Deck 17: Job Order Cost Systems and Overhead Allocations

Question 1

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

Answer 1

True

Question 2

If actual overhead costs are less than the amount of overhead applied to production, this indicates that manufacturing overhead is over-applied.

Answer 2

True

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.

Answer 3

False

Question 4

A job order cost system requires the cost of direct materials, direct labor, and manufacturing overhead applicable to each department or process for a given time period be compiled.

Question 5

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

Question 6

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.

Question 7

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.

Question 8

A debit balance in the Manufacturing Overhead account at the end of the period indicates that overhead has been under-applied to jobs.

Question 9

Activity-based costing uses multiple activity bases to assign overhead costs to units of production.

Question 10

Overhead application rates allow overhead to be assigned at the completion of a period to help set prices.

Question 11

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

Question 12

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

Question 13

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

Question 14

If the manufacturing overhead account at month end has a credit balance before adjustment, this indicates that overhead is under-applied.

Question 15

An increase in an activity base must cause an increase in actual overhead costs incurred for that base to be considered a cost driver.

Question 16

The two steps required in activity-based costing are identifying separate activity cost pools and allocating each cost pool to the product using an appropriate cost driver.

Question 17

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

Question 18

The new manufacturing environment is characterized by its shift toward labor intensive production and declining manufacturing overhead costs.

Question 19

Activity-based costing tracks cost to the activities that consume resources.

Question 20

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

Question 21

When a job is completed:

A) Cost of goods sold is debited.
B) Work-in-process inventory is debited.
C) Finished goods inventory is credited.
D) None of the above.

Question 22

Activity-based costing systems always result in more accurate measurements of unit costs.

Question 23

Which of the following is a characteristic of manufacturing overhead in a job order cost system?

A) It is indirectly traceable to specific jobs or units.
B) It includes the cost of all labor relating to manufacturing operations.
C) It is assigned to units produced by means of an overhead application rate.
D) It includes the cost of direct materials used and of indirect labor.

Question 24

Which of the following costing systems would always use job cost sheets?

A) Job order costing.
B) Process costing.
C) Activity-based costing.
D) All three systems.

Question 25

In a job cost system, the Work-in-Process Inventory controlling account may be reconciled to the total of the:

A) Employee time cards.
B) Materials requisitions.
C) Work-in-Process Inventory records for each department or process.
D) Job cost sheets.

Question 26

A job order cost system would be appropriate in the manufacturing of:

A) Paints.
B) Custom-made furniture.
C) Breakfast cereal.
D) Standard-grade plywood.

Question 27

A job cost sheet should:

A) Contain information that summarizes all jobs finished.
B) Contain information on each individual job in process.
C) Contain only the direct costs of a particular job.
D) Only be used for jobs that have been completed.

Question 28

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 was $15,000.
Correct answer would have been $22,545 x 0.65 = $14,654.25

Question 29

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

Question 30

Job order costing cannot be used for a service company.

Question 31

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.

Question 32

A job order cost system traces direct materials cost to a particular job by means of:

A) Materials requisitions.
B) A production budget.
C) The Materials Inventory controlling account.
D) A debit to the job cost sheet for the job.

Question 33

The year-end balance in the Materials Inventory controlling account is equal to:

A) The total of the various materials subsidiary ledger accounts (the materials on hand at the end of the period.)
B) The total amount of materials requisitioned during the period.
C) The total amount of materials purchased during the period.
D) The amount of materials debited to the Work-in-Process Inventory account during the period.

Question 34

The basic types of cost accounting systems are:

A) Job order cost systems, activity based cost systems, and process cost systems.
B) Direct cost systems and indirect cost systems.
C) Completed job cost systems and work in process cost systems.
D) Fixed cost systems and variable cost systems.

Question 35

The employee time card for John Winter indicates that he spent last week performing routine maintenance on factory machinery. Payments made to Winter for last week's work should be:

A) Debited to Work in Process Inventory.
B) Credited to the Direct Labor account.
C) Debited to the Direct Labor account.
D) Debited to the Manufacturing Overhead account.

Question 36

A job cost sheet usually contains a record of each of the following except:

A) The cost of direct materials charged to a particular job.
B) The overhead costs actually incurred on a particular job.
C) The cost of direct labor charged to a particular job.
D) The overhead cost applied to a particular job.

Question 37

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.

Question 38

Metalworks employs 3 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.
77 direct labor hours x $9 = $693.

Question 39

In activity-based costing, only one cost driver should be used in applying overhead.

Question 40

Under a job order cost system, costs are accumulated for:

A) Each department in the production cycle.
B) Each batch of production, known as a job or lot.
C) Each individual unit produced.
D) Each job supervisor.

Question 41

At the end of the accounting period, applied overhead was larger than actual overhead by a material amount. The over-applied overhead should be:

A) Treated as an extraordinary gain.
B) Treated as an extraordinary loss.
C) Apportioned among Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold.
D) Ignored; actual overhead is determined only for internal control purposes.

Question 42

Manufacturing overhead is not:

A) A product cost.
B) An indirect cost.
C) A manufacturing cost.
D) A period cost.

