Deck 3: Product Costing and Cost Accumulation

Question 1

Which of the following statements is true?

A)Service firms have little need for determining the cost of their services.
B)The concept of product costing is relevant only for manufacturing firms.
C)The cost of year-end inventory appears on the balance sheet as an expense.
D)Service companies use cost information for planning and control purposes.
E)Mining and petroleum companies have no inventoriable costs.

Answer 1

D

Question 2

Which of the following is the correct method to calculate a predetermined overhead rate?

A)Budgeted total manufacturing cost ÷ Budgeted amount of cost driver.
B)Budgeted manufacturing overhead cost ÷ Budgeted amount of cost driver.
C)Budgeted amount of cost driver ÷ Budgeted overhead cost.
D)Actual overhead cost ÷ Budgeted amount of cost driver.
E)Actual overhead cost ÷ Actual amount of cost driver.

Answer 2

B

Question 3

Which of the following statements about material requisitions is false?

A)Material requisitions are often computerized.
B)Material requisitions are a common example of source documents.
C)Material requisitions contain information that is useful to the cost accounting department.
D)Material requisitions authorize the transfer of materials from the production floor to the raw materials warehouse.
E)Material requisitions are routinely linked to a bill of materials that lists all of the materials needed to complete a job.

Answer 3

D

Question 4

Odds and Sodds Company, a local furniture manufacturer applies its manufacturing overhead to products based on direct labour hours. The Company estimates that fixed overhead will be $100,000 per year, variable overhead will be $1.00 per direct labour hour and the estimated total direct labour hours will be 40,000 per year. On the basis of this information, the Company's predetermined overhead rate will be.

A)$0.29 per direct labour hour.
B)$0.40 per direct labour hour.
C)$2.50 per direct labour hour.
D)$3.50 per direct labour hour.
E)$4.50 per direct labour hour.

Question 5

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

A)a denominator of budgeted machine hours for the current accounting period.
B)a denominator of actual machine hours for the current accounting period.
C)a denominator of actual machine hours for the previous accounting period.
D)a numerator of budgeted machine hours for the current accounting period.
E)a numerator of actual machine hours for the current accounting period.

Question 6

A custom-home builder would likely utilize:

A)job-order costing.
B)process costing.
C)mass customization.
D)process budgeting.
E)joint costing.

Question 7

Product costing in a manufacturing firm is the process of:

A)accumulating the company's period costs.
B)allocating costs among the firm's departments.
C)placing a value on the company's fixed assets.
D)assigning costs to the firm's inventory.
E)assigning costs to the company's managers.

Question 8

The process of assigning manufacturing overhead costs to the jobs that are worked on is commonly called:

A)service department cost allocation.
B)overhead cost distribution.
C)overhead application.
D)transfer costing.
E)overhead cost apportionment.

Question 9

As soon as products are completed, their costs are transferred from the Work-in-Process Inventory account to the:

A)Finished-Goods Inventory account.
B)Manufacturing-Overhead Inventory account.
C)Cost-of-Goods-Sold account.
D)Raw Materials Inventory account.
E)Production Labour account.

Question 10

Simon Manufacturing Company uses a predetermined overhead application rate of $10 per direct labour hour. A review of Simon's accounting records for the year just ended discovered the following: Underapplied manufacturing overhead: $9,000
Actual manufacturing overhead: $400,000
Budgeted labour hours: 50,000
Simon's actual labour hours worked totaled:

A)39,100
B)40,000.
C)40,900
D)49,872
E)50,000

Question 11

A manufacturing firm produces goods in accordance with customer specifications, commencing production upon receipt of a purchase order. To accumulate the cost of each order, the company would use a(n):

A)job-cost record.
B)cost allocation matrix.
C)production log.
D)overhead sheet.
E)manufacturing cost record.

Question 12

The total production cost of a job is composed of:

A)direct material and direct labour.
B)direct material, direct labour, manufacturing overhead, and outlays for selling costs.
C)direct material, direct labour, manufacturing overhead, and outlays for both selling and administrative costs.
D)direct material, direct labour, and applied manufacturing overhead.
E)direct material, direct labour, and actual manufacturing overhead.

