ACC 307 CH 4

For normal costing, even though the budgeted indirect-cost rate is based on estimates, indirect costs are allocated to products based on actual levels of the cost-allocation base. T/F

T

Grounds-maintenance costs incurred during the summer months will distort indirect-cost rates that are computed monthly. T/F

T

In a job-cost system, each indirect-cost pool has its own account in the general ledger. T/F

T

In some variations of normal costing, organizations use budgeted rates to assign direct costs as well as indirect costs to jobs. T/F

T

Overallocated indirect costs occur when the allocated amount of indirect costs is greater than the amount incurred for that period. T/F

T

Proration is the spreading of underallocated or overallocated overhead among ending work in process, finished goods, and costs of goods sold. T/F

T

The actual costs of all individual overhead categories are recorded in the Manufacturing Overhead Control account. T/F

T

The actual indirect-cost rate is calculated by dividing actual total indirect costs by the actual total quantity of the cost-allocation base. T/F

T

The budgeted indirect cost rate is the budgeted indirect costs divided by budgeted quantity of the cost allocation base. T/F

T

The cost driver of an indirect cost is often used as the cost-allocation base. T/F

T

The cost-allocation base is a systematic way to link an indirect cost or group of indirect costs to cost objects. T/F

T

The ending balance in Work-in-Process Control represents the total costs of all jobs that have NOT yet been completed. T/F

T

The overhead accounts are closed or become zero at the end of each year. T/F

T

The reliability of the job-cost records depends on the reliability of the inputs. T/F

T

When actual indirect costs exceed allocated indirect costs, indirect costs have been underapplied. T/F

T

Costs that are subject to short-run fluctuations for given jobs are: A) actual costs B) budgeted direct costs C) budgeted indirect costs D) normal costs

A

________ is the process of distributing indirect costs to products. A) Cost allocation B) Job cost recording C) Cost pooling D) Cost tracing

A

Direct costs A) are anything for which a measurement of costs is desired. B) are costs related to a particular cost object that can be traced to that cost object in an economically feasible (cost-effective) way C) focus specifically on the costing needs of the CFO D) provide all information for management decision needs

B

During an accounting period, job costs are computed on an ongoing basis by the use of: A) actual allocation rates B) budgeted indirect-cost rates C) overallocated indirect-cost rates D) underallocated indirect-cost rates

B

________ costing is used by a business to price unique products for different jobs. A) Actual B) Job C) Process D) Traditional

B

Many large companies which have multiple production methods and processes have hybrid costing systems that are: A) job-costing B) actual costing C) process costing D) a mix of job-costing and process costing

D

Direct costs are traced the same way for actual costing and normal costing. T/F

T

In a job-costing system the cost object is an individual unit, batch, or lot of a distinct product or service. T/F

T

Indirect manufacturing costs are debited to Manufacturing Overhead Control. T/F

T

A ________ links an indirect cost to a cost object. A) cost-allocation base B) cost pool C) cost assignment D) cost tracing

A

The actual indirect-cost rate is calculated by A) dividing actual total indirect costs by the actual total quantity of the cost-allocation base. B) multiplying actual total indirect costs by the actual total quantity of the cost-allocation base. C) dividing the actual total quantity of the cost allocation base by actual total indirect costs. D) multiplying the actual total quantity of the cost allocation base by actual total indirect costs.

A

Payment of the factory rent increases the: A) Work-in-Process Control account B) Manufacturing Overhead Control account C) Both A and B are correct. D) None of these answers are correct.

B

Place the following steps in the order suggested by the seven steps used to assign costs to individual jobs: A. Identify indirect costs B. Compute the total cost of the job C. Selectcost-allocationbases D. Compute the indirect cost rate A) ACDB B) CADB C) BACD D) DCAB

B

Which of the following includes both traced direct costs and allocated indirect costs? A) cost tracing B) cost pools C) cost assignments D) cost allocations

C

________ costing is used by a business to price homogeneous products. A) Actual B) Job C) Process D) Traditional

C

A job that shows low profitability may be the result of: A) wasting direct materials B) inefficient direct manufacturing labor C) underpricing the job D) All of these answers are correct.

