Deck 20: Job Costing

Question 1

Which of the following is an industry that would use a process costing system rather than a job order costing system?

A)Home remodeling contractor
B)Music production studio
C)Paint manufacturer
D)Custom furniture manufacturer

Answer 1

C

Question 2

In job order costing, the journal entry to issue indirect materials to production should include which of the following?

A)Credit to Materials inventory
B)Credit to Manufacturing overhead
C)Credit to Work in process inventory
D)Credit to Finished goods inventory

Answer 2

A

Question 3

All manufacturing overhead costs incurred are accumulated as debits to a general ledger account titled Manufacturing overhead.

Answer 3

True

Question 4

Process costing is used by companies that produce large numbers of identical units in a continuous fashion.

Question 5

The entry to record the purchase of materials on account using a job order costing system would include a:

A)debit to Accounts payable.
B)debit to Materials inventory.
C)credit to Materials inventory.
D)debit to Work in process inventory.

Question 6

Which of the following would be included in the journal entry to record the requisition of direct materials?

A)Debit to Cost of sales
B)Debit to Finished goods inventory
C)Debit to Work in process inventory
D)Debit to Materials inventory

Question 7

Which of the following would be included in the journal entry to record the requisition of indirect materials?

A)Debit to Manufacturing overhead
B)Debit to Finished goods inventory
C)Debit to Work in process inventory
D)Debit to Materials inventory

Question 8

When manufacturing overhead costs are incurred, the amounts are recorded as a credit to Manufacturing overhead.

Question 9

The journal entry to issue $500 of direct materials and $30 of indirect materials to production includes which of the following?

A)Debit to Manufacturing overhead for $530
B)Debit to Work in process for $500 and debit to Manufacturing overhead for $30
C)Debit to Work in process inventory for $530
D)Debit to Work in process for $500 and debit to Finished goods for $30

Question 10

Which of the following companies would NOT use job order costing?

A)An auto repair shop
B)A legal firm
C)A lawn maintenance company
D)A beverage manufacturer

Question 11

In a manufacturing operation, depreciation of the plant and plant equipment should be debited to Depreciation expense.

Question 12

Which of the following statements is FALSE?

A)A service firm would likely use a job order costing system.
B)A job order costing system would be used by manufacturers of custom made products.
C)A print and copy shop would likely use a process costing system.
D)A process costing system would be used by manufacturers of commodities, such as flour or sugar.

Question 13

The journal entry to record the incurrence of $1 500 of direct labour and $200 of indirect labour includes which of the following?

A)Debit to Work in process inventory for $1 700
B)Debit to Work in process inventory for $1 500 and debit to Finished goods for $200
C)Debit to Work in process for $1 500, debit to Manufacturing overhead for $200
D)Debit to Manufacturing overhead for $1 700

Question 14

When materials are requisitioned for a job, the materials inventory account is debited.

Question 15

A job order costing system is useful in which of the following circumstances?

A)Manufacturing multiple products in separate batches
B)Mass production of a commodity
C)Continuous flow production of a single product
D)Manufacturing products by producing identical units through a series of production steps or processes

Question 16

A process costing system is useful in which of the following circumstances?

A)Production of multiple products in separate batches
B)Providing specialised services
C)Production of unique products
D)Mass production of a single type of product

Question 17

Which of the following would be included in the journal entry to record direct labour costs actually incurred?

A)Debit to Wages payable
B)Debit to Manufacturing overhead
C)Debit to Finished goods inventory
D)Debit to Work in process inventory

Question 18

Job order costing is most likely used in which of the following industries?

A)Pharmaceutical manufacturing
B)Medical clinic
C)Food and beverage manufacturing
D)Oil refinery

Question 19

Accounting firms, building contractors, and healthcare providers are companies that use job order costing.

Question 20

Which of the following would be included in the journal entry to record the incurrence of indirect labour costs?

A)Debit to Manufacturing overhead
B)Debit to Finished goods inventory
C)Debit to Wages payable
D)Debit to Work in process inventory

Question 21

During 2013, a company incurs $500 000 of manufacturing overhead costs and allocates out $460 000 of manufacturing overhead costs. At year- end, the adjustment entry needed to clear the overhead balance to zero will include a debit to Cost of sales.

Question 22

Gardner Machine Shop estimates manufacturing overhead costs for the coming year at $316 000. They will allocate based on direct labour hours. Gardner estimates 5 000 direct labour hours for the coming year. What is the predetermined manufacturing overhead rate?

