Managerial Accounting Eric Noreen 5th Edition- Test Bank

 

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Sample Test

Managerial Accounting for Managers, 5e (Noreen)

Chapter 3  Job–Order Costing: Calculating Unit Product Costs

 

1) A cost driver is a factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes direct costs.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

2) Job-order costing systems often use allocation bases that do not reflect how jobs actually use overhead resources.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

3) An employee time ticket is an hour-by-hour summary of the employee’s activities throughout the day.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

4) The formula for computing the predetermined overhead rate is:

 

Predetermined overhead rate = Estimated total amount of the allocation base ÷ Estimated total manufacturing overhead cost

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

5) Generally speaking, when going through the process of computing a predetermined overhead rate, the estimated total manufacturing overhead cost is determined before estimating the amount of the allocation base.

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

6) If a job is not completed at year end, then no manufacturing overhead cost would be applied to that job when a predetermined overhead rate is used.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Applying Manufacturing Overhead

Learning Objective:  03-02 Apply overhead cost to jobs using a predetermined overhead rate.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

7) Actual overhead costs are not assigned to jobs in a job costing system.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Applying Manufacturing Overhead

Learning Objective:  03-02 Apply overhead cost to jobs using a predetermined overhead rate.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

8) The amount of overhead applied to a particular job equals the actual amount of overhead caused by the job.

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  Applying Manufacturing Overhead

Learning Objective:  03-02 Apply overhead cost to jobs using a predetermined overhead rate.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

9) If the overhead rate is computed annually based on the actual costs and activity for the year, the manufacturing overhead assigned to any particular job can be computed as soon as the job is completed.

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  Applying Manufacturing Overhead

Learning Objective:  03-02 Apply overhead cost to jobs using a predetermined overhead rate.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

10) Job cost sheets contain entries for actual direct material, actual direct labor, and actual manufacturing overhead cost incurred in completing a job.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Computation of Total Job Costs and Unit Product Costs

Learning Objective:  03-03 Compute the total cost and the unit product cost of a job using a plantwide predetermined overhead rate.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

11) In a job-order cost system, indirect labor is assigned to a job using information from the employee time ticket.

 

Answer:  FALSE

Difficulty: 3 Hard

Topic:  Computation of Total Job Costs and Unit Product Costs

Learning Objective:  03-03 Compute the total cost and the unit product cost of a job using a plantwide predetermined overhead rate.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

12) If the allocation base in the predetermined overhead rate does not drive overhead costs, it will nevertheless provide reasonably accurate unit product costs because of the averaging process.

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  Computation of Total Job Costs and Unit Product Costs

Learning Objective:  03-03 Compute the total cost and the unit product cost of a job using a plantwide predetermined overhead rate.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

13) A job cost sheet is used to record how much a customer pays for the job once the job is completed.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Computation of Total Job Costs and Unit Product Costs

Learning Objective:  03-03 Compute the total cost and the unit product cost of a job using a plantwide predetermined overhead rate.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

14) In a job-order costing system, costs are traced to individual units of product. The sum total of such traced costs is called the unit product cost.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Computation of Total Job Costs and Unit Product Costs

Learning Objective:  03-03 Compute the total cost and the unit product cost of a job using a plantwide predetermined overhead rate.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

15) The fact that one department may be labor intensive while another department is machine intensive explains in part why multiple predetermined overhead rates are often used in larger companies.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Job-Order Costing Using Multiple Predetermined Overhead Rates

Learning Objective:  03-04 Compute the total cost and the unit product cost of a job using multiple predetermined overhead rates.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

16) A company will improve job cost accuracy by using multiple overhead rates even if it cannot identify more than one overhead cost driver.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Job-Order Costing Using Multiple Predetermined Overhead Rates

Learning Objective:  03-04 Compute the total cost and the unit product cost of a job using multiple predetermined overhead rates.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

17) The appeal of using multiple departmental overhead rates is that they presumably provide a more accurate accounting of the costs caused by jobs.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Job-Order Costing Using Multiple Predetermined Overhead Rates

Learning Objective:  03-04 Compute the total cost and the unit product cost of a job using multiple predetermined overhead rates.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

18) The costs attached to products that have not been sold are included in ending inventory on the balance sheet.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Job-Order Costing Using Multiple Predetermined Overhead Rates

Learning Objective:  03-04 Compute the total cost and the unit product cost of a job using multiple predetermined overhead rates.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

19) In absorption costing, nonmanufacturing costs are assigned to units of product.

