Exam 5: Systems Design: Job-Order Costing

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?

Job-order costing is more likely to be used than process costing in situations where many different products or services are produced each period to customer specifications.

In a job-order costing system,costs are traced to departments and then allocated to units of product using an averaging process.

Carver Test Systems manufactures automated testing equipment.The company uses a job-order costing system and applies overhead on the basis of machine hours (MH).At the beginning of the year,estimated manufacturing overhead was $1,960,000,and the estimated machine hours was 98,000.Data regarding several jobs at Carver are presented below. Job Number Beginning Balance Direct Materials Direct Labour Machine Hours -107 \ 118,600 \ 4,000 \ 8,400 150 ST-211 121,450 2,500 12,160 300 XD-108 21,800 86,400 36,6503 3,100 SL-205 34,350 71,800 32,175 2,700 RX-115 18,990 21,845 1,400 By the end of the first month (January),all jobs but RX-115 were completed,and all completed jobs had been delivered to customers except for SL-205. Required: What was the balance in Finished Goods inventory at the end of January?

The following partially completed T-accounts summarize last year's transactions for Kelshaw Company:At the end of the year, the company closes out the balance in the Manufacturing Overhead account to Cost of Goods Sold. -What is the indirect labour cost?

Scanlon Company has a job-order costing system and applies manufacturing overhead cost to products on the basis of machine hours.The following estimates were used in preparing the predetermined overhead rate for the most recent year: Machine hours: 95,000 Manufacturing overhead cost: $1,710,000 During the most recent year,a severe recession in the company's industry caused the curtailment of production and a buildup of inventory in the company's warehouses.The company's cost records revealed the following actual cost and operating data for the year: Machine hours: 75,000 Manufacturing overhead cost: $1,687,500 Amount of applied overhead in inventories at year-end: Work in process: $337,500 Finished goods: 253,125 Amount of applied overhead in cost of goods sold for the year: 759,375 Required: (a.)Compute the company's predetermined overhead rate for the year and the amount of under- or overapplied overhead for the year. (b.)Determine the difference between net income for the year if the under- or overapplied overhead is allocated to the appropriate accounts rather than closed out directly to Cost of Goods Sold.

The following partially completed T-accounts summarize last year's transactions for Kelshaw Company:At the end of the year, the company closes out the balance in the Manufacturing Overhead account to Cost of Goods Sold. -What is the manufacturing overhead applied?

When the predetermined overhead rate is based on direct labour-hours,the amount of overhead applied to a job is proportional to the amount of actual direct labour-hours incurred on the job.

Job-order costing is used in manufacturing companies and process costing is used in service firms.

The Milo Company's records for May contain the following information: Actual direct labour hours 9,000 hours Actual direct labour cost \ 47,000 Direct material purchased \ 16,000 Direct material used \ 14,000 Cost of goods sold \ 100,000 Overapplied overhead \ 5,000 Ending inventories: Raw materials \ 30,000 Work in process 50,000 Finished goods 70,000 The company uses a predetermined overhead rate of $\$ 5.00$ per direct labour hour to apply manufacturing overhead to jobs. -What was the actual overhead cost incurred during the month?

When completed goods are sold,the transaction is recorded as a debit to Cost of Goods Sold and a credit to Work in Process.

A job cost sheet is a form prepared for each separate job that records the materials,labour,and overhead costs charged to the job.

Stan Wilson,a newly hired worker at Superior Moulding,was puzzled by the job cost sheets attached to the jobs he worked on.He understood the materials and labour cost entries; these entries represent the actual costs of materials he requisitioned for the job and the cost of the labour hours he recorded for the job.However,he did not understand the entry for Manufacturing Overhead.This entry was made at the end of the day by the accountants,and he had no idea where this number came from.He asked the company's controller,Mary Donner,but the only part of the explanation he understood was that the overhead entries do not represent actual overhead costs. Required: Explain to Stan what the Manufacturing Overhead entries on the job cost sheet mean.

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: Direct materials \ 10,000 Direct labour 30,000 Sales commissions 40,000 Salary of production supervisor 20,000 Indirect materials 4,000 Advertising expenses 8,000 Rent on factory equipment 10,000 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?

Indirect materials are NOT charged to a specific job but rather are included in manufacturing overhead.

The following partially completed T-accounts summarize last year's transactions for Kelshaw Company:At the end of the year, the company closes out the balance in the Manufacturing Overhead account to Cost of Goods Sold. -What is the cost of goods manufactured?

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: Department A Department B Direct labour cost \ 56,000 \ 33,000 Manufacturing overhead \ 67,200 \ 45,000 Direct labour hours 8,000 9,000 Machine hours 4,000 15,000 What predetermined overhead rate would be used in Departments A and B,respectively?

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

Mallet Company has only Job 844 in process on March 1 of the current year. The job has been charged with $2,000 of direct material cost, $2,500 of direct labour cost, and $1,750 of manufacturing overhead cost. The company assigns overhead cost to jobs at a predetermined rate of 70% of direct labour cost. Any under- or overapplied overhead cost is closed out to Cost of Goods Sold at the end of the month. During March, the following activity and amounts were recorded by the company: Raw materials (all direct materials): Purchased during the month \ 29,500 Used in production \ 30,500 Labour: Direct labour hours worked during the month 2,500 Direct labour cost incurred \ 26,500 Indirect labour costs incurred \ 5,500 Manufacturing overhead costs incurred (total) \ 18,500 Inventories: Raw materials (all direct) March 31 \ 7,500 Work in process, March 31 \ 14,500 Work in Process inventory contains $\$ 5,500$ of direct labour cost. -Which of the following would be included in the entry to dispose of the under- or over applied overhead cost for the month?

Secrease Corporation uses machine-hours as the allocation base for applying its manufacturing overhead. Estimated manufacturing overhead cost for the year \ 594,000 Capacity 110,000 machine-hours Estimated amount of the allocation base for the year 108,000 machine-hours Amount of the allocation base for the 88,000 machine-hours actual output of the year Actual manufacturing overhead cost for the year \ 589,000 All of the company's manufacturing overhead is fixed. - What is the predetermined overhead rate based on capacity to 2 decimal places?