Question 1

In a job-order costing system,when a job remains incomplete at the end of a period,how is the amount of overhead cost that has been applied to that job treated?

Accepted Answer

When a job remains incomplete at the end of a period, the amount of overhead cost that has been applied to that job is treated as part of the ending balance of the Work in Process inventory account. This is because the job has not yet been completed and therefore the overhead cost cannot yet be transferred to Finished Goods or Cost of Goods Sold.

Question 2

Kelsh Company uses a predetermined overhead rate based on machine hours to apply manufacturing overhead to jobs.The company has provided the following estimated costs for next year:
$\begin{array}{|l|r|}
\hline \text { Direct materials } & \$ 10,000 \
\hline \text { Direct labour } & 30,000 \
\hline \text { Sales commissions } & 40,000 \
\hline \text { Salary of production supervisor } & 20,000 \
\hline \text { Indirect materials } & 4,000 \
\hline \text { Advertising expenses } & 8,000 \
\hline \text { Rent on factory equipment } & 10,000 \
\hline
\end{array}$
Kelsh estimates that 5,000 direct labour hours and 10,000 machine hours will be worked during the year.What will be the predetermined overhead rate per hour?

Accepted Answer

C

Question 3

(Appendix 5A)Which level of activity,if used to set a predetermined overhead rate,may encourage managers to increase selling prices as demand falls?

Accepted Answer

Using the capacity (maximum) level of activity to set a predetermined overhead rate can encourage managers to increase selling prices as demand falls because it spreads fixed costs over a larger number of units, lowering the cost per unit. However, if demand falls and fewer units are sold, the fixed costs allocated to each unit increase, potentially leading managers to raise prices to cover these higher per-unit costs.

Question 4

Carlo Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs.The company estimated manufacturing overhead at $255,000 for the year and direct labour hours at 100,000 hours.Actual manufacturing overhead costs incurred during the year totalled $270,000; actual direct labour hours were 105,000.What was the overapplied or underapplied overhead for the year?

Accepted Answer

Firstly, we need to calculate the predetermined overhead rate, which is calculated as follows: 
Predetermined overhead rate = Estimated manufacturing overhead / Estimated direct labour hours 
= $255,000 / 100,000 hours 
= $2.55 per direct labour hour

Now, we can use this rate to calculate the amount of overhead that should have been applied to the actual number of direct labour hours worked: 
Overhead applied = Predetermined overhead rate x Actual direct labour hours 
= $2.55 x 105,000 hours 
= $267,750

However, we know that actual manufacturing overhead incurred was $270,000. Therefore, overhead was underapplied, because more actual overhead was incurred than was applied to jobs. 
Underapplied overhead = Actual overhead incurred - Overhead applied 
= $270,000 - $267,750 
= $2,250 underapplied

Question 5

The Work in Process inventory account of a manufacturing company shows a balance of $2,400 at the end of an accounting period.The job cost sheets of two uncompleted jobs show charges of $400 and $200 for direct materials and charges of $300 and $500 for direct labour.From this information,what predetermined overhead rate,as a percentage of direct labour costs,does the company appear to be using?

Accepted Answer

The total direct materials cost is $400 + $200 = $600, and the total direct labor cost is $300 + $500 = $800. The total cost of the uncompleted jobs is $600 + $800 = $1,400. Given the Work in Process inventory balance is $2,400, the overhead applied to these jobs is $2,400 - $1,400 = $1,000. The overhead rate as a percentage of direct labor costs is $1,000 / $800 = 125%.

Question 6

Which of the following statements is true if a company applies overhead to jobs on the basis of a predetermined overhead rate and reports a credit balance in the Manufacturing Overhead account at the end of any period?

Accepted Answer

A credit balance in the Manufacturing Overhead account indicates that more overhead has been applied to jobs than the actual overhead costs incurred, meaning more overhead cost has been charged to jobs than has been incurred during the period.

Question 7

Harrell Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs.At the beginning of the year,the company estimated its total manufacturing overhead cost at $400,000 and its direct labour hours at 100,000 hours.The actual overhead cost incurred during the year was $350,000 and the actual direct labour hours incurred on jobs during the year was 90,000 hours.What would be the manufacturing overhead for the year?

