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

Question 1

Under- or overapplied manufacturing overhead at year-end is most commonly charged or credited to Work-in-Process Inventory.

Answer 1

False

Question 2

Manufacturing overhead:

A) includes direct materials, indirect materials, indirect labor, and factory depreciation.
B) is easily traced to jobs.
C) includes all selling costs.
D) should not be assigned to individual jobs because it bears no obvious relationship to them.
E) is a pool of indirect production costs that must somehow be attached to each unit manufactured.

Answer 2

E

Question 3

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.

Answer 3

C

Question 4

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:

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

Question 5

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 labor, direct material, and manufacturing overhead.
C) Work-in-Process Inventory is debited to record direct material used and direct labor 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 6

The term "normal costing" refers to the use of job-costing systems.

Question 7

Manufacturing overhead is a pool of indirect production costs that must somehow be attached to each unit manufactured.

Question 8

A custom-home builder would likely utilize:

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

Question 9

Pruitt Company has developed an integrated system that coordinates the flow of all goods, services, and information into and out of the organization, working with raw material vendors as well as customers to improve service and reduce costs. The firm is said to be using:

A) participative management.
B) top-down management.
C) strategic cost management.
D) supply chain management.
E) management by objectives (MBO).

Question 10

Which of the following statements about manufacturing cost flows is false?

A) Direct materials, direct labor, and manufacturing overhead are entered in the Work-in-Process Inventory account.
B) The Finished-Goods Inventory account will contain entries that reflect the cost of goods sold during the period.
C) The cost of units sold during the period will typically appear on the income statement.
D) When a company sells goods that cost $54,000 for $60,000, the firm will enter $6,000 in an account entitled Profit on Sale.
E) Units are normally transferred from Work-in-Process Inventory to Finished-Goods Inventory.

Question 11

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 12

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

Question 13

The assignment of direct labor 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 14

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.

Question 15

When using normal costing, the total production cost of a job is composed of:

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

Question 16

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.

Question 17

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

A) Work-in-Process Inventory account.
B) Manufacturing-Overhead Inventory account.
C) Cost-of-Goods-Sold account.
D) Finished-Goods Inventory account.
E) Production Labor account.

Question 18

Which of the following types of companies would most likely use process costing?

A) Aircraft manufacturers.
B) Textile manufacturers.
C) Textbook publishers.
D) Custom-machining firms.
E) Shipbuilders.

Question 19

The final step in recognizing the completion of production requires a company to debit Finished-Goods Inventory and credit Work-in-Process Inventory.

Question 20

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

A) the cost of direct materials used.
B) administrative costs.
C) direct labor costs incurred.
D) applied manufacturing overhead.
E) direct labor hours worked.

Question 21

Summers Corporation recently used $75,000 of direct materials and $9,000 of indirect materials in production activities. The journal entries reflecting these transactions would include:

A) a debit to Manufacturing Overhead for $9,000.
B) a debit to Manufacturing Overhead for $84,000.
C) a debit to Raw-Material Inventory for $75,000.
D) a debit to Work-in-Process Inventory for $84,000.
E) a credit to Manufacturing Overhead for $9,000.

Question 22

The process of assigning 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 23

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 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.

Question 24

Simone uses a predetermined overhead application rate of $8 per direct labor hour. A review of the company's accounting records for the year just ended discovered the following:
Underapplied manufacturing overhead: $7,200
Actual manufacturing overhead: $392,000
Budgeted labor hours: 50,000
Simone's actual labor hours worked totaled:

A) 48,100.
B) 49,100.
C) 49,900.
D) 50,900.
E) cannot be determined based on the information presented.

Question 25

Metro Corporation 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 26

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 Projects-in-Process.

Question 27

Electricity costs that were 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 28

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

A) $0.
B) $28,500.
C) $51,300.
D) $70,500.
E) $79,800.

