Accounting 202 Test 2

Cost accounting focuses on the measuring, recording, and reporting of: A. product costs. B. future costs. C. manufacturing processes. D. managerial accounting decisions.

A. Product Cost

The entry when direct factory labor is assigned to jobs is a debit to: A. Work in Process Inventory and a credit to Factory Labor. B. Manufacturing Overhead and a credit to Factory Labor. C. Factory Labor and a credit to Manufacturing Overhead. D. Factory Labor and a credit to Work in Process Inventory.

A. Work in Process Inventory and a credit to Factory Labor.

Howell Company uses a predetermined overhead rate based on machine hours to apply manufacturing overhead to jobs. The company estimates $34,000 in manufacturing overhead costs for the next year. Howell estimates that 5,000 direct labor hours and 10,000 machine hours will be worked during the year. The predetermined overhead rate per hour will be: Select one: a. $6.80 b. $3.40 c. $8.20 d. $6.40

B. $3.40 Nice going. A predetermined rate is calculated as estimated overhead divided by estimated activity level ($34,000 / 10,000 = $3.40 per machine hour).

In accumulating raw materials costs, companies debit the cost of raw materials purchased in a perpetual inventory system to: A. Raw Materials Purchases. B. Raw Materials Inventory. C. Purchases. D. Work in Process.

B. Raw Materials Inventory

In Crawford Company, the predetermined overhead rate is 80% of direct labor cost. During the month, Crawford incurs $210,000 of factory labor costs, of which $180,000 is direct labor and $30,000 is indirect labor. Actual overhead incurred was $200,000. The amount of overhead debited to Work in Process Inventory should be: A. $200,000. B. $144,000. C. $168,000. D. $160,000.

B. Work in Process Inventory should be debited for $144,000 ($180,000 × 80%), the amount of manufacturing overhead applied, not (A) $200,000, (C) $168,000, or (D) $160,000.

Manufacturing overhead is underapplied if: A. actual overhead is less than applied. B. actual overhead is greater than applied. C. the predetermined rate equals the actual rate. D. actual overhead equals applied overhead.

B. actual overhead is greater than applied.

In recording the issuance of raw materials in a job order cost system, it would be incorrect to: A. debit Work in Process Inventory. B. debit Finished Goods Inventory. C. debit Manufacturing Overhead. D. credit Raw Materials Inventory.

B. debit Finished Goods Inventory.

Conversion costs are the sum of: A. fixed and variable overhead costs. B. direct labor costs and overhead costs. C. direct material costs and overhead costs. D. direct labor and indirect labor costs.

B. direct labor costs and overhead costs.

At the end of an accounting period, a company using a job order cost system calculates the cost of goods manufactured: A. from the job cost sheet. B. from the Work in Process Inventory account. C. by adding direct materials used, direct labor incurred, and manufacturing overhead incurred. D. from the Cost of Goods Sold account.

B. from the Work in Process Inventory account.

In making journal entries to assign direct materials costs, a company using process costing: A. debits Finished Goods Inventory. B. often debits two or more work in process inventory accounts. C. generally credits two or more work in process inventory accounts. D. credits Finished Goods Inventory.

B. often debits two or more work in process inventory accounts.

When incurred, factory labor costs are debited to: A. Work in Process Inventory. B. Factory Wages Expense. C. Factory Labor. D. Payroll Liabilities.

C. Factory Labor

Which of the following statements is true? A. Job order costing requires less data entry than process costing. B. Allocation of overhead is easier under job order costing than process costing. C. Job order costing provides more precise costing for custom jobs than process costing. D. The use of job order costing has declined because more companies have adopted automated accounting systems.

C. Job order costing provides more precise costing for custom jobs than process costing. The other choices are incorrect because (A) job order costing often requires significant data entry, (B) overhead assignment is a problem for all costing systems, and (D) the use of job order costing has increased due to automated accounting systems.

At end of the year, a company has a $1,200 debit balance in Manufacturing Overhead. The company: A. makes an adjusting entry by debiting Manufacturing Overhead Applied for $1,200 and crediting Manufacturing Overhead for $1,200. B. makes an adjusting entry by debiting Manufacturing Overhead Expense for $1,200 and crediting Manufacturing Overhead for $1,200. C. makes an adjusting entry by debiting Cost of Goods Sold for $1,200 and crediting Manufacturing Overhead for $1,200. D. makes no adjusting entry because differences between actual overhead and the amount applied are a normal part of job order costing and will average out over the next year.

C. The company would make an adjusting entry for the underapplied overhead by debiting Cost of Goods Sold for $1,200 and crediting Manufacturing Overhead for $1,200, not by debiting (A) Manufacturing Overhead Applied for $1,200 or (B) Manufacturing Overhead Expense for $1,200. Choice (D) is incorrect because at the end of the year, a company makes an entry to eliminate any balance in Manufacturing Overhead.

Mynex Company completes Job No. 26 at a cost of $4,500 and later sells it for $7,000 cash. A correct entry is: A. debit Finished Goods Inventory $7,000 and credit Work in Process Inventory $7,000. B. debit Cost of Goods Sold $7,000 and credit Finished Goods Inventory $7,000. C. debit Finished Goods Inventory $4,500 and credit Work in Process Inventory $4,500. D. debit Accounts Receivable $7,000 and credit Sales Revenue $7,000.

