Chapter 7 - Cost Accounting

Overapplied overhead occurs when the actual overhead costs incurred during a period are greater than the overhead costs applied during the period. T/F

False

The journal entry to record actual manufacturing overhead for indirect materials debits Manufacturing Overhead Control and credits Accounts Payable. T/F

False The credit is to materials inventory.

Which of the following approaches allocates overhead by multiplying an actual overhead rate × actual activity? A. Actual costing. B. Normal costing. C. Regression costing. D. Standard costing.

A. Actual costing. The actual rate is not known until the end of the period.

For which of the following businesses would a job costing system be appropriate? A. Auto repair shop. B. Crude oil refinery. C. Drug manufacturer. D. Root beer producer.

A. Auto repair shop.

The journal entry to record the completion of a job in a job costing system is: A. Work-In-Process Inventory. xxx Materials Inventory xxx B. Materials Inventory. xxx Purchases xxx C. Cost of Goods Sold. xxx Finished Goods Inventory xxx D. Finished Goods Inventory. xxx Work-In-Process Inventory. xxx

Option D

Which of the following statements is(are) true regarding the application of manufacturing overhead? (A) Manufacturing overhead is only recorded on the job cost sheets when financial statements are prepared or a job is completed. (B) Overapplied overhead occurs when the actual overhead costs incurred during a period are greater than the overhead costs applied during the period. A. Only A is true. B. Only B is true. C. Both of these are true. D. Neither of these is true.

A. Only A is true.

What document is used to determine the actual amount of direct labor to record on a job cost sheet? A. Time ticket. B. Payroll register. C. Production order. D. Wages payable account.

A. Time ticket.

Which of the following accounts is debited when direct labor is recorded? A. Work-in-Process Inventory. B. Salaries and wages expense C. Salaries and wages payable. D. Manufacturing overhead.

A. Work-in-Process Inventory.

Underapplied overhead occurs when the balance in the Manufacturing Overhead Control account is: A. greater than the balance in the Applied Manufacturing Overhead account. B. equal to the balance in the Applied Manufacturing Overhead account. C. less than the balance in the Applied Manufacturing Overhead account. D. less than the balance in the Finished Goods Inventory account.

A. greater than the balance in the Applied Manufacturing Overhead account.

Which of the following actions do not cause an impropriety in job costing? A. Misstating the stage of completion. B. Choosing to use normal costing rather than actual costing. C. Charging costs to the wrong job. D. Choosing an allocation method based on the results rather than choosing the method based on resource usage.

B. Choosing to use normal costing rather than actual costing. The choice between normal costing and actual costing is not an ethical issue.

Which of the following is the correct formula to compute the predetermined overhead rate? A. Estimated total units in the allocation base divided by estimated total manufacturing overhead costs. B. Estimated total manufacturing overhead costs divided by estimated total units in the allocation base. C. Actual total manufacturing overhead costs divided by estimated total units in the allocation base. D. Estimated total manufacturing overhead costs divided by actual total units in the allocation base.

B. Estimated total manufacturing overhead costs divided by estimated total units in the allocation base.

Which of the following is used as the basis for posting to the direct materials section of the job cost sheet? A. Purchase requisition. B. Materials requisition. C. Receiving report. D. Purchase order.

B. Materials requisition.

Manufacturing overhead applied on the basis of direct labor-hours was $120,800, while actual manufacturing overhead incurred was $125,600 for the month of April. Which of the following is always true given the statement above? A. Overhead was overapplied by $4,800. B. Overhead was underapplied by $4,800. C. Actual direct labor-hours exceeded budgeted direct labor-hours. D. Actual direct labor-hours were less than budgeted direct labor-hours.

B. Overhead was underapplied by $4,800. Actual $125,600 - Applied $120,800 = $4,800 underapplied.

In a job costing system, the dollar amount in the journal entry that transfers the costs of jobs from Work-in-Process Inventory to Finished Goods Inventory is the sum of the costs charged to all jobs: A. sold during the period. B. completed during the period. C. in process during the period. D. started in process during the period.

B. completed during the period.

Which terms will make the following statement true? When manufacturing overhead is overapplied, the Manufacturing Overhead Control account has a __________ balance and applied manufacturing overhead is greater than __________ manufacturing overhead. A. debit, actual B. credit, actual C. debit, estimated D. credit, estimated

B. credit, actual

If a company multiplies its predetermined overhead rate by the actual activity level of its allocation base, it is using: A. standard costing. B. normal costing. C. actual costing. D. budget costing.

B. normal costing.

In computing its predetermined overhead rate, Marple Company inadvertently left its indirect labor costs out of the computation. This oversight will cause: A. Manufacturing Overhead to be overapplied. B. the Cost of Goods Manufactured to be understated. C. the debits to the Manufacturing Overhead account to be understated. D. the ending balance in Work-in-Process to be overstated.

