Cost Accounting Chapter 7

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Chapter 7 Test Bank Multiple choice

1. A job is a product or service that can be easily and conveniently distinguished from other products/services.
True False

TURE

2. Job cost sheets are used in accounting systems as a subsidiary ledger for the Work-in-Process account.
True False

TRUE

3. Job shops have three types of inventory accounts: Finished Goods, Work-in-Process, and Direct Materials.
True False

TRUE

4. The cost in the ending Finished Goods inventory account consists of the direct materials, direct labor, and manufacturing overhead of all jobs still in process at the end of the period.
True False

FALSE

5. Accounting for direct materials and direct labor is easier than accounting for manufacturing overhead costs.
True False

TRUE

6. Indirect material and indirect labor are two examples of manufacturing overhead costs.
True False

TRUE

7. The journal entry to record actual manufacturing overhead for indirect material debits Manufacturing Overhead (Control) and credits Accounts Payable.
True False

FALSE

8. The journal entry to record actual manufacturing overhead for indirect labor debits Manufacturing Overhead (Control) and credits Work-in-Process inventory.
True False

FALSE

9. The periodic allocation of manufacturing overhead costs to job cost sheets is based on an event, not a transaction.
True False

TRUE

10. The predetermined overhead rate is computed by dividing the estimated activity of the allocation base into the estimated manufacturing overhead costs.
True False

TRUE

11. The journal entry to apply manufacturing overhead costs to completed jobs credits either Applied Manufacturing Overhead or Manufacturing Overhead (Control).
True False

TRUE

12. At the end of the accounting period, manufacturing overhead costs are applied to uncompleted jobs using the same predetermined overhead rate that is used to apply manufacturing overhead costs to completed jobs.
True False

TRUE

13. Overapplied overhead occurs when the actual overhead costs incurred during a period are greater than the overhead costs applied during the period.
True False

FALSE

14. Underapplied overhead occurs when the actual overhead costs incurred during a period are greater than the overhead costs applied during the period.
True False

TRUE

15. Normal costing uses the actual allocation base activity to apply manufacturing overhead costs to jobs during the period.
True False

TRUE

16. Actual costing does not use a predetermined overhead rate to apply manufacturing overhead costs to jobs completed during the period.
True False

TRUE

17. Service organizations, by their nature, cannot have a balance in Work-in-Process Inventory.
True False

FALSE

18. Service organizations generally use the same job costing procedures as manufacturers.
True False

TRUE

19. It is unethical to intentionally charge costs to the wrong job.
True False

TRUE

20. One difference between jobs and projects is the account titles used in the costing process.
True False

FALSE

21. Which of the following statements is (are) true regarding product costing?
(A) A job is a cost object that can be easily and conveniently distinguished from other cost objects.
(B) Job cost sheets are used in accounting systems as a subsidiary ledger for the Work-in-Process account.
A. Only A is true.
B. Only B is true.
C. Both A and B are true.
D. Neither A nor B is true.

C. Both A and B are true.

22. For which of the following businesses would the job order cost system be appropriate?
A. Auto repair shop
B. Crude oil refinery
C. Drug manufacturer
D. Root beer producer

A. Auto repair shop

23. Which of the following is not a characteristic of job costing?
A. Each job is distinguishable from other jobs.
B. Identical units are produced on an ongoing basis.
C. Job cost data are used for setting prices and bids.
D. It is not possible to compare actual costs with estimated costs.

B. Identical units are produced on an ongoing basis.

24. Which of the following companies would most likely use job costing?
A. Paper manufacturer
B. Paint producer
C. Breakfast cereal maker
D. Advertising agency

D. Advertising agency

27. Which of the following documents is used as the basis for posting to the direct materials section of the job cost sheet?
A. Purchase requisition.
B. Materials requisition.
C. Receiving report.
D. Purchase order.
E. Time card.

B. Materials requisition.

28. Which of the following documents is used as the basis for posting to the direct labor section of the job cost sheet?
A. Purchase requisition.
B. Materials requisition.
C. Receiving report.
D. Purchase order.
E. Time card.

E. Time card.

29. Which of the following accounts is used to accumulate the actual manufacturing overhead costs incurred during a period?
A. Applied Manufacturing Overhead
B. Work-in-Process Inventory
C. Manufacturing Overhead Control
D. Cost of Goods Sold
E. Finished Goods Inventory

C. Manufacturing Overhead Control

31. What are the transfers-out from the Finished Goods Inventory called?
A. Cost of Goods Manufactured
B. Cost of Goods Available
C. Cost of Goods Completed
D. Cost of Goods Sold

D. Cost of Goods Sold

32. In a job costing system, the dollar amount in the journal entry that transfers the costs of jobs from Work-in-Process Inventory to Finished Goods Inventory is the sum of the costs charged to all jobs
A. sold during the period.
B. completed during the period.
C. in process during the period.
D. started in process during the period.
E. completed and sold during the period.

