Question 1

Which of the following statements about using a plantwide overhead rate based on direct labor is correct?

Accepted Answer

Using a plantwide overhead rate based on direct labor-hours may not be accurate as it assumes that all manufacturing overhead costs are directly related to the amount of direct labor-hours used. However, it is often not the case as there could be other cost drivers such as machine hours, setups, or material handling. Therefore, it is often overly simplistic and incorrect to assume that direct labor-hours is a company's only manufacturing overhead cost driver.

Question 2

Giannitti Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. Data for the upcoming year appear below:  The predetermined overhead rate for the recently completed year was closest to:

Accepted Answer

The answer of Giannitti Corporation bases its predetermined overhead rate...

Question 3

Gilchrist Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. At the beginning of the most recently completed year, the Corporation estimated the machine-hours for the upcoming year at 37,200 machine-hours. The estimated variable manufacturing overhead was $5.94 per machine-hour and the estimated total fixed manufacturing overhead was $1,028,580. The predetermined overhead rate for the recently completed year was closest to:

Accepted Answer

The predetermined overhead rate is calculated as follows:

Predetermined Overhead Rate = (Estimated Variable Manufacturing Overhead + Estimated Fixed Manufacturing Overhead) / Estimated Machine-Hours

= ($5.94 per machine-hour x 37,200 machine-hours) + $1,028,580 / 37,200 machine-hours

= $221,128.80 / 37,200 machine-hours

= $5.94 + $27.65

= $33.59 per machine-hour

Therefore, the closest answer is A) $33.59 per machine-hour.

Question 4

Most countries require some form of absorption costing for external reports.

Accepted Answer

Absorption costing is generally required by law or accounting standards for external reports in most countries.

Question 5

Which of the following is the correct formula to compute the predetermined overhead rate?

Accepted Answer

The predetermined overhead rate is calculated by dividing the estimated total manufacturing overhead costs by the estimated total units in the allocation base.

Question 6

Which of the following would usually be found on a job cost sheet under a normal cost system?

Accepted Answer

The answer of Which of the following would usually be...

Question 7

If the predetermined overhead rate is based on the estimated level of activity for the current period, then products will be charged only for the capacity that they use and will not be charged for the capacity they don't use.

Accepted Answer

The predetermined overhead rate is calculated based on estimated levels of activity and overhead costs, not actual usage, meaning products are charged based on estimates, not solely on the capacity they use.

Question 8

When the predetermined overhead rate is based on the level of activity at capacity, an item called the Cost of Unused Capacity may appear to be treated as a period expense on income statements prepared for internal management use.

Accepted Answer

The Cost of Unused Capacity is considered a period expense because it represents the fixed costs that are incurred even when production levels are below full capacity. As such, it is not directly related to the production of a specific product and is therefore treated as a period expense on internal management income statements.

Question 9

Dearden Corporation uses a job-order costing system with a single plantwide predetermined overhead rate based on machine-hours. The company based its predetermined overhead rate for the current year on total fixed manufacturing overhead cost of $144,000, variable manufacturing overhead of $2.00 per machine-hour, and 60,000 machine-hours. The predetermined overhead rate is closest to:

Accepted Answer

To calculate the predetermined overhead rate, we add the total fixed manufacturing overhead cost ($144,000) to the variable manufacturing overhead cost per machine-hour ($2.00) and divide by the total machine-hours (60,000):

(($144,000 + ($2.00 x 60,000)) / 60,000) = $4.40 per machine-hour

Question 10

Baj Corporation uses a predetermined overhead rate base on machine-hours that it recalculates at the beginning of each year. The company considers all of its manufacturing overhead costs to be fixed and it has provided the following data for the most recent year.  The predetermined overhead rate per machine-hour would be closest to:

Accepted Answer

The answer of Baj Corporation uses a predetermined overhead rate...

Question 11

Assigning manufacturing overhead to a specific job is complicated by all of the below except:

Accepted Answer

Manufacturing overhead is not only incurred to support some jobs, it is also incurred to support the overall manufacturing process. Therefore, assigning it to a specific job can be complicated as it may involve allocating the overhead based on various factors such as machine usage, direct labor hours or material cost. Choices A, C, and D are all valid reasons why assigning manufacturing overhead to a specific job is complicated.

