Question 1

The estimates used to calculate the predetermined overhead rate will virtually always:

Accepted Answer

The estimates used to calculate the predetermined overhead rate are based on assumptions and can sometimes differ from the actual overhead costs incurred. Thus, applying the predetermined overhead rate to actual overhead costs may result in either underapplied or overapplied overhead. Underapplied/overapplied overhead is closed to Cost of Goods Sold at the end of the accounting period to ensure that actual costs are matched with expenses. The amount closed to Cost of Goods Sold will depend on the materiality of the underapplied/overapplied amount.

Question 2

Boston, 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:

Accepted Answer

To determine the overhead applied for the current period, we need to multiply the actual machine hours by the predetermined overhead rate:
Overhead applied = Actual machine hours x Predetermined overhead rate
Overhead applied = 90,000 x $40
Overhead applied = $3,600,000

To determine the amount of under- or overapplied overhead, we need to compare the overhead applied to the actual overhead incurred:
Under- or overapplied overhead = Actual overhead incurred - Overhead applied
Under- or overapplied overhead = $4,180,000 - $3,600,000
Under- or overapplied overhead = $580,000

Therefore, the company's year-end overhead was underapplied by $580,000.

Question 3

Under- or overapplied manufacturing overhead at year-end is most commonly:

Accepted Answer

Under- or overapplied manufacturing overhead is typically adjusted by charging or crediting the Cost of Goods Sold to reflect the actual costs incurred during the period.

Question 4

Xtreme Sports makes baseball bats.The company buys wood as a direct material.The company's Shaping Department processes the bats, which are transferred to the Coating Department where a sealant is applied.The Shaping Department began manufacturing 20,000 Babe Ruth sluggers during the month of October.There was no beginning inventory. Costs in the Shaping Department for the month of October were:  A total of 16,000 bats were completed and transferred to the Coating Department; the remaining 4,000 bats were still in the Shaping Process at the end of the month.All of the Shaping Department's direct materials were placed in process, but on average, only 25% of the conversion cost was applied to the ending work-in-process inventory. What is the cost of the units transferred to Xtreme Sports' Coating Department?

Accepted Answer

First, we need to calculate the total cost incurred in the Shaping Department:

Direct materials: $12,000 
Conversion costs: $53,600

Total cost incurred in the Shaping Department = Direct materials + Conversion costs 
= $12,000 + $53,600 
= $65,600

Next, we need to calculate the cost per unit for the 16,000 units completed and transferred:

Cost per unit = Total cost incurred in the Shaping Department ÷ Number of units completed and transferred 
= $65,600 ÷ 16,000 
= $4.10 per unit

Finally, we can calculate the cost of the 16,000 units transferred to the Coating Department:

Cost of units transferred = Cost per unit x Number of units transferred 
= $4.10 per unit x 16,000 units 
= $65,600

Therefore, the cost of the units transferred to the Coating Department is $65,600. However, the question asks for the cost of units transferred, not the total cost incurred in the Shaping Department.

To find the cost of units transferred, we need to adjust the total cost incurred in the Shaping Department for the 4,000 units still in process at the end of the month. Since only 25% of conversion costs are applied to ending work-in-process inventory, we need to multiply the conversion costs incurred in the Shaping Department by 75% to get the actual conversion costs incurred for the 16,000 units transferred:

Conversion costs incurred for the 16,000 units transferred = Conversion costs incurred in the Shaping Department x 75% 
= $53,600 x 75% 
= $40,200

Total cost incurred for the 16,000 units transferred = Direct materials + Conversion costs incurred for the 16,000 units transferred 
= $12,000 + $40,200 
= $52,200

Therefore, the cost of the units transferred to the Coating Department is $52,200, which is closest to answer choice B ($84,800).

Question 5

Flagler, 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) Flagler's adjusted cost of goods sold and (2) gross margin

Accepted Answer

The answer of Flagler, Inc.disposes of under- or overapplied overhead...

Question 6

Terrence Industries 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?

Accepted Answer

The answer of Terrence Industries charges manufacturing overhead to products...

Question 7

Throughout the accounting period, the credit side of the Manufacturing Overhead account is used to accumulate:

Accepted Answer

The credit side of the Manufacturing Overhead account is used to accumulate overhead applied to Work-in-Process Inventory, reflecting the allocation of estimated overhead costs to production.

Question 8

An accountant recently debited Work-in-Process Inventory and credited Manufacturing Overhead at a company that uses normal costing.The accountant was:

Accepted Answer

When a company uses normal costing, overhead costs are applied to production using a predetermined overhead rate. This means that the accountant must debit Work-in-Process Inventory and credit Manufacturing Overhead to account for the overhead costs that are being applied to the products being produced.

Question 9

Foxmoor 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 Foxmoor 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?

Accepted Answer

The answer of Foxmoor Company applies manufacturing overhead by using...