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  Job-Order Costing Using Multiple Predetermined Overhead Rates

Learning Objective:  03-04 Compute the total cost and the unit product cost of a job using multiple predetermined overhead rates.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

20) An employee time ticket is used to record points that are earned by employees based on the hours they worked that can be used to pay for coffee, food in the cafeteria, and even in some cases for vacation travel.

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  Job-Order Costing Using Multiple Predetermined Overhead Rates

Learning Objective:  03-04 Compute the total cost and the unit product cost of a job using multiple predetermined overhead rates.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

21) A bill of materials is a document that lists the type and quantity of each type of direct material needed to complete a unit of product.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Job-Order Costing Using Multiple Predetermined Overhead Rates

Learning Objective:  03-04 Compute the total cost and the unit product cost of a job using multiple predetermined overhead rates.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

22) Most countries require some form of absorption costing for external reports.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Job-Order Costing Using Multiple Predetermined Overhead Rates

Learning Objective:  03-04 Compute the total cost and the unit product cost of a job using multiple predetermined overhead rates.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

23) In a job-order costing system that is based on machine-hours, which of the following formulas is correct?

1.   A) Predetermined overhead rate = Actual manufacturing overhead ÷ Actual machine-hours

2.   B) Predetermined overhead rate = Actual manufacturing overhead ÷ Estimated machine-hours

3.   C) Predetermined overhead rate = Estimated manufacturing overhead ÷ Estimated machine-hours

4.   D) Predetermined overhead rate = Estimated manufacturing overhead ÷ Actual machine-hours

 

Answer:  C

Difficulty: 1 Easy

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

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

1.   A) Predetermined overhead rate = Estimated total units in the allocation base ÷ Estimated total manufacturing overhead costs

2.   B) Predetermined overhead rate = Estimated total manufacturing overhead costs ÷ Estimated total units in the allocation base

3.   C) Predetermined overhead rate = Actual total manufacturing overhead costs ÷ Estimated total units in the allocation base

4.   D) Predetermined overhead rate = Estimated total manufacturing overhead costs ÷ Actual total units in the allocation base.

 

Answer:  B

Difficulty: 1 Easy

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

25) Assigning manufacturing overhead to a specific job is complicated by all of the below except:

1.   A) Manufacturing overhead is an indirect cost that is either impossible or difficult to trace to a particular job.

2.   B) Manufacturing overhead is incurred only to support some jobs.

3.   C) Manufacturing overhead consists of both variable and fixed costs.

4.   D) The average cost of actual fixed manufacturing overhead expenses will vary depending on how many units are produced in a period.

 

Answer:  B

Difficulty: 2 Medium

Topic:  Applying Manufacturing Overhead

Learning Objective:  03-02 Apply overhead cost to jobs using a predetermined overhead rate.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

26) Which of the following statements about using a plantwide overhead rate based on direct labor is correct?

1.   A) Using a plantwide overhead rate based on direct labor-hours will ensure that direct labor costs are correctly traced to jobs.

2.   B) Using a plantwide overhead rate based on direct labor costs will ensure that direct labor costs will be correctly traced to jobs.

3.   C) It is often overly simplistic and incorrect to assume that direct labor-hours is a company’s only manufacturing overhead cost driver.

4.   D) The labor theory of value ensures that using a plantwide overhead rate based on direct labor will do a reasonably good job of assigning overhead costs to jobs.

 

Answer:  C

Difficulty: 2 Medium

Topic:  Computation of Total Job Costs and Unit Product Costs

Learning Objective:  03-03 Compute the total cost and the unit product cost of a job using a plantwide predetermined overhead rate.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

27) Which of the following would usually be found on a job cost sheet under a normal cost system?

