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Chapter 02 - Systems Design: Job-Order Costing

Chapter 02
Systems Design: Job-Order Costing
True / False Questions

1. Job-order costing would be more likely to be used than process costing in situations where
many different products or services are produced each period to customer specifications.
True False

2. In a job-order costing system, costs are traced to departments and then allocated to units of
product using an average process.
True False

3. Job-order costing is used in those situations where units of a product are homogeneous,
such as in the manufacture of sugar.
True False

4. Job-order costing is usually not used in service organizations such as hospitals and law
firms.
True False

5. The three cost categories appearing on a job cost sheet are: selling expense, manufacturing
expense, and administrative expense.
True False

6. The labor time ticket contains the details of how much time an employee takes on each task
throughout the day.
True False

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Chapter 02 - Systems Design: Job-Order Costing

7. In order to improve the accuracy of unit costs, most companies recompute the
predetermined overhead rate each month.
True False

8. Use of a single, plantwide overhead rate is generally appropriate only for very large
manufacturing companies.
True False

9. Predetermined overhead rates are based on actual cost and activity data.
True False

10. The following journal entry would be made to apply overhead cost to jobs in a job-order
costing system:

True

False

11. When completed goods are sold, the transaction is recorded as a debit to Cost of Goods
Sold and a credit to Work in Process.
True False

12. When the predetermined overhead rate is based on direct labor-hours, the amount of
overhead applied to a job is proportional to the amount of actual direct labor-hours incurred
on the job.
True False

13. Actual manufacturing overhead costs are traced to specific jobs.
True False

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Chapter 02 - Systems Design: Job-Order Costing

14. A credit balance in the Manufacturing Overhead account at the end of the year means that
overhead was underapplied.
True False

15. The sum of all amounts transferred from the Work in Process account and into the
Finished Goods account represents the Cost of Goods Manufactured for the period.
True False

16. The most common accounting treatment of underapplied manufacturing overhead is to
transfer it to the Manufacturing Overhead control account.
True False

Multiple Choice Questions

17. Which of the following companies would be most likely to use a job-order costing system
rather than a process costing system?
A. fast food restaurant
B. shipbuilding
C. crude oil refining
D. candy making

18. Computing unit product costs involves averaging in:

A. A
B. B
C. C
D. D

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Chapter 02 - Systems Design: Job-Order Costing

19. For which situation(s) below would an organization be more likely to use a job-order
costing system of accumulating product costs rather than a process costing system?
A. a steel factory that processes iron ore into steel bars
B. a factory that processes sugar and other ingredients into black licorice
C. a costume maker that makes specialty costumes for figure skaters
D. all of the above

20. In job-order costing, all of the following statements are correct with respect to labor time
and cost except:
A. time tickets are kept by employees showing the amount of work on specific jobs.
B. the job cost sheet for a job will contain all direct labor charges to that particular job.
C. labor cost that can be traced to a job only with a great deal of effort is treated as part of
manufacturing overhead.
D. a machine operator performing routine annual maintenance work on a piece of equipment
would charge the maintenance time to a specific job.

21. Which of the following documents is used to specify the type and quantity of materials
drawn from the storeroom, and identifies the job to which the costs of the materials are to be
charged?
A. Job Cost Sheet
B. Bill of Materials
C. Material Requisition Form
D. Purchase Order

22. Choice of allocation base should be made based on:
A. the relative size of the base.
B. the base's relation to direct labor.
C. the base's activity.
D. whether the base actually drives the cost being allocated.

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Chapter 02 - Systems Design: Job-Order Costing

23. In a job-order costing system, the journal entry to record the application of overhead cost
to jobs would include:
A. a credit to the Manufacturing Overhead account.
B. a credit to the Work in Process inventory account.
C. a debit to Cost of Goods Sold.
D. a debit to the Manufacturing Overhead account.

24. Ivory Company uses a job-order costing system. What year-end journal entry could Ivory
make to dispose of (close out) $4,150 of overapplied manufacturing overhead cost?

A. A
B. B
C. C
D. D

25. In a job-order costing system, the use of indirect materials would usually be recorded as a
debit to:
A. Raw Materials.
B. Work in Process.
C. Manufacturing Overhead.
D. Finished Goods.

26. In a job-order costing system, direct labor costs usually are recorded initially with a debit
to:
A. Manufacturing Overhead.
B. Finished Goods inventory.
C. Direct Labor Expense.
D. Work in Process.