D

An example of a numerator reason for calculating annual indirect-cost rates includes: A) fewer production workdays in a month B) payment of estimated taxes four times a year C) higher snow-removal costs during the winter D) Both B and C are correct.

D

Assigning direct costs to a cost object is called: A) cost allocation B) cost assignment C) cost pooling D) cost tracing

D

For a given job the direct costs associated with the job are: A) actual overhead B) direct material C) direct manufacturing labor D) Both b and c are correct.

D

Job costing information is used: A) to develop strategies B) to make pricing decisions C) for external financial reporting D) All of these answers are correct.

D

All of the following are true of the Work-in-Process Control account EXCEPT that: A) it tracks all direct material purchases B) the balance equals the sum of amounts from all in-process individual job-cost records C) it is an asset account D) it tracks job costs from beginning through completion

A

All of the following increase (are debited to) the Work-in-Process Control account EXCEPT: A) actual plant insurance costs B) direct materials C) allocated manufacturing overhead costs D) direct manufacturing labor

A

Problems with accurate costing occur when: A) incorrect job numbers are recorded on source documents B) bar coding is used to record materials used on the job C) a computer screen requests an employee number before that employee is able to work on information related to a specific job D) All of these answers are correct.

A

Process costing: A) allocates all product costs, including materials and labor B) results in different costs for different units produced C) is commonly used by general contractors who construct custom-built homes D) is used exclusively in manufacturing

A

The budgeted indirect-cost rate for each cost pool is computed as A) budgeted annual indirect costs divided by budgeted annual quantity of cost allocation base. B) budgeted annual quantity of cost allocation base divided by budgeted annual indirect costs. C) actual annual indirect costs divided by budgeted annual quantity of cost allocation base. D) budgeted annual indirect costs divided by budgeted actual quantity of cost allocation base.

A

The ending balance in the Work-in-Process Control account represents the costs of all jobs that: A) have not been completed B) have been completed but not sold C) have been completed and sold to customers D) are reported on the income statement

A

When using a normal costing system, manufacturing overhead is allocated using the ________ manufacturing overhead rate and the ________ quantity of the allocation base. A) budgeted; actual B) budgeted; budgeted C) actual; budgeted D) actual; actual

A

Which of the following companies is most likely to use a process costing system. A) a manufacturer of breakfast cereal B) a manufacturer of large commercial aircraft C) a custom jewelry manufacturer D) a law firm

A

A job-cost sheet details the: A) direct materials purchased and paid B) direct labor costs incurred C) indirect labor costs incurred D) actual indirect overhead costs incurred

B

All of the following items are debited to Work-in-Process EXCEPT: A) allocated manufacturing overhead B) completed goods being transferred out of the plant C) direct labor consumed D) direct materials consumed

B

Annual cost rates are preferred over actual cost rates for all of the following reasons EXCEPT: A) budgeted costs allow managers to have cost information on a timely basis B) budgeted costs may be subject to short-run fluctuations C) budgeted indirect-cost rates are known prior to the inception of a new job D) budgeted-cost rates can be used to allocate direct or indirect costs

B

For externally reported inventory costs, the Work-in-Process Control account is increased (debited) by: A) marketing costs B) allocated plant utility costs C) the purchase costs of direct and indirect materials D) customer-service costs

B

Job costing: A) can only be used in manufacturing B) records the flow of costs for each customer C) allocates an equal amount of cost to each unit made during a time period D) is commonly used when each unit of output is identical

B

When direct materials are requisitioned the ________ account is increased. A) Manufacturing Overhead Control B) Work-in-Process Control C) Materials Control D) Accounts Payable Control

B

A ________ is a grouping of individual indirect cost items. A) cost allocation base B) cost assignment C) cost pool D) job-costing system

C

A job-cost record uses information from: A) a materials requisition record to record raw material purchases from suppliers B) a receiving report that indicates the type and quantity of each item received in an order from a supplier C) a labor-time card to record an employee's wage rate and hours spent on a particular job D) All of these answers are correct.