 

 

	Actual direct material cost	Actual manufacturing overhead cost
A)	Yes	Yes
B)	Yes	No
C)	No	Yes
D)	No	No

 

 

1.   A) Choice A

2.   B) Choice B

3.   C) Choice C

4.   D) Choice D

 

Answer:  B

Difficulty: 1 Easy

Topic:  Computation of Total Job Costs and Unit Product Costs

Learning Objective:  03-03 Compute the total cost and the unit product cost of a job using a plantwide predetermined overhead rate.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

28) Which of the following statements is not correct concerning multiple overhead rate systems?

1.   A) A multiple overhead rate system is more complex than a system based on a single plantwide overhead rate.

2.   B) A multiple overhead rate system is usually more accurate than a system based on a single plantwide overhead rate.

3.   C) A company may choose to create a separate overhead rate for each of its production departments.

4.   D) In departments that are relatively labor-intensive, their overhead costs should be applied to jobs based on machine-hours rather than on direct labor-hours.

 

Answer:  D

Difficulty: 1 Easy

Topic:  Job-Order Costing Using Multiple Predetermined Overhead Rates

Learning Objective:  03-04 Compute the total cost and the unit product cost of a job using multiple predetermined overhead rates.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

29) Johansen Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. The Corporation has provided the following estimated costs for the next year:

 

 

Direct materials	$	6,000
Direct labor	$	20,000
Rent on factory building	$	15,000
Sales salaries	$	25,000
Depreciation on factory equipment	$	8,000
Indirect labor	$	12,000
Production supervisor’s salary	$	15,000

 

Jameson estimates that 20,000 direct labor-hours will be worked during the year. The predetermined overhead rate per hour will be:

2.   A) $2.50 per direct labor-hour

3.   B) $2.79 per direct labor-hour

4.   C) $3.00 per direct labor-hour

5.   D) $4.00 per direct labor-hour

 

Answer:  A

Explanation:

Rent on factory building	$	15,000
Depreciation on factory equipment		8,000
Indirect labor		12,000
Production supervisor’s salary		15,000
Manufacturing overhead	$	50,000

 

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base

 

Predetermined overhead rate = $50,000 ÷ 20,000 direct labor-hours = $2.50 per direct labor-hour

Difficulty: 2 Medium

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

30) The Silver Corporation uses a predetermined overhead rate to apply manufacturing overhead to jobs. The predetermined overhead rate is based on labor cost in Dept. A and on machine-hours in Dept. B. At the beginning of the year, the Corporation made the following estimates:

 

 

	Dept. A		Dept. B
Direct labor cost	$	60,000	$	40,000
Manufacturing overhead	$	90,000	$	45,000
Direct labor-hours		6,000		9,000
Machine-hours		2,000		15,000

 

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

3.   A) 67% and $3.00

4.   B) 150% and $5.00

5.   C) 150% and $3.00

6.   D) 67% and $5.00

 

Answer:  C

Explanation:  Dept. A Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base Predetermined overhead rate = $90,000 ÷ $60,000 = 150% of direct labor cost

 

Dept. B Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base Predetermined overhead rate = $45,000 ÷ 15,000 machine-hours = $3.00 per machine-hour

Difficulty: 1 Easy

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

31) Purves Corporation is using a predetermined overhead rate that was based on estimated total fixed manufacturing overhead of $121,000 and 10,000 direct labor-hours for the period. The company incurred actual total fixed manufacturing overhead of $113,000 and 10,900 total direct labor-hours during the period. The predetermined overhead rate is closest to:

10.                A) $10.37

11.                B) $12.10

12.                C) $11.10

13.                D) $11.30

 

Answer:  B

Explanation:

Estimated total fixed manufacturing overhead (a)	$	121,000
Estimated activity level (b)		10,000
Predetermined overhead rate (a) ÷ (b)	$	12.10

 

 

Difficulty: 1 Easy

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

32) Reamer Corporation uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The Corporation has provided the following estimated costs for next year:

 

 

Direct materials	$	1,000
Direct labor	$	3,000
Sales commissions	$	4,000
Salary of production supervisor	$	2,000
Indirect materials	$	400
Advertising expense	$	800
Rent on factory equipment	$	1,000

 

Reamer estimates that 500 direct labor-hours and 1,000 machine-hours will be worked during the year. The predetermined overhead rate per hour will be:

6.   A) $6.80 per machine-hour

7.   B) $6.00 per machine-hour

8.   C) $3.00 per machine-hour

9.   D) $3.40 per machine-hour

 

Answer:  D

Explanation:

Salary of production supervisor	$	2,000
Indirect materials		400
Rent on factory equipment		1,000
Total manufacturing overhead	$	3,400

 

Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base = $3,400 ÷ 1,000 machine-hours = $3.40 per machine-hour

Difficulty: 2 Medium

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

33) Baj Corporation uses a predetermined overhead rate base on machine-hours that it recalculates at the beginning of each year. The company has provided the following data for the most recent year.

