Question

Chapter 19

1.             Job order costing systems normally use:

1.            Periodic inventory systems.
2.            Perpetual inventory systems.
3.            Real inventory systems.
4.            General inventory systems.
5.            Any inventory systems is acceptable.

2.             A job order costing system would best fit the needs of a company that makes:

1.            Shoes and apparel.
2.            Paint.
3.            Cement.
4.            Custom machinery.

   E.            Pencils and erasers.

3.             Job A3B was ordered by a customer on September 25. During the month of September, Jaycee Corporation requisitioned $2,500 of direct materials and used $4,000 of direct labor. The job was not finished by the end of the month but needed an additional $3,000 of direct materials and additional direct labor of $6,500 to finish the job in October. The company applies overhead at the end of each month at a rate of 200% of the direct labor cost incurred. What is the balance in the Work in Process account at the end of September relative to Job A3B?

1.            $5,500
2.            $11,500
3.            $6,500
4.            $9,500
5.            $14,500

4.             A job cost sheet includes:

1.            Direct materials, direct labor, operating costs.
2.            Direct materials, estimated overhead, administrative costs.
3.            Direct labor, actual overhead, selling costs.
4.            Direct material, direct labor, estimated overhead.
5.            Direct materials, direct labor, selling costs.

5.             The balance in the Work In Process Inventory at any point in time is equal to:

1.            The costs for jobs finished during the period but not yet sold.
2.            The cost of jobs ordered but not yet started into production.
3.            The sum of the costs for all jobs in process but not yet completed.
4.            The costs of all jobs started during the period, completed or not.
5.            The sum of the materials, labor and overhead costs paid during the period.

6.             The Work in Process Inventory account of a manufacturing company that uses an overhead rate based on direct labor cost has a $3,200 debit balance after all posting is completed. The cost sheet of the one job still in process shows direct material cost of $1,400 and direct labor cost of $800. Therefore, the amount of the applied overhead is:     

_________________________

7.             The Work in Process Inventory account of a manufacturing company that uses an overhead rate based on direct labor cost has a $4,400 debit balance after all posting is completed. The cost sheet of the one job still in process shows direct material cost of $2,000 and direct labor cost of $800. Therefore, the company's overhead application rate is:

8.             When factory payroll costs for labor are allocated in a job cost accounting system:

1.            Factory Payroll is debited and Work in Process Inventory is credited.
2.            Work in Process Inventory and Factory Overhead are debited and Factory Payroll is credited.
3.            Cost of Goods Manufactured is debited and Direct Labor is credited.
4.            Direct Labor and Indirect Labor are debited and Factory Payroll is credited.
5.            Work in Process Inventory is debited and Factory Payroll is credited.

9.             Oxford Company uses a job order costing system. In the last month, the system accumulated labor time tickets total $24,600 for direct labor and $4,300 for indirect labor. These costs were accumulated in Factory Payroll as they were paid. Which entry should Oxford make to assign the Factory Payroll?

1.            Debit Payroll Expense $28,900; credit Cash $28,900.
2.            Debit Payroll Expense $24,600; debit Factory Overhead $4,300; credit Factory Payroll $28,900.
3.            Debit Work in Process Inventory $24,600; debit Factory Overhead $4,300; credit Factory Payroll $28,900.
4.            Debit Work in Process Inventory $24,600; debit Factory Overhead $4,300; credit Wages Payable $28,900.
5.            Debit Work in Process Inventory $28,900; credit Factory Payroll $28,900.

10.           Labor costs in production can be:

1.            Direct or indirect.
2.            Indirect or sunk.
3.            Direct or payroll.
4.            Indirect or payroll.
5.            Direct or sunk.

11.           An example of direct labor cost is:

1.            Supervisor salary
2.            Maintenance worker wages
3.            Janitor wages
4.            Product assembler wages
5.            Accountant salary

12.          A company has an overhead application rate of 125% of direct labor costs. How much overhead would be allocated to a job if it required total labor costing $20,000?