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Chapter 02 - Systems Design: Job-Order Costing

27. In a job-order costing system, the entry to record depreciation on manufacturing
equipment would include:
A. a debit to the Work in Process inventory account.
B. a debit to the Depreciation Expense account.
C. a debit to the Manufacturing Overhead account.
D. a credit to the Work in Process inventory account.

28. Which of the following accounts is debited when indirect labor is recorded?
A. Work in Process
B. Salaries and Wages Expense
C. Salaries and Wages Payable
D. Manufacturing Overhead

29. When applying manufacturing overhead to jobs, the formula to calculate the amount is as
follows:
A. Predetermined overhead rate divided by the actual manufacturing overhead incurred on the
particular job.
B. Predetermined overhead rate times the actual manufacturing overhead incurred on the
particular job.
C. Predetermined overhead rate divided by the actual units of allocation base charged to the
particular job.
D. Predetermined overhead rate times the actual units of allocation base charged to the
particular job.

30. In a job-order costing system, the amount of overhead cost that has been applied to a job
that remains incomplete at the end of a period:
A. is deducted on the Income Statement as overapplied overhead.
B. is closed to Cost of Goods Sold.
C. is transferred to Finished Goods at the end of the period.
D. is part of the ending balance of the Work in Process inventory account.

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Chapter 02 - Systems Design: Job-Order Costing

31. If a company applies overhead to jobs on the basis of a predetermined overhead rate, a
credit balance in the Manufacturing Overhead account at the end of any period means that:
A. more overhead cost has been charged to jobs than has been incurred during the period.
B. more overhead cost has been incurred during the period than has been charged to jobs.
C. the amount of overhead cost charged to jobs is greater than the estimated cost for the
period.
D. the amount of overhead cost charged to jobs is less than the estimated overhead cost for the
period.

32. Which of the following situations always results in underapplied overhead?
A. actual overhead is greater than applied overhead
B. actual overhead is less than applied overhead
C. estimated overhead is greater than actual overhead
D. estimated overhead is less than actual overhead

33. When closing overapplied manufacturing overhead to cost of goods sold, which of the
following would be true?
A. Work in process will decrease.
B. Cost of goods sold will increase.
C. Net income will decrease.
D. Gross margin will increase.

34. The Work in Process inventory account of a manufacturing company shows a balance of
$2,400 at the end of an accounting period. The job cost sheets of the two uncompleted jobs
show charges of $400 and $200 for direct materials, and charges of $300 and $500 for direct
labor. From this information, it appears that the company is using a predetermined overhead
rate, as a percentage of direct labor costs, of:
A. 80%
B. 125%
C. 300%
D. 240%

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Chapter 02 - Systems Design: Job-Order Costing

35. Job 607 was recently completed. The following data have been recorded on its job cost
sheet:

The company applies manufacturing overhead on the basis of machine-hours. The
predetermined overhead rate is $14 per machine-hour. The total cost that would be recorded
on the job cost sheet for Job 607 would be:
A. $4,107
B. $6,319
C. $3,432
D. $4,863

36. The following data have been recorded for recently completed Job 501 on its job cost
sheet. Direct materials cost was $3,067. A total of 30 direct labor-hours and 104 machinehours were worked on the job. The direct labor wage rate is $12 per labor-hour. The company
applies manufacturing overhead on the basis of machine-hours. The predetermined overhead
rate is $11 per machine-hour. The total cost for the job on its job cost sheet would be:
A. $4,571
B. $3,757
C. $3,090
D. $3,427

37. Freeman Company uses a predetermined overhead rate based on direct labor-hours to
apply manufacturing overhead to jobs. At the beginning of the year, the company estimated
manufacturing overhead would be $150,000 and direct labor-hours would be 10,000. The
actual figures for the year were $186,000 for manufacturing overhead and 12,000 direct laborhours. The cost records for the year will show:
A. overapplied overhead of $30,000
B. underapplied overhead of $30,000
C. underapplied overhead of $6,000
D. overapplied overhead of $6,000

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Chapter 02 - Systems Design: Job-Order Costing

38. Harrell Company uses a predetermined overhead rate based on direct labor-hours to apply
manufacturing overhead to jobs. At the beginning of the year the company estimated its total
manufacturing overhead cost at $400,000 and its direct labor-hours at 100,000 hours. The
actual overhead cost incurred during the year was $350,000 and the actual direct labor-hours
incurred on jobs during the year was 90,000 hours. The manufacturing overhead for the year
would be:
A. $10,000 underapplied
B. $10,000 overapplied
C. $50,000 underapplied
D. $50,000 overapplied

