Chapter 2

Allocation bases that do not drive overhead costs

will not accurately measure the cost of overhead used

Predetermined overhead rate per direct labor hour Company $2.10 Dept. A $2.40 Dept B $1.80 Direct labor hours 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 Blank______.

$2.40 × 17 + $1.80 × 13 = $64.20

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

1. a more accurate accounting of costs 2. enhanced information for decision making

Manufacturing overhead costs

1. are indirect costs 2. consist of many different items

Typical cost drivers include Blank______.

1. flight-hours 2. computer time 3. machine-hours

Manufacturing overhead_____.

1. is an indirect cost 2. contains fixed costs 3. consists of many different types of costs

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 predetermined overhead rate per direct labor hour is

3. Predetermined O/H rate= Estimated O/H cost/ Estimated total amount of allocation base; DLH or DMH 450,000/150,000=3

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

840. 600*0.4=240 600+240=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 $2Field 1Field 1 2 , Incorrect Unavailable. (Enter your answer as a whole number.)

900.

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

Accounting hours

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 a(n) ________________ ________________.

Allocation base

Which of the following is only true in a multiple predetermined overhead rate system?

Each production department may have its own predetermined overhead rate.

Companies that make many different products each period use__________-_________costing.

Job Order

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 Blank______.

Reason: $338,000 ÷ $130,000 = $2.60

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:

Reason: 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.

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

True

Cost-plus pricing occurs when Blank______.

a markup percentage is added to the cost of a job

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

activity-based

Companies use a predetermined overhead rate rather than an actual overhead rate because Blank______.

an actual rate is not known until the end of the period

The process of assigning overhead cost to jobs is called overhead___________.

application

Overhead application is the process of:

applying manufacturing overhead cost to jobs

The predetermined overhead rate is calculated Blank______

before the period begins

The type and quantity of each type of direct material needed to complete a unit of product is listed on the _________.

bill of materials

A factor that causes overhead costs is called a Blank______.

cost driver

he adjustment for overapplied overhead Blank______ net income.

decreases cost of goods sold and increases

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

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

divide the total job cost

The formula for a predetermined overhead rate is:

estimated total manufacturing overhead cost ÷ estimated total allocation base

Estimating the total amount of the allocation base (the denominator) required for next period's estimated level of production is the ______ step in computing the predetermined overhead rate.

first

In a system that uses multiple predetermined overhead rates, overhead is applied Blank______.

in each department as jobs proceed through the department

The adjustment for underapplied overhead Blank______.

increases cost of goods sold and decreases net operating income

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

job cost sheet

Manufacturing overhead consists of Blank______.

many different kinds of indirect costs

Companies that use job-order costing make

many different products

An allocation base is a(n) Blank______.

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

When compared to a departmental approach, using activity-based costing results in Blank______ overhead rates.

more

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

more complex and more

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

overhead applied to the job

Which of the following would be considered direct materials in a service firm that uses job-order costing?

paperwork at a law firm

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 formula for applying overhead to a specific job is: Blank______ amount of allocation base incurred by job.

predetermined overhead rate ×

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

A company's job cost sheets provide a(n)_____________ __________ that summarizes the specific jobs that comprise the amounts reported in Work in Process and Finished Goods on the balance sheet as well as Cost of Goods Sold on the income statement.

subsidiary ledger

Which of the following would not be considered a direct labor cost in a service firm that uses job-order costing?

the salary of the manager at a hair salon

Which of the following would not be considered a job in a service firm that uses job-order costing?

the tax department in an accounting firm

A bill of materials contains the Blank______.

1. quantity of each direct material needed to complete a unit of product. 2. type of each direct material needed to complete a unit of product.

Widely used allocation bases in manufacturing include Blank______.

1. units of product 2. direct labor hours 3. machine hours 4. direct labor cost

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______.

4,000 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 hours worked on Job ABC Company 40 Dept. A 18 Dept B 22

82.80

Direct materials costs are recorded on the job cost sheet when the__________.

materials are issued to the job

The total cost of a job includes:

1. predetermined manufacturing overhead. 2. direct labor cost. 3. direct materials cost.