Tutorial Questions- Acc 104

Chapter II : Job order costing and analysis

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I- True( T) / False ( F) Questions
1- There are two basic types of cost accounting systems: job order costing and process
costing. T
2- Job order production systems would be appropriate for companies that produce custom
homes, specialized equipment, and special computer systems. T
3- A job order costing system would be appropriate for a manufacturer of automobile
tires.F
4- A company's file of job cost sheets for jobs that are not yet completed equals the balance
in the Finished Goods Inventory account. F
5- A job cost sheet is useful for developing financial accounting numbers but does not
contain information that is useful for managing the production process. F
6- Both direct and indirect labor costs are recorded on the individual job cost sheets. F
7- Only product costs are recorded on job cost sheets. T
8- Job order costing is applicable to manufacturing firms only and not service firms. F
9- When materials are used as indirect materials, their cost is debited to the Factory
Overhead account. T
10- The journal entry to record the usage of Direct Materials includes a debit to Work in
Process Inventory. T
11- Materials requisitions and time tickets are cost accounting source documents. T
12- A time ticket is a source document that an employee uses to report how much direct
labor was performed for a job and is used to determine the amount of direct labor to
charge to the job. T
13- The predetermined overhead rate is used to allocate overhead cost to jobs. T

14- Predetermined overhead rates are calculated before the start of the accounting period,
and are therefore based on estimates. T
15- When actual overhead cost exceeds the overhead applied, overhead is said to be
underapplied. T
16- Overapplied overhead is the amount by which overhead applied to jobs using the
predetermined overhead rate exceeds the actual overhead incurred during a period. T

II- Multiple Choice Questions

1- Job order costing systems normally use:
A. Periodic inventory systems.
B. Perpetual inventory systems.
C. Real inventory systems.
D. General inventory systems.
E. Weighted average inventory systems.
2- The two basic types of cost accounting systems are:
A. Job order costing and perpetual costing.
B. Job order costing and customized product costing.
C. Job order costing and customized service costing.
D. Job order costing and process costing.
E. Job order costing and periodic costing.
3- A job order costing system would best fit the needs of a company that makes:
A. Shoes and apparel.
B. Paint.
C. Cement.
D. Custom machinery.
E. Pencils and erasers.
4- Job order production is also known as:
A. Mass production.
B. Process production.
C. Unit production.
D. Customized production.
E. Standard costing.
5- A job cost sheet includes:
A. Direct materials, direct labor, operating costs.
B. Direct materials, estimated overhead, administrative costs.
C. Direct labor, actual overhead, selling costs.
D. Direct material, direct labor, applied overhead.
E. Direct materials, direct labor, selling costs.
6- The Work in Process Inventory account of a manufacturing company that uses an
overhead rate based on direct labor cost has a $3,200 debit balance after all posting is
completed. The cost sheet of the one job still in process shows direct material cost of
$1,400 and direct labor cost of $800. Therefore, the amount of the applied overhead is:
A. $1,800.
B. $2,200
C. $1,000
D. $800
E. $2,400
Feedback: WIP = DM + DL + OH, $3,200 = $1,400 + $800 + OH
OH = $3,200 – 1,400 – 800 = $1,000
7- Labor costs in production can be:
A. Direct or indirect.
B. Indirect or sunk.
C. Direct or payroll.
D. Indirect or payroll.
E. Direct or sunk.
8- A company has an overhead application rate of 125% of direct labor costs. How much
overhead would be allocated to a job if it required total labor costing $20,000?
A. $ 5,000.
B. $ 16,000.
C. $ 25,000.
D. $125,000.
E. $250,000.
Feedback: $20,000 * 1.25 = $25,000
9- The rate established prior to the beginning of a period that uses estimated overhead and
an allocation factor such as estimated direct labor, and that is used to assign overhead
cost to jobs, is the:
A. Predetermined overhead rate.
B. Overhead variance rate.
C. Estimated labor cost rate.
D. Chargeable overhead rate.
 E. Miscellaneous overhead rate.
10- Kayak Company uses a job order costing system and allocates its overhead on the basis
of direct labor costs. Kayak Company's production costs for the year were: direct labor,
$30,000; direct materials, $50,000; and factory overhead applied $6,000. The overhead
application rate was:
A. 5.0%.
B. 12.0%.
C. 20.0%.
D. 500.0%.
E. 16.7%.

III- Exercises
BE3–3 Harris Fabrics computes its predetermined overhead rate annually on the basis of direct
labour-hours. At the beginning of the year, it estimated that its total manufacturing overhead
would be $540,000 and the total direct labour would be 30,000 hours. Its actual total
manufacturing overhead for the year was $547,900, and its actual totaldirect labour was 31,000
hours.Compute the company’s predetermined overhead rate for the year.

