Question 1

Job no. C12 was completed in November at a cost of $28,500, subdivided as follows: direct material, $13,500; direct labor, $6,000; and manufacturing overhead, $9,000. The journal entry to record the completion of the job is:
A) $$\begin{array} { r r } 
\text { Finished-Goods Inventory } & 28,500 \
\text { Work-in-Process Inventory } & 28,500
\end{array}$$
B) $\begin{array}{rr}
\text { Work-in-Process Inventory } & 28,500 \
\text { Finished-Goods Inventory } & 28,500
\end{array}$
C) $$\begin{array}{l}
\begin{array} { l l } 
\text { Work-in-Process Inventory } & 28,500
\end{array}\
\begin{array} { l r } 
\text { Wages Payable } & 6,000 \
\text { Raw-Material Inventory } & 13,500 \
\text { Manufacturing Overhead } & 9,000
\end{array}
\end{array}$$
D) Cost of Goods Sold $\quad 28,500$
Finished-Goods Inventory $\quad 28,500$
E) $\begin{array}{rr}
\text { Finished-Goods Inventory } & 28,500 \
\text { Cost of Goods Sold } & 28,500
\end{array}$

Accepted Answer

The correct journal entry to record the completion of a job is to debit Finished-Goods Inventory and credit Work-in-Process Inventory for the total cost of the job.

Question 2

Sting Corporation debited Cost of Goods Sold and credited Manufacturing Overhead at year-end. On the basis of this information, one can conclude that:
A) budgeted overhead exceeded actual overhead.
B) budgeted overhead exceeded applied overhead.
C) budgeted overhead was less than applied overhead.
D) actual overhead exceeded applied overhead.
E) actual overhead was less than applied overhead.

Accepted Answer

When Cost of Goods Sold is debited and Manufacturing Overhead is credited, it means that the actual overhead incurred was less than the applied overhead. This results in overapplied overhead, which is closed out to Cost of Goods Sold at year-end. Therefore, actual overhead exceeded applied overhead.

Question 3

Which of the following statements about the use of direct labor as a cost driver is false?
A) Direct labor is the most commonly used cost driver when calculating a predetermined overhead rate.
B) Direct labor is gaining importance in many manufacturing applications with respect to being a significant cost driver.
C) Direct labor is an inappropriate cost driver to use if a company is highly automated.
D) If direct labor is a good cost driver, increases in direct labor are matched with increases in manufacturing overhead.
E) Companies can use either direct labor cost or direct labor hours as a cost driver.

Accepted Answer

Direct labor is decreasing in importance as a significant cost driver in many manufacturing applications due to increased automation and the use of technology, making it less relevant in determining the overhead costs compared to other factors like machine hours.

Question 4

Fogg Company, which uses labor hours to apply overhead to manufacturing, may have increased amounts of underapplied overhead at month-end if:
A) suppliers of direct materials have an across-the-board price increase.
B) an accountant failed to record the period's charges for plant maintenance and security.
C) employees are hit hard with a widespread outbreak of the flu.
D) direct laborers are granted a wage increase.
E) outlays for advertising expenditures are increased.

Accepted Answer

If employees are hit hard with a widespread outbreak of the flu, fewer labor hours would be worked than expected, leading to underapplied overhead since overhead is applied based on labor hours.

Question 5

Tiffany 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?
A) Overapplied by $10,000.
B) Underapplied by $10,000.
C) Overapplied by $35,000.
D) Underapplied by $35,000.
E) Overapplied by $45,000.

Accepted Answer

The answer of Tiffany charges manufacturing overhead to products by...

Question 6

Blarney Company applies manufacturing overhead by using a predetermined rate of 50% of direct labor cost. The data that follow pertain to job no. 764: Direct material Cost $\quad\$ 55,000$
Direct labor cost $\quad\quad 80,000$ If Blarney 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? 
A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Accepted Answer

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

Question 7

The term "normal costing" refers to the use of:
A) job-costing systems.
B) computerized accounting systems.
C) targeted overhead rates.
D) predetermined overhead rates.
E) actual overhead rates.

Accepted Answer

Normal costing involves the use of predetermined overhead rates, which are calculated based on estimated overhead costs and estimated activity levels. This allows for more accurate allocation of overhead costs to products or jobs. Therefore, the best choice is D - predetermined overhead rates.

