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Managerial Accounting, 16e (Garrison)
Chapter 2 Job-Order Costing: Calculating Unit Product Costs
1) A cost driver is a factor, such as machine-hours, beds occupied, computer time, or flight-
hours, that causes direct costs.
2) Job-order costing systems often use allocation bases that do not reflect how jobs actually use
overhead resources.
3) An employee time ticket is an hour-by-hour summary of the employee's activities throughout
the day.
4) The formula for computing the predetermined overhead rate is:
Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total
amount of the allocation base
5) Generally speaking, when going through the process of computing a predetermined overhead
rate, the estimated total manufacturing overhead cost is determined before estimating the amount
of the allocation base.
6) If a job is not completed at year end, then no manufacturing overhead cost would be applied to
that job when a predetermined overhead rate is used.
7) Actual overhead costs are not assigned to jobs in a job costing system.
8) The amount of overhead applied to a particular job equals the actual amount of overhead
caused by the job.
9) If the overhead rate is computed annually based on the actual costs and activity for the year,
the manufacturing overhead assigned to any particular job can be computed as soon as the job is
completed.
10) Job cost sheets contain entries for actual direct material, actual direct labor, and actual
manufacturing overhead cost incurred in completing a job.
11) In a job-order cost system, indirect labor is assigned to a job using information from the
employee time ticket.
12) If the allocation base in the predetermined overhead rate does not drive overhead costs, it
will nevertheless provide reasonably accurate unit product costs because of the averaging
process.
13) A job cost sheet is used to record how much a customer pays for the job once the job is
completed.
14) In a job-order costing system, costs are traced to individual units of product. The sum total of
such traced costs is called the unit product cost.
15) The fact that one department may be labor intensive while another department is machine
intensive explains in part why multiple predetermined overhead rates are often used in larger
companies.
16) A company will improve job cost accuracy by using multiple overhead rates even if it cannot
identify more than one overhead cost driver.
17) The appeal of using multiple departmental overhead rates is that they presumably provide a
more accurate accounting of the costs caused by jobs.
18) The costs attached to products that have not been sold are included in ending inventory on
the balance sheet.
19) In absorption costing, nonmanufacturing costs are assigned to units of product.
20) An employee time ticket is used to record points that are earned by employees based on the
hours they worked that can be used to pay for coffee, food in the cafeteria, and even in some
cases for vacation travel.
21) A bill of materials is a document that lists the type and quantity of each type of direct
material needed to complete a unit of product.
22) Most countries require some form of absorption costing for external reports.
23) In a job-order costing system that is based on machine-hours, which of the following
formulas is correct?
A) Predetermined overhead rate = Actual manufacturing overhead ÷ Actual machine-hours
B) Predetermined overhead rate = Actual manufacturing overhead ÷ Estimated machine-hours
C) Predetermined overhead rate = Estimated manufacturing overhead ÷ Estimated machine-
hours
D) Predetermined overhead rate = Estimated manufacturing overhead ÷ Actual machine-hours
24) Which of the following is the correct formula to compute the predetermined overhead rate?
A) Predetermined overhead rate = Estimated total units in the allocation base ÷ Estimated total
manufacturing overhead costs
B) Predetermined overhead rate = Estimated total manufacturing overhead costs ÷ Estimated
total units in the allocation base
C) Predetermined overhead rate = Actual total manufacturing overhead costs ÷ Estimated total
units in the allocation base
D) Predetermined overhead rate = Estimated total manufacturing overhead costs ÷ Actual total
units in the allocation base.
25) Assigning manufacturing overhead to a specific job is complicated by all of the below
except:
A) Manufacturing overhead is an indirect cost that is either impossible or difficult to trace to a
particular job.
B) Manufacturing overhead is incurred only to support some jobs.
C) Manufacturing overhead consists of both variable and fixed costs.
D) The average cost of actual fixed manufacturing overhead expenses will vary depending on
how many units are produced in a period.
26) Which of the following statements about using a plantwide overhead rate based on direct
labor is correct?
A) Using a plantwide overhead rate based on direct labor-hours will ensure that direct labor costs
are correctly traced to jobs.
B) Using a plantwide overhead rate based on direct labor costs will ensure that direct labor costs
will be correctly traced to jobs
C) It is often overly simplistic and incorrect to assume that direct labor-hours is a company's
only manufacturing overhead cost driver.
D) The labor theory of value ensures that using a plantwide overhead rate based on direct labor
will do a reasonably good job of assigning overhead costs to jobs.
27) Which of the following would usually be found on a job cost sheet under a normal cost
system?
Actual direct material cost
Actual manufacturing overhead cost
A)
Yes
Yes
B)
Yes
No
C)
No
Yes
D)
No
No
A) Choice A
B) Choice B
C) Choice C
D) Choice D
28) Which of the following statements is not correct concerning multiple overhead rate systems?
A) A multiple overhead rate system is more complex than a system based on a single plantwide
overhead rate.
B) A multiple overhead rate system is usually more accurate than a system based on a single
plantwide overhead rate.
C) A company may choose to create a separate overhead rate for each of its production
departments
D) In departments that are relatively labor-intensive, their overhead costs should be applied to
jobs based on machine-hours rather than on direct labor-hours.
