
manufacturers.
10. Microchip
processors.
11. Custom-furniture
manufacturers.
12. Gasoline
refiners.
13. Fertilizer
manufacturers.
9. A
custom-home builder would likely utilize:
10. job-order
costing.
11. process
costing.
12. mass
customization.
13. process
budgeting.
14. joint
costing.
10. Which
of the following types of companies would most likely use process costing?
11. Aircraft
manufacturers.
12. Textile
manufacturers.
13. Textbook
publishers.
14. Custom-machining
firms.
15. Shipbuilders.
11. A
manufacturing firm produces goods in accordance with customer specifications, commencing
production upon receipt of a purchase order. To accumulate the cost of each
order, the company would use a:
12. job-cost
record.
13. cost
allocation matrix.
14. production
log.
15. overhead
sheet.
16. manufacturing
cost record.
12. A
typical job-cost record would provide information about all of the following
items related to an order except:
13. the
cost of direct materials used.
14. administrative
costs.
15. direct
labor costs incurred.
16. applied
manufacturing overhead.
17. direct
labor hours worked.
13. Which
of the following statements about material requisitions is false?
14. Material
requisitions are often computerized.
15. Material
requisitions are a common example of source documents.
16. Material
requisitions contain information that is useful to the cost accounting
department.
17. Material
requisitions authorize the transfer of materials from the production floor to
the raw materials warehouse.
18. Material
requisitions are routinely linked to a bill of materials that lists all of the
materials needed to complete a job.
14. Pruitt
Company has developed an integrated system that coordinates the flow of all
goods, services, and information into and out of the organization, working with
raw material vendors as well as customers to improve service and reduce costs.
The firm is said to be using:
15. participative
management.
16. top-down
management.
17. strategic
cost management.
18. supply
chain management.
19. management
by objectives (MBO).
15. The
assignment of direct labor cost to individual jobs is based on:
16. an
estimate of the total time spent on the job.
17. actual
total payroll cost divided equally among all jobs in process.
18. estimated
total payroll cost divided equally among all jobs in process.
19. the
actual time spent on each job multiplied by the wage rate.
20. the
estimated time spent on each job multiplied by the wage rate.
16. When
using normal costing, the total production cost of a job is composed of:
17. direct
material and direct labor.
18. direct
material, direct labor, manufacturing overhead, and outlays for selling costs.
19. direct
material, direct labor, manufacturing overhead, and outlays for both selling
and administrative costs.
20. direct
material, direct labor, and applied manufacturing overhead.
21. direct
material, direct labor, and actual manufacturing overhead.
17. Manufacturing
overhead:
18. includes
direct materials, indirect materials, indirect labor, and factory depreciation.
19. is
easily traced to jobs.
20. includes
all selling costs.
21. should
not be assigned to individual jobs because it bears no obvious relationship to
them.
22. is a
pool of indirect production costs that must somehow be attached to each unit
manufactured.
18. As
production takes place, all manufacturing costs are added to the:
19. Work-in-Process
Inventory account.
20. Manufacturing-Overhead
Inventory account.
21. Cost-of-Goods-Sold
account.
22. Finished-Goods
Inventory account.
23. Production
Labor account.
19. Which
of the following statements regarding work in process is not correct?
20. Work
in process is partially completed inventory.
21. Work
in process consists of direct labor, direct material, and manufacturing
overhead.
22. Work-in-Process
Inventory is debited to record direct material used and direct labor incurred.
23. Work-in-Process
Inventory appears on the year-end balance sheet.
24. Work-in-Process
Inventory is credited when goods are sold.
20. Which
of the following statements about manufacturing cost flows is false?
21. Direct
materials, direct labor, and manufacturing overhead are entered in the
Work-in-Process Inventory account.
22. The
Finished-Goods Inventory account will contain entries that reflect the cost of
goods sold during the period.
23. The
cost of units sold during the period will typically appear on the income
statement.
24. When
a company sells goods that cost $54,000 for $60,000, the firm will enter $6,000
in an account entitled Profit on Sale.
25. Units
are normally transferred from Work-in-Process Inventory to Finished-Goods
Inventory.
21. Which
of the following statements about materials is false?
22. Acquisitions
of materials are normally charged to the Purchases account.
23. The
use of direct materials gives rise to a debit to Work-in-Process Inventory.
24. The
use of indirect materials gives rise to a debit to Manufacturing Overhead.
25. The
use of indirect materials gives rise to a credit to Manufacturing Supplies
Inventory.
26. Direct
materials are accounted for in a different manner than indirect materials.
22. Summers
Corporation recently used $75,000 of direct materials and $9,000 of indirect
materials in production activities. The journal entries reflecting these
transactions would include:
23. a
debit to Manufacturing Overhead for $9,000.
24. a
debit to Manufacturing Overhead for $84,000.
25. a
debit to Raw-Material Inventory for $75,000.
26. a
debit to Work-in-Process Inventory for $84,000.
27. a
credit to Manufacturing Overhead for $9,000.
23. A
review of a company’s Work-in-Process Inventory account found a debit for
materials of $67,000. If all procedures were performed in the correct manner,
this means that the firm:
24. also
recorded a credit to Raw-Material Inventory.
25. also
recorded a credit to Manufacturing Supplies Inventory.
26. was
accounting for the usage of direct materials.
27. was
accounting for the usage of indirect materials.
28. Both
A and C are correct
24. Othello
Manufacturing incurred $106,000 of direct labor and $11,000 of indirect labor.
The proper journal entry to record these events would include a debit to Work
in Process for:
25. $0
because Work in Process should be credited.
