MA Chapter 3

23. Armour, Inc., an advertising agency, applies overhead to jobs on the basis of direct professional labor hours. Overhead was estimated to be $150,000, direct professional labor hours were estimated to be 15,000, and direct professional labor cost was projected to be $225,000. During the year, Armour incurred actual overhead costs of $146,000, actual direct professional labor hours of 14,500, and actual direct labor cost of $222,000. By year-end, the firm's overhead was: A. $1,000 underapplied. B. $1,000 overapplied. C. $4,000 underapplied. D. $4,000 overapplied. E. $5,000 underapplied.

A. $1,000 underapplied.

3. As production takes place, all manufacturing costs are added to the: A. Work-in-Process Inventory account. B. Manufacturing-Overhead Inventory account. C. Cost-of-Goods-Sold account. D. Finished-Goods Inventory account. E. Production Labor account.

A. Work-in-Process Inventory account.

19. The journal entry needed to record $5,000 of advertising for Oxner Manufacturing would include: A. a debit to Advertising Expense. B. a credit to Advertising Expense. C. a debit to Manufacturing Overhead. D. a credit to Manufacturing Overhead. E. a debit to Projects-in-Process.

A. a debit to Advertising Expense.

20. The left side of the Manufacturing Overhead account is used to accumulate: A. actual manufacturing overhead costs incurred throughout the accounting period. B. overhead applied to Work-in-Process Inventory. C. underapplied overhead. D. predetermined overhead. E. overapplied overhead.

A. actual manufacturing overhead costs incurred throughout the accounting period.

27. When selecting a volume-based cost driver, the goal is to: A. choose an input that varies in a pattern that is most similar to the pattern with which overhead costs vary. B. choose a period where a cost driver is at a low level so that overhead costs will be at a low level. C. choose labor hours for a computer-integrated manufacturing processes. D. eliminate complexity by using a plantwide overhead rate for all of a firm's products. E. None of these are goals when selecting a volume-based cost driver.

A. choose an input that varies in a pattern that is most similar to the pattern with which overhead costs vary.

5. The final step in recognizing the completion of production requires a company to: A. debit Finished-Goods Inventory and credit Work-in-Process Inventory. B. debit Work-in-Process Inventory and credit Finished-Goods Inventory. C. add direct labor to Work-in-Process Inventory. D. add direct materials, direct labor, and manufacturing overhead to Work-in-Process Inventory. E. add direct materials to Finished-Goods Inventory.

A. debit Finished-Goods Inventory and credit Work-in-Process Inventory.

9. A manufacturing firm produces goods in accordance with customer specifications, commencing production upon receipt of a purchase order. To accumulate the cost of each order, the company would use a: A. job-cost record. B. cost allocation matrix. C. production log. D. overhead sheet. E. manufacturing cost record.

A. job-cost record.

7. A custom-home builder would likely utilize: A. job-order costing. B. process costing. C. mass customization. D. process budgeting. E. joint costing.

A. job-order costing.

2. If a company sells goods that cost $80,000 for $92,000, the firm will: A. reduce Finished-Goods Inventory by $80,000. B. reduce Finished-Goods Inventory by $92,000. C. report sales revenue on the balance sheet of $92,000. D. reduce Cost of Goods Sold by $80,000. E. follow more than one of the other procedures.

A. reduce Finished-Goods Inventory by $80,000.

17. Blakely charges manufacturing overhead to products by using a predetermined application rate, computed on the basis of machine hours. The following data pertain to the current year: Budgeted manufacturing overhead: $480,000 Actual manufacturing overhead: $440,000 Budgeted machine hours: 20,000 Actual machine hours: 16,000 Overhead applied to production totaled: A. $352,000. B. $384,000. C. $550,000. D. $600,000. E. some other amount.

B. $384,000.

15. Which of the following is the correct method to calculate a predetermined overhead rate? A. Budgeted total manufacturing cost budgeted amount of cost driver. B. Budgeted overhead cost budgeted amount of cost driver. C. Budgeted amount of cost driver budgeted overhead cost. D. Actual overhead cost budgeted amount of cost driver. E. Actual overhead cost actual amount of cost driver.

B. Budgeted overhead cost ¸ budgeted amount of cost driver.

26. When underapplied or overapplied manufacturing overhead is prorated, amounts can be assigned to which of the following accounts? A. Raw-Material Inventory, Manufacturing Overhead, and Direct Labor. B. Cost of Goods Sold, Work-in-Process Inventory, and Finished-Goods Inventory. C. Work-in-Process Inventory, Raw-Material Inventory, and Cost of Goods Sold. D. Raw-Material Inventory, Finished-Goods Inventory, and Cost of Goods Sold. E. Raw-Material Inventory, Work-in-Process Inventory, and Finished-Goods Inventory.

B. Cost of Goods Sold, Work-in-Process Inventory, and Finished-Goods Inventory.

8. Which of the following types of companies would most likely use process costing? A. Aircraft manufacturers. B. Textile manufacturers. C. Textbook publishers. D. Custom-machining firms. E. Shipbuilders.

B. Textile manufacturers.

28. Under- or overapplied manufacturing overhead at year-end is most commonly: A. charged or credited to Work-in-Process Inventory. B. charged or credited to Cost of Goods Sold. C. charged or credited to a special loss account. D. prorated among Work-in-Process Inventory, Finished-Goods Inventory, and Cost of Goods Sold. E. ignored because there is no effect on the Cash account.