 

 

Estimated total fixed manufacturing overhead from the beginning of the year	$	534,000
Estimated activity level from the beginning of the year		30,000	machine-hours
Actual total fixed manufacturing overhead	$	487,000
Actual activity level		27,400	machine-hours

 

The predetermined overhead rate per machine-hour would be closest to:

17.                A) $17.80

18.                B) $19.49

19.                C) $16.23

20.                D) $17.77

 

Answer:  A

Explanation:

Difficulty: 1 Easy

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

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

 

 

Estimated machine-hours		36,000
Estimated variable manufacturing overhead	$	3.01	per machine-hour
Estimated total fixed manufacturing overhead	$	1,058,040

 

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

29.                A) $29.39 per machine-hour

30.                B) $32.40 per machine-hour

31.                C) $32.81 per machine-hour

32.                D) $3.01 per machine-hour

 

Answer:  B

Explanation:  Estimated total manufacturing overhead = $1,058,040 + ($3.01 per machine-hour × 36,000 machine-hours) = $1,166,400

 

Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base = $1,166,400 ÷ 36,000 machine-hours = $32.40 per machine-hour

Difficulty: 2 Medium

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

35) Gilchrist Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. At the beginning of the most recently completed year, the Corporation estimated the machine-hours for the upcoming year at 79,000 machine-hours. The estimated variable manufacturing overhead was $7.38 per machine-hour and the estimated total fixed manufacturing overhead was $2,347,090. The predetermined overhead rate for the recently completed year was closest to:

37.                A) $37.09 per machine-hour

38.                B) $36.07 per machine-hour

39.                C) $7.38 per machine-hour

40.                D) $29.71 per machine-hour

 

Answer:  A

Explanation:  Estimated total manufacturing overhead = $2,347,090 + ($7.38 per machine-hour × 79,000 machine-hours) = $2,930,110

 

Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base = $2,930,110 ÷ 79,000 machine-hours = $37.09 per machine-hour

Difficulty: 2 Medium

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

36) Dearden Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of $144,000, variable manufacturing overhead of $2.00 per machine-hour, and 60,000 machine-hours. The predetermined overhead rate is closest to:

2.   A) $2.40 per machine-hour

3.   B) $6.40 per machine-hour

4.   C) $4.40 per machine-hour

5.   D) $2.00 per machine-hour

 

Answer:  C

Explanation:  Estimated total manufacturing overhead cost = Estimated total fixed manufacturing overhead cost + (Estimated variable overhead cost per unit of the allocation base × Estimated total amount of the allocation base) = $144,000 + ($2.00 per machine-hour × 60,000 machine-hours) = $144,000 + $120,000 = $264,000

 

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $264,000 ÷ 60,000 machine-hours = $4.40 per machine-hour

Difficulty: 1 Easy

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

37) Longobardi Corporation bases its predetermined overhead rate on the estimated labor-hours for the upcoming year. At the beginning of the most recently completed year, the Corporation estimated the labor-hours for the upcoming year at 46,000 labor-hours. The estimated variable manufacturing overhead was $6.25 per labor-hour and the estimated total fixed manufacturing overhead was $1,026,260. The actual labor-hours for the year turned out to be 41,200 labor-hours. The predetermined overhead rate for the recently completed year was closest to:

28.                A) $28.56 per labor-hour

29.                B) $22.31 per labor-hour

30.                C) $6.25 per labor-hour

31.                D) $31.16 per labor-hour

 

Answer:  A

Explanation:  Estimated total manufacturing overhead = $1,026,260 + ($6.25 per labor-hour × 46,000 labor-hours) = $1,313,760