26. $0
because Work in Process is not affected.
27. $11,000.
28. $106,000.
29. $117,000.
25. The
following information relates to October:
Production supervisor’s salary: $3,500
Factory maintenance wages: 250 hours at $10 per hour
The journal entry to record the preceding information is:
1.
2.
3.
4.
5.
26. Electricity
costs that were incurred by a company’s production processes should be debited
to:
27. Utilities
Expense.
28. Accounts
Payable.
29. Cash.
30. Manufacturing
Overhead.
31. Work-in-Process
Inventory.
27. The
journal entry needed to record $5,000 of advertising for Westwood Manufacturing
would include:
28. a
debit to Advertising Expense.
29. a
credit to Advertising Expense.
30. a
debit to Manufacturing Overhead.
31. a
credit to Manufacturing Overhead.
32. a
debit to Projects-in-Process.
28. Reynardo
Company incurred $90,000 of depreciation for the year. Eighty percent relates
to the firm’s production facilities, and 20% relates to sales and administrative
offices. If all items are handled in the proper manner, a review of the
company’s accounting records should reveal a:
29. debit
to Depreciation Expense for $90,000.
30. debit
to Manufacturing Overhead for $90,000.
31. debit
to Manufacturing Overhead for $72,000.
32. debit
to Work-in-Process Inventory for $18,000.
33. credit
to Cash for $90,000.
29. The
process of assigning overhead costs to the jobs that are worked on is commonly
called:
30. service
department cost allocation.
31. overhead
cost distribution.
32. overhead
application.
33. transfer
costing.
34. overhead
cost apportionment.
30. Which
of the following is the correct method to calculate a predetermined overhead
rate?
31. Budgeted
total manufacturing cost ¸
budgeted amount of cost driver.
32. Budgeted
overhead cost ¸
budgeted amount of cost driver.
33. Budgeted
amount of cost driver ¸
budgeted overhead cost.
34. Actual
overhead cost ¸
budgeted amount of cost driver.
35. Actual
overhead cost ¸
actual amount of cost driver.
31. Metro
Corporation uses a predetermined overhead rate of $20 per machine hour. In
deriving this figure, the company’s accountant used:
32. a
denominator of budgeted machine hours for the current accounting period.
33. a
denominator of actual machine hours for the current accounting period.
34. a
denominator of actual machine hours for the previous accounting period.
35. a
numerator of budgeted machine hours for the current accounting period.
36. a
numerator of actual machine hours for the current accounting period.
32. Strong
Company applies overhead based on machine hours. At the beginning of 20×1, the
company estimated that manufacturing overhead would be $500,000, and machine
hours would total 20,000. By 20×1 year-end, actual overhead totaled $525,000,
and actual machine hours were 25,000. On the basis of this information, the 20×1
predetermined overhead rate was:
33. $0.04
per machine hour.
34. $0.05
per machine hour.
35. $20
per machine hour.
36. $21
per machine hour.
37. $25
per machine hour.
33. Dixie
Company, which applies overhead at the rate of 190% of direct material cost,
began work on job no. 101 during June. The job was completed in July and sold
during August, having accumulated direct material and labor charges of $27,000
and $15,000, respectively. On the basis of this information, the total overhead
applied to job no. 101 amounted to:
34. $0.
35. $28,500.
36. $51,300.
37. $70,500.
38. $79,800.
34. Huxtable
charges manufacturing overhead to products by using a predetermined application
rate, computed on the basis of machine hours. The following data pertain to the
current year:
Budgeted manufacturing overhead: $480,000
Actual manufacturing overhead: $440,000
Budgeted machine hours: 20,000
Actual machine hours: 16,000
Overhead applied to production totaled:
1. $352,000.
2. $384,000.
3. $550,000.
4. $600,000.
5. some
other amount.
35. Simone
uses a predetermined overhead application rate of $8 per direct labor hour. A
review of the company’s accounting records for the year just ended discovered
the following:
Underapplied manufacturing overhead: $7,200
Actual manufacturing overhead: $392,000
Budgeted labor hours: 50,000
Simone’s actual labor hours worked totaled:
100.
48,100.
101.
49,100.
102.
49,900.
103.
50,900.
104.
cannot be determined based on the information presented.
36. Trenton
worked on four jobs during its first year of operation: nos. 401, 402, 403, and
404. A review of job no. 403’s cost record revealed direct material charges of
$40,000 and total manufacturing costs of $50,000. If Trenton applies overhead
at 150% of direct labor cost, the overhead applied to job no. 403 must have
been:
37. $0.
38. $6,000.
39. $4,000.
40. $3,333.
41. $5,000.
37. The
left side of the Manufacturing Overhead account is used to accumulate:
38. actual
manufacturing overhead costs incurred throughout the accounting period.
39. overhead
applied to Work-in-Process Inventory.
40. underapplied
overhead.
41. predetermined
overhead.
42. overapplied
overhead.
38. Throughout
the accounting period, the credit side of the Manufacturing Overhead account is
used to accumulate:
39. actual
manufacturing overhead costs.
40. overhead
applied to Work-in-Process Inventory.
41. overapplied
overhead.
42. underapplied
overhead.
43. predetermined
overhead.
39. An
accountant recently debited Work-in-Process Inventory and credited
Manufacturing Overhead at a company that uses normal costing. The accountant
was:
40. applying
a predetermined overhead amount to production.
41. recognizing
receipt of the factory utilities bill.
42. recording
a year-end adjustment for an insignificant amount of underapplied overhead.
43. recognizing
actual overhead incurred during the period.
44. recognizing
the completion of production.
