Question 1

At the current year-end, Hardly Company found that its overhead was underapplied by $2,500, and this amount was not deemed to be a material amount. Based on this information, Hardly should

Accepted Answer

Since the underapplied amount is not material, Hardly Company can choose to close it to Cost of Goods Sold to bring the actual overhead amount closer to the estimated amount. This adjustment will reduce the cost of goods sold for the current year and increase net income. Choice B would not be appropriate since it would increase the value of finished goods inventory and overstate its value. Choice C is incorrect because the underapplied amount should be adjusted in the current year, regardless of whether overhead is expected to be overapplied next year. Choice D is also incorrect as the underapplied amount is related to overhead and should be closed to Cost of Goods Sold. Choice E is not necessary as option A will properly adjust for the underapplied overhead.

Question 2

Using the following accounts and an overhead rate of 90% of direct labor cost, determine the amount of applied overhead.

Accepted Answer

The answer of Using the following accounts and an overhead...

Question 3

If one unit of Product X used $2.50 of direct materials and $3.00 of direct labor, sold for $8.00, and was assigned overhead at the rate of 30% of direct labor costs, how much gross profit was realized from this sale?

Accepted Answer

The answer of If one unit of Product X used...

Question 4

If it is a material amount, overapplied or underapplied overhead should be disposed of by allocating it to:

Accepted Answer

Overapplied or Underapplied overhead should be allocated to goods in process inventory, finished goods inventory, and cost of goods sold since these are the accounts that are affected by overhead costs during the manufacturing process. Allocating the amount to all three accounts ensures that it is properly accounted for and does not distort the company's financial statements.

Question 5

Bard Manufacturing uses a job order cost accounting system. During one month Bard purchased $198,000 of raw materials on credit; issued materials to production of $195,000 of which $30,000 were indirect. Bard incurred a factory payroll of $150,000, paid in cash, of which $40,000 is classified as indirect labor. Bard uses a predetermined overhead application rate of 150% of direct labor cost. The journal entry to record the allocation of the factory payroll to production is:

Accepted Answer

According to the information given, $40,000 of the factory payroll is classified as indirect labor. Since indirect labor is considered as overhead cost, it should be allocated to the Factory Overhead account. Therefore, the journal entry to record the allocation of factory payroll to production would be a debit to Goods in Process Inventory for the direct labor cost of $110,000 (=$150,000 - $40,000) and a debit to Factory Overhead for the indirect labor cost of $40,000, and a credit to Factory Payroll for the total payroll cost of $150,000.

Question 6

Bard Manufacturing uses a job order cost accounting system. During one month Bard purchased $198,000 of raw materials on credit; issued materials to production of $195,000 of which $30,000 were indirect. Bard incurred a factory payroll of $150,000, paid in cash, of which $40,000 is classified as indirect labor. Bard uses a predetermined overhead application rate of 150% of direct labor cost. The journal entry to record the issuance of materials to production is:

Accepted Answer

The correct journal entry to record the issuance of materials to production includes debiting Goods in Process Inventory for the direct materials ($195,000 - $30,000 = $165,000), debiting Factory Overhead for the indirect materials ($30,000), and crediting Raw Materials Inventory for the total materials issued ($195,000).

Question 7

M.A.E. charged the following amounts of overhead to jobs during the year: $20,000 to jobs still in process, $60,000 to jobs completed but not sold, and $120,000 to jobs finished and sold. At year-end, M.A.E. Company's Factory Overhead account has a credit balance of $5,000, which is not a material amount. What entry should M.A.E. make at year-end?

Accepted Answer

Since there is a credit balance in the Factory Overhead account, it means that the overhead applied during the year exceeded the actual overhead incurred. Therefore, M.A.E. should debit the Factory Overhead account to reduce the credit balance and credit the Cost of Goods Sold account to allocate the excess overhead to the cost of the goods sold during the year. Option B is the best choice as it reflects the proper adjustment to the accounts.

Question 8

If a company applies overhead to production with a predetermined rate, a credit balance in the Factory Overhead account at the end of the period means that:

Accepted Answer

A credit balance in the Factory Overhead account indicates that the actual overhead costs were less than the overhead costs applied to production based on the predetermined rate. This means the company overestimated its overhead costs when applying them to production.

Question 9

Bard Manufacturing uses a job order cost accounting system. During one month Bard purchased $198,000 of raw materials on credit; issued materials to production of $195,000 of which $30,000 were indirect. Bard incurred a factory payroll of $150,000, paid in cash, of which $40,000 is classified as indirect labor. Bard uses a predetermined overhead application rate of 150% of direct labor cost. The total manufacturing costs added during the period are:

Accepted Answer

The answer of Bard Manufacturing uses a job order cost...

Question 10

If overhead applied is less than actual overhead incurred, it is:

Accepted Answer

If overhead applied is less than actual overhead incurred, it means that the actual overhead costs were greater than what was estimated when the overhead rate was determined. This results in underapplied overhead.

