1.

What type of costing system is typically used by companies that produce highly customized products,
like custom furniture or construction projects?

A. Process costing

B. Job-order costing

C. Direct costing

D. Activity-based costing

Answer: B. Job-order costing

Explanation: Job-order costing is used when each job or product is unique, making it essential to track
the costs individually for each job.

2. Which of the following industries would most likely use a process costing system?

A. Custom-made furniture manufacturing

B. Legal consulting

C. Beverage production (e.g., Coca-Cola)

D. Specialized software development

Answer: C. Beverage production (e.g., Coca-Cola)

Explanation: Process costing is used when identical products are produced on a continuous basis, such
as in the beverage or food industry.

3. Which manufacturing account records the cost of materials that have not yet been used in
production?

A. Manufacturing Overhead

B. Raw Materials

C. Work in Process

D. Finished Goods

Answer: B. Raw Materials

Explanation: The Raw Materials account tracks the costs of materials purchased but not yet used in
production.

4. In a job-order costing system, which document is primarily used to accumulate costs for each specific
job?

A. Materials requisition form

B. Job cost sheet

C. Time ticket

D. Manufacturing overhead application form

Answer: B. Job cost sheet

Explanation: The job cost sheet records all costs (materials, labor, and overhead) incurred for each job.

5. Which of the following is NOT a key difference between job-order costing and process costing?

A. Process costing accumulates costs by department.

B. Job-order costing uses job cost sheets, while process costing does not.

C. Process costing computes unit costs by job.

D. Job-order costing is used for customized jobs, while process costing is used for homogeneous
products.

Answer: C. Process costing computes unit costs by job

Explanation: In process costing, unit costs are computed by department, not by job. Job-order costing
calculates costs per job.

6. What is the primary allocation base typically used to apply manufacturing overhead in a labor-
intensive business?

A. Direct labor hours

B. Direct material costs

C. Machine hours

D. Square footage

Answer: A. Direct labor hours

Explanation: In labor-intensive businesses, overhead is commonly allocated based on direct labor hours.
7. Which of the following is the correct formula for a predetermined overhead rate?

A. Actual overhead / Estimated cost driver

B. Estimated overhead / Actual cost driver

C. Estimated overhead / Estimated cost driver

D. Actual overhead / Actual cost driver

Answer: C. Estimated overhead / Estimated cost driver

Explanation: The predetermined overhead rate is based on estimates for both overhead and the cost
driver (e.g., direct labor hours or machine hours).

8. In job-order costing, which document is used to track the quantity and cost of direct materials used in
production?

A. Job cost sheet

B. Materials requisition form

C. Production order

D. Bill of materials

Answer: B. Materials requisition form

Explanation: The materials requisition form lists the quantity and cost of materials requested for a
specific job.

9. If Toll Brothers’ total estimated manufacturing overhead for the year is $750,000 and the estimated
direct labor hours are 10,000, what is the predetermined overhead rate?

A. $65 per direct labor hour

B. $70 per direct labor hour

C. $75 per direct labor hour

D. $80 per direct labor hour

Answer: C. $75 per direct labor hour

Explanation: The predetermined overhead rate is calculated as $750,000 ÷ 10,000 = $75 per direct labor
hour.

10. Which of the following is NOT typically included in manufacturing overhead?

A. Supervisor salaries

B. Indirect materials

C. Depreciation on equipment

D. Direct labor

Answer: D. Direct labor

Explanation: Direct labor is a primary cost that is traced directly to jobs, whereas manufacturing
overhead includes indirect costs.

11. In process costing, which method assumes that all units in beginning inventory were completed
during the current period?

A. FIFO

B. LIFO

C. Weighted Average

D. Specific Identification

Answer: A. FIFO

Explanation: The FIFO method assumes that units in beginning inventory are completed first before
moving to current period production.

12. In a job-order costing system, which cost must be allocated to jobs using a predetermined overhead
rate?

A. Direct materials

B. Direct labor

C. Manufacturing overhead

D. All of the above

Answer: C. Manufacturing overhead

Explanation: Manufacturing overhead includes indirect costs that must be allocated using a
predetermined rate since they cannot be traced directly to jobs.

13. Which of the following types of companies would most likely use job-order costing?

A. Oil refining company

B. Law firm

C. Soft drink manufacturer

D. Utility company

Answer: B. Law firm

Explanation: Law firms provide customized services for individual clients, so job-order costing is used to
track costs for each case.

14. When is it appropriate to use process costing instead of job-order costing?

A. When products are unique and require custom production

B. When products are produced in large quantities and are identical

C. When services are provided on a per-client basis

D. When overhead costs are minimal

Answer: B. When products are produced in large quantities and are identical

Explanation: Process costing is used when products are produced on a continuous basis, and each unit is
identical.

15. What is the primary reason for calculating a predetermined overhead rate before the production
period begins?

A. To ensure accuracy in overhead cost allocation

B. To simplify the process of estimating job costs

C. To reduce errors in direct labor cost calculation

D. To eliminate the need for actual overhead cost data

Answer: B. To simplify the process of estimating job costs

Explanation: A predetermined overhead rate allows companies to estimate overhead costs before actual
costs are known, simplifying cost estimation for jobs.
16. Which of the following would be a direct cost in a job-order costing system?

A. Nails used in construction

B. The salary of a production supervisor

C. The cost of lumber used to build a custom house

D. Depreciation on factory equipment

Answer: C. The cost of lumber used to build a custom house

Explanation: Lumber is a direct material that can be traced directly to the custom house (job).

17. What is the primary goal of both job-order and process costing systems?

A. To determine the value of raw materials

B. To track direct labor time

C. To assign costs to products and compute unit product costs

D. To eliminate manufacturing overhead

Answer: C. To assign costs to products and compute unit product costs

Explanation: Both systems aim to assign material, labor, and overhead costs to products and determine
unit costs.

18. Which account would be debited when raw materials are issued for use in production?

A. Raw Materials

B. Work in Process

C. Manufacturing Overhead

D. Finished Goods

Answer: B. Work in Process

Explanation: When raw materials are used in production, their cost is transferred from Raw Materials to
Work in Process.

19. In a job-order costing system, how are actual manufacturing overhead costs recorded?

A. They are directly traced to jobs.

B. They are recorded as an expense in the period they are incurred.

C. They are debited to the Manufacturing Overhead account.

D. They are credited to Work in Process.

Answer: C. They are debited to the Manufacturing Overhead account.

Explanation: Actual manufacturing overhead costs are accumulated in the Manufacturing Overhead
account and later allocated to jobs.

20. Which of the following best describes a job cost sheet in a job-order costing system?

A. It tracks the number of units produced in each department.

B. It records direct materials, direct labor, and overhead costs for a specific job.

C. It provides a summary of total