Question 1

Manufacturing entities use two basic types of cost accounting systems. They are:

Accepted Answer

Manufacturing entities typically use either job order costing or process costing. Job order costing is used when products are made in small quantities and are custom-made to meet the specific requirements of individual customers. Process costing is used when products are produced in large quantities, such as with continuous production, and the cost of each unit of production is difficult to determine without estimating the total cost incurred in the entire production process. Therefore, the best choice is B, which correctly identifies both job order costing and process costing as the two basic types of cost accounting systems used by manufacturing entities.

Question 2

Master Antiques produces antique reproduction furniture using a job order costing system. The following data is available for 3 jobs worked on during the first month of operations. $$\begin{array} { l r r c } 
& \text { Job 110 } & \text { Job 111 } & \text { Job 112 } \
\text { Units of product on the job } & 20 & 10 & 20 \
\text { Direct labour hours worked } & 400 & 280 & 200 \
\text { Direct materials cost } & \$ 5500 & \$ 2500 & \$ 2000 \
\text { Direct Labour cost } & \$ 6000 & \$ 3000 & \$ 2200
\end{array}$$
Manufacturing overhead cost is applied to jobs on the basis of direct labour hours at a predetermined rate of $12 per hour. Jobs 110 and 111 were completed during the month, and Job 112 remained in work in process at the end of the month. Compute the unit cost for Job 111.

Accepted Answer

To compute the unit cost for Job 111, we first need to calculate the total cost of the job by adding direct materials, direct labor, and applied manufacturing overhead costs. The manufacturing overhead is applied based on direct labor hours at a rate of $12 per hour.For Job 111:- Direct materials cost = $2,500- Direct labor cost = $3,000- Direct labor hours = 280 hours- Manufacturing overhead = 280 hours * $12/hour = $3,360Total cost of Job 111 = $2,500 (materials) + $3,000 (labor) + $3,360 (overhead) = $8,860Since there are 10 units in Job 111, the unit cost is $8,860 / 10 units = $886.

Question 3

Which of the following control accounts are used in job costing?
I. Factory Overhead
II. Work in process Inventory
III. Finished Goods Inventory
IV. Raw Materials Inventory

Accepted Answer

In job costing, all four control accounts are used: Factory Overhead for tracking indirect manufacturing costs, Work in Process Inventory for costs of unfinished goods, Finished Goods Inventory for costs of completed goods awaiting sale, and Raw Materials Inventory for costs of materials not yet used in production.

Question 4

Which of the following statements concerning the job cost order is incorrect?

Accepted Answer

The incorrect statement is B) It traces all costs to jobs. This is because a job cost order specifically traces direct costs to jobs, but it may not trace all costs, such as indirect costs, directly to individual jobs. These are often allocated based on predetermined overhead rates.

Question 5

Which best describes the set of costs that are debited directly to work in process inventory?

Accepted Answer

The set of costs that are debited directly to work in process inventory includes actual direct materials, actual direct labour, and applied overhead. Indirect materials and labour are not direct costs, and actual overhead is not directly debited to work in process inventory but is applied to it through an overhead rate.

Question 6

Overhead has been underapplied when the:

Accepted Answer

When overhead is underapplied, it means that the actual overhead costs were higher than the overhead costs applied to production, resulting in a debit balance in the manufacturing overhead account.

Question 7

A job costing system tracks:

Accepted Answer

A job costing system tracks direct labour, the use of materials and the conversion of inputs into work-in-process. This allows for the calculation of the cost of producing a specific product or job. By tracking these costs separately, it is easier to identify areas where costs can be reduced in order to increase profitability.

Question 8

The total of the dollar amounts on the job order cards for jobs that had not been completed would be equal to:

Accepted Answer

The dollar amounts on job order cards represent the costs incurred for the jobs that are in progress in the work in process inventory account. Therefore, the total of the dollar amounts on the job order cards for jobs that had not been completed would be equal to the balance in the work in process inventory account.

Question 9

In a job cost system, the overhead costs are assigned using:

Accepted Answer

In a job cost system, the overhead costs are assigned using a predetermined overhead rate, which is calculated by estimating the total overhead costs for the period and dividing it by the estimated total amount of the allocation base (such as direct labor hours or machine hours). This method provides a consistent and systematic way to allocate overhead costs to each job based on their usage of the allocation base.

