Deck 4: Accumulating and Assigning Costs to Products

Question 1

Distinguish between direct and indirect costs. Give examples of each with regard to a specific product.

Answer 1

Direct costs are those costs that can be easily traced to the product and include direct materials and direct labor. In the manufacture of a baseball bat, the wood would be the direct material and the labor of the employees who cut and shape the wood would be direct labor. Indirect costs are costs that cannot easily be traced to the product because it is not possible or economically feasible to figure out what quantity of the resource was consumed by the manufacture of the product. Indirect costs must be allocated to products. Indirect costs for the manufacture of a baseball bat would include the depreciation on the machines used in the manufacturing process and the utilities for the manufacturing facility.

Question 2

In job order costing,only direct costs are used to determine the cost of a job.

Answer 2

False

Question 3

In a job order costing system,a cost driver rate is used to apply direct manufacturing costs to a specific product.

Answer 3

False

Question 4

Depreciation on computers at the corporate headquarters is best characterized as

A)direct costs.
B)fixed manufacturing overhead.
C)variable overhead.
D)period costs.

Question 5

A cost that is uniquely and unequivocally attributable to a single cost object is a:

A)capacity related resource.
B)consumable resource.
C)indirect cost.
D)direct cost.

Question 6

An example of a direct cost in a car repair shop would include:

A)parts used in repair.
B)supervisory labor.
C)depreciation on tools.
D)property taxes on car repair shop.

Question 7

Job order costing:

A)can only be used in manufacturing.
B)records the flow of costs for each customer.
C)allocates an equal amount of cost to each unit made during a time period.
D)is commonly used when each unit of output is identical.

Question 8

An example of a direct cost for a service provided by an accounting firm,such as a tax return,would be:

A)depreciation on computer system.
B)labor of staff accountant who prepared the return.
C)labor of file clerk who filed copies of return.
D)rent on the office.

Question 9

An indirect cost will be traced to the cost object.

Question 10

A cost that depends on the amount of resource that is used is referred to as a

A)fixed cost.
B)variable cost.
C)direct cost.
D)indirect cost.

Question 11

Determining cost pools and realistic cost driver rates is a relatively complex process.

Question 12

Overhead costs such as factory rent and supervisory salaries are allocated to cost objects in a multi-product facility.

Question 13

Depreciation on factory equipment is best characterized as

A)direct costs.
B)fixed manufacturing overhead.
C)variable overhead.
D)period costs.

Question 14

All of the following create problems with accurate product or job costing except:

A)incorrect job numbers are recorded on source documents.
B)bar coding is used to record materials used on the job.
C)using budgeted overhead costs to determine overhead cost allocation rates.
D)a computer screen requests an employee number before that employee is able to work on information related to a specific job.

Question 15

The raw material used in a product that can be easily traced to the product is generally classified as an indirect cost.

Question 16

The costs grouped in a cost pool should be driven by the same activity.

Question 17

In the manufacture of cans of beans,all of the following would likely be allocated to a cost object except:

A)utilities.
B)supervisory labor.
C)depreciation on equipment used to can multiple products.
D)beans.

Question 18

In a manufacturing environment,an indirect cost such as ________ would usually be allocated to a cost object.

A)utilities
B)raw materials
C)labor of employees who operate manufacturing equipment
D)labor of administrative secretaries

Question 19

A job that shows low profitability may be the result of all of the following except:

A)inefficient use of direct materials.
B)inefficient direct manufacturing labor.
C)overpricing the job.
D)over-allocating overhead costs.

Question 20

The practical capacity of a cost driver is the short-term capacity made available by the amount of resources committed to an overhead activity.

Question 21

In a normal job order costing system even though the cost driver rate is based on estimates,overhead costs are applied to products based on actual levels of activity.

Question 22

In a job order costing system,a manufacturing firm typically uses a cost driver rate to estimate the ________ used for a job.

A)direct materials
B)direct labor
C)variable overhead
D)total costs

Question 23

Using normal job order costing,the amount of manufacturing overhead costs allocated to jobs during 2011 is:

A)$150,000.
B)$125,000.
C)$120,000.
D)$100,000.

Question 24

For each cost pool,a(n)________ is identified that is the primary factor causing overhead costs to increase during the accounting period.