Question 13

The Little Britain Company applies overhead cost based on machine hours. At the beginning of 2011, the company estimated that manufacturing overhead would be $500,000, and machine hours would total 20,000. By 2011 year-end, actual overhead totalled $525,000, and actual machine hours were 25,000. On the basis of this information, the 2011 predetermined overhead rate was:

A)$0.04 per machine hour.
B)$0.05 per machine hour.
C)$20 per machine hour.
D)$21 per machine hour.
E)$25 per machine hour.

Question 14

As production takes place, all manufacturing costs are added to:

A)the Raw Materials inventory account
B)the Work-in-Process Inventory account
C)the Manufacturing Overhead account
D)the Cost of Goods Sold account
E)the Finished Goods Inventory account

Question 15

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

A)an estimate of the total time spent on the job.
B)actual total payroll cost divided equally among all jobs in process.
C)estimated total payroll cost divided equally among all jobs in process.
D)the actual time spent on each job multiplied by the wage rate.
E)the estimated time spent on each job multiplied by the wage rate.

Question 16

The WIP inventory account of Oliver Manufacturing Inc shows a debit balance of $3,300 at the end of an accounting period. The job cost sheets of two uncompleted jobs show charges of $100 and $400 for direct materials and $600 and $200 for direct labour. What predetermined overhead rate, as a percentage of direct labour costs, is the company using?

A)40%.
B)62.5%.
C)165%.
D)250%.
E)400%.

Question 17

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

A)A credit to the manufacturing overhead account.
B)A credit to the Work-in-Process inventory account.
C)A debit to Cost of Goods Sold.
D)A debit to the Manufacturing-Overhead account.
E)A credit to the raw-materials account

Question 18

Which of the following manufacturers would most likely use job-order costing?

A)Chemical manufacturers.
B)Microchip processors.
C)Custom-furniture manufacturers.
D)Gasoline refiners.
E)Fertilizer manufacturers.

Question 19

Which of the following types of companies would most likely use job order costing rather than process costing?

A)Fast food restaurant.
B)Shipbuilder.
C)Crude oil refinery.
D)Candy maker.
E)Cereal manufacturer.

Question 20

Huxtable Manufacturing Corporation charges manufacturing overhead to its products by using a predetermined overhead rate, computed on the basis of machine hours. The following data pertain to the current year: Budgeted manufacturing overhead: $480,000
Actual manufacturing overhead: $440,000
Budgeted machine hours: 20,000
Actual machine hours: 16,000
Overhead applied to production totalled.

A)$352,000.
B)$384,000.
C)$550,000.
D)$600,000.
E)$880,000.

Question 21

Yole Corporation uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs. At the beginning of the year, Yole estimated manufacturing overhead would be $100,000 and direct labour hours would be 50,000. The actual figures for the year were $120,000 for manufacturing overhead and 52,000 direct labour hours. The cost records for the year will show which of the following?

A)$2,000 for overhead underapplied.
B)$16,000 for overhead overapplied.
C)$16,000 for overhead underapplied.
D)$20,000 for overhead underapplied.
E)$20,000 for overhead overapplied.

Question 22

On November 28, 2008, Job No. C12 was completed at a cost of $20,500, subdivided as follows: direct material, $5,500; direct labour, $6,000; and manufacturing overhead, $9,000. The journal entry to record this information is:

A) $\begin{array}{lccc} \text { Cost of Goods Sold } &20,500 \\ \text { Finished Goods Inventory} &&20,500\end{array}$
B) $\begin{array}{lccc} \text { Work in Process Inventory } &20,500 \\ \text { Finished Goods I rventory} &&20,500\end{array}$
C) $\begin{array}{l} \text { Work in Process Irwentory }&20,500 \\ \text { Ram Material Inventory }&&8,500 \\ \text { Wages Payable }&&6,000 \\ \text { Manufacturing Overhead }&&6,000\end{array}$
D) $\begin{array}{lccc} \text { Finished Goods Inventory } &20,500 \\ \text { Work in Process Inventory } &&20,500\end{array}$
E) $\begin{array}{lccc} \text { Finished Goods Inventory } &20,500 \\ \text { Cost of Goods Sold } &&20,500\end{array}$

Question 23

Which of the following statements about materials is false?

