Ch. 15: Job-Order Costing

1. (LO 1) Cost accounting involves the measuring, recording, and reporting of: a. product and service costs. b. future costs. c. manufacturing processes. d. managerial accounting decisions.

1. a. Cost accounting involves the measuring, recording, and reporting of product and service costs, not (b) future costs, (c) manufacturing processes, or (d) managerial accounting decisions.

10. (LO 3) The formula 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 above.

10. d. Any of the activity measures mentioned can be used in computing the predetermined manufacturing overhead rate. Choices (a) direct labor cost, (b) direct labor hours, and (c) machine hours can all be used in computing the predetermined manufacturing overhead rate, but (d) is the best answer.

11. (LO 3) 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.

11. 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.

12. (LO 4) 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.

12. 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.

13. (LO 5) 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.

13. b. At the end of an accounting period, a company using a job costing system prepares the cost of goods manufactured from the Work in Process Inventory account, not (a) the job cost sheet; (c) by adding direct materials used, direct labor incurred, and manufacturing overhead incurred; or (d) from the Cost of Goods Sold Account.

14. (LO 4) 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.

14. 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 allocation is a problem for all costing systems, and (d) the use of job order costing has increased due to automated accounting systems.

15. (LO 5) 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.

15. 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.

16. (LO 5) 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.

16. b. Manufacturing overhead is underapplied if actual overhead is greater than applied overhead. The other choices are incorrect because (a) if actual overhead is less than applied, then manufacturing overhead is overapplied; (c) if the predetermined rate equals the actual rate, the actual overhead costs incurred equal the overhead costs applied, neither over- nor underapplied; and (d) if the actual overhead equals the applied overhead, neither over- nor underapplied occurs.

2. (LO 1) 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.

2. c. A job costing system is more likely for products with unique characteristics. The other choices are incorrect because a process cost system is more likely for (a) large volumes of similar products or (b) if production is continuous. (d) is incorrect because the choice of a costing system is not dependent on whether a periodic or perpetual inventory system is used.

3. (LO 1) In accumulating raw materials costs, companies debit the cost of raw materials purchased in a perpetual system to: a. Raw Materials Purchases. b. Raw Materials Inventory. c. Purchases. d. Work in Process.

3. b. In a perpetual system, purchases of raw materials are debited to Raw Materials Inventory, not (a) Raw Materials Purchases, (c) Purchases, or (d) Work in Process.

4. (LO 1) When incurred, factory labor costs are debited to: a) Work in Process. b) Factory Wages Expense. c) Factory Labor. d) Factory Wages Payable.

4. c. When factory labor costs are incurred, they are debited to Factory Labor, not (a) Work in Process, (b) Factory Wages Expense, or (d) Factory Wages Payable (they are debited to Factory Labor and credited to Factory Wages Payable).

5. (LO 1) 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.

5. c. Job order costing parallels the physical flow of materials as they are converted into finished goods. The other choices are incorrect because job order costing begins (a) with raw materials, not work in process, and ends with cost of goods sold; and (b) as soon as raw materials are purchased, not when the sale occurs. (d) is incorrect because the cost of goods manufactured schedule is prepared from the Work in Process account and is only a portion of the costs in a job order system.

6. (LO 2) 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.

6. d. Raw materials are assigned to a job when the materials are issued by the materials storeroom, not when (a) the job is sold, (b) the materials are purchased, or (c) the materials are received from the vendor.

7. (LO 2) The source 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.

7. d. Materials requisition slips are used to assign direct materials, time tickets are used to assign direct labor, and the predetermined overhead rate is used to assign manufacturing overhead to job cost sheets. The other choices are incorrect because (a) materials requisition slips, not invoices, are used to assign direct materials; (b) the predetermined overhead rate, not the actual overhead costs, is used to assign manufacturing overhead; and (c) time tickets, not the payroll register, are used to assign direct labor.

8. (LO 2) 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.

8. b. Finished Goods Inventory is debited when goods are transferred from work in process to finished goods, not when raw materials are issued for a job. Choices (a), (c), and (d) are true statements.

9. (LO 2) 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.

9. a. When direct factory labor is assigned to jobs, the entry is a debit to Work in Process Inventory and a credit to Factory Labor. The other choices are incorrect because (b) Work in Process Inventory, not Manufacturing Overhead, is debited; (c) Work in Process Inventory, not Factory Labor, is debited and Factory Labor, not Manufacturing Overhead, is credited; and (d) Work in Process Inventory, not Factory Labor, is debited and Factory Labor, not Work in Process Inventory, is credited.