MBA - Account Analysis ch.3

Job XYZ has a total manufacturing cost of $600. If the mark-up percentage is 40%, the job will sell for

$840

The most widely used allocation bases in manufacturing:

- Direct Labor Hours - Direct Labor Cost - Machine Hours - Units of product (where a company only produces one product)

A job cost sheet contains:

- Materials costs charged to the job - Manufacturing overhead costs charged to the job - Labor costs charged to the job

Manufacturing overhead costs:

- consist of many different items - are indirect costs

Manufacturing overhead:

- is an indirect cost - consists of many different types of costs - contains fixed costs

If Estimated manufacturing overhead is 450,000 and Estimated direct labor hours is 150,000, what is the predetermined overhead rate per direct labor hour?

3

Smith, Inc. uses a job-order costing system with the predetermined overhead rate of $12 per machine-hour. The job cost sheet for Job #42A listed $12,000 in direct labor cost, $18,000 in direct materials cost, 1,200 direct labor-hours and 1,100 machine-hours. The total cost of Job #42A is

43,200

When a company creates overhead rates based on the actions it performs, it is employing an approach called

Activity Based Costing

Why do companies use a predetermined overhead rate rather than an actual overhead rate?

An actual overhead rate is not known until the end of the period.

Job-order costing would most likely be used in a(n) ______.

Construction Company

Companies that make many different products each period use

Job Order Costing

A single predetermined overhead rate is called a(n) __________

Plantwide Overhead Rate

If Estimated direct labor cost is $250,000, Actual manufacturing overhead is $720,000, Actual direct labor cost is $300,000, what is the predetermined overhead rate per direct labor dollar is:

Reason: $500,000/$250,000 = $2 per direct labor dollar.

Which of the following would not be considered a job in a service firm that uses job-order costing?

The tax department in an accounting firm

Overhead application is the process of:

assigning manufacturing overhead cost to jobs

To calculate the unit product cost using the job cost sheet:

divide the total job cost by the number of units produced

A predetermined overhead rate is calculated by dividing the ______ total manufacturing overhead by the ______ total amount of the allocation base.

estimated; estimated

The adjustment for underapplied overhead:

increases cost of goods sold and decreases net income

Labor charges that cannot be easily traced to a job are considered:

manufacturing overhead indirect labor

The difference between overhead applied to work in process and actual overhead is ______.

overapplied or underapplied overhead

An hour-by-hour summary of an employee's activities throughout the day is found on the

time ticket

In the formula Y = a + bX, X represents the estimated:

total amount of the allocation base

The document that records the materials, labor, and manufacturing overhead costs charged to a job is the:

Job cost Sheet

Total manufacturing overhead costs tend to:

remain fairly constant

The formula for a predetermined overhead rate is:

Estimated manufacturing overhead cost divided by estimated allocation base

Which of the following is an essential quality of an overhead allocation base?

It must be common to all the company's products and services.

Process costing would most likely be used in a(n) ______.

Oil Refinery, Soda Bottling Factory, Dairy Farm

Which of the following would be considered direct materials in a service firm that uses job-order costing?

Paperwork at a law firm

The formula for applying overhead to a specific job is:

Predetermined overhead rate x Amount of allocation base incurred by job

Which of the following would not be considered a direct labor cost in a service firm that uses job-order costing?

The salary of the manager at a hair salon

An allocation base should be:

cost driver

When all of a company's job cost sheets are viewed collectively, they form what is known as a(n)

subsidiary ledgar

A bill of materials contains the

- quantity of each direct material needed to complete a unit of product - type of each direct material needed to complete a unit of product

A measure such as direct labor-hours or machine hours used to assign overhead costs to products and services is called a cost driver or a(n)

Allocation Base

Which of the following is only true in a multiple predetermined overhead rate system?

Each production department may have its own predetermined overhead rate.

If Dept. A has an Estimated manufacturing overhead of $338,000, Estimated direct labor cost of $130,000, Actual manufacturing overhead of $400,000, & Actual direct labor cost of $160,000, what is the predetermined overhead rate per direct labor dollar for Dept. A?

Reason: $338,000/$130,000 = $2.60

Jones Company uses a job-order costing system with a predetermined overhead rate of 120% of direct labor cost. The job cost sheet for Job #420 showed that Jones Company spent $4,000 on direct materials and $5,000 on direct labor on the job. What is the total cost of Job #420?

Reason: Cost of Job #420 = Direct materials + Direct labor + Predetermined overhead rate x Direct labor cost = $4,000 + $5,000 + 120% x $5,000 = $15,000.

Jones Company uses a job-order costing system with a predetermined overhead rate of 120% of direct labor cost. The job cost sheet for Job #420 listed $4,000 in direct materials cost and $5,000 in direct labor cost to manufacture 7,500 units. The unit cost of Job #420 is:

Reason: Total cost of Job #420 = Direct materials + direct labor + overhead (predetermined overhead rate x direct labor cost) = $4,000 + $5,000 + 1.20 x $5,000 = $15,000 Unit product cost = $15,000/7,500 units = $2.00 per unit.

The document used to record the time workers spend on each job and task is called a:

Time Ticket

In the formula Y = a + bX, a represents the estimated:

Total fixed manufacturing overhead cost

True or false: One reason to use a predetermined overhead rate is to eliminate the effect of seasonal factors.

True

True or false: Underapplied or overapplied overhead occurs because overhead is applied to jobs using a predetermined rate based on estimates of costs and activity levels.

True

A cost driver is:

a factor that causes overhead costs to occur

Cost-plus pricing occurs when:

a markup percentage is added to the cost of a job

The adjustment for overapplied overhead:

decreases cost of goods sold and increases net income

Labor costs that are easily traced to a job are called

direct labor

Which of the following is not a manufacturing cost category?

Selling & Administrative Costs

When all overhead is assigned using direct-labor hours, the company has chosen to use a(n)

Single predetermined overhead rate

The manufacturing overhead account contains:

many different kinds of indirect costs

A multiple predetermined overhead rate system is more accurate than a plantwide overhead rate system because it:

reflects differences in how overhead costs are incurred within departments

The total cost of a job is calculated by adding the total of direct labor cost, direct materials cost and

applied manufacturing overhead cost

Allocation bases that do not drive overhead costs:

can cause product costs to be distorted

The total cost of a job includes:

direct materials cost direct labor cost applied manufacturing overhead

Categories of manufacturing costs include:

direct materials, direct labor, manufacturing overhead

Average manufacturing overhead cost per unit usually varies from one period to the next because:

fixed manufacturing overhead remains constant in total even when production changes

In a system that uses multiple predetermined overhead rates, overhead is applied:

in each department as jobs proceed through the department

The predetermined overhead rate is multiplied by the actual allocation base incurred by a job to find:

overhead applied to the job

The average manufacturing overhead cost per unit tends to

vary from one period to the next