Question 43

Overhead costs are assigned to production using an overhead application rate, whereas no such "application rate" is used to assign the costs of direct materials and direct labor to production. The reason for this difference in procedures is that:

A) Overhead is an indirect cost which cannot be traced easily and directly to specific units of product.
B) Overhead is always larger in dollar amount than either direct materials or direct labor.
C) The amounts of direct material and direct labor applicable to each unit of production cannot be determined as easily as the amount of overhead.
D) Overhead is always equal to a constant percentage of direct labor costs.

Question 44

Using machine hours to assign manufacturing overhead to a labor intensive product line is likely to:

A) Over-apply overhead to the product line.
B) Under-apply overhead to the product line.
C) Understate direct labor costs.
D) Overstate direct labor costs.

Question 45

An activity base is said to be a "driver" of overhead costs when the activity base:

A) Is independent of the amount of overhead cost incurred.
B) Results in an overhead application rate greater than 100%.
C) Is a causal factor in the amount of overhead cost incurred.
D) Is the largest of the various types of expenditures classified as manufacturing overhead.

Question 46

Which of the following is not a commonly used cost accounting system?

A) Manufacturing yield costing.
B) Job order costing.
C) Process costing.
D) Activity-based costing.

Question 47

An activity-based costing system would probably not be appropriate if:

A) A company produces more than one product line.
B) A company produces only one product.
C) A company is highly automated.
D) A company has more than one production facility.

Question 48

The advantage of using a predetermined overhead application rate is that:

A) Units produced are charged with a "normal" amount of manufacturing overhead regardless of whether they are produced in a high-volume month or a low-volume month.
B) Overhead costs will be limited to the predetermined amount.
C) Entries need not be made to record actual overhead costs incurred.
D) The unit cost of production will be lower than it would be if actual overhead costs were assigned to units produced.

Question 49

Under-applied overhead at the end of a month:

A) Results when actual overhead costs are less than amounts applied to work in process.
B) Indicates a poorly designed cost accounting system.
C) Is represented by a debit balance remaining in the Manufacturing Overhead account.
D) Is represented by a credit balance remaining in the Manufacturing Overhead account.

Question 50

Debits to the Manufacturing Overhead account record:

A) The actual amounts of overhead costs incurred during a period.
B) The amount of overhead applied to production during a period.
C) The amount of overhead incurred on a specific job.
D) All conversion costs of a period.

Question 51

Which of the following statements is true about activity-based costing?

A) Only one activity should be used for a company.
B) Many different activity bases are used in applying overhead.
C) There can only be one cost driver.
D) Direct materials and direct labor are applied to work-in-process based upon cost drivers.

Question 52

In an activity-based costing system, manufacturing overhead costs are divided into separate:

A) Cost drivers.
B) Activity cost pools.
C) Activity bases.
D) Indirect cost centers.

Question 53

Which of the following would likely be the most appropriate cost driver to allocate machinery set-up costs to products?

A) Machine hours.
B) Direct labor hours.
C) Number of production runs.
D) Repair work orders.

Question 54

A predetermined overhead application rate:

A) Is used in a job order cost system but cannot be used in a process cost system.
B) Can be determined by dividing budgeted direct labor cost by the budgeted factory overhead costs.
C) Is not generally accepted for financial reporting purposes.
D) Tends to avoid wide variations in per-unit overhead costs because of short-run changes in volume.

Question 55

The cost of salaries paid to employees who work in a factory maintaining the heating system is considered:

A) Direct labor.
B) Indirect materials.
C) Factory overhead.
D) General and administrative costs.

Question 56

All of the following are advantages of developing a predetermined overhead application rate except:

A) Short-run fluctuations in volume of output are normalized.
B) In a job order system, unit costs can be determined as soon as jobs are completed.
C) The overhead application rate facilitates assigning overhead costs to the ending inventory of work in process.
D) Actual overhead will always be less than applied overhead.

Question 57

Manufacturing overhead is:

A) A direct cost that can traced to a specific job.
B) An indirect cost that can be traced to a specific job.
C) A direct cost that cannot be traced to a specific job.
D) An indirect cost that cannot be traced to a specific job.

Question 58

The type of cost accounting system best suited to a particular company depends on:

A) The nature of the company's manufacturing operations.
B) The requirements set forth by the FASB.
C) Government regulations.
D) The type of cost drivers available.

Question 59

If manufacturing overhead is materially over-applied, it is best to close it to:

A) Work-in-process inventory.
B) Finished goods inventory.
C) Cost of goods sold.
D) Apportioned among work-in-process, finished goods, and cost of goods sold.

Question 60

Benefits of activity-based costing include all of the following except:

A) More accurate measures of product costs.
B) More accurate evaluations of product profitability.
C) A better understanding of what "drives" manufacturing overhead costs.
D) More subjective product pricing decisions.

Question 61

The Work in Process account in a job order cost accounting system will be debited for:

A) Only direct labor and direct materials.
B) Direct labor, direct materials, and applied overhead.
C) Direct labor, direct materials, and actual overhead.
D) Only direct materials and applied overhead.