Question 12

Giannitti Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. Data for the upcoming year appear below:  The predetermined overhead rate for the recently completed year was closest to:

Accepted Answer

The answer of Giannitti Corporation bases its predetermined overhead rate...

Question 13

Gilchrist Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. At the beginning of the most recently completed year, the Corporation estimated the machine-hours for the upcoming year at 79,000 machine-hours. The estimated variable manufacturing overhead was $7.38 per machine-hour and the estimated total fixed manufacturing overhead was $2,347,090. The predetermined overhead rate for the recently completed year was closest to:

Accepted Answer

The predetermined overhead rate is calculated by adding the estimated variable manufacturing overhead per machine-hour to the estimated total fixed manufacturing overhead divided by the estimated machine-hours. This gives ($7.38 + $2,347,090 / 79,000) = $37.09 per machine-hour.

Question 14

When the fixed costs of capacity are spread over the estimated activity of the period rather than the level of activity at capacity, the units that are produced must shoulder the costs of unused capacity.

Accepted Answer

This statement is true. When fixed costs of capacity are spread over the estimated activity level, any unused capacity is still included in the calculation of the overhead rate. This means that the units produced will be charged for a portion of the fixed costs, even if the actual production levels do not require the use of all the available capacity.

Question 15

Johansen Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. The Corporation has provided the following estimated costs for the next year:  Jameson estimates that 20,000 direct labor-hours will be worked during the year. The predetermined overhead rate per hour will be:

Accepted Answer

The answer of Johansen Corporation uses a predetermined overhead rate...

Question 16

Purves Corporation is using a predetermined overhead rate that was based on estimated total fixed manufacturing overhead of $121,000 and 10,000 direct labor-hours for the period. The company incurred actual total fixed manufacturing overhead of $113,000 and 10,900 total direct labor-hours during the period. The predetermined overhead rate is closest to:

Accepted Answer

The predetermined overhead rate is calculated by dividing the estimated total fixed manufacturing overhead ($121,000) by the estimated total direct labor-hours (10,000). This gives $121,000 / 10,000 = $12.10 per direct labor-hour.

Question 17

Longobardi Corporation bases its predetermined overhead rate on the estimated labor-hours for the upcoming year. At the beginning of the most recently completed year, the Corporation estimated the labor-hours for the upcoming year at 35,700 labor-hours. The estimated variable manufacturing overhead was $5.93 per labor-hour and the estimated total fixed manufacturing overhead was $805,392. The actual labor-hours for the year turned out to be 33,200 labor-hours. The predetermined overhead rate for the recently completed year was closest to:

Accepted Answer

The predetermined overhead rate is calculated by dividing the total estimated manufacturing overhead (fixed + variable) by the estimated labor-hours. Total estimated overhead = $805,392 (fixed) + ($5.93 * 35,700) (variable) = $1,017,591. Predetermined overhead rate = $1,017,591 / 35,700 = $28.49 per labor-hour.

Question 18

The Silver Corporation uses a predetermined overhead rate to apply manufacturing overhead to jobs. The predetermined overhead rate is based on labor cost in Department A and on machine-hours in Department B. At the beginning of the year, the Corporation made the following estimates:  What predetermined overhead rates would be used in Department A and Department B, respectively?

Accepted Answer

To calculate the predetermined overhead rate for Department A, we divide the estimated manufacturing overhead cost by the estimated labor cost:
$180,000 / $120,000 = 150%
To calculate the predetermined overhead rate for Department B, we divide the estimated manufacturing overhead cost by the estimated machine-hours:
$90,000 / 30,000 = $3.00
Therefore, the predetermined overhead rate for Department A is 150% and for Department B is $3.00, which is only given in option C.

Question 19

Which of the following statements is not correct concerning multiple overhead rate systems?

Accepted Answer

In departments that are relatively labor-intensive, their overhead costs should be applied to jobs based on direct labor-hours rather than on machine-hours, as the main driver of overhead costs in these departments is likely to be labor-related rather than machine-related. Therefore, statement D is not correct. Statements A, B, and C are all correct.

Question 20

Reamer Corporation uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The Corporation has provided the following estimated costs for next year:  Reamer estimates that 500 direct labor-hours and 1,000 machine-hours will be worked during the year. The predetermined overhead rate per hour will be:

Accepted Answer

The answer of Reamer Corporation uses a predetermined overhead rate...

Quiz 2: Job-Order Costing: Calculating Unit Product Costs