Question 10

The costing system used when entities provide goods or services in response to customer orders and specifications is known as:

Accepted Answer

Job costing is used when entities receive customer orders and produce goods or services based on those specific orders and specifications. The costs are accumulated for each job, and the total cost is then allocated to the individual jobs based on their unique characteristics. This is in contrast to process costing, where the costs are accumulated for a group of identical products or services. Conversion costing is a general term used to describe the accumulation of costs related to the transformation of raw materials into finished goods. Just-in-time processing refers to a production strategy focused on reducing inventory levels and increasing efficiency through tight coordination of production activities.

Question 11

In a factory with several processes, there may be one or more service departments that do not process the materials directly. Which of the following is not an example of a service department?

Accepted Answer

The smelting department is a department that would be involved in directly processing materials. Therefore, it is not an example of a service department.

Question 12

Which account would be adjusted for the disposal of an immaterial amount of overapplied manufacturing overhead?

Accepted Answer

Cost of sales is adjusted for the disposal of an immaterial amount of overapplied manufacturing overhead because it simplifies the accounting process and has a minimal impact on the financial statements.

Question 13

Which account is not classified as an asset?

Accepted Answer

Cost of sales is a type of expense account and is not classified as an asset. Materials, work in process, and finished goods are all inventory accounts and are classified as assets.

Question 14

Which of the following is not a manufacturing overhead cost?

Accepted Answer

Direct materials are considered a product cost and are included in the cost of goods sold. Manufacturing overhead costs are indirect costs that are necessary to produce the product but cannot be directly traced to it, such as rent of factory, indirect labor, and factory manager's salary.

Question 15

The overhead budget, based on a budgeted volume of 100 000 direct labour hours, was $325 000. Actual overhead costs amounted to $340 000 and actual direct labour hours were 106 000. By how much was overhead under or overapplied?

Accepted Answer

Overhead rate = $325 000 / 100 000 DLH = $3.25 per DLHApplied overhead = $3.25 x 106 000 DLH = $343 750Actual overhead = $340 000Underapplied overhead = $343 750 - $340 000 = $3 750

Question 16

When Job No. 1010 at the Saunders Manufacturing Company emerges with its final finishing touches completed, the company's:

Accepted Answer

When a job is completed, it moves out of work in process, decreasing the balance in that account. Total assets are not directly increased or decreased by this completion; instead, the value shifts from work in process to finished goods.

Question 17

Which industry generally uses a job costing system?

Accepted Answer

Job costing systems are most commonly used in industries where each product or service is unique, and costs can be directly traced to a specific job or project. Custom-built furniture manufacturing fits this description, as each piece of furniture is made to order and requires specific materials and labor costs that can be attributed to that job. Oil refining, soft drink manufacturing, and motor vehicle manufacturing typically use process costing systems, where costs are averaged across large quantities of similar products rather than traced to individual jobs.

Question 18

The type of product costing system used by a company is determined by the:

Accepted Answer

The type of product costing system used by a company is largely determined by its production process. Different production processes require different costing systems in order to accurately track and allocate costs associated with producing goods. For example, a company using a job costing system would be better suited for a production process involving unique, customized products, while a process costing system would be better suited for a production process involving large volumes of uniform products. The plant supervisor, project manager, and chief executive officer may all have some input or influence on the costing system used, but ultimately it is the production process itself that should guide the choice of costing system.

Question 19

Match the business with the most likely type of costing system.
1) Oil refinery
2) Automotive brake repairer
3) Bathroom renovator
4) Commercial printer
5) Management consultant
I Job costing
II Process costing

Accepted Answer

1) Oil refineries use process costing because they produce large quantities of a homogeneous product. 2) Automotive brake repairers, 3) bathroom renovators, and 4) commercial printers use job costing because they work on specific projects or orders. 5) Management consultants also use job costing as they provide tailored services to each client.

Question 20

The Murphy Manufacturing Company distributes overhead based on direct labour dollars. The estimated manufacturing overhead for the year was $728 000 and the estimated direct labour dollars for the year were $160 000. Indicate the amount of underapplied or overapplied overhead if actual direct labour was $148 000 and actual manufacturing overhead was $665 000.

Accepted Answer

The overhead application rate is calculated as estimated manufacturing overhead divided by estimated direct labour dollars, which is $728,000 / $160,000 = 4.55. With actual direct labour at $148,000, the applied overhead is 4.55 * $148,000 = $673,400. The actual manufacturing overhead was $665,000, so the difference is $673,400 - $665,000 = $8,400 overapplied.

Quiz 21: Cost Accounting Systems