A)Acquisitions of materials are normally charged to the Purchases account.
B)The use of direct materials gives rise to a debit to Work-in-Process Inventory.
C)The use of indirect materials gives rise to a debit to Manufacturing Overhead.
D)The use of indirect materials gives rise to a credit to Manufacturing Supplies Inventory.
E)Direct materials are accounted for in a different manner than indirect materials.

Question 24

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

A)a debit to Advertising Expense.
B)a credit to Advertising Expense.
C)a debit to Manufacturing Overhead.
D)a credit to Manufacturing Overhead.
E)a debit to Work in Process.

Question 25

A computer manufacturer recently shipped several laptops to a customer (cost: $25,000) and billed the customer $30,000. Which of the following options correctly expresses the accounts that are debited and credited to record this transaction?

A)Debits: Accounts Receivable, Finished-Goods Inventory; credits: Sales Revenue, Cost of Goods Sold.
B)Debits: Accounts Receivable, Cost of Goods Sold; credits: Sales Revenue, Finished-Goods Inventory.
C)Debits: Sales Revenue, Cost of Goods Sold; credits: Accounts Receivable, Finished-Goods Inventory.
D)Debits: Sales Revenue, Finished-Goods Inventory; credits: Accounts Receivable, Cost of Goods Sold.
E)Debits: Accounts Receivable; credits: Finished-Goods Inventory, Profit on Sale.

Question 26

Bartholomew Company incurred $40,000 of depreciation for the year. Seventy percent relates to the firm's production facilities, and 30% relates to sales and administrative offices. If all items are handled in the proper manner, a review of Bartholomew's accounting records should reveal a:

A)debit to Work-in-Process Inventory for $12,000.
B)debit to Manufacturing Overhead for $28,000.
C)debit to Depreciation Expense for $40,000.
D)debit to Manufacturing Overhead for $40,000.
E)credit to Cash for $40,000.

Question 27

The Bridlewood Manufacturing Company uses a job-order costing system and applies overhead to jobs using a predetermined overhead rate. The company closes out any balance in the Manufacturing Overhead account to Cost of Goods Sold. During the year the company's Finished-Goods inventory account was debited for $125,000 and credited for $110,000. The ending balance in the Finished-Goods inventory account was $28,000. At the end of the year, manufacturing overhead was overapplied by $4,500. What was the balance in the Finished-Goods inventory account at the beginning of the year?

A)$8,500
B)$13,000
C)$17,500
D)$28,000
E)$43,000

Question 28

The left (or debit) side of the Manufacturing Overhead account is used to accumulate:

A)actual manufacturing overhead costs incurred throughout the accounting period.
B)overhead applied to Work-in-Process Inventory.
C)underapplied overhead.
D)predetermined overhead.
E)overapplied overhead.

Question 29

Grumpy's Manufacturing recently sold goods that cost $30,000 for $40,000 cash. The journal entries to record this transaction would include:

A)a credit to Work-in-Process Inventory for $30,000.
B)a debit to Sales Revenue for $40,000.
C)a credit to Profit on Sale for $10,000.
D)a debit to Finished-Goods Inventory for $30,000.
E)a credit to Sales Revenue for $40,000.

Question 30

The final step in recognizing the completion of production requires a company to:

A)debit Finished-Goods Inventory and credit Work-in-Process Inventory.
B)debit Work-in-Process Inventory and credit Finished-Goods Inventory.
C)add direct labour to Work-in-Process Inventory.
D)add direct materials, direct labour, and manufacturing overhead to Work-in-Process Inventory.
E)add direct materials to Finished-Goods Inventory.

Question 31

A review of Juicy Corporation's Work-in-Process Inventory account found a debit for materials of $67,000. If all procedures were performed in the correct manner, this means that the firm:

A)also recorded a debit to the Raw-Material Inventory account.
B)also recorded a credit to Manufacturing Supplies Inventory.
C)was accounting for the usage of Manufacturing Supplies Inventory.
D)was accounting for the usage of indirect materials.
E)was accounting for the usage of direct materials by also crediting the Raw-Material Inventory account.

