Chapter 3 – Cost Systems (Job Order Costing)

True / False Questions

1. In order to improve the accuracy of unit costs, most companies recompute the predetermined
overhead rate each month.

2. Use of a single, plantwide overhead rate is generally appropriate only for very large
manufacturing companies.

3. Predetermined overhead rates are based on actual cost and activity data.

4. When completed goods are sold, the transaction is recorded as a debit to Cost of Goods Sold
and a credit to Work in Process.

5. When the predetermined overhead rate is based on direct labor-hours, the amount of overhead
applied to a job is proportional to the amount of actual direct labor-hours incurred on the job.
6. Actual manufacturing overhead costs are traced to specific jobs.

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

8. The sum of all amounts transferred from the Work in Process account and into the Finished
Goods account represents the Cost of Goods Manufactured for the period.

Multiple Choice Questions

9. For which situation(s) below would an organization be more likely to use a job-order costing
system of accumulating product costs rather than a process costing system?
A. a steel factory that processes iron ore into steel bars
B. a factory that processes sugar and other ingredients into black licorice
C. a costume maker that makes specialty costumes for figure skaters
D. all of these

10 Which of the following documents is used to specify the type and quantity of materials drawn
from the storeroom, and identifies the job to which the costs of the materials are to be charged?
A. Job Cost Sheet
B. Bill of Materials
C. Material Requisition Form
D. Purchase Order

11. In a job-order costing system, the journal entry to record the application of overhead cost to
jobs would include:
A. a credit to the Manufacturing Overhead account.
B. a credit to the Work in Process inventory account.
C. a debit to Cost of Goods Sold.
D. a debit to the Manufacturing Overhead account.
12. When applying manufacturing overhead to jobs, the formula to calculate the amount is as
follows:
A. Predetermined overhead rate divided by the actual manufacturing overhead incurred on the
particular job.
B. Predetermined overhead rate times the actual manufacturing overhead incurred on the
particular job.
C. Predetermined overhead rate divided by the actual units of allocation base charged to the
particular job.
D. Predetermined overhead rate times the actual units of allocation base charged to the particular
job.

13. In a job-order costing system, the amount of overhead cost that has been applied to a job that
remains incomplete at the end of a period:
A. is deducted on the Income Statement as overapplied overhead.
B. is closed to Cost of Goods Sold.
C. is transferred to Finished Goods at the end of the period.
D. is part of the ending balance of the Work in Process inventory account.

14. If a company applies overhead to jobs on the basis of a predetermined overhead rate, a credit
balance in the Manufacturing Overhead account at the end of any period means that:
A. more overhead cost has been charged to jobs than has been incurred during the period.
B. more overhead cost has been incurred during the period than has been charged to jobs.
C. the amount of overhead cost charged to jobs is greater than the estimated cost for the period.
D. the amount of overhead cost charged to jobs is less than the estimated overhead cost for the
period.

15. Which of the following situations always results in underapplied overhead?

A. actual overhead is greater than applied overhead
B. actual overhead is less than applied overhead
C. estimated overhead is greater than actual overhead
D. estimated overhead is less than actual overhead
16. When closing overapplied manufacturing overhead to cost of goods sold, which of the
following would be true?
A. Work in process will decrease.
B. Cost of goods sold will increase.
C. Net income will decrease.
D. Gross margin will increase.
17. The Work in Process inventory account of a manufacturing company shows a balance of
$2,400 at the end of an accounting period. The job cost sheets of the two uncompleted jobs show
charges of $400 and $200 for direct materials, and charges of $300 and $500 for direct labor.
From this information, it appears that the company is using a predetermined overhead rate, as a
percentage of direct labor costs, of:
A. 80%
B. 125%
C. 300%
D. 240%

18. Refer to following information:

The company applies manufacturing overhead on the basis of machine-hours. The predetermined
overhead rate is $14 per machine-hour. The total cost that would be recorded on the job cost
sheet for Job 607 would be:
A. $4,107
B. $6,319
C. $3,432
D. $4,863

19. The following data have been recorded for recently completed Job 501 on its job cost sheet.
Direct materials cost was $3,067. A total of 30 direct labor-hours and 104 machine-hours were
worked on the job. The direct labor wage rate is $12 per labor-hour. The company applies
manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $11
per machine-hour. The total cost for the job on its job cost sheet would be:
A. $4,571
B. $3,757
C. $3,090
D. $3,427

20. Freeman Company uses a predetermined overhead rate based on direct labor-hours to apply
manufacturing overhead to jobs. At the beginning of the year, the company estimated
manufacturing overhead would be $150,000 and direct labor-hours would be 10,000. The actual
figures for the year were $186,000 for manufacturing overhead and 12,000 direct labor-hours.
The cost records for the year will show:
A. overapplied overhead of $30,000
B. underapplied overhead of $30,000
C. underapplied overhead of $6,000
D. overapplied overhead of $6,000
21. Harrell Company uses a predetermined overhead rate based on direct labor-hours to apply
manufacturing overhead to jobs. At the beginning of the year the company estimated its total
manufacturing overhead cost at $400,000 and its direct labor-hours at 100,000 hours. The actual
overhead cost incurred during the year was $350,000 and the actual direct labor-hours incurred
on jobs during the year was 90,000 hours. The manufacturing overhead for the year would be:
A. $10,000 underapplied
B. $10,000 overapplied
C. $50,000 underapplied
D. $50,000 overapplied