B. completed during the period.

33. Which of the following events or transactions will not result in manufacturing overhead being applied to production?
A. Completion of a job in the current period that was started in a prior period
B. Completion of a job in the current period that was started in the current period
C. Preparing financial statements when work is in process at the end of the period
D. Preparing financial statements when there is no work in process at the end of the period

D. Preparing financial statements when there is no work in process at the end of the period

35. It is possible that the total cost of a job started in April and completed in May will not include:
A. direct material added in April.
B. direct labor added in May.
C. applied overhead in April.
D. applied overhead in May.
E. direct material purchased in May.

E. direct material purchased in May.

36. Underapplied overhead occurs when the balance in the Manufacturing Overhead Control account is:
A. greater than the balance in the Applied Manufacturing Overhead account.
B. equal to the balance in the Applied Manufacturing Overhead account.
C. less than the balance in the Applied Manufacturing Overhead account.
D. less than the balance in the Finished Goods Inventory account.

A. greater than the balance in the Applied Manufacturing Overhead account.

37. Which of the following statements is (are) true regarding the application of manufacturing overhead?
(A) Manufacturing overhead is only recorded on the job cost sheets when (a) financial statements are prepared or a job is completed.
(B) Overapplied overhead occurs when the actual overhead costs incurred during a period are greater than the overhead costs applied during the period.
A. Only A is true.
B. Only B is true.
C. Both A and B are true.
D. Neither A nor B is true.

A. Only A is true.

40. If a company multiplies its predetermined overhead rate by the actual activity level of its allocation base, it is using
A. standard costing.
B. normal costing.
C. actual costing.
D. budget costing.
E. ideal costing.

B. normal costing.

41. If a company multiplies its actual overhead rate by the actual activity level of its allocation base, it is using
A. standard costing.
B. normal costing.
C. actual costing.
D. budget costing.
E. ideal costing.

C. actual costing.

42. One of the primary differences between job costing for service and manufacturing companies is service firms generally
A. use fewer direct materials.
B. have less direct labor.
C. do not use predetermined overhead rates.
D. have no Work in Process Inventory.

A. use fewer direct materials.

43. Which of the following is not a difference between job costing for service firms and job costing for manufacturing companies?
A. Service firms generally use fewer direct materials that manufacturing companies.
B. Service firms' overhead accounts have slightly different titles (e.g., Applied Service Overhead).
C. Service firms' finished jobs are charged to Cost of Services Billed instead of Cost of Goods Sold.
D. Service firms' costs are immediately expensed since all work is completed during a period.

D. Service firms' costs are immediately expensed since all work is completed during a period.

46. Complex jobs that take multiple time periods and require the work of many different departments, divisions, or subcontractors are called
A. clients.
B. projects.
C. customers.
D. contracts.
E. vendors.

B. projects.

47. Manufacturing overhead applied on the basis of direct labor hours was $120,000, while actual manufacturing overhead incurred was $124,000 for the month of April. Which of the following is always true given the statement above?
A. Overhead was overapplied by $4,000.
B. Overhead was underapplied by $4,000.
C. Actual direct labor hours exceeded budgeted direct labor hours.
D. Actual direct labor hours were less than budgeted direct labor hours.

B. Overhead was underapplied by $4,000.

48. The predetermined overhead rate for manufacturing overhead for 2008 is $4.00 per direct labor hour. Employees are expected to earn $5.00 per hour and the company is planning on paying its employees $100,000 during the year. However, only 75% of the employees are classified as "direct labor." What was the estimated manufacturing overhead for 2008?
A. $60,000
B. $75,000
C. $80,000
D. $93,750

A. $60,000

49. Before prorating the manufacturing overhead costs at the end of 2008, the Cost of Goods Sold and Finished Goods Inventory had applied overhead costs of $57,500 and $20,000 in them, respectively. There was no Work-in-Process at the beginning or end of 2008. During the year, manufacturing overhead costs of $74,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $77,500 at the end of 2008. If the under or overapplied overhead is prorated between Cost of Goods Sold and the inventory accounts, how much will be allocated to the Finished Goods Inventory?
A. $903
B. $1,217
C. $1,283
D. $2,597

