Deck 4: Accounting for Factory Overhead

Question 1

The following cost is an example of a variable factory overhead cost:

A)Plant utilities.
B)Material handling costs.
C)Salary of the plant manager.
D)Factory supplies.

Answer 1

D
The cost of factory supplies is considered variable because the cost moves in proportion with production volumes. The salary of the plant manager is a fixed cost as it remains constant despite changes in plant volumes. Plant utilities are a Type B semi-variable cost because this cost includes both fixed and variable components. The material handling costs are a Type A semi-variable, or step-variable, cost because the cost remains constant over a range of production then abruptly changes.

Question 2

Which of the following statements about semivariable costs is not true?

A)They first have to be broken down into their fixed and variable components before they can be used to predict costs at different levels of volume.
B)They are sometimes called mixed costs.
C)They vary in direct proportion to volume changes.
D)They may remain constant over a range of production, then abruptly change.

Answer 2

C
Variable costs vary in direct proportion to volume changes.

Question 3

After the observations of cost and production data are plotted on graph paper, a line is drawn by visual inspection representing the trend shown by most of the data points using the:

A)Observation method.
B)High-low method.
C)Method of least squares.
D)Scattergraph method.

Answer 3

D
Using the scattergraph method, the observations of cost and production data are plotted on graph paper, and then a line is drawn by visual inspection representing the trend of most of the data points.

Question 4

Costs that change in relation to volume changes, but not in direct proportion to those changes, are known as:

A)Variable costs.
B)Semivariable costs.
C)Fixed costs.
D)Curvilinear costs.

Question 5

Costs that vary in proportion to direct volume changes are:

A)variable costs.
B)factory overhead costs.
C)semi-variable costs.
D)personnel costs.

Question 6

Methods for separating semivariable costs into their fixed and variable components include all of the following except the:

A)High-low method.
B)Allocation method.
C)Scattergraph method.
D)Observation method.

Question 7

Factory overhead includes:

A)Indirect labor but not indirect materials.
B)All manufacturing costs except direct materials and direct labor.
C)All manufacturing costs.
D)Indirect materials but not indirect labor.

Question 8

A major disadvantage of the scattergraph method of analyzing cost behavior is:

A)It bases its solution on only two observations.
B)It results in its analyzed cost being treated as either fixed or variable, based on which type of behavior it more closely resembles.
C)Two persons could draw different lines through the data points.
D)It enables non-representative points, called outliers, to be identified.

Question 9

Nutt Industries electricity costs and machine hours over a six-month period follow: Using the high-low method, what is the estimated electricity cost per machine hour?

A)$.60
B)$1.67
C)$1.00
D)$.80

Question 10

Which of the following costs would be included in factory overhead in the manufacture of a student's desk?

A)The wages of the operator of the machine that bends the metal legs of the desk into shape.
B)The wages of the forklift operator who moves finished desks to the finished goods warehouse.
C)The cost of the plastic used to form the writing surface.
D)The wages of the worker who assembles the components.

Question 11

Which of the following costs would not be included in factory overhead in the manufacture of a student's desk?

A)The oil used to maintain the machinery.
B)The salary of the supervisor of the Assembly department.
C)The metal used to form the legs of the desk.
D)The wages of personnel who perform inspections of incoming materials.

Question 12

Variable overhead costs include all of the following except:

A)Electricity to power machinery.
B)Factory supplies.
C)Rental of factory building.
D)Small tools.

Question 13

The method of analyzing the behavior of semivariable costs that relies heavily on the ability of an observer to detect a pattern of cost behavior by reviewing past cost and volume data is the:

A)High-low method.
B)Method of least squares.
C)Scattergraph method.
D)Observation method.

Question 14

Fixed overhead cost includes all of the following except:

A)Electricity to heat and light the factory.
B)Depreciation on machinery computed based on the units of production basis.
C)The plant manager's salary.
D)The salary of the security guard at the front door.

Question 15

The method of analyzing cost behavior that uses two data points to first determine the variable cost per unit and then the total fixed cost is the:

A)Method of least squares.
B)Scattergraph method.
C)High-low method.
D)Observation method.

