Handout Chapter 4

21) Rally Company manufactures garage storage systems for homeowners. It uses a normal costing system with two direct cost categories - direct materials and direct labor - an one indirect-cost pool, manufacturing overhead costs. For 2018: Budgeted manufacturing overhead costs $1,000,000 Budgeted manufacturing labor-hours 20,000 hours Actual manufacturing overhead costs $1,100,000 Actual direct material costs $10,000 Actual direct manufacturing labor hours 200 Actual direct manufacturing labor rate $20 per hour Required: Calculate the total manufacturing costs using normal costing.

24000

18) ________ is used to record and accumulate all the costs assigned to a specific job. A) Job-cost record B) Materials-requisition record C) Cost-allocation base D) Labor-requisition record

a

19) For 2018, Rest-Well Bedding uses machine-hours as the only overhead cost-allocation base. The direct cost rate is $6.00 per unit. The selling price of the product is $21.00. The estimated manufacturing overhead costs are $275,000 and estimated 40,000 machine hours. The actual manufacturing overhead costs are $350,000 and actual machine hours are 50,000. Using job costing, the 2018 actual indirect-cost rate is ________. A) $7.00 per machine-hour B) $5.50 per machine-hour C) $8.75 per machine-hour D) $8.50 per machine-hour

a

27) The budgeted indirect-cost driver rate for Y based on the number of machine-hours is in excess of X by ________. (Round interim and the final answer to the nearest cent.) A) $6.50 per machine-hour B) $21.50 per machine-hour C) $1.50 per machine-hour D) $16.50 per machine-hour

a

33) The ending balance in the Work-in-Process Control account represents the costs of all jobs that ________. A) have not been completed B) have been completed but not sold C) have been completed and sold to customers D) are reported on the income statement

a

37) Which of the following items is debited to the Work-in-Process account? A) allocated manufacturing overhead B) completed goods transferred out of the plant C) accumulated depreciation on fixed assets D) accounts receivable

a

39) Manufacturing overhead costs incurred for the month are: Utilities $45,000 Depreciation on equipment $27,000 Repairs $17,000 Which account is debited assuming utilities and repairs were on account? A) Manufacturing Overhead Control, 89,000 B) Utilities Overhead Control, 45,000 C) Accumulated Depreciation Control, 27,000 D) Accounts Payable Control, 62,000

a

40) Which of the following statements regarding manufacturing overhead allocation is true? A) It includes all manufacturing costs that cannot be directly traced to a product or service. B) The costs can be grouped only as a single indirect-cost pool. C) Total costs are unknown at the end of the accounting period. D) Allocated amounts are debited to Manufacturing Overhead Control.

a

43) A company has $25,000 of depreciation on plant assets and paid $12,000 for repairs also to plant assets. Which of the following journal entries would be required? A) Depreciation Expense $25,000 Repairs Expense $12,000 Cash $37,000 B) Manufacturing overhead control $37,000 Accumulated Depreciation Control $25,000 Cash $12,000 C) Depreciation Expense $25,000 Repairs Expense $12,000 Accumulated Depreciation Control $37,000 D) Depreciation Expense $25,000 Repairs Expense $12,000 Manufacturing Overhead Control $37,000

a

45) Franklin Inc. manufactures pipes and applies manufacturing overhead costs to production at a budgeted indirect-cost rate of $18 per direct labor-hour. The following data are obtained from the accounting records for June 2018: Direct materials $170,000 Direct labor (4,600 hours @ $10/hour) 46,000 Indirect labor 17,000 Plant facility rent 34,000 Depreciation on plant machinery and equipment 24,500 Sales commissions 33,000 Administrative expenses 28,000 For June 2018, manufacturing overhead is ________. A) overallocated by $7,300 B) underallocated by $20,700 C) overallocated by $20,700 D) underallocated by $7,300

a

5) ________ is the process of assigning indirect costs to products. A) Cost allocation B) Job cost recording C) Cost pooling D) Cost tracing

a

LO #3 9) Which of the following are reasons for using longer periods, such as a year, to calculate indirect cost rates? A) shorter the period, the greater is the influence of seasonal patterns on the amount of costs B) longer the period, the greater is the influence of seasonal patterns on the amount of costs C) shorter the period, the smaller is the influence of seasonal patterns on the amount of opportunity costs D) longer the period, the smaller is the influence of seasonal patterns on the amount of opportunity costs

a

LO #5 22) The budgeted indirect-cost rate is calculated ________. A) at the beginning of the year B) during the year C) at the end of each quarter D) at the end of the year

a

28) Chief Manufacturing is a small textile manufacturer using machine-hours as the single indirect-cost rate to allocate manufacturing overhead costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for the Somerset High School Science Olympiad Jacket job. Company Somerset High School Job Direct materials $25,000 $600 Direct manufacturing labor $5,000 $200 Manufacturing overhead costs $20,000 Machine-hours 40,000 mh 800 mh Required: a. For Chief Manufacturing, determine the annual manufacturing overhead cost-allocation rate. b. Determine the amount of manufacturing overhead costs allocated to the Somerset High School job. c. Determine the estimated total manufacturing costs for the Somerset High School job.