A)activity
B)job
C)level
D)process

Question 25

The over-allocation of overhead to a product distorts the product's cost and therefore the evaluation of the product's profitability.

Question 26

The estimated direct labor cost for this order is:

A)$30,000.
B)$40,000.
C)$80,000.
D)$115,000.

Question 27

The actual amount of manufacturing overhead costs incurred in October 2011 total:

A)$2,180,000
B)$ 480,000
C)$ 420,000
D)$ 160,000

Question 28

When demand for a product is low,a higher markup should be used since a larger share of the fixed costs needs to be allocated to each product.

Question 29

Estimated total product costs for this special order equal:

A)$77,000.
B)$97,000.
C)$140,000.
D)$175,000.

Question 30

The normal cost of overhead activities includes:

A)costs of resources committed to the particular activity.
B)amounts for additional overtime payments.
C)allowances for idle time.
D)All of the above are correct.

Question 31

In job order costing,individual jobs and products will be allocated different amounts of overhead costs depending on whether a single cost pool or multiple cost pools is used.

Question 32

A predetermined manufacturing cost driver rate for the Machining Department based on the number of machine hours in that department is:

A)$ 4 per machine hour.
B)$10 per machine hour.
C)$20 per machine hour.
D)$40 per direct labor hour.

Question 33

A single predetermined manufacturing cost driver rate based on total plant direct labor hours is:

A)$ 4 per direct labor hour.
B)$10 per direct labor hour.
C)$20 per direct labor hour.
D)$40 per direct labor hour..

Question 34

The predetermined overhead cost driver rate is calculated using ________ overhead costs.

A)actual
B)allocated
C)direct
D)estimated

Question 35

Labor hours are always an appropriate cost driver in a manufacturing environment.

Question 36

For the activity cost driver rate,overhead costs ________ should be used in the calculation.

A)actually consumed
B)made available
C)based on a seasonal average
D)None of the above is correct.

Question 37

The amount of manufacturing overhead costs applied to all jobs during October 2011 total:

A)$ 102,000.
B)$400,000.
C)$620,000.
D)$1,240,000.

Question 38

The bid price for this special order is:

A)$77,000.
B)$97,000.
C)$121,250.
D)$175,000.

Question 39

Manufacturing overhead cost estimates for this special order total:

A)$7,000.
B)$36,000.
C)$45,990.
D)$63,000.

Question 40

Using normal job order costing,the 2011 predetermined manufacturing overhead cost driver rate is:

A)$4.00 per machine hour.
B)$4.80 per machine hour.
C)$5.00 per machine hour.
D)$6.00 per machine hour.

Question 41

What is the bid price for the Winfield High School Job if the company uses a 40% markup of total manufacturing costs?

A)$2,310
B)$588
C)$1,680
D)$2,058

Question 42

For Wood Manufacturing,what is the annual manufacturing overhead cost driver rate?

A)$0.50 per machine hour
B)$0.80 per machine hour
C)$0.30 per machine hour
D)$33.33 per machine hour

Question 43

Total manufacturing costs associated with Job #432 equal:

A)$55,000.
B)$65,000.
C)$70,000.
D)$75,000.

Question 44

What amount of manufacturing overhead costs will be allocated to Job #316?

A)$439
B)$502
C)$595
D)$532

Question 45

In job order costing,the optimum number of cost pools is ________.

A)one
B)more than one
C)1,000
D)none

Question 46

Each cost pool:

A)utilizes a separate cost driver rate.
B)is a subset of total labor costs.
C)can be associated with several normal levels of activity.
D)All of the above are correct.

Question 47

Tangipahoa Manufacturing uses departmental cost driver rates to apply manufacturing overhead costs to products.Manufacturing overhead costs are applied on the basis of machine hours in the Machining Department and on the basis of direct labor dollars in the Assembly Department.At the beginning of 2007,the following estimates were provided for the coming year:
Machining Assembly
Direct labor hours 20,000 40,000
Machine hours 40,000 20,000
Direct labor cost $400,000 $920,000
Manufacturing Overhead costs $440,000 $460,000
The accounting records of the company show the following data for Product #A273:
Machining Assembly
Direct labor hours 50 100
Machine hours 200 50
Direct material cost $2,100 $1,200
Direct labor cost $1,000 $2,300
Required:
a.Compute the predetermined manufacturing overhead cost driver rate for each department.
b.Compute the total cost of Product #A273.
c.Provide possible reasons why Tangipahoa Manufacturing uses two different cost drivers.