C

Actual (rather than allocated) manufacturing overhead costs are included in the: A) Work-in-Process Control account B) Finished Goods Control account C) Manufacturing Overhead Control account D) Both A and B are correct.

C

Actual costing is a costing system that traces direct costs to a cost object by A) using the budgeted direct cost rates times the budgeted quantities of direct-cost inputs. B) using the actual direct costs rates times the budgeted quantities of the direct-cost inputs. C) using the actual direct cost rates times the actual quantities of the direct-cost inputs. D) using the budgeted direct cost rates times the actual quantities of the direct cost inputs.

C

All of the following are general ledger accounts EXCEPT: A) the Salaries Payable Control account B) the Prepaid Insurance Control account C) the Accounts Receivable subsidiary account for Ruben Electric D) the Advertising Costs account

C

All of the following are true of plant utility costs EXCEPT: A) the source document is the utility bill B) the cost increases the Manufacturing Overhead Control account C) the cost increases the Work-in-Process Control account D) it is an indirect cost

C

An example of a denominator reason for calculating annual indirect-cost rates includes: A) higher heating bills in the winter B) semi-annual insurance payments in March and September C) higher levels of output demanded during the fall months D) All of these answers are correct.

C

In a costing system: A) cost tracing allocates indirect costs B) cost allocation assigns direct costs C) a cost-allocation base can be either financial or nonfinancial D) a cost object should be a product and not a department or a geographic territory

C

In a job-costing system, a manufacturing firm typically uses an indirect-cost rate to estimate the ________ allocated to a job. A) direct materials B) direct labor C) manufacturing overhead costs D) total costs

C

Managers and accountants collect most of the cost information that goes into their systems through: A) an information databank B) computer programs C) source documents D) time surveys

C

The advantage of using normal costing instead of actual costing is: A) indirect costs are assigned at the end of the year when they are known B) the job cost is more accurate under normal costing C) indirect costs are assigned to a job on a timely basis D) normal costing provides a higher gross profit margin

C

The basic source document for direct manufacturing labor is the: A) job-cost record B) materials-requisition record C) labor-time record D) All of these answers are correct.

C

The difference between actual costing and normal costing is: A) normal costing uses actual quantities of direct-costs B) actual costing uses actual quantities of direct-costs C) normal costing uses budgeted indirect-costs D) actual costing uses actual quantities of cost-allocation bases

C

Which of the following are reasons for using longer periods, such as a year, to calculate indirect cost rates. A) Numerator reason B) Denominator reason C) Both A and B D) Neither A nor B

C

Which of the following statements regarding manufacturing overhead allocation is FALSE? A) It includes all manufacturing costs that cannot be directly traced to a product or service. B) The costs can be grouped in either a single indirect-cost pool or in multiple indirect-cost pools. C) Total costs are unknown at the end of the accounting period. D) Allocated amounts are debited to Work-in-Process.

C

Each indirect-cost pool of a manufacturing firm: A) utilizes a separate cost-allocation rate B) is a subset of total indirect costs C) relates to one cost object D) All of these answers are correct.

D

In a normal costing system, the Manufacturing Overhead Control account: A) is increased by allocated manufacturing overhead B) is credited with amounts transferred to Work-in-Process C) is decreased by allocated manufacturing overhead D) is debited with actual overhead costs

D

Job-costing may only be used by: A) service companies B) merchandising companies C) manufacturing companies D) All of these may use job-costing.

D

Product costing information is used by managers: A) to make decisions and strategy B) for planning and control C) for cost management D) All of these answers are correct.

D

The Materials Control account is increased when: A) direct materials are purchased B) indirect materials are purchased C) materials are requisitioned for production D) Both A and B are correct.

D

The cost allocation base A) is a grouping of individual indirect cost items. B) are costs related to a particular cost object that cannot be traced to that cost object in an economically feasible way. C) is anything for which a measurement of costs is desired. D) is a systematic way to link an indirect cost or group of indirect costs to cost objects.