A)$16.00 per direct labour hour
B)$0.016 per direct labour hour
C)$63.20 per direct labour hour
D)$6.32 per direct labour hour

Question 23

At the end of the year, Martin Company has a preliminary credit balance in the Manufacturing overhead account of $95. Which of the following is the year- end adjusting entry needed to clear the balance to zero?

A)Debit Manufacturing overhead $95, credit Cost of sales $95
B)Debit Cost of sales $95, credit Finished goods inventory $95
C)Debit Cost of sales $95, credit Manufacturing overhead $95
D)Debit Manufacturing overhead $95, credit Finished goods inventory $95

Question 24

At 1 January 2013, Feldstein Manufacturing Company had a beginning balance in Work in process of $80 000 and a beginning balance in Finished goods of $20 000. During the year, Feldstein incurred manufacturing costs of $350 000.
During the year, the following transactions occurred:
Job A- 12, was completed for a total cost of $120 000, and was sold for $125 000. Job A- 13, was completed for a total cost of $200 000, and was sold for $210 000. Job A- 15, was completed for a total cost $60 000, but was not sold as of year- end.
The Manufacturing overhead account had a preliminary credit balance of $12 000, and was cleared to zero at year- end.
What was the amount of gross profit reported by Feldstein at the end of the year?

A)$3 000
B)$2 000
C)$15 000
D)$27 000

Question 25

Falstaff Products estimates manufacturing overhead costs for the coming year at $500 000. Falstaff will allocate based on machine hours. Falstaff estimates 8 000 machine hours for the coming year. What is the predetermined manufacturing overhead rate?

A)$32.00 per machine hour
B)$62.50 per machine hour
C)$6.25 per machine hour
D)$0.016 per machine hour

Question 26

When is the predetermined manufacturing overhead rate for a given production year calculated?

A)At the end of the production year
B)Before the production year begins
C)At the mid- point of the production year
D)After each job is completed

Question 27

Lakeside Company estimated manufacturing overhead costs for 2013 at $378 000, based on 180 000 estimated direct labour hours. Actual direct labour hours for 2013 totaled 195 000. The manufacturing overhead account contains debit entries totaling $391 500. The manufacturing overhead for 2013 was:

A)$18 000 underallocated.
B)$18 000 overallocated.
C)$31 500 underallocated.
D)$31 500 overallocated.

Question 28

Darrius Travel Services provided the following information:
Cost allocation rate for direct labour: $40 per hour Cost allocation rate for indirect costs: $22 per hour
If Darrius receives $700 for a job requiring 12 hours of direct labour, they will make a profit of $44.

Question 29

At the end of the year, Deltona Company has a preliminary debit balance in the Manufacturing overhead account of $3 950. Which of the following is the year- end adjusting entry needed to clear the balance to zero?

A)Debit Work in process $3 950, credit Manufacturing overhead $3 950
B)Debit Gross profit $3 950, credit Cost of sales $3 950
C)Debit Cost of sales $3 950, credit Manufacturing overhead $3 950
D)Debit Manufacturing overhead $3 950, credit Cost of sales

Question 30

Falstaff Products allocates manufacturing overhead with a rate of $62.50 per machine hour. Job number 300 was just completed. It used 12 machine hours. How much overhead was allocated to the job?

A)$625
B)$750
C)$75
D)$7 500

Question 31

At 1 January 2013, Feldstein Manufacturing Company had a beginning balance in Work in process of $80 00 and a beginning balance in Finished goods of $20 000. During the year, Feldstein incurred manufacturing costs of $350 000. During the year, the following transactions occurred:
Job A- 12, was completed for a total cost of $120 000, and was sold for $125 000. Job A- 13, was completed for a total cost of $200 000, and was sold for $210 000. Job A- 15, was completed for a total cost $60 000, but was not sold as of year- end.
The Manufacturing overhead account had a preliminary credit balance of $12 000, and was cleared to zero at year- end.
What was the final balance in the Cost of sales account?

A)$12 000 credit balance
B)$332 000 debit balance
C)$308 000 debit balance
D)$320 000 debit balance

Question 32

Overallocated manufacturing overhead occurs when the manufacturing overhead allocated to Work in process inventory is less than the amount actually incurred.

Question 33

On 30 June, Coraline Company finished job number 750, with total job costs of $4 600, and transferred the costs to Finished goods. On 6 July, they completed the sale of the goods to a customer for $5 100 cash. In order to record the sale, two entries are necessary, one to record revenue, and one to record cost of goods sold. Which of the following is the correct entry needed to record the revenues?

