Chapter 2🧧

The Raw Materials Inventory account had a balance of $13,463 on January 1. During the month of January, the company had the following transactions: 1. Purchased $12,481 of wool. 2. Purchased $15,327 of cotton. 3. Spent $312 on freight charges. 4. Received a discount of $153 for their cotton order. 5. Returned $1,722 of flawed polyester. 6. Used $8,318 of wool. 7. Used $16,964 of cotton. What is the balance of the Raw Materials Inventory account on January 31? A : $14,267 B : $14,426 C : $15,189 D : $15,030

B $14,426 Costs associated with the Raw Materials Inventory account include purchased materials, used materials, returned and discounted materials, and freight charges. Therefore, the balance of the account should be $13,463 + $12,481 + $15,327 + $312 - $153 - $1,722 - $8,318 - $16,964 = $14,426.

During the current year, Creek Company incurred the following direct labor costs: January $80,000 and February $120,000. Creek uses a predetermined overhead rate of 120% of direct labor cost. Estimated overhead for the 2 months, respectively, totaled $78,000 and $142,800. Actual overhead for the 2 months, respectively, totaled $100,000 and $134,000? Was overhead under- or overapplied during January and by how much? A $10,000 underapplied This is correct answer : B $4,000 underapplied You got it wrong : C $10,000 overapplied D $4,000 overapplied

B $4,000 underapplied Overhead applied is 80,000 x 120% = $96,000. Actual overhead is $100,000. Therefore, overhead is $4,000 underapplied.

Mary designs custom homes and uses job order costing. On March 1, Mary's Work in Process account had a beginning balance of $175,250. Her Finished Goods Inventory account had a beginning balance of $50,200. During March, Mary completes all of the jobs in her beginning Work in Process and starts and completes two more jobs totaling $85,000. She also starts one additional job, Job 901, which is still incomplete at the end of March. The job cost sheet for Job 901 shows direct material costs of $25,000, direct labor costs of $12,500, and overhead of $8,000. What is the balance in Mary's Work in Process Inventory account at the end of March? A : $45,000 B : $45,500 C : $47,100 D : $44,200

B $45,500 Only the incomplete job, Job 901, remains in Work in Process, and its total costs to date include direct materials ($25,000) + direct labor ($12,500) + overhead ($8,000) = $45,500.

Ehsani Enterprises has calculated depreciation on their factory equipment, factory building, and office building. What is the difference between these types of depreciation? A : Factory equipment depreciation is manufacturing overhead, whereas factory building and office building depreciation are period costs. B : Factory equipment and factory building depreciation are manufacturing overhead, whereas office building depreciation is a period cost. C : Factory equipment depreciation is a period cost, whereas factory building and office building depreciation are manufacturing overhead. D : Factory equipment and factory building depreciation are period costs, whereas office building depreciation is manufacturing overhead.

B Factory equipment and factory building depreciation are manufacturing overhead, whereas office building depreciation is a period cost.

A predetermined overhead rate of 70% of direct labor cost means A : total direct labor cost is expected to be 70% of total manufacturing overhead. B : that for every dollar of direct labor, a company will apply $.70 of manufacturing overhead. C : manufacturing overhead is expected to be 70% of the total cost of the product. D : that for every $.70 of direct labor, a company will apply $1.00 of manufacturing overhead.

B that for every dollar of direct labor, a company will apply $.70 of manufacturing overhead.

The bill of materials for Job 313 lists the following for 50 units of women's sundresses: Cotton, 200 yards at $6.25 per yard Zippers, 50 units at $1.00 each Thread, 50 units at $.75 each What is the unit direct material cost for one sundress? A : $26.00 B : $26.75 C : $8.50 D : $25.00

B : $26.75

Dan and another manager Susie are arguing about how their company has set up the material requisition slips. For their company a manager has to sign off on all request slips in addition to the individual who is requesting the materials. Dan thinks this is an unnecessary extra step, while Susie believes this is important for the company. Who is correct? A : Dan is correct. Having one person approve of all inventory works to reduce inventory cost as well as lost request forms. B : Susie is correct. Approval by an individual other than the requestor establishes greater accountability over inventory. C : Susie is correct. Most companies allow the responsibility to lay on the requestor and the receiver of the material requisition slip. D : Dan is correct. It is an extra step and a waste of time; this could be eliminated to allow each requestor to be responsible.

B : Susie is correct. Approval by an individual other than the requestor establishes greater accountability over inventory.

Companies prepare the cost of goods manufactured schedule from the Work in Process Inventory account. A True B False

A True

The Manufacturing Overhead account shows debits of $60,000, $48,000, and $56,000 and one credit for $172,000. Based on this information, manufacturing overhead A has been overapplied. B has not been applied. C shows a zero balance. D has been underapplied.