40. The
final step in recognizing the completion of production requires a company to:
41. debit
Finished-Goods Inventory and credit Work-in-Process Inventory.
42. debit
Work-in-Process Inventory and credit Finished-Goods Inventory.
43. add
direct labor to Work-in-Process Inventory.
44. add
direct materials, direct labor, and manufacturing overhead to Work-in-Process
Inventory.
45. add
direct materials to Finished-Goods Inventory.
41. Job
no. C12 was completed in November at a cost of $28,500, subdivided as follows:
direct material, $13,500; direct labor, $6,000; and manufacturing overhead,
$9,000. The journal entry to record the completion of the job is:
42.
43.
44.
45.
46.
42. If a
company sells goods that cost $80,000 for $92,000, the firm will:
43. reduce
Finished-Goods Inventory by $80,000.
44. reduce
Finished-Goods Inventory by $92,000.
45. report
sales revenue on the balance sheet of $92,000.
46. reduce
Cost of Goods Sold by $80,000.
47. follow
more than one of the above procedures.
43. Serina
Manufacturing recently sold goods that cost $35,000 for $45,000 cash. The
journal entries to record this transaction would include:
44. a
credit to Work-in-Process Inventory for $35,000.
45. a
debit to Sales Revenue for $45,000.
46. a
credit to Profit on Sale for $10,000.
47. a
debit to Finished-Goods Inventory for $35,000.
48. a
credit to Sales Revenue for $45,000.
44. A computer
manufacturer recently shipped several laptops to a customer (cost: $25,000) and
billed the customer $30,000. Which of the following options correctly expresses
the accounts that are debited and credited to record this transaction?
45. Debits:
Accounts Receivable, Finished-Goods Inventory; credits: Sales Revenue, Cost of
Goods Sold.
46. Debits:
Accounts Receivable, Cost of Goods Sold; credits: Sales Revenue, Finished-Goods
Inventory.
47. Debits:
Sales Revenue, Cost of Goods Sold; credits: Accounts Receivable, Finished-Goods
Inventory.
48. Debits:
Sales Revenue, Finished-Goods Inventory; credits: Accounts Receivable, Cost of
Goods Sold.
49. Debits:
Accounts Receivable; credits: Finished-Goods Inventory, Profit on Sale.
45. Blarney
Company applies manufacturing overhead by using a predetermined rate of 50% of
direct labor cost. The data that follow pertain to job no. 764:
If Blarney adds a 40% markup on total cost to generate a profit,
which of the following choices depicts a portion of the accounting needed to
record the sale of job no. 764?
1. Choice
A
2. Choice
B
3. Choice
C
4. Choice
D
5. Choice
E
46. Armada
Company applies manufacturing overhead by using a predetermined rate of 150% of
direct labor cost. The data that follow pertain to job no. 831:
If Armada adds a 30% markup on total cost to generate a profit,
which of the following choices depicts a portion of the accounting needed to
record the credit sale of job no. 831?
1. Choice
A
2. Choice
B
3. Choice
C
4. Choice
D
5. Choice
E
47. Media,
Inc., an advertising agency, applies overhead to jobs on the basis of direct
professional labor hours. Overhead was estimated to be $150,000, direct
professional labor hours were estimated to be 15,000, and direct professional
labor cost was projected to be $225,000. During the year, Media incurred actual
overhead costs of $146,000, actual direct professional labor hours of 14,500,
and actual direct labor cost of $222,000. By year-end, the firm’s overhead was:
48. $1,000
underapplied.
49. $1,000
overapplied.
50. $4,000
underapplied.
51. $4,000
overapplied.
52. $5,000
underapplied.
48. Mahler,
Inc., applies manufacturing overhead at the rate of $40 per machine hour.
Budgeted machine hours for the current period were anticipated to be 120,000;
however, a lengthy strike resulted in actual machine hours being worked of only
90,000. Budgeted and actual manufacturing overhead figures for the year were
$4,800,000 and $4,180,000, respectively. On the basis of this information, the
company’s year-end overhead was:
49. overapplied
by $580,000.
50. underapplied
by $580,000.
51. overapplied
by $1,200,000.
52. underapplied
by $1,200,000.
53. underapplied
by $900,000.
49. Tiffany
charges manufacturing overhead to products by using a predetermined application
rate, computed on the basis of labor hours. The following data pertain to the current
year:
Which of the following choices is the correct status of
manufacturing overhead at year-end?
1. Overapplied
by $10,000.
2. Underapplied
by $10,000.
3. Overapplied
by $35,000.
4. Underapplied
by $35,000.
5. Overapplied
by $45,000.
50. Sting
Corporation debited Cost of Goods Sold and credited Manufacturing Overhead at
year-end. On the basis of this information, one can conclude that:
51. budgeted
overhead exceeded actual overhead.
52. budgeted
overhead exceeded applied overhead.
53. budgeted
overhead was less than applied overhead.
54. actual
overhead exceeded applied overhead.
55. actual
overhead was less than applied overhead.
51. Howard
Manufacturing’s overhead at year-end was underapplied by $5,800, a small amount
given the firm’s size. The year-end journal entry to record this amount would
include:
52. a
debit to Cost of Goods Sold.
53. a
debit to Manufacturing Overhead.
54. a
debit to Work-in-Process Inventory.
55. a
credit to Cost of Goods Sold.
56. a
credit to Work-in-Process Inventory.
52. Fogg
Company, which uses labor hours to apply overhead to manufacturing, may have
increased amounts of underapplied overhead at month-end if:
53. suppliers
of direct materials have an across-the-board price increase.
54. an
accountant failed to record the period’s charges for plant maintenance and
security.