 

Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base = $1,313,760 ÷ 46,000 labor-hours = $28.56 per labor-hour

Difficulty: 2 Medium

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

38) Valvano Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of $440,000, variable manufacturing overhead of $2.20 per machine-hour, and 50,000 machine-hours. The estimated total manufacturing overhead is closest to:

1.   A) $440,000

2.   B) $110,000

3.   C) $440,002

4.   D) $550,000

 

Answer:  D

Explanation:  Estimated total manufacturing overhead cost = Estimated total fixed manufacturing overhead cost + (Estimated variable overhead cost per unit of the allocation base × Estimated total amount of the allocation base) = $440,000 + ($2.20 per machine-hour × 50,000 machine-hours) = $440,000 + $110,000 = $550,000

Difficulty: 1 Easy

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

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

 

 

Estimates made at the beginning of the year:
Estimated machine-hours		39,000
Estimated variable manufacturing overhead	$	6.76	per machine-hour
Estimated total fixed manufacturing overhead	$	794,430
Actual machine-hours for the year		42,700

 

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

25.                A) $25.37 per machine-hour

26.                B) $27.13 per machine-hour

27.                C) $6.76 per machine-hour

28.                D) $20.37 per machine-hour

 

Answer:  B

Explanation:  Estimated total manufacturing overhead =$794,430 + ($6.76 per machine-hour × 39,000 machine-hours) = $1,058,070

 

Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base = $1,058,070 ÷ 39,000 machine-hours = $27.13 per machine-hour

Difficulty: 2 Medium

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

40) Steele Corporation uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. Steele Corporation has provided the following estimated costs for next year:

 

 

Direct materials	$	20,000
Direct labor	$	60,000
Sales commissions	$	80,000
Salary of production supervisor	$	40,000
Indirect materials	$	8,000
Advertising expense	$	16,000
Rent on factory equipment	$	20,000

 

Steele estimates that 10,000 direct labor-hours and 16,000 machine-hours will be worked during the year. The predetermined overhead rate per hour will be:

4.   A) $4.25

5.   B) $8.00

6.   C) $9.00

7.   D) $10.25

 

Answer:  A

Explanation:

Salary of production supervisor	$	40,000
Indirect materials		8,000
Rent on factory equipment		20,000
Manufacturing overhead	$	68,000

 

 

Predetermined overhead rate = Estimated total manufacturing overhead ÷ Estimated total amount of the allocation base

 

Predetermined overhead rate = $68,000 ÷ 16,000 machine-hours = $4.25 per machine-hour

Difficulty: 2 Medium

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

41) Helland Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on direct labor-hours. The company based its predetermined overhead rate for the current year on the following data:

 

 

Total direct labor-hours		30,000
Total fixed manufacturing overhead cost	$	189,000
Variable manufacturing overhead per direct labor-hour	$	2.50

 

The predetermined overhead rate is closest to:

2.   A) $2.50 per direct labor-hour

3.   B) $11.30 per direct labor-hour

4.   C) $6.30 per direct labor-hour

5.   D) $8.80 per direct labor-hour

 

Answer:  D

Explanation:  Estimated total manufacturing overhead cost = Estimated total fixed manufacturing overhead cost + (Estimated variable overhead cost per unit of the allocation base × Estimated total amount of the allocation base) = $189,000 + ($2.50 per direct labor-hour × 30,000 direct labor-hours) = $189,000 + $75,000 = $264,000

 

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $264,000 ÷ 30,000 direct labor-hours = $8.80 per direct labor-hour

Difficulty: 1 Easy

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

42) Laflame Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on the following data:

 

 

Total machine-hours		70,000
Total fixed manufacturing overhead cost	$	357,000
Variable manufacturing overhead per machine-hour	$	3.90

 

The estimated total manufacturing overhead is closest to:

1.   A) $273,000

2.   B) $630,000

3.   C) $357,004

4.   D) $357,000

 

Answer:  B

Explanation:  Estimated total manufacturing overhead cost = Estimated total fixed manufacturing overhead cost + (Estimated variable overhead cost per unit of the allocation base × Estimated total amount of the allocation base) = $357,000 + ($3.90 per machine-hour × 70,000 machine-hours) = $357,000 + $273,000 = $630,000

