Managerial ACC ch 2

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 ___

$2.00 (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.)

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

$840 (600 x .4 = 240; 240 + 600 = 840)

Murphy Manufacturing estimated total manufacturing overhead for 2017 to be $100,000 and uses direct labor-hours as the allocation base. They estimated that 5,000 hours would be used. Actual overhead for 2017 was $120,000 and actual direct labor-hours were 7,500. How much overhead was applied to a job completed during 2017 that used 200 direct labor-hours?

4,000 (The predetermined overhead rate = $100,000 ÷ 5,000 direct labor-hours = $20 per direct labor-hour. The overhead applied to the job = $20 per direct labor-hours ×200 direct labor-hours = $4,000.)

Which of the following would not be a good allocation base for manufacturing overhead? Accounting hours Direct labor hours Units of product Machine hours

Accounting hours

Why do companies use a predetermined overhead rate rather than an actual overhead rate?

An actual overhead rate is not known until the end of the period

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

Each production department may have its own predetermined overhead rate

Which of the following would NOT be considered a direct labor cost in a service firm that uses job-order costing? The salary of a surgeon at a hospital The salary of the manager at a hair salon The salary of an attorney at a law firm The wages of technicians at an auto repair shop

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? A client at a law firm A patient in a hospital A repair job at an auto repair shop The tax department in an accounting firm

The tax department in an accounting firm (This is a department; a job would be an individual client)

Which of the following statements are true? In practice, most companies base their predetermined overhead rates on the allocation base at capacity. Too much fixed overhead may be applied to products when the predetermined overhead rate is based on estimated activity. When predetermined overhead rates are based on capacity, there will typically be large amounts of overapplied overhead. Total estimated overhead at capacity is generally larger than total estimated overhead at the expected level of activity.

Too much fixed overhead may be applied to products when the predetermined overhead rate is based on estimated activity. Total estimated overhead at capacity is generally larger than total estimated overhead at the expected level of activity.

T/F - One reason to use a predetermined overhead rate is to eliminate the effect of seasonal factors

True

T/F - The absorption approach to overhead charges products for resources they don't use

True

An allocation base should be ___

a cost driver

Using a departmental approach to overhead application results in ___ as using a plantwide rate.

a different selling price

Cost-plus pricing occurs when ___

a markup percentage is added to the cost of a job

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

a more accurate accounting of costs, enhanced information for decision making

All manufacturing costs are assigned to units of product and all nonmanufacturing costs are treated as period cost under ___ costing

absorption

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

activity-based

The total cost of a job is calculated by adding the total of direct labor cost, direct materials cost and ___

applied manufacturing overhead cost

An essential quality of an overhead allocation base is that it must ___

be common to all the company's products and services

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

bill of materials

Costs assigned to units of product in absorption costing include ___ manufacturing costs.

both variable and fixed

Typical cost drivers include ___

computer time, flight-hours, machine-hours

A factor that causes overhead costs is called a ___

cost driver

The adjustment for overapplied overhead ___

decreases cost of goods sold and increases net income

Labor costs that are easily traced to a job are called ____ labor costs

direct

Widely used allocation bases in manufacturing include ___

direct labor hours, machine hours, direct labor cost, units of product

Categories of manufacturing costs include ___

direct materials, direct labor, manufacturing overhead

To calculate the unit product cost using the job cost sheet ___

divide the total job cost by the number of units produced

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

in each department as jobs proceed through the department

The adjustment for underapplied overhead ___

increases cost of goods sold and decreases net income

Manufacturing overhead ____

is an indirect cost, consists of many different types of costs, contains fixed costs

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

job cost sheet

Companies that make many different products each period use ____ - ____ costing

job-order

A job cost sheet contains ___

labor costs charged to the job, manufacturing overhead costs charged to the job, materials costs charged to the job

Labor charges that cannot be easily traced to a job are considered ___

manufacturing overhead, indirect labor

Companies that use job-order costing make ___

many different products

An allocation base is a(n) ___

measure of activity used to assign overhead costs to products and services A measure such as direct labor-hours or machine hours used to assign overhead costs to products and services is called a cost driver

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

more

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

overhead applied to the job

The formula for applying overhead to a specific job is ___

predetermined overhead rate × amount of allocation base incurred by job

A multiple predetermined overhead rate system is more accurate than a plantwide overhead rate system because it:

reflects differences in how overhead costs are incurred within departments

Which of the following is NOT a manufacturing cost category? Selling & administrative costs Direct materials Manufacturing overhead Direct labor

selling & administrative costs

When all of a company's job cost sheets are viewed collectively, they form what is known as a(n)

subsidiary ledger

A bill of materials contains the ___

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

When predetermined overhead rates are based on budgeted activity ___

unit product costs fluctuate depending upon budgeted activity, products are charged for resources they don't use

Allocation bases that do not drive overhead costs ___

will not accurately measure the cost of overhead used