A)Debit Cost of sales $4 600, credit Sales revenue $4 600
B)Debit Sales revenue $5 100, credit Cash $5 100
C)Debit Finished goods inventory $4 600, credit Sales revenue $4 600
D)Debit cash $5 100, credit Sales revenue $5 100

Question 34

When calculating the predetermined manufacturing overhead rate, what is the correct basis of calculation?

A)Actual overhead costs of the prior year divided by the actual amount of the cost driver or allocation base
B)Estimated overhead costs divided by the estimated amount of the cost driver or allocation base
C)Estimated amount of the cost driver divided by the estimated total overhead costs
D)Estimated overhead costs divided by the number of days in a year

Question 35

On 1 January 2013, Matthew Company's work in process inventory account had a balance of $30 000. During 2013, $58 000 of direct materials was placed into production. Manufacturing wages incurred amounted to $84 000, of which $66 000 were for direct labour. Manufacturing overhead is allocated on the basis of 120% of direct labour cost. Actual manufacturing overhead was $90 000. Jobs costing $220 400 were completed during 2013. What is the 31 December 2013 balance in work in process inventory?

A)$12 800
B)$6 000
C)$34 800
D)$16 800

Question 36

Altina Company just finished job A40. It included $400 of direct materials, and $3 600 of direct labour. Altina uses a predetermined manufacturing overhead rate based on a percentage of direct labour costs. That rate is 40%. The entry to record the completion of the job should be a:

A)debit to Cost of sales $5 440, and a credit to Finished goods $5 440.
B)debit to Finished goods $5 440, and a credit to Materials inventory $5 440.
C)debit to Work in process $5 440, and a credit to Finished goods $5 440.
D)debit to Finished goods $5 440, and a credit to Work in process $5 440.

Question 37

The cost of goods manufactured is recorded as a debit to the Finished goods account.

Question 38

Cost of sales needs to be debited at year- end when the manufacturing overhead is overallocated in order to clear the overhead account to zero.

Question 39

During 2013, a company incurs $500 000 of manufacturing overhead costs and allocates out $506 000 of manufacturing overhead costs. Overhead costs have been underallocated.

Question 40

When jobs are completed, the total cost of the job is recorded as a debit to Finished goods and a credit to Work in process.

Question 41

Darrius Travel Services provided the following information: Cost allocation rate for direct labour: $40 per hour
Cost allocation rate for indirect costs: $22 per hour
If Darrius receives $350 for a job requiring 5 hours of direct labour, they will make a profit of $40.

Question 42

Bilkins Financial Advisors provides accounting and finance assistance to customers in the retail business. They have 4 professionals on staff, plus an office with 6 clerical staff. Total compensation, including benefits, for the professional staff runs about $576 000 per year, and they normally have about 8 000 available hours per year. Professional staff keep detailed time sheets distributed by client number. Office and administrative costs total $754 000 a year. What is the cost allocation rate that Bilkins will use for office and administrative costs?

A)$36.00 per hour
B)$94.25 per hour
C)$72.00 per hour
D)$74.13 per hour

Question 43

The main difference between activity- based costing and traditional costing systems is that activity- based costing uses a separate allocation rate for each activity.

Question 44

Job order costing is used primarily in the manufacturing and industrial sectors, but is not well suited for the service industry.

Question 45

A traditional costing system employs multiple allocation rates, but an activity- based costing system uses only one single allocation rate.

Question 46

Bilkins Financial Advisors provides accounting and finance assistance to customers in the retail business. They have 4 professionals on staff, plus an office with 6 clerical staff. Total compensation, including benefits, for the professional staff runs about $576 000 per year, and they normally have about 8 000 available hours per year. Professional staff keep detailed time sheets distributed by client number. Office and administrative costs total $754 000 a year. Bilkins allocates professional time and administrative costs to clients monthly, using allocation rates based on available hours. During July, Bilkins' professionals spent 36 hours on their client, Soupy Sales. Bilkins adds a 25% markup on their costs to calculate amount billed to the customer. How much did Bilkins bill their customer Soupy Sales for the month of July?

A)$6 833.25
B)$5 985.00
C)$6 633.00
D)$7 481.25

Question 47

Fogelin Promotional Services uses a job order system for costing and billing promotional services for dance and ballet performances. Fogelin has 4 public relations specialists, plus an office staff. At the beginning of 2013, Fogelin estimated the total cost of salaries and benefits for the public relations specialists at $403 200, and a total of 7 200 available hours for the year. All remaining office and administrative costs were estimated at $676 800. A new client is contracting with Fogelin to promote a ballet tour in the U.S. Fogelin estimates that the job will require 40 available hours of specialist time. If Fogelin wishes to make a 25% gross profit on the job, what price should Fogelin quote to the client?