C. When a job costing $4,500 is completed, Finished Goods Inventory is debited and Work in Process Inventory is credited for $4,500. Choices (A) and (B) are incorrect because the amounts should be for the cost of the job ($4,500), not the sale amount ($7,000). Choice (D) is incorrect because the debit should be to Cash, not Accounts Receivable.

In a process cost system, manufacturing overhead: A. is assigned to finished goods at the end of each accounting period. B. is assigned to a work in process inventory account for each job as the job is completed. C. is assigned to a work in process inventory account for each production department on the basis of a predetermined overhead rate. D. is assigned to a work in process inventory account for each production department as overhead costs are incurred.

C. is assigned to a work in process inventory account for each production department on the basis of a predetermined overhead rate.

A company is more likely to use a job order cost system if: A. it manufactures a large volume of similar products. B. its production is continuous. C. it manufactures products with unique characteristics. D. it uses a periodic inventory system.

C. it manufactures products with unique characteristics

The flow of costs in job order costing: A. begins with work in process inventory and ends with finished goods inventory. B. begins as soon as a sale occurs. C. parallels the physical flow of materials as they are converted into finished goods and then sold. D. is necessary to prepare the cost of goods manufactured schedule. solution

C. parallels the physical flow of materials as they are converted into finished goods and then sold.

The equation for computing the predetermined manufacturing overhead rate is estimated annual overhead costs divided by estimated annual operating activity, expressed as: A. direct labor cost. B. direct labor hours. C. machine hours. D. Any of the answer choices is correct.

D. Any of the answer choices is correct.

Indicate which of the following statements is not correct. A. Both a job order and a process cost system track the same three manufacturing cost components—direct materials, direct labor, and manufacturing overhead. B. A job order cost system uses only one work in process inventory account, whereas a process cost system uses multiple work in process inventory accounts. C. Manufacturing costs are accumulated the same way in a job order and in a process cost system. D. Manufacturing costs are assigned the same way in a job order and in a process cost system.

D. Manufacturing costs are assigned the same way in a job order and in a process cost system.

The sources of information for assigning costs to job cost sheets are: A. invoices, time tickets, and the predetermined overhead rate. B. materials requisition slips, time tickets, and the actual overhead costs. C. materials requisition slips, payroll register, and the predetermined overhead rate. D. materials requisition slips, time tickets, and the predetermined overhead rate.

D. materials requisition slips, time tickets, and the predetermined overhead rate.

Raw materials are assigned to a job when: A. the job is sold. B. the materials are purchased. C. the materials are received from the vendor. D. the materials are issued by the materials storeroom.

D. the materials are issued by the materials storeroom.

Overapplied

If applied is greater than actual applied > actual

Underapplied

If applied is less than actual applied < actual

Brief Ex 15.2 During January, its first month of operations, Dieker Company accumulated the following manufacturing costs: raw materials purchased $4,000 on account, factory labor incurred $6,000, and factory utilities payable $2,000. Prepare separate journal entries for each type of manufacturing cost (use January 31 for all dates).

Jan 31. Raw Materials Inventory 4,000 Accounts Payable 4,000 31 Factory Labor 6,000 Payroll Liabilities 6,000 31 Manufacturing Overhead 2,000 Utilities Payable 2,000

Brief Ex 15.7 During the first quarter, Francum Company incurs the following direct labor costs: January $40,000, February $30,000, and March $50,000. For each month, prepare the entry to assign overhead to production using a predetermined rate of 70% of direct labor cost (date journal entries as of the end of the month).

Jan. 31 Work in Process Inventory 28,000 Manufacturing Overhead ($40,000 X 70%) 28,000 Feb. 28 Work in Process Inventory 21,000 Manufacturing Overhead ($30,000 X 70%) 21,000 Mar. 31 Work in Process Inventory 35,000 Manufacturing Overhead ($50,000 X 70%) 35,000

Brief Ex 15.6 Marquis Company estimates that annual manufacturing overhead costs will be $900,000. Estimated annual operating activity bases are direct labor cost $500,000, direct labor hours 50,000, and machine hours 100,000. Compute the predetermined overhead rate for each activity base.

Overhead rate per direct labor cost is 180%, or ($900,000 ÷ $500,000). Overhead rate per direct labor hour is $18, or ($900,000 ÷ 50,000 DLH). Overhead rate per machine hour is $9, or ($900,000 ÷ 100,000 MH).

Conrad Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs. At the beginning of the year, the company estimated manufacturing overhead would be $150,000 and direct labor hours would be 10,000. The actual figures for the year were $186,000 for manufacturing overhead and 12,000 direct labor hours. The cost records for the year will show: Select one: a. underapplied overhead of $6,000 b overapplied overhead of $30,000 c. underapplied overhead of $30,000 d. overapplied overhead of $6,000

a. underapplied overhead of $6,000

Costs that are treated as assets until the product is sold are called: a. period costs b. primary costs c. conversion costs d. product costs

d. product costs