Difficulty: 1 Easy

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

43) Almaraz Corporation has two manufacturing departments–Forming and Finishing. The company used the following data at the beginning of the year to calculate predetermined overhead rates:

 

 

	Forming		Finishing			Total
Estimated total machine-hours (MHs)		7,000			3,000			10,000
Estimated total fixed manufacturing overhead cost	$	40,600		$	8,100		$	48,700
Estimated variable manufacturing overhead cost per MH	$	1.30		$	2.80

 

Assume that the company uses a plantwide predetermined manufacturing overhead rate based on machine-hours. That predetermined manufacturing overhead rate is closest to:

6.   A) $6.62

7.   B) $4.87

8.   C) $4.10

9.   D) $7.10

 

 

 

Answer:  A

Explanation:  The first step is to calculate the estimated total overhead costs in the two departments.

 

Forming

 

Estimated fixed manufacturing overhead	$	40,600
Estimated variable manufacturing overhead ($1.30 per MH × 7,000 MHs)		9,100
Estimated total manufacturing overhead cost	$	49,700

 

 

Finishing

 

Estimated fixed manufacturing overhead	$	8,100
Estimated variable manufacturing overhead ($2.80 per MH × 3,000 MHs)		8,400
Estimated total manufacturing overhead cost	$	16,500

 

 

The second step is to combine the estimated manufacturing overhead costs in the two departments ($49,700 + $16,500 = $66,200) to calculate the plantwide predetermined overhead rate as follow:

 

 

Estimated total manufacturing overhead cost	$	66,200
Estimated total machine hours		10,000	MHs
Predetermined overhead rate	$	6.62	per MH

 

Difficulty: 2 Medium

Topic:  Computing Predetermined Overhead Rates

Learning Objective:  03-01 Compute a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

44) Bernson Corporation is using a predetermined overhead rate that was based on estimated total fixed manufacturing overhead of $492,000 and 30,000 machine-hours for the period. The company incurred actual total fixed manufacturing overhead of $517,000 and 28,300 total machine-hours during the period. The amount of manufacturing overhead that would have been applied to all jobs during the period is closest to: (Round your intermediate calculations to 2 decimal places.)

1.   A) $464,120

2.   B) $492,000

3.   C) $487,703

4.   D) $25,000

 

Answer:  A

Explanation:

Estimated total fixed manufacturing overhead (a)	$	492,000
Estimated activity level (b)		30,000
Predetermined overhead rate (a) ÷ (b)	$	16.40
Actual activity level		28,300
Manufacturing overhead applied	$	464,120

 

 

Difficulty: 1 Easy

Topic:  Computing Predetermined Overhead Rates; Applying Manufacturing Overhead

Learning Objective:  03-01 Compute a predetermined overhead rate.; 03-02 Apply overhead cost to jobs using a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

45) Beat Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on the following data:

 

 

Total machine-hours		40,000
Total fixed manufacturing overhead cost	$	344,000
Variable manufacturing overhead per machine-hour	$	3.90

 

Recently, Job M759 was completed. It required 60 machine-hours. The amount of overhead applied to Job M759 is closest to: (Round your intermediate calculations to 2 decimal places.)

1.   A) $750

2.   B) $516

3.   C) $984

4.   D) $234

 

Answer:  A

Explanation:  Estimated total manufacturing overhead cost = Estimated total fixed manufacturing overhead cost + (Estimated variable overhead cost per unit of the allocation base × Estimated total amount of the allocation base) = $344,000 + ($3.90 per machine-hour × 40,000 machine-hours) = $344,000 + $156,000 = $500,000

 

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $500,000 ÷ 40,000 machine-hours = $12.50 per machine-hour

 

Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $12.50 per machine-hour × 60 machine-hours = $750

Difficulty: 1 Easy

Topic:  Computing Predetermined Overhead Rates; Applying Manufacturing Overhead

Learning Objective:  03-01 Compute a predetermined overhead rate.; 03-02 Apply overhead cost to jobs using a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

46) Mundorf Corporation has two manufacturing departments–Forming and Assembly. The company used the following data at the beginning of the year to calculate predetermined overhead rates:

