Deck 4: Job Costing and Overhead Costing Systems

Question 1

Which of the following would not be included on a job cost report?

A) Marketing costs
B) Direct labour costs
C) Manufacturing overhead costs
D) Direct materials cost

Answer 1

A

Question 2

Which of the following costs is the most likely to not be allocated to a product in a job costing environment?

A) Indirect materials
B) Factory maintenance
C) Factory utilities
D) Direct labour

Answer 2

D

Question 3

A good allocation base:

A) drives the incurrence of direct material costs.
B) drives the incurrence of direct labour costs.
C) drives the incurrence of overhead costs.
D) drives the incurrence of administrative costs.

Answer 3

C

Question 4

Which of the following statements is correct regarding fringe benefits earned by employees whose regular wages are normally classified as direct labour?

A) Fringe benefits should also be classified as direct labour.
B) Fringe benefits should be classified as indirect labour.
C) Fringe benefits should be classified as a period cost.
D) Fringe benefits should not be classified as either a product or period cost.

Question 5

Which of the following statements is true with respect to cost drivers?

A) Overhead costs should only have one cost driver.
B) In labour intensive companies,direct labour hours often serves as the cost driver.
C) When using a cost driver,the same amount of overhead will be allocated to all products.
D) Cost drivers are often used to allocate machine hours.

Question 6

Which of the following types of costs would be specifically tracked or traced and assigned to a specific job in a job order costing system?

A) Indirect labour
B) Direct labour
C) Indirect materials
D) Supervisor salary

Question 7

George Wilson is an assembly-line worker for Gantt Manufacturing.Gantt pays its employees weekly.The following is a breakdown of all the labour costs traced to George for the previous week:
$$\begin{array} { l l } \text { Regular pay: } & 40 \text { hours at } \$ 12 \text { per hour } \\\text { Overthme pay: } & 5 \text { hours at } \$ 18 \text { per hour } \\\text { Fringe benefits received: } & \$ 50 \text { per week }\end{array}$$
Last week,George spent the entire 45 hours he worked on a special order 'rush' job for a particular customer.The overtime was necessary in order to complete the job from start to finish within one week.Assuming that George was the only employee who worked directly on this job,how much direct labour cost should be assigned to the job?

A) $530
B) $570
C) $620
D) $480

Question 8

Which of the following statements is correct?

A) Overhead consists of a limited variety of costs that should have the same cost driver.
B) Overhead consists of a wide variety of costs that should have the same cost driver.
C) Overhead consists of a variety of costs that may potentially have different cost drivers.
D) Overhead consists of a limited variety of costs that must each have a unique cost driver.

Question 9

The accumulating,tracking,and assigning of production costs to the goods and services produced is called a:

A) pricing system.
B) managerial system.
C) product costing system.
D) manufacturing system.

Question 10

Costs associated with factory insurance,maintenance,rent,property taxes,and other similar items are typically included in manufacturing overhead and assigned to products:

A) primarily based on whatever technique is easiest.
B) based on a related cost driver that can be identified and measured.
C) if not treated as a period cost.
D) based on the relative sales revenue generated by the product.

Question 11

Companies that manufacture products such as custom-designed decks and pools would most likely use which type of costing?

A) Process costing
B) Job costing
C) Operations costing
D) Normal costing

Question 12

An allocation base that causes overhead costs to be incurred is called a(n):

A) revenue driver.
B) predetermined driver.
C) cost driver.
D) applied driver.

Question 13

Cost allocation:

A) is most often used for direct material costs.
B) is most often used for manufacturing overhead costs.
C) is most often used for direct labour costs.
D) is most often used for non-manufacturing costs.

Question 14

Which of the following types of companies would probably not use job order costing?

A) Car repair shop
B) Doctor's office
C) Soft drink manufacturer
D) Custom cabinet maker

Question 15

The key to allocating overhead costs is the determination of the:

A) overhead.
B) cost driver.
C) direct labour.
D) product cost.

Question 16

Which of the following types of costs are easily tracked or traced and assigned to a specific job in a job order costing system?

A) Factory utilities
B) Factory supervisor
C) Factory assembly-line worker
D) Lubricants used on factory machinery

Question 17

In job costing,which of the following types of costs is usually the most difficult to trace to a product?