D

When a job is complete: A) Work-in-Process Control is debited B) Finished Goods Control is credited C) the cost of the job is transferred to Manufacturing Overhead Control D) actual direct materials, actual direct manufacturing labor, and allocated manufacturing overhead will comprise the total cost of the job

D

Which of the following statements about actual costing and normal costing is true? A) Manufacturing costs of a job are available earlier under actual costing. B) Corrective actions can be implemented sooner under normal costing. C) Manufacturing costs are available earlier under normal costing. D) Both B and C are correct.

D

Which of the following statements about normal costing is true? A) Direct costs and indirect costs are traced using an actual rate. B) Direct costs and indirect costs are traced using budgeted rates. C) Direct costs are traced using a budgeted rate, and indirect costs are allocated using an actual rate. D) Direct costs are traced using an actual rate, and indirect costs are allocated using a budgeted rate.

D

Companies typically wait for accurate information regarding actual manufacturing overhead costs before pricing a job. T/F

F

Direct costs are allocated to the cost object using a cost-allocation method. T/F

F

Direct costs of a cost object are costs related to a particular cost object that can be allocated to that cost object in an economically feasible (cost-effective) way. T/F

F

Each cost pool may have multiple cost allocation bases. T/F

F

If indirect-cost rates were based on actual short-term usage, periods of lower demand would result in lower costs per unit. T/F

F

In each period, job costing divides the total cost of producing an identical or similar product by the total number of units produced to obtain a per-unit cost. T/F

F

In job costing, only direct costs are used to determine the cost of a job. T/F

F

Indirect manufacturing costs should be allocated equally to each job. T/F

F

Indirect materials that are requisitioned increase the Materials Control account. T/F

F

Job costing is commonly used to estimate costs in beverage production. T/F

F

Normal costing assigns indirect costs based on an actual indirect-cost rate. T/F

F

Normal costing is a method of job costing that allocates an indirect cost based on the actual indirect- cost rate times the actual quantity of the cost-allocation base. T/F

F

A budgeted indirect-cost rate is computed for each cost pool using budgeted indirect costs and the budgeted quantity of the cost-allocation base. T/F

T

A company may use job costing to assign costs to different product lines and then use process costing to calculate unit costs within each product line. T/F

T

A cost object is anything for which a measurement of costs is desired. T/F

T

A job-cost record is a source document, but individual items of the job-cost record may also have source documents. T/F

T

A materials-requisition record is an example of a source document. T/F

T

Actual costing systems are NOT commonly found in practice because actual costs CANNOT be computed in a timely manner. T/F

T

Cost objects may be jobs, products, or customers. T/F

T

Job costing and process costing systems share the same objective of estimating product costs. T/F

T

Normal costing is a costing system that traces direct costs to a cost object by using the actual direct-cost rates times the actual quantities of the direct-cost inputs. T/F

T

One reason for using longer time periods to calculate indirect-cost rates is seasonal cost fluctuations. T/F

T

The Salaries Payable Control account has underlying subsidiary ledgers. T/F

T

The Work-in-Process Control account tracks job costs from the time jobs are started until they are completed. T/F

T

The product cost reported as inventoriable costs to shareholders may differ from product costs reported for government contracting. T/F

T

While costs are measured for individual jobs in a job cost system, they are measured for individual process stages in a process costing system. T/F

T

Process costing is used to assign manufacturing costs to unique batches of a product. T/F

F

Purchases of materials are credited to materials control. T/F

F

The Finished Goods Control account consists of actual manufacturing overhead costs rather than allocated manufacturing overhead costs. T/F

F

The proration approach to allocating overapplied or underapplied overhead adjusts individual job- cost records. T/F

F

To smooth fluctuating levels of output, separate indirect-cost rates should be calculated for each month. T/F

F

When calculating indirect cost rates, the longer the time period, the greater the influence of seasonal patterns on the amount of costs. T/F

F

Work-in-Process Control will be decreased (credited) for the amount of direct-labor costs incurred. T/F