Question 32

Throughout the accounting period, the right (or credit) side of the Manufacturing Overhead account is used to accumulate:

A)actual manufacturing overhead costs.
B)overhead applied to Work-in-Process Inventory.
C)overapplied overhead.
D)underapplied overhead.
E)predetermined overhead.

Question 33

Twin Oaks Limited recently used $5,000 of direct materials and $6,000 of indirect materials in production activities. The journal entries reflecting these transactions would include:

A)a debit to Manufacturing Overhead for $6,000.
B)a debit to Manufacturing Overhead for $11,000.
C)a debit to Raw-Material Inventory for $5,000.
D)a debit to Work-in-Process Inventory for $11,000.
E)a credit to Manufacturing Overhead for $6,000.

Question 34

Cheetah Manufacturing Company incurred $300,000 of direct labour and $10,000 of indirect labour. The proper journal entry to record these events would include a debit to Work in Process for:

A)$0 because Work in Process should be credited.
B)$0 because Work in Process is not affected.
C)$10,000.
D)$300,000.
E)$310,000.

Question 35

If a company sells goods that cost $70,000 for $82,000, the firm will:

A)reduce Finished-Goods Inventory by $70,000.
B)reduce Finished-Goods Inventory by $82,000.
C)report sales revenue on the balance sheet of $82,000.
D)reduce Cost of Goods Sold by $70,000.
E)reduce Finished-Goods Inventory by $82,000 and report sales revenue of $70,000.

Question 36

Which of the following statements regarding work in process is not correct?

A)Work-in-process is partially completed inventory.
B)Work-in-process consists of direct labour, direct material, and manufacturing overhead.
C)Work-in-Process Inventory is debited to record direct material used and direct labour incurred.
D)Work-in-Process Inventory appears on the year-end balance sheet.
E)Work-in-Process Inventory is credited when goods are sold.

Question 37

Ferndale Manufacturing Company applies overhead at the rate of 190% of direct labour cost. During July 2011, Ferndale began work on job no. 101. The job was completed in August and sold during September, It accumulated direct material and labour charges of $27,000 and $15,000, respectively. On the basis of this information, the total overhead applied to job no. 101 is:

A)$15,000.
B)$28,500.
C)$51,300.
D)$70,500.
E)$79,800.

Question 38

Electricity costs incurred by a company's production processes should be debited to:

A)Utilities Expense.
B)Accounts Payable.
C)Cash.
D)Manufacturing Overhead.
E)Work-in-Process Inventory.

Question 39

More Manufacturing Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs. Last year, More worked 87,000 actual direct labour hours and incurred $300,000 of actual manufacturing overhead cost. More had initially estimated that it would work 85,000 direct labour hours during the year and incur $340,000 of manufacturing overhead cost. Based on the information provided, More's manufacturing overhead cost for the year was:

A)$8,000 overapplied.
B)$40,000 underapplied.
C)$40,000 overapplied.
D)$48,000 overapplied.
E)$48,000 underapplied.

Question 40

An accountant recently debited Work-in-Process Inventory and credited Manufacturing Overhead. The accountant was:

A)applying a predetermined overhead amount to production.
B)recognizing receipt of the factory utilities bill.
C)recording a year-end adjustment for an insignificant amount of underapplied overhead.
D)recognizing actual overhead incurred during the period.
E)recognizing the completion of production.

Question 41

In stage two of the two-stage allocation process, all of the manufacturing-overhead costs accumulated in each production department are assigned to:

A)service departments.
B)other production departments.
C)departmental overhead centres.
D)the production jobs on which each department has worked.
E)the production jobs that have not yet commenced.

Question 42

Tiffany charges manufacturing overhead to products by using a predetermined application rate, computed on the basis of labour hours. The following data pertain to the current year: Budgeted manufacturing overhead: $1,800,000
Actual manufacturing overhead: $1,810,000
Budgeted labour hours: 60,000
Actual labour hours: 61,500
Which of the following choices denotes the correct status of manufacturing overhead at year-end?