55. employees
are hit hard with a widespread outbreak of the flu.
56. direct
laborers are granted a wage increase.
57. outlays
for advertising expenditures are increased.
53. The
estimates used to calculate the predetermined overhead rate will virtually
always:
54. prove
to be correct.
55. result
in a year-end balance of zero in the Manufacturing Overhead account.
56. result
in overapplied overhead that is closed to Cost of Goods Sold if it is
immaterial in amount.
57. result
in underapplied overhead that is closed to Cost of Goods Sold if it is
immaterial in amount.
58. result
in either underapplied or overapplied overhead that is closed to Cost of Goods
Sold if it is immaterial in amount.
54. Under-
or overapplied manufacturing overhead at year-end is most commonly:
55. charged
or credited to Work-in-Process Inventory.
56. charged
or credited to Cost of Goods Sold.
57. charged
or credited to a special loss account.
58. prorated
among Work-in-Process Inventory, Finished-Goods Inventory, and Cost of Goods
Sold.
59. ignored
because there is no effect on the Cash account.
55. When
underapplied or overapplied manufacturing overhead is prorated, amounts can be
assigned to which of the following accounts?
56. Raw-Material
Inventory, Manufacturing Overhead, and Direct Labor.
57. Cost
of Goods Sold, Work-in-Process Inventory, and Finished-Goods Inventory.
58. Work-in-Process
Inventory, Raw-Material Inventory, and Cost of Goods Sold.
59. Raw-Material
Inventory, Finished-Goods Inventory, and Cost of Goods Sold.
60. Raw-Material
Inventory, Work-in-Process Inventory, and Finished-Goods Inventory.
56. Fletcher,
Inc. disposes of under- or overapplied overhead at year-end as an adjustment to
cost of goods sold. Prior to disposal, the firm reported cost of goods sold of
$590,000 in a year when manufacturing overhead was underapplied by $15,000. If
sales revenue totaled $1,400,000, determine (1) Fletcher’s adjusted cost of
goods sold and (2) gross margin.
1. Choice
A
2. Choice
B
3. Choice
C
4. Choice
D
5. Choice
E
57. The
term “normal costing” refers to the use of:
58. job-costing
systems.
59. computerized
accounting systems.
60. targeted
overhead rates.
61. predetermined
overhead rates.
62. actual
overhead rates.
58. The
primary difference between normalized and actual costing methods lies in the
determination of a job’s:
59. direct
material costs.
60. direct
labor costs.
61. manufacturing
overhead costs.
62. selling
costs.
63. administrative
costs.
59. Which
of the following statements about the use of direct labor as a cost driver is
false?
60. Direct
labor is the most commonly used cost driver when calculating a predetermined
overhead rate.
61. Direct
labor is gaining importance in many manufacturing applications with respect to
being a significant cost driver.
62. Direct
labor is an inappropriate cost driver to use if a company is highly automated.
63. If
direct labor is a good cost driver, increases in direct labor are matched with
increases in manufacturing overhead.
64. Companies
can use either direct labor cost or direct labor hours as a cost driver.
60. If
the amount of effort and attention to products varies substantially throughout
a company’s various manufacturing operations, the company might consider the
use of:
61. a
plant-wide overhead rate.
62. departmental
overhead rates.
63. actual
overhead rates instead of predetermined overhead rates.
64. direct
labor hours to determine the overhead rate.
65. machine
hours to determine the overhead rate.
61. In
the two-stage cost allocation process, costs are assigned:
62. from
jobs, to service departments, to production departments.
63. from
service departments, to jobs, to production departments.
64. from
service departments, to production departments, to jobs.
65. from
production departments, to jobs, to service departments.
66. from
the balance sheet (when goods are produced), to the income statement (when
goods are sold).
62. Which
of the following entities would not likely be a user of job-costing systems?
63. Custom-furniture
manufacturers.
64. Repair
shops.
65. Hospitals.
66. Accounting
firms.
67. None
of these, because all are likely users.
63. Which
of the following would not likely be used by service providers to accumulate
job costs?
64. Projects.
65. Contracts.
66. Clients.
67. Processes.
68. All
of these, because service providers cannot use job-costing systems.
64. At
the Nassau Advertising Agency, partner and staff compensation cost is a key
driver of agency overhead. In light of this fact, which of the following is the
correct expression to determine the amount of overhead applied to a particular
client job?
65. (Budgeted
overhead ¸
budgeted compensation) ´
budgeted compensation cost on the job.
66. (Budgeted
overhead ¸
budgeted compensation) ´
actual compensation cost on the job.
67. (Budgeted
compensation ¸
budgeted overhead) ´
budgeted compensation cost on the job.
68. (Budgeted
compensation ¸
budgeted overhead) ´
actual compensation cost on the job.
69. None
of these, because service providers do not apply overhead to jobs.
Essay Questions
65. Taffy
Corporation sells a number of products to groups that provide educational
workshops and seminars. One of the products involves a combination leather case
and note pad. The company purchases the case and pad combination from a
supplier and encloses a $3 pen that contains the educational groups’ name and
logo.
Taffy began to carry this product at the start of 20×3,
acquiring 12,500 cases from Executive Supply for $87,500 along with an
identical number of pens from Accent Goods. During 20×3, 9,500 of the cases and
pens were issued to Taffy’s assembly operation where the pen is added. Eighty
percent of these cases were completed as of December 31, and a review of the
December 31 finished-goods inventory found 2,600 completed cases in the
warehouse. Conversations with salespeople revealed that 70 finished sets were
used in various company marketing activities throughout the year.
