Question 1

During February, Benke Manufacturing Company paid $18,000 in property taxes on one of its factory buildings. This overhead cost should be allocated to units completed during the month it was paid.

Accepted Answer

Overhead costs like property taxes on a factory building should be allocated over the period they benefit, not just to the units completed in the month the cost was incurred. This ensures a more accurate reflection of production costs over time.

Question 2

At the end of the period, the balance remaining in work in process is reported on the balance sheet.

Accepted Answer

This statement is true. The balance remaining in work in process at the end of the accounting period is a component of the inventory account that is reported on the balance sheet.

Question 3

Service companies accumulate information about the cost of services provided, and they report those costs in an inventory account.

Accepted Answer

Service companies do not have inventory accounts as they do not sell physical products that need to be stored. Instead, they may use a cost of services account to track the cost of providing their services.

Question 4

Applied overhead costs are recorded as decreases in the manufacturing overhead account.

Accepted Answer

Applied overhead costs are added to the manufacturing overhead account, while actual overhead costs are recorded as decreases in the account. This is because applied overhead costs are estimated and added to the account during the manufacturing process, while actual overhead costs are only known after the period has ended and are reconciled against the estimated overhead costs.

Question 5

The work in process account is debited when production workers are paid.

Accepted Answer

When production workers are paid, their wages are added to the cost of the products being produced, which increases the value of the work in process account. Therefore, the work in process account is debited.

Question 6

Manufacturing companies use a predetermined overhead rate; such rates are not used by service companies.

Accepted Answer

Service companies also use predetermined overhead rates to allocate indirect costs to services, similar to how manufacturing companies allocate indirect costs to products.

Question 7

The predetermined overhead rate is found by dividing total estimated overhead costs by the total estimated volume of the overhead allocation base.

Accepted Answer

This is the correct formula for calculating the predetermined overhead rate.

Question 8

The Work in Process inventory account is debited when raw materials are placed into production.

Accepted Answer

The Work in Process inventory account is debited when raw materials are placed into production as it represents the cost of the materials being used in the manufacturing process.

Question 9

For a manufacturer, direct costs include direct materials, direct labor, and manufacturing overhead.

Accepted Answer

Direct costs for a manufacturer include direct materials and direct labor, but not manufacturing overhead. Manufacturing overhead consists of indirect costs.

Question 10

Product costs flow through the manufacturer's inventory accounts in the following order: raw materials, finished goods, and cost of goods sold.

Accepted Answer

The correct order is raw materials, work in progress, finished goods, and then cost of goods sold.

Question 11

The cost of goods completed during a period is transferred from the Finished Goods Inventory account to Cost of Goods Sold.

Accepted Answer

The cost of goods completed during a period is transferred from the Work in Process Inventory account to the Finished Goods Inventory account. Cost of Goods Sold is recorded when the finished goods are actually sold.

Question 12

Product cost information for manufacturing companies affects the income statement but does not affect the balance sheet.

Accepted Answer

Product cost information affects the balance sheet by impacting the inventory and cost of goods sold accounts, which are part of the assets and equity sections of the balance sheet. Additionally, product costs also impact the income statement through the cost of goods sold expense and gross profit calculation.

Question 13

If more overhead was applied than had been incurred, the balance in the manufacturing overhead account represents the amount of overapplied overhead.

Accepted Answer

This statement is true. Overapplied overhead occurs when a company applies more manufacturing overhead to its products than the actual overhead incurred. The balance in the manufacturing overhead account represents this overapplication of overhead.

Question 14

Service companies do not transform raw materials into finished goods.

Accepted Answer

The answer of Service companies do not transform raw materials...

Question 15

Service companies generally do not have Work in Process and Finished Goods inventory accounts.

Accepted Answer

Service companies provide intangible services rather than physical goods, so they do not have Work in Process or Finished Goods inventory accounts like manufacturing or retail companies.

Question 16

Actual overhead costs are charged (debited) to the work in process account as they occur.

Accepted Answer

The answer of Actual overhead costs are charged (debited) to...

Question 17

Companies need service and product cost information for both financial reporting and managerial accounting.

Accepted Answer

Companies need to track and report the costs of their services and products for financial reporting purposes, and also use this information for managerial accounting, such as making pricing and cost-cutting decisions.

Question 18

Burgess Company incurred product costs of $50,000 during the period when no units were sold. No product costs will be reported on the company's income statement for the period.

Accepted Answer

Product costs are only expensed on the income statement when units are sold, as Cost of Goods Sold. The $50,000 in product costs will be included in the company's inventory account until the units are sold, at which point they will be expensed on the income statement.

Question 19

Estimated overhead costs are applied to work in process at the time the goods are sold.

Accepted Answer

Estimated overhead costs are applied to work in process when the goods are being produced, not at the time of sale. At the time of sale, the actual overhead costs are used to determine the cost of goods sold.

Question 20

Most companies initially record the cost of materials acquired in the Raw Materials Inventory account.

Accepted Answer

This is true as the Raw Materials Inventory account represents the cost of materials that have been acquired but not yet used in production.

Quiz 11: Product Costing in Service and Manufacturing Entities