A has been overapplied. Total overhead incurred = $60,000 + $48,000 + $56,000 = $164,000. Total overhead applied = $172,000, therefore overhead has been overapplied.

The best high-quality yarn is made by the Wooly Alpaca Company. The annual estimated manufacturing overhead cost for Wooly Alpaca is $12,000 and is based on the budgeted number of skeins of yarn. If Wooly Alpaca plans to produce 800 skeins of yarn each month for this year, then the predetermined overhead rate is A : $1.25 B : $15.00 C : $2.50 D : $12.80

A $1.25 Predetermined overhead rate = Budgeted total manufacturing overhead cost ÷ Budgeted total level of application base = $12,000 ÷ (12 x 800) = $1.25.

At the end of Year 3, the managers of Guardian Company are planning for Year 4. For Year 3, manufacturing overhead was $349,600, direct labor hours were 16,000, and machine hours were 48,000. For Year 4, manufacturing overhead is estimated to be $524,400, direct labors are estimated at 20,000, and machine hours are estimated at 50,000. If overhead is applied based on machine hours, what is the predetermined overhead rate for Year 4? This is correct answer : A $10.49/MH You got it wrong : B $21.85/MH C $26.22/MH D $32.78/MH

A $10.49/MH Predetermined overhead rate = Estimated manufacturing OH/estimated machine hours. $524,400/50,000 = $10.49/MH.

Granny and Gramps, Inc., manufactures rocking chairs and uses job order costing. Job 315 is an order of 11 rocking chairs. The order was started and completed in April. At the end of April, the following materials had been requisitioned for Job 315: Lumber, 22 units at $15 per unit Cushions, 11 units at $8 per unit Stain, 88 ounces at $4 per ounce Time tickets showed: G. Clampett, 15 hours at $10 per hour J. Stubbs, 18 hours at $12 per hour Overhead is allocated at $7 per direct labor hour. What is Granny and Gramps' cost per rocking chair? A : $124.27 B : $103.27 C : $114.29 D : $95.92

A $124.27 Per unit cost = Total costs accumulated ÷ Number of units produced. Total costs include direct material [lumber (22 x $15), cushions (11 x $8), and stain (88 x $4)], direct labor [Clampett (15 x $10) and Stubbs (18 x $12)], and overhead (33 hours x $7). Per unit cost = ($330 + $88 + $352 + $150 + $216 + $231) ÷ 11 = $1,367 ÷ 11 = $124.27.

Gable Industries provided the following information from its accounting records for the most recent year: expected production: 120,000 labor hours actual production: 112,000 labor hours budgeted overhead: $1,800,000 actual overhead: $1,740,000 How much is the overhead application rate if Gable bases it on direct labor hours (if necessary, round your answer)? A : $15.00 per hour B : $14.50 per hour C : $15.54 per hour D : $16.07 per hour

A $15.00 per hour

Keystone Company applies overhead on the basis of machine hours. Given the following data, compute the amount of overhead applied for the period. Estimated annual overhead cost $2,250,000 Actual annual overhead cost $2,227,500 Estimated machine hours 300,000 Actual machine hours 295,000 A : $2,212,500 B : $2,227,500 C : $2,288,138 D : $2,250,000

A $2,212,500 The predetermined overhead rate is calculated as $2,250,000/300,000 = $7.50 per machine hour. Overhead applied is 295,000 x $7.50 = $2,212,500.

Cindy is completing a project for work that has so far taken her a month. She has spent $9,000 on materials and $2,000 on indirect material costs. There are also a few employees helping her to complete the project, and their salaries have amounted to $6,900. The overall manufacturing overhead applied to the project is $8,300. What are the total manufacturing costs for Cindy's project? A $24,200 B $17,900 C $26,200 D $22,200

A $24,200 To determine the total manufacturing costs you add the direct materials, the direct labor, and the manufacturing overhead applied. In this case that would be $9,000 + $6,900 + $8,300 = $24,200.

Milly has documents on her desk from which she has determined that the labor costs for the company amounted to $50,800 this month. Dom is also looking over documents regarding the materials that were requisitioned, which came to $40,600 this month. Tina has been working with some of the information from the company to determine the predetermined overhead rate, which is 82%. What is implied here? A : Milly, Dom, and Tina are all gathering materials that will be summarized on the job cost sheet. B : Milly and Dom are gathering materials that will be summarized on the job cost sheet, while Tina is working on information for Factory Labor. C : Dom is gathering materials for the job cost sheet, while Milly and Tina are gathering materials that will be summarized for Manufacturing Overhead. D : Milly, Dom, and Tina are all gathering materials that will be summarized for Manufacturing Overhead.

A Milly, Dom, and Tina are all gathering materials that will be summarized on the job cost sheet. The materials requisition slips, labor time tickets, and predetermined overhead rate are all source materials for the job cost sheet.

