Question 1

When job order costing is used in a service business, the allocation of direct labor costs is normally based on direct labor hours, and the allocation of indirect costs is normally based on the indirect labor hours.

Accepted Answer

In job order costing, both direct and indirect costs are typically allocated based on a variety of bases, not just labor hours. Direct labor costs are traced directly to jobs based on actual labor hours worked on the job, while indirect costs (overhead) are allocated based on a predetermined overhead rate, which could be based on direct labor hours, machine hours, or any other relevant base, not specifically indirect labor hours.

Question 2

When job order costing is used in the service industry, the allocation of indirect costs is normally based on direct labor hours.

Accepted Answer

In job order costing in the service industry, indirect costs are typically allocated based on direct labor hours, since the service provided is predominantly a result of the employees' efforts.

Question 3

Job order costing is used primarily in the manufacturing and industrial sectors, but is not well suited for the service industry.

Accepted Answer

Job order costing is also used in the service industry, especially for services that are customized or not uniform, allowing companies to accurately track costs for specific jobs or projects.

Question 4

At the beginning of 2012, Conway Manufacturing Company had the following account balances:
  During the year, the following transactions took place:
  Remaining balance of Manufacturing overhead cleared to zero.
Please record these transactions to the T-accounts and calculate ending balances in each of the accounts using the format below:

Accepted Answer

The answer of At the beginning of 2012, Conway Manufacturing...

Question 5

Abba Accounting expects its accountants to work a total of 24,000 direct labor hours per year. Abba's estimated total indirect costs are $240,000. The direct labor rate is $75 per hour. If Abba does a job requiring 40 hours of direct labor, and bills the client using a standard markup of 40%, what will be the amount that Abba bills the client for?

Accepted Answer

Calculations:
$240,000 / 24,000 = $10
$10 × 40 = $400
$75 × 40 = $3,000
$400 + $3,000 = $3,400
$3,400 × 140% = $4,760

Question 6

Bilkins Financial Advisors provides accounting and finance assistance to customers in the retail business. They have 4 professionals on staff, plus an office with 6 clerical staff. Total compensation, including benefits, for the professional staff runs about $576,000 per year, and they normally have about 8,000 billable hours per year. Professional staff keep detailed timesheets distributed by client number. Office and administrative costs total $754,000 a year. What is the cost allocation rate that Bilkins will use for direct labori.e. the cost of the professional staff?

Accepted Answer

Calculations: $576,000/8,000 = $72

Question 7

Darrius Travel Services provided the following information:
Cost allocation rate for direct labor: $40 per hour
Cost allocation rate for indirect costs: $22 per hour
If Darrius receives $700 for a job requiring 12 hours of direct labor, they will make a profit of $44.

Accepted Answer

To calculate the profit, we need to subtract the total cost from the revenue earned. 
Total cost = (Direct labor cost + Indirect cost) 
Direct labor cost = 12 hours x $40 per hour = $480 
Indirect cost = 12 hours x $22 per hour = $264 
Total cost = $480 + $264 = $744 
Profit = Revenue - Total cost
Given, revenue = $700 
Profit = $700 - $744 = -$44 
Therefore, Darrius Travel Services will make a loss of $44 instead of a profit of $44.

Question 8

In the service industry, the use of job order costing is made much more effective if a company uses computerized time records.

Accepted Answer

This is because computerized time records can accurately record the time spent by each employee on a specific job or project, making it easier to allocate labor costs to the job and also reduce errors in manual recording.

Question 9

At the beginning of 2012, Conway Manufacturing Company had the following account balances:
  During the year, the following transactions took place:
  Please record these transactions to the T-accounts and calculate preliminary balances in the Work in process, Finished goods and Manufacturing overhead accounts, using the format below:

Accepted Answer

The answer of At the beginning of 2012, Conway Manufacturing...

Question 10

Darrius Travel Services provided the following information:
Cost allocation rate for direct labor: $40 per hour
Cost allocation rate for indirect costs: $22 per hour
Darrius is negotiating a job with a new client. The job will require 10 hours of direct labor. If Darrius wishes to make at least 15% gross profit on the deal, they need to receive $713 of revenues.

Accepted Answer

Direct labor cost = 10 hours x $40 per hour = $400
Indirect costs = 10 hours x $22 per hour = $220
Total costs = $400 + $220 = $620
To make at least 15% gross profit, revenues need to be:
Revenues = Total costs / (1 - Gross profit %)
Revenues = $620 / (1 - 0.15) = $729.41
Since $729.41 > $713, Darrius can make at least 15% gross profit on the deal, making statement A true.

Question 11

Bilkins Financial Advisors provides accounting and finance assistance to customers in the retail business. They have 4 professionals on staff, plus an office with 6 clerical staff. Total compensation, including benefits, for the professional staff runs about $576,000 per year, and they normally have about 8,000 billable hours per year. Professional staff keep detailed time sheets distributed by client number. Office and administrative costs total $754,000 a year. Bilkins allocates professional time and administrative costs to clients monthly, using allocation rates based on billable hours. During July, Bilkins' professionals spent 36 hours on their client, Soupy Sales. Bilkins adds a 25% markup on their costs to calculate amount billed to the customer. How much did Bilkins bill their customer Soupy Sales for the month of July?