 

 

	Forming		Assembly		Total
Estimated total machine-hours (MHs)		9,000		1,000		10,000
Estimated total fixed manufacturing overhead cost	$	52,200	$	2,400	$	54,600
Estimated variable manufacturing overhead cost per MH	$	2.00	$	2.10

 

 

During the most recent month, the company started and completed two jobs–Job B and Job H. There were no beginning inventories. Data concerning those two jobs follow:

 

 

	Job B		Job H
Forming machine-hours		6,100		2,900
Assembly machine-hours		400		600

 

Assume that the company uses a plantwide predetermined manufacturing overhead rate based on machine-hours. The amount of manufacturing overhead applied to Job B is closest to:

1.   A) $48,555

2.   B) $35,490

3.   C) $2,988

4.   D) $45,567

 

Answer:  A

Explanation:  The first step is to calculate the estimated total overhead costs in the two departments.

 

Forming

 

Estimated fixed manufacturing overhead	$	52,200
Estimated variable manufacturing overhead ($2.00 per MH × 9,000 MHs)		18,000
Estimated total manufacturing overhead cost	$	70,200

 

 

 

 

Assembly

 

Estimated fixed manufacturing overhead	$	2,400
Estimated variable manufacturing overhead ($2.10 per MH × 1,000 MHs)		2,100
Estimated total manufacturing overhead cost	$	4,500

 

 

The second step is to combine the estimated manufacturing overhead costs in the two departments ($70,200 + $4,500 = $74,700) to calculate the plantwide predetermined overhead rate as follow:

 

 

Estimated total manufacturing overhead cost	$	74,700
Estimated total machine hours		10,000	MHs
Predetermined overhead rate	$	7.47	per MH

 

 

The overhead applied to Job B is calculated as follows:

 

Overhead applied to a particular job = Predetermined overhead rate × Machine-hours incurred by the job

 

= $7.47 per MH × (6,100 MHs + 400 MHs)

 

= $7.47 per MH × (6,500 MHs)

 

= $48,555

Difficulty: 2 Medium

Topic:  Computing Predetermined Overhead Rates; Applying Manufacturing Overhead

Learning Objective:  03-01 Compute a predetermined overhead rate.; 03-02 Apply overhead cost to jobs using a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

47) Parido Corporation has two manufacturing departments–Casting and Assembly. The company used the following data at the beginning of the year to calculate predetermined overhead rates:

 

 

	Casting		Assembly		Total
Estimated total machine-hours (MHs)		8,000		2,000		10,000
Estimated total fixed manufacturing overhead cost	$	44,000	$	4,200	$	48,200
Estimated variable manufacturing overhead cost per MH	$	1.90	$	3.00

 

 

During the most recent month, the company started and completed two jobs–Job A and Job H. There were no beginning inventories. Data concerning those two jobs follow:

 

 

	Job A		Job H
Casting machine-hours		5,400		2,600
Assembly machine-hours		800		1,200

 

Assume that the company uses a plantwide predetermined manufacturing overhead rate based on machine-hours. The amount of manufacturing overhead applied to Job H is closest to: (Round your intermediate calculations to 2 decimal places.)

1.   A) $8,328

2.   B) $26,372

3.   C) $18,316

4.   D) $18,044

 

Answer:  B

Explanation:  The first step is to calculate the estimated total overhead costs in the two departments.

 

Casting

 

Estimated fixed manufacturing overhead	$	44,000
Estimated variable manufacturing overhead ($1.90 per MH × 8,000 MHs)		15,200
Estimated total manufacturing overhead cost	$	59,200

 

 

 

 

Assembly

 

Estimated fixed manufacturing overhead	$	4,200
Estimated variable manufacturing overhead ($3.00 per MH × 2,000 MHs)		6000
Estimated total manufacturing overhead cost	$	10,200

 

 

The second step is to combine the estimated manufacturing overhead costs in the two departments ($59,200 + $10,200 = $69,400) to calculate the plantwide predetermined overhead rate as follow:

 

 

Estimated total manufacturing overhead cost	$	69,400
Estimated total machine hours		10,000	MHs
Predetermined overhead rate	$	6.94	per MH