a(0.5)b(400)c(1200)

13) A manufacturer estimates that it will incur variable indirect costs for the month of October of $70,000 and $30,000 of fixed costs. The company uses direct labor hours to calculate the predetermined overhead rate and predicted that 3,000 direct labor hours would be used in October. Actual direct labor hours amounted to 3,200. Required: A) What is the variable predetermined indirect rate for October? B) What is the fixed predetermined indirect cost rate for October? C) What is the total allocation rate per direct labor hour for October?

a(23.33),b(10.00),c(33.33)

15) Place the following steps in the order suggested by the seven steps used to assign costs to individual jobs: A. Identify indirect costs B. Compute the total cost of the job C. Select cost-allocation bases D. Compute the indirect cost rate A) ACDB B) CADB C) BACD D) DCAB

b

20) Better Products Company manufactures insulation and applies manufacturing overhead costs to production at a budgeted indirect-cost rate of $18 per direct labor-hour. The following data are obtained from the accounting records for October 2018: Direct materials $370,000 Direct labor (3,300 hours @ $17/hour) 56,100 Indirect labor 22,000 Plant facility rent 53,000 Depreciation on plant machinery and equipment 41,000 Sales commissions 17,000 Administrative expenses 29,000 The actual amount of manufacturing overhead costs incurred in October 2018 totals ________. A) $277,500 B) $116,000 C) $162,000 D) $123,000

b

3) Direct costs ________. A) are anything for which a measurement of costs is desired B) are costs related to a particular cost object that can be traced to that cost object in an economically feasible manner C) focus specifically on the costing needs of the CFO D) are costs related to a particular cost object that cannot be traced to that cost object in a cost-effective manner

b

30) When $10,0000 direct materials are requisitioned, which of the following would be the correct journal entry? A) Manufacturing Overhead Control $10,000 Materials Control $10,000 B) Work-in-Process Control $10,000 Materials Control $10,000 C) Materials Control $10,000 Work-in-Process Control $10,000 D) Accounts Payable Control $10,000 Materials Control $10,000

b

31) Payment of the factory rent would require debits and credits to which accounts? A) Debit: Work-in-Process Control account Credit: Cash B) Debit: Manufacturing Overhead Control account Credit: Cash C) Debit: Cost of Goods Sold account Credit: Prepaid Rent D) Debit: Factory Depreciation account Credit: Accumulated Depreciation Control

b

32) Which of the following is true of plant utility costs? A) It increases the Materials Control account. B) It increases the Manufacturing Overhead Control account. C) It increases the Work-in-Process Control account. D) It is a direct cost.

b

34) For externally reported inventory costs, the Work-in-Process Control account is increased (debited) by ________. A) marketing costs B) allocated plant utility costs C) the purchase costs of direct and indirect materials D) customer-service costs

b

41) When a job is complete ________. A) actual indirect manufacturing labor is excluded from the total cost of the job B) Finished Goods Control is debited C) the cost of the job is transferred to Manufacturing Overhead Control D) it is reduced from Manufacturing Overhead Control account

b

44) Franklin Inc. manufactures pipes and applies manufacturing overhead costs to production at a budgeted indirect-cost rate of $15 per direct labor-hour. The following data are obtained from the accounting records for June 2018: Direct materials $100,000 Direct labor (4,000 hours @ $10/hour) 40,000 Indirect labor 10,000 Plant facility rent 26,000 Depreciation on plant machinery and equipment 24,500 Sales commissions 23,000 Administrative expenses 31,000 The amount of manufacturing overhead allocated to all jobs during June 2018 totals ________. A) $91,500 B) $60,000 C) $76,000 D) $60,500

b

7) Job costing is ________. A) used by businesses to price identical products B) used by businesses to price unique products for different jobs C) used to calculate equivalent units D) used to calculate the percentage of work completed

b

LO #4 14) For a given job the direct costs associated with the job are ________. A) actual overhead that has been applied to the job B) raw materials that can be traced to the job in an economically feasible way C) All sunk costs that can be traced to the job in an economically feasible way D) all fixed costs

b

Questions 26 & 27: Sky High Company has two departments, X and Y. The following estimates are for the coming year: X Y Direct manufacturing labor-hours 20,000 30,000 Machine-hours 30,000 20,000 Manufacturing overhead $300,000 $330,000 26) A single indirect-cost rate based on direct manufacturing labor-hours for the entire plant is ________. A) $25.00 per direct labor-hour B) $12.60 per direct labor-hour C) $27.50 per direct labor-hour D) $16.50 per direct labor-hour

