Cost Accounting, 15e Global Edition (Horngren/Datar/Rajan)
Chapter 4 Job Costing
Objective 4.1
1) Job costing information is used ________.
A) to determine target customers
B) to calculate the percentage of completion
C) for internal financial reporting
D) to enhance public relations
2) Product costing information will include ________.
A) to increase profits
B) to increase sales and image of the company
C) for cost management
D) for efficient human resource management
3) A ________ is a grouping of individual indirect cost items.
A) cost allocation base
B) cost assignment
C) cost pool
D) job-costing system
4) Each indirect-cost pool of a manufacturing firm ________.
A) utilizes a separate cost-allocation rate
B) is a subset of total direct costs
C) relates to multiple cost centres
D) utilizes the same cost-allocation rate for all costs incurred
5) Direct costs ________.
A) are anything for which a measurement of costs is desired
B) are costs related to a particular cost object that can be traced to that cost object in a cost-effective
manner
C) focus specifically on the costing needs of the CFO
D) are costs related to a particular cost object that cannot be traced to that cost object in a cost-effective
manner
6) In a costing system, ________.
A) cost tracing allocates indirect costs
B) cost allocation assigns direct costs
C) a cost-allocation base can be either financial or nonfinancial
D) a cost object should be a product and not a department or a geographic territory
7) Assigning direct costs to a cost object is called ________.
A) cost allocation
B) cost assignment
C) cost pooling
D) cost tracing
8) ________ is the process of distributing indirect costs to products.
A) Cost allocation
B) Job cost recording
C) Cost pooling
D) Cost tracing
9) A ________ links an indirect cost to a cost object.
A) cost-allocation base
B) cost pool
C) cost assignment
D) cost tracing
10) Which of the following includes both traced direct costs and allocated indirect costs?
A) cost tracing
B) cost pools
C) cost assignments
D) cost allocations
11) The cost allocation base ________.
A) is a grouping of individual indirect cost items
B) are costs related to a particular cost object that cannot be traced to that cost object in an economically
feasible way
C) is anything for which a measurement of costs is desired
D) is a systematic way to link an indirect cost or group of indirect costs to cost objects
12) Direct costs are allocated to the cost object using a cost-allocation method.
13) A cost object is anything for which a measurement of costs is desired.
14) Direct costs of a cost object are costs related to a particular cost object that can be allocated to that cost
object in an economically feasible (cost-effective) way.
15) The cost-allocation base is a systematic way to link an indirect cost or group of indirect costs to cost
objects.
16) Cost objects may be jobs, products, or customers.
17) The cost driver of an indirect cost is often used as the cost-allocation base.
18) For each item below indicate the source documents that would most likely authorize the journal entry
in a job-costing system.
Required:
a. direct materials purchased
b. direct materials used
c. direct manufacturing labor
d. indirect manufacturing labor
e. finished goods control
f. cost of goods sold
19) Differentiate between a cost pool and a cost-allocation base.
1) Process costing is ________.
A) used to enhance employees’ job satisfaction
B) used by businesses to price unique products or identical products produced in batches
C) used by businesses to price identical products
D) used by businesses when manufacturing goods above normal capacity
2) Process costing ________.
A) allocates all product costs, including materials, and labor
B) results in different costs for different units produced
C) is commonly used by general contractors who construct custom-built homes
D) is used exclusively in manufacturing
3) Job costing is ________.
A) used by businesses to price identical products
B) used by businesses to price unique products for different jobs
C) used to calculate equivalent units
D) used to calculate the percentage of work completed
4) Job costing ________.
A) cannot be used by the service industry
B) records the flow of costs for each product or service
C) allocates an equal amount of cost to each unit made during a time period
D) is used when each unit of output is identical
5) Job-costing is likely to be used by________.
A) oil refining companies
B) advertising agencies
C) postal service companies
D) beverage production companies
6) Which of the following differentiates job costing from process costing?
A) Job costing is used when each unit of output is identical, and process costing deals with unique
products.
B) Job costing is used when each unit of output is identical and not produced in batches, and process
costing deals with unique products produced on large scale.
C) Process costing is used when each unit of output is identical, and job costing deals with unique
products not produced in batches.