1.            $5,000.
2.            $16,000.
3.            $25,000.
4.            $125,000.
5.            $250,000.

13.           The rate established prior to the beginning of a period that uses estimated overhead and an allocation factor such as estimated direct labor, and that is used to assign overhead cost to jobs, is the:

1.            Predetermined overhead rate.
2.            Overhead variance rate.
3.            Estimated labor cost rate.
4.            Chargeable overhead rate.
5.            Miscellaneous overhead rate.

14.           Kayak Company uses a job order costing system and allocates its overhead on the basis of direct labor costs. Kayak Company's production costs for the year were: direct labor, $30,000; direct materials, $50,000; and factory overhead applied $6,000. The overhead application rate was:

1.            5.0%.
2.            12.0%.
3.            20.0%.
4.            500.0%.
5.            16.7%

15.           Minstrel Manufacturing uses a job order costing system. During one month Minstrel purchased $198,000 of raw materials on credit; issued materials to production of $195,000 of which $30,000 were indirect. Minstrel incurred a factory payroll of $150,000, paid in cash, of which $40,000 was indirect labor. Minstrel uses a predetermined overhead application rate of 150% of direct labor cost. If Minstrel incurred total overhead costs of $167,800 during the month, compute the amount of under- or overapplied overhead:

1.            $2,800 overapplied.
2.            $17,800 underapplied.
3.            $2,800 underapplied.
4.            $17,800 overapplied.
5.            $57,200 overapplied.

1.             Define and contrast period costs and product costs. How are they reported in the financial statements of a manufacturing company?

2.             Explain how a service firm, such as an advertising agency, might use job order costing.

Answer 1

1. Option B

Job order costing systems normally use Perpetual inventory systems.

2. Option D

A job order costing system would best fit the needs of a company that makes custom machinery.

3. Option E ($14,500)

Work in process inventory = Direct materials + Direct Labor + Overhead

= 2500 + 4000 + ( 4000 * 200%)

= 2500 + 4000 + 8000 = $14,500

4. Option D

A job cost sheet includes Direct material, Direct Labor and Estimated overhead

5. Option C

The balance in the Work In Process Inventory at any point in time is equal to the sum of the costs for all jobs in process but not yet completed.

6. The amount of applied overhead = $3200 - $1400 - $800 = $1000

7. The amount of applied overhead = $4400 - $2000 - $800 = $1600

8. Option B

When factory payroll costs for labor are allocated in a job cost accounting system Work in Process Inventory and Factory Overhead are debited and Factory Payroll is credited.

9. Option C

Debit Work in Process Inventory $24,600; debit Factory Overhead $4,300; credit Factory Payroll $28,900.

10. Option A

Labor costs in production can be Direct or Indirect.

11. Option D

An example of direct labor cost is Product assembly wages.

12. Option C ($25,000)

Overhead = Direct labor costs * Overhead application rate

= $20,000 * 125% = $25,000

13. Option A

The rate established prior to the beginning of a period that uses estimated overhead and an allocation factor such as estimated direct labor, and that is used to assign overhead cost to jobs, is the Predetermined overhead rate.

14. Option C (20%)

Overhead application rate = (Overhead / Direct labor costs ) * 100

   = ($6000 / $30,000) * 100

= 20%

15. Option C ( $2800 underapplied)

Overhead applied = 150% of direct labor costs

= $110,000 ($150,000 - $40,000) * 150%

= $165,000

Overhead incurred = $167,800

Therefore overhead underapplied = $167,800 - $165,000 = $2800underapplied

16. Period costs:- Period costs are expenses that will be reported on the income statement without ever attaching to products.They are not necessary part of manufacturing process. Since they are not product costs, period costs will not be included in the cost of inventory. They are referred as period expenses since they will be reported in the income statement as selling, general and administrative expense.

Product costs:- Product costs include the costs to manufacture products or to purchase products. If a product is unsold, the product costs will be reported as inventory on the balance sheet. When the product is sold, its cost is removed from inventory and will be included on the income statement as the cost of goods sold. Product costs are also referred to as Inventoriable costs.