Question 10

Armour, 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, Armour 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:

Accepted Answer

Overhead applied = (Actual direct professional labor hours / Estimated direct professional labor hours) * Estimated overhead= (14,500 / 15,000) * $150,000= $144,000Overhead underapplied = Actual overhead costs - Overhead applied= $146,000 - $144,000= $1,000

Question 11

Flores Company, which uses labor hours to apply overhead to manufacturing, may have increased amounts of underapplied overhead at month-end if:

Accepted Answer

If employees are hit hard with a widespread outbreak of the flu, fewer labor hours will be worked, leading to less overhead being applied, which can result in underapplied overhead.

Question 12

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?

Accepted Answer

This transaction involves the sale of laptops, which means that the company's Accounts Receivable account should be debited (as the customer will pay at a later date) and the Cost of Goods Sold account should also be debited (to reflect the expense of producing the laptops). On the credit side, the company should credit the Sales Revenue account (to reflect the income from the sale) and the Finished-Goods Inventory account (to reduce the inventory balance since the laptops have been sold). Option B correctly reflects these accounts.

Question 13

Bennington 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 Bennington 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?

Accepted Answer

The answer of Bennington Company applies manufacturing overhead by using...

Question 14

Xtreme Sports makes baseball bats.The company buys wood as a direct material.The company's Shaping Department processes the bats, which are transferred to the Coating Department where a sealant is applied.The Shaping Department began manufacturing 20,000 Babe Ruth sluggers during the month of October.There was no beginning inventory. Costs in the Shaping Department for the month of October were:  A total of 16,000 bats were completed and transferred to the Coating Department; the remaining 4,000 bats were still in the Shaping Process at the end of the month.All of the Shaping Department's direct materials were placed in process, but on average, only 25% of the conversion cost was applied to the ending work-in-process inventory. What is the cost of the work-in-process inventory in Xtreme Sports' Shaping Department at the end of October?

Accepted Answer

The answer of Xtreme Sports makes baseball bats.The company buys...

Question 15

The term "normal costing" refers to the use of:

Accepted Answer

Normal costing refers to the use of predetermined overhead rates in job-costing systems. This involves estimating the total overhead costs for a period and dividing it by an estimated level of activity to determine an overhead rate. This overhead rate is then applied to each job based on its actual usage of the activity.

Question 16

Mountain Man Corporation debited Cost of Goods Sold and credited Manufacturing Overhead at year-end.On the basis of this information, one can conclude that:

Accepted Answer

Debiting Cost of Goods Sold and crediting Manufacturing Overhead indicates that the actual overhead incurred was greater than the overhead applied to production. This means that the company underapplied overhead for the year.

Question 17

When underapplied or overapplied manufacturing overhead is prorated, amounts can be assigned to which of the following accounts?

Accepted Answer

When underapplied or overapplied manufacturing overhead is prorated, the amounts can be assigned to Cost of Goods Sold, Work-in-Process Inventory, and Finished-Goods Inventory. This is because these accounts directly relate to the production and sale of goods, where manufacturing overhead is applied.

Question 18

Douglas, Inc., employs a normal costing system.The following information pertains to the year just ended. Total manufacturing costs were $2,500,000. Cost of goods manufactured was $2,425,000. Applied manufacturing overhead was 30 percent of total manufacturing costs. Manufacturing overhead was applied to production at a rate of 80 percent of direct-labor cost. Work-in-process inventory on January 1 was 75 percent of work-in-process inventory on December 31. Based on this information, what amount is the total cost of direct material used during the year?

Accepted Answer

The answer of Douglas, Inc., employs a normal costing system.The...

Question 19

Rogers 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:

Accepted Answer

When overhead is underapplied, it means that the actual overhead costs were higher than what was applied to products. To adjust for this, the Cost of Goods Sold account is debited to increase expenses, reflecting the additional overhead costs that were not applied during the year.

Question 20

Douglas, Inc., employs a normal costing system.The following information pertains to the year just ended. Total manufacturing costs were $2,500,000. Cost of goods manufactured was $2,425,000. Applied manufacturing overhead was 30 percent of total manufacturing costs. Manufacturing overhead was applied to production at a rate of 80 percent of direct-labor cost. Work-in-process inventory on January 1 was 75 percent of work-in-process inventory on December 31. Based on this information, what is the total direct-labor cost for the year?

Accepted Answer

Using the equation Total Manufacturing Costs = Direct Materials + Direct Labor + Manufacturing Overhead, we know that Direct Materials + Direct Labor = Total Manufacturing Costs - Manufacturing Overhead. Applying overhead at 30% of total manufacturing costs means that manufacturing overhead was $750,000. Therefore, Direct Materials + Direct Labor = $2,500,000 - $750,000 = $1,750,000. Since overhead was applied to production at a rate of 80% of Direct Labor, we can set up the equation Applied Manufacturing Overhead = 0.8 x Direct Labor, and plug in the values we know: $750,000 = 0.8 x Direct Labor. Solving for Direct Labor, we get Direct Labor = $937,500.

Quiz 3: Product Costing and Cost Accumulation in a Batch Production Environment