D) Job costing is used by manufacturing industries, and process costing is used by service industries.
7) Which of the following companies will use a process costing system?
A) an oil refining company
B) a manufacturer of ships
C) a custom watch manufacturer
D) an advertising firm
8) A company may use job costing to assign costs to different product lines and then use process costing
to calculate unit costs within each product line.
9) In each period, job costing divides the total cost of producing an identical or similar product produced
in batches by the total number of units produced to obtain a per-unit cost.
10) Oil refining companies primarily use job costing to estimate costs.
11) In a job-costing system the cost object is an individual unit, batch, or lot of a distinct product or
service.
12) Normal costing is a method of job costing that allocates an indirect cost based on the actual indirect-
cost rate times the actual quantity of the cost-allocation base.
13) Process costing is used to assign manufacturing costs to unique batches of a product.
14) Using job costing in the shipping industry would be more appropriate than process costing.
15) Fox Studios, the movie production house, uses process costing to estimate costs.
16) Describe job-costing and process-costing systems. Explain when it would be appropriate to use each.
Objective 4.3
1) Which of the following are reasons for using longer periods, such as a year, to calculate indirect cost
rates?
A) shorter the period, the greater is the influence of seasonal patterns on the amount of costs
B) longer the period, the greater is the influence of seasonal patterns on the amount of costs
C) shorter the period, the smaller is the influence of seasonal patterns on the amount of opportunity costs
D) longer the period, the smaller is the influence of seasonal patterns on the amount of opportunity costs
2) The actual indirect-cost rate is calculated by ________.
A) dividing actual total indirect costs by the actual total quantity of the cost-allocation base
B) multiplying actual total indirect costs by the actual total quantity of the cost-allocation base
C) dividing the actual total quantity of the cost allocation base by actual total indirect costs
D) multiplying the actual total quantity of the cost allocation base by actual total indirect costs
3) Actual costing is a costing system that traces direct costs to a cost object by ________.
A) using the budgeted direct cost rates times the budgeted quantities of direct-cost inputs
B) using the actual direct costs rates times the budgeted quantities of the direct-cost inputs
C) using the actual direct cost rates times the actual quantities of the direct-cost inputs
D) using the budgeted direct cost rates times the actual quantities of the direct cost inputs
4) An example of a numerator reason for calculating annual indirect-cost rates includes ________.
A) fewer production workdays in a month
B) cost of raw materials purchased
C) higher snow-removal costs during the winter
D) the number of units produced
5) An example of a denominator reason for calculating annual indirect-cost rates includes ________.
A) higher heating bills in the winter
B) semi-annual insurance payments in March and September
C) higher levels of output demanded during the fall months
D) All of these answers are correct.
6) When calculating indirect cost rates, the longer the time period, the greater the
influence of seasonal patterns on the amount of costs.
7) Actual prices paid for materials usually serve as actual direct-cost rates for charging material costs to
jobs.
8) The actual indirect-cost rate is calculated by dividing actual total indirect costs by the budgeted total
quantity of the cost-allocation base.
Objective 4.4
1) A job that shows low profitability may be the result of ________.
A) excessive usage of direct materials
B) inefficient direct manufacturing labor
C) overpricing the job
D) insurance claim of the damaged goods
2) For a given job the direct costs associated with the job are ________.
A) actual overhead
B) raw materials
C) sunk costs
D) fixed costs
3) Place the following steps in the order suggested by the seven steps used to assign costs to individual
jobs:
A. Identify indirect costs
B. Compute the total cost of the job
C. Select cost-allocation bases
D. Compute the indirect cost rate
A) ACDB
B) CADB
C) BACD
D) DCAB
4) The basic source document for direct manufacturing labor is the ________.
A) job-cost record
B) materials-requisition record
C) labor-time record
D) labor-requisition record
5) Problems with costing occur when ________.
A) incorrect job numbers are recorded on source documents
B) bar coding is used to record materials used on the job
C) a computer screen requests an employee number before that employee is able to work on information
related to a specific job
D) incorrect product delivery forms are entered into the system
6) The budgeted indirect-cost rate for each cost pool is computed as ________.