Question 16

Consider the following costs: I. The cost of electricity which is used to power machinery and light the plant.
II) Depreciation on the building which houses both the factory and the sales office.
Which of the following statements is true?

A)Only statement I is an example of a semivariable cost.
B)Only statement II is an example of a semivariable cost.
C)Both statements I and I are examples of semivariable costs.
D)Neither statement I nor II is an example of a semivariable cost.

Question 17

Factory overhead:

A)Can be a variable cost or a fixed cost.
B)Is a prime cost.
C)Can only be a fixed cost.
D)Includes all factory labor.

Question 18

Victoria is a budget analyst at Young Industries. She used the least squares regression method to separate the plant's monthly utilities cost into its fixed and variable components. The results were as follows: Y = 3,250 + .054 X
X = the number of units produced
R² = .892
Which of the following statements is not true about Victoria's cost model?

A)Y represents the total semi-variable cost.
B)The total monthly fixed utilities costs are $3,250.
C)X is referred to as the dependent variable.
D)The equation Y = 3,250 + .054 X would be represented as a straight line on a graph.

Question 19

Fixed factory overhead costs include:

A)Property taxes.
B)Plant manager's salary.
C)Factory insurance.
D)All of the these are correct.

Question 20

Nutt Industries electricity costs and machine hours over a six-month period follow: Using the high-low method, what is the formula that can be used to estimate electricity costs at different levels of volume?

A)Electricity costs = $2,800 + ($1.00 x number of machine hours)
B)Electricity costs = $2,600 + ($1.00 x number of machine hours)
C)Electricity costs = $400 + ($1.67 x number of machine hours)
D)Electricity costs = $3,600 + ($.60 x number of machine hours)

Question 21

In a factory, all of the following would be considered service departments except:

A)Inspection and Packing
B)Assembly
C)Power
D)Human Resources

Question 22

The report that is prepared after the posting is completed at the end of the accounting period that shows the items of expense by department and in total, and is used to prove the balance of the Factory Overhead Control account is the:

A)Schedule of Fixed Cost.
B)Summary of Factory Overhead.
C)Flexible Budget.
D)Subsidiary Ledger.

Question 23

The most appropriate basis for allocating the factory building rent to specific departments would be the:

A)Number of machines in each department.
B)Number of employees in each department.
C)Square footage of each department.
D)Amount of time the plant manager spends in the department.

Question 24

When preparing a flexible budget for factory overhead costs, what will occur to fixed costs (on a per-unit basis) as production increases?

A)Fixed costs per unit will increase.
B)Fixed costs are not considered in flexible budgeting.
C)Fixed costs per unit will decrease.
D)Fixed costs per unit will remain unchanged.

Question 25

Venus Company has developed the following flexible budget formula for annual indirect labor cost: Total annual cost = $12,000 + $.25 / unit
Operating budgets for the current month are based on 5,000 units. Indirect labor costs included in this monthly planning budget are:

A)$13,250.
B)$1,250.
C)$3,200.
D)$2,250.

Question 26

Which of the following statements is true? I. An expense-type factory overhead analysis spreadsheet makes it possible to distribute expenses on a departmental basis as they are incurred.
II) A department-type factory overhead analysis worksheet makes it possible to distribute expenses on a departmental basis as they are incurred.

A)I only
B)II only
C)Both I and II
D)Neither I nor II

Question 27

The method of distributing service department costs to production departments which distributes service department costs regressively to other service departments, and then to production departments is the:

A)Direct distribution method.
B)Sequential distribution method.
C)Service department distribution method.
D)Algebraic distribution method.

Question 28

The preferred sequence for distributing the cost of service departments to production departments when using the sequential distribution method is:

A)to distribute the cost of the service department with the largest total overhead cost first.
B)to always distribute the cost of the Human Resources Department first.
C)to distribute the costs of the service departments to the production department having the largest amount of overhead cost first.
D)to distribute the costs of the service department that services the greatest number of departments first.

Question 29

The method of distributing service department costs to production departments that takes into consideration that service departments not only may provide service to but also may receive service from other service departments is the:

A)direct distribution method.
B)sequential distribution method.
C)service department distribution method.
D)algebraic distribution method.