A)$2 800
B)$4 700
C)$7 500
D)$6 000

Question 48

With increased competition, managers need more accurate estimates of product costs to set prices and to identify the most profitable products.

Question 49

Activity- based costing focuses on a single predetermined overhead rate for cost analysis.

Question 50

Abba Accounting expects its accountants to work a total of 24 000 direct labour hours per year. Abba's estimated total indirect costs are $240 000. The direct labour rate is $75 per hour. If Abba does a job requiring 40 hours of direct labour, what is the total job cost?

A)$400
B)$7 000
C)$3 400
D)$3 000

Question 51

Fogelin Promotional Services uses a job order system for costing and billing promotional services for dance and ballet performances. Fogelin has 4 public relations specialists, plus an office staff. At the beginning of 2013, Fogelin estimated the total cost of salaries and benefits for the public relations specialists at $403 200, and a total of 7 200 available hours for the year. All remaining office and administrative costs were estimated at $676 800. In June, Fogelin signed a contract for a Russian ballet performance. They negotiated a price of $6 400 for their services. When the job was complete, Fogelin's records showed that they had logged
36.5 available hours. What was the amount of gross profit that Fogelin made on the job?

A)$925
B)$1 494
C)$4 356
D)$2 969

Question 52

Activity- based costing systems and traditional costing systems will produce the same results for product cost and profitability, although they use different methods of calculation.

Question 53

Two main benefits of activity- based costing are more accurate product cost information and more detailed information on costs of activities and the drivers of these costs.

Question 54

Bilkins Financial Advisors provides accounting and finance assistance to customers in the retail business. They have 4 professionals on staff, plus an office with 6 clerical staff. Total compensation, including benefits, for the professional staff runs about $576 000 per year, and they normally have about 8 000 available hours per year. Professional staff keep detailed timesheets distributed by client number. Office and administrative costs total $754 000 a year. What is the cost allocation rate that Bilkins will use for direct labour-i.e. the cost of the professional staff?

A)$36 per hour
B)$76 per hour
C)$75 per hour
D)$72 per hour

Question 55

Abba Accounting expects its accountants to work a total of 24 000 direct labour hours per year. Abba's estimated total indirect costs are $240 000. The direct labour rate is $75 per hour. If Abba does a job requiring 40 hours of direct labour, and bills the client using a standard markup of 40%, what will be the amount that Abba bills the client for?

A)$4 760
B)$3 700
C)$4 200
D)$3 400

Question 56

An activity- based costing system would be of less value to a business making a single product than it would be for a company with multiple products.

Question 57

Darrius Travel Services provided the following information:
Cost allocation rate for direct labour: $40 per hour Cost allocation rate for indirect costs: $22 per hour
Darrius is negotiating a job with a new client. The job will require 10 hours of direct labour. If Darrius wishes to make at least 15% gross profit on the deal, they need to receive $713 of revenues.

Question 58

Bilkins Financial Advisors provides accounting and finance assistance to customers in the retail business. They have 4 professionals on staff, plus an office with 6 clerical staff. Total compensation, including benefits, for the professional staff runs about $576 000 per year, and they normally have about 8 000 available hours per year. Professional staff keep detailed time sheets distributed by client number. Office and administrative costs total $754 000 a year. Bilkins allocates professional time and administrative costs to clients monthly, using allocation rates based on available hours. During July, Bilkins' professionals spent 36 hours on their client, Soupy Sales. What is the total amount of cost that Bilkins will record for the client for the month?

A)$2 592
B)$5 985
C)$5 040
D)$3 393

Question 59

Activity- based costing systems combine many various elements of overhead into a single cost pool.

Question 60

The first step in the activity- based costing system is to identify each activity and its total indirect cost.

Question 61

Which of the following would most likely be treated as an activity in an activity- based costing system?

A)Direct materials cost
B)Machine processing
C)Sales revenues
D)Direct labour cost

Question 62

JC Manufacturing produces products that use a variety of components. Which of the following cost drivers would be the MOST applicable for assigning material handling costs to the finished products?