Question 11

Estimated overhead and direct labor costs for the year were $112,500 and $125,000, respectively. During the year, actual overhead was $107,400 and actual direct labor cost was $120,000. The entry to close the over- or underapplied overhead at year-end, assuming an immaterial amount, would include:

Accepted Answer

The answer of Estimated overhead and direct labor costs for...

Question 12

The amount by which overhead incurred during a period exceeds the overhead applied to jobs is:

Accepted Answer

When overhead incurred during a period exceeds the overhead applied to jobs, it results in underapplied overhead.

Question 13

Bard Manufacturing uses a job order cost accounting system. During one month Bard purchased $198,000 of raw materials on credit; issued materials to production of $195,000 of which $30,000 were indirect. Bard incurred a factory payroll of $150,000, paid in cash, of which $40,000 is classified as indirect labor. Bard uses a predetermined overhead application rate of 150% of direct labor cost. The journal entry to record the application of factory overhead to production is:

Accepted Answer

The answer of Bard Manufacturing uses a job order cost...

Question 14

Bard Manufacturing uses a job order cost accounting system. During one month Bard purchased $198,000 of raw materials on credit; issued materials to production of $195,000 of which $30,000 were indirect. Bard incurred a factory payroll of $150,000, paid in cash, of which $40,000 is classified as indirect labor. Bard uses a predetermined overhead application rate of 150% of direct labor cost. The journal entry to record payment of the factory payroll is:

Accepted Answer

The journal entry to record payment of the factory payroll is to debit Factory Payroll $150,000 and credit Cash $150,000. This is because the factory payroll was paid in cash and needs to be recorded as an expense in the Factory Payroll account. The Goods in Process Inventory and Factory Overhead accounts are affected by applying the predetermined overhead application rate to the direct labor cost, which is a separate transaction.

Question 15

The Dina Corp. has applied overhead to jobs during the period as follows:  The application of overhead has resulted in a $5,600 credit balance in the Factory Overhead account, and this amount is not material. The entry to dispose of this remaining factory overhead balance is:

Accepted Answer

In order to dispose of the remaining factory overhead balance, we need to transfer it out of the Factory Overhead account and into the Cost of Goods Sold account. Therefore, we need to debit Factory Overhead for $5,600 and credit Cost of Goods Sold for the same amount. Option B is the correct answer as it represents these actions. Option A is incorrect as it credits Factory Overhead instead of debiting it, and Option C and D involve Goods in Process Inventory which is not relevant in this scenario. Option E is incorrect as an entry is needed to dispose of the remaining balance.

Question 16

Austin Company uses a job order cost accounting system. The company's executives estimated that direct labor would be $2,000,000 (200,000 hours at $10/hour) and that factory overhead would be $1,500,000 for the current period. At the end of the period, the records show that there had been 180,000 hours of direct labor and $1,200,000 of actual overhead costs. Using direct labor hours as a base, what was the predetermined overhead allocation rate?

Accepted Answer

The predetermined overhead allocation rate is calculated by dividing the estimated factory overhead by the estimated direct labor hours. In this case, $1,500,000 divided by 200,000 hours equals $7.50 per direct labor hour.

Question 17

The amount by which the overhead applied to jobs during a period exceeds the overhead incurred during the period is known as:

Accepted Answer

Overapplied overhead occurs when the overhead applied to jobs (based on the predetermined overhead rate) exceeds the actual overhead costs incurred.

Question 18

Deltan Corp. allocates overhead to production on the basis of direct labor costs. Deltan's total estimated overhead is $450,000 and estimated direct labor is $180,000. Determine the amount of overhead to be allocated to finished goods inventory if there is $20,000 of total direct labor cost in the jobs in the finished goods inventory.

Accepted Answer

The overhead rate is calculated as follows:

Overhead Rate = Total Estimated Overhead ÷ Estimated Direct Labor 
= $450,000 ÷ $180,000 
= $2.50 per $1 of direct labor cost

Therefore, the overhead allocated to finished goods inventory is:

Overhead Allocated = Direct Labor Cost × Overhead Rate 
= $20,000 × $2.50 
= $50,000

Therefore, the answer is D ($50,000).

Question 19

The ending inventory of finished goods has a total cost of $9,000 and consists of 600 units. If the overhead applied to these goods is $3,000, and the overhead rate is 75% of direct labor, how much direct materials cost was incurred in producing these units?

Accepted Answer

The answer of The ending inventory of finished goods has...

Question 20

Bard Manufacturing uses a job order cost accounting system. During one month Bard purchased $198,000 of raw materials on credit; issued materials to production of $195,000 of which $30,000 were indirect. Bard incurred a factory payroll of $150,000, paid in cash, of which $40,000 is classified as indirect labor. Bard uses a predetermined overhead application rate of 150% of direct labor cost. The journal entry to record the purchase of materials is:

Accepted Answer

The journal entry to record the purchase of raw materials on credit is to debit Raw Materials Inventory for the cost of materials purchased ($198,000) and to credit Accounts Payable for the same amount.

Quiz 19: Job Order Cost Accounting