Question 30

Stanforth Company's flexible budget for 50,000 units shows $100,000 and $150,000 in variable and fixed costs, respectively. At 60,000 units, the flexible budget would show:

A)Variable costs of $150,000 and fixed costs of $150,000.
B)Variable costs of $120,000 and fixed costs of $180,000.
C)Variable costs of $100,000 and fixed costs of $180,000.
D)Variable costs of $120,000 and fixed costs of $150,000.

Question 31

Victoria is a budget analyst at Young Industries. She used the least squares regression method to separate the plant's monthly utilities cost into its fixed and variable components. The results were as follows: Y = 3,250 + .054 X
X = the number of units produced
R² = .892
Based on these results, the December budget for plant utilities cost if Young Industries plans to produce 100,000 units in that month would be:

A)$5,400
B)$8,650
C)$3,250
D)$8,920

Question 32

Which of the following is most likely to be considered a service department in a manufacturing plant?

A)Assembly
B)Maintenance
C)Finishing
D)Fabrication

Question 33

Which of the following statements about service departments and their costs is not true?

A)Service departments rarely provide services to other service departments.
B)Some service departments may be able to precisely measure the services it provides to other departments.
C)Service department costs should be included in total product costs.
D)Allocation of service department costs should be made on an equitable basis.

Question 34

Victoria is a budget analyst at Young Industries. She used the least squares regression method to separate the plant's monthly utilities cost into its fixed and variable components. The results were as follows: Y = 3,250 + .054 X
X = the number of units produced
R² = .892
How should Victoria interpret the R² of .892?

A)The equation is a better predictor of fixed costs than of variable costs 89.2% of the time.
B)The equation will accurately predict utility costs 89.2% of the time.
C)Fixed costs make up 89.2% of the total semi-variable cost in any given month.
D)The number of units produced explains 89.2% of the variation in the plant utilities cost.

Question 35

The number of workers in the departments served would most likely be the basis for distributing the cost of which service department?

A)Human Resources
B)Tool Room
C)Building Maintenance
D)Machine Shop

Question 36

The Lucas Manufacturing Company has two production departments (fabrication and assembly) and three service departments (general factory administration, factory maintenance, and factory cafeteria). A summary of costs and other data for each department, prior to allocation of service department costs for the year ended June 30, appears below: The costs of the general factory administration department, factory maintenance department, and factory cafeteria are allocated on the basis of direct labor hours, square footage occupied, and number of employees, respectively. Assuming that Lucas elects to distribute service department costs to production departments using the direct distribution method, the amount of general factory administration department costs that would be allocated to the assembly department would be (round all final calculations to the nearest dollar):

A)$30,400.
B)$25,650.
C)$0.
D)$49,600.

Question 37

Flexible budgeting is a reporting system wherein the:

A)Budget shows estimated costs at different levels of production volume.
B)Budget standards may be adjusted at will.
C)Reporting dates vary according to the levels of activity reported upon.
D)Statements included in the budget report vary from period to period.

Question 38

The method of distributing service department costs to production departments which makes no attempt to determine the extent to which one service department renders its services to another department is the:

A)Direct distribution method.
B)Sequential distribution method.
C)Service department distribution method.
D)Algebraic distribution method.

Question 39

Kilowatt hours would be an appropriate basis for distributing the cost of which of the following service departments to production departments?

A)Power
B)Machine Maintenance
C)Human Resources
D)Building Maintenance

Question 40

If a company uses a factory overhead ledger, at the end of the month, an accountant should:

A)close the accounts in the factory overhead ledger to Work in Process.
B)total the accounts in the factory overhead ledger and compare the total to the balance in the Factory Overhead control account.
C)prepare a schedule of fixed costs.
D)All of the above are true.

Question 41

To successfully employ an ABC system, a company must first identify:

A)Non-volume related activities in the factory that create costs.
B)Cost drivers.
C)Cost pools.
D)Overhead allocation rates.

Question 42

The Owens Company uses the machine hour method of applying factory overhead to production. The budgeted factory overhead last year was $200,000, and there were 40,000 machine hours budgeted. Job 84 was started and completed during the period. Direct materials costing $900 were incurred. Twenty-five direct labor hours were worked at a cost of $350, and 40 machine hours were incurred. What was the cost of Job 84?