A)Number of units produced
B)Number of components used
C)Direct labour hours
D)Direct labour cost

Question 63

Morley Manufacturing is considering the manufacture of a new product. Morley was hoping to sell the product for $168 per unit and estimated the total cost per unit to be $120. Morley conducted market research and found out that the market is only willing to pay $154 for the new product. Using the target costing approach, what does the total per unit cost of the new product have to be if Morley wants to achieve the same amount of profit as originally planned?

A)$106
B)$110
C)$100
D)$109

Question 64

Which of the following is MOST likely to be the cost driver for the packaging and shipping activity?

A)Number of orders
B)Number of setups
C)Hours of testing
D)Number of components

Question 65

The following four steps are necessary in order to use an activity- based costing system: 1. Compute the allocation rate for each activity.
2. Identify activities and estimate their total costs.
3. Identify the cost driver for each activity and then estimate the quantity of each driver's allocation base.
4. Allocate the indirect costs to the cost object.
In what order are these steps performed?

A)3,1,2,4
B)1,2,3,4
C)2,3,1,4
D)2,1,3 4

Question 66

Percival Company wishes to sell wooden beams to home builders. The current market price of the beams is $950, and Percival knows it must accept the market price. Currently, the beams cost Percival $809 to produce. The company wishes to make a profit equal to 16% of the price. Which of the following strategies would help Percival accomplish their objective?

A)Increase the sales price to $961.
B)Increase the volume of sales.
C)Reduce production costs by $11 per unit.
D)Increase the production cost by $22 per unit.

Question 67

Business managers can use activity- based costing data to assist them in pricing and product mix decisions, and in cost management.

Question 68

Companies that use activity- based costing do NOT need to trace direct materials and direct labour to products as is done in traditional costing systems.

Question 69

Percival Company wishes to sell wooden beams to home builders. The current market price of the beams is $950, and Percival knows it must accept the market price. The company wishes to make a profit equal to 16% of the price. Using target costing, the company will have to design the production process to meet this requirement. What is the desired target cost per beam?

A)$152
B)$798
C)$1 062
D)$800

Question 70

Which of the following would NOT be considered an activity for the purposes of an activity- based costing system?

A)Direct materials cost
B)Materials handling
C)Machine processing
D)Packaging

Question 71

Equival Company wishes to sell truck axles to car manufacturers. The current market price of the axles is $400, and Equival knows it must accept the market price. Currently, it costs the company $330 to produce each axle. The company wishes to make a profit equal to 20% of the price. Which of the following strategies should Equival adopt to achieve its objective?

A)Reduce its production costs by $10 per unit.
B)Use advertising to increase the volume of sales.
C)Raise the price to $410.
D)Increase the production costs by $20 per unit.

Question 72

An activity- based costing system improves the allocation of which of the following manufacturing costs?

A)Direct labour
B)Indirect manufacturing costs
C)Direct materials
D)Sales commissions

Question 73

Madrid Manufacturing is considering the manufacture of a new product. Madrid was hoping to sell the product for $504 per unit and estimated the total cost per unit to be $360. Madrid conducted market research and found out that the market is only willing to pay $462 for the new product. Using the target costing approach, how much will Madrid have to reduce the production cost in order to achieve the same amount of gross profit as originally planned?

A)$42
B)$31
C)$47
D)$30

Question 74

Activity- based management refers to using activity- based cost information to make decisions that increase profits while satisfying customers' needs.

Question 75

Equival Company wishes to sell truck axles to car manufacturers. The current market price of the axles is $400, and Equival knows it must accept the market price. The company wishes to make a profit equal to 20% of the price. Using target costing, Equival will have to design the production process to meet this requirement. What is the desired target cost per axle?

A)$420
B)$480
C)$380
D)$320

Question 76

Lisbon Manufacturing is considering the manufacture of a new product. Lisbon was hoping to sell the product for $588 per unit and estimated the total cost per unit to be $420. Lisbon conducted market research and found out that the market is only willing to pay $539 for the new product. Using the target costing approach, what does the total per unit cost of the new product have to be if Lisbon wants to achieve a 40% markup on total cost?

A)$385.00
B)$257.60
C)$420.00
D)$215.60

Question 77

Target cost is the price that customers are willing to pay and target price is the desired cost to produce the product.

Question 78

Target pricing is based on the cost to produce a product, plus a profit mark- up.

Question 79

An activity- based costing system can be a significant competitive advantage for a business which does bidding for manufacturing work.

Question 80

Traditional costing systems can distort unit manufacturing costs and product profitability when many products are produced and the various products have significantly different production processes.