1. including manufacturing overhead costs in product costs ensures

1. Including manufacturing overhead costs in product costs ensures that each product will earn a profit. 

 True 

 False 

 

2. Nonmanufacturing costs are expensed as incurred, rather than charged to jobs. 

 True 

 False 

 

3. If direct labor-hours is used as the allocation base in a job-order costing system, but overhead costs are not caused by direct-labor-hours, then jobs with high direct labor requirements will tend to be overcosted relative to jobs with low direct labor requirements. 

 True 

 False 

 

4. The cost of goods manufactured equals ending work in process inventory, plus the total manufacturing cost charged to jobs, less beginning work in process inventory. 

 True 

 False 

 

5. Two of the reasons why overhead may be underapplied are: (1) the estimated overhead cost may be too low, and (2) the estimated amount of the allocation base may be too high. 

 True 

 False 

 

6. Which of the following statements is correct concerning job-order costing?

 

 Job-order costing would be appropriate for a textbook publisher.

 All the costs appearing on a job cost sheet are actual costs.

 Indirect materials are charged to a specific job.

 Job-order costing is mainly used in firms with homogeneous products such as oil refineries.

 

7. In a job-order costing system, the incurrence of indirect labor costs would be recorded as a charge to: 

 

 Manufacturing Overhead Incurred.

 Finished Goods.

 Work in Process.

 Cost of Goods Sold.

 

8. If a predetermined overhead rate in a job-order costing system is based on machine-hours, which of the following would be used in the numerator and denominator? 

 

Numerator                                 Denominator

 

Estimated manufacturing overheadActual machine-hours

Actual manufacturing overheadEstimated machine-hours

Estimated manufacturing overheadActual machine-hours

Estimated manufacturing overheadEstimated machine-hours

 

9. Able Company uses a job-order costing system. In reviewing its records at the end of the year, the company has discovered that $2,000 of raw materials has been drawn from the storeroom and used in the production of Job 110, but that no entry has been made in the accounting records for the use of these materials. Job 110 has been completed but it is unsold at year end. This error will cause: 

 

 Work in Process to be understated by $2,000 at year end.

 Cost of Goods Manufactured to be overstated by $2,000 for the year.

 Finished Goods to be understated by $2,000 at the end of the year.

 Cost of Goods Sold to be overstated by $2,000 for the year.

 

10. Elliott Company uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The company manufactures tools to customer specifications. The following data pertain to Job 1501: 

 

Direct materials used ————————        $4,200

Direct labor-hours worked ———————-      300

Direct labor rate per hour ———————         $8.00

Machine-hours used —————————-            200

Predetermined overhead rate per machine-hour —-  $15.00

 

What is the total manufacturing cost recorded on Job 1501? 

 

 $8,800

 $9,600    

 $10,300

 $11,100

 

11. Job 910 was recently completed. The following data have been recorded on its job cost sheet: 

 

Direct materials  —————————–  $3,193

Direct labor-hours —————————    21 labor-hours

Direct labor wage rate ———————— $12 per labor-hour

Machine-hours ———————————- 166 machine-hours

 

The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $15 per machine-hour. The total cost that would be recorded on the job cost sheet for Job 910 would be: 

 

 $3,220

 $3,760

 $5,935    

 $3,445

 

12. Linh Corporation applies manufacturing overhead to jobs on the basis of pounds of direct material used. Linh estimated 160,000 pounds of material usage and $200,000 of manufacturing overhead cost for the year. During the year, Linh actually used 150,000 pounds of material and incurred $171,000 of manufacturing overhead cost. What was Linh’s underapplied or overapplied overhead for the year? 

 

 $12,500 underapplied

 $16,500 overapplied    

 $17,600 underapplied

 $29,000 overapplied

 

13. Chipata Corporation applies manufacturing overhead to jobs on the basis of machine-hours. Chipata estimated 25,000 machine-hours and $10,000 of manufacturing overhead cost for the year. During the year, Chipata incurred 26,200 machine-hours and $11,300 of manufacturing overhead. What was Chipata’s underapplied or overapplied overhead for the year? 