A) Labour cost of machine operator
B) Labour cost of factory supervisor
C) Wood used to build custom furniture
D) Rubber used in tyre manufacturing

Question 18

Which of the following types of costs is not easily tracked or traced to a specific job or file in job-order costing?

A) Fabric used in upholstered furniture
B) Medication given to a hospital patient
C) Cleaning supplies used in the factory
D) Fringe benefits given to assembly-line worker

Question 19

Which of the following companies would be the most likely to adopt a job order costing system?

A) Beverage manufacturer
B) Oil Refinery
C) Custom Home Contractor
D) Clothing manufacturer

Question 20

Which of the following costs is the most likely to be allocated to a product in a traditional job costing environment?

A) Direct materials
B) Direct labour
C) Manufacturing overhead
D) Selling and administrative

Question 21

Which of the following is not true regarding predetermined overhead rates?

A) They are useful in estimating product costs before actual overhead amounts are known with certainty.
B) They can normalise seasonal and random fluctuations in overhead costs so that product costs will be consistent throughout the year.
C) With their use,it is no longer necessary to be able to identify a cost driver.
D) With their use,too much or too little overhead may end up being allocated to a product or job.

Question 22

When using job-order costing,which of the following costs is the least likely to be known in a timely enough manner for decision-making purposes?

A) Direct labour
B) Administrative salaries
C) Direct materials
D) Manufacturing overhead

Question 23

How much overhead was applied to Job #99 during the year if the company uses direct labour hours as its overhead driver?

A) $3000
B) $2000
C) $2500
D) $3500

Question 24

Why do many managers desire to use a predetermined overhead rate instead of an actual overhead rate?

A) Because it is impossible to ever know actual overhead costs.
B) Because predetermined overhead rates are more accurate than actual overhead rates.
C) Because actual overhead amounts are often not known in a timely enough manner to make decisions.
D) Because the use of predetermined overhead rates will always result in lower product prices.

Question 25

Horatio Ltd.uses job order costing to measure and track product costs.Horatio has determined that machine hours drive its manufacturing overhead costs.During the month of June,the following data were available for Product #80:
$$\begin{array} { l l } \text { Direct labour } & 350 \text { hours at } \$ 10 \text { per hour } \\\text { Direct materials } & 40 \text { square yards at } \$ 25 \text { per yard }\\\text { Machine hours usedd }&1000\text{hour}\end{array}$$
If total manufacturing overhead costs during the month totalled $10 000 when a total of 25 000 machine hours were used,what will be the total manufacturing cost of Product #80?

A) $7000
B) $5500
C) $4900
D) $4500

Question 26

Which of the following would probably not be a cost driver in a manufacturing environment?

A) Machine hours
B) Direct labour hours
C) Direct labour cost
D) Indirect labour hours

Question 27

How much overhead was applied to Job #99 during the year if the company uses machine hours as its overhead driver?

A) $3000
B) $2000
C) $2500
D) $3500

Question 28

What is the over/under application for the year,if direct labour hours is the overhead cost driver?

A) $16 000 under applied
B) $22 000 over applied
C) $16 000 over applied
D) $22 000 under applied

Question 29

The formula for calculating the predetermined overhead rate is:

A) Actual overhead for the cost pool / Estimated units of the cost driver
B) Estimated overhead for the cost pool / Actual units of the cost driver
C) Actual overhead for the cost pool / Actual units of the cost driver
D) Estimated overhead for the cost pool / Estimated units of the cost driver

Question 30

Maria's Custom Tailoring is very labour intensive.Therefore,Maria has decided to use direct labour hours as the cost driver for assigning overhead costs to specific jobs.During the month of February,the company incurred overhead costs of $3000.Total direct labour hours during the month totalled 600.Out of a total of 30 different jobs worked on during the month,Job #100 required 6 direct labour hours to complete and Job #200 required 10 direct labour hours.The total amount of overhead allocated to these two jobs is:

A) $ 80.00
B) $187.50
C) $ 37.50
D) $ 16.00

Question 31

Rolling Hills Construction
Rolling Hills Construction Co. assigns overhead to specific jobs based on direct labour cost (dollars). The following information is available for the month of June:
$$\begin{array} { l l } \text { Estimated direct labour hours } & 2000 \text { hours } \\\text { Estimated direct labour cost per hour } & \$ 12 / \text { hour } \\\text { Estimated overhead costs } & \$ 3000 \\\text { Actual direct labour hours } & 2300 \text { hours } \\\text { Actual direct labour cost per hour } & \$ 13 \text { hour } \\\text { Actual overhead costs } & \$ 3300\end{array}$$

