Unit 2 - Study Guide

A

An activity that is performed to support the production of a new custom-order product is a: Multiple Choice A Product-level activity. B Facility-level activity. C Unit-level activity. D Customer-support activity. E Batch-level activity.

B

Crizer Company uses a job cost system and predetermines a factory overhead rate based on the amount of expected fixed costs and expected volume. At the conclusion of the fiscal year, overapplied overhead could be explained by which of the following? Actual Fixed Costs-Actual Volume A)Less than expected-Less than expected B)Less than expected-More than expected C)More than expected-More than expected D)More than expected-Less than expected Multiple Choice Option A Option B Option C Option D

D

Customer profitability analysis: A Always shows that the company with the highest total sales generates the highest net customer profit. B Always shows that the company with the lowest total sales generates the lowest net customer profit. C Produces the same results as a Pareto analysis. D Helps identify actions that affect customer profitability. E None of these answer choices are correct.

c

Engineering change orders, maintenance of equipment used in manufacturing, and product design costs are examples of: a. Unit costs. b. Batch costs. c. Product-level costs. d. Facility-level costs. e. Unit, batch, and customer-sustaining costs, respectively.

a. $6,000 Explanation (Material Handling Budgeted Overhead Cost ÷ Budgeted Cost Driver Level) × Women's Pounds of Raw Materials ($1,078,000 ÷ 134,750) × 750 = $6,000

Finer Blades Company manufactures a variety of electric razors for men and women. The company's plant is partially automated. Listed below is cost driver information used in the product-costing system: Overhead Cost Pool Budgeted Overhead Cost Budgeted Cost Driver Level Cost Driver Machinery depreciation or maintenance $ 168,640 27,200 Machine hours Factory depreciation or utilities or insurance 127,840 27,200 Machine hours Product design 554,400 38,500 Hours in design Material handling 1,078,000 134,750 Pounds of raw materials In addition, Finer Blades Company expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements: Men's Razors Women's Razors Units produced and sold 20,000 26,000 Direct labor hours 30 40 Pounds of raw materials 860 750 Hours in design 20 23 Machine hours 65 50 Using activity-based costing, how much batch-level overhead is assigned to the current order for Women's Razors based on pounds of raw materials? a. $6,000. b. $6,880. c. $5,332. d. $8,175. e. $9,374.

c. $708.50. Explanation [$168,640(Budgeted Machine OH) + $127,840(Budgeted Factory OH)] ÷ 27,200(Budgeted CD)) × 65(Men's Razors Machine Hours) = $708.50

Finer Blades Company manufactures a variety of electric razors for men and women. The company's plant is partially automated. Listed below is cost driver information used in the product-costing system: Overhead Cost Pool Budgeted Overhead Cost Budgeted Cost Driver Level Cost Driver Machinery depreciation or maintenance $ 168,640 27,200 Machine hours Factory depreciation or utilities or insurance 127,840 27,200 Machine hours Product design 554,400 38,500 Hours in design Material handling 1,078,000 134,750 Pounds of raw materials In addition, Finer Blades Company expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements: Men's Razors Women's Razors Units produced and sold 20,000 26,000 Direct labor hours 30 40 Pounds of raw materials 860 750 Hours in design 20 23 Machine hours 65 50 Using activity-based costing, how much facility-level overhead is assigned to the current order for Men's Razors? a. $403.00. b. $310.00. c. $708.50. d. $545.00. e. $936.00.

c. $331.20. Explanation [$554,400(Product Design BOH) ÷ $38,500(Product Design BCD)] × 23(Women's Razors Hours in Design) = $331.20

Finer Blades Company manufactures a variety of electric razors for men and women. The company's plant is partially automated. Listed below is cost driver information used in the product-costing system: Overhead Cost Pool Budgeted Overhead Cost Budgeted Cost Driver Level Cost Driver Machinery depreciation or maintenance $ 168,640 27,200 Machine hours Factory depreciation or utilities or insurance 127,840 27,200 Machine hours Product design 554,400 38,500 Hours in design Material handling 1,078,000 134,750 Pounds of raw materials In addition, Finer Blades Company expects to spend $514,368 for 8,037 direct labor-hours. Two current product orders had the following requirements: Men's Razors Women's Razors Units produced and sold 20,000 26,000 Direct labor hours 30 40 Pounds of raw materials 860 750 Hours in design 20 23 Machine hours 65 50 Using activity-based costing, how much product-level overhead is assigned to the current order for Women's Razors? a. $218.00. b. $250.70. c. $331.20. d. $284.00. e. $288.00.

c. $1,600. Explanation [$160,000 + $13,260 + $1,380 + $10,560] ÷ 2,315 budgeted DL hours = $80 per direct labor hour $80 × 20 Direct labor hours = $1,600 = Manufacturing overhead for Job number 971

Flash Company budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead: Overhead Cost Pool Budgeted Overhead Cost Budgeted Level for Cost Driver Overhead Cost Driver Materials handling $ 160,000 3,200 pounds Weight of materials Machine setup 13,260 390 setups Number of setups Machine repair 1,380 30,000 machine hours Machine hours Inspections 10,560 160 inspections Number of inspections Requirements for Job number 971 which manufactured 4 units of product: Direct labor 20 hours Direct materials 130 pounds Machine setup 30 setups Machine hours 15,000 machine hours Inspections 15 inspections If Flash Company uses a volume-based overhead rate based on direct labor hours, the manufacturing overhead for Job number 971 is: a. $990. b. $1,020. c. $1,600. d. $3,460. e. $6,400.

c

If a costing system uses a single base to allocate overhead costs that are the result of several production activities: a. Products that use relatively more of this base tend to be undercosted. b. Products that use relatively less of this base tend to be overcosted. c. Products that use relatively more of this base tend to be overcosted. d. Products may be over- or under-costed, depending on the overhead rate. e. None of these answers are correct.

b

If the usage of project activities is not proportional to the number of units produced, then some managers will be overcharged and others undercharged under: a. Activity-based costing. b. Volume-based costing. c. Overhead costing. d. Process costing. e. Materials costing.

c

Implementing activity-based costing does not require which of the following groups? a. Management accountants. b. Manufacturing managers. c. Marketers. d. Operating managers. e. Engineers.