A)$1,450
B)$1,375
C)$1,250
D)$1,290

Question 43

When a manufacturing company has a highly automated manufacturing plant, what is probably the most appropriate basis of applying factory overhead costs to work in process?

A)Machine hours
B)Cost of materials used
C)Direct labor hours
D)Direct labor dollars

Question 44

Activity-based costing considers non-volume-related activities that create costs such as:

A)Direct labor usage.
B)Machine operations.
C)Consumption of indirect materials and energy usage.
D)Machine setups and product design changes.

Question 45

The Lucas Manufacturing Company has two production departments (fabrication and assembly) and three service departments (general factory administration, factory maintenance, and factory cafeteria). A summary of costs and other data for each department, prior to allocation of service department costs for the year ended June 30, appears below. The costs of the general factory administration department, factory maintenance department, and factory cafeteria are allocated on the basis of direct labor hours, square footage occupied, and number of employees, respectively. Assuming that Lucas elects to distribute service department costs to production departments using the direct distribution method, the amount of factory maintenance department costs that would be allocated to the fabrication department would be (round all final calculations to the nearest dollar):

A)$22,804.
B)$15,000.
C)$27,000.
D)$14,674.

Question 46

The Owens Company uses the machine hour method of applying factory overhead to production. The budgeted factory overhead last year was $200,000, and there were 40,000 machine hours budgeted. Actual machine hours incurred during the period were 38,000, and actual factory overhead was $215,000. What was the amount of under- or overapplied factory overhead?

A)$10,000 underapplied
B)$15,000 underapplied
C)$25,000 underapplied
D)$10,000 overapplied

Question 47

Meger Manufacturing uses the direct labor cost method for applying factory overhead to production. The budgeted direct labor cost and factory overhead for the previous fiscal year were $1,000,000 and $800,000, respectively. During the year, the company started and completed Job 352A, which had direct material and labor costs of $32,000 and $45,000, respectively. What was the cost of Job 352A?

A)$77,000
B)$81,000
C)$102,600
D)$113,000

Question 48

The Lucas Manufacturing Company has two production departments (fabrication and assembly) and three service departments (general factory administration, factory maintenance, and factory cafeteria). A summary of costs and other data for each department, prior to allocation of service department costs for the year ended June 30, appears below: The costs of the general factory administration department, factory maintenance department, and factory cafeteria are allocated on the basis of direct labor hours, square footage occupied, and number of employees, respectively. Assuming that Lucas elects to use the sequential method to distribute service department costs (starting with the factory cafeteria), what would be the amount of factory cafeteria costs that would be allocated to the factory maintenance department?

A)$3,314
B)$6,960
C)$5,800
D)$0

Question 49

Overapplied overhead will always result when a predetermined factory overhead rate is employed and:

A)Overhead incurred is more than overhead applied.
B)Overhead incurred is less than overhead applied.
C)Production is greater than sales.
D)Actual overhead costs are more than expected.

Question 50

Spencer Company had overapplied factory overhead of $5,000 last year. Which of the following statements is not true?

A)A higher level of production may have been achieved than budgeted for.
B)The Work in Process account was overcharged for the costs of factory overhead incurred during the period.
C)The actual factory overhead expenses may have been less than budgeted for the operating level achieved.
D)Assuming the amount is not material enough to distort net income, Cost of Goods Sold should be increased by this amount.

Question 51

The Jason Manufacturing Company has two production departments (millwright and assembly) and three service departments (general factory administration, factory maintenance, and factory development). A summary of costs and other data for each department, prior to allocation of service department costs for the year ended March 30, appears below. The costs of the general factory administration department, factory maintenance department, and factory development department are allocated on the basis of direct labor hours, square footage occupied, and number of employees, respectively. Assuming that Jason elects to use the sequential method to distribute service department costs (starting with factory development), what would be the amount of factory development that would be allocated to the factory maintenance department?

A)$ 9,100.
B)$ 4,350.
C)$29,640.
D)$0.

Question 52

The Mason Corporation budgeted overhead at $240,000 for the period for Department A based on a budgeted volume of 60,000 direct labor hours. At the end of the period, the factory overhead control account for Department A had a debit balance of $260,000; actual direct labor hours were 63,000. What was the under- or over applied factory overhead for the period?

