Question 1

A zero balance in Work in Process Inventory at the start of the period means all previously completed products have been shipped.

Accepted Answer

A zero balance in Work in Process Inventory at the start of the period indicates that there were no partially completed products at that time, not necessarily that all previously completed products have been shipped. Completed products are typically moved to Finished Goods Inventory before being shipped.

Question 2

In cost-plus contracts,a predetermined amount of profit is added to the cost of the contract.

Accepted Answer

In cost-plus contracts, the contractor is reimbursed for the actual cost of the work performed plus a predetermined amount of profit. This predetermined profit is added to the cost of the contract to ensure that the contractor makes a profit.

Question 3

Predetermined overhead rate is calculated by dividing actual overhead costs by actual cost driver activity.

Accepted Answer

The predetermined overhead rate is calculated by dividing estimated overhead costs by the estimated cost driver activity, not by actual costs and activity.

Question 4

The process of assigning a collection of indirect costs is termed as cost pooling.

Accepted Answer

Cost pooling refers to the grouping of indirect costs together before they are allocated to cost objects, while the process of assigning these costs is known as cost allocation.

Question 5

If the actual overhead costs are more than applied overhead costs,the difference represents overapplied overhead costs.

Accepted Answer

If the actual overhead costs are more than the applied overhead costs, then the difference represents underapplied overhead costs. Overapplied overhead occurs when the applied overhead costs are more than the actual overhead costs.

Question 6

The ending balance in the Work in Process Inventory account equals the ending Overhead balance.

Accepted Answer

The ending balance in the Work in Process (WIP) Inventory account includes direct materials, direct labor, and applied manufacturing overhead, not just the overhead balance. The overhead balance is part of the total WIP but does not equal the entire ending balance of the WIP account.

Question 7

Job order cost cards and cost flows through the inventory accounts form the core of a job order costing system.

Accepted Answer

Job order cost cards provide detailed information about the costs incurred for each job, while cost flows through the inventory accounts track the movement of costs through the production process. Together, these components form the foundation of job order costing.

Question 8

In a service organization using a job order costing system,actual overhead will be the same as applied overhead.

Accepted Answer

In a job order costing system, actual overhead costs may vary from applied overhead costs due to differences in the actual amount of indirect materials, indirect labor, and other indirect costs incurred compared to the estimated amounts used in the predetermined overhead rate. Therefore, actual overhead will not always be the same as applied overhead.

Question 9

In a job order costing system,when the goods are sold,the Cost of Goods Sold account is increased,and the Finished Goods Inventory account is decreased for the selling price of the goods sold.

Accepted Answer

In a job order costing system, when goods are sold, the Cost of Goods Sold account is increased, and the Finished Goods Inventory account is decreased for the cost of the goods sold, not the selling price.

Question 10

Job costs in a service organization end up in the Finished Goods Inventory account when a job is completed.

Accepted Answer

Job costs in a service organization do not result in finished goods inventory as there are no tangible finished products to store. Instead, the costs are usually accumulated in the Cost of Services Rendered account or a similar expense account.

Question 11

In a job order costing system,when indirect materials are used,the Overhead account is increased.

Accepted Answer

Indirect materials are included as part of the overhead costs in a job order costing system. When these indirect materials are used, the Overhead account is increased to reflect the additional cost. This is because overhead costs cannot be directly traced to a specific job or product, and must be allocated based on a predetermined overhead rate.

Question 12

To prepare financial statements at the end of the accounting period,the actual overhead cost for the period and the estimated overhead that was applied during the period must be reconciled in a job order costing system.

Accepted Answer

This reconciliation is necessary to accurately allocate overhead costs to specific jobs and determine the actual cost of goods sold.

Question 13

After a job is completed,the product's unit cost can be determined from the job order cost card.

Accepted Answer

The job order cost card contains all the costs that were incurred to complete a job, including direct materials, direct labor, and overhead costs. By dividing the total cost by the number of units produced, the unit cost of the product can be calculated. Therefore, the statement is true.

Question 14

In a job order costing system,the transfer of overhead costs to the Work in Process Inventory account must take place before product unit costs can be computed.

Accepted Answer

In a job order costing system, the overhead costs must be allocated to specific jobs before the unit cost of a product can be determined. This is because overhead costs are indirect costs that cannot be directly traced to specific jobs or products, and they need to be apportioned based on a predetermined overhead rate. Once the overhead costs have been allocated to the Work in Process Inventory account, the total cost of each job can be determined by adding up the direct materials, direct labor, and overhead costs incurred for that job, and then dividing by the number of units produced.

Question 15

In a job order costing system,a separate job order cost card is used for each individual job.

Accepted Answer

In a job order costing system, a separate job order cost card is prepared for each individual job to record the direct materials, direct labor, and manufacturing overhead costs incurred for that particular job. This allows for accurate tracking and determination of the total cost of each job.

Question 16

Overhead applied is calculated by multiplying predetermined activity rate and actual cost driver activity.

Accepted Answer

Overhead applied is calculated using the predetermined activity rate, which is calculated by dividing the estimated overhead costs by the estimated activity level. This predetermined rate is then multiplied by the actual activity level to determine the amount of overhead that should be applied to production.

Question 17

The ending balance of Work in Process account is compared with the total costs shown on the job order cost cards to ensure correctness.

Accepted Answer

This is correct, as comparing the ending balance of Work in Process account with the total costs shown on the job order cost cards is an important step in ensuring the accuracy of job costing.

Question 18

Regardless of the cost accounting system used,when the products are completed,they are transferred from work in process inventory to finished goods inventory.

Accepted Answer

This is true regardless of the cost accounting system as once the products are completed, they are no longer considered work in process and are transferred to finished goods inventory.

Question 19

If applied overhead exceeds actual overhead,cost of goods sold must be increased by the amount of the overapplied overhead in a job order costing system.

Accepted Answer

When applied overhead exceeds actual overhead, it indicates overapplied overhead. In this case, the cost of goods sold is typically decreased (not increased) by the amount of the overapplied overhead to adjust the accounts, reflecting that less overhead was actually incurred than was initially applied to the products.

Question 20

In a job order costing system,indirect labor costs are recorded by increasing the Payroll Payable account and increasing the Overhead account.

Accepted Answer

Indirect labor costs are not directly tied to a specific job, so they are considered part of overhead. As a result, they are recorded by increasing the Overhead account and increasing the Payroll Payable account.

Quiz 18: Costing Systems: Job Order Costing