39. For the current year, Paxman Company incurred $150,000 in actual manufacturing
overhead cost. The Manufacturing Overhead account showed that overhead was overapplied
in the amount of $6,000 for the year. If the predetermined overhead rate was $8.00 per direct
labor-hour, how many hours were worked during the year?
A. 19,500 hours
B. 18,000 hours
C. 18,750 hours
D. 17,750 hours

40. At the beginning of the year, manufacturing overhead for the year was estimated to be
$702,450. At the end of the year, actual direct labor-hours for the year were 33,100 hours, the
actual manufacturing overhead for the year was $697,450, and manufacturing overhead for
the year was overapplied by $40,680. If the predetermined overhead rate is based on direct
labor-hours, then the estimated direct labor-hours at the beginning of the year used in the
predetermined overhead rate must have been:
A. 31,500 direct labor-hours
B. 29,452 direct labor-hours
C. 31,276 direct labor-hours
D. 33,100 direct labor-hours

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Chapter 02 - Systems Design: Job-Order Costing

41. Brabo Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the estimated direct labor-hours were 15,700 hours. At the end of the
year, actual direct labor-hours for the year were 16,700 hours, the actual manufacturing
overhead for the year was $352,960, and manufacturing overhead for the year was
overapplied by $27,800. The estimated manufacturing overhead at the beginning of the year
used in the predetermined overhead rate must have been:
A. $327,124
B. $357,960
C. $380,760
D. $347,960

42. Crimp Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the estimated direct labor-hours were 15,000 hours and the total
estimated manufacturing overhead was $258,000. At the end of the year, actual direct laborhours for the year were 13,100 hours and the actual manufacturing overhead for the year was
$253,000. Overhead at the end of the year was:
A. $27,680 overapplied
B. $32,680 overapplied
C. $27,680 underapplied
D. $32,680 underapplied

43. Dagnon Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the total estimated manufacturing overhead was $299,130. At the end
of the year, actual direct labor-hours for the year were 17,400 hours, manufacturing overhead
for the year was overapplied by $13,850, and the actual manufacturing overhead was
$294,130. The predetermined overhead rate for the year must have been closest to:
A. $17.70
B. $17.19
C. $18.22
D. $16.90

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Chapter 02 - Systems Design: Job-Order Costing

44. The Watts Company uses predetermined overhead rates to apply manufacturing overhead
to jobs. The predetermined overhead rate is based on labor cost in Dept. A and on machinehours in Dept. B. At the beginning of the year, the company made the following estimates:

What predetermined overhead rates would be used in Dept A and Dept B, respectively?
A. 50% and $8.00
B. 50% and $5.00
C. $15 and 110%
D. 200% and $5.00

45. Simplex Company has the following estimated costs for next year:

Simplex estimates that 10,000 direct labor and 16,000 machine-hours will be worked during
the year. If overhead is applied on the basis of machine-hours, the overhead rate per hour will
be:
A. $8.56
B. $7.63
C. $6.94
D. $3.50

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Chapter 02 - Systems Design: Job-Order Costing

46. The balance in White Company's Work in Process inventory account was $15,000 on
August 1 and $18,000 on August 31. The company incurred $30,000 in direct labor cost
during August and requisitioned $25,000 in raw materials (all direct material). If the sum of
the debits to the Manufacturing Overhead account total $28,000 for the month, and if the sum
of the credits totaled $30,000, then:
A. Finished Goods was debited for $82,000 during the month.
B. Finished Goods was credited for $83,000 during the month.
C. Manufacturing Overhead was underapplied by $2,000 at the end of the month.
D. Finished Goods was debited for $85,000 during the month.

47. Melillo Corporation has provided data concerning the company's Manufacturing
Overhead account for the month of October. Prior to the closing of the overapplied or
underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing
Overhead account was $67,000 and the total of the credits to the account was $57,000. Which
of the following statements is true?
A. Manufacturing overhead for the month was overapplied by $10,000.
B. Actual manufacturing overhead for the month was $67,000.
C. Manufacturing overhead applied to Work in Process for the month was $67,000.
D. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during
the month was $57,000.