A)$12,000 overapplied
B)$ 8,000 overapplied
C)$ 8,000 underapplied
D)$12,000 underapplied

Question 53

Meger Manufacturing uses the direct labor cost method for applying factory overhead to production. The budgeted direct labor cost and factory overhead for the previous fiscal year were $1,000,000 and $800,000, respectively. Actual direct labor cost and factory overhead were $1,100,000 and $825,000, respectively. What was Meger's predetermined factory overhead rate?

A)80%
B)125%
C)75%
D)133%

Question 54

The Owens Company uses the direct labor hour method of applying factory overhead to production. The budgeted factory overhead last year was $200,000, and there were 40,000 machine hours and 50,000 direct labor hours budgeted. Job 84 was started and completed during the period. Direct materials costing $900 were incurred. Twenty-five direct labor hours were worked at a cost of $350, and 40 machine hours were incurred. What is the amount of factory overhead applied to Job 84?

A)$200
B)$100
C)$160
D)$125

Question 55

The Mason Corporation budgeted overhead at $240,000 for the period for Department A based on a budgeted volume of 60,000 direct labor hours. During the period, Mason started and completed Job B25, which incurred 200 labor hours at a cost of $2,200, and $5,000 of direct materials. What was the cost of Job B25?

A)$7,400
B)$8,000
C)$7,250
D)$13,800

Question 56

Once the amounts of the service department allocations have been determined, a journal entry should be prepared to record the distributions, the result of which is:

A)debit balances in the Factory Overhead accounts of the production departments for which the total agrees to the total amount of factory overhead incurred.
B)credit balances in the Factory Overhead accounts of the production departments for which the total agrees to the total amount of factory overhead incurred.
C)debit balances in the Factory Overhead accounts of the service departments for which the total agrees to the total amount of factory overhead incurred.
D)credit balances in the Factory Overhead accounts of the service departments for which the total agrees to the total amount of factory overhead incurred.

Question 57

Which of the following statements about using the direct labor hour method of applying factory overhead to production is false?

A)It may not be as accurate as the direct labor cost method if factory overhead primarily consists of items more closely tied to employee wages, such as benefits.
B)The application base could be substantially smaller than when direct labor cost is used.
C)It is the most appropriate method for a highly automated department.
D)The amount of factory overhead applied is not affected by the mix of labor rates.

Question 58

A predetermined factory overhead rate is computed by dividing

A)Actual overhead cost by actual activity.
B)Actual overhead cost by budgeted activity.
C)Budgeted overhead by actual activity.
D)Budgeted overhead by budgeted activity.

Question 59

Meger Manufacturing uses the direct labor cost method for applying factory overhead to production. The budgeted direct labor cost and factory overhead for the previous fiscal year were $1,000,000 and $800,000, respectively. Actual direct labor cost and factory overhead were $1,100,000 and $825,000, respectively. What is the amount of under- or overapplied factory overhead?

A)$25,000 overapplied
B)$55,000 overapplied
C)$80,000 overapplied
D)$50,000 underapplied

Question 60

A cost driver is:

A)An overhead or activity rate.
B)A basis used to allocate each of the activity cost pools.
C)The estimated cost of each activity pool.
D)Used only to allocate non-volume-related costs.

Question 61

Perry Company has two service departments, Maintenance and Human Resources, and two production departments, Machining and Assembly. The following data have been estimated for next year's operations: The Human Resources Department services all departments.
Requirements:
(1) Distribute the service department costs using the direct distribution method.
(2) Distribute the service department costs using the sequential distribution method with the department servicing the greatest number of other departments being distributed first.
(3) Using the results from the direct distribution method, calculate the predetermined factory overhead rate for the machining department using labor hours as the basis.

Question 62

Domino Bakery has the following budget at 1,000,000 dozen donuts baked: (1) Compute the cost per dozen donuts at 1,000,000 dozen.
(2) Develop the budget for 1,200,000 dozen donuts.
(3) Compute the cost per dozen donuts at 1,200,000 dozen.
(4) Explain why the difference in the cost per dozen occurs at the different levels of volume.