A

In an organization that makes furniture, which of the following is a high value-added activity? A. Using direct materials in production. B. Inspecting production. C. Storing finished goods inventory. D. Moving work-in-process inventory between work stations. E. Reworking the product to repair defects.

e

In job costing, the job might consist of: a. a single product. b. a batch of identical products. c. a batch of similar products. d. a single, well-defined project. e. a single product, a batch of products, or a single well-defined project.

C

In performing activity analysis during the design of an activity-based costing (ABC) system, the management accountant studies: A The cost drivers and managers in the plant. B The advice of operation-level managers. C The resources, activities, and cost drivers in the operation. D The cost allocation methods applicable to the firm. E The implementation problems for an Activity-Based Costing system.

b

Invoicing cost is an example of a: a. Customer unit-level cost. b. Customer batch-level cost. c. Customer-sustaining cost. d. Distribution-channel cost. e. Sales-level cost.

b. $1,560. [($40,000 ÷ 200) × 4] + [($20,000 ÷ 1,000) × 8] + [($50,000 ÷ 5,000) × 50] + [($10,000 ÷ 10,000) × 100] = $1,560

Juroc Incorporated has identified the following cost drivers for its expected overhead costs for the year: Cost PoolsBudgeted CostCost DriverCost Driver Level Setup$ 40,000 Number of setups200 Ordering20,000 Number of orders1,000 Maintenance50,000 Machine hours5,000 Power10,000 Kilowatt hours10,000 Total direct labor hours budgeted = 2,000 hours. The following data applies to Product X, one of the products completed during the year. Direct materials$ 1,000 Direct labor $ 1,200 Units completed 100 Direct labor hours 40 Number of setups 4 Number of orders 8 Machine hours 50 Kilowatt hours 100 If the activity-based cost drivers are used to allocate overhead cost, the total overhead cost of Product X will be: a. $1,500. b. $1,560. c. $2,000. d. $2,400. e. $2,560.

b

Manufacturing operations whose conversion activities are very similar across several product lines, but whose direct materials used in the various products differ significantly use: a. Process costing. b. Operation costing. c. Actual costing. d. Product costing. e. Job costing.

b

When is a job costing system appropriate to use? a. When products produced are homogeneous in nature. b. When most costs incurred for the job can be readily identified with a specific product. c. When the costs of a product increase dramatically. d. When mass production is used. e. When it is impractical to trace costs to individual products.

A $187,298 underapplied. Explanation ($41.18 × 48,900) − 2,201,000 = $187,298 underapplied Where $41.18 = $2,100,000 (BFOH) ÷ 51,000 (BMH) = Predetermined Overhead Rate

Whetstone Grinders listed the following data for the current year: Budgeted factory overhead$ 2,100,000 Budgeted direct labor hours 89,000 Budgeted machine hours 51,000 Actual factory overhead 2,201,000 Actual direct labor hours 83,700 Actual machine hours 48,900 If overhead is applied based on machine hours, the overapplied/underapplied overhead is: Note: Round intermediate calculations to 2 decimal places. Multiple Choice A $187,298 underapplied. B $187,298 overapplied. C $176,358 underapplied. D $176,358 overapplied. E $ − 0 −.

A

Which of the following can produce unit product costs that fluctuate significantly? A Actual costing system. B Standard costing system. C Normal costing system. D Industry costing system. E Overhead costing system.

d

Which of the following has the weakest linkage between activity and cost driver? Model - Cost Driver A) Machine setup - Number of setups B) Machine maintenance - Machine hours C) Lighting on shop floor - Number of kilowatt-hours D) Quality control - Square feet of floor space E) Materials Handling - Weight of materials in process a. Option A b. Option B c. Option C d. Option D e. Option E

C

Which of the following industries is more suitable for using a job costing system? A Chemical plants. B Petroleum product manufacturing. C Medical clinics. D Cement manufacturing. E Food processing.

d

Which of the following is a step in developing an Activity-Based Costing System? a. Talk to management for cost details. b. Research commonly used cost drivers. c. Determine which products will use activity-based costing and which will not. d. Assign activity costs to cost objects. e. Hire a management accountant to find effective cost drivers.

D

Which of the following is not among the most frequently used volume-based cost drivers for applying factory overhead? A Direct labor hours. B Direct labor costs. C Machine hours. D Number of products made. E None of these answers are correct.

c

Which of the following is not an example of a situation in which project costing is used for service firms? a. Projects to introduce a new software system. b. Projects to develop a new marketing plan. c. Projects to build employee trust in management. d. Projects to improve operating efficiency. e. Projects to implement a new strategic direction for the company.