Question 62

A job order cost system would be suitable for which of the following:

A) A manufacturer of laundry detergent.
B) A manufacturer of candy bars.
C) A sugar refinery.
D) A sailboat builder.

Question 63

Moran Company uses a job order cost system and has established a predetermined overhead application rate for the current year of 150% of direct labor cost, based on budgeted overhead of $900,000 and budgeted direct labor cost of $600,000. Job no. 1 was charged with direct materials of $36,000 and with overhead of $27,000. What is the total cost of job no. 1?

A) $64,000.
B) $81,000.
C) $91,000.
D) Cannot be determined without additional information.

Question 64

The predetermined overhead application rate at Capri Boat is what percentage of direct labor costs?

A) 38%.
B) 62%.
C) 260%.
D) 580%.

Question 65

The amount of overhead costs applied to Job #007 during March was:

A) $90,000.
B) $26,250.
C) $65,000.
D) $60,000.

Question 66

Edwards Auto Body uses a job order cost system. Overhead is applied to jobs on the basis of direct labor hours. During the current period, Job No. 337 was charged $425 in direct materials, $475 in direct labor, and $190 in overhead. If direct labor costs an average of $16 per hour, the company's overhead application rate is:

A) $7.27 per direct labor hour.
B) $6.40 per direct labor hour.
C) $17.50 per direct labor hour.
D) $40 per direct labor hour.

Question 67

Refer to the above data. If Riverview applies overhead using a predetermined rate based on labor-hours, what amount of overhead will be assigned to a unit of output which requires 0.5 machine hours and 0.25 labor hours to complete?

A) $16.00.
B) $30.00.
C) $20.00.
D) Some other amount.

Question 68

The document that provides information for the cost of goods manufactured is:

A) The job cost sheet.
B) Time cards.
C) Material requisition.
D) Payroll check.

Question 69

The journal entry to transfer the completed Jefferson Apartments project to Canfield's finished goods inventory would include:

A) A debit to the Finished Goods Inventory account of $975,000.
B) A debit to the Finished Goods Inventory account of $2,625,000.
C) A debit to the Finished Goods Inventory account of $1,650,000.
D) A credit to the Work-in-Process Inventory account of $2,175,000.

Question 70

The journal entry made by Canfield to record the sale of the Jefferson Apartments project to King Development Company for $5,250,000 would include:

A) A debit to Sales of $5,250,000.
B) A debit to Cost of Goods Sold of $2,625,000.
C) A credit to Finished Goods Inventory of $975,000.
D) A debit to Finished Goods Inventory of $975,000.

Question 71

The amount of direct materials cost charged to completed jobs during March was:

A) $20,000.
B) $50,000.
C) $30,000.
D) Some other amount.

Question 72

Refer to the above data. If Riverview applies overhead using a predetermined rate based on machine-hours, what amount of overhead will be assigned to a unit of output which requires 0.5 machine hours and 0.25 labor hours to complete?

A) $12.00.
B) $16.00.
C) $20.00.
D) Some other amount.

Question 73

A job cost sheet will include:

A) All raw materials purchased.
B) Actual overhead.
C) Direct labor applied to production.
D) Selling costs.

Question 74

The account Finished Goods:

A) Consists of completed goods that have not yet been sold.
B) Consists of goods being manufactured that are incomplete.
C) Consists of materials to be used in the production process.
D) Consists of the cost of new materials used, labor but not overhead.

Question 75

Doyle Co. uses a job order cost accounting system. At year-end the Work-in-Process Inventory controlling account showed a debit balance of $43,125. For the two jobs in process at year-end, one showed $6,000 in direct materials and $4,500 in direct labor. The job cost sheet for the second job showed $9,000 in direct materials and $6,750 in direct labor. If the company is using a predetermined overhead application rate based on direct labor cost, the rate is:

A) 50%.
B) 100%.
C) 150%.
D) 200%.

Question 76

The account Work-in-Process Inventory:

A) Consists of completed goods that have not yet been sold.
B) Consists of goods being manufactured that are incomplete.
C) Consists of materials to be used in the production process.
D) Consists of the cost of new materials used, labor but not overhead.

Question 77

Overhead applied to the Jefferson Apartments project amounted to:

A) $450,000.
B) $650,000.
C) $975,000.
D) Some other amount.

Question 78

An effective cost accounting system should match processes with the _____ used in order to maintain competitive advantage. Select the best answer to complete the sentence.

A) sales
B) shareholders
C) resources
D) disbursements

Question 79

The journal entry which accounts for the $300,000 transferred out of Work in Process account includes a debit of $300,000 to:

A) Finished Goods.
B) Cost of Goods Sold.
C) Accounts Receivable.
D) Sales.

Question 80

Marty's Metal Shop uses a job order cost system. It applies overhead to jobs at a rate of 175% of direct labor costs. Job No. 2617 required $800 in direct labor costs. The job was initially budgeted to require $850 in direct labor costs. Overhead applied to Job No. 2617 during the period amounted to:

A) $850.
B) $1,400.
C) $1,275.
D) Some other amount.