A)Overapplied by $10,000.
B)Underapplied by $10,000.
C)Overapplied by $35,000.
D)Underapplied by $35,000.
E)Overapplied by $45,000.

Question 43

Blizzard Corporation sells a number of products to groups that provide educational workshops and seminars. One of the products involves a combination leather case and note pad. The company purchases the case and pad combination from a supplier and encloses a $3 pen that contains the educational groups' name and logo.
Blizzard began to carry this product at the start of 2011 by acquiring 12,500 cases from Executive Supply for $87,500 along with an identical number of pens from Accent Goods. During 2011, 9,500 of the cases and pens were issued to TBlizzard's assembly operation where the pen is added. Eighty percent of these cases were completed as of December 31, and a review of the December 31 finished-goods inventory found 2,600 completed cases in the warehouse. Conversations with salespeople revealed that 70 finished sets were used in various company marketing activities throughout the year.
Required:
A. Determine the cost of the cases and pens that would appear in Blizzard's raw materials, work in process, and finished-goods inventory as of December 31.
B. Determine the cost of the cases and pens that would appear in Blizzard's cost of goods sold for 2011.

Question 44

The estimates used to calculate the predetermined overhead rate will virtually always:

A)prove to be correct.
B)result in a year-end balance of zero in the Manufacturing-Overhead account.
C)result in overapplied overhead that is closed to Cost of Goods Sold if it is immaterial in amount.
D)result in underapplied overhead that is closed to Cost of Goods Sold if it is immaterial in amount.
E)result in either underapplied or overapplied overhead that is closed to Cost of Goods Sold if it is immaterial in amount.

Question 45

Montgomery, Inc., which uses a job-costing system, is a labour-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 labour incurred during January were: Job no. 791 was the only job in production as of January 31.
Required:
A. Should Montgomery use direct labour or machine hours as a cost driver. Why?
B. Assume that the company decided to use direct labour as its cost driver. If the budgeted amounts of direct labour 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?

Question 46

In the two-stage cost allocation process, costs are assigned from:

A)jobs, to service departments, to production departments.
B)service departments, to jobs, to production departments.
C)service departments, to production departments, to jobs.
D)production departments, to jobs, to service departments.
E)the balance sheet when goods are produced to the income statement when goods are sold.

Question 47

The selected data that follow relate to the Berger Furniture Company.
During the year, products costing $310,000 were completed, and products costing $316,000 were sold for $455,000.
Required:
Prepare journal entries to record the preceding transactions and events.

Question 48

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

A)Direct labour is the most commonly used cost driver in traditional product costing systems when calculating a predetermined overhead rate.
B)Direct labour is gaining importance in many manufacturing applications with respect to being a significant cost driver.
C)Direct labour is an inappropriate cost driver to use if a company is highly automated.
D)If direct labour is a good cost driver, increases in direct labour are matched with increases in manufacturing overhead.
E)Companies can use either direct labour cost or direct labour hours as a cost driver.

Question 49

Blue Heron Manufacturing disposes of under or overapplied overhead at year-end as an adjustment to cost of goods sold. Prior to disposal, Blue Heron reported cost of goods sold of $700,000 in a year, when manufacturing overhead was underapplied by $25,000. If sales revenue totalled $2,000,000, the adjusted cost of goods sold and gross margin figures are:

A)$675,000 and $1,300,000, respectively.
B)$675,000 and $1,325,000, respectively.
C)$700,000 and $1,300,000, respectively.
D)$725,000 and $1,275,000, respectively.
E)$725,000 and $1,300,000, respectively.

Question 50

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

A)direct material costs.
B)direct labour costs.
C)manufacturing overhead costs.
D)selling costs.
E)administrative costs.

Question 51

Media Inc., an advertising agency, applies overhead to jobs on the basis of direct professional labour hours. Overhead costs were estimated to be $150,000, direct professional labour hours were estimated to be 15,000, and direct professional labour cost was projected to be $225,000. During the year, Media incurred actual overhead costs of $146,000, actual direct professional labour hours of 14,500, and actual direct labour cost of $222,000. By year-end, the firm's overhead was:

A)$1,000 underapplied.
B)$1,000 overapplied.
C)$4,000 underapplied.
D)$4,000 overapplied.
E)$5,000 underapplied.