F

The budgeted indirect-cost rate is calculated: A) at the beginning of the year B) during the year C) at the end of each quarter D) at the end of the year

A

A company would use multiple cost-allocation bases: A) if managers believed the benefits exceeded the additional costs of that costing system B) because there is more than one way to allocate overhead C) because this is a simpler approach than using one cost allocation base D) if managers believe that using multiple cost-allocation bases is the only acceptable method

A

The method that restates all overhead entries in the general ledger and subsidiary ledgers using actual cost rates rather than budgeted cost rates is called A) the adjusted allocation rate approach B) the proration approach C) the write-off of cost of goods sold approach D) None of these answers are correct.

A

A local accounting firm employs 20 full-time professionals. The budgeted annual compensation per employee is $40,500. The average chargeable time is 500 hours per client annually. All professional labor costs are included in a single direct-cost category and are allocated to jobs on a per-hour basis. Other costs are included in a single indirect-cost pool, allocated according to professional labor-hours. Budgeted indirect costs for the year are $787,500, and the firm expects to have 90 clients during the coming year. If ten clients are lost and the workforce stays at 20 employees, then the direct labor cost rate per hour: A) will remain the same as before B) will increase C) will decrease D) is indeterminable

B

In the service sector: A) direct labor costs are always easy to trace to jobs B) a budgeted direct-labor cost rate may be used to apply direct labor to jobs C) normal costing may not be used D) overhead is generally applied using an actual cost-allocation rate

B

The spreading of underallocated or overallocated overhead among ending work-in-process, finished goods, and cost of goods sold is called: A) the adjusted allocation rate approach B) the proration approach C) the write-off of cost of goods sold approach D) None of these answers are correct.

B

The adjusted allocation approach yields the benefits of: A) timeliness and convenience of normal costing B) allocation of of actual manufacturing overhead costs at the end of the year C) Both a and b are correct. D) Neither a nor b are correct.

C

The budgeted direct-labor cost rate includes ________ in the calculation. A) budgeted total costs in indirect cost pool B) budgeted total direct-labor costs in the denominator C) budgeted total direct-labor costs in the numerator D) budgeted total direct-labor hours in the numerator

C

In the service sector, to achieve timely reporting on the profitability of an engagement, a company will use: A) budgeted rates for all direct costs B) budgeted rates for indirect costs C) actual costing D) budgeted rates for some direct costs and indirect costs

D

One reason indirect costs may be overapplied is because: A) the actual allocation base quantity exceeds the budgeted quantity B) budgeted indirect costs exceed actual indirect costs C) requisitioned direct materials exceed budgeted material costs D) Both A and B are correct.

D

The ________ approach adjusts individual job-cost records to account for underallocated or overallocated overhead. A) adjusted allocation-rate B) proration C) write-off to cost of goods sold D) Both A and B are correct.

D

The ________ approach carries the underallocated or overallocated amounts to overhead accounts in the following year. A) adjusted allocation-rate B) proration C) write-off to cost of goods sold D) None of these answers are correct.

D

The approach often used when dealing with small amounts of underallocated or overallocated overhead is the ________ approach. A) adjusted allocation-rate B) proration C) write-off to cost of goods sold D) Both A and B are correct.

D

When the allocated amount of indirect costs are less than the actual amount, indirect costs have been: A) overabsorbed B) underapplied C) underallocated D) Both underapplied and underallocated are correct.

D

At the end of the year, the direct costs traced to jobs using the budgeted rates will equal actual direct costs. T/F

F

For external reporting purposes, it is acceptable to allocate marketing costs to individual jobs. T/F

F

It is inappropriate for service organizations such as public accounting firms to use job costing. T/F

F

One reason indirect costs may be underapplied is if actual indirect costs are less than budgeted indirect costs. T/F

F

Overhead costs allocated each month are expected to equal actual overhead costs incurred each month. T/F

F

A company may choose to use budgeted rates to allocate direct labor accounts if direct labor costs are difficult to trace to jobs as they are completed. T/F

T