-The predetermined overhead rate for the month of June is:

A) $ 0.125 per direct labour dollar
B) $12.50 per direct labour dollar
C) $ 1.50 per direct labour dollar
D) $ 8.00 per direct labour dollar

Question 32

The formula for calculating the amount of overhead applied to a product is:

A) Predetermined overhead rate * Estimated units of cost driver
B) Predetermined overhead rate * Actual overhead costs
C) Predetermined overhead rate * Actual units of cost driver
D) Predetermined overhead rate * Estimated overhead costs

Question 33

What should determine whether an allocation base is a good cost driver?

A) Whether or not the base can be measured in terms of 'hours'.
B) Whether or not the base can be applied plantwide.
C) Whether or not the base can be measured with absolute accuracy.
D) Whether or not there is a cause-and-effect relationship between the base and the overhead cost.

Question 34

Griffin Manufacturing uses job order costing to measure and track the costs incurred for specific jobs.While most of the jobs do require some machine time,Griffin has determined that direct labour cost drives its manufacturing overhead costs.During the month of August,the following data were available for Job #45:
$$\begin{array} { l l } \text { Direct labour } & \text { 200 hours at } \$15 \text { per hour } \\\text { Direct materials } & 90 \text { gallons at } \$ 6 \text { per gallon } \\\text { Machine hours used } & 100 \text { hours }\end{array}$$
If total overhead costs during the month totalled $4000 when a total of $20 000 in direct labour costs were incurred,what will be the total manufacturing cost of Job #45?

A) $4140
B) $3580
C) $7540
D) $3540

Question 35

What is the over/under application for the year,if machine hours is the overhead cost driver?

A) $16 000 over applied
B) $22 000 over applied
C) $16 000 under applied
D) $18 000 under applied

Question 36

Martin Manufacturing assigns overhead to jobs based on machine hours.At the beginning of the current year,estimated overhead costs were $200 000 and estimated machine hours were 40 000.During the year,140 machine hours were used on Job #88.By the end of the year,actual overhead costs were calculated to be $202 500 and actual machine hours were 45 000.
How much overhead was applied to Job #88 during the year?

A) $630.00
B) $708.75
C) $622.22
D) $700.00

Question 37

If James Ingram is a labour intensive company,and more overhead costs are caused by increasingly complex products that require more senior labour staff,what overhead driver would you suggest?

A) Floor space
B) Direct labour hours
C) Direct labour cost
D) Machine hours

Question 38

Rolling Hills Construction
Rolling Hills Construction Co. assigns overhead to specific jobs based on direct labour cost (dollars). The following information is available for the month of June:
$$\begin{array} { l l } \text { Estimated direct labour hours } & 2000 \text { hours } \\\text { Estimated direct labour cost per hour } & \$ 12 / \text { hour } \\\text { Estimated overhead costs } & \$ 3000 \\\text { Actual direct labour hours } & 2300 \text { hours } \\\text { Actual direct labour cost per hour } & \$ 13 \text { hour } \\\text { Actual overhead costs } & \$ 3300\end{array}$$

-The amount of overhead applied for June is:

A) $3450.00
B) $3000.00
C) $3737.50
D) $5900.00

Question 39

Benjamin Products uses job order costing and assigns overhead to specific jobs using direct labour hours.During the month of June,a total of 1800 direct labour hours at a cost of $14 per hour were incurred for all jobs.Actual overhead costs for the month totalled $4500.If a specific job required 32 direct labour hours of work,how much overhead should be applied to that job?

A) $179.20
B) $ 12.80
C) $ 80.00
D) $448.00

Question 40

Which of the following statements regarding plantwide overhead rates is true?

A) As the number of diverse products a company makes increases,the likelihood that a plantwide overhead rate will be accurate increases.
B) Plantwide overhead rates must use machine hours as their cost driver.
C) As the number of diverse products a company makes increases,the likelihood that a company will replace a plantwide overhead rate with a departmental overhead rate increases.
D) Plantwide overhead rates are usually more costly to prepare than a departmental overhead rate.