Question 52

Which of the following would not likely be used by service providers to accumulate job costs?

A)Projects.
B)Contracts.
C)Clients.
D)Processes.
E)Programs.

Question 53

If the amount of effort and attention to products varies substantially throughout a company's various manufacturing operations, the company might consider the use of:

A)a plantwide overhead rate.
B)departmental overhead rates.
C)actual overhead rates instead of predetermined overhead rates.
D)direct labour hours to determine the overhead rate.
E)machine hours to determine the overhead rate.

Question 54

Nigella Incorporated, which began operations on January 1, 2012, reported the following information:
Nigella applies manufacturing overhead to jobs on the basis of direct labour cost and adds a 30% markup to the cost of completed production when finished goods are sold. On December 31, job no. 20 was the only job that remained in production. That job had direct-labour charges of $36,000.
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 amount of direct materials used in production for Job #20.
E. Assuming that all finished goods are sold during the period, prepare the journal entry or entries needed to record Nigella's sales, which are all made on account.

Question 55

Blarney Stone Company applies manufacturing overhead by using a predetermined rate of 150% of direct labour cost. For Job No 470, the direct material costs and the direct labour costs were $60,000 and $40,000, respectively. If Blarney Stone adds a 30% markup on total cost to generate a profit, which of the following is the best depiction of a portion of the accounting needed to record the sale of Job No. 470?

A)A debit to cost of goods sold for $160,000.
B)A debit to cost of goods sold for $208,000.
C)A debit to finished goods inventory for $160,000.
D)A debit to finished goods inventory for $208,000.
E)A debit to sales revenue of $208,000.

Question 56

The term "normal costing" refers to the use of:

A)job-costing systems.
B)computerized accounting systems.
C)targeted overhead rates.
D)predetermined overhead rates.
E)actual overhead rates.

Question 57

Spencerville Incorporated applies manufacturing overhead at the rate of $60 per machine hour. Budgeted machine hours for the current period were anticipated to be 80,000; However, a lengthy strike resulted in actual machine hours being worked of only 65,000. 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:

A)overapplied by $280,000.
B)underapplied by $280,000.
C)overapplied by $620,000.
D)underapplied by $620,000.
E)underapplied by $900,000.

Question 58

Armand Incorporated applies manufacturing overhead by using a predetermined rate of 300% of direct labour cost. For Job No. 800, the direct material costs and the direct labour costs were $72,000 and $38,000, respectively. If Armand adds a 50% markup on total cost to generate a profit, which of the following choices is the best depiction of a portion of the accounting needed to record the sale of Job No. 800?

A)a debit to accounts receivable for $224,000
B)a debit to finished goods inventory for $224,000.
C)a debit to finished goods inventory for $336,000.
D)a credit to sales revenue for $224,000.
E)a debit to accounts receivable for $336,000.

Question 59

Limestone Garments started and finished job no. 125 during March. The job required $30,000 of direct material and 100 hours of direct labour at $15 per hour. The predetermined overhead rate is $20 per direct labour hour.
During March, direct materials requisitions for all jobs totalled $300,000; the total direct labour hours and cost were 8,000 hours at $15 per hour; and the total cost of jobs completed was $400,000. All of these figures include data that pertain to job no. 125.
Required:
A. Prepare journal entries that summarize March's's total activity for Limestone Garments.
B. Determine the cost of job no. 125.
C. Assuming no opening balance, if actual manufacturing overhead costs for Limestone for the period totaled $200,000 was overhead over or underapplied and by how much?

