Question 1

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. This gives a rate that can be applied to actual production in order to allocate the overhead costs to products.

Question 2

What document is used to determine the actual amount of direct labor to record on a job cost sheet?

Accepted Answer

A time ticket is used to record the actual amount of time (hours or minutes) an employee works on a particular job. This information is then used to determine the actual amount of direct labor to record on a job cost sheet. The payroll register and wages payable account are used to record and track employee wages overall, but not specific to a particular job. A production order is used to initiate a job and schedule production, but does not provide information about actual direct labor costs.

Question 3

The balance in the Work-in-Process account equals:

Accepted Answer

The Work-in-Process account represents the total cost of all the jobs that are currently being worked on but not yet completed. Therefore, the balance in this account is the sum of the costs recorded on the job cost sheets of all the uncompleted jobs. It does not equal the balance in the Finished Goods inventory account or the Cost of Goods Sold account because these accounts represent the costs of completed products. Similarly, it does not equal the balance in the Manufacturing Overhead account because this account represents the indirect manufacturing costs incurred during the production process.

Question 4

Sharp Company's records show that overhead was overapplied by $10,000 last year.This overapplied overhead was closed out to the Cost of Goods Sold account at the end of the year.In trying to determine why overhead was overapplied by such a large amount,the company has discovered that $6,000 of depreciation on factory equipment was charged to administrative expense in error.Given the above information,which of the following statements is true?

Accepted Answer

The answer of Sharp Company's records show that overhead was...

Question 5

Scottso Corporation applies overhead using a normal costing approach based upon machine-hours.Budgeted factory overhead was $232,750,budgeted machine-hours were 17,500.Actual factory overhead was $227,830,actual machine-hours were 16,150.How much is the Over- or underapplied overhead?

Accepted Answer

To determine the over- or underapplied overhead, we need to compare the actual overhead incurred to the overhead applied based on the budgeted rate. 
Overhead applied = Budgeted overhead rate x Actual machine-hours 
= ($232,750 / 17,500) x 16,150 
= $210,165 
Actual overhead - overhead applied = $227,830 - $210,165 = $17,665 
Since the actual overhead is higher than the overhead applied, it means the company underapplied overhead by $17,665. Therefore, the correct answer is B, $13,035 underapplied (which is the closest option).

Question 6

In computing its predetermined overhead rate,Marple Company inadvertently left its indirect labor costs out of the computation.This oversight will cause:

Accepted Answer

Leaving indirect labor costs out of the computation of predetermined overhead rate will result in an understatement of the total manufacturing overhead cost. As a result, the Cost of Goods Manufactured will be understated because the actual manufacturing overhead cost incurred will be higher than the amount allocated to production.

Question 7

Which of the following accounts is debited when direct labor is recorded?

Accepted Answer

Direct labor is a component of manufacturing cost, and therefore is recorded in the Work-in-Process account.

Question 8

Which of the following is correct with respect to closing out overapplied manufacturing overhead to Cost of Goods Sold versus closing it out to Cost of Goods Sold and Finished Goods and Work-in-Process inventories?

Accepted Answer

Closing all of the overapplied manufacturing overhead to Cost of Goods Sold will result in a decrease in the cost of goods sold and an increase in operating income. This is because the overapplied overhead represents an expense that was not actually incurred, so reducing the amount of overhead allocated to products will increase their profitability. Allocation of the overapplied overhead to inventory accounts will result in higher inventory costs and therefore lower gross profit. The balance in the Work-in-Process account after allocation will not be affected by the method chosen for closing out the overapplied overhead.

Question 9

Martinez Aerospace Company uses a job-order costing system.The direct materials for Job #045391 were purchased in July and put into production in August.The job was not completed by the end of August.At the end of August,in what account would the direct material cost assigned to Job #045391 be located?

Accepted Answer

The direct material cost assigned to Job #045391 would be located in the Work-in-Process inventory account because the job was not completed by the end of August. When materials are put into production, they are transferred from the Raw Materials inventory account to the Work-in-Process inventory account. Once the job is completed, the cost is transferred to the Finished Goods inventory account.

Question 10

Which terms will make the following statement true? When manufacturing overhead is overapplied,the Manufacturing Overhead account has a __________ balance and applied manufacturing overhead is greater than __________ manufacturing overhead.

Accepted Answer

When manufacturing overhead is overapplied, it means that the actual manufacturing overhead incurred is less than the amount of manufacturing overhead applied. Therefore, the Manufacturing Overhead account will have a credit balance (option B), indicating that more manufacturing overhead was applied than actually incurred. The terms "actual" and "estimated" are not relevant to the answer.

Question 11

In a job-order costing system,direct labor cost is ordinarily debited to:

Accepted Answer

Direct labor cost is directly related to the cost of producing specific products, so it should be debited to Work-in-Process, which represents the cost of partially completed goods.

Quiz 7: Job Costing