A) budgeted annual indirect costs divided by budgeted annual quantity of cost allocation base
B) budgeted annual quantity of cost allocation base divided by budgeted annual indirect costs
C) actual annual indirect costs divided by budgeted annual quantity of cost allocation base
D) budgeted annual indirect costs divided by budgeted actual quantity of cost allocation base
7) If indirect-cost rates are calculated monthly, distortions might occur because of ________.
A) rental costs paid monthly
B) property tax payments made in July and December
C) routine monthly preventive-maintenance costs that benefit future months
D) salary hikes at the beginning of the financial year
8) Bernard Company’s budgeted manufacturing overhead is $3,300,000. Overhead is allocated on the
basis of direct labor hours. The budgeted direct labor hours for the period are 60,000. What is the
manufacturing overhead rate?
A) $47.00
B) $56.00
C) $75.00
D) $55.00
9) Vision Enterprises manufactures digital video equipment. For each unit, $3,000 of direct material is
used and there is $2,000 of direct manufacturing labor at $20 per hour. Manufacturing overhead is
applied at $25 per direct manufacturing labor hour. Calculate the profit earned on 50 units if each unit
sells for $9,000.
A) $65,000
B) $80,000
C) $75,000
D) $2,500
10) In a job-costing system, a manufacturing firm typically uses an indirect-cost rate to estimate the
________ allocated to a job.
A) direct materials
B) direct labor
C) manufacturing overhead costs
D) total costs
11) A job-cost sheet details the ________.
A) direct materials purchased and paid
B) direct labor costs incurred
C) indirect labor costs incurred
D) actual indirect overhead costs incurred
12) A job-cost record uses information from ________.
A) a materials-requisition record to record raw material purchases from suppliers
B) a materials-requisition report to record the type and quantity of item received in an order from a
supplier
C) a labor-time card to record an employee’s wage rate and hours spent on a particular job
D) the bill of materials to ensure the goods are of the prescribed quality
13) Costs that are subject to short-run fluctuations for given jobs are ________.
A) actual costs
B) budgeted direct costs
C) budgeted indirect costs
D) normal costs
14) An increase in direct labor cost per unit ________.
A) increases the fixed cost
B) increases profits
C) increases the variable cost
D) increases overhead costs
15) Fixed costs remain constant at $400,000 per month. During high-output months variable costs are
$320,000, and during low-output months variable costs are $80,000. What are the respective high and low
indirect-cost rates if budgeted professional labor-hours are 16,000 for high-output months and 4,000 for
low-output months?
A) $45.00 per hour; $120.00 per hour
B) $45.00 per hour; $45.00 per hour
C) $25.00 per hour; $20.00 per hour
D) $56.20 per hour; $120.00 per hour
16) Managers and accountants collect most of the cost information that goes into their systems through
________.
A) an information databank
B) computer programs
C) source documents
D) time surveys
Answer the following questions using the information below:
For 2014, Bakers Manufacturing uses machine-hours as the only overhead cost-allocation base. The direct
cost rate is $3.00 per unit. The selling price of the product is $20.00. The estimated manufacturing
overhead costs are $240,000 and estimated 40,000 machine hours. The actual manufacturing overhead
costs are $300,000 and actual machine hours are 50,000.
17) Using job costing, the 2014 actual indirect-cost rate is ________.
A) $6.00 per machine-hour
B) $5.80 per machine-hour
C) $6.50 per machine-hour
D) $6.75 per machine-hour
18) What is the profit margin earned if each unit requires two machine-hours?
A) 53.33%
B) 33.33%
C) 66.67%
D) 58.73%
19) Tiscara Company manufactures insulation and applies manufacturing overhead costs to production
at a budgeted indirect-cost rate of $15 per direct labor-hour. The following data are obtained from the
accounting records for June 2014:
Direct materials $440,000
Direct labor (3,500 hours @ $11/hour) 38,500
Indirect labor 15,000
Plant facility rent 50,000
Depreciation on plant machinery and equipment 35,000
Sales commissions 10,000
Administrative expenses 25,000
The actual amount of manufacturing overhead costs incurred in June 2014 totals ________.