Question 29

Trenton worked on four jobs during its first year of operation: nos. 401, 402, 403, and 404. A review of job no. 403's cost record revealed direct material charges of $40,000 and total manufacturing costs of $50,000. If Trenton applies overhead at 150% of direct labor cost, the overhead applied to job no. 403 must have been:

A) $0.
B) $6,000.
C) $4,000.
D) $3,333.
E) $5,000.

Question 30

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

A) $0 because Work in Process should be credited.
B) $0 because Work in Process is not affected.
C) $11,000.
D) $106,000.
E) $117,000.

Question 31

The left 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 32

Strong Company applies overhead based on machine hours. At the beginning of 20x1, the company estimated that manufacturing overhead would be $500,000, and machine hours would total 20,000. By 20x1 year-end, actual overhead totaled $525,000, and actual machine hours were 25,000. On the basis of this information, the 20x1 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 33

The following information relates to October:
Production supervisor's salary: $3,500
Factory maintenance wages: 250 hours at $10 per hour
The journal entry to record the preceding information is:

A) Manufacturing Overhead $\quad$ 6,000
Wages Payable $\quad$$\quad$ 6,000
B) $$\begin{array} { c c c } \text { Wages Payable } & 6,000 & \\\text { Manufacturing Overhead } & & 6,000\end{array}$$
C) Work-in-Process Inventory $\quad 6,000$
Wages Payable $\quad 6,000$
D) $$\begin{array} { l } \text { Wages Payable } \quad 6,000 \\\begin{array} { l l } \text { Work-in-Process Inventory } & 6,000\end{array} \\\end{array}$$
E) $\begin{array}{ll}\text { Manufacturing Overhead } & 2,500 \\\text { Work-in-Process Inventory } & 3,500\\\text { Wages Payable }&6,000\end{array}$

Question 34

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 labor to Work-in-Process Inventory.
D) add direct materials, direct labor, and manufacturing overhead to Work-in-Process Inventory.
E) add direct materials to Finished-Goods Inventory.

Question 35

Throughout the accounting period, the 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 36

A review of a company'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 credit to Raw-Material Inventory.
B) also recorded a credit to Manufacturing Supplies Inventory.
C) was accounting for the usage of direct materials.
D) was accounting for the usage of indirect materials.
E) also recorded a credit to Raw-Material Inventory and was accounting for the usage of direct materials.

Question 37

Reynardo Company incurred $90,000 of depreciation for the year. Eighty percent relates to the firm's production facilities, and 20% relates to sales and administrative offices. If all items are handled in the proper manner, a review of the company's accounting records should reveal a:

A) debit to Depreciation Expense for $90,000.
B) debit to Manufacturing Overhead for $90,000.
C) debit to Manufacturing Overhead for $72,000.
D) debit to Work-in-Process Inventory for $18,000.
E) credit to Cash for $90,000.

Question 38

Huxtable charges manufacturing overhead to products by using a predetermined application 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 totaled:

A) $352,000.
B) $384,000.
C) $550,000.
D) $600,000.
E) some other amount.

Question 39

An accountant recently debited Work-in-Process Inventory and credited Manufacturing Overhead at a company that uses normal costing. 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 40

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 41

Job no. C12 was completed in November at a cost of $28,500, subdivided as follows: direct material, $13,500; direct labor, $6,000; and manufacturing overhead, $9,000. The journal entry to record the completion of the job is:

A) $$\begin{array} { r r } \text { Finished-Goods Inventory } & 28,500 \\\text { Work-in-Process Inventory } & 28,500\end{array}$$
B) $\begin{array}{rr}\text { Work-in-Process Inventory } & 28,500 \\\text { Finished-Goods Inventory } & 28,500\end{array}$
C) $$\begin{array}{l}\begin{array} { l l } \text { Work-in-Process Inventory } & 28,500\end{array}\\\begin{array} { l r } \text { Wages Payable } & 6,000 \\\text { Raw-Material Inventory } & 13,500 \\\text { Manufacturing Overhead } & 9,000\end{array}\end{array}$$
D) Cost of Goods Sold $\quad 28,500$
Finished-Goods Inventory $\quad 28,500$
E) $\begin{array}{rr}\text { Finished-Goods Inventory } & 28,500 \\\text { Cost of Goods Sold } & 28,500\end{array}$