48. Waldvogel Corporation has provided data concerning the company's Manufacturing
Overhead account for the month of April. Prior to the closing of the overapplied or
underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing
Overhead account was $55,000 and the total of the credits to the account was $56,000. Which
of the following statements is true?
A. Manufacturing overhead for the month was underapplied by $1,000.
B. Manufacturing overhead applied to Work in Process for the month was $56,000.
C. Actual manufacturing overhead incurred during the month was $56,000.
D. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during
the month was $55,000.

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Chapter 02 - Systems Design: Job-Order Costing

49. Danoff Corporation has provided data concerning the company's Manufacturing Overhead
account for the month of October. Prior to the closing of the overapplied or underapplied
balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account
was $68,000 and the total of the credits to the account was $77,000. Which of the following
statements is true?
A. Actual manufacturing overhead incurred during the month was $77,000.
B. Manufacturing overhead applied to Work in Process for the month was $68,000.
C. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during
the month was $68,000.
D. Manufacturing overhead for the month was overapplied by $9,000.

50. On December 1, Catherman Corporation had $21,000 of raw materials on hand. During
the month, the company purchased an additional $61,000 of raw materials. During December,
$70,000 of raw materials were requisitioned from the storeroom for use in production. The
debits to the Raw Materials account for the month of December total:
A. $82,000
B. $70,000
C. $61,000
D. $21,000

51. At the beginning of October, Cozier Corporation had $34,000 of raw materials on hand.
During the month, the company purchased an additional $78,000 of raw materials. During
October, $92,000 of raw materials were requisitioned from the storeroom for use in
production. The credits to the Raw Materials account for the month of October total:
A. $92,000
B. $34,000
C. $78,000
D. $112,000

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Chapter 02 - Systems Design: Job-Order Costing

52. Mcmackin Corporation had $35,000 of raw materials on hand on August 1. During the
month, the company purchased an additional $66,000 of raw materials. During August,
$81,000 of raw materials were requisitioned from the storeroom for use in production. These
raw materials included both direct and indirect materials. The indirect materials totaled
$7,000. The debits to the Work in Process account as a consequence of the raw materials
transactions in August total:
A. $66,000
B. $0
C. $74,000
D. $81,000

53. During August at Schlappi Corporation, $80,000 of raw materials were requisitioned from
the storeroom for use in production. These raw materials included both direct and indirect
materials. The indirect materials totaled $2,000. The journal entry to record this requisition
would include a debit to Manufacturing Overhead of:
A. $2,000
B. $80,000
C. $78,000
D. $0

54. Hards Corporation had $38,000 of raw materials on hand on September 1. During the
month, the company purchased an additional $54,000 of raw materials. The journal entry to
record the purchase of raw materials would include a:
A. debit to Raw Materials of $54,000
B. debit to Raw Materials of $92,000
C. credit to Raw Materials of $92,000
D. credit to Raw Materials of $54,000

55. During May at Landreth Corporation, $81,000 of raw materials were requisitioned from
the storeroom for use in production. These raw materials included both direct and indirect
materials. The indirect materials totaled $7,000. The journal entry to record the requisition
from the storeroom would include a:
A. debit to Raw Materials of $81,000
B. debit to Work in Process of $81,000
C. credit to Manufacturing Overhead of $7,000
D. debit to Work in Process of $74,000

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Chapter 02 - Systems Design: Job-Order Costing

56. In December, Perone Inc. incurred $78,000 of direct labor costs and $4,000 of indirect
labor costs. The journal entry to record the accrual of these wages would include a:
A. debit to Work in Process of $82,000
B. debit to Manufacturing Overhead of $4,000
C. credit to Work in Process of $82,000
D. credit to Manufacturing Overhead of $4,000

57. Inks Corporation incurred $69,000 of actual Manufacturing Overhead costs during June.
During the same period, the Manufacturing Overhead applied to Work in Process was
$70,000. The journal entry to record the incurrence of the actual Manufacturing Overhead
costs would include a:
A. debit to Manufacturing Overhead of $69,000
B. debit to Work in Process of $70,000
C. credit to Manufacturing Overhead of $69,000
D. credit to Work in Process of $70,000

58. Mincks Corporation incurred $64,000 of actual Manufacturing Overhead costs during
November. During the same period, the Manufacturing Overhead applied to Work in Process
was $61,000. The journal entry to record the application of Manufacturing Overhead to Work
in Process would include a:
A. debit to Work in Process of $64,000
B. credit to Manufacturing Overhead of $61,000
C. credit to Work in Process of $64,000
D. debit to Manufacturing Overhead of $61,000