Question 60

Dexter Corporation, which uses a job-costing system, had two jobs in process at the start of 20 x 1: job no. 59 ($95,000) and job no. 60 ($39,500). The following information is available:
The company applies manufacturing overhead on the basis of machine hours. Budgeted overhead and machine activity for the year were anticipated to be $720,000 and 20,000 hours, respectively.
The company worked on three jobs during the first quarter. Direct materials used, direct labour incurred, and machine hours consumed were:
Manufacturing overhead during the first quarter included charges for depreciation ($20,000), indirect labour ($50,000), indirect materials used ($4,000), and other factory costs ($108,700).
Dexter completed job no. 59 and job no. 60. Job no. 59 was sold for cash, producing a profit of $24,600 for the firm.
Required:
A. Determine the company's predetermined overhead application rate.
B. Prepare journal entries as of March 31 to record the following. (Note: Use summary entries where appropriate by combining individual job data.)
1. The issuance of direct material to production, and the direct labour incurred.
2. The manufacturing overhead incurred during the quarter.
3. The application of manufacturing overhead to production.
4. The completion of job no. 59 and no. 60.
5. The sale of job no. 59.

Question 61

Manufacturing overhead is applied to production.
A. Describe several situations that may give rise to underapplied overhead.
B. Assume that underapplied manufacturing overhead is treated as an adjustment to Cost of Goods Sold. Explain why an underapplication of overhead increases Cost of Goods Sold.

Question 62

Briefly describe the stages used in the two-stage allocation process for assigning overhead costs.

Question 63

Yole Manufacturing Company has just completed job nos. C14 and C15, which were similar in terms of complexity, production processes, and units manufactured. Job no. C14 was manufactured by Scott Moore who earns $22 per hour, whereas job no. C15 was completed by Cathy Ferguson who earns $30 per hour. If Scott and Cathy are equally efficient, would the company be better off using direct labour cost or direct labour hours as the cost driver in its predetermined overhead rate? Briefly explain.

Question 64

Rockville, Inc., which uses a job-costing system, began business on January 1, 2012 and applies manufacturing overhead on the basis of direct-labour cost. The following information relates to 2012.
▪ Budgeted direct labour and manufacturing overhead were anticipated to be $200,000 and $250,000, respectively.
▪ Job nos. 1, 2, and 3 began during the year and had the following charges for direct material and direct labour: Job nos. 1 and 2 were completed and sold on account to customers at a profit of 60% of cost. Job no. 3 remained in production.
Actual manufacturing overhead by year-end totaled $233,000. Rockville adjusts all under- and overapplied overhead to cost of goods sold.
Required:
A. Compute the company's predetermined overhead application rate.
B. Compute Rockville's ending work-in-process inventory.
C. Determine Rockville's sales revenue.
D. Was manufacturing overhead under- or overapplied during 2012? By how much?
E. Present the necessary journal entry to handle under- or overapplied manufacturing overhead at year-end.
F. Does the presence of under- or overapplied overhead at year-end indicate that Rockville's accountants made a serious error? Briefly explain.

Question 65

Dodge Products uses a job-costing system for its units, which pass from the Machining Department, to the Assembly Department, to finished-goods inventory. The Machining Department is heavily automated; in contrast, the Assembly Department performs a number of manual-assembly activities. The following information relates to the Machining Department for the year just ended: The Machining Department data that follow pertain to Job No. 775, the only job in production at year-end. Required:
A. Assuming the use of normal costing, calculate the predetermined overhead rate that is used in the Machining Department.
B. Compute the cost of the Machining Department's year-end work-in-process inventory.
C. Determine whether overhead was under- or overapplied during the year in the Machining Department.
D. If Dodge disposes of the Machining Department's under- or overapplied overhead as an adjustment to Cost of Goods Sold, would the company's Cost-of-Goods-Sold account increase or decrease? Explain.
E. How much overhead would have been charged to the Machining Department's Work-in-Process account during the year?
F. Comment on the appropriateness of direct labour cost as a cost driver to apply manufacturing overhead in the Assembly Department.

Question 66

Boswell and Associates designs relatively small sports stadiums and arenas at various sites throughout the country. The firm's accountant prepared the following budget for the upcoming year: Eighty percent of professional staff salaries are directly traceable to client projects, a figure that falls to 60% for the administrative support staff and other operating costs. Traceable costs are charged directly to client projects; non-traceable costs, on the other hand, are treated as firm overhead and charged to projects by using a predetermined overhead application rate.
Boswell had one project in process at year-end: an arena that was being designed for Addington County. Costs directly chargeable to this project were: Required:
A. Calculate Boswell's overhead for the year and the firm's predetermined overhead application rate. The rate is based on costs directly chargeable to firm projects.
B. Compute the cost of the Addington County arena project as of year-end.
C. Present three examples of "other operating costs" that might be directly traceable to the Addington County project.