When overhead has been overapplied, it means that actual overhead costs were less than overhead assigned to jobs. A : True B : False

A True

If the predetermined overhead rate is 200% of direct labor cost and if direct labor cost is estimated to be $512,000, which of the following amounts is equal to $1,024,000?

A expected overhead costs Predetermined overhead rate = Expected overhead/direct labor cost = $512,000 x 200% = $1,024,000

Which of the following accounts are considered control accounts? 1. Accounts Payable 2. Factory Wages Payable 3. Work in Process Inventory 4. Raw Materials Inventory A 1 and 4 only. B 3 and 4 only C 2 and 3 only D 2, 3, and 4 only

B 3 and 4 only

Argon Chemicals had a total overhead amount of $47,200 during the month of June. Of that total, 58% was related to the factory, and 42% was related to the office building. On June 30, Argon should ________ the Manufacturing Overhead account for A credit; $27,376. B debit; $47,200. You got it correct : C debit; $27,376. D credit; $47,200.

C debit; $27,376. Manufacturing Overhead should only include factory expenses, not office expenses. Therefore, the total debit should be $47,200 X 0.58 = $27,376

Meadows Manufacturing has $10,000 in payroll for its factory workers that must be added the cost of its product. How would Meadows record the direct labor cost? A a debit to Work in Process Inventory and a credit to Manufacturing Overhead B a debit to Wages Payable and a credit to Work in Process Inventory C a debit to Manufacturing Overhead and a credit to Wages Payable D a debit to Work in Process Inventory and a credit to Wages Payable

D a debit to Work in Process Inventory and a credit to Wages Payable

At the beginning of October, the Jones Company had two jobs in the Work in Process Inventory account. Job A had costs of $700 already on its job cost sheet. During October, Job A incurred additional costs of $300 and was completed. Job B had $500 on its job cost sheet at the start of October, and during the month another $800 was added. Job B was still not finished at the end of October. What was the Jones Company's Work in Process Inventory account balance on October 31? A : $800 B : $1,000 C : $0 D : $1,300

D $1,300 Only Job B remained, so $500 + $800 = $1300

The following amounts were reported by Howe Company before adjusting its immaterial underapplied manufacturing overhead of $16,000. Raw Materials Inventory $80,000 Finished Goods Inventory $120,000 Work in Process Inventory $200,000 Cost of Goods Sold $1,460,000. What is the amount Howe will report as cost of goods sold after it disposes of its underapplied overhead? A : $1,444,000 B : $1,460,000 C : $1,564,000 D : $1,476,000

D $1,476,000 Underapplied overhead is debited to Cost of Goods Sold, therefore this amount was increased by $16,000.

During the current year, Creek Company incurred the following direct labor costs: January $80,000 and February $120,000. Creek uses a predetermined overhead rate of 120% of direct labor cost. Estimated overhead for the 2 months, respectively, totaled $78,000 and $142,800. Actual overhead for the 2 months, respectively, totaled $100,000 and $134,000? Was overhead under- or overapplied during February and by how much? A $4,000 underapplied You got it wrong : B $10,000 underapplied C $4,000 overapplied This is correct answer : D $10,000 overapplied

D $10,000 overapplied Overhead applied is 120,000 x 120% = $144,000. Actual overhead is $134,000. Therefore, overhead is $10,000 overapplied.

Pueblo Co. developed the following data for the current year: actual overhead $403,200 beginning work in process inventory $336,000 direct materials used $201,600 total manufacturing costs $1,008,000 overhead applied $302,400 cost of goods manufactured $369,600

D $504,000 total manufacturing costs - overhead applied - direct materials used

Which of the following describes the process for determining the predetermined overhead rate? A actual annual overhead cost divided by actual annual operating activity B actual annual operating activity divided by actual annual overhead cost You got it wrong : C estimated annual operating activity divided by estimated annual overhead cost This is correct answer : D estimated annual overhead cost divided by estimated annual operating activity

D estimated annual overhead cost divided by estimated annual operating activity

On March 1, Meadows Manufacturing had Job 876 with a beginning balance of $900. During March, direct materials of $800 and direct labor of $500 were added. Overhead was applied at a predetermined rate of $7 per dollar of direct labor costs. Job 876 is part of a batch containing 12 units. What is the total cost per unit? A $475 B $183 C $292 D $400

Per unit cost = Accumulated job costs ÷ Number of units produced = (Beginning balance of $900 + Direct materials of $800 + Direct labor of $500 + Overhead of ($500 x $7)) ÷ 10 = ($900 + 800 + 500 + 3,500) ÷ 12 = 5,700 ÷ 12 = $475 per unit

If manufacturing overhead has been underapplied during the period, the adjusting entry at the end of the year will_____Manufacturing Overhead.