D

Which of the following is not an indirect manufacturing cost of producing wooden tables? A Manufacturing supervision. B Equipment maintenance. C Wood acquisition costs. D Wood used in the manufacturing process. E Wood storage and handling.

d

Which of the following is not one of the four steps to obtain the predetermined overhead rate? a. Select the most appropriate cost driver(s) for applying the factory overhead costs. b. Divide the estimated factory overhead costs by the estimated amount of the chosen cost driver(s). c. Estimate the total amount of the chosen cost driver(s) for the upcoming operating period. d. Estimate the total amount of direct materials and labor needed for the upcoming operating period. e. Estimate total factory overhead costs for the planned production for the upcoming operating period, usually a year.

b

Which of the following is not true regarding activity-based costing (ABC) systems? a. Activity-Based Costing can provide more accurate product costs. b. Activity-Based Costing identifies more costs as indirect costs than do traditional volume-based systems. c. Activity-Based Costing is likely to be more time-consuming than volume-based systems. d. Activity-Based Costing is used in both manufacturing and non-manufacturing companies. e. Activity-Based Costing is likely to have more overhead rates than volume-based systems.

c

Which of the following journal entries is correct if scrap is being incurred and sold for all jobs in common in the amount of $600? a. Debit Credit Dr -Cash $ 600 Cr - Work-in-Process Inventory $ 600 b. Debit Credit Dr - Cash $ 600 Cr = Finished Goods Inventory $ 600 c. Debit Credit Dr - Cash $ 600 Cr - Factory Overhead $ 600 d. Debit Credit Dr - Cash $ 600 Cr - Work-in-Process Inventory $ 200 Cr - Finished Goods Inventory $ 200 Cr - Factory Overhead $ 200 e. None of the answer choices are correct.

a

Which of the following methods accurately represents the process below? A customer orders twenty cases of nails, and the firm then produces the nails: a. Pull method. b. Push method. c. Order method. d. Overhead assignment method. e. Labor decision method.

a

Which of the following proportions is not used for volume-based costing? a. Number of activities in production. b. Units of production. c. Direct labor hours. d. Machine Hours. e. None of these answers are the correct choice.

C

Which of the following would likely be the most appropriate cost driver to allocate machine set-up costs to products? A Machine hours. B Direct labor hours. C Number of production runs. D Number of products. E Number of purchase orders.

E

Which one of the following is the amount that actual factory overhead exceeds the factory overhead applied? A Factory overhead applied. B Actual factory overhead. C Overapplied overhead. D Allocated factory overhead. E Underapplied overhead.

c

If a company needs to know the cost and profitability of projects as they are completed, which costing should it use? a. Standard costing. b. Actual costing. c. Normal costing. d. Reduced costing. e. None of these answer choices are correct.

b

A company using a volume-based overhead assignment (allocation) method will tend to: a. Overstate the cost of low volume products. b. Understate the cost of low volume products. c. Understate the cost of high volume products. d. Understate the cost of all products. e. Either understate or overstate the cost of high volume products depending on the specific manufacturing factors involved.

D

A measure of frequency and intensity of demands placed on activities by cost objects is: Multiple Choice A. A quantity driver. B. A resource consumption cost driver. C. Not a cost driver. D. An activity consumption cost driver. E. A consumption cost driver.

a

A time ticket: a. Shows the time an employee worked on each job, the pay rate, and the total cost chargeable to each job. b. Shows the time that a department's employees worked on all jobs, the pay rate of each employee, and the total cost chargeable to each job. c. Shows the time an employee worked on each job and the total cost chargeable to each job only. d. Shows the time an employee worked on each job only. e. None of the answer choices are correct.

d

A volume-based rate is an appropriate overhead application base when: a. Several well-differentiated products are manufactured. b. Direct labor costs are large. c. Direct material costs are large relative to direct labor costs incurred. d. Only one product is manufactured. e. Manufacturing is process-based.

b. $990. Explanation $10,560 (Budgeted Inspection OH) ÷ 160 inspections (Budgeted Level for CD) = $66 per inspection $66 × 15 inspections (Job 971 # of Inspections) = $990

Flash Company budgeted $555,600 manufacturing direct wages, 2,315 direct labor hours, and had the following manufacturing overhead: Overhead Cost Pool Budgeted Overhead Cost Budgeted Level for Cost Driver Overhead Cost Driver Materials handling $ 160,000 3,200 pounds Weight of materials Machine setup 13,260 390 setups Number of setups Machine repair 1,380 30,000 machine hours Machine hours Inspections 10,560 160 inspections Number of inspections Requirements for Job number 971 which manufactured 4 units of product: Direct labor 20 hours Direct materials 130 pounds Machine setup 30 setups Machine hours 15,000 machine hours Inspections 15 inspections Using Activity-Based Costing, overhead cost assigned to Job number 971 for inspections is: a. $2,300. b. $990. c. $6,500. d. $690. e. $1,020.

C $377,000. Explanation $384,000 (DM) + [0.9 × $70,000 (M-AD)] − $70,000 (M-AD) = $377,000

Grass Reed Bayou is a bottling company in The Netherlands. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,400, and management budgeted $324,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used $ 384,000 Direct labor 306,000 Factory overhead 658,000 The January 1 balances of inventory accounts are shown below. Materials-all direct $ 70,000 Work-in-process 41,000 Finished goods 26,000 The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The amount of direct materials purchased during the year is: A $391,000. B $388,000. C $377,000. D $380,000. E $374,000.

C $1,336,700. Explanation $680,400 BFOH ÷ $324,000 BDL = 2.1 $384,000 DM + $306,000 DL + ($306,000 DM × 2.1) = $1,332,600 $41,000 WIP + $1,332,600 − (0.9 × $41,000 WIP) = $1,336,700

Grass Reed Bayou is a bottling company in The Netherlands. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,400, and management budgeted $324,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used $ 384,000 Direct labor 306,000 Factory overhead 658,000 The January 1 balances of inventory accounts are shown below. Materials-all direct $ 70,000 Work-in-process 41,000 Finished goods 26,000 The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The cost of goods manufactured during the year is: A $1,332,600. B $1,354,700. C $1,336,700. D $1,373,600. E $1,339,600.

b. $1,354,700. $1,339,300 + ($658,000 − $306,000 × $210%) = $1,354,700

Grass Reed Bayou is a bottling company in The Netherlands. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,400, and management budgeted $324,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used $ 384,000 Direct labor 306,000 Factory overhead 658,000 The January 1 balances of inventory accounts are shown below. Materials-all direct $ 70,000 Work-in-process 41,000 Finished goods 26,000 The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The normal cost of goods sold, after under or overapplied overhead is: a. $1,332,600. b. $1,354,700. c. $1,336,700. d. $1,373,600. e. $1,339,300.

e. $1,339,300. $26,000 + $1,336,700 − (0.9 × $26,000) = $1,339,300

Grass Reed Bayou is a bottling company in The Netherlands. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,400, and management budgeted $324,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used $ 384,000 Direct labor 306,000 Factory overhead 658,000 The January 1 balances of inventory accounts are shown below. Materials-all direct $ 70,000 Work-in-process 41,000 Finished goods 26,000 The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The normal cost of goods sold, before under or overapplied overhead is: a. $1,332,600. b. $1,354,700. c. $1,336,700. d. $1,373,600. e. $1,339,300.