29) Johansen Corporation uses a predetermined overhead rate based on direct labor-hours to
apply manufacturing overhead to jobs. The Corporation has provided the following estimated
costs for the next year:
Direct materials
$
6,000
Direct labor
$
20,000
Rent on factory building
$
15,000
Sales salaries
$
25,000
Depreciation on factory equipment
$
8,000
Indirect labor
$
12,000
Production supervisor's salary
$
15,000
Jameson estimates that 20,000 direct labor-hours will be worked during the year. The
predetermined overhead rate per hour will be:
A) $2.50 per direct labor-hour
B) $2.79 per direct labor-hour
C) $3.00 per direct labor-hour
D) $4.00 per direct labor-hour
30) The Silver Corporation uses a predetermined overhead rate 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 Corporation made the following estimates:
Dept. A
Dept. B
Direct labor cost
$
60,000
$
40,000
Manufacturing overhead
$
90,000
$
45,000
Direct labor-hours
6,000
9,000
Machine-hours
2,000
15,000
What predetermined overhead rates would be used in Dept. A and Dept. B, respectively?
A) 67% and $3.00
B) 150% and $5.00
C) 150% and $3.00
D) 67% and $5.00
31) Purves Corporation is using a predetermined overhead rate that was based on estimated total
fixed manufacturing overhead of $121,000 and 10,000 direct labor-hours for the period. The
company incurred actual total fixed manufacturing overhead of $113,000 and 10,900 total direct
labor-hours during the period. The predetermined overhead rate is closest to:
A) $10.37
B) $12.10
C) $11.10
D) $11.30
32) Reamer Corporation uses a predetermined overhead rate based on machine-hours to apply
manufacturing overhead to jobs. The Corporation 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:
A) $6.80 per machine-hour
B) $6.00 per machine-hour
C) $3.00 per machine-hour
D) $3.40 per machine-hour
33) Baj Corporation uses a predetermined overhead rate base on machine-hours that it
recalculates at the beginning of each year. The company has provided the following data for the
most recent year.
Estimated total fixed manufacturing overhead from
the beginning of the year
$
534,000
Estimated activity level from the beginning of the year
30,000
machine-hours
Actual total fixed manufacturing overhead
$
487,000
Actual activity level
27,400
machine-hours
The predetermined overhead rate per machine-hour would be closest to:
A) $17.80
B) $19.49
C) $16.23
D) $17.77
34) Giannitti Corporation bases its predetermined overhead rate on the estimated machine-hours
for the upcoming year. Data for the upcoming year appear below:
Estimated machine-hours
36,000
Estimated variable manufacturing overhead
$
3.01
per machine-hour
Estimated total fixed manufacturing overhead
$
1,058,040
The predetermined overhead rate for the recently completed year was closest to:
A) $29.39 per machine-hour
B) $32.40 per machine-hour
C) $32.81 per machine-hour
D) $3.01 per machine-hour
35) Gilchrist Corporation bases its predetermined overhead rate on the estimated machine-hours
for the upcoming year. At the beginning of the most recently completed year, the Corporation
estimated the machine-hours for the upcoming year at 79,000 machine-hours. The estimated
variable manufacturing overhead was $7.38 per machine-hour and the estimated total fixed
manufacturing overhead was $2,347,090. The predetermined overhead rate for the recently
completed year was closest to:
A) $37.09 per machine-hour
B) $36.07 per machine-hour
C) $7.38 per machine-hour
D) $29.71 per machine-hour
36) Dearden Corporation uses a job-order costing system with a single plantwide predetermined
overhead rate based on machine-hours. The company based its predetermined overhead rate for
the current year on total fixed manufacturing overhead cost of $144,000, variable manufacturing
overhead of $2.00 per machine-hour, and 60,000 machine-hours. The predetermined overhead
rate is closest to:
A) $2.40 per machine-hour
B) $6.40 per machine-hour
C) $4.40 per machine-hour
D) $2.00 per machine-hour
37) Longobardi Corporation bases its predetermined overhead rate on the estimated labor-hours
for the upcoming year. At the beginning of the most recently completed year, the Corporation
estimated the labor-hours for the upcoming year at 46,000 labor-hours. The estimated variable
manufacturing overhead was $6.25 per labor-hour and the estimated total fixed manufacturing
overhead was $1,026,260. The actual labor-hours for the year turned out to be 41,200 labor-
hours. The predetermined overhead rate for the recently completed year was closest to:
A) $28.56 per labor-hour
B) $22.31 per labor-hour
C) $6.25 per labor-hour
D) $31.16 per labor-hour
38) Valvano Corporation uses a job-order costing system with a single plantwide predetermined
overhead rate based on machine-hours. The company based its predetermined overhead rate for
the current year on total fixed manufacturing overhead cost of $440,000, variable manufacturing
overhead of $2.20 per machine-hour, and 50,000 machine-hours. The estimated total
manufacturing overhead is closest to:
A) $440,000
B) $110,000
C) $440,002
D) $550,000
39) Brothern Corporation bases its predetermined overhead rate on the estimated machine-hours
for the upcoming year. Data for the most recently completed year appear below:
Estimates made at the beginning of the year:
Estimated machine-hours
39,000
Estimated variable manufacturing overhead
$
6.76
per machine-hour
Estimated total fixed manufacturing overhead
$
794,430
Actual machine-hours for the year
42,700
The predetermined overhead rate for the recently completed year was closest to:
A) $25.37 per machine-hour
B) $27.13 per machine-hour
C) $6.76 per machine-hour
D) $20.37 per machine-hour