B. the Cost of Goods Manufactured to be understated. Not including indirect labor in the Manufacturing Overhead total will result in a lower predetermined overhead rate, causing a lower amount of overhead to be applied to production.

Compute the Work-in-Process transferred to the finished goods warehouse on April 30 using the following information: Work-In-Process Inventory, April 30$285 Direct material purchased during April 260 Work-In-Process Inventory, April 1 310 Direct labor costs incurred 410 Manufacturing overhead costs 360 Direct materials used in production 235 A. $980. B. $1,005. C. $1,030. D. $1,080.

C. $1,030. BB + TI - TO = EB; $310 + ($235 + $410 + $360) - $285 = $1,030 Cost of Goods Manufactured. Beg. WIP + DM Used + DL Used + Manuf. OH - End WIP 310 + 235 + 410 + 360 - 285 = 1,030

Which of the following statements is(are) true regarding product costing? (A) A job is a cost object that can be easily and conveniently distinguished from other cost objects. (B) Job cost sheets are used in accounting systems as a subsidiary ledger for the Work-in-Process account. A. Only A is true. B. Only B is true. C. Both of these are true. D. Neither of these is true.

C. Both of these are true.

In a traditional job costing system, the use of indirect labor in the production department increases: (CPA adapted) A. Stores Control. B. Work-in-Process Control. C. Manufacturing Overhead Control. D. Manufacturing Overhead Applied.

C. Manufacturing Overhead Control.

Which of the following is correct with respect to closing out overapplied manufacturing overhead to Cost of Goods Sold versus closing it out to Work-in-Process Inventory, Finished Goods Inventory, and Cost of Goods Sold? A. The balance in the Work-in-Process account after allocation will be higher if the overapplied overhead is closed out by allocating it to all appropriate accounts. B. The balance in the Work-in-Process account after allocation will be the same under either method. C. Operating income will be higher if all of the overapplied overhead is closed out to Cost of Goods Sold. D. Cost of Goods Sold will be lower if the overapplied overhead is closed out by allocating it to the inventory accounts as well as to Cost of Goods Sold.

C. Operating income will be higher if all of the overapplied overhead is closed out to Cost of Goods Sold. Closing an overapplied overhead balance to Cost of Goods Sold (even if prorated) will cause operating income to be higher.

The journal entry to record the issuance of direct materials represented by the following materials requisitions for the month includes: Requisition No. Description. Amount 372 Job No. 179. $6,050 373 Job No. 184. $4,500 374 Job No. 180. $5,325 375 General factory use. $805 376 Job No. 182 $3,270 A. a debit to Materials Inventory, $19,145. B. a debit to Materials Inventory, $19,950. C. a debit to Work-in-Process Inventory, $19,145. D. a credit to Work-in-Process Inventory, $19,950.

C. a debit to Work-in-Process Inventory, $19,145.

If a company multiplies its actual overhead rate by the actual activity level of its allocation base, it is using: A. standard costing. B. normal costing. C. actual costing. D. budget costing.

C. actual costing.

The balance in the Work-in-Process Inventory account equals: A. the balance in the Finished Goods Inventory account. B. the balance in the Cost of Goods Sold account. C. the balances on the job cost sheets of uncompleted jobs. D. the balance in the Manufacturing Overhead account.

C. the balances on the job cost sheets of uncompleted jobs.

Before prorating the manufacturing overhead costs at the end of 2020, the Cost of Goods Sold and Finished Goods Inventory accounts had applied overhead costs of $57,500 and $20,000 in them, respectively. There was no Work-in-Process at the beginning or end of 2020. During the year, manufacturing overhead costs of $74,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $77,500 at the end of 2020. If the under- or overapplied overhead is prorated between Cost of Goods Sold and the inventory accounts, what will be the Cost of Goods Sold balance after the proration? (rounded to the nearest whole dollar) A. $58,403. B. $56,597. C. $60,197. D. $54,903.

D. $54,903. $77,500 - $74,000 = $3,500 overapplied overhead; ($57,500/$77,500) × $3,500 = $2,597; $57,500 - $2,597 = $54,903.

Which of the following companies would most likely use job costing? A. Paper manufacturer. B. Paint producer. C. Breakfast cereal maker. D. Advertising agency.

D. Advertising agency.

What are the transfers from the Finished Goods Inventory called? A. Cost of Goods Manufactured. B. Cost of Goods Available. C. Cost of Goods Completed. D. Cost of Goods Sold.

D. Cost of Goods Sold.

The journal entry to record the completion of a job in a job costing system is: A. Finished Goods Inventory xxx Materials Inventory xxx B.Work-In-Process Inventory. xxx Applied Manufacturing Overhead xxx C. Manufacturing Overhead Control. xxx Finished Goods Inventory xxx D. Finished Goods Inventory. xxx Work-In-Process Inventory. xxx

D. Finished Goods Inventory. xxx Work-In-Process Inventory. xxx

Which of the following approaches allocates overhead by multiplying a predetermined rate × standard activity? A. Actual costing. B. Normal costing. C. Regression costing. D. Standard costing.