Question 42

Sting Corporation debited Cost of Goods Sold and credited Manufacturing Overhead at year-end. On the basis of this information, one can conclude that:

A) budgeted overhead exceeded actual overhead.
B) budgeted overhead exceeded applied overhead.
C) budgeted overhead was less than applied overhead.
D) actual overhead exceeded applied overhead.
E) actual overhead was less than applied overhead.

Question 43

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

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

Question 44

Fogg Company, which uses labor hours to apply overhead to manufacturing, may have increased amounts of underapplied overhead at month-end if:

A) suppliers of direct materials have an across-the-board price increase.
B) an accountant failed to record the period's charges for plant maintenance and security.
C) employees are hit hard with a widespread outbreak of the flu.
D) direct laborers are granted a wage increase.
E) outlays for advertising expenditures are increased.

Question 45

Tiffany charges manufacturing overhead to products by using a predetermined application rate, computed on the basis of labor hours. The following data pertain to the current year: Which of the following choices is 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 46

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

A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Question 47

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 48

Under- or overapplied manufacturing overhead at year-end is most commonly:

A) charged or credited to Work-in-Process Inventory.
B) charged or credited to Cost of Goods Sold.
C) charged or credited to a special loss account.
D) prorated among Work-in-Process Inventory, Finished-Goods Inventory, and Cost of Goods Sold.
E) ignored because there is no effect on the Cash account.

Question 49

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

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

Question 50

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

A) a debit to Cost of Goods Sold.
B) a debit to Manufacturing Overhead.
C) a debit to Work-in-Process Inventory.
D) a credit to Cost of Goods Sold.
E) a credit to Work-in-Process Inventory.

Question 51

If a company sells goods that cost $80,000 for $92,000, the firm will:

A) reduce Finished-Goods Inventory by $80,000.
B) reduce Finished-Goods Inventory by $92,000.
C) report sales revenue on the balance sheet of $92,000.
D) reduce Cost of Goods Sold by $80,000.
E) follow more than one of the other procedures.

Question 52

Armada Company applies manufacturing overhead by using a predetermined rate of 150% of direct labor cost. The data that follow pertain to job no. 831: $\begin{array}{lr}\text { Direct material cost } & \$ 72,000 \\\text { Direct labor cost } & 38,000\end{array}$ If Armada adds a 30% markup on total cost to generate a profit, which of the following choices depicts a portion of the accounting needed to record the credit sale of job no. 831?

A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Question 53

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

A) overapplied by $580,000.
B) underapplied by $580,000.
C) overapplied by $1,200,000.
D) underapplied by $1,200,000.
E) underapplied by $900,000.

Question 54

Media, Inc., an advertising agency, applies overhead to jobs on the basis of direct professional labor hours. Overhead was estimated to be $150,000, direct professional labor hours were estimated to be 15,000, and direct professional labor cost was projected to be $225,000. During the year, Media incurred actual overhead costs of $146,000, actual direct professional labor hours of 14,500, and actual direct labor 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 55

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 plant wide overhead rate.
B) departmental overhead rates.
C) actual overhead rates instead of predetermined overhead rates.
D) direct labor hours to determine the overhead rate.
E) machine hours to determine the overhead rate.

Question 56

When underapplied or overapplied manufacturing overhead is prorated, amounts can be assigned to which of the following accounts?

A) Raw-Material Inventory, Manufacturing Overhead, and Direct Labor.
B) Cost of Goods Sold, Work-in-Process Inventory, and Finished-Goods Inventory.
C) Work-in-Process Inventory, Raw-Material Inventory, and Cost of Goods Sold.
D) Raw-Material Inventory, Finished-Goods Inventory, and Cost of Goods Sold.
E) Raw-Material Inventory, Work-in-Process Inventory, and Finished-Goods Inventory.

