Question 1

A job order cost system would be appropriate for a crude oil refining business.

Accepted Answer

A job order cost system is used for customized or unique products, whereas crude oil refining involves continuous, identical production, making a process costing system more appropriate.

Question 2

A process cost accounting system is best used by manufacturers of like units of product that are not distinguishable from each other during a continuous production process.

Accepted Answer

A process cost accounting system is designed for manufacturers who produce homogeneous products through a continuous production process, where it is difficult to track the cost of each individual unit. This system calculates the average cost of each unit produced, making it ideal for companies that produce large quantities of identical products.

Question 3

Factory overhead is applied to production using a predetermined overhead rate.

Accepted Answer

Factory overhead is applied to production using a predetermined overhead rate, which is calculated by dividing the estimated total overhead costs for the period by the estimated level of activity (such as direct labor hours or machine hours). This rate is then used to apply overhead costs to individual units of production based on the actual level of activity that is used.

Question 4

A job order cost accounting system provides for a separate record of the cost of each particular quantity of product that passes through the factory.

Accepted Answer

A job order cost accounting system assigns costs to each individual job or production order, allowing for a separate record of the cost of each particular quantity of product that passes through the factory.

Question 5

The document that serves as the basis for recording direct labor on a job cost sheet is the clock card.

Accepted Answer

The document that serves as the basis for recording direct labor on a job cost sheet is typically the time ticket, not the clock card. The time ticket records the amount of time an employee spends on a specific job.

Question 6

The materials requisition serves as the source document for debiting the accounts in the materials ledger.

Accepted Answer

The answer of The materials requisition serves as the source...

Question 7

Depreciation expense on factory equipment is part of factory overhead cost.

Accepted Answer

Depreciation expense on factory equipment is a component of factory overhead cost, which includes all indirect costs associated with manufacturing a product.

Question 8

The document that serves as the basis for recording direct labor on a job cost sheet is the time ticket.

Accepted Answer

The time ticket is a document that records the direct labor hours worked by each employee on a specific job. This information is used to calculate the total direct labor cost for that job, which is then recorded on the job cost sheet. Therefore, the time ticket serves as the basis for recording direct labor on a job cost sheet.

Question 9

A process cost accounting system provides for a separate record of the cost of each particular quantity of product that passes through the factory.

Accepted Answer

A process cost accounting system provides for the accumulation of costs by department or process rather than by individual products. The cost of each product is determined by averaging the total costs of the process or department over the number of units produced during the period. The focus is on the cost of each process rather than on the cost of each individual unit.

Question 10

Each account in the work in process subsidiary ledger in a job order costing system is called a job cost sheet.

Accepted Answer

Each job in a job order costing system has a corresponding job cost sheet in the work in process subsidiary ledger.

Question 11

When the goods are sold, their costs are transferred from Work in Process to Finished Goods.

Accepted Answer

The answer of When the goods are sold, their costs...

Question 12

A process cost accounting system provides product costs for each of the departments or processes within the factory.

Accepted Answer

A process cost accounting system calculates and allocates costs to different departments or processes within a factory, providing product costs for each of them. It is commonly used in industries that produce homogeneous products, such as food processing or chemical manufacturing.

Question 13

Cost accounting systems measure, record, and report product costs.

Accepted Answer

Cost accounting systems are designed to determine the cost of producing a product, which involves measuring, recording, and reporting product costs.

Question 14

The process cost system is appropriate where few products are manufactured and each product is made to customers' specifications.

Accepted Answer

The statement describes a job order cost system, not a process cost system. Process cost systems are used when large quantities of identical products are manufactured, such as in the production of gasoline or soda.

Question 15

If factory overhead applied exceeds the actual costs, the factory overhead account will have a credit balance.

Accepted Answer

This is because factory overhead applied is calculated based on a predetermined overhead rate, while the actual costs are based on the actual expenses incurred. If the applied overhead is greater than the actual costs, it means that less actual overhead was incurred than was predicted, resulting in a credit balance in the factory overhead account.

Question 16

Perpetual inventory controlling accounts and subsidiary ledgers are maintained for materials, work in process, and finished goods in job order costing systems.

Accepted Answer

In job order costing systems, perpetual inventory controlling accounts and subsidiary ledgers are maintained for materials, work in process, and finished goods to keep track of the cost of each job as it moves through the production process. This allows for more accurate job costing and better control over inventory levels.

Question 17

If the underapplied factory overhead amount is immaterial, it is transferred to Cost of Goods Sold at the end of the fiscal year.

Accepted Answer

If the underapplied factory overhead amount is not significant, it usually gets transferred to the Cost of Goods Sold account at the end of the fiscal year to eliminate the balance in the manufacturing overhead account. However, if the amount is material, it needs to be allocated among the inventory accounts and recorded as an adjustment to Cost of Goods Sold.

Question 18

A manufacturer may employ a job order cost system for some of its products and a process cost system for others.

Accepted Answer

This is true. A company may have different products that require different methods of cost accounting. Job order costing is used for products that are unique or custom-made, while process costing is used for products that are mass-produced. A manufacturer may have both types of products and use different systems to accurately assign production costs.

Question 19

Materials are transferred from the storeroom to the factory in response to materials requisitions.

Accepted Answer

Materials are transferred from the storeroom to the factory only in response to materials requisitions.

Question 20

If factory overhead applied exceeds the actual costs, overhead is said to be underapplied.

Accepted Answer

If factory overhead applied exceeds actual costs, overhead is said to be overapplied, not underapplied. Conversely, if actual costs exceed factory overhead applied, overhead is said to be underapplied.

Quiz 2: Job Order Costing