B $500. Explanation $50,000 ÷ 20 material moves = $2,500 per material move $2,500 per material move × 5 material moves = $12,500 $12,500 ÷ 25 wall mirror units produced = material-handling cost per wall mirror = $500

Hotstepper Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of manufacturing overhead that should be assigned to each of the two product lines from the information given below. Wall Mirrors Specialty Windows Total units produced 25 25 Total number of material moves 5 15 Direct labor hours per unit 200 200 Budgeted material-handling costs are $50,000. The material-handling cost per wall mirror under activity-based costing is: A $0. B $500. C $1,000. D $2,000. E $5,000.

A $61.32. Explanation $1,349,040 (TFOH) ÷ ((10,000 units × $17.52) + (16,000 units × $13.14)) = 3.50 $17.52 × 3.50 = $61.32

Lazuli Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model Annual Sales in Units High F 10,000 Great P 16,000 Lazuli uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows: High F Great P Direct materials $ 38.00 $ 25.40 Direct labor $ 17.52 $ 13.14 Budget factory overhead: Engineering and Design 2,409 engineering hours $ 404,712 Quality Control 12,848 inspection hours 269,808 Machinery 33,726 machine hours 539,616 Miscellaneous Overhead 26,400 direct labor hours 134,904 Total $ 1,349,040 Lazuli's controller had been researching activity-based costing and decided to switch to it. A special study determined Lazuli's two products have the following budgeted activities: High F Great P Engineering and design hours 969 1,440 Quality control inspection hours 5,648 7,200 Machine hours 20,286 13,440 Labor hours 12,000 14,400 Using the firm's volume-based costing, applied factory overhead per unit for the High F model is: Note: Rounded to the nearest cent. A $61.32. B $65.43. C $43.42. D $45.99. E $54.04.

A 350 percent of direct labor cost. Explanation $1,349,040 ÷ [(10,000 × $17.52) + (16,000 × $13.14)] = 3.5

Lazuli Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model Annual Sales in Units High F 10,000 Great P 16,000 Lazuli uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows: High F Great P Direct materials $ 38.00 $ 25.40 Direct labor $ 17.52 $ 13.14 Budget factory overhead: Engineering and Design 2,409 engineering hours $ 404,712 Quality Control 12,848 inspection hours 269,808 Machinery 33,726 machine hours 539,616 Miscellaneous Overhead 26,400 direct labor hours 134,904 Total $ 1,349,040 Lazuli's controller had been researching activity-based costing and decided to switch to it. A special study determined Lazuli's two products have the following budgeted activities: High F Great P Engineering and design hours 969 1,440 Quality control inspection hours 5,648 7,200 Machine hours 20,286 13,440 Labor hours 12,000 14,400 What is the overhead application rate using the firm's volume-based costing system? Note: Rounded to the nearest percent or cents. A 350 percent of direct labor cost. B $51.89 per direct labor-hour. C 68 percent of direct labor cost. D 5,189 percent of direct labor cost. E 5,110 percent of direct labor cost.

c. $13.44. Explanation $539,616 ÷ 33,726 machine hours = $16 per machine hour $16 × 13,440 = $215,040 $215,040 ÷ 16,000 Great P units = $13.44

Lazuli Incorporated manufactures two models of cameras that can be used as cell phones, MPX, and digital camcorders. Model Annual Sales in Units High F 10,000 Great P 16,000 Lazuli uses a volume-based costing system to apply factory overhead based on direct labor dollars. The unit prime costs of each product were as follows: High F Great P Direct materials $ 38.00 $ 25.40 Direct labor $ 17.52 $ 13.14 Budget factory overhead: Engineering and Design 2,409 engineering hours $ 404,712 Quality Control 12,848 inspection hours 269,808 Machinery 33,726 machine hours 539,616 Miscellaneous Overhead 26,400 direct labor hours 134,904 Total $ 1,349,040 Lazuli's controller had been researching activity-based costing and decided to switch to it. A special study determined Lazuli's two products have the following budgeted activities: High F Great P Engineering and design hours 969 1,440 Quality control inspection hours 5,648 7,200 Machine hours 20,286 13,440 Labor hours 12,000 14,400 Using activity-based costing, applied machinery overhead for the Great P model per unit is: a. $4.60. b. $9.45. c. $13.44. d. $15.12. e. $42.61.

c. $15.00 per direct labor hour. Explanation $1,044,000 (Budgeted Factory Overhead) ÷ 69,600 (Budgeted Direct Labor hours) = $15.00 per direct labor hour

Lithium Speedway Company listed the following data for the current year: Budgeted factory overhead $ 1,044,000 Budgeted direct labor hours 69,600 Budgeted machine hours 24,000 Actual factory overhead 1,037,400 Actual labor hours 72,600 Actual machine hours 23,600 Assuming Lithium Speedway Company applied overhead based on direct labor hours, the company's predetermined overhead rate for the year is: a. $43.95 per direct labor hour. b. $15.50 per direct labor hour. c. $15.00 per direct labor hour. d. $14.28 per direct labor hour. e. $14.00 per direct labor hour.

