A306 Chapter 3

SPL Enterprises assigns overhead based on number of machine hours. For the upcoming year, they plan to use a total of 250,000 machine hours and 50,000 direct labor hours. Total overhead cost is expected to be $500,000. The predetermined overhead rate per machine hour is $

2

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

Manufacturing overhead indirect labor

Which of the following is not a manufacturing cost category?

Selling and administrative costs

Why is the unit product cost different from the cost that would be incurred if another (additional) unit were produced?

The unit product cost is an average, not an incremental cost.

One reason to use a predetermined overhead rate is to eliminate the effect of seasonal factors. True/False

True

The predetermined overhead rate is calculated Blank______.

before the period begins

The difference between direct labor and indirect labor is that direct labor Blank______.

can be easily traced to jobs, while indirect labor cannot

Manufacturing overhead costs Blank______.

consist of many different items are indirect costs

Manufacturing overhead:

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

An allocation base should be:

cost driver

Manufacturing overhead consists of Blank______.

many different kinds of indirect costs

An allocation base is a(n) Blank______.

measure of activity used to assign overhead costs to products and services

Compared to a plantwide overhead rate system, a multiple predetermined overhead rate system is Blank______ accurate.

more complex and more accurate

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

overhead applied to the job

A single predetermined overhead rate is called a(n) ________ overhead rate.

plantwide

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

predetermined manufacturing overhead cost.

The total cost of a job includes:

predetermined manufacturing overhead. direct materials cost. direct labor cost.

The formula for applying overhead to a specific job is Blank______.

predetermined overhead rate × amount of allocation base incurred by job

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

reflects differences in how overhead costs are incurred within departments

Total manufacturing overhead costs tend to Blank______.

remain fairly constant

Estimated manufacturing overhead Company: $500,000 Dept. A: $338,000 Dept. B: $162,000 Estimated direct labor cost Company: $250,000 Dept. A: $130,000 Dept. B: $120,000 Actual manufacturing overhead Company: $720,000 Dept. A: $400,000 Dept. B: $320,000 Actual direct labor cost Company: $300,000 Dept. A: $160,000 Dept. B: $140,000 Based on this information, the predetermined overhead rate per direct labor dollar for Dept. B is

$1.35

Estimated manufacturing overhead $500,000 Estimated direct labor cost $250,000 Actual manufacturing overhead $720,000 Actual direct labor cost $300,000 Based on this information, the predetermined overhead rate per direct labor dollar is Blank______.

$2.00 Reason: $500,000 ÷ $250,000 = $2.00 per direct labor dollar

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:

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

Estimated manufacturing overhead Company: $500,000 Dept. A: $338,000 Dept. B: $162,000 Estimated direct labor cost Company: $250,000 Dept. A: $130,000 Dept. B: $120,000 Actual manufacturing overhead Company: $720,000 Dept. A: $400,000 Dept. B: $320,000 Actual direct labor cost Company: $300,000 Dept. A: $160,000 Dept. B: $140,000 Based on this information, the predetermined overhead rate per direct labor dollar for Dept. A is

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

Murphy Manufacturing estimated total manufacturing overhead for the year to be $100,000 and that 5,000 direct-labor hours would be used. Actual overhead was $120,000 and actual direct labor-hours were 7,500. The overhead applied to a job completed during the year that used 200 direct labor-hours was Blank______.

$4000 Reason: The predetermined overhead rate = $100,000 ÷ 5,000 direct labor-hours = $20 per direct labor-hour × 200 direct labor-hours = $4,000.

Predetermined overhead rate per direct labor hour Company $2.10 Dept. A $2.40 Dept B. $1.80 Direct labor hours worked on Job ABC Company 30 Dept. A 17 Dept B. 13 Based on this information, the overhead applied to Job ABC using multiple predetermined overhead rates is:

$64.20 Reason: $2.40 × 17 + $1.80 × 13 = $64.20

Predetermined overhead rate per direct labor hour Company $2.10 Dept. A $2.40 Dept B. $1.80 Direct labor hours worked on Job ABC Company 40 Dept. A 18 Dept B. 22 Based on this information, the overhead applied to Job ABC using multiple predetermined overhead rates is:

$82.80

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

$840 Reason: $600 x .40 = $240 $240 + $600 = $840

Estimated manufacturing overhead $450,000 Estimated direct labor hours 150,000 Actual manufacturing overhead $405,000 Actual direct labor hours 180,000 Based on this information, the amount of overhead allocated to a job that used 300 direct labor hours is $__________

900 450,000 / 150,000 = 3.00 per direct labor hour X 300 = 900

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.

A factor that causes overhead costs is called a Blank______.

Cost Driver

When a company assumes direct-labor hours is the only manufacturing overhead cost driver, they are likely to use a plantwide overhead rate.

True This is true, but unless the assumption is correct, costs may be inaccurate. It is often overly simplistic and incorrect to assume that direct-labor hours is a company's only manufacturing overhead cost driver.

A cost driver is

a factor that causes overhead costs to occur

Cost-plus pricing occurs when Blank______.

a markup percentage is added to the cost of a job

The appeal of using predetermined departmental overhead rates is they presumably provide Blank______.

a more accurate accounting of costs enhanced information for decision making

To calculate the unit product cost using the job cost sheet Blank______ by the number of units produced.

divide the total job cost

When a company uses a departmental approach rather than a plantwide approach to applying overhead, the selling price of the product will always be Blank______.

different

Widely used allocation bases in manufacturing include:

direct labor cost. units of product. direct labor hours. machine hours.

Categories of manufacturing costs include:

direct materials, direct labor, manufacturing overhead

To calculate a predetermined overhead rate, divide estimated total manufacturing overhead by the

estimated total allocation base

The formula for a predetermined overhead rate is Blank______.

estimated total manufacturing overhead cost ÷ estimated total allocation base

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

time ticket, sheet, card

The document used to record the hours workers spend on each job and task is called a Blank______.

time ticket

The unit product cost is the same as the Blank______.

total job cost divided by number of units average product cost per unit

The average manufacturing overhead cost per unit tends to Blank______.

vary from one period to the next

Allocation bases that do not drive overhead costs Blank______.

will not accurately measure the cost of overhead used