Question 63

You have been hired by Thompson Waterfall Manufacturing. Your first task is examine different distribution methods for applying factory overhead to the various production orders that are processed during a year.
The following information was taken from the annual budget:
a.Determine the following factory overhead application rates under each of the following methods:(1)Direct labor cost(2)Direct labor hours(3)Machine hours
b.Prepare a schedule showing the prime cost and total cost of Order 329 with the factory overhead costs applied on each of the three bases; Job Cost Sheet 329 shows the following: raw materials, $6,200; direct labor, 6,000 hours and $29,000; machine hours, 2,800.

Question 64

Dean Corporation has two service departments, Power and Maintenance, and two production departments, Painting and Polishing. The following data have been estimated for next year's operations: Requirements:
(1) a) For which service department would you use kilowatt hours to allocate service costs.
b) For which service department would you use square footage to allocate service costs.
(2) Distribute the service department costs using the direct distribution method.
(3) Prepare the journal entries to distribute the costs of the service departments to the production departments given the results of your calculations.

Question 65

The entry to apply factory overhead to jobs includes:

A)a debit to Applied Factory Overhead.
B)a debit to Work in Process.
C)a credit to Work in Process.
D)a debit to Cost of Goods Sold.

Question 66

Jarcly Manufacturing Company uses activity-based costing. The factory overhead budget for the coming period is $1,053,000, consisting of the following: The potential allocation bases and their estimated amounts were as follows:
a.Determine the overhead rate for each cost pool, using the most appropriate allocation base for each pool.
b.Job 80130 required $45,000 for direct materials, $20,000 for direct labor, 2,000 direct labor hours, 800 machine hours, five setups, and four design changes. Determine the cost of Job 80130.

Question 67

Factory overhead for the Praeger Company has been estimated as follows: Production for the month was 90 percent of the budget, and actual factory overhead totaled $175,000.
Calculate:
a.The predetermined factory overhead rate.
b.The under- or overapplied factory overhead.

Question 68

The following are the results of the least squares regression method which was run to separate the fixed and variable components of the Zulli Corporation's monthly factory utility costs using the number of products produced:
y = 49,222.2992 + 5.09 x
R² = .97765
a) Assume Zulli budgets production of 5,400 units in June, what should budgeted utility costs be?
b) Explain what R² means. Is this equation a good predictor of utility costs?

Question 69

Estimates made for a production department of the Automate Company for the month of October show: Factory overhead is applied on the basis of direct labor hours. On October 31, the records show these actual figures: Prepare the entry or entries to 1) apply factory overhead to production; 2) record actual factory overhead incurred assuming all items were purchased from vendors; 3) close out the two factory overhead account balances to set up the overapplied or underapplied factory overhead; and 4) to close the balance in under- or overapplied factory overhead to Cost of Goods Sold.

Question 70

Dean Corporation has two service departments, Power and Maintenance, and two production departments, Painting and Polishing. The following data have been estimated for next year's operations: Requirements:
(1) Distribute the service department costs using the sequential distribution method. Distribute the Power Department first.
(2) Prepare the journal entries to distribute the costs of the service departments to the production departments given the results of your calculations.

Question 71

Cooper Company had overapplied factory overhead of $2,000 last year. Assuming the amount was considered small enough not to materially distort net income, the entries needed to close factory overhead are:

Question 72

Santorini Ltd. has accumulated the following data over a six-month period: Determine the formula that could be used to determine Santorini's indirect labor cost at various levels of production using the high-low method.

Question 73

If over- or underapplied factory overhead would materially distort net income if the entire amount was charged to Cost of Goods Sold, it should be:

A)Carried forward in the overhead control account from year to year.
B)Eliminated by changing the predetermined factory overhead rate in subsequent years.
C)Apportioned among the work in process inventory, the finished goods inventory, and the cost of goods sold.
D)Treated as a special gain or loss occurring during the year.

Question 74

The controller has asked you to examine different distribution methods for applying factory overhead to the various production orders that are processed during a year.
The following information was taken from the annual budget:
a.Determine the following factory overhead application rates under each of the following methods:(1)Direct labor cost(2)Direct labor hours(3)Machine hours
b.Determine the under- or overapplied factory overhead under each of the following methods:(1) Direct labor cost(2) Direct labor hours(3) Machine hours