Question 1

Karvel Corporation uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. For the month of August, Karvel estimated total manufacturing overhead costs at £300,000 and total machine-hours at 75,000 hours. Actual results for the period were manufacturing overhead costs of £290,000 and 75,000 machine-hours. As a result, Karvel would have

Accepted Answer

A) applied more overhead to Work in Process than the actual amount of overhead cost for the year. 
B) applied less overhead to Work in Process than the actual amount of overhead cost for the year. 
C) applied an amount of overhead to Work in Process that was equal to the actual amount of overhead. 
D) found it necessary to recalculate the predetermined overhead rate.

Question 2

Jameson Company uses a predetermined overhead rate based on direct Labour hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for the next year:$\begin{array}{lrr}
  \text { Direct materials } &£ 5,000 \
 \text { Direct Labour } &19,000\
 \text { Rent on factory building } &16,000\
 \text { Sales salaries } &24,000\
 \text {Depreciation on factory equipment  } &7,000\
 \text { Indirect Labour } &11,000\
 \text {Production supenisor's salary  } &14,000
\end{array}$

Jameson estimates that 24,000 direct Labour hours will be worked during the year. The predetermined overhead rate per hour will be:

Accepted Answer

A) £2.00 
B) £2.79 
C) £3.00 
D) £4.00

Question 3

There are two acceptable methods for closing out any balance of under- or overapplied overhead. One method involves allocation, whereas the other closes any balance directly to

Accepted Answer

A) Finished Goods Stock. 
B) Cost of Goods Sold. 
C) Cost of Goods Manufactured. 
D) Work in Process Stock.

Question 4

Job-order costing is used in those situations where units of a product are homogeneous, such as in the manufacture of sugar.

Accepted Answer

A) True 
 B)False

Question 5

Galbraith Company applies overhead cost to jobs on the basis of 70% of direct Labour cost. If Job 201 shows £28,000 of manufacturing overhead applied, the direct Labour cost on the job was

Accepted Answer

A) £40,000. 
B) £19,600. 
C) £28,000. 
D) £36,400.

Question 6

Advertising costs should be charged to the Manufacturing Overhead account

Accepted Answer

A) True 
 B)False

Question 7

Explain why sales can be a dangerous basis for allocating service department costs.

Accepted Answer

The answer of Explain why sales can be a dangerous...

Question 8

Newcastle Company's beginning and ending inventories for the month of January were as follows:$\begin{array}{lrr}
&\text { January } 1&\text { January } 31\
  \text {Direct Materials  } &£ 80,000 & £ 78,000\
 \text { Work in Process } &£ 155,000 &£ 166,000\
 \text {  Finished Goods} &£ 90,000& £ 88,000\
\end{array}$
 
Production data for month follow:$\begin{array}{lrr}
  \text {  Direct labour cost incurred.} &£ 215,000\
 \text { Actual manufacturing overhead cost incurred } &£ 145,000\
 \text {Direct materials purchases} &£ 160,000
\end{array}$

Newcastle applies manufacturing overhead cost to jobs at the rate of 75% of direct labour cost incurred. This rate has been used for many years. The company does not close under- or overapplied manufacturing overhead to Cost of Goods Sold until the end of the year.
-The management accountant wants to apply manufacturing overhead at a rate of 75% of direct labour. The managing director wants to know how this change will affect reported profit. (Assuming Newcastle applies manufacturing overhead cost to jobs at the rate of 70% of direct labour cost incurred). Newcastle Company's cost of goods manufactured for January was:

Accepted Answer

A) £499,000. 
B) £497,000. 
C) £490,000. 
D) £516,500.

Question 9

Under a job-order cost system the Work in Process account is debited with the cost of materials purchased

Accepted Answer

A) True 
 B)False

Question 10

Newcastle Company's beginning and ending inventories for the month of January were as follows:$\begin{array}{lrr}
&\text { January } 1&\text { January } 31\
  \text {Direct Materials  } &£ 80,000 & £ 78,000\
 \text { Work in Process } &£ 155,000 &£ 166,000\
 \text {  Finished Goods} &£ 90,000& £ 88,000\
\end{array}$
 
Production data for month follow:$\begin{array}{lrr}
  \text {  Direct labour cost incurred.} &£ 215,000\
 \text { Actual manufacturing overhead cost incurred } &£ 145,000\
 \text {Direct materials purchases} &£ 160,000
\end{array}$

Newcastle applies manufacturing overhead cost to jobs at the rate of 75% of direct labour cost incurred. This rate has been used for many years. The company does not close under- or overapplied manufacturing overhead to Cost of Goods Sold until the end of the year.
-The management accountant wants to apply manufacturing overhead at a rate of 75% of direct labour. The managing director wants to know how this change will affect reported profit.
(Assuming Newcastle applies manufacturing overhead cost to jobs at the rate of 75% of direct labour cost incurred). Newcastle Company's manufacturing overhead for January was:

Accepted Answer

A) overapplied by £16,250. 
B) underapplied by £16,250. 
C) overapplied by £12,000. 
D) underapplied by £12,000.

Question 11

The manufacturing operation that would be most likely to use a job-order costing system is

Accepted Answer

A) toy manufacturing. 
B) candy manufacturing. 
C) crude oil refining. 
D) shipbuilding.