Question 8

Under- or overapplied manufacturing overhead at year-end is most commonly:
A) charged or credited to Work-in-Process Inventory.
B) charged or credited to Cost of Goods Sold.
C) charged or credited to a special loss account.
D) prorated among Work-in-Process Inventory, Finished-Goods Inventory, and Cost of Goods Sold.
E) ignored because there is no effect on the Cash account.

Accepted Answer

Under- or overapplied manufacturing overhead at year-end is most commonly charged or credited to Cost of Goods Sold. This approach simplifies the adjustment process by directly affecting the income statement without altering the balances of the inventory accounts.

Question 9

The primary difference between normalized and actual costing methods lies in the determination of a job's:
A) direct material costs.
B) direct labor costs.
C) manufacturing overhead costs.
D) selling costs.
E) administrative costs.

Accepted Answer

Normalized costing methods use predetermined rates to allocate manufacturing overhead costs to products, while actual costing methods use actual overhead costs incurred during production. Therefore, the primary difference between the two methods lies in the determination of a job's manufacturing overhead costs.

Question 10

Howard 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:
A) a debit to Cost of Goods Sold.
B) a debit to Manufacturing Overhead.
C) a debit to Work-in-Process Inventory.
D) a credit to Cost of Goods Sold.
E) a credit to Work-in-Process Inventory.

Accepted Answer

Underapplied overhead means actual overhead costs were higher than applied costs. To close this, Cost of Goods Sold is debited to increase expenses, reflecting the additional overhead costs.

Question 11

If a company sells goods that cost $80,000 for $92,000, the firm will:
A) reduce Finished-Goods Inventory by $80,000.
B) reduce Finished-Goods Inventory by $92,000.
C) report sales revenue on the balance sheet of $92,000.
D) reduce Cost of Goods Sold by $80,000.
E) follow more than one of the other procedures.

Accepted Answer

When a company sells goods, it reduces its Finished-Goods Inventory by the cost of the goods sold, which in this case is $80,000.

Question 12

Armada Company applies manufacturing overhead by using a predetermined rate of 150% of direct labor cost. The data that follow pertain to job no. 831: $\begin{array}{lr}
\text { Direct material cost } & \$ 72,000 \
\text { Direct labor cost } & 38,000
\end{array}$ If Armada 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? 
A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Accepted Answer

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

Question 13

Mahler, 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:
A) overapplied by $580,000.
B) underapplied by $580,000.
C) overapplied by $1,200,000.
D) underapplied by $1,200,000.
E) underapplied by $900,000.

Accepted Answer

The predetermined overhead rate is calculated as follows:
Predetermined overhead rate = Budgeted overhead cost ÷ Budgeted machine hours
Predetermined overhead rate = $4,800,000 ÷ 120,000 = $40 per machine hour

Actual manufacturing overhead cost = Actual machine hours worked × Predetermined overhead rate
Actual manufacturing overhead cost = 90,000 × $40 = $3,600,000

The company's actual overhead cost was $4,180,000, so there was an underapplication of overhead cost:
Underapplied overhead cost = Actual overhead cost − Applied overhead cost
Underapplied overhead cost = $4,180,000 − $3,600,000 = $580,000

Therefore, the answer is B) underapplied by $580,000.

Question 14

Media, 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, Media 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:
A) $1,000 underapplied.
B) $1,000 overapplied.
C) $4,000 underapplied.
D) $4,000 overapplied.
E) $5,000 underapplied.

Accepted Answer

Overhead was estimated to be $150,000, and actual overhead costs incurred were $146,000, resulting in an underapplied overhead of $4,000.

Question 15

If the amount of effort and attention to products varies substantially throughout a company's various manufacturing operations, the company might consider the use of:
A) a plant wide overhead rate.
B) departmental overhead rates.
C) actual overhead rates instead of predetermined overhead rates.
D) direct labor hours to determine the overhead rate.
E) machine hours to determine the overhead rate.

Accepted Answer

Departmental overhead rates are used when the amount of effort and attention to products varies substantially throughout a company's various manufacturing operations. This allows for more accurate allocation of overhead costs to individual products or departments based on their specific usage of overhead resources. Plant wide overhead rates may not accurately reflect the differences in usage between departments, and using actual overhead rates can be costly and time-consuming to calculate. Using direct labor hours or machine hours to determine the overhead rate can also be unreliable if there are significant differences in the usage of these resources between departments.