Required:
31. Determine
the cost of the cases and pens that would appear in Taffy’s raw materials, work
in process, and finished-goods inventory as of December 31.
32. Determine
the cost of the cases and pens that would appear in the company’s cost of goods
sold for 20×3.
66. The
selected data that follow relate to the Bargeron Furniture Company.
During the year, products costing $310,000 were completed, and
products costing $316,000 were sold on account for $455,000.
Required:
Prepare journal entries to record the preceding transactions and
events.
67. Quatro
Products started and finished job no. C19 during June. The job required $15,000
of direct material and 75 hours of direct labor at $12 per hour. The
predetermined overhead rate is $16 per direct labor hour.
During June, direct materials requisitions for all jobs totaled
$149,000; the total direct labor hours and cost were 6,200 hours at $12 per
hour; and the total cost of jobs completed was $337,500. All of these figures
include data that pertain to job no. C19.
Required:
1. Prepare
journal entries that summarize June’s total activity.
2. Determine
the cost of job no. C19.
68. Dancer
Corporation, which uses a job-costing system, had two jobs in process at the
start of 20×1: job no. 59 ($95,000) and job no. 60 ($39,500). The following information
is available:
·
The company applies manufacturing overhead on the basis of
machine hours. Budgeted overhead and machine activity for the year were
anticipated to be $720,000 and 20,000 hours, respectively.
·
The company worked on three jobs during the first quarter.
Direct materials used, direct labor incurred, and machine hours consumed were:
·
Manufacturing overhead during the first quarter included charges
for depreciation ($20,000), indirect labor ($50,000), indirect materials used
($4,000), and other factory costs ($108,700).
·
Dancer completed job no. 59 and job no. 60. Job no. 59 was sold
for cash, producing a gross profit of $24,600 for the firm.
Required:
1. Determine
the company’s predetermined overhead application rate.
2. Prepare
journal entries as of March 31 to record the following. (Note: Use summary
entries where appropriate by combining individual job data.)
3. The
issuance of direct material to production, and the direct labor incurred.
4. The
manufacturing overhead incurred during the quarter.
5. The
application of manufacturing overhead to production.
6. The
completion of job no. 59 and no. 60.
7. The
sale of job no. 59.
69. Buckman
Corporation, which began operations on January 1 of the current year, reported
the following information:
Buckman uses a normal cost system and applies manufacturing
overhead to jobs on the basis of direct labor cost. A 60% markup is added to
the cost of completed production when finished goods are sold. On December 31,
job no. 18 was the only job that remained in production. That job had
direct-material and direct-labor charges of $16,500 and $36,000, respectively.
Required:
1. Determine
the company’s predetermined overhead rate.
2. Determine
the amount of under- or overapplied overhead. Be sure to label your answer.
3. Compute
the amount of direct materials used in production.
4. Calculate
the balance the company would report as ending work-in-process inventory.
5. Prepare
the journal entry(ies) needed to record Buckman’s sales, which are all made on
account.
70. Margery,
Inc., which uses a job-costing system, is a labor-intensive firm, with many
skilled craftspeople on the payroll. Job no. 789 was the only job in process on
January 1, having costs of $22,500 as of that date. Direct materials used and
direct labor incurred during January were:
Job no. 791 was the only job in production as of January 31.
Required:
1. Should
Margery use direct labor or machine hours as a cost driver. Why?
2. Assume
that the company decided to use direct labor as its cost driver. If the
budgeted amounts of direct labor and manufacturing overhead are anticipated to
be $200,000 and $300,000, respectively, what is the firm’s predetermined
overhead rate?
3. Compute
the cost of work-in-process inventory as of January 31.
4. Compute
the cost of jobs completed during January.
5. Suppose
that the company sold all of its completed jobs, adding a 40% markup to cost.
How much would the firm report as sales revenue?
71. Rock
Star, Inc., which uses a job-costing system, began business on January 1, 20×3
and applies manufacturing overhead on the basis of direct-labor cost. The
following information relates to 20×3:
·
Budgeted direct labor and manufacturing overhead were
anticipated to be $200,000 and $250,000, respectively.
·
Job nos. 1, 2, and 3 were begun during the year and had the
following charges for direct material and direct labor:
·
Job nos. 1 and 2 were completed and sold on account to customers
at a profit of 60% of cost. Job no. 3 remained in production.
·
Actual manufacturing overhead by year-end totaled $233,000. Rock
Star adjusts all under- and overapplied overhead to cost of goods sold.
Required:
1. Compute
the company’s predetermined overhead application rate.
2. Compute
Rock Star’s ending work-in-process inventory.
3. Determine
Rock Star’s sales revenue.
4. Was
manufacturing overhead under- or overapplied during 20×3? By how much?
5. Present
the necessary journal entry to handle under- or overapplied manufacturing
overhead at year-end.
6. Does
the presence of under- or overapplied overhead at year-end indicate that Rock
Star’s accountants made a serious error? Briefly explain.
72. Athena
Corporation uses a job-cost system and applies manufacturing overhead to
products on the basis of machine hours. The company’s accountant estimated that
overhead and machine hours would total $800,000 and 50,000, respectively, for
20×1. Actual costs incurred follow.
The manufacturing overhead figure presented above excludes
$27,000 of sales commissions incurred by the firm. An examination of job-cost
records revealed that 18 jobs were sold during the year at a total cost of
$2,960,000. These goods were sold to customers for $3,720,000. Actual machine
hours worked totaled 51,500, and Athens adjusts under- or overapplied overhead
at year-end to Cost of Goods Sold.
Required:
1. Determine
the company’s predetermined overhead application rate.
