Exam 3: Product Costing and Cost Accumulation in a Batch Production Environment

Margery, Inc., which uses a job-costing system, is a labor-intensive firm, with many skilled craftspeople on the payroll. Job no. 789 was the only job in process on January 1, having costs of $22,500 as of that date. Direct materials used and direct labor incurred during January were: Job No. Direct Materials Direct Labor 789 \ 2,000 \ 6,000 790 9,000 10,000 791 14,000 8,000 Job no. 791 was the only job in production as of January 31. Required: A. Should Margery use direct labor or machine hours as a cost driver. Why? B. Assume that the company decided to use direct labor as its cost driver. If the budgeted amounts of direct labor and manufacturing overhead are anticipated to be $200,000 and $300,000, respectively, what is the firm's predetermined overhead rate? C. Compute the cost of work-in-process inventory as of January 31. D. Compute the cost of jobs completed during January. E. Suppose that the company sold all of its completed jobs, adding a 40% markup to cost. How much would the firm report as sales revenue?

Blarney Company applies manufacturing overhead by using a predetermined rate of 50% of direct labor cost. The data that follow pertain to job no. 764: Direct material Cost $\quad\$ 55,000$ Direct labor cost $\quad\quad 80,000$ If Blarney adds a 40% markup on total cost to generate a profit, which of the following choices depicts a portion of the accounting needed to record the sale of job no. 764?

Mahler, Inc., applies manufacturing overhead at the rate of $40 per machine hour. Budgeted machine hours for the current period were anticipated to be 120,000; however, a lengthy strike resulted in actual machine hours being worked of only 90,000. Budgeted and actual manufacturing overhead figures for the year were $4,800,000 and $4,180,000, respectively. On the basis of this information, the company's year-end overhead was:

Electricity costs that were incurred by a company's production processes should be debited to Utilities Expense.

Which of the following statements about the use of direct labor as a cost driver is false?

Dixie Company, which applies overhead at the rate of 190% of direct material cost, began work on job no. 101 during June. The job was completed in July and sold during August, having accumulated direct material and labor charges of $27,000 and $15,000, respectively. On the basis of this information, the total overhead applied to job no. 101 amounted to:

Kei Products uses a predetermined overhead application rate of $18 per labor hour. A review of the company's accounting records revealed budgeted manufacturing overhead for the period of $621,000, applied manufacturing overhead of $590,400, and overapplied overhead of $11,900. Required: A. Determine Kei's actual labor hours, budgeted labor hours, and actual manufacturing overhead. B. Present the necessary year-end journal entry to handle the overapplied overhead, assuming that the firm allocates over- or underapplied overhead to Cost of Goods Sold.

Product costing in a manufacturing firm is the process of:

The journal entry needed to record $5,000 of advertising for Westwood Manufacturing would include:

Metro Corporation uses a predetermined overhead rate of $20 per machine hour. In deriving this figure, the company's accountant used:

The assignment of direct labor cost to individual jobs is based on:

Fletcher, Inc. disposes of under- or overapplied overhead at year-end as an adjustment to cost of goods sold. Prior to disposal, the firm reported cost of goods sold of $590,000 in a year when manufacturing overhead was underapplied by $15,000. If sales revenue totaled $1,400,000, determine (1) Fletcher's adjusted cost of goods sold and (2) gross margin.

Buckman Corporation, which began operations on January 1 of the current year, reported the following information: Estimated manufacturing overhead \ 600,000 Actual manufacturing overhead 639,000 Estimated direct labor cost 480,000 Actual direct labor cost 500,000 Total debits in the Work-in-Process account 1,880,000 Total credits in the Finished-Goods account 920,000 Buckman uses a normal cost system and applies manufacturing overhead to jobs on the basis of direct labor cost. A 60% markup is added to the cost of completed production when finished goods are sold. On December 31, job no. 18 was the only job that remained in production. That job had direct-material and direct-labor charges of $16,500 and $36,000, respectively. Required: A. Determine the company's predetermined overhead rate. B. Determine the amount of under- or overapplied overhead. Be sure to label your answer. C. Compute the amount of direct materials used in production. D. Calculate the balance the company would report as ending work-in-process inventory. E. Prepare the journal entry (ies) needed to record Buckman's sales, which are all made on account.

A typical job-cost record would provide information about all of the following items related to an order except:

Howard Manufacturing's overhead at year-end was underapplied by $5,800, a small amount given the firm's size. The year-end journal entry to record this amount would include:

ADF provides consulting services and uses a job-order system to accumulate the cost of client projects. Traceable costs are charged directly to individual clients; in contrast, other costs incurred by ADF, but not identifiable with specific clients, are charged to jobs by using a predetermined overhead application rate. Clients are billed for directly chargeable costs, overhead, and a markup. ADF anticipates the following costs for the upcoming year: ADF's partners desire to make a $480,000 profit for the firm and plan to add a percentage markup on total cost to achieve that figure. On May 14, ADF completed work on a project for Lawrence Manufacturing. The following costs were incurred: professional staff salaries, $68,000; administrative support staff, $8,900; travel, $10,500; and other operating costs, $2,600. Required: A. Determine ADF's total traceable costs for the upcoming year and the firm's total anticipated overhead. B. Calculate the predetermined overhead rate. The rate is based on total costs traceable to client jobs. C. What percentage of total cost will ADF add to each job to achieve its profit target? D. Determine the total cost of the Lawrence Manufacturing project. How much would Lawrence be billed for services performed?

The primary difference between normalized and actual costing methods lies in the determination of a job's:

Othello Manufacturing incurred $106,000 of direct labor and $11,000 of indirect labor. The proper journal entry to record these events would include a debit to Work in Process for:

Which of the following statements about material requisitions is false?

Which of the following entities would not likely be a user of job-costing systems?