B. charged or credited to Cost of Goods Sold.

21. Throughout the accounting period, the credit side of the Manufacturing Overhead account is used to accumulate: A. actual manufacturing overhead costs. B. overhead applied to Work-in-Process Inventory. C. overapplied overhead. D. underapplied overhead. E. predetermined overhead.

B. overhead applied to Work-in-Process Inventory.

24. Boston, Inc. applies manufacturing overhead at the rate of $40 per machine hour. Budgeted machine hours for the current period were anticipated to be 120,000; however, a lengthy strike resulted in actual machine hours being worked of only 90,000. Budgeted and actual manufacturing overhead figures for the year were $4,800,000 and $4,180,000, respectively. On the basis of this information, the company's year-end overhead was: A. overapplied by $580,000. B. underapplied by $580,000. C. overapplied by $1,200,000. D. underapplied by $1,200,000.E. underapplied by $900,000.

B. underapplied by $580,000.

6. Which of the following manufacturers would most likely use job-order costing? A. Chemical manufacturers. B. Microchip processors. C. Custom-furniture manufacturers. D. Gasoline refiners. C. Custom-furniture manufacturers. E. Fertilizer manufacturers.

C. Custom-furniture manufacturers.

30. In the two-stage cost allocation process, costs are assigned: A. from jobs, to service departments, to production departments. B. from service departments, to jobs, to production departments. C. from service departments, to production departments, to jobs. D. from production departments, to jobs, to service departments. E. from the balance sheet (when goods are produced), to the income statement (when goods are sold).

C. from service departments, to production departments, to jobs.

14. The process of assigning overhead costs to the jobs that are worked on is commonly called: A. service department cost allocation. B. overhead cost distribution. C. overhead application. D. transfer costing. E. overhead cost apportionment.

C. overhead application.

18. Electricity costs that were incurred by a company's production processes should be debited to: A. Utilities Expense. B. Accounts Payable. C. Cash. D. Manufacturing Overhead. E. Work-in-Process Inventory.

D. Manufacturing Overhead.

10. Which of the following statements about material requisitions is false? A. Material requisitions are often computerized. B. Material requisitions are a common example of source documents. C. Material requisitions contain information that is useful to the cost accounting department. D. Material requisitions authorize the transfer of materials from the production floor to the raw materials warehouse. E. Material requisitions are routinely linked to a bill of materials that lists all of the materials needed to complete a job.

D. Material requisitions authorize the transfer of materials from the production floor to the raw materials warehouse

12. When using normal costing, the total production cost of a job is composed of: A. direct material and direct labor, only. B. direct material, direct labor, manufacturing overhead, and outlays for selling costs. C. direct material, direct labor, manufacturing overhead, and outlays for both selling and administrative costs. D. direct material, direct labor, and applied manufacturing overhead. E. direct material, direct labor, and actual manufacturing overhead.

D. direct material, direct labor, and applied manufacturing overhead.

11. The assignment of direct labor cost to individual jobs is based on: A. an estimate of the total time spent on the job. B. actual total payroll cost divided equally among all jobs in process. C. estimated total payroll cost divided equally among all jobs in process. D. the actual time spent on each job multiplied by the wage rate. E. the estimated time spent on each job multiplied by the wage rate.

D. the actual time spent on each job multiplied by the wage rate.

16. Metalica Company applies overhead based on machine hours. At the beginning of 20x1, the company estimated that manufacturing overhead would be $500,000, and machine hours would total 20,000. By 20x1 year-end, actual overhead totaled $525,000, and actual machine hours were 25,000. On the basis of this information, the 20x1 predetermined overhead rate was:

E. $25 per machine hour.

4. Which of the following statements regarding work in process is not correct? A. Work in process is partially completed inventory. B. Work in process consists of direct labor, direct material, and manufacturing overhead. C. Work-in-Process Inventory is debited to record direct material used and direct labor incurred. D. Work-in-Process Inventory appears on the year-end balance sheet. E. Work-in-Process Inventory is credited when goods are sold.

E. Work-in-Process Inventory is credited when goods are sold.

13. Manufacturing overhead: A. includes direct materials, indirect materials, indirect labor, and factory depreciation. B. is easily traced to jobs. C. includes all selling costs. D. should not be assigned to individual jobs because it bears no obvious relationship to them. E. is a pool of indirect production costs that must somehow be attached to each unit manufactured.

E. is a pool of indirect production costs that must somehow be attached to each unit manufactured.

22. The estimates used to calculate the predetermined overhead rate will virtually always: A. prove to be correct. B. result in a year-end balance of zero in the Manufacturing Overhead account. C. result in overapplied overhead that is closed to Cost of Goods Sold if it is immaterial in amount. D. result in underapplied overhead that is closed to Cost of Goods Sold if it is immaterial in amount. E. result in either underapplied or overapplied overhead that is closed to Cost of Goods Sold if it is immaterial in amount.

E. result in either underapplied or overapplied overhead that is closed to Cost of Goods Sold if it is immaterial in amount.

25. The estimates used to calculate the predetermined overhead rate will virtually always: A. prove to be correct. B. result in a year-end balance of zero in the Manufacturing Overhead account. C. result in overapplied overhead that is closed to Cost of Goods Sold if it is immaterial in amount. D. result in underapplied overhead that is closed to Cost of Goods Sold if it is immaterial in amount. E. result in either underapplied or overapplied overhead that is closed to Cost of Goods Sold if it is immaterial in amount.

E. result in either underapplied or overapplied overhead that is closed to Cost of Goods Sold if it is immaterial in amount.

29. Throughput time includes the time required for all of these except: A. material handling. B. production processing. C. product inspection. D. packaging. E. the time a salesman spends with a customer.

E. the time a salesman spends with a customer.