Question 67

Fine & Associates is an interior decorating firm located in Brampton, Ontario. The following costs were incurred in a project to redecorate the mayor's offices: The firm's budget for the year included the following estimates: Overhead is applied to contracts by using a predetermined overhead rate that is based on direct professional labour cost. Actual professional labour during the year was $655,000 and actual overhead was $793,000.
Required:
A. Determine the total cost to redecorate the mayor's offices.
B. Calculate the under - or overapplied overhead for the year. Be sure to label your answer

Question 68

Discuss the reasons for using applied overhead rather than actual overhead to determine the cost of production jobs.

Question 69

Athens Corporation uses a job-cost system and applies manufacturing overhead to products on the basis of machine hours. The company's accountant estimated that overhead and machine hours would total $800,000 and 50,000, respectively, for 20 x 1. Actual costs incurred follow.
The manufacturing overhead figure presented above excludes $27,000 of sales commissions incurred by the firm. An examination of job-cost records revealed that 18 jobs were sold during the year at a total cost of $2,960,000. These goods were sold to customers for $3,720,000. Actual machine hours worked totaled 51,500, and Athens adjusts under- or overapplied overhead at year-end to Cost of Goods Sold.
Required:
A. Determine the company's predetermined overhead application rate.
B. Determine the amount of under- or overapplied overhead at year-end. Be sure to indicate whether overhead was under- or overapplied.
C. Compute the company's cost of goods sold.
D. What alternative accounting treatment could the company have used at year-end to adjust for under- or overapplied overhead? Is the alternative that you suggested appropriate in this case? Why?

Question 70

A review of the records of Okanagan Products disclosed the following year-end information:
▪ Work-in-Process Inventory account: Contained charges for overhead of $975,000.
▪ Cost-of-Goods-Sold account: Contained a year-end debit balance of $4,680,000. This amount was computed prior to any year-end adjustment for under- or overapplied overhead.
▪ Manufacturing Overhead account: Contained debits of $972,000, which included 30,000 of sales commissions.
▪ Okanagan applies manufacturing overhead to production by using a predetermined rate of $30 per machine hour. Budgeted overhead for the period was anticipated to be $1,000,000.
Required:
A. Determine the actual manufacturing overhead for the year.
B. Determine the amount of manufacturing overhead applied to production.
C. Is overhead under- or overapplied? By how much?
D. Compute the adjusted cost-of-goods-sold figure that should be disclosed on the company's income statement.
E. How many machine hours did Okanagan actually work during the year?
F. Compute budgeted machine hours for the year.

Question 71

Conrad Industries uses a predetermined overhead application rate of $25 per labour hour. A review of the company's accounting records revealed budgeted manufacturing overhead for the period of $700,000, applied manufacturing overhead of $640,900, and overapplied overhead of $12,400.
Required:
A. Determine Conrad's actual labour hours, budgeted labour hours, and actual manufacturing overhead.
B. Present the necessary year-end journal entry to handle the overapplied overhead, assuming that the company allocates over- or underapplied overhead to Cost of Goods Sold.

Question 72

Describe the types of manufacturing environments that would best be suited for (1) job-order costing and (2) process costing. Include two examples of manufacturers that would likely use job-cost systems.

Question 73

Quinn Consulting Limited 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 Quinn, 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.
Quinn anticipates the following costs for the upcoming year: Quinn's partners desire to make a $580,000 profit for the firm and plan to add a percentage markup on total cost to achieve that figure.
On June 30^th, Quinn completed work on a project for Findley Manufacturing. The following costs were incurred: professional staff salaries, $70,000; administrative support staff, $10,000; travel, $11,000; and other operating costs, $2,000.
Required:
A. Determine Quinn'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 Quinn add to each job to achieve its profit target?
D. Determine the total cost of the Findley Manufacturing project. How much would be billed to Findley for services performed?