59. During October, Kreitner Inc. transferred $73,000 from Work in Process to Finished
Goods and recorded a Cost of Goods Sold of $76,000. The journal entries to record these
transactions would include a:
A. credit to Work in Process of $73,000
B. credit to Cost of Goods Sold of $76,000
C. debit to Finished Goods of $76,000
D. credit to Finished Goods of $73,000

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Chapter 02 - Systems Design: Job-Order Costing

60. During December, Fleeger Corporation incurred $51,000 of direct labor costs and $5,000
of indirect labor costs. The journal entry to record the accrual of these wages would include
a:
A. debit to Work in Process of $56,000
B. credit to Work in Process of $51,000
C. debit to Work in Process of $51,000
D. credit to Work in Process of $56,000

61. Lucy Sportswear manufactures a specialty line of T-shirts. The company uses a job-order
costing system. During March, the following costs were incurred on Job ICU2: direct
materials $13,700 and direct labor $4,800. In addition, selling and shipping costs of $7,000
were incurred on the job. Manufacturing overhead was applied at the rate of $25 per machinehour and Job ICU2 required 800 machine-hours. If Job ICU2 consisted of 7,000 shirts, the
Cost of Goods Sold per shirt was:
A. $6.50
B. $6.00
C. $5.70
D. $5.50

62. Pricton Corporation has a job-order costing system. For the month of April, the following
debits (credits) appeared in the Work in Process account:

Pricton applies overhead at a predetermined rate of 90% of direct labor cost. Job No. 50, the
only job still in process at the end of April, has been charged with manufacturing overhead of
$2,250. The amount of direct materials charged to Job No. 50 was:
A. $9,000
B. $4,250
C. $2,500
D. $2,250

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Chapter 02 - Systems Design: Job-Order Costing

63. Beaver Company used a predetermined overhead rate last year of $2 per direct labor-hour,
based on an estimate of 25,000 direct labor-hours to be worked during the year. Actual costs
and activity during the year were:

The underapplied or overapplied overhead last year was:
A. $1,000 underapplied
B. $1,000 overapplied
C. $3,000 overapplied
D. $2,000 underapplied

64. Paul Company used a predetermined overhead rate during the year just completed of
$3.50 per direct labor-hour, based on an estimate of 22,000 direct labor-hours to be worked
during the year. Actual overhead cost and activity during the year were:

The underapplied or overapplied overhead for the year would be:
A. $13,000 underapplied
B. $10,500 overapplied
C. $2,500 overapplied
D. $2,500 underapplied

65. Sweet Company applies overhead to jobs on the basis of 125% of direct labor cost. If Job
107 shows $10,000 of manufacturing overhead applied, how much was the direct labor cost
on the job?
A. $8,000
B. $12,500
C. $11,250
D. $10,000

2-17

Chapter 02 - Systems Design: Job-Order Costing

66. Pitzer Corporation, a manufacturing company, has provided data concerning its operations
for March. The beginning balance in the raw materials account was $29,000 and the ending
balance was $38,000. Raw materials purchases during the month totaled $74,000.
Manufacturing overhead cost incurred during the month was $106,000, of which $7,000
consisted of raw materials classified as indirect materials. The direct materials cost for March
was:
A. $83,000
B. $58,000
C. $74,000
D. $65,000

67. Jarratt Inc., a manufacturing company, has provided the following data for the month of
September. The balance in the Work in Process inventory account was $21,000 at the
beginning of the month and $24,000 at the end of the month. During the month, the company
incurred direct materials cost of $69,000 and direct labor cost of $31,000. The actual
manufacturing overhead cost incurred was $54,000. The manufacturing overhead cost applied
to Work in Process was $58,000. The cost of goods manufactured for September was:
A. $158,000
B. $154,000
C. $151,000
D. $155,000

68. Erholm Inc. has provided the following data for the month of March. The balance in the
Finished Goods inventory account at the beginning of the month was $43,000 and at the end
of the month was $42,000. The cost of goods manufactured for the month was $221,000. The
actual manufacturing overhead cost incurred was $45,000 and the manufacturing overhead
cost applied to Work in Process was $49,000. Assuming that the balance in the Manufacturing
Overhead Account is reduced to zero, the adjusted cost of goods sold that would appear on the
income statement for March is:
A. $218,000
B. $220,000
C. $222,000
D...

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