C $73,750. Explanation Pre-determined Overhead Rate = $784,700 ÷ 133,000 = $5.90 (7,000 + 5,500) × ($5.90) = $73,750

Magna Carta Interiors is a job-order manufacturer. The company uses a predetermined overhead rate based on direct labor hours to apply overhead to individual jobs. For the current year, estimated direct labor hours are 133,000 and estimated factory overhead is $784,700. The following information is for September. Job X was completed during September, while Job Y was started but not finished. September 1, inventories: Materials $ 24,000 Work-in-process (All Job X) 53,400 Finished goods 105,600 Materials purchases $ 157,000 Direct materials requisitioned: Job X $ 74,000 Job Y 68,000 Direct labor hours: Job X 7,000 Job Y 5,500 Labor costs incurred: Direct labor ($6.00 per hour) $ 75,000 Indirect labor 24,200 Factory supervisory salaries 11,100 Rental costs: Factory $ 9,300 Administrative offices 3,200 Total equipment depreciation costs: Factory $ 10,400 Administrative offices 2,800 Indirect materials used $ 17,800 The total factory overhead applied during September is: A $79,300. B $57,572. C $73,750. D $68,120. E $51,710.

a. $1,332,600. Explanation $384,000 (Direct Materials Used) + $306,000 (Direct Labor) + [$306,000 (Direct Materials Used) × 2.1) = $1,332,600 $680,400 (Budgeted Factory Overhead) ÷ $324,000 (Budgeted Direct Labor) = 2.1

Maple Mount Fishery is a canning company in Astoria. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,400, and management budgeted $324,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used $ 384,000 Direct labor 306,000 Factory overhead 658,000 The January 1 balances of inventory accounts are shown below. Materials-all direct $ 70,000 Work-in-process 41,000 Finished goods 26,000 The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The total manufacturing costs for the year are: a. $1,332,600. b. $1,354,700. c. $1,336,700. d. $1,373,600. e. $1,339,300.

D $10,000 underapplied. Explanation Applied overhead = 1.25 × direct labor, so find direct labor as follows: Direct labor and overhead = $450,000 = $835,000 + $42,000 − $66,000 − $361,000 Direct labor + overhead = (1.0 × direct labor) + (1.25 × direct labor) = $450,000 [$450,000 ÷ 2.25] = $200,000 = Direct labor $450,000 − $200,000 = $250,000 = overhead Or, direct labor × 1.25 direct labor = overhead $200,000 × 1.25 = $250,000 Underapplied overhead = $260,000 − $250,000 = $10,000 underapplied

Marshall Company manufactures products to customer specifications. A job costing system is used to accumulate production costs. Factory overhead cost was applied at 125% of direct labor cost. Selected data concerning the past year's operation of the company are presented below. January 1 December 31 Direct materials $ 77,000 $ 40,000 Work in process 66,000 42,000 Finished goods 115,000 100,000 Other information Direct materials purchases $ 324,000 Cost of goods available for sale 950,000 Actual factory overhead costs 260,000 The amount of underapplied or overapplied overhead is: Multiple Choice A $60,000 overapplied. B $60,000 underapplied. C $10,000 overapplied. D $10,000 underapplied. E $0.

a

Marshall Company manufactures products to customer specifications. A job costing system is used to accumulate production costs. Factory overhead cost was applied at 125% of direct labor cost. Selected data concerning the past year's operation of the company are presented below. January 1 December 31 Direct materials $ 77,000 $ 40,000 Work in process 66,000 42,000 Finished goods 115,000 100,000 Other information Direct materials purchases $ 324,000 Cost of goods available for sale 950,000 Actual factory overhead costs 260,000 The cost of goods sold (before adjustment for under or overapplied overhead) is: a. $850,000. b. $348,000. c. $867,000. d. $835,000. e. $811,000.

A

Normal spoilage is defined as: Multiple Choice A Spoilage that typically occurs under efficient operations. B Scrap. C Uncontrollable waste as a result of a special production run. D Spoilage that arises under inefficient operations. E Controllable spoilage.

b

The predetermined factory overhead rate includes: a. Estimated annual sales. b. Estimated total amount of cost driver. c. Estimated total cost. d. Estimated electricity consumed. e. Estimated direct labor costs

B

The primary focus of job costing in service industries is on: A Direct materials. B Direct labor. C Indirect materials. D Supplies. E Factory overhead.

d. $44,268 Explanation $632,400 (Total Overhead) ÷ 4,800 direct labor hours = $131.75 per direct labor hour $131.75 × 336 hours = $44,268

Ohm Company manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system: Overhead Cost Pool Budgeted Overhead Cost Driver Estimated Cost Driver Level Machine setups $ 120,000 Number of setups 120 setups Materials handling 104,400 Number of barrels 8,700 barrels Quality control 264,000 Number of inspections 1,100 inspections Other overhead cost 144,000 Number of machine hours 12,000 machine hours Total overhead $ 632,400 A current product order has the following requirements: Machine setups 8 setups Materials handling 606 barrels Quality inspections 80 inspections Machine hours 830 machine hours Direct labor hour 336 hours What is the total manufacturing overhead for the current product order if the firm uses a plantwide rate based on direct labor-hours? a. $9,960. b. $30,240. c. $43,741. d. $44,268. e. $109,352.

e $21,600 Explanation $132,000 ÷ 1,100 = $120 per machine hour $120 × 180 = $21,600

Papyrus Company manufacturers laser printers. It has outlined the following overhead cost drivers: Overhead Costs Pool - Cost Driver -Overhead Cost - Budgeted Level for Cost Driver Quality control Number of inspections $ 64,800 1,080 Machine operation Machine hours 132,000 1,100 Materials handling Number of batches 900 30 Misc overhead cost Direct labor hours 48,000 4,000 Papyrus Company has an order for 1,000 laser printers that has the following production requirements: Number of inspections 175 Machine hours 180 Number of batches 5 Direct labor hours 650 Using activity-based costing, applied machine operation overhead for the 1,000 laser printers order is: a. $7,800. b. $10,000. c. $10,500. d. $150. e. $21,600.