Accepted Answer

The answer of Harrell Company uses a predetermined overhead rate...

Question 8

Sawyer Manufacturing Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs.Last year,the company worked 57,000 actual direct labour hours and used 40,000 machine hours.The company had estimated that it would work 55,000 direct labour hours using 44,000 machine hours during the year and incur $330,000 of manufacturing overhead cost.What was the company's manufacturing overhead applied for the year?

Accepted Answer

The predetermined overhead rate is calculated as: Estimated manufacturing overhead cost / Estimated direct labor hours = $330,000 / 55,000 = $6 per direct labor hour. The manufacturing overhead applied is then calculated as: Actual direct labor hours x Predetermined overhead rate = 57,000 x $6 = $342,000.

Question 9

In a normal job-order costing system,the use of indirect materials would usually be recorded as a debit to which account?

Accepted Answer

Indirect materials are materials that are not directly used in the production of a product, but are still necessary for production to occur. These materials are typically recorded as part of manufacturing overhead, which includes all indirect costs associated with production. Therefore, the use of indirect materials would be recorded as a debit to the Manufacturing Overhead account.

Question 10

The Watts Company uses predetermined overhead rates to apply manufacturing overhead to jobs.The predetermined overhead rate is based on labour cost in Department A and on machine hours in Department B.At the beginning of the year,the company made the following estimates: $\begin{array}{|l|r|r|}
\hline & \text { Department A } & \text { Department B } \
\hline \text { Direct labour cost } & \$ 30,000 & \$ 40,000 \
\hline \text { Manufacturing overhead } & \$ 60,000 & \$ 50,000 \
\hline \text { Direct labour hours } & 6,000 & 8,000 \
\hline \text { Machine hours } & 2,000 & 10,000 \
\hline
\end{array}$ What predetermined overhead rates would be used in Departments A and B,respectively?

Accepted Answer

Dept. A's rate is calculated as $60,000 / $30,000 = 200%. Dept. B's rate is calculated as $50,000 / 10,000 machine hours = $5 per machine hour.

Question 11

Kelly Sportswear manufactures a specialty line of T-shirts.The company uses a job-order costing system.During March,the following costs were incurred on Job 1052:
$$\begin{array} { | l | r | } 
\hline \text { Direct materials: } & \$ 13,700 \
\hline \text { Direct labour: } & \$ 4,800 \
\hline
\end{array}$$
Manufacturing overhead was applied at the rate of $25 per machine hour,and Job 1052 required 800 machine hours.In addition,selling and shipping costs of $7,000 were incurred.Job 1052 consisted of 7,000 shirts and was completed on March 24.The total cost of job 1052 transferred from Work in Process to Finished Goods on March 24 is:

Accepted Answer

The total cost of Job 1052 includes direct materials cost, direct labor cost, applied manufacturing overhead cost, and selling and shipping costs. 
Direct Materials Cost = $56,000 
Direct Labor Cost = $16,800 
Applied Manufacturing Overhead Cost= $20,000 ($25 per machine hour * 800 machine hours) 
Selling and Shipping Costs= $7,000 
Total Cost of Job 1052= Direct Materials Cost+ Direct Labor Cost + Applied Manufacturing Overhead Cost + Selling and Shipping Costs= $56,000 + $16,800 + $20,000 + $7,000 = $99,800 
Therefore, the best choice is B, $38,500, which is the total cost of Job 1052 transferred from Work in Process to Finished Goods on March 24.

Question 12

Compton Company uses a predetermined overhead rate in applying overhead to production orders on a labour cost basis in Department A and on a machine hours basis in Department B.At the beginning of the most recently completed year,the company made the following estimates: $\begin{array}{|l|r|r|}
\hline & \text { Department A } & \text { Department B } \
\hline \text { Direct labour cost } & \$ 56,000 & \$ 33,000 \
\hline \text { Manufacturing overhead } & \$ 67,200 & \$ 45,000 \
\hline \text { Direct labour hours } & 8,000 & 9,000 \
\hline \text { Machine hours } & 4,000 & 15,000 \
\hline
\end{array}$ What predetermined overhead rate would be used in Departments A and B,respectively?

