Question 1

A cost driver is an activity base that is highly correlated with manufacturing overhead costs.

Accepted Answer

A cost driver is an activity base or factor that has a direct cause and effect relationship with the manufacturing overhead costs of a business. It is used to allocate overhead costs to products or services based on the level of activity or usage of the cost driver in the production process. Examples of cost drivers include machine hours, labor hours, and units produced.

Question 2

A collection of job cost sheets would be similar to a subsidiary ledger and the work-in-process account would be similar to the controlling account.

Accepted Answer

A job cost sheet is a detailed record of the direct materials, direct labor, and manufacturing overhead costs associated with a particular job. Similar to a subsidiary ledger, it provides a detailed breakdown of the costs associated with each job, while the work-in-process account serves as the controlling account that summarizes the total costs for all active jobs.

Question 3

Job order costing is appropriate for businesses that produce mass quantities of identical units using the same amount of direct materials,direct labor,and manufacturing overhead.

Accepted Answer

Job order costing is appropriate for businesses that produce customized or unique products or services, where each job is different and requires a separate set of direct materials, direct labor, and manufacturing overhead.  It is not appropriate for mass production of identical units. This type of production would use process costing.

Question 4

Management uses a cost accounting system to evaluate and reward employee performance.

Accepted Answer

Cost accounting systems can provide valuable information for evaluating employee performance, particularly those in positions related to cost control and management. Cost accounting measures can include efficiency, cost savings, and cost avoidance, among other metrics. These measures can then be used to reward high-performing employees and identify areas for improvement.

Question 5

An overhead application rate is computed by dividing the actual overhead costs by the expected amount of units in the activity base.

Accepted Answer

An overhead application rate is computed by dividing the expected overhead costs by the expected amount of units in the activity base, not the actual overhead costs.

Question 6

When goods are sold,a journal entry is made transferring the goods from cost of goods sold to finished goods.

Accepted Answer

When goods are sold, a journal entry is made transferring the goods from the inventory account to cost of goods sold, reducing the value of finished goods.

Question 7

Metalworks applies manufacturing overhead on the basis of direct materials used in production.During the current period,direct materials used for Job #123 amounted to $22,545.If Metalworks' overhead rate is 0.65 of direct materials used,the overhead applied to Job #123 for the period is $15,000.

Accepted Answer

The overhead applied to Job #123 should be calculated as:
Overhead Applied = Direct Materials Used x Manufacturing Overhead Rate
Overhead Applied = $22,545 x 0.65
Overhead Applied = $14,635.25
Therefore, the overhead applied to Job #123 should be $14,635.25, not $15,000.

Question 8

Metalworks employs three assembly workers that,on average,each work 40 hours per week and earn $9 per hour.During the current accounting period,Job #543 consumed 77 hours of direct labor totaling $693.

Accepted Answer

Since each assembly worker works an average of 40 hours per week, the total direct labor hours for three workers would be 120 hours per week. Job #543 consumed 77 hours of direct labor, which is less than the total hours worked by the three assembly workers. Therefore, it is possible that the direct labor cost for Job #543 is $693.

Question 9

Overhead application rates allow overhead to be assigned as units are being produced throughout the accounting period.

Accepted Answer

Overhead application rates are used to allocate indirect costs to products or services based on a predetermined rate. This rate is usually determined at the beginning of the accounting period and applied throughout the period as units are produced. Thus, overhead can be assigned to units as they are being produced instead of waiting until the end of the period.

Question 10

A principal objective of cost accounting systems is to ensure that cost reports to management are prepared in accordance with generally accepted accounting principles.

Accepted Answer

While cost accounting systems do aim to provide accurate and relevant cost information to management, their main objective is to help businesses control and reduce costs, improve efficiency, and make informed business decisions. Adhering to GAAP may be important for financial reporting purposes, but it is not the primary objective of cost accounting.

Question 11

In a job order cost system,the costs of direct materials,direct labor,and manufacturing overhead are accumulated separately for each department for a given period of time.

Accepted Answer

In a job order cost system, costs are accumulated for each individual job, not by department. Departments may incur costs, but the focus is on tracking costs per job to determine the cost of producing specific items or fulfilling specific orders.

Question 12

Pepsi Cola would most likely use a job order costing system.

Accepted Answer

Pepsi Cola, being a mass producer of beverages, would more likely use a process costing system rather than a job order costing system, as their production is continuous and homogeneous.

Question 13

An overhead application rate is a device used to assign overhead costs to units of product in proportion to some "activity base" that can be traced directly to the manufactured products.

Accepted Answer

This statement accurately describes the purpose and function of an overhead application rate.

Question 14

Management can compute the per-unit cost of finished goods accurately only when a job order cost system is in use.

Accepted Answer

Management can compute the per-unit cost of finished goods using various costing systems, not just a job order cost system. Systems like process costing or activity-based costing can also be used to accurately determine per-unit costs.

Question 15

A credit balance in the manufacturing overhead account at month end indicates that the actual overhead costs were less than the amount of overhead costs applied to jobs.

Accepted Answer

A credit balance in the manufacturing overhead account represents overapplied overhead, which means actual overhead costs were less than applied overhead costs.

Question 16

An activity-based costing system does not help managers make better product pricing decisions.

Accepted Answer

An activity-based costing system provides more accurate and detailed information about the costs of producing a product, which can help managers make better pricing decisions by understanding the costs associated with each activity involved in producing the product.

Question 17

A debit balance in the manufacturing overhead account at month end indicates overhead applied to jobs was greater than the actual overhead costs.

Accepted Answer

A debit balance in the manufacturing overhead account indicates that the actual overhead costs were greater than the overhead applied to jobs.

Question 18

Job order costing cannot be used for a service company.

Accepted Answer

Job order costing can be used for a service company that provides customized or unique services to each customer, such as a law firm or consulting company. The costs of providing these services can be traced to specific jobs or clients and allocated accordingly. However, it may not be suitable for service companies that offer standardized services or have high volume production, such as a restaurant or retail store. In such cases, process costing or activity-based costing may be more appropriate.

Question 19

Metalworks Incorporated purchased $54,500 worth of direct materials to be used in Job #222.During the accounting period,Job #222 used $45,600 of direct materials.The amount of direct materials that would be shown in Job #222 Job Cost Sheet at the end of the accounting period should be $54,500,since this is the amount of direct materials the company had purchased for this particular job.

Accepted Answer

The amount shown in Job #222 Job Cost Sheet for direct materials should be $45,600, as this reflects the actual amount of materials used for the job during the accounting period, not the total amount purchased.

Question 20

Since cost accounting systems provide managers with information necessary to manage operations,the information from cost accounting systems is not useful for external reporting purposes.

Accepted Answer

While the primary purpose of cost accounting systems is to provide managers with information to manage operations, the information from these systems can also be useful for external reporting purposes, such as in financial statements or tax returns. However, this information may require some adjustments or additional information in order to meet external reporting standards and requirements.

Quiz 17: Job Order Cost Systems and Overhead Allocations