Question 16

When underapplied or overapplied manufacturing overhead is prorated, amounts can be assigned to which of the following accounts?
A) Raw-Material Inventory, Manufacturing Overhead, and Direct Labor.
B) Cost of Goods Sold, Work-in-Process Inventory, and Finished-Goods Inventory.
C) Work-in-Process Inventory, Raw-Material Inventory, and Cost of Goods Sold.
D) Raw-Material Inventory, Finished-Goods Inventory, and Cost of Goods Sold.
E) Raw-Material Inventory, Work-in-Process Inventory, and Finished-Goods Inventory.

Accepted Answer

When manufacturing overhead is underapplied or overapplied, it means that the amount of overhead allocated to jobs or products is not equal to the actual amount of overhead incurred. To prorate the underapplied or overapplied manufacturing overhead, it is necessary to adjust the balances of the Work-in-Process Inventory, Finished-Goods Inventory, and Cost of Goods Sold accounts. Raw-Material Inventory and Direct Labor are not affected by the proration of manufacturing overhead. Therefore, option B is the best choice because it includes the correct accounts that are affected.

Question 17

Fletcher, 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) Fletcher's adjusted cost of goods sold and (2) gross margin. 
A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Accepted Answer

The answer of Fletcher, Inc. disposes of under- or overapplied...

Question 18

Serina Manufacturing recently sold goods that cost $35,000 for $45,000 cash. The journal entries to record this transaction would include:
A) a credit to Work-in-Process Inventory for $35,000.
B) a debit to Sales Revenue for $45,000.
C) a credit to Profit on Sale for $10,000.
D) a debit to Finished-Goods Inventory for $35,000.
E) a credit to Sales Revenue for $45,000.

Accepted Answer

The correct entry to record the sale of goods is to credit Sales Revenue for the amount of the sale, which is $45,000.

Question 19

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?
A) Debits: Accounts Receivable, Finished-Goods Inventory; credits: Sales Revenue, Cost of Goods Sold.
B) Debits: Accounts Receivable, Cost of Goods Sold; credits: Sales Revenue, Finished-Goods Inventory.
C) Debits: Sales Revenue, Cost of Goods Sold; credits: Accounts Receivable, Finished-Goods Inventory.
D) Debits: Sales Revenue, Finished-Goods Inventory; credits: Accounts Receivable, Cost of Goods Sold.
E) Debits: Accounts Receivable; credits: Finished-Goods Inventory, Profit on Sale.

Accepted Answer

The transaction involves a sale of laptops, so the sales revenue account should be credited. The cost of goods sold account should be debited for the cost of producing the laptops that were sold. The accounts receivable account should be debited for the amount that the customer owes, and the finished-goods inventory account should be credited for the cost of the laptops that were sold. Therefore, option B is the correct answer.

Question 20

The estimates used to calculate the predetermined overhead rate will virtually always:
A) prove to be correct.
B) result in a year-end balance of zero in the Manufacturing Overhead account.
C) result in overapplied overhead that is closed to Cost of Goods Sold if it is immaterial in amount.
D) result in underapplied overhead that is closed to Cost of Goods Sold if it is immaterial in amount.
E) result in either underapplied or overapplied overhead that is closed to Cost of Goods Sold if it is immaterial in amount.

Accepted Answer

The estimates used to calculate the predetermined overhead rate are based on forecasts and assumptions, which are subject to error and uncertainty, making it likely that the actual overhead cost incurred will be different from the estimated overhead cost. As a result, it is common for there to be either underapplied or overapplied overhead. If the amount is immaterial in relation to the financial statements as a whole, it is closed to Cost of Goods Sold rather than carried forward to the next accounting period. Therefore, the most accurate answer is E.

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

Job no. C12 was completed in November at a cost of $28,500, subdivided as follows: direct material, $13,500; direct labor, $6,000; and manufacturing overhead, $9,000. The journal entry to record the completion of the job is:

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

Which of the following statements about the use of direct labor as a cost driver is false?

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

Tiffany 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?

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

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

The primary difference between normalized and actual costing methods lies in the determination of a job's:

Howard 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:

If a company sells goods that cost $80,000 for $92,000, the firm will:

If the amount of effort and attention to products varies substantially throughout a company's various manufacturing operations, the company might consider the use of:

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

Serina Manufacturing recently sold goods that cost $35,000 for $45,000 cash. The journal entries to record this transaction would include:

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?

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