 

 

The overhead applied to Job H is calculated as follows:

 

Overhead applied to a particular job = Predetermined overhead rate × Machine-hours incurred by the job

 

= $6.94 per MH × (2,600 MHs + 1,200 MHs)

 

= $6.94 per MH × (3,800 MHs)

 

= $26,372

Difficulty: 2 Medium

Topic:  Computing Predetermined Overhead Rates; Applying Manufacturing Overhead

Learning Objective:  03-01 Compute a predetermined overhead rate.; 03-02 Apply overhead cost to jobs using a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

48) Juanita Corporation uses a job-order costing system and applies overhead on the basis of direct labor cost. At the end of October, Juanita had one job still in process. The job cost sheet for this job contained the following information:

 

 

Direct materials	$	480
Direct labor	$	150
Manufacturing overhead applied	$	600

 

An additional $100 of labor was needed in November to complete this job. For this job, how much should Juanita have transferred to finished goods inventory in November when it was completed?

1.   A) $1,330

2.   B) $500

3.   C) $1,230

4.   D) $1,730

 

Answer:  D

Explanation:  Overhead applied = Predetermined overhead rate × Amount of the allocation base incurred $600 = Predetermined overhead rate × $150

 

Predetermined overhead rate = $600 ÷ $150 = 4.0

 

Direct materials	$	480
Direct labor ($150 + $100)		250
Manufacturing overhead applied (4.0 × $250)		1,000
Total product cost	$	1,730

 

 

Difficulty: 2 Medium

Topic:  Computing Predetermined Overhead Rates; Applying Manufacturing Overhead

Learning Objective:  03-01 Compute a predetermined overhead rate.; 03-02 Apply overhead cost to jobs using a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

49) Carradine Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of $105,000, variable manufacturing overhead of $3.00 per machine-hour, and 70,000 machine-hours. The company recently completed Job P233 which required 60 machine-hours. The amount of overhead applied to Job P233 is closest to: (Round your intermediate calculations to 2 decimal places.)

1.   A) $90

2.   B) $270

3.   C) $450

4.   D) $180

 

Answer:  B

Explanation:  Estimated total manufacturing overhead cost = Estimated total fixed manufacturing overhead cost + (Estimated variable overhead cost per unit of the allocation base × Estimated total amount of the allocation base) = $105,000 + ($3.00 per machine-hour × 70,000 machine-hours) = $105,000 + $210,000 = $315,000

 

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base = $315,000 ÷ 70,000 machine-hours = $4.50 per machine-hour Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $4.50 per machine-hour × 60 machine-hours = $270

Difficulty: 1 Easy

Topic:  Computing Predetermined Overhead Rates; Applying Manufacturing Overhead

Learning Objective:  03-01 Compute a predetermined overhead rate.; 03-02 Apply overhead cost to jobs using a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement

 

 

 

50) Fusaro Corporation uses a predetermined overhead rate base on machine-hours that it recalculates at the beginning of each year. The company has provided the following data for the most recent year.

 

 

Estimated total fixed manufacturing overhead from the beginning of the year	$	684,000
Estimated activity level from the beginning of the year		40,000		machine-hours
Actual total fixed manufacturing overhead	$	616,000
Actual activity level		37,700		machine-hours

 

The amount of manufacturing overhead that would have been applied to all jobs during the period is closest to: (Round your intermediate calculations to 2 decimal places.)

1.   A) $644,670

2.   B) $684,000

3.   C) $68,000

4.   D) $580,580

 

Answer:  A

Explanation:

Estimated total fixed manufacturing overhead (a)	$	684,000
Estimated activity level (b)		40,000
Predetermined overhead rate (a) ÷ (b)	$	17.10
Actual activity level		37,700
Manufacturing overhead applied	$	644,670

 

 

Difficulty: 1 Easy

Topic:  Computing Predetermined Overhead Rates; Applying Manufacturing Overhead

Learning Objective:  03-01 Compute a predetermined overhead rate.; 03-02 Apply overhead cost to jobs using a predetermined overhead rate.

Bloom’s:  Apply

AACSB:  Analytical Thinking

AICPA:  BB Critical Thinking; FN Measurement