D $150 Explanation $900 (Materials Handling) ÷ 30 (Number of Batches) = $30 per batch $30 × 5 batches = $150

Papyrus Company manufacturers laser printers. It has outlined the following overhead cost drivers: Overhead Costs Pool - Cost Driver -Overhead Cost - Budgeted Level for Cost Driver Quality control Number of inspections $ 64,800 1,080 Machine operation Machine hours 132,000 1,100 Materials handling Number of batches 900 30 Misc overhead cost Direct labor hours 48,000 4,000 Papyrus Company has an order for 1,000 laser printers that has the following production requirements: Number of inspections 175 Machine hours 180 Number of batches 5 Direct labor hours 650 Using activity-based costing, applied materials handling factory overhead for the 1,000 laser printers order is: a. $7,800. b. $10,000. c. $10,500. d. $150. e. $21,600.

C $10,500. Explanation $64,800 ÷ 1,080 = $60 per inspection $60 × 175 = $10,500

Papyrus Company manufacturers laser printers. It has outlined the following overhead cost drivers: Overhead Costs Pool - Cost Driver -Overhead Cost - Budgeted Level for Cost Driver Quality control Number of inspections $ 64,800 1,080 Machine operation Machine hours 132,000 1,100 Materials handling Number of batches 900 30 Misc overhead cost Direct labor hours 48,000 4,000 Papyrus Company has an order for 1,000 laser printers that has the following production requirements: Number of inspections 175 Machine hours 180 Number of batches 5 Direct labor hours 650 Using activity-based costing, applied quality Factory overhead for the 1,000 laser printers order is: A. $7,800. B. $10,000. C $10,500. D. $150. E. $21,600.

c. $192 Explanation $1200 ÷ 50 = $24 per batch $24 × 8 batches = $192

Platinum Soles Company manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers: Overhead Costs Pool Cost Driver Overhead Cost Budgeted Level for Cost Driver Quality control Number of inspections $ 64,800 1,080 Machine operation Machine hours 132,000 1,100 Materials handling Number of batches 900 30 Miscellaneous overhead cost Direct labor hours 48,000 4,000 Platinum Soles Company has an order for cleats that has the following production requirements: Number of Inspections 375 Number of Machine hours 220 Number of Batches 8 Direct Labor Hours 840 Using activity-based costing, applied materials handling factory overhead for the baseball cleat order is: a. $338. b. $584. c. $192. d. $353. e. $686.

d. 9,912 Explanation $59,000 ÷ 5,000 direct labor hours = $11.80 per labor hour $11.80 × 840 labor hours = $9,912

Platinum Soles Company manufactures cleats for baseball shoes. It has outlined the following overhead cost drivers: Overhead Costs Pool Cost Driver Overhead Cost Budgeted Level for Cost Driver Quality control Number of inspections $ 64,800 1,080 Machine operation Machine hours 132,000 1,100 Materials handling Number of batches 900 30 Miscellaneous overhead cost Direct labor hours 48,000 4,000 Platinum Soles Company has an order for cleats that has the following production requirements: Number of Inspections 375 Number of Machine hours 220 Number of Batches 8 Direct Labor Hours 840 Using activity-based costing, applied miscellaneous factory overhead for the baseball cleat order based on direct labor hours is: a. $8,745. b. $10,312. c. $10,489. d. $9,912. e. $8,456.

B

Procurement costs such as costs of placing orders for materials and paying suppliers are usually classified as: Multiple Choice A. Output-unit-level costs. B. Batch-level costs. C. Product-level costs. D. Facility-level costs. E. Vendor costs.

E

Product costing provides useful cost information for all the following except: A Both manufacturing and non-manufacturing firms. B For non-manufacturing firms. C Management planning, cost control, and performance evaluation. D Financial statement reporting. E Identifying and hiring competent managers.

B

Purchase order, set-up, and inspection costs are examples of: A Unit-level costs. B Batch-level costs. C Product-level costs. D Facility-level costs. E Department-level costs.

B $57,950. Explanation $57,950 = [5,000 (Job X DL) + 4,500 (Job Y DL)] × ($6.10) Where $6.10 = $695,400 (EFOH) ÷ 114,000 (EDL) = Predetermined Overhead Rate

Shine-On Celestial Builders is a job-order manufacturer. The company uses a predetermined overhead rate based on direct labor hours to apply overhead to individual jobs. For the current year, estimated direct labor hours were 114,000 and estimated factory overhead was $695,400. The following information was for September. Job X was completed during September, while Job Y was started but not finished. September 1, inventories: Materials$ 9,000 Work-in-process (All Job X)37,400 Finished goods 80,400 Materials purchases$ 125,000 Direct materials requisitioned: Job X$ 54,500 Job Y 40,000 Direct labor hours: Job X 5,000 Job Y 4,500 Labor costs incurred: Direct labor ($6.00 per hour)$ 57,000 Indirect labor 16,200 Factory supervisory salaries 7,200 Rental costs: Factory $ 8,400 Administrative offices 2,200 Total equipment depreciation costs: Factory$ 9,000 Administrative offices 1,900 Indirect materials used$ 14,400 The total factory overhead applied during September is: A $59,300. B $57,950. C $57,848. D $56,120. E $57,710.