BE 3-4 Larned Corporation recorded the following transactions for the past month:
a- $180,000 in raw materials were purchased on account.
b- $171,000 in raw materials were requisitioned for use in production. Of this amount,
$152,000 was for direct materials, and the remainder was for indirect materials.
c- Total labour costs of $221,000 were incurred. Of this amount, $201,000 was for
direct labour, and the remainder was for indirect labour.
d- Manufacturing overhead costs of $375,000 were incurred.
Record the preceding transactions in journal entries.
BE 3-7 Osborn Manufacturing uses a predetermined overhead rate of $28.20 per direct labour-
hour. This predetermined rate was based on 12,000 estimated direct labour-hours and $338,400
of estimated total manufacturing overhead. The company incurred actual total manufacturing
overhead costs of $315,000 and 11,500 total direct labour-hours during the period.
Required:

1- Determine the amount of underapplied or overapplied manufacturing overhead for the

period.
2- Assuming that the entire amount of the underapplied or overapplied overhead is closed
out to cost of goods sold, what would be the effect of the underapplied or overapplied
overhead on the company’s gross margin for the period?
E3-4 The Polaris Company uses a job-order costing system. The following data relate to
October, the first month of the company’s fiscal year:
a- Raw materials were purchased on account, $300,000.
b- Raw materials were issued to production, $290,000 ($228,000 direct materials and
$62,000 indirect materials).
c- Direct labour cost was incurred, $110,000; indirect labour cost was incurred, $90,000.
d- Depreciation was recorded on factory equipment, $70,000.
e- Other manufacturing overhead costs were incurred during October, $140,000 (credit
accounts payable).
f- The company applies manufacturing overhead cost to production on the basis of $12.60
per machine-hour. There were 30,000 machine-hours recorded for October.
 g- Production orders costing $720,000 according to their job cost sheets were completed
during October and transferred to finished goods.
h- Production orders that had cost $680,000 to complete according to their job cost sheets
were shipped to customers during the month. These goods were sold at 25% above cost.
The goods were sold on account.
Required:

1- Prepare journal entries to record the preceding information.

2- Prepare T-accounts for manufacturing overhead and work in process. Post the relevant
information above to each account. Compute the ending balance in each account,
assuming that work in process has a beginning balance of $42,000.
E3-8 Answer each question independently.
Required:

1- Mirage Mirror’s predetermined overhead rate for manufacturing overhead is $18 per
direct labour-hour. The direct labour rate is $24 per hour. If the budgeted direct labour
cost was $300,000, what was the budgeted manufacturing overhead?
2- Zion wants to compute the total cost for preparing a corporate tax return for his client.
His labour is the only direct cost at $65 per hour. He estimates monthly overhead costs
at $7,500 for 150 direct labour-hours. If the tax return requires 13 hours to prepare,
what will be the total direct cost, indirect cost, and job cost, respectively?
3- Kyle Corporation had the following account balances at the end of this year:

Assuming that over- or underapplied overhead is written off to cost of goods sold, prepare the
appropriate journal entry, and compute the adjusted balance in the cost of goods sold account.
E3-9 Cool Company applies manufacturing overhead on the basis of machine-hours. On
December 31, the company’s manufacturing overhead control T-account included the
following amounts for the whole year.

At the beginning of the year, management estimated overhead to be $4 million and the
allocation base to be 250,000 machine-hours.
Required:

1- Compute the predetermined overhead rate for the year. How many machine-hours
were actually consumed during the year?
2- What is the amount of actual overhead cost incurred for the year?
 3- At the end of the year, did the company overapply or underapply overhead, and by
how much?

E3-10 Dillon Products manufactures various machined parts to customer specifications. The
company uses a job-order costing system and applies overhead cost to jobs on the basis of
machine-hours. At the beginning of the year, it was estimated that the company would work
200,000 machine-hours and incur $4,800,000 in manufacturing overhead costs.
The company spent the entire month of January working on a large order for 12,000 custom-
made machined parts.
The company had no work in process at the beginning of January. Cost data relating to January
follow:
a- Raw materials purchased on account, $452,000.
b- Raw materials requisitioned for production, $390,000 (80% direct materials and
20% indirect materials).
c- Labour cost incurred in the factory, $180,000 (one-third direct labour and two-thirds
indirect labour).
d- Depreciation recorded on factory equipment, $175,000.
e- Other manufacturing overhead costs incurred, $92,000 (credit accounts payable).
f- Manufacturing overhead cost applied to production on the basis of 15,000 machine-
hours actually worked during the month.
g- Completed job moved into finished goods warehouse on January 31 to await
delivery to customer. (In computing the dollar amount for this entry, remember that
the cost of a completed job consists of direct materials, direct labour, and applied
overhead.)
Required:

1. Prepare journal entries to record items (a) through (f) above (ignore item (g) for the
moment).
2. Prepare T-accounts for manufacturing overhead and work in process. Post the
relevant items from your journal entries to these T-accounts.
3. Prepare a journal entry for item (g).
4. Compute the unit cost that will appear on the job cost sheet.

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