2. Determine
the amount of under- or overapplied overhead at year-end. Be sure to indicate
whether overhead was under- or overapplied.
3. Compute
the company’s adjusted cost of goods sold.
4. What
alternative accounting treatment could the company have used at year-end to
adjust for under- or overapplied overhead? Is the alternative that you
suggested appropriate in this case? Why?
73. Dodger
Products uses a job-costing system for its units, which pass from the Machining
Department, to the Assembly Department, to finished-goods inventory. The
Machining Department is heavily automated; in contrast, the Assembly Department
performs a number of manual-assembly activities. The company uses machine hours
to apply manufacturing overhead to products in the Machining Department, and
direct labor cost to apply manufacturing overhead to products in the Assembly
Department.
The following information relates to the Machining Department
for the year just ended:
The Machining Department data that follow pertain to job no.
775, the only job in production at year-end.
Required:
1. Assuming
the use of normal costing, calculate the predetermined overhead rate that is
used in the Machining Department.
2. Compute
the cost of the Machining Department’s year-end work-in-process inventory.
3. Determine
the amount that overhead was under- or overapplied during the year in the
Machining Department. Indicate whether it is overapplied or underapplied.
4. If
Dodger disposes of the Machining Department’s under- or overapplied overhead as
an adjustment to Cost of Goods Sold, would the company’s Cost-of-Goods-Sold
account increase or decrease? Explain.
5. How
much overhead would have been charged to the Machining Department’s
Work-in-Process account during the year?
6. Comment
on the appropriateness of direct labor cost to apply manufacturing overhead in
the Assembly Department.
74. Kei Products
uses a predetermined overhead application rate of $18 per labor hour. A review
of the company’s accounting records revealed budgeted manufacturing overhead
for the period of $621,000, applied manufacturing overhead of $590,400, and
overapplied overhead of $11,900.
Required:
1. Determine
Kei’s actual labor hours, budgeted labor hours, and actual manufacturing
overhead.
2. Present
the necessary year-end journal entry to handle the overapplied overhead,
assuming that the firm allocates over- or underapplied overhead to Cost of
Goods Sold.
75. A
review of the records of Pilgrim, Inc., a new company, disclosed the following
year-end information:
·
Manufacturing Overhead account: Contained debits of $872,000,
which included $20,000 of sales commissions.
·
Work-in-Process Inventory account: Contained charges for
overhead of $875,000.
·
Cost-of-Goods-Sold account: Contained a year-end debit balance
of $3,680,000. This amount was computed prior to any year-end adjustment for
under- or overapplied overhead.
Pilgrim applies manufacturing overhead to production by using a
predetermined rate of $20 per machine hour. Budgeted overhead for the period
was anticipated to be $900,000.
Required:
1. Determine
the actual manufacturing overhead for the year.
2. Determine
the amount of manufacturing overhead applied to production.
3. Is
overhead under- or overapplied? By how much?
4. Compute
the adjusted cost-of-goods-sold figure that should be disclosed on the
company’s income statement.
5. How
many machine hours did Pilgrim actually work during the year?
6. Compute
budgeted machine hours for the year.
76. Finney
& Associates is an interior decorating firm in Tucson. The following costs
were incurred in a project to redecorate the mayor’s offices:|
The firm’s budget for the year included the following estimates:
Overhead is applied to contracts by using a predetermined
overhead rate that is based on direct professional labor cost. Actual
professional labor during the year was $655,000 and actual overhead was
$793,000.
Required:
1. Determine
the total cost to redecorate the mayor’s offices.
2. Calculate
the under- or overapplied overhead for the year. Be sure to label your answer.
77. Boxworth
and Associates designs relatively small sports stadiums and arenas at various
sites throughout the country. The firm’s accountant prepared the following
budget for the upcoming year:
Eighty percent of professional staff salaries are directly
traceable to client projects, a figure that falls to 60% for the administrative
support staff and other operating costs. Traceable costs are charged directly
to client projects; nontraceable costs, on the other hand, are treated as firm
overhead and charged to projects by using a predetermined overhead application
rate.
Boxworth had one project in process at year-end: an arena that
was being designed for Charlotte County. Costs directly chargeable to this
project were:
Required:
1. Determine
Boxworth’s overhead for the year and the firm’s predetermined overhead
application rate. The rate is based on costs directly chargeable to firm
projects.
2. Compute
the cost of the Charlotte County arena project as of year-end.
3. Present
three examples of “other operating costs” that might be directly traceable to
the Charlotte County project.
78. ADF
provides consulting services and uses a job-order system to accumulate the cost
of client projects. Traceable costs are charged directly to individual clients;
in contrast, other costs incurred by ADF, but not identifiable with specific
clients, are charged to jobs by using a predetermined overhead application
rate. Clients are billed for directly chargeable costs, overhead, and a markup.
ADF anticipates the following costs for the upcoming year:
ADF’s partners desire to make a $480,000 profit for the firm and
plan to add a percentage markup on total cost to achieve that figure.
On May 14, ADF completed work on a project for Lawrence
Manufacturing. The following costs were incurred: professional staff salaries,
$68,000; administrative support staff, $8,900; travel, $10,500; and other
operating costs, $2,600.
Required:
1. Determine
ADF’s total traceable costs for the upcoming year and the firm’s total
anticipated overhead.
2. Calculate
the predetermined overhead rate. The rate is based on total costs traceable to
client jobs.
3. What
percentage of total cost will ADF add to each job to achieve its profit target?
4. Determine
the total cost of the Lawrence Manufacturing project. How much would Lawrence
be billed for services performed?