credit

If manufacturing overhead has been underapplied during the period, the adjusting entry at the end of the year will ____ cost of Goods Sold.

debit

Question Number Q 15.23: Pedro Company applies overhead on the basis of 150% of direct labor cost. A custom job, Job #CC45 is charged with $150,000 of direct materials costs and $120,000 of direct labor. Which of the following entries would be made to apply overhead to Job #CC45?

debit work in process inventory 180,000 credit manufacturing overhead 180,000

predetermined overhead rate

estimated manufacturing overhead cost / estimated direct labor cost = % , % X actual direct labor cost = predetermined overhead rate

If the predetermined overhead rate is 200% of direct labor cost and if direct labor cost is estimated to be $640,000, then_______ is $1,280,000.

expected overhead costs

In a job order cost system, indirect factory labor is assigned to

manufacturing overhead

If the Manufacturing Overhead account has a credit balance at the end of the period, it means actual overhead costs were less than overhead applied to jobs. A : True B : False

true

If the Manufacturing Overhead account has a debit balance at the end of the period, it means actual overhead costs were greater than overhead applied to jobs.

true

Using a predetermined overhead rate allows a company to determine the approximate total cost of each job

when the job is complete

Watson Company applies overhead on the basis of machine hours. Given the following data, compute the amount of overhead under- or overapplied for the period. Estimated annual overhead cost $1,500,000 Actual annual overhead cost $1,485,000 Estimated machine hours 300,000 Actual machine hours 295,000 A $15,000 underapplied B $10,000 overapplied C $10,000 underapplied D Neither under- nor overapplied

C $10,000 underapplied The predetermined overhead rate is calculated as $1,500,000/300,000 = $5 per machine hour. Overhead applied is 295,000 x $5 = $1,475,000. Actual overhead is $1,485,000, therefore overhead is $10,000 underapplied.

An average worker in a plastic factory makes 50 containers per hour and works eight hours a day. If the direct labor cost per container is $0.24, the worker must be paid A : $15 per hour. B : $10 per hour. C : $96 per day. D : $50 per day.

C $96 per day. Total production in a day = 8 x 50 = 400 containers. Total daily wages paid = Total production x Labor cost per unit = 400 x 0.24 = 96.

Dave is working on some paperwork for his boss. The company has reported that their estimated indirect labor costs for the year are going to be $130,000, while the direct labor costs for the year will be $200,000. The estimated overhead costs for the year are expected to be $156,000. What is the predetermined overhead rate for the company? A : 57% B : 65% C : 78% D : 80%

C 78% Estimated annual overhead divided by expected direct labor costs equals the predetermined overhead rate for the company. In this instance that would be $156,000 / $200,000 = 78%.

The Carter Corporation purchased $2,000 of direct materials on account from its largest vendor. Carter also paid $230 in shipping costs. How would Carter record this transaction? A : A debit to Work in Process Inventory for $2,000 B : A credit to Raw Materials Inventory for $2,230 C : A debit to Raw Materials Inventory for $2,230 D : A debit to Raw Materials Inventory for $2,000 and a debit to Manufacturing Overhead for $230

C A debit to Raw Materials Inventory for $2,230

Happy Maids cleans commercial buildings. In March, Happy Maids started and completed two jobs, Job 1000 and Job 1001. The job cost sheet for Job 1000 showed $1,200 of direct materials and 30 direct labor hours. The job cost sheet for Job 1001 showed $2,000 of direct materials and 50 direct labor hours. Overhead is applied at $7 per direct labor hour. The employees who worked on these two jobs were paid $15 per hour. What is the total cost for each of these two jobs for March? A : Job 1000, $1,610; Job 1001, $3,100 B : Job 1000, $3,100; Job 1001, $1,860 C : Job 1000, $1,860; Job 1001, $3,100 D : Job 1248, $1,860; Job 1249, $2,750

C Job 1000, $1,860; Job 1001, $3,100 Total job cost = Direct material + Direct labor + Overhead. For Job 1000, Total job cost = $1,200 + (30 x $15) + (30 x $7) = $1,200 + $450 + $210 = $1,860. For Job 1001, Total job cost = $2,000 + (50 x $15) + (50 x $7) = $2,000 + $750 + $350 = $3,100.

Kristina is an accountant who focuses on tracking transactions related to manufacturing products for her company. Kristina's company produces frozen waffles for sale to high-end restaurants and coffee shops. Which of the following is correct about Kristina? A : Kristina is doing corporate accounting for a company that uses a process cost system. B : Kristina is doing corporate accounting for a company that uses a job order cost system. C : Kristina is doing cost accounting for a company that uses a process cost system. D : Kristina is doing managerial accounting for a company that uses a job order cost system.

C Kristina is doing cost accounting for a company that uses a process cost system.