Accepted Answer

Calculations:
36 × $72 = $2,592
36 × $94.25 = $3,393
$2,592 + $3,393 = $5,985
$5,985 × 125% = $7,481.25

Question 12

On June 30, Coraline Company finished job number 750, with total job costs of $4,600, and transferred the costs to Finished goods. On July 6, they completed the sale of the goods to a customer for $5,100 cash. In order to record the sale, two entries are necessary-one to record revenue, and one to record cost of goods sold. Please provide the second of two entries to record cost of goods sold.

Accepted Answer

The answer of On June 30, Coraline Company finished job...

Question 13

Bilkins Financial Advisors provides accounting and finance assistance to customers in the retail business. They have 4 professionals on staff, plus an office with 6 clerical staff. Total compensation, including benefits, for the professional staff runs about $576,000 per year, and they normally have about 8,000 billable hours per year. Professional staff keep detailed time sheets distributed by client number. Office and administrative costs total $754,000 a year. Bilkins allocates professional time and administrative costs to clients monthly, using allocation rates based on billable hours. During July, Bilkins' professionals spent 36 hours on their client, Soupy Sales. What is the total amount of cost that Bilkins will record for the client for the month?

Accepted Answer

Calculations:
36 × $72 = $2,592
36 × $94.25 = $3,393
$2,592 + $3,393 = $5,985

Question 14

The engineering firm of Dobbs and Smith uses a job order costing system to accumulate client-related costs. The overhead rate is 60% of direct labor cost. Staff engineer time is charged at a rate of $80 per hour. A recent job for a client involved 30 staff labor hours. How much was the total job cost?

Accepted Answer

First, we need to calculate the total cost of direct labor.

Direct labor cost = Staff engineer time x Hourly rate 
Direct labor cost = 30 hours x $80 per hour 
Direct labor cost = $2,400

Next, we can calculate the overhead cost as a percentage of the direct labor cost.

Overhead cost = 60% x Direct labor cost 
Overhead cost = 0.60 x $2,400 
Overhead cost = $1,440

Finally, we can add the direct labor cost and the overhead cost to get the total job cost.

Total job cost = Direct labor cost + Overhead cost 
Total job cost = $2,400 + $1,440 
Total job cost = $3,840

Therefore, the total job cost for this project was $3,840.

Question 15

Abba Accounting expects its accountants to work a total of 24,000 direct labor hours per year. Abba's estimated total indirect costs are $240,000. The direct labor rate is $75 per hour. If Abba does a job requiring 40 hours of direct labor, what is the total job cost?

Accepted Answer

First, we need to calculate the predetermined overhead rate using the given information:
Predetermined Overhead Rate = (Total Indirect Costs) / (Expected Direct Labor Hours)
Predetermined Overhead Rate = $240,000 / 24,000 hours
Predetermined Overhead Rate = $10 per direct labor hour

Next, we can calculate the total job cost using the formula:
Total Job Cost = Direct Materials + Direct Labor + Applied Overhead
Direct materials are not given, so we can assume they are $0.

Direct labor is given as 40 hours and the direct labor rate is $75 per hour:
Direct Labor = 40 hours x $75 per hour
Direct Labor = $3,000

To calculate the applied overhead, we multiply the predetermined overhead rate by the actual direct labor hours used:
Applied Overhead = Predetermined Overhead Rate x Direct Labor Hours
Applied Overhead = $10 per hour x 40 hours
Applied Overhead = $400

Therefore, the total job cost is:
Total Job Cost = $0 + $3,000 + $400
Total Job Cost = $3,400

Therefore, the best choice is C.

Question 16

Abba Accounting expects its accountants to work a total of 24,000 direct labor hours per year. Abba's estimated total indirect costs are $240,000. What is the indirect cost allocation rate?

Accepted Answer

Calculations: $240,000 / 24,000 = $10

Question 17

Bilkins Financial Advisors provides accounting and finance assistance to customers in the retail business. They have 4 professionals on staff, plus an office with 6 clerical staff. Total compensation, including benefits, for the professional staff runs about $576,000 per year, and they normally have about 8,000 billable hours per year. Professional staff keep detailed time sheets distributed by client number. Office and administrative costs total $754,000 a year. What is the cost allocation rate that Bilkins will use for office and administrative costs?

Accepted Answer

Calculations: $754,000/8,000 = $94.25

Question 18

Darrius Travel Services provided the following information:
Cost allocation rate for direct labor: $40 per hour
Cost allocation rate for indirect costs: $22 per hour
If Darrius receives $350 for a job requiring 5 hours of direct labor, they will make a profit of $40.

Accepted Answer

5 hours of direct labor at $40 per hour equals $200.
The indirect cost for this job is calculated to be $22 per hour * 5 hours = $110.
Total cost for the job would be $200 + $110 = $310.
If they receive $350, their profit would be $350 - $310 = $40. Therefore, the statement is true.

Question 19

On June 30, Coraline Company finished job number 750, with total job costs of $4,600, and transferred the costs to Finished goods. On July 6, they completed the sale of the goods to a customer for $5,100 cash. In order to record the sale, two entries are necessary-one to record revenue, and one to record cost of goods sold. Please provide the first of two entries to record sales revenue.

Accepted Answer

The answer of On June 30, Coraline Company finished job...

Question 20

In a service business that uses a job order costing system, the professional staff would normally keep precise records of time spent on each client. It is equally important that the clerical staff and other indirect labor personnel keep similar records of time spent on each client.

Accepted Answer

In a job order costing system, indirect labor (such as clerical staff) costs are usually allocated based on a predetermined overhead rate, rather than tracking the exact time they spend on each client, which is more common for direct labor like professional staff.

Quiz 17: Job Order and Process Costing