79. Describe
the types of manufacturing environments that would best be suited for (1)
job-order costing and (2) process costing. Include two examples of
manufacturers that would likely use job-cost systems.
80. Manufacturing
overhead is applied to production.
81. Describe
several situations that may give rise to underapplied overhead.
82. Assume
that underapplied manufacturing overhead is treated as an adjustment to Cost of
Goods Sold. Explain why an underapplication of overhead increases Cost of Goods
Sold.
81. Discuss
the reason for (1) allocating overhead to the cost of production jobs, and (2)
applying overhead using a predetermined rate instead of an actual overhead
rate.
82. Harris,
Inc., has just completed job nos. 78 and 79, which were similar in terms of
complexity, production processes, and units manufactured. Job no. 78 was
manufactured by Joe Barton who earns $14 per hour, whereas job no. 79 was
completed by Susan Franklin who earns $20 per hour. If Joe and Susan are
equally efficient, would the company be better off using direct labor cost or
direct labor hours as the cost driver in its predetermined overhead rate?
Briefly explain.
83. Briefly
describe the stages used in the two-stage allocation process for assigning
overhead costs.
Chapter 03 Product Costing and Cost Accumulation in a Batch
Production Environment Answer Key
True / False Questions
1. Manufacturing
overhead is a pool of indirect production costs that must somehow be attached
to each unit manufactured.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Bloom’s: RC
Difficulty: Easy
Learning Objective: 03-03 Distinguish between job-order costing
and process costing.
2. Electricity
costs that were incurred by a company’s production processes should be debited
to Utilities Expense.
FALSE
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom’s: A
Difficulty: Medium
Learning Objective: 03-05 Prepare journal entries to record the
costs of direct material
Learning Objective: and manufacturing overhead in a job-order
costing system.
Learning Objective: direct labor
3. The
final step in recognizing the completion of production requires a company to
debit Finished-Goods Inventory and credit Work-in-Process Inventory.
TRUE
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Bloom’s: RC
Difficulty: Medium
Learning Objective: 03-02 Diagram and explain the flow of costs through
the manufacturing accounts used in product costing.
Learning Objective: 03-05 Prepare journal entries to record the
costs of direct material
Learning Objective: and manufacturing overhead in a job-order
costing system.
Learning Objective: direct labor
4. Under-
or overapplied manufacturing overhead at year-end is most commonly charged or
credited to Work-in-Process Inventory.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom’s: RC
Difficulty: Medium
Learning Objective: 03-05 Prepare journal entries to record the
costs of direct material
Learning Objective: and manufacturing overhead in a job-order
costing system.
Learning Objective: direct labor
5. The
term “normal costing” refers to the use of job-costing systems.
FALSE
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA FN: Decision Making
Bloom’s: RC
Difficulty: Medium
Learning Objective: 03-06 Prepare a schedule of cost of goods
manufactured
Learning Objective: a schedule of cost of goods sold
Learning Objective: and an income statement for a manufacturer.
Multiple Choice Questions
6. Product
costing in a manufacturing firm is the process of:
7. accumulating
the company’s period costs.
8. allocating
costs among the firm’s departments.
9. placing
a value on the company’s fixed assets.
10. assigning
costs to the firm’s inventory.
11. assigning
costs to the company’s managers.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom’s: RC
Difficulty: Easy
Learning Objective: 03-01 Discuss the role of product and
service costing in manufacturing and non-manufacturing firms.
7. Which
of the following statements is true?
8. Service
firms have little need for determining the cost of their services.
9. The
concept of product costing is relevant only for manufacturing firms.
10. The
cost of year-end inventory appears on the balance sheet as an expense.
11. Service
companies use cost information for planning and control purposes.
12. Mining
and petroleum companies have no inventoriable costs.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Measurement
Bloom’s: RC
Difficulty: Easy
Learning Objective: 03-01 Discuss the role of product and
service costing in manufacturing and non-manufacturing firms.
8. Which
of the following manufacturers would most likely use job-order costing?
9. Chemical
manufacturers.
10. Microchip
processors.
11. Custom-furniture
manufacturers.
12. Gasoline
refiners.
13. Fertilizer
manufacturers.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Research
Bloom’s: RC
Difficulty: Easy
Learning Objective: 03-03 Distinguish between job-order costing
and process costing.
9. A
custom-home builder would likely utilize:
10. job-order
costing.
11. process
costing.
12. mass
customization.
13. process
budgeting.
14. joint
costing.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Research
Bloom’s: RC
Difficulty: Easy
Learning Objective: 03-03 Distinguish between job-order costing
and process costing.
10. Which
of the following types of companies would most likely use process costing?
11. Aircraft
manufacturers.
12. Textile
manufacturers.
13. Textbook
publishers.
14. Custom-machining
firms.
15. Shipbuilders.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Research
Bloom’s: RC
Difficulty: Easy
Learning Objective: 03-03 Distinguish between job-order costing
and process costing.
11. A
manufacturing firm produces goods in accordance with customer specifications,
commencing production upon receipt of a purchase order. To accumulate the cost
of each order, the company would use a:
12. job-cost
record.
13. cost
allocation matrix.
14. production
log.
15. overhead
sheet.
16. manufacturing
cost record.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Reporting
Bloom’s: RC
Difficulty: Easy
Learning Objective: 03-03 Distinguish between job-order costing
and process costing.
12. A
typical job-cost record would provide information about all of the following
items related to an order except:
13. the
cost of direct materials used.
14. administrative
costs.
15. direct
labor costs incurred.
16. applied
manufacturing overhead.