Question 57

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

A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Question 58

Serina Manufacturing recently sold goods that cost $35,000 for $45,000 cash. The journal entries to record this transaction would include:

A) a credit to Work-in-Process Inventory for $35,000.
B) a debit to Sales Revenue for $45,000.
C) a credit to Profit on Sale for $10,000.
D) a debit to Finished-Goods Inventory for $35,000.
E) a credit to Sales Revenue for $45,000.

Question 59

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 60

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 61

At the Nassau Advertising Agency, partner and staff compensation cost is a key driver of agency overhead. In light of this fact, which of the following is the correct expression to determine the amount of overhead applied to a particular client job?

A) (Budgeted overhead ÷ budgeted compensation) × budgeted compensation cost on the job.
B) (Budgeted overhead ÷ budgeted compensation) × actual compensation cost on the job.
C) (Budgeted compensation ÷ budgeted overhead) × budgeted compensation cost on the job.
D) (Budgeted compensation ÷ budgeted overhead) × actual compensation cost on the job.
E) None of these, because service providers do not apply overhead to jobs.

Question 62

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

Question 63

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

Question 64

Athena 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 20x1. 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 adjusted 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 65

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

A) Custom-furniture manufacturers.
B) Repair shops.
C) Hospitals.
D) Accounting firms.
E) None of these, because all are likely users.

Question 66

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 67

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

Question 68

Harris, Inc., has just completed job nos. 78 and 79, which were similar in terms of complexity, production processes, and units manufactured. Job no. 78 was manufactured by Joe Barton who earns $14 per hour, whereas job no. 79 was completed by Susan Franklin who earns $20 per hour. If Joe and Susan are equally efficient, would the company be better off using direct labor cost or direct labor hours as the cost driver in its predetermined overhead rate? Briefly explain.

Question 69

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

Question 70

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 71

Taffy 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.
Taffy began to carry this product at the start of 20x3, acquiring 12,500 cases from Executive Supply for $87,500 along with an identical number of pens from Accent Goods. During 20x3, 9,500 of the cases and pens were issued to Taffy'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 Taffy'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 the company's cost of goods sold for 20x3.

Question 72

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

Question 73

Quatro Products started and finished job no. C19 during June. The job required $15,000 of direct material and 75 hours of direct labor at $12 per hour. The predetermined overhead rate is $16 per direct labor hour.
During June, direct materials requisitions for all jobs totaled $149,000; the total direct labor hours and cost were 6,200 hours at $12 per hour; and the total cost of jobs completed was $337,500. All of these figures include data that pertain to job no. C19.
Required:
A. Prepare journal entries that summarize June's total activity.
B. Determine the cost of job no. C19.

Question 74

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) All of these, because service providers cannot use job-costing systems.

Question 75

Boxworth 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; nontraceable costs, on the other hand, are treated as firm overhead and charged to projects by using a predetermined overhead application rate.
Boxworth had one project in process at year-end: an arena that was being designed for Charlotte County. Costs directly chargeable to this project were:
Required:
A. Determine Boxworth'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 Charlotte County arena project as of year-end.
C. Present three examples of "other operating costs" that might be directly traceable to the Charlotte County project.

Question 76

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

Question 77

Finney & Associates is an interior decorating firm in Tucson. 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 labor cost. Actual professional labor 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 78

Dancer Corporation, which uses a job-costing system, had two jobs in process at the start of 20x1: 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 labor incurred, and machine hours consumed were:
• Manufacturing overhead during the first quarter included charges for depreciation ($20,000), indirect labor ($50,000), indirect materials used ($4,000), and other factory costs ($108,700).
• Dancer completed job no. 59 and job no. 60. Job no. 59 was sold for cash, producing a gross 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 labor 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 79

Discuss the reason for (1) allocating overhead to the cost of production jobs, and (2) applying overhead using a predetermined rate instead of an actual overhead rate.

Question 80

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

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