Accepted Answer

The predetermined overhead rate for Department A is calculated as $67,200 / $56,000 = 120%, and for Department B as $45,000 / 15,000 machine hours = $3.00 per machine hour.

Question 13

Simplex Company has the following estimated costs for next year:
$\begin{array}{|l|r|}
\hline \text { Direct materials } & \$ 15,000 \
\hline \text { Direct labour } & 55,000 \
\hline \text { Sales commissions } & 75,000 \
\hline \text { Salary of production supervisor } & 35,000 \
\hline \text { Indirect materials } & 5,000 \
\hline \text { Advertising expenses } & 11,000 \
\hline \text { Rent on factory equipment } & 16,000 \
\hline
\end{array}$
Simplex estimates that 10,000 direct labour and 16,000 machine hours will be worked during the year.If overhead is applied on the basis of machine hours,what will be the overhead rate per hour?

Accepted Answer

The answer of Simplex Company has the following estimated costs...

Question 14

In a job-order costing system,direct labour costs usually are recorded initially with a debit to which of the following accounts?

Accepted Answer

Direct labour costs are initially recorded with a debit to the Work in Process account in a job-order costing system. This is because direct labour is one of the three primary costs involved in producing a product, along with direct materials and manufacturing overhead. As direct labour is incurred, it is added to the Work in Process account, which represents the cost of unfinished products that are still being worked on. Once the product is completed, the total cost is transferred to the Finished Goods inventory account.

Question 15

Freeman Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs.At the beginning of the year,the company estimated manufacturing overhead would be $150,000 and direct labour hours would be 10,000.The actual figures for the year were $186,000 for manufacturing overhead and 12,000 direct labour hours.The cost records for the year will show which of the following?

Accepted Answer

The predetermined overhead rate is calculated as estimated manufacturing overhead divided by estimated direct labor hours, which is $150,000 / 10,000 hours = $15 per direct labor hour. The applied overhead for the year is the predetermined rate multiplied by the actual direct labor hours, which is $15 * 12,000 hours = $180,000. The actual overhead was $186,000, so the difference is $186,000 - $180,000 = $6,000 underapplied overhead.

Question 16

For the current year,Paxman Company incurred $150,000 in actual manufacturing overhead cost.The Manufacturing Overhead account showed that overhead was overapplied in the amount of $6,000 for the year.If the predetermined overhead rate was $8.00 per direct labour hour,how many hours were worked during the year?

Accepted Answer

The answer of For the current year,Paxman Company incurred $150,000...

Question 17

Which of the following contain(s)the detailed cost data that support the Work in Process control account?

Accepted Answer

Job cost sheets contain detailed cost data for each specific job, including direct materials, direct labor, and manufacturing overhead costs. The Work in Process control account is used to track the cost of unfinished jobs, so the cost data on the job cost sheets are used to support this account. The Manufacturing Overhead account tracks indirect manufacturing costs and is not specific to individual jobs. The Finished Goods inventory account tracks the cost of completed jobs that are ready to be sold. Purchase requisitions are documents used to request the purchase of materials or supplies and do not contain detailed cost data for specific jobs.

Question 18

Which of the following companies is most likely to use a job-order costing system rather than a process costing system?

Accepted Answer

Job-order costing is used when a company produces unique, custom-made products or services in small quantities. A shipbuilder fits this profile as each ship is unique and built to order according to customer specifications. Fast food restaurant, crude oil refinery, and candy maker, on the other hand, produce standardized or homogenous products in large quantities using a process costing system.

Question 19

In a normal job-order costing system,the journal entry to record the application of overhead cost to jobs includes which of the following?

Accepted Answer

In a job-order costing system, when overhead is applied to jobs, the Manufacturing Overhead account is credited to reduce it, reflecting the allocation of overhead costs to Work in Process.

Question 20

In a normal job-order costing system,the salary of the factory supervisor would usually be recorded as a debit to which of the following accounts?

Accepted Answer

The salary of the factory supervisor, being an indirect cost associated with the production process but not directly traceable to specific jobs, is typically recorded as a debit to Manufacturing Overhead. This account accumulates all indirect costs which are later allocated to Work in Process and eventually to Finished Goods and Cost of Goods Sold as products move through the production cycle.

Quiz 5: Systems Design: Job-Order Costing