b

1) A cost is considered direct if it can be traced to a particular cost object in a cost effective way which means it can be A) traced easily with the aid of technology B) traced in a manner that is accurate C) traced in an economically feasible way D) possibly traced accurately with an investment in hardware and software

c

10) The actual indirect-cost rate is calculated by ________. A) dividing actual total indirect costs by the actual total quantity of the cost-allocation base B) multiplying actual total indirect costs by the actual total quantity of the cost-allocation base C) dividing the actual total quantity of the cost allocation base by actual total indirect costs D) multiplying the actual total quantity of the cost allocation base by actual total indirect costs

c

12) An example of a denominator reason for calculating annual indirect-cost rates includes ________. A) Budgeted annual indirect costs divided by actual quantity of cost-allocation base B) semi-annual insurance payments in March and September C) higher levels of output demanded during the fall months D) prepaid rent in January for the months January through June

c

17) X-Industries manufactures 3-D printers. For each unit, $3,400 of direct material is used and there is $2,600 of direct manufacturing labor at $16 per hour. Manufacturing overhead is applied at $20 per direct manufacturing labor hour. Calculate the profit earned on 46 units if each unit sells for $9,500. A) $65,320 B) $35,880 C) $11,500 D) $3,250

c

2) A ________ is anything for which a measurement of costs is desired. A) cost-allocation base B) cost pool C) cost object D) cost-application base

c

25) For 2018, Franklin Manufacturing uses machine-hours as the only overhead cost-allocation base. The estimated manufacturing overhead costs are $340,000 and estimated machine hours are 40,000. The actual manufacturing overhead costs are $450,000 and actual machine hours are 50,000. What is the difference between the budgeted and the actual manufacturing overhead using job costing? (Round interim and the final answer to the nearest cent.) A) $2.75 B) $2.20 C) $0.50 D) $2.25

c

38) Which account would be credited if the following labor wages were incurred in a furniture manufacturing company? Assembly workers $20,000 Janitors $11,000 A) Work-in-Process Control, 31,000 B) Manufacturing Overhead Control, 31,000 C) Wages Payable Control, 31,000 D) Accounts Payable Control, 31,000

c

4) In a costing system, ________. A) cost tracing allocates indirect costs B) cost allocation assigns direct costs C) a cost-allocation base can be either financial or nonfinancial D) a cost object should be a product and not a department or a geographic territory

c

42) The advantage of using normal costing instead of actual costing is ________. A) indirect costs are assigned at the end of the year when they are known B) the job cost is more accurate under normal costing C) indirect costs are assigned to a job on a timely basis D) normal costing provides a higher gross profit margin

c

8) Which of the following differentiates job costing from process costing? A) Job costing is used when each unit of output is identical, and process costing deals with unique products. B) Job costing is used when each unit of output is identical and not produced in batches, and process costing deals with unique products produced on large scale. C) Process costing is used when each unit of output is identical, and job costing deals with unique products not produced in batches. D) Job costing is used by manufacturing industries, and process costing is used by service industries.

c

LO #2 6) Process costing is ________. A) used to enhance employees' job satisfaction B) used by businesses to price unique products or identical products produced in batches C) used by businesses to price identical products D) used by businesses when manufacturing goods above normal capacity

c

11) An example of a numerator reason for calculating annual indirect-cost rates includes ________. A) fewer production workdays in a month B) cost of raw materials purchased C) higher snow-removal costs during the winter D) the number of units produced

d

16) Smith Office Equipment Company's budgeted manufacturing overhead is $5,400,000. Overhead is allocated on the basis of direct labor hours. The budgeted direct labor hours for the period are 30,000. What is the manufacturing overhead rate? A) $15.00 B) $54.00 C) $195.00 D) $180.00

d

23) Which of the following statements about normal costing is true? A) Direct costs and indirect costs are traced using an actual rate. B) Direct costs and indirect costs are traced using budgeted rates. C) Direct costs are traced using a budgeted rate, and indirect costs are allocated using an actual rate. D) Direct costs are traced using an actual rate, and indirect costs are allocated using a budgeted rate.

d

24) Which of the following statements about actual costing is true? A) Manufacturing costs of a job are available earlier under actual costing. B) Corrective actions can be implemented sooner under actual costing. C) Actual costing uses budgeted indirect-cost rates calculated annually. D) Actual costing uses actual indirect-cost rates calculated annually.

d

35) Which account is debited if materials costing $100,000 are sold? A) Revenues account B) Work-in-Process Control account C) Materials Control account D) Cost of Goods Sold account

d

36) Which account is credited if direct materials of $28,000 and indirect materials of $7,000 are sent to the manufacturing plant floor? A) Manufacturing Overhead Control for $35,000 B) Work-in-Process Control for $35,000 C) Accounts Payable Control for $21,000 D) Materials Control for $35,000

d

LO #6 29) Which of the following increases (are debited to) the Work-in-Process Control account? A) actual plant insurance costs B) customer services costs C) marketing expenses D) direct manufacturing labor costs

d