a. $152,400. Explanation Overhead application rate = $695,400 (estimated FOH) ÷ 114,000 (estimated DLH) = $6.10 per DL-hour Materials + Labor + Applied OH + Beginning WIP = Total cost of Job X $54,500 + (5,000 × $6) + (5,000 × $6.10) + $37,400 = $152,400

Shine-On Celestial Builders is a job-order manufacturer. The company uses a predetermined overhead rate based on direct labor hours to apply overhead to individual jobs. For the current year, estimated direct labor hours were 114,000 and estimated factory overhead was $695,400. The following information was for September. Job X was completed during September, while Job Y was started but not finished. September 1, inventories: Materials$ 9,000 Work-in-process (All Job X)37,400 Finished goods80,400 Materials purchases$ 125,000 Direct materials requisitioned: Job X$ 54,500 Job Y40,000 Direct labor hours: Job X5,000 Job Y4,500 Labor costs incurred: Direct labor ($6.00 per hour)$ 57,000 Indirect labor16,200 Factory supervisory salaries7,200 Rental costs: Factory $ 8,400 Administrative offices2,200 Total equipment depreciation costs: Factory$ 9,000 Administrative offices1,900 Indirect materials used$ 14,400 The total cost of Job X is: Multiple Choice a. $152,400. b. $128,200. c. $151,900. d. $129,600. e. $140,800.

c. $31.00 per machine hour. Explanation $1,271,000 (Budgeted Factory Overhead) ÷ 41,000 (Budgeted Machine Hours) = $31.00 per machine hour

Spring Green Source Incorporated listed the following data for the current year: Budgeted factory overhead $ 1,271,000 Budgeted direct labor hours 82,000 Budgeted machine hours 41,000 Actual factory overhead 1,201,000 Actual direct labor hours 86,300 Actual machine hours 39,400 Assuming Spring Green Source Incorporated applied overhead based on machine hours, the firm's predetermined overhead rate for the current year rounded to 2 decimal places is: a. $28.42 per machine hour. b. $32.25 per machine hour. c. $31.00 per machine hour. d. $33.50 per machine hour. e. $37.41 per machine hour.

c

Standard costing systems provide a basis for which of the following? a. Timely estimates. b. Accurate costs. c. Performance evaluation. d. Overhead assignment method. e. Project costing.

a

Standard costs are: a. Planned costs the firm should attain. b. Associated with direct materials and factory overhead only. c. Associated with direct labor and factory overhead only. d. Targeted low costs the firm should strive for. e. Estimates of a portion of overhead.

D

The Activity-Based costs assigned to cost objects are based on what? Multiple Choice A Activity cost pools. B Actual levels of spending. C Actual levels of capacity usage. D Planned levels of spending and capacity usage. E The size of the cost object.

b

The cost of unused capacity can be determined using activity-based costing (ABC) for the purpose of: a. Determining more accurately the activity-based costing costs. b. Helping managers plan the short and longer-term use of the operating resources. c. Determining product profitability. d. Completing an effective activity analysis. e. All of these answer choices are correct.

c

The cost to process monthly statements is an example of a: a. Customer unit-level cost. b. Customer batch-level cost. c. Customer-sustaining cost. d. Distribution-channel cost. e. Sales-level cost.

d

The costs of operating a regional warehouse is an example of a: a. Customer unit-level cost. b. Customer batch-level cost. c. Customer-sustaining cost. d. Distribution-channel cost. e. Sales-level cost.

A

The examination of the efficiency of each of a firm's activities is: A Activity analysis. B Pareto analysis. C Activity-based management. D Performance measurement. E Attribute-based management.

a

The examination of the efficiency of each of a firm's activities is: a. Activity analysis. b. Pareto analysis. c. Activity-based management. d. Performance measurement. e. Attribute-based management.

b

The journal entry required to record factory depreciation includes: Multiple Choice a. A debit to the Cost of Goods Manufactured account. b. A debit to the Factory Overhead account. c. A debit to the Depreciation Expense account. d. A debit to the Accumulated Depreciation account. e. None of these answer choices are correct.

d

The key distinction between job costing and process costing is: a. The difference in detail required by each approach. b. The use made of the collected data. c. The journal entries required. d. The accumulation of costs to assign to cost objects. e. The standards applied.

A

The printing industry has become highly automated. Job costing in the printing industry would likely have the following general framework. Job cost equals: A direct materials cost, plus direct labor, plus outside purchase costs, plus applied overhead based on machine hours. B direct materials cost, plus conversion costs applied on the basis of labor hours. C direct materials cost, plus outside purchase costs, plus overhead cost applied on the basis of labor hours. D materials purchases, labor incurred and applied overhead based on labor hours. E None of these answer choices are correct.

a

The system where the cost of a product or service is obtained by assigning costs to masses of similar units in each department and then computing unit cost on an average basis is called: a. A process costing system. b. A job costing system. c. An activity-based costing system. d. An inventory materials control system. e. None of these answers are correct.

c

The three major differences between process and job order costing systems are those relating to: a. Quantity, quality, and cost. b. Speed, accuracy, and design. c. Cost object, product or service variety, and timing of unit cost calculation. d. Responsibility for cost, system design, and authorization codes. e. None of these answer choices are correct.

d

The total cost of direct materials, direct labor, and factory overhead transferred from the Work-in-Process Inventory account to the Finished Goods Inventory account during an accounting period is: a. Normal cost of goods sold. b. Adjusted cost of goods sold. c. Total manufacturing cost. d. Cost of goods manufactured. e. Actual cost of goods sold.

b

The two main advantages of using predetermined factory overhead rates are to provide more accurate unit cost information and to: a. Simplify the accounting process. b. Provide cost information on a timely basis. c. Insure transmission of correct data. d. Extend the useful life of the cost data. e. Adjust for variances in data sources.