Question 48

For Department B,the manufacturing overhead cost driver rate is:

A)50% of direct labor costs.
B)80% of direct labor costs.
C)100% of direct labor costs.
D)200% of direct labor costs.

Question 49

What amount of manufacturing overhead costs will be allocated to the Winfield job?

A)$270
B)$720
C)$450
D)$30,000

Question 50

Elfie Enterprises uses three cost pools to allocate manufacturing overhead costs.The following estimates were provided for the coming year.
Manufacturing
Cost Pool Overhead Costs Cost driver Activity level
Supervision of direct labor $320,000 Direct labor hours 800,000
Machine maintenance $120,000 Machine hours 960,000
Facility rent $200,000 Square feet of area 100,000
Total overhead costs $640,000
The accounting records show the Lacio Job consumed the following resources.
Cost driver Actual level
Direct labor hours 200
Machine hours 1,600
Square feet of area 50
Required:
a. If direct labor hours are considered the only manufacturing overhead cost driver,compute:
1.the single cost driver rate for Elfie Enterprises; and
2.the amount of manufacturing overhead costs allocated to the Lacio job.
b. If Elfie Enterprises uses the three cost pools to allocate manufacturing overhead costs,compute:
1.the cost driver rate for each of the three overhead activities above; and
2.the amount of manufacturing overhead costs allocated to the Lacio job.
c. Review the amount of manufacturing overhead costs allocated in (a2)and (b2).Why do the two estimates differ? Which method of allocation probably best estimates the actual manufacturing overhead costs used? Why?.

Question 51

What are the total manufacturing costs of this job?

A)$1,200
B)$1,470
C)$1,650
D)$1,920

Question 52

Lois Manufacturing is a small clothing manufacturer using machine hours as the single cost driver to allocate manufacturing overhead costs to the various jobs contracted during the year.The following estimates are provided for the coming year for the company and for the Harford County School Uniform job.
Company Harford County Job
Direct materials $1,000,000 $2,000
Direct labor $120,000 $3,200
Manufacturing
Overhead costs $320,000
Markup 32%
Machine hours 80,000 1,200
Required:
a.For Lois Manufacturing,determine the annual manufacturing overhead cost driver rate.
b.Determine the amount of manufacturing overhead costs estimated for the Harford County job.
c.Determine the bid price for the Harford County's job.

Question 53

Manufacturing overhead costs applied to Job #432 total:

A)$12,000.
B)$24,000.
C)$36,000.
D)None of the above is correct.

Question 54

What are the total manufacturing costs of Job #316?

A)$715
B)$880
C)$1,595
D)$1,000

Question 55

For Department A,the manufacturing overhead cost driver rate is:

A)33% of direct labor costs.
B)66% of direct labor costs.
C)300% of direct labor costs.
D)None of the above is correct.

Question 56

Assume the company adds a 10% markup to arrive at a selling price.The bid price for this order totals:

A)$203,500.
B)$185,000.
C)$115,500.
D)$80,000.

Question 57

Different products consume different proportions of manufacturing overhead costs because of differences in all of the following EXCEPT:

A)product design.
B)product size.
C)setup time.
D)sales prices.

Question 58

More cost pools:

A)always result in better estimates of overhead costs.
B)seldom result in better estimates of overhead costs.
C)are usually beneficial if the pattern of demand varies across resources.
D)result in lower estimates of total overhead costs.

Question 59

For the Machining Department,what is the annual manufacturing overhead cost driver rate?

A)$4.00 per machine hour
B)$4.20 per machine hour
C)$4.67 per machine hour
D)$5.25 per machine hour

Question 60

The estimated manufacturing overhead cost assigned to this order totals:

A)$30,000.
B)$40,000.
C)$80,000.
D)$115,000.

Question 61

Explain how an activity cost driver rate is determined.

Question 62

In job order costing,explain how comparing actuals to the estimates for direct material and direct labor costs can be helpful to management.

Question 63

Why is an accurate product cost important?

Question 64

In a job order costing system,explain why it is necessary to apply overhead costs to production through the use of a predetermined activity cost driver rate.