 

 $480 overapplied

 $820 underapplied   

 $1,300 overapplied

 $1,300 underapplied

 

14. Reamer Company uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for next year: 

 

Direct materials  ———————–  $1,000

Direct labor  —————————-   $3,000

Sales commissions ——————–   $4,000

Salary of production supervisor —– $2,000

Indirect materials ———————–  $400

Advertising expense ——————-  $800

Rent on factory equipment ———– $1,000

 

Reamer estimates that 500 direct labor-hours and 1,000 machine-hours will be worked during the year. The predetermined overhead rate per hour will be: 

 

 $6.80

 $6.00

 $3.00

 $3.40   

 

15. Daffe Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the total estimated manufacturing overhead was $165,600. At the end of the year, actual direct labor-hours for the year were 11,900 hours, manufacturing overhead for the year was overapplied by $10,760, and the actual manufacturing overhead was $160,600. The predetermined overhead rate for the year must have been closest to: 

 

 $14.40    

 $13.92

 $13.50

 $14.90

 

16. The following information relates to Araceli Manufacturing Company: 

 

  Total estimated manufacturing overhead cost at beginning of year ———–  $864,000

Predetermined overhead rate (based on machine-hours) —————–    $7.20

Total manufacturing overhead cost incurred during the year ————   $885,000

Total machine-hours incurred during the year ——————————-  118,000 hours

 

What was Araceli’s underapplied or overapplied overhead for last year? 

 

 $35,400 overapplied

 $35,400 underapplied    

 $15,000 underapplied

 $21,000 overapplied

 

17. Rediger Inc. a manufacturing company, has provided the following data for the month of June. The balance in the Work in Process inventory account was $22,000 at the beginning of the month and $17,000 at the end of the month. During the month, the company incurred direct materials cost of $55,000 and direct labor cost of $28,000. The actual manufacturing overhead cost incurred was $53,000. The manufacturing overhead cost applied to jobs was $51,000. The cost of goods manufactured for June was: 

 

 $141,000

 $139,000  

 $134,000

 $136,000

 

18. Baka Corporation applies manufacturing overhead on the basis of direct labor-hours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $239,700 and 4,700 estimated direct labor-hours. Actual manufacturing overhead for the year amounted to $242,000 and actual direct labor-hours were 4,600. 

The overhead for the year was: 

 

 $5,100 underapplied

 $7,400 underapplied   

 $5,100 overapplied

 $7,400 overapplied

 

19. Hamilton Company uses job-order costing. Manufacturing overhead is applied using a predetermined rate of 150% of direct labor cost. Any underapplied or overapplied manufacturing overhead is closed to Cost of Goods Sold at the end of each month. Additional information is available as follows:

 

Job 101 was the only job in process at January 31. The job cost sheet for this job contained the following costs at the beginning of the month:

 

Direct materials  —————————-   $4,000

Direct labor ———————————-   $2,000

Applied manufacturing overhead ——   $3,000

 

 

 Jobs 102, 103, and 104 were started during February.

 Direct materials requisitions for February totaled $26,000.

 Direct labor cost of $20,000 was incurred for February.

 Actual manufacturing overhead was $32,000 for February.

 The only job still in process at February 28 was Job 104, with costs of $2,800 for direct materials and $1,800 for direct labor. 

 

The cost of goods manufactured for February was: 

 

 $77,700  

 $78,000

 $79,700

 $85,000

 

20. Caple Corporation applies manufacturing overhead on the basis of machine-hours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $16,660. Actual manufacturing overhead for the year amounted to $25,000 and actual machine-hours were 1,460. The company’s predetermined overhead rate for the year was $11.90 per machine-hour.

 

The predetermined overhead rate was based on how many estimated machine-hours? 

 

 1,400    

 2,101

 2,742

 1,460 

 

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