Accounting 102 - Chapter 2 Practice Questions

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

overhead applied to the job

To keep track of labor time and costs, many firms have replaced:

paper time tickets with computerized systems

A single predetermined overhead rate is called a ______ overhead rate.

plantwide

When all overhead is assigned using direct-labor hours, the company has chosen to use a _____ predetermined overhead rate.

plantwide

A normal costing system applies overhead by job by multiplying a _____ _____ rate by the _____ amount of the allocation base incurred by the job

predetermined; overhead; actual

Murphy Manufacturing estimated total manufacturing overhead for 2017 to be $100,000 and uses direct labor-hours as the allocation base. They estimated that 5,000 hours would be used. Actual overhead for 2017 was $120,000 and actual direct labor-hours were 7,500. How much overhead was applied to a job completed in 2017 that used 200 direct labor-hours?

$4,000 The predetermined overhead rate = $100,000/5,000 direct labor-hours = $20 per direct labor-hour. The overhead applied to the job = $20 per direct labor-hours x 200 direct labor-hours = $4,000

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 When a company uses predetermined overhead rates to apply overhead cost to jobs, it is almost a certainty that the amount of overhead applied to all jobs during a period will differ from the actual amount of overhead costs incurred during the period.

Based on this information, the predetermined overhead rate per direct labor dollar for Department B is $_____.

$1.35 Estimated manufacturing overhead / Estimated direct labor hours = predetermined overhead rate per direct labor hour $162,000 / $120,000 = $1.35

Based on this information, the predetermined overhead rate per direct labor hour is $_____.

$3.00 Estimated manufacturing overhead / Estimated direct labor hours = predetermined overhead rate per direct labor hour $450,000 / $150,000 = $3.00 per direct labor hour

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 #42 is $_____.

43,200 Total cost of Job #42A = Direct material + Direct labor + Predetermined overhead rate x Actual machine-hours = $18,000 + $12,000 + ($12 per machine-hour x 1,100 machine-hours) = $43,200

Which of the following would NOT be a good allocation base for manufacturing overhead?

Accounting hours Accounting hours are not related to manufacturing

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

An allocation base should be:

a cost driver

All manufacturing costs are assigned to units of product and all nonmanufacturing costs are treated as period costs under _____ costing.

absorption

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

activity; based

Bar codes can be used to:

automatically record and post direct labor costs to jobs Because all of the source data is already in computer files, the labor costs can be automatically posted to job cost sheets.

The predetermined overhead rate is calculated:

before the period begins

Typical cost drivers include _____.

computer time flight-hours machine-hours

Materials requisition forms are used for

controlling the flow of materials into production making journal entries in accounting records The materials requisition form is a document that specifies the type and quantity of materials to be drawn from the storeroom and identifies the job that will be charged for the cost of the materials. The form is used to control the flow of materials into production and also for making journal entries in the accounting records

The adjustment for overapplied overhead ______.

decreases cost of goods sold and increases net operating income. The adjustment for underapplied overhead increases cost of goods sold and decreases net operating income, whereas the adjustment for overapplied overhead decreases cost of goods sold and increases net operating income.

Categories of manufacturing costs include:

direct labor direct materials manufacturing overhead

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

divide the total job cost by the number of units produced

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

estimated allocation base Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total amount of the allocation base

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 Many companies have large amounts of fixed manufacturing overhead. Therefore, their total manufacturing overhead costs tend to remain relatively constant from one period to the next even though the number of units that they produce can fluctuate widely. Consequently, the average cost per unit will vary from one period to the next.

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

job cost sheet

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

manufacturing overhead indirect labor

Direct materials costs are recorded on the job cost sheet when the:

materials are issued to the job

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

more complex, but more accurate

When all of a company's job cost sheets are viewed collectively they form what is known as a _____ _____.

subsidiary; ledger

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

840 $600 + ($600 x 40%) = $840

Based on this information, the amount of overhead allocated to a job that used 300 direct labor hours is $_____.

900 Estimated manufacturing overhead / Estimated direct labor horus = the amount of overhead allocated to a job $450,000/150,000 = $3.00 per direct labor hour x 300 = $900

Companies that make many different products each period use _____-_____ costing.

job; order

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 an

allocation base

A job-order costing system may inaccurately assign costs to jobs due to:

an inappropriate allocation base While job-order costing systems can accurately trace direct materials and direct labor costs to jobs, they often fail to accurately allocate the manufacturing overhead costs used during the production process to their respective jobs. The root cause of the problem often relates to the choice of an allocation base.

The process used to assign overhead costs to products is called overhead __.

application. This is typically called overhead allocation.

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

applied manufacturing overhead cost

Companies assign costs to products and services to:

establish selling prices value ending inventory understand product profitability Companies usually assign costs to their products and services for two main reasons. First, it helps them fulfill their planning, controlling, and decision-making responsibilities. Second, it helps them determine the value of ending inventories and cost of goods sold for external reporting purposes. The costs attached to products that have not been sold are included in ending inventories on the balance sheet, whereas the costs attached to units that have been sold are included in cost of goods sold on the income statement.

The adjustment for underapplied overhead _____.

increases cost of goods sold and decreases net income The adjustment for underapplied overhead increases cost of goods sold and decreases net operating income, whereas the adjustment for overapplied overhead decreases cost of goods sold and increases net operating income.

Manufacturing overhead:

is an indirect cost contains fixed costs consists of many different types of costs Manufacturing overhead is an indirect cost. This means that it is either impossible or difficult to trace these costs to a particular product or job.

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

True If an actual rate is computed monthly or quarterly, seasonal factors in overhead costs or in the allocation base can produce fluctuations in the overhead rate. For example, the costs of heating and cooling a factory in Illinois will be highest in the winter and summer months and lowest in the spring and fall. If the overhead rate is recomputed at the end of each month or each quarter based on actual costs and activity, the overhead rate would go up in the winter and summer and down in the spring and fall. As a result, two identical jobs, one completed in the winter and one completed in the spring, would be assigned different manufacturing overhead costs.

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

total fixed manufacturing overhead cost

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?

$15,000 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

Based on this information, the overhead applied to Job ABC using multiple predetermined overhead rates is $_____.

82.80 Predetermined overhead rate per direct labor hour of Dept A x Direct labor hours worked on Job ABC Dept A + Predetermined overhead rate per direct labor hour of Dept B x Direct labor hours worked on Job ABC Dept B $2.40 x 18 + $1.80 x 22 = $82.80

True or false: Job-order costing can ONLY be used in manufacturing firms.

False Job-order costing is also used extensively in service industries. For example, hospitals, law firms, movie studios, accounting firms, advertising agencies, and repair shops all use a variation of job-order costing to accumulate costs. Although the detailed example of job-order costing provided in the following section deals with a manufacturing company, the same basic concepts and procedures are used by many service organizations.

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 unit product cost is the same as the:

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

A bill of materials contains the:

type of each direct material needed to complete a unit of product quantity of each direct material needed to complete a unit of product A bill of materials is a document that lists the quantity of each type of direct material needed to complete a unit of product.