17. direct
labor hours worked.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Reporting
Bloom’s: RC
Difficulty: Easy
Learning Objective: 03-03 Distinguish between job-order costing
and process costing.
13. Which
of the following statements about material requisitions is false?
14. Material
requisitions are often computerized.
15. Material
requisitions are a common example of source documents.
16. Material
requisitions contain information that is useful to the cost accounting department.
17. Material
requisitions authorize the transfer of materials from the production floor to
the raw materials warehouse.
18. Material
requisitions are routinely linked to a bill of materials that lists all of the
materials needed to complete a job.
AACSB: Reflective Thinking
AICPA BB: Industry
AICPA FN: Reporting
Bloom’s: RC
Difficulty: Easy
Learning Objective: 03-03 Distinguish between job-order costing
and process costing.
14. Pruitt
Company has developed an integrated system that coordinates the flow of all
goods, services, and information into and out of the organization, working with
raw material vendors as well as customers to improve service and reduce costs.
The firm is said to be using:
15. participative
management.
16. top-down
management.
17. strategic
cost management.
18. supply
chain management.
19. management
by objectives (MBO).
AACSB: Reflective Thinking
AICPA BB: Resource Management
AICPA FN: Decision Making
Bloom’s: RC
Difficulty: Medium
Learning Objective: 03-03 Distinguish between job-order costing
and process costing.
15. The
assignment of direct labor cost to individual jobs is based on:
16. an
estimate of the total time spent on the job.
17. actual
total payroll cost divided equally among all jobs in process.
18. estimated
total payroll cost divided equally among all jobs in process.
19. the
actual time spent on each job multiplied by the wage rate.
20. the
estimated time spent on each job multiplied by the wage rate.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Bloom’s: N
Difficulty: Medium
Learning Objective: 03-03 Distinguish between job-order costing
and process costing.
16. When
using normal costing, the total production cost of a job is composed of:
17. direct
material and direct labor.
18. direct
material, direct labor, manufacturing overhead, and outlays for selling costs.
19. direct
material, direct labor, manufacturing overhead, and outlays for both selling
and administrative costs.
20. direct
material, direct labor, and applied manufacturing overhead.
21. direct
material, direct labor, and actual manufacturing overhead.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Bloom’s: RC
Difficulty: Easy
Learning Objective: 03-03 Distinguish between job-order costing
and process costing.
17. Manufacturing
overhead:
18. includes
direct materials, indirect materials, indirect labor, and factory depreciation.
19. is
easily traced to jobs.
20. includes
all selling costs.
21. should
not be assigned to individual jobs because it bears no obvious relationship to
them.
22. is a
pool of indirect production costs that must somehow be attached to each unit
manufactured.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Bloom’s: RC
Difficulty: Easy
Learning Objective: 03-03 Distinguish between job-order costing
and process costing.
18. As production
takes place, all manufacturing costs are added to the:
19. Work-in-Process
Inventory account.
20. Manufacturing-Overhead
Inventory account.
21. Cost-of-Goods-Sold
account.
22. Finished-Goods
Inventory account.
23. Production
Labor account.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom’s: RC
Difficulty: Medium
Learning Objective: 03-02 Diagram and explain the flow of costs
through the manufacturing accounts used in product costing.
Learning Objective: 03-05 Prepare journal entries to record the
costs of direct material
Learning Objective: and manufacturing overhead in a job-order
costing system.
Learning Objective: direct labor
19. Which
of the following statements regarding work in process is not correct?
20. Work
in process is partially completed inventory.
21. Work
in process consists of direct labor, direct material, and manufacturing
overhead.
22. Work-in-Process
Inventory is debited to record direct material used and direct labor incurred.
23. Work-in-Process
Inventory appears on the year-end balance sheet.
24. Work-in-Process
Inventory is credited when goods are sold.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom’s: N
Difficulty: Medium
Learning Objective: 03-02 Diagram and explain the flow of costs
through the manufacturing accounts used in product costing.
Learning Objective: 03-05 Prepare journal entries to record the
costs of direct material
Learning Objective: and manufacturing overhead in a job-order
costing system.
Learning Objective: direct labor
20. Which
of the following statements about manufacturing cost flows is false?
21. Direct
materials, direct labor, and manufacturing overhead are entered in the
Work-in-Process Inventory account.
22. The
Finished-Goods Inventory account will contain entries that reflect the cost of
goods sold during the period.
23. The
cost of units sold during the period will typically appear on the income
statement.
24. When
a company sells goods that cost $54,000 for $60,000, the firm will enter $6,000
in an account entitled Profit on Sale.
25. Units
are normally transferred from Work-in-Process Inventory to Finished-Goods
Inventory.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Reporting
Bloom’s: N
Difficulty: Medium
Learning Objective: 03-02 Diagram and explain the flow of costs
through the manufacturing accounts used in product costing.
Learning Objective: 03-05 Prepare journal entries to record the
costs of direct material
Learning Objective: and manufacturing overhead in a job-order
costing system.
Learning Objective: direct labor
21. Which
of the following statements about materials is false?
22. Acquisitions
of materials are normally charged to the Purchases account.
23. The
use of direct materials gives rise to a debit to Work-in-Process Inventory.
24. The
use of indirect materials gives rise to a debit to Manufacturing Overhead.
25. The
use of indirect materials gives rise to a credit to Manufacturing Supplies
Inventory.
26. Direct
materials are accounted for in a different manner than indirect materials.
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom’s: A
Difficulty: Medium
Learning Objective: 03-05 Prepare journal entries to record the
costs of direct material
Learning Objective: and manufacturing overhead in a job-order
costing system.
Learning Objective: direct labor
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