Chapter 3 Multiple Choice

19 One reason overhead may be overapplied is because _________. A) Actual production was greater than budgeted production B) Actual production was less than budgeted production C) Ending Work in Process inventory was higher than beginning Work in Process inventory D) Ending Work in Process inventory was lower than beginning Work in Process inventory

A) Actual production was greater than budgeted production

20 One reason overhead may be overapplied is because _________. A) Actual property taxes on the factory were lower than budgeted B) Actual property taxes on the factory were higher than budgeted C) Some direct labor was erroneously accounted for as indirect labor D) Some indirect labor was erroneously accounted for as indirect materials

A) Actual property taxes on the factory were lower than budgeted

9 The journal entry to record the incurrence of indirect labor cost is recorded as: A. Dr Manufacturing Overhead; Cr Wages Payable B. Dr Wages Payable; Cr Manufacturing Overhead C. Dr Work in Process; Cr Manufacturing Overhead D. Dr Work in Process; Cr Wages Payable

A. Dr Manufacturing Overhead; Cr Wages Payable

14 Conversion costs equal A. Ending work in process plus cost of goods manufactured minus direct materials minus beginning work in process B. Beginning work in process plus cost of goods manufactured minus ending work in process C. Cost of goods manufactured minus applied overhead minus direct materials plus ending work in process minus beginning work in process D. Cost of goods manufactured minus applied overhead minus direct materials minus ending work in process plus beginning work in process

A. Ending work in process plus cost of goods manufactured minus direct materials minus beginning work in process

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

A. Labor time record

13 Overapplied overhead equals A. The amount by which unadjusted cost of goods sold exceeds adjusted cost of goods sold B. The amount by which adjusted cost of goods sold exceeds unadjusted cost of goods sold C. Ending balance in manufacturing overhead plus the amount by which actual overhead exceeds applied overhead minus the beginning balance in manufactruring overhead D. Beginning balance in manufacturing overhead plus the amount by which actual overhead exceeds applied overhead minus the ending balance in manufacturing overhead

A. The amount by which unadjusted cost of goods sold exceeds adjusted cost of goods sold

18 One reason overhead may be overapplied is because ________. A) actual overhead exceeds budgeted overhead B) budgeted overhead exceeds actual overhead C) the difference between budgeted unadjusted cost of goods sold and actual adjusted cost of goods sold is greater than the difference between actual unadjusted cost of goods sold and actual adjusted cost of goods sold D) the difference between budgeted unadjusted cost of goods sold and actual adjusted cost of goods sold is less than the difference between actual unadjusted cost of goods sold and actual adjusted cost of goods sold

B) budgeted overhead exceeds actual overhead

3 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.

1 In computing its predetermined overhead rate, Arcos Company inadvertently left its indirect labor costs out of the computation. All other things being equal, 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.

15 A firm using a normal cost system never has any ending work in process. The firm mistakenly accounted for $250,000 of direct materials placed in to production as indirect materials used. All other things being equal, the effect of this error is to A. Overstate cost of goods manufactured B. Understate cost of goods manufactured C. Overstate conversion costs D. Understate conversion costs

B. Understate cost of goods manufactured

8 In a job-order costing system, the use of direct materials that have been previously purchased is recorded as a debit to: A. Raw Materials inventory. B. Work in Process inventory. C. Finished Goods inventory. D. Manufacturing Overhead.

B. Work in Process inventory.

12 Direct materials placed into production equals A. Ending balance in accounts payable plus cash paid for raw materials minus beginning balance in accounts payable B. Ending balance in raw materials plus indirect materials placed into productions plus raw materials purchased minus beginning raw materials C. Beginning balance in raw materials plus raw materials purchased minus indirect materials placed into production minus ending balance in raw materials D. Beginning balance in raw materials plus prime costs minus direct labor minus indirect materials placed into production minus ending balance in raw materials

C. Beginning balance in raw materials plus raw materials purchased minus indirect materials placed into production minus ending balance in raw materials

4 Which of the following would probably be the least appropriate allocation base for allocating overhead in a highly automated manufacturer of specialty valves? A. Machine-hours B. Power consumption C. Direct labor-hours D. Machine setups

C. Direct labor-hours

16 A firm using a normal cost system never has any ending work in process. The firm mistakenly debited Interest Payable instead of Factory Wages Payable when paying factory wages. All other things being equal, the effect of this error is to A. Overstate cost of goods manufactured B. Understate cost of goods manufactured C. Leave the sum of prime costs plus conversion costs unaffected D. Misstate the sum of prime costs plus conversion costs

C. Leave the sum of prime costs plus conversion costs unaffected

2 Armstrong Company's records show that overhead was overapplied by $10,000 last year. This overapplied manufacturing overhead was closed out to the Cost of Goods Sold account at the end of the year. In trying to determine why overhead was overapplied by this amount, the company discovered that $6,000 of depreciation on factory equipment was charged to administrative expense in error. Given the above information, which of the following statements is true? A. Manufacturing overhead was actually overapplied by $16,000 for the year. B. The company's operating income is understated by $6,000 for the year. C. The error in recording depreciation would have no effect on net operating income for the year. D. The $6,000 in depreciation should have been charged to Work in Process rather than to administrative expense.

C. The error in recording depreciation would have no effect on net operating income for the year.

10 The ending balance in the Work in Process account equals: A. Total manufacturing costs incurred this period minus cost of goods manufactured B. Cost of goods manufactured minus total manufacturing costs incurred this period C. Total manufacturing costs to account for minus cost of goods manufactured D. Cost of goods manufactured minus total manufacturing costs to account for

C. Total manufacturing costs to account for minus cost of goods manufactured

6 The proper journal entry to close overapplied manufacturing overhead to Cost of Goods Sold would be: A. Dr Cost of Goods Sold; Cr Work in Process B. Dr Cost of Goods Sold; Cr Finished Goods C. Dr Cost of Goods Sold; Cr Manufacturing Overhead D. Dr Manufacturing Overhead; Cr Cost of Goods Sold

D. Dr Manufacturing Overhead; Cr Cost of Goods Sold

11 Cost of Goods Manufactured equals A. Beginning Work in Process plus prime costs plus conversion costs incurred in the current period minus ending work in process B. Cost of goods available for sale minus beginning finished goods inventory adjusted for any overapplied or underapplied overhead C. Direct Materials plus Direct Labor plus Manufacturing Overhead applied minus ending work in process D. Ending finished goods inventory plus unadjusted cost of goods sold minus beginning finished goods inventory

D. Ending finished goods inventory plus unadjusted cost of goods sold minus beginning finished goods inventory

17 A firm using a normal cost system never has any ending work in process. The Manufacturing Overhead account at year end had a debit balance. The firm's accountant mistakenly closed that balance to Finished Goods. All other things being equal, the effect of this error is to: A. Understate conversion costs B. Understate assets C. Understate gross margin D. Understate cost of goods sold

D. Understate cost of goods sold