D. Standard costing. Both normal costing and standard costing use a predetermined rate, but normal costing applies overhead based on actual activity; standard costing uses standard activity.

Which of the following documents would be used as the basis for posting to the direct labor section of the job cost sheet? A. Purchase requisition. B. Purchase order. C. Receiving report. D. Time card.

D. Time card.

In a job costing system, direct material cost is ordinarily debited to: A. Manufacturing Overhead. B. Cost of Goods Sold. C. Finished Goods Inventory. D. Work-in-Process Inventory.

D. Work-in-Process Inventory.

It is possible that the total cost of a job started in April and completed in May will not include: A. direct materials added in April. B. direct labor added in May. C. applied overhead in April. D. direct materials purchased in May.

D. direct materials purchased in May.

The journal entry to record actual manufacturing overhead for indirect labor debits Manufacturing Overhead Control and credits Work-in-Process inventory. T/F

False The credit should be to Wages Payable.

The cost in the ending Finished Goods inventory account consists of the direct materials, direct labor, and manufacturing overhead of all jobs still in process at the end of the period. T/F

False The ending Finished Goods inventory account consists of the direct materials, direct labor, and manufacturing overhead of all jobs that have been completed.

The journal entry to record the requisition of direct materials for new jobs started during the period is: A. Work-In-Process Inventory. xxx Materials Inventory xxx B. Materials Inventory. xxx Purchases xxx C. Cost of Goods Sold. xxx Finished Goods Inventory xxx D. Finished Goods Inventory. xxx Work-In-Process Inventory. xxx

Option A

The journal entry to write-off an insignificant underapplied overhead balance at the end of an accounting period is: A. Applied Manufacturing Overhead xxx Cost of Goods Sold xxx Manufacturing Overhead Control xxx B. Applied Manufacturing Overhead. xxx Cost of Goods Sold xxx Manufacturing Overhead Control xxx C. Applied Manufacturing Overhead xxx Work-In-Process Inventory. xxx Finished Goods Inventory xxx Cost of Goods Sold xxx Manufacturing Overhead Control xxx D.Applied Manufacturing Overhead xxx Work-In-Process Inventory xxx Finished Goods Inventory xxx Cost of Goods Sold xxx Manufacturing Overhead Control xxx

Option A The most conservative method is to write-off the immaterial amount directly to Cost of Goods Sold.

The journal entry to write-off an insignificant overapplied overhead balance at the end of an accounting period for a service firm is: A.Applied Manufacturing Overhead xxx Cost of Services Billed xxx Manufacturing Overhead Control xxx B.Applied Manufacturing Overhead xxx Cost of Services Billed xxx Manufacturing Overhead Control xxx C.Applied Manufacturing Overhead xxx Work-In-Process Inventory xxx Finished Goods Inventory xxx Cost of Services Billed xxx Manufacturing Overhead Control xxx D.Applied Manufacturing Overhead xxx Work-In-Process Inventory xxx Finished Goods Inventory xxx Cost of Services Billed xxx Manufacturing Overhead Control xxx

Option B

A job is a product or service that can be easily and conveniently distinguished from other products/services. T/F

True

Accounting for direct materials and direct labor is easier than accounting for manufacturing overhead costs. T/F

True

Indirect materials and indirect labor are two examples of manufacturing overhead costs. T/F

True

Job cost sheets are used in accounting systems as a subsidiary ledger for the Work-in-Process account. T/F

True

Job shops have three types of inventory accounts: Direct Materials, Work-in-Process, and Finished Goods. T/F

True

Most major projects require budget and completion stage revisions at certain intervals due to their inherent uncertainty. T/F

True

Normal costing uses the actual allocation base activity to apply manufacturing overhead costs to jobs during the period. T/F

True

The journal entry to apply manufacturing overhead costs to completed jobs credits either Applied Manufacturing Overhead or Manufacturing Overhead Control. T/F

True

The predetermined overhead rate is computed by dividing the estimated manufacturing overhead costs by the estimated activity of the allocation base. T/F

True

The periodic allocation of manufacturing overhead costs to job cost sheets is based on an event, not a transaction. T/F

True The allocation of manufacturing overhead takes place at the end of a period (transfer to Work-in-Process) or the completion of a job (transfer to Finished Goods Inventory).

Actual costing does not use a predetermined overhead rate to apply manufacturing overhead costs to jobs completed during the period. T/F

True The application rate is based on the actual overhead incurred during the period and an actual allocation base.

At the end of the accounting period, manufacturing overhead costs are applied to uncompleted jobs using the same predetermined overhead rate that is used to apply manufacturing overhead costs to completed jobs. T/F

True The same overhead rate is applied to all manufacturing activity during the business year.