Question 41

For each of the following organisations,indicate which types might be best suited to job costing.
$\begin{array}{ll}\text { Hospital } & \text { Beverage producer } \\\text { Construction company } & \text { Law firm } \\\text { Clothing manufacturer } & \text { Drug manufacturer } \\\text { Oil refinery } & \text { Paint manufacturer }\end{array}$

Question 42

Collins Inc.applies overhead to jobs using direct labour hours.The following data are available for the year:
$\begin{array}{lr} \text { Estimated direct labour hours } &1000000\\ \text {Actual direct labour hours } &900000\\ \text {Overhead applied } &\$3600000\\ \text { Actual overhead } &\$2950000\\\end{array}$

What predetermined overhead rate did Collins use,and what is the cost allocated to Job ##123 that used 1000 direct labour hours?

Question 43

Samantha's Sundries Inc.assigns overhead to specific jobs based on machine hours.At the beginning of the current year,estimated overhead costs were $400 000 and estimated machine hours were 25 000.By the end of the year,actual overhead costs were calculated to be $375 000 and actual machine hours were 30 000.One of the jobs worked on during the year was Job #44 which used 10 machine hours.
How much overhead was applied to Job #44?

Question 44

What does it mean when overhead is over- or underapplied to a job? What costs are affected by this and what are the two different ways to adjust for the over- or underapplied amounts to jobs?

Question 45

Samantha's Sundries Inc.assigns overhead to specific jobs based on machine hours.At the beginning of the current year,estimated overhead costs were $400 000 and estimated machine hours were 25 000.By the end of the year,actual overhead costs were calculated to be $375 000 and actual machine hours were 30 000.
By how much was overhead under- or overapplied for the year?

Question 46

Why do companies develop estimates for overhead costs in job costing? How are estimates developed?

Question 47

Jason Cabinets produces cabinetry for offices around Adelaide CBD.The company adds overhead costs to cabinetry jobs at the rate of $5.00 per direct labour hour.The company accumulates overhead costs in a separate manufacturing overhead account and applies overhead costs to products from this account into the WIP for jobs.The following data provide details of the company's activity and balances during the last half of the year:
$\begin{array}{|l|c|c|}\hline & \text { 1 July} & 31 \text { December } \\\hline \text { Direct materials inventory } &\$75000& \$78000\\\hline \text { Work in process inventory } &48000 &42000 \\ \hline\text { Finished goods inventory} &35000&33000\\\hline \text { Monthly production data: } && \\\hline \text { Direct materials purchased } &\$223& \\ \hline \text {Direct labour costs ( \( \$ 20 / \mathrm{hr} \).) } &\$300000\\ \hline\end{array}$

Required:
A. Calculate the cost of direct materials used during the period.
B. Calculate the cost of goods manufactured during the period.
C. At the end of December, Jason found that it had actually incurred overhead costs of $\$ 80 000$ . What is Jason's cost of goods sold after adjustment?

Question 48

Maxiset Constructions applies overhead to jobs using machine hours.The following data are available for the year: $\begin{array}{lr}\text { Estimated machine hours } & 200000 \\\text { Actual machine hours } & 150000 \\\text { Actual overhead } & \$ 750000\end{array}$
At the end of the year,it was determined that overhead was underapplied by $150 000.
Required:
A. What was the total applied overhead for the year?
B. What was the predetermined overhead rate?

Question 49

What is the formula for calculating the predetermined overhead rate when determining job costs? How is the rate used in job costing?

Question 50

Triangle Catering assigns overhead to specific jobs based on direct labour hours.At the beginning of the current year,estimated overhead costs were $500 000 and estimated direct labour hours were 40 000.By the end of the year,actual overhead costs were calculated to be $525 000 and actual direct labour hours were 45 000.
Required:
A. Calculate the predetermined overhead rate.
B. How much overhead would be applied to a particular catering job that required 15 direct labour hours?
C. How much total overhead was applied during the year?
D. By how much was overhead over- or underapplied for the year? Be sure to indicate whether it was over- or underapplied.