Question 65

On a job bid sheet,four items are added together to arrive at a bid price.List each of these items and explain why each is necessary to arrive at the bid price.

Question 66

Job order costing would be appropriate for the construction of a cruise liner.

Question 67

Explain why more than one cost pool usually results in more realistic overhead cost estimates.

Question 68

Direct labor and overhead are referred to as conversion costs because they convert direct materials into finished products.

Question 69

Increasing prices in the face of falling demand is never a good strategy and can cause what is called a death spiral.

Question 70

If cost driver rates were based on actual short-term usage,periods of lower demand would result in lower cost driver rates.

Question 71

Poseidon Company produces customized sailboats.The company uses a job order costing system.Its plant has three production departments: cutting,machining,and assembly.The estimated manufacturing overhead cost and direct labor cost for each department for 2011 follow:
Cutting Machining Assembly
Manufacturing Overhead cost $600,000 $800,000 $100,000
Direct labor cost $300,000 $200,000 $500,000
In May 2011,the company received an invitation from Duluth Sailing Company to bid on an order of five luxury sailboats that must be delivered by the end of September 2011.This Duluth Job would require direct manufacturing costs in the three departments as follows:
Cutting Machining Assembly
Direct material cost $12,000 $ 800 $ 4,600
Direct labor cost $ 7,000 $2,000 $15,000
Required:
a. Assume that a single,plantwide predetermined manufacturing cost driver rate based on direct labor cost is used.Determine the manufacturing cost driver rate and manufacturing overhead costs applied to the Duluth Job.
b. Assume that separate,departmental predetermined manufacturing cost driver rates based on direct labor cost are used in each department.Determine the departmental manufacturing cost driver rates and manufacturing overhead costs applied to the Duluth job.
c. Assume that Poseidon has a policy to add a 60% markup to estimated job costs to arrive at the bid price. Determine the bid price for the Duluth job using:
1.a plantwide manufacturing overhead cost driver rate; and
2.departmental manufacturing overhead cost driver rates.
d. Review the bid prices computed in (c).Why do the two bids differ?
e. What are the possible consequences of overbidding a job? Underbidding a job?

Question 72

List at least three factors taken into consideration when determining the markup rate.

Question 73

The markup rate on a job bid sheet includes amounts for certain items.Discuss these items.

Question 74

Noble Printers has contracts to complete weekly supplements required by forty-six customers.For the year 2011,overhead cost estimates total $420,000 for an annual production capacity of 12 million pages.
For 2011 Noble Printers has decided to evaluate the use of additional cost pools.After analyzing overhead costs,it was determined that the number of design changes,setups,and inspections are the primary overhead cost drivers.The following information was gathered during the analysis.
Cost pool Overhead costs Activity level
Design Changes $ 60,000 300 design changes
Setups $320,000 5,000 setups
Inspections $ 40,000 8,000 inspections
Total overhead costs $420,000
During 2011,two customers,Wealth Managers and Health Systems,are expected to use the following printing services.
Activity Wealth Managers Health Systems
Pages 60,000 76,000
Design changes 10 0
Setups 20 10
Inspections 30 38
Required:
a. Calculate the cost driver rate if overhead costs are considered one large cost pool and are assigned based on 12 million pages of production capacity.
b. Using the cost driver rate determined in (a),calculate the overhead cost estimate for Wealth Managers during 2011.
c. Assuming cost pools for design changes,setups,and inspections are used,calculate the cost driver rates for each of the three cost pools.
d. Using the cost driver rates determined in (c),calculate the overhead cost estimate for Wealth Managers during 2011.
e. Review the overhead costs estimates computed in (b)and (d).Discuss what conclusions can be drawn from this exercise in regard to the use of cost pools.

Question 75

Use of a single cost driver rate will always distort product costs.

Question 76

If a business offers both routine and specialized services,a single cost driver rate will overprice:

A)the routine service.
B)the specialized service.
C)both the routine and the specialized service.
D)neither the routine nor the specialized service.

Question 77

Does adding more cost pools always result in better overhead costs estimates? Why or why not?

Question 78

Three types of product costs are estimated on a job bid sheet.List each of these costs and explain how each is estimated.

Question 79

Costing system distortions relate to the handling of indirect costs.

Question 80

Explain what accounts for the difference between each amount reported on the job bid sheet and the job cost sheet for an individual job.