22. For the current year, Paxman Company incurred $150,000 in actual manufacturing overhead
cost. The Manufacturing Overhead account showed that overhead was overapplied in the amount
of $6,000 for the year. If the predetermined overhead rate was $8.00 per direct labor-hour, how
many hours were worked during the year?
A. 19,500 hours
B. 18,000 hours
C. 18,750 hours
D. 17,750 hours

23. At the beginning of the year, manufacturing overhead for the year was estimated to be
$702,450. At the end of the year, actual direct labor-hours for the year were 33,100 hours, the
actual manufacturing overhead for the year was $697,450, and manufacturing overhead for the
year was overapplied by $40,680. If the predetermined overhead rate is based on direct labor-
hours, then the estimated direct labor-hours at the beginning of the year used in the
predetermined overhead rate must have been:
A. 31,500 direct labor-hours
B. 29,452 direct labor-hours
C. 31,276 direct labor-hours
D. 33,100 direct labor-hours

24. . Brabo Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the estimated direct labor-hours were 15,700 hours. At the end of the year,
actual direct labor-hours for the year were 16,700 hours, the actual manufacturing overhead for
the year was $352,960, and manufacturing overhead for the year was overapplied by $27,800.
The estimated manufacturing overhead at the beginning of the year used in the predetermined
overhead rate must have been:
A. $327,124
B. $357,960
C. $380,760
D. $347,960
25. Crimp Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the estimated direct labor-hours were 15,000 hours and the total estimated
manufacturing overhead was $258,000. At the end of the year, actual direct labor-hours for the
year were 13,100 hours and the actual manufacturing overhead for the year was $253,000.
Overhead at the end of the year was:
A. $27,680 overapplied
B. $32,680 overapplied
C. $27,680 underapplied
D. $32,680 underapplied

26. Dagnon Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the total estimated manufacturing overhead was $299,130. At the end of
the year, actual direct labor-hours for the year were 17,400 hours, manufacturing overhead for
the year was overapplied by $13,850, and the actual manufacturing overhead was $294,130. The
predetermined overhead rate for the year must have been closest to:
A. $17.70
B. $17.19
C. $18.22
D. $16.90

27. The Watts Company uses predetermined overhead rates to apply manufacturing overhead to
jobs. The predetermined overhead rate is based on labor cost in Dept. A and on machine-hours in
Dept. B. At the beginning of the year, the company made the following estimates:

What predetermined overhead rates would be used in Dept A and Dept B, respectively?
A. 50% and $8.00
B. 50% and $5.00
C. $15 and 110%
D. 200% and $5.00
28. Simplex Company has the following estimated costs for next year:

Simplex estimates that 10,000 direct labor and 16,000 machine-hours will be worked during the
year. If overhead is applied on the basis of machine-hours, the overhead rate per hour will be:
A. $8.56
B. $7.63
C. $6.94
D. $3.50

29. On December 1, Catherman Corporation had $21,000 of raw materials on hand. During the
month, the company purchased an additional $61,000 of raw materials. During December,
$70,000 of raw materials were requisitioned from the storeroom for use in production. The debits
to the Raw Materials account for the month of December total:
A. $82,000
B. $70,000
C. $61,000
D. $21,000

30. At the beginning of October, Cozier Corporation had $34,000 of raw materials on hand.
During the month, the company purchased an additional $78,000 of raw materials. During
October, $92,000 of raw materials were requisitioned from the storeroom for use in production.
The credits to the Raw Materials account for the month of October total:
A. $92,000
B. $34,000
C. $78,000
D. $112,000

31. Mcmackin Corporation had $35,000 of raw materials on hand on August 1. During the
month, the company purchased an additional $66,000 of raw materials. During August, $81,000
of raw materials were requisitioned from the storeroom for use in production. These raw
materials included both direct and indirect materials. The indirect materials totaled $7,000. The
debits to the Work in Process account as a consequence of the raw materials transactions in
August total:
A. $66,000
B. $0
C. $74,000
D. $81,000
32. Beaver Company used a predetermined overhead rate last year of $2 per direct labor-hour,
based on an estimate of 25,000 direct labor-hours to be worked during the year. Actual costs and
activity during the year were:

The underapplied or overapplied overhead last year was:

A. $1,000 underapplied
B. $1,000 overapplied
C. $3,000 overapplied
D. $2,000 underapplied

33. Sweet Company applies overhead to jobs on the basis of 125% of direct labor cost. If Job 107
shows $10,000 of manufacturing overhead applied, how much was the direct labor cost on the
job?
A. $8,000
B. $12,500
C. $11,250
D. $10,000

34. Pitzer Corporation, a manufacturing company, has provided data concerning its operations
for March. The beginning balance in the raw materials account was $29,000 and the ending
balance was $38,000. Raw materials purchases during the month totaled $74,000. Manufacturing
overhead cost incurred during the month was $106,000, of which $7,000 consisted of raw
materials classified as indirect materials. The direct materials cost for March was:
A. $83,000
B. $58,000
C. $74,000
D. $65,000
35. Wandrie Inc. has provided the following data for the month of October. There were no
beginning inventories; consequently, the direct materials, direct labor, and manufacturing
overhead applied listed below are all for the current month.

Manufacturing overhead for the month was overapplied by $3,000.

The company allocates any underapplied or overapplied overhead among work in process,
finished goods, and cost of goods sold at the end of the month on the basis of the overhead
applied during the month in those accounts.

The cost of goods sold for October after allocation of any underapplied or overapplied overhead
for the month is closest to:
A. $215,600
B. $210,980
C. $210,290
D. $216,290

36. Tator Corporation reported the following data for the month of April:

The cost of goods sold for April was:

A. $178,000
B. $146,000
C. $126,000
D. $234,000
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