Question 51

Which of the following types of costs would be classified as a product cost in a job order costing system? Check those that apply.
$$\begin{array} { l l l } \text { indirect materials } &\underline{\quad\quad\quad\quad}& \text { direct materials }&\underline{\quad\quad\quad\quad} \\\text { administrative coerhead } &\underline{\quad\quad\quad\quad}& \text { manufacturing overhead }&\underline{\quad\quad\quad\quad} \\\text { direct labour } &\underline{\quad\quad\quad\quad}& \text { advertising costs }&\underline{\quad\quad\quad\quad} \\\text { indirect labour } &\underline{\quad\quad\quad\quad}& \text { sales commissions }&\underline{\quad\quad\quad\quad}\end{array}$$

Question 52

Stacey Quilts manufactures high value,custom-made quilts.The company assigns overhead to specific jobs based on direct labour costs.At the beginning of the current year,estimated overhead costs were $2 500 000 and estimated DL costs was 2 000 000.By the end of the year,actual overhead costs were calculated to be $1 900 000 and actual DL costs was 1 800 000.
Required:
A. Calculate the predetermined overhead rate.
B. How much overhead would be applied to a particular job that required $\$ 250$ in DL costs?
C. How much total overhead was applied during the year?
D. By how much was overhead over- or underapplied for the year? Be sure to indicate whether it was over- or underapplied.

Question 53

Sherrell Inc.applies overhead to jobs using direct labour hours.The following data are available for the year:
$\begin{array}{lr}\text { Estimated direct labour hours } & 190000 \\\text { Actual direct labour hours } & 130000 \\\text { Actual overhead } & \$ 600000\end{array}$

At the end of the year,it was determined that overhead was over-applied by $50 000.
Required: A. What was the total applied overhead for the year?
B. What was the predetermined overhead rate?

Question 54

The following data are available for Johnson machine builders:
$\begin{array}{lr}\text { Estimated direct labour hours } & 200000 \\\text { Applied overhead } & \$ 750000\end{array}$

The applied overhead rate is $5 per direct labour hour.
Required:
A. What was the actual direct labour hours for the year?
B. How would your answer to Part A change, if the applied overhead rate was 40 per cent less than given in the question?

Question 55

Greenlaw Products uses job order costing and applies overhead to products using direct labour hours.Greenlaw has determined that their predetermined overhead is $4.00 per direct labour hour when an estimated 200 000 direct labour hours are incurred.
During 2009 Greenlaw actually incurred a total of 215 000 direct labour hours and actual overhead costs ended up being $900 000.
Greenlaw has no ending work-in-process or finished goods inventories.
Required:
A. What were Greenlaw's estimated total overhead costs for the year?
B. By how much was overhead over or under-applied?
C. Assuming that cost of goods sold was $\$ 3000000$ prior to the adjustment for over- or underapplied overhead, what will be the cost of goods sold amount after the year-end adjustment?

Question 56

Brian James Productions purchased $13 000 in direct materials in June.There was $7000 in direct materials at the end of May,and $3000 in direct materials at the end of June.Additionally,indirect labour costs of $13 000 were incurred in June.Manufacturing costs are $125 000 and manufacturing overhead was 30 per cent of conversion costs.
Required:
What is the direct labour cost for May?

Question 57

Explain the term 'cost driver' and give several examples.

Question 58

Jason Harmon,an employee with Nelson Products,earned a gross wage of $825 for the 50 hours he worked last week.Jason earns $15 per hour and is paid time-and-a-half for overtime.
In addition,Nelson paid $100 for Jason's health insurance.The following chart shows a breakdown of Jason's time worked:
$\begin{array}{cc} \text {Hours worked on a specitic job } &47\\ \text { Hours spent as 'idle' } &\underline{3}\\\text { Total hours worked } &50\\\end{array}$

Discuss how the company should allocate Jason's wage and health insurance costs to products.

Question 59

Pioria Products assigns overhead to specific jobs based on machine hours.At the beginning of the current year,estimated overhead costs were $2 150 000 and estimated machine hours were 500 000.By the end of the year,actual overhead costs were calculated to be $1 900 000 and actual machine hours were 475 000.
Required:
A. Calculate the predetermined overhead rate.
B. How much overhead would be applied to a particular job that required 315 machine hours?
C. How much total overhead was applied during the year?
D. By how much was overhead over- or underapplied for the year? Be sure to indicate whether it was over- or underapplied.

Question 60

What is the purpose of a job cost report and what are some of the items that should be found on one?