1. Including manufacturing overhead costs in product costs ensures that each product will earn a profit.
2. Nonmanufacturing costs are expensed as incurred, rather than charged to jobs.
3. If direct labor-hours is used as the allocation base in a job-order costing system, but overhead costs are not caused by direct-labor-hours, then jobs with high direct labor requirements will tend to be overcosted relative to jobs with low direct labor requirements.
4. The cost of goods manufactured equals ending work in process inventory, plus the total manufacturing cost charged to jobs, less beginning work in process inventory.
5. Two of the reasons why overhead may be underapplied are: (1) the estimated overhead cost may be too low, and (2) the estimated amount of the allocation base may be too high.
6. Which of the following statements is correct concerning job-order costing?
Job-order costing would be appropriate for a textbook publisher.
All the costs appearing on a job cost sheet are actual costs.
Indirect materials are charged to a specific job.
Job-order costing is mainly used in firms with homogeneous products such as oil refineries.
7. In a job-order costing system, the incurrence of indirect labor costs would be recorded as a charge to:
Manufacturing Overhead Incurred.
Work in Process.
Cost of Goods Sold.
8. If a predetermined overhead rate in a job-order costing system is based on machine-hours, which of the following would be used in the numerator and denominator?
Estimated manufacturing overheadActual machine-hours
Actual manufacturing overheadEstimated machine-hours
Estimated manufacturing overheadActual machine-hours
Estimated manufacturing overheadEstimated machine-hours
9. Able Company uses a job-order costing system. In reviewing its records at the end of the year, the company has discovered that $2,000 of raw materials has been drawn from the storeroom and used in the production of Job 110, but that no entry has been made in the accounting records for the use of these materials. Job 110 has been completed but it is unsold at year end. This error will cause:
Work in Process to be understated by $2,000 at year end.
Cost of Goods Manufactured to be overstated by $2,000 for the year.
Finished Goods to be understated by $2,000 at the end of the year.
Cost of Goods Sold to be overstated by $2,000 for the year.
10. Elliott Company uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The company manufactures tools to customer specifications. The following data pertain to Job 1501:
Direct materials used ———————— $4,200
Direct labor-hours worked ———————- 300
Direct labor rate per hour ——————— $8.00
Machine-hours used —————————- 200
Predetermined overhead rate per machine-hour —- $15.00
What is the total manufacturing cost recorded on Job 1501?
11. Job 910 was recently completed. The following data have been recorded on its job cost sheet:
Direct materials —————————– $3,193
Direct labor-hours ————————— 21 labor-hours
Direct labor wage rate ———————— $12 per labor-hour
Machine-hours ———————————- 166 machine-hours
The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead rate is $15 per machine-hour. The total cost that would be recorded on the job cost sheet for Job 910 would be:
12. Linh Corporation applies manufacturing overhead to jobs on the basis of pounds of direct material used. Linh estimated 160,000 pounds of material usage and $200,000 of manufacturing overhead cost for the year. During the year, Linh actually used 150,000 pounds of material and incurred $171,000 of manufacturing overhead cost. What was Linh’s underapplied or overapplied overhead for the year?
13. Chipata Corporation applies manufacturing overhead to jobs on the basis of machine-hours. Chipata estimated 25,000 machine-hours and $10,000 of manufacturing overhead cost for the year. During the year, Chipata incurred 26,200 machine-hours and $11,300 of manufacturing overhead. What was Chipata’s underapplied or overapplied overhead for the year?
14. Reamer Company uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for next year:
Direct materials ———————– $1,000
Direct labor —————————- $3,000
Sales commissions ——————– $4,000
Salary of production supervisor —– $2,000
Indirect materials ———————– $400
Advertising expense ——————- $800
Rent on factory equipment ———– $1,000
Reamer estimates that 500 direct labor-hours and 1,000 machine-hours will be worked during the year. The predetermined overhead rate per hour will be:
15. Daffe Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the total estimated manufacturing overhead was $165,600. At the end of the year, actual direct labor-hours for the year were 11,900 hours, manufacturing overhead for the year was overapplied by $10,760, and the actual manufacturing overhead was $160,600. The predetermined overhead rate for the year must have been closest to:
16. The following information relates to Araceli Manufacturing Company:
Total estimated manufacturing overhead cost at beginning of year ———– $864,000
Predetermined overhead rate (based on machine-hours) —————– $7.20
Total manufacturing overhead cost incurred during the year ———— $885,000
Total machine-hours incurred during the year ——————————- 118,000 hours
What was Araceli’s underapplied or overapplied overhead for last year?
17. Rediger Inc. a manufacturing company, has provided the following data for the month of June. The balance in the Work in Process inventory account was $22,000 at the beginning of the month and $17,000 at the end of the month. During the month, the company incurred direct materials cost of $55,000 and direct labor cost of $28,000. The actual manufacturing overhead cost incurred was $53,000. The manufacturing overhead cost applied to jobs was $51,000. The cost of goods manufactured for June was:
18. Baka Corporation applies manufacturing overhead on the basis of direct labor-hours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $239,700 and 4,700 estimated direct labor-hours. Actual manufacturing overhead for the year amounted to $242,000 and actual direct labor-hours were 4,600.
The overhead for the year was:
19. Hamilton Company uses job-order costing. Manufacturing overhead is applied using a predetermined rate of 150% of direct labor cost. Any underapplied or overapplied manufacturing overhead is closed to Cost of Goods Sold at the end of each month. Additional information is available as follows:
Job 101 was the only job in process at January 31. The job cost sheet for this job contained the following costs at the beginning of the month:
Direct materials —————————- $4,000
Direct labor ———————————- $2,000
Applied manufacturing overhead —— $3,000
Jobs 102, 103, and 104 were started during February.
Direct materials requisitions for February totaled $26,000.
Direct labor cost of $20,000 was incurred for February.
Actual manufacturing overhead was $32,000 for February.
The only job still in process at February 28 was Job 104, with costs of $2,800 for direct materials and $1,800 for direct labor.
The cost of goods manufactured for February was:
20. Caple Corporation applies manufacturing overhead on the basis of machine-hours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $16,660. Actual manufacturing overhead for the year amounted to $25,000 and actual machine-hours were 1,460. The company’s predetermined overhead rate for the year was $11.90 per machine-hour.
The predetermined overhead rate was based on how many estimated machine-hours?