Question 12

Which of the following entries or sets of entries would record sales for the month of July of goods costing £119,000 for £200,000:
A.$\begin{array}{lrr}
  \text {  Debtors.} &200,000\
 \text {Sales.  } &200,000\
\end{array}$

b. $\begin{array}{lrr}
  \text { Debtors } &20,000\
 \text {Sales  } &200,000\
 \text {Cost of Goods Sold  } &119,000\
 \text {Work in Process  } &119,000\
\end{array}$
 c. $\begin{array}{lrr}
  \text { Cost of Goods Sold } &119,000\
 \text { Net Operating Income } &81,000\
 \text { Sales } &200,00
\end{array}$
 d. $\begin{array}{lrr}
  \text {Debtors  } &200,000\
 \text {Sales  } &200,000\
 \text { Cost of Goods Sold } &119,000\
 \text {Finished Goods  } &119,000\
\end{array}$

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 13

Top-management salaries should not go into the Manufacturing Overhead account

Accepted Answer

A) True 
 B)False

Question 14

Allocate the overheads from the two service dept to the others using the direct method

Accepted Answer

The answer of Allocate the overheads from the two service...

Question 15

Now make the alternate assumption that the SP above for both firms is made using a mark up of 20%. What are the implications for both firms? You should look at all the possible scenarios.

Accepted Answer

The answer of Now make the alternate assumption that the...

Question 16

Newcastle Company's beginning and ending inventories for the month of January were as follows:$\begin{array}{lrr}
&\text { January } 1&\text { January } 31\
  \text {Direct Materials  } &£ 80,000 & £ 78,000\
 \text { Work in Process } &£ 155,000 &£ 166,000\
 \text {  Finished Goods} &£ 90,000& £ 88,000\
\end{array}$
 
Production data for month follow:$\begin{array}{lrr}
  \text {  Direct labour cost incurred.} &£ 215,000\
 \text { Actual manufacturing overhead cost incurred } &£ 145,000\
 \text {Direct materials purchases} &£ 160,000
\end{array}$

Newcastle applies manufacturing overhead cost to jobs at the rate of 75% of direct labour cost incurred. This rate has been used for many years. The company does not close under- or overapplied manufacturing overhead to Cost of Goods Sold until the end of the year.
-The management accountant wants to apply manufacturing overhead at a rate of 75% of direct labour. The managing director wants to know how this change will affect reported profit. (Assuming Newcastle applies manufacturing overhead cost to jobs at the rate of 75% of direct labour cost incurred). Newcastle Company's total manufacturing cost for January was:

Accepted Answer

A) £522,250. 
B) £538,250. 
C) £463,000. 
D) £465,250.

Question 17

The cost of a completed job in a job-order costing system typically consists of the actual materials cost of the job, the actual Labour cost of the job, and the actual amount of manufacturing overhead cost of the job

Accepted Answer

A) True 
 B)False

Question 18

The Work in Process Stock account of a manufacturing firm shows a balance of £3,000 at the end of an accounting period. The job cost sheets of two uncompleted jobs show charges of £500 and £300 for materials, and charges of £400 and £600 for direct Labour. From this information, it appears that the company is using a predetermined overhead rate, as a percentage of direct Labour costs, of

Accepted Answer

A) 83% 
B) 120% 
C) 40% 
D) 300%

Question 19

During the month of March, Nale Co. used £300,000 of direct materials. At March 31, Nale's direct materials Stock was £50,000 more than it was at March 1. Direct material purchases during the month of March amounted to

Accepted Answer

A) £0. 
B) £250,000. 
C) £300,000. 
D) £350,000.

Question 20

Newcastle Company's beginning and ending inventories for the month of January were as follows:$\begin{array}{lrr}
&\text { January } 1&\text { January } 31\
  \text {Direct Materials  } &£ 80,000 & £ 78,000\
 \text { Work in Process } &£ 155,000 &£ 166,000\
 \text {  Finished Goods} &£ 90,000& £ 88,000\
\end{array}$
 
Production data for month follow:$\begin{array}{lrr}
  \text {  Direct labour cost incurred.} &£ 215,000\
 \text { Actual manufacturing overhead cost incurred } &£ 145,000\
 \text {Direct materials purchases} &£ 160,000
\end{array}$

Newcastle applies manufacturing overhead cost to jobs at the rate of 75% of direct labour cost incurred. This rate has been used for many years. The company does not close under- or overapplied manufacturing overhead to Cost of Goods Sold until the end of the year.
-
The management accountant wants to apply manufacturing overhead at a rate of 75% of direct labour. The managing director wants to know how this change will affect reported profit. (Assuming Newcastle applies manufacturing overhead cost to jobs at the rate of 70% of direct labour cost incurred). Newcastle Company's Cost of Goods Sold for January was:

Accepted Answer

A) £512,000. 
B) £518,500. 
C) £522,000. 
D) £496,000.

Exam 3: A Costing Framework and Cost Allocation

There are two acceptable methods for closing out any balance of under- or overapplied overhead. One method involves allocation, whereas the other closes any balance directly to

Job-order costing is used in those situations where units of a product are homogeneous, such as in the manufacture of sugar.

Galbraith Company applies overhead cost to jobs on the basis of 70% of direct Labour cost. If Job 201 shows £28,000 of manufacturing overhead applied, the direct Labour cost on the job was

Advertising costs should be charged to the Manufacturing Overhead account

Explain why sales can be a dangerous basis for allocating service department costs.

Under a job-order cost system the Work in Process account is debited with the cost of materials purchased

The manufacturing operation that would be most likely to use a job-order costing system is

Top-management salaries should not go into the Manufacturing Overhead account

Allocate the overheads from the two service dept to the others using the direct method

Now make the alternate assumption that the SP above for both firms is made using a mark up of 20%. What are the implications for both firms? You should look at all the possible scenarios.

The cost of a completed job in a job-order costing system typically consists of the actual materials cost of the job, the actual Labour cost of the job, and the actual amount of manufacturing overhead cost of the job

During the month of March, Nale Co. used £300,000 of direct materials. At March 31, Nale's direct materials Stock was £50,000 more than it was at March 1. Direct material purchases during the month of March amounted to