ACC 212 EXAM 1

On a manufacturing company's income statement, direct labor is separately listed as an expense. TRUE FALSE

FALSE

Using a predetermined overhead rate based on the estimated level of activity for the current period provides more accurate costs for decision-making than if the predetermined overhead rate was based on the level of activity at capacity.

FALSE

When closing overapplied manufacturing overhead to Cost of Goods Sold, which of the following would be true? Answers: Gross margin will increase. Work in Process will decrease. Net income will decrease. Cost of Goods Sold will increase.

Gross margin will increase.

During the month of May, direct labor cost totaled $10,000 and direct labor cost was 40% of prime (i.e., direct material and direct labor) cost. If total manufacturing costs during May were $86,000, the manufacturing overhead was: Answers: $61,000. $10,000. $15,000. $76,000. $86,000. $69,333. $25,000.

61,000 Direct labor cost (a) $ 10,000 Direct labor as a % of prime cost (b)40% Prime costs [(c) = (a)/(b)] $ 25,000 Total manufacturing costs (d) $ 86,000 Manufacturing overhead [(e) = (d) - (c)] $ 61,000

Julia Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 5,000 units, its average costs per unit are as follows: Average Cost per Unit Direct materials................................................... $5.20 Direct labor......................................................... $3.75 Variable manufacturing overhead......................... $1.65 Fixed manufacturing overhead............................. $2.60 Fixed selling expense........................................... $0.50 Fixed administrative expense............................... $0.40 Sales commissions............................................... $1.50 Variable administrative expense........................... $0.50 If 6,000 units are produced, the total amount of total manufacturing cost incurred is closest to: Answers: $96,600. $85,600. $79,200. $62,700. $63,600. $79,600. $76,600. $88,600.

$76,600. Direct materials $ 5.20 Direct labor $ 3.75 Variable manufacturing overhead $ 1.65 $ 10.60 Number of units produced 6,000 Variable manufacturing cost incurred $ 63,600 Fixed manufacturing overhead [$2.60)(5,000 units)] $ 13,000 Total manufacturing cost incurred $ 76,600

Juniper Company uses a predetermined overhead rate based on direct labor cost to apply manufacturing overhead to jobs. The following information about Juniper Company's Work in Process inventory account has been provided for the month of May: May 1 balance.............................................. $26,000 Debits during May: Direct Materials................................... $40,000 Direct Labor......................................... $50,000 Manufacturing Overhead..................... $37,500 During the month, Juniper Company's Work in Process inventory account was credited for $120,500, which represented the Cost of Goods Manufactured for the month. Only one job remained in process on May 31; this job had been charged with $9,600 of applied overhead cost. The amount of direct materials cost in the unfinished job would be: Answers: $12,800. $22,400. $16,200. $23,400. $33,000. $10,600. $16,500.

10,600 Feedback:Manufacturing overhead applied $ 37,500 Direct labor costs applied $ 50,000 Overhead rate as % of direct labor cost75% WIP, May 1 $ 26,000 +Direct materials $ 40,000 Direct labor $ 50,000 Overhead $ 37,500 $ 127,500 $ 153,500 -Cost of goods manufactured $ 120,500 Hence, WIP, June 1 $ 33,000 WIP, June 1 $ 33,000 -Applied overhead $ 9,600 Direct labor [$9,600/75%] $ 12,800 $ 22,400 Direct materials $ 10,600

Holly Corporation is a manufacturer that uses job-order costing and allocates manufacturing overhead based on direct labor-hours. The company has supplied the following data for the just completed year: Estimated total manufacturing overhead at the beginning of the year........................................ $693,000 Estimated direct labor-hours at the beginning of the year........................................................... 42,000 direct labor-hours Results of operations: Raw materials (all direct) requisitioned for use in production.................................................... $525,000 Direct labor cost.................................................. $690,000 Actual direct labor-hours......................................... 49,000 direct labor-hours Manufacturing Overhead: Indirect labor cost............................................. $138,000 Other manufacturing overhead costs incurred.... $506,000 How much is the total manufacturing cost added to Work in Process during the year? Answers: $2,023,500. $1,908,000. $1,859,000. $1,498,500. $1,215,000. $1,803,000. $1,998,500.