A

Track Burner Unlimited Company uses a Materials Inventory account to record both direct and indirect materials. Track Burner charges direct materials to Work In Process, while indirect materials are charged to the Factory Overhead account. During the month of April, the company has the following cost information: Total materials (direct and indirect) purchased $ 90,000 Indirect materials issued to production 30,000 Total materials issued to production 110,000 Beginning materials inventory 50,000 The credit to the materials Inventory account for materials is: A $110,000. B $30,000. C $90,000. D $80,000. E $50,000.

D $80,000. Total materials issued less indirect materials issued: $110,000 − $30,000

Track Burner Unlimited Company uses a Materials Inventory account to record both direct and indirect materials. Track Burner charges direct materials to Work In Process, while indirect materials are charged to the Factory Overhead account. During the month of April, the company has the following cost information: Total materials (direct and indirect) purchased $ 90,000 Indirect materials issued to production 30,000 Total materials issued to production 110,000 Beginning materials inventory 50,000 The debit to Work-in-Process Inventory account for materials is: A $110,000. B $30,000. C $90,000. D $80,000. E $50,000.

d

What is the definition of scrap? a. An unacceptable unit that is discarded or sold for disposal value. b. The additional work that must be done to make a nonconforming good acceptable so that it can be sold in regular channels. c. Spoilage that is inherent in the manufacturing process. d. Materials left over from the manufacture of a product that have little or no value. e. Waste in excess of what is expected to occur under normal operating conditions.

A) $ 200.00 $ 4.00 General Calculations: Number of Wood batches = 250 ÷ 10 = 25 Number of Iron batches = 20,000 ÷ 500 = 40 Total batches = 65 = 40 + 25 Wood: Total Set-up Cost = 25 × $2,000 = $50,000 $50,000 ÷ 250 units = $200 per unit Iron: Total Set-up Cost = 40 × $2,000 = $80,000 $80,000 ÷ 20,000 = $4 per unit

Tremain Company produces and sells two products, Wood and Iron. The following information is available relating to its setup activities: Wood Iron Units produced 250 20,000 Batch size (units) 10 500 Total direct labor hours 1,000 39,000 Cost per setup $ 2,000 $ 2,000 With a volume-based costing system that applies overhead based on direct labor hours, the setup cost portion of overhead for each unit is: Use of activity-based costing would allocate the following amounts of setup cost to each unit: Note: Rounded to the nearest cent. Wood Iron A) $ 200.00 $ 4.00 B) $ 500.00 $ 1,025.64 C) $ 6.42 $ 6.50 D) $ 80.00 $ 50.00 E) $ 8.00 $ 0.10 Option A Option B Option C Option D Option E

b. Option B Explanation General Calculations: Number of Wood batches = 250 ÷ 10 = 25 Number of Iron batches = 20,000 ÷ 500 = 40 Total number of batches = 65 = 25 + 40 Total Set-up Cost = $2,000 × 65 batches = $130,000 Set-up cost per direct labor hour = $130,000 ÷ 40,000 total direct labor hours = $3.25 per direct labor hour Wood: Set-up cost for Wood = $3.25 × 1,000 Wood direct labor hours = $3,250 Total Wood Units Produced = 250 units Wood overhead cost per unit = $3,250 ÷ 250 units = $13.00 Iron: Set-up cost for Iron = $3.25 × 39,000 Iron direct labor hours = $126,750 Total Iron Units Produced = 20,000 units Iron overhead cost per unit = $126,750 ÷ 20,000 = $6.3375 = $6.34 (rounded)

Tremain Company produces and sells two products, Wood and Iron. The following information is available relating to its setup activities: Wood Iron Units produced 250 20,000 Batch size (units) 10 500 Total direct labor hours 1,000 39,000 Cost per setup $ 2,000 $ 2,000 With a volume-based costing system that applies overhead based on direct labor hours, the setup cost portion of overhead for each unit is: Note: Rounded to the nearest cent. Wood Iron A) $ 3.25 $ 3.25 B) $ 13.00 $ 6.34 C) $ 8.00 $ 0.10 D) $ 25.50 $ 25.50 E) $ 102.00 $ 49.73 Multiple Choice a. Option A b. Option B c. Option C d. Option D e. Option E

c

Under job costing, factory overhead costs are assigned to products or services using labor or machine hours which are: a. Multiple cost pools. b. A homogeneous cost pool. c. Volume-based cost drivers. d. Non-volume-based cost drivers only. e. Activity-based cost drivers.

c

Volume-based rates are appropriate in situations where the incurrence of factory overhead: a. Is related to multiple cost drivers. b. Is related to several non-homogeneous cost drivers. c. Is related to a single, common cost driver. d. Varies considerably from period to period. e. Is relatively small in amount.

d

Volume-based rates produce inaccurate product cost when: a. A large portion of factory overhead cost is not volume-based. b. Firms produce a diverse mix of products. c. Large volumes of a product are manufactured. d. Both a lack of volume-based overhead and there is a large range of products. e. None of these answer choices are correct.

A

What ensures that no activities are missed during the value-added analysis? Multiple Choice A. A process map. B. A production supervisor. C. A management accountant. D. A flowchart. E. The previous value added analysis.

a

What is a customer unit-level cost? a. resources consumed for each unit sold to a customer. b. resources consumed for each sales transaction. c. resources consumed to service a customer regardless of the number of units or batches sold. d. resources consumed in each distribution channel the firm uses to service customers. e. resources consumed to sustain sales and service activities that cannot be traced to an individual unit, batch, customer, or distribution channel.

b

What is the bill of materials? a. A source document used to request the release of materials into the production process. b. A detailed listing of all the materials needed for a given job. c. A cost sheet that records and summarizes the costs of direct materials, direct labor, and factory overhead for a particular job. d. A sheet showing the time an employee worked on each job, the pay rate, and the total cost chargeable to each job. e. A document that lists the prices of all materials needed in production.