A. $903

50. Before prorating the manufacturing overhead costs at the end of 2008, the Cost of Goods Sold and Finished Goods Inventory had applied overhead costs of $57,500 and $20,000 in them, respectively. There was no work in process at the beginning or end of 2008. During the year, manufacturing overhead costs of $74,000 were actually incurred. The balance in the Applied Manufacturing Overhead was $77,500 at the end of 2008. If the under- or overapplied overhead is prorated between Cost of Goods Sold and the inventory accounts, how much will be the Cost of Goods Sold after the proration?
A. $58,403
B. $56,597
C. $60,197
D. $54,903

D. $54,903

51. The Work-in-Process Inventory account of a manufacturing firm has a balance of $2,400 at the end of an accounting period. The job cost sheets of two uncompleted jobs show charges of $400 and $200 for materials used, and charges of $300 and $500 for direct labor used. Overhead is applied as a percentage of direct labor costs. The predetermined rate is
A. 41.7%.
B. 80.0%.
C. 125.0%.
D. 240.0%.

C. 125.0%.

76. In a traditional job order costing system, the issue of indirect materials to a production department increases: (CPA adapted)
A. Stores control.
B. Work-in-Process control.
C. Factory overhead control.
D. Factory overhead applied.

C. Factory overhead control.

77. Which of the following actions do not cause an impropriety in job costing?
A. Misstating the stage of completion.
B. Choosing to use normal costing rather than actual costing.
C. Charging costs to the wrong job.
D. Choosing an allocation method based on the results rather than choosing the method based on resource usage.

B. Choosing to use normal costing rather than actual costing.

78. Which of the following approaches allocates overhead by multiplying a predetermined overhead rate  actual activity?
A. Actual costing
B. Normal costing
C. Regression costing
D. Standard costing

B. Normal costing

79. Which of the following approaches allocates overhead by multiplying an actual overhead rate  actual activity?
A. Actual costing
B. Normal costing
C. Regression costing
D. Standard costing

A. Actual costing

80. Which of the following approaches allocates overhead by multiplying a predetermined rate  standard activity?
A. Actual costing
B. Normal costing
C. Regression costing
D. Standard costing

D. Standard costing

81. Scottso Corporation applies overhead using a normal costing approach based upon machine-hours. Budgeted factory overhead was $266,400, budgeted machine-hours were 18,500. Actual factory overhead was $287,920, actual machine-hours were 19,050. How much overhead would be applied to production?
A. $266,400.
B. $274,320.
C. $279,607.
D. $287,920.

B. $274,320.

82. Scottso Corporation applies overhead using a normal costing approach based upon machine-hours. Budgeted factory overhead was $266,400, budgeted machine-hours were 18,500. Actual factory overhead was $287,920, actual machine-hours were 19,050. How much is the over- or underapplied overhead?
A. $21,520 underapplied
B. $13,600 underapplied
C. $7,920 overapplied
D. $0

B. $13,600 underapplied

83. Scottso Corporation applies overhead using an actual costing approach. Budgeted factory overhead was $266,400, budgeted machine-hours were 18,500. Actual factory overhead was $287,920, actual machine-hours were 19,050. How much overhead would be applied to production?
A. $266,400.
B. $274,320.
C. $279,607.
D. $287,920.

D. $287,920.

84. Scottso Corporation applies overhead using an actual costing approach. Budgeted factory overhead was $266,400, budgeted machine-hours were 18,500. Actual factory overhead was $287,920, actual machine-hours were 19,050. How much is the over- or underapplied overhead?
A. $21,520 underapplied
B. $13,600 underapplied
C. $7,920 overapplied
D. $0

D. $0

85. Scottso Corporation applies overhead using a normal costing approach based upon machine-hours. Budgeted factory overhead was $232,750, budgeted machine-hours were 17,500. Actual factory overhead was $227,830, actual machine-hours were 16,150. How much overhead would be applied to production?
A. $214,795
B. $227,830
C. $232,750
D. $246,875

A. $214,795

86. Scottso Corporation applies overhead using a normal costing approach based upon machine-hours. Budgeted factory overhead was $232,750, budgeted machine-hours were 17,500. Actual factory overhead was $227,830, actual machine-hours were 16,150. How much is the over- or underapplied overhead?
A. $13,035 overapplied
B. $13,035 underapplied
C. $4,920 overapplied
D. $4,920 underapplied

B. $13,035 underapplied

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