2023500 Estimated manufacturing overhead $ 693,000 Estimated direct labor hours $ 42,000 Overhead rate per direct labor hour $ 16.50 Total manufacturing costs added: Direct materials $ 525,000 Direct labor $ 690,000 Overhead [(49,000)($16.50)] $ 808,500 $ 2,023,500

The following data have been collected for four different cost items. Cost Item Cost at 100 units Cost at 140 units W.............. $8,000.................. $10,560 X............... $5,000...................$5,000 Y................$6,500.................. $9,100 Z................$6,700.................. $8,580 Which of the following classifications of these cost items by cost behavior is correct? Answers: Cost W Cost X Cost Y Cost Z mixed.......... fixed......... variable..... mixed Cost W Cost X Cost Y Cost Z variable.......... fixed......... variable.....variable Cost W Cost X Cost Y Cost Z variable.......... fixed......... mixed...... variable Cost W Cost X Cost Y Cost Z mixed.......... fixed......... mixed...... mixed

Cost W Cost X Cost Y Cost Z mixed.......... fixed......... variable..... mixed

Which of the following statements concerning multiple overhead rate systems is false? A multiple overhead rate system is usually more accurate than a system based on a single plantwide overhead rate. In departments that are relatively labor-intensive, their overhead costs should be applied to jobs based on machine-hours rather than on direct labor-hours. A company may choose to create a separate overhead rate for each of its production departments. A multiple overhead rate system is more complex than a system based on a single plantwide overhead rate

In departments that are relatively labor-intensive, their overhead costs should be applied to jobs based on machine-hours rather than on direct labor-hours.

Which of the following statements is false? Answers: Manufacturing overhead consists of both variable and fixed costs. Manufacturing overhead is incurred only to support some jobs. Manufacturing overhead is applied to Work in Process using a predetermined overhead rate. Manufacturing overhead is an indirect cost that is difficult to trace to a particular job.

Manufacturing overhead is incurred only to support some jobs.

The Hello Corporation would like to investigate the possibility of basing its predetermined overhead rate on activity at capacity rather than on the estimated activity for the coming year. The allocation base is machine-hours and the estimated activity for the upcoming year is 46,300 machine-hours. Capacity is 66,300 machine-hours. All of the estimated manufacturing overhead is fixed and is $3,911,700 per year within the range of 46,300 to 66,300 machine-hours. If the Corporation bases its predetermined overhead rate on capacity but the actual level of activity for the year turns out to be 47,100 machine-hours, the cost of unused capacity shown on the income statement prepared for internal management purposes would be closest to: Answers: $66,441. $1,622,130. $1,199,241. $1,180,000. $1,132,800. $75,589. 2,778,900.

Selected Answer: $1,132,800. Estimated manufacturing overhead (a) $ 3,911,700 Capacity, in machine hours (b) 66,300 Predetermined overhead rate [(c) = (a)/(b)] $ 59.00 Capacity in machine hours (b) 66,300 -Actual activity, in machine hours (d) 47,100 Idle or unused capacity [(e) = (b) - (d)] 19,200 Cost of unused capacity [(f) = (c)*(e)] $ 1,132,800

Wanda Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming year. At the beginning of the most recently completed year, the Corporation estimated the machine-hours for the upcoming year at 67,000 machine-hours. The estimated variable manufacturing overhead was $5.62 per machine-hour and the estimated total fixed manufacturing overhead was $1,746,690. The predetermined overhead rate for the recently completed year was closest to: Answers: $30.69 per machine-hour. $5.62 per machine-hour. $31.69 per machine-hour. $26.07 per machine-hour.

Selected Answer: $31.69 per machine-hour.

Hefty Electronics manufactured mice for computers in two production departments, Dept. 1 (whose cost driver is machine hours) and Dept. 2 (whose cost driver is direct labor hours). A fire on February 4, 2017 destroyed much of company's 2016 accounting records. A scrutiny of the salvaged records revealed the following information for the two departments for: Dept.1 Dept. 2 Actual manufacturing machine hours for 2016............ 2,700 Budgeted manufacturing machine hours for 2016....... 2,500 Actual direct labor hours for 2016............................................................ 4,500 Budgeted direct labor hours for 2016....................................................... 5,000 Actual manufacturing overhead for 2016................ $27,000................. $24,000 Budgeted manufacturing overhead for 2016........... $23,000................. $25,000 You find out that Job 100, completed during 2016, incurred 500 machine hours in Department 1 and 150 direct labor hours in Department 2. Using predetermined departmental overhead rates, the overhead cost of Job 100 is Answers: $5,350. $9,600. $5,800. $4,620. $3,800. $6,540. $1,440.

Selected Answer: $5,350.

Which of the following statements about using a plantwide overhead rate based on direct labor is correct? Answers: It is often overly simplistic and incorrect to assume that direct labor-hours is a company's only manufacturing overhead cost driver. Using a plantwide overhead rate based on direct labor costs will ensure that direct labor costs are correctly traced to jobs. Using a plantwide overhead rate based on direct labor-hours will ensure that direct labor costs are correctly traced to jobs. The labor theory of value ensures that using a plantwide overhead rate based on direct labor will do a reasonably good job of assigning all overhead costs to jobs.

Selected Answer: It is often overly simplistic and incorrect to assume that direct labor-hours is a company's only manufacturing overhead cost driver.

In a job-order costing system, indirect labor cost is usually recorded as a debit to: Answers: Manufacturing Overhead. Work in Process. Finished Goods. Cost of Goods Sold.

Selected Answer: Manufacturing Overhead.

In a job-order costing system based on machine-hours, which of the following formulae is correct? Answers: Predetermined overhead rate = Estimated manufacturing overhead ÷ Actual machine-hours. Predetermined overhead rate = Actual manufacturing overhead ÷ Estimated machine-hours. Predetermined overhead rate = Estimated manufacturing overhead ÷ Estimated machine-hours. Predetermined overhead rate = Actual manufacturing overhead ÷ Actual machine-hours.

Selected Answer: Predetermined overhead rate = Estimated manufacturing overhead ÷ Estimated machine-hours.

Which of the following statements concerning direct and indirect costs is false? Answers: Whether a particular cost is classified as direct or indirect does not depend on the cost object. A direct cost is one that can be easily traced to the particular cost object. A particular cost may be direct or indirect, depending on the cost object. The factory manager's salary would be classified as an indirect cost of producing one unit of product.

Selected Answer: Whether a particular cost is classified as direct or indirect does not depend on the cost object.

Materials used in a factory that are not an integral part of the final product, such as cleaning supplies, should be classified as: Answers: direct materials. administrative expense. manufacturing overhead. a period cost.

Selected Answer: manufacturing overhead.

If manufacturing overhead is underapplied, then: Answers: the amount of manufacturing overhead cost applied to Work in Process is less than the actual manufacturing overhead cost incurred. the predetermined overhead rate is too high. actual manufacturing overhead cost is less than estimated manufacturing overhead cost. the Manufacturing Overhead account will have a credit balance at the end of the year.

Selected Answer: the amount of manufacturing overhead cost applied to Work in Process is less than the actual manufacturing overhead cost incurred.

A company will improve job cost accuracy by using multiple overhead rates even if it cannot identify more than one overhead cost driver.

false

Generally speaking, when going through the process of computing a predetermined overhead rate, the estimated total manufacturing overhead cost is determined before estimating the amount of the allocation base.

false

If a company closes any underapplied or overapplied manufacturing overhead to the Cost of Goods Sold account, then Cost of Goods Sold will be debited if manufacturing overhead is overapplied for the period.

false

If the overhead rate is computed annually based on the actual costs and activity for the year, the manufacturing overhead assigned to any particular job can be computed as soon as the job is completed.

false

In a contribution format income statement for a manufacturing company, the cost of goods sold is deducted from sales to arrive at the contribution margin.

false

In the Schedule of Cost of Goods Sold, Cost of goods available for sale = Ending finished goods inventory + Cost of goods manufactured.

false

Job cost sheets contain entries for actual direct material, actual direct labor, and actual manufacturing overhead cost incurred in completing a job.

false

The entire difference between the actual manufacturing overhead cost for a period and the applied manufacturing overhead cost is typically closed to the Work In Process account.

false

The potential benefit that is given up when one alternative is selected over another is called a sunk cost.

false

Within the relevant range, a change in activity results in a change in variable cost per unit and total fixed cost.

false

A credit balance in the Manufacturing Overhead account at the end of the year means that manufacturing overhead was overapplied.

true

A factory supervisor's salary would be classified as an indirect cost with respect to a unit of product.

true

Advertising is not considered a product cost even if it promotes a specific product.

true

If the predetermined overhead rate is based on the estimated level of activity for the current period, the overhead charged to each product includes the cost of unused capacity.

true

If the predetermined overhead rate is based on the level of activity at capacity, the overhead charged to each product is normally lower than if the predetermined overhead rate had been based on the estimated level of activity for the current period.

true

In the Schedule of Cost of Goods Manufactured, Cost of goods manufactured = Total manufacturing costs + Beginning work in process inventory − Ending work in process inventory.

true

The sum of all manufacturing costs except for direct materials and direct labor is called manufacturing overhead.

true

When the fixed costs of capacity are spread over the estimated activity of the period rather than the level of activity at capacity, the units that are produced must shoulder the costs of unused capacity.

true