A) $278,500
B) $100,000
C) $80,000
D) $110,000
Answer the following questions using the information below:
Roiann and Dennett Law Office employs 12 full-time attorneys and 10 paraprofessionals. Direct and
indirect costs are applied on a professional labor-hour basis that includes both attorney and
paraprofessional hours. Following is information for 2014:
Budget Actual
Indirect costs $270,000 $300,000
Annual salary of each attorney $100,000 $110,000
Annual salary of each paraprofessional $ 29,000 $ 30,000
Total professional labor-hours 50,000 dlh 60,000 dlh
20) What are the actual direct-cost rate and the actual indirect-cost rate, respectively, per professional
labor-hour?
A) $27.00; $4.17
B) $29.80; $5.40
C) $32.40; $5.00
D) $27.00; $5.00
21) How much should the client be billed in an actual costing system if 200 professional labor-hours are
used?
A) $5,000
B) $6,960
C) $7,480
D) $6,400
22) If indirect-cost rates were based on actual short-term usage, periods of lower demand would result in
lower costs per unit.
23) In job costing, only direct costs are used to determine the cost of a job.
24) Indirect manufacturing costs should be allocated equally to each job.
25) Each cost pool may have multiple cost allocation bases.
26) Normal costing is a costing system that traces direct costs to a cost object by using the actual direct-
cost rates times the actual quantities of the direct-cost inputs.
27) Companies often use multiple cost-allocation bases to allocate indirect costs because different indirect
costs have different cost drivers.
28) A materials-requisition record is an example of a source document.
29) All costs other than direct materials and direct manufacturing labor are classified as indirect costs.
30) To smooth fluctuating levels of output, separate indirect-cost rates should be calculated for each
month.
31) Grounds-maintenance costs incurred during the summer months will distort indirect-cost rates that
are computed monthly.
32) One reason for using longer time periods to calculate indirect-cost rates is seasonal cost fluctuations.
33) What are the direct costs of a job and in which source documents are they recorded?
34) What is the difference between an actual cost system and a normal cost system?
Objective 4.5
1) The budgeted indirect-cost rate is calculated ________.
A) at the beginning of the year
B) during the year
C) at the end of each quarter
D) at the end of the year
2) The difference between actual costing and normal costing is ________.
A) normal costing uses actual quantities of direct-costs
B) actual costing uses actual quantities of direct-costs
C) normal costing uses budgeted indirect-costs
D) actual costing uses actual quantities of cost-allocation bases
3) Which of the following statements about normal costing is true?
A) Direct costs and indirect costs are traced using an actual rate.
B) Direct costs and indirect costs are traced using budgeted rates.
C) Direct costs are traced using a budgeted rate, and indirect costs are allocated using an actual rate.
D) Direct costs are traced using an actual rate, and indirect costs are allocated using a budgeted rate.
4) When using a normal costing system, manufacturing overhead is allocated using the ________
manufacturing overhead rate and the ________ quantity of the allocation base.
A) budgeted; actual
B) budgeted; budgeted
C) actual; budgeted
D) actual; actual
5) Which of the following statements about actual costing is true?
A) Manufacturing costs of a job are available earlier under actual costing.
B) Corrective actions can be implemented sooner under actual costing.
C) Actual costing uses budgeted indirect-cost rates calculated annually.
D) Actual costing uses actual indirect-cost rates calculated annually.
Answer the following questions using the information below:
For 2014, Thomas Manufacturing uses machine-hours as the only overhead cost-allocation base. The
estimated manufacturing overhead costs are $300,000 and estimated machine hours are 50,000. The actual
manufacturing overhead costs are $420,000 and actual machine hours are 70,000.
6) Using job costing, the 2014 budgeted manufacturing overhead rate is ________.
A) $6.50 per machine-hour
B) $4.80 per machine-hour
C) $5.50 per machine-hour
D) $6.00 per machine-hour
7) What is the difference between the budgeted and the actual manufacturing overhead using job costing?
A) $0.20
B) $0.50
C) $1.00
D) $1.20
Answer the following questions using the information below:
Sky High Company has two departments, X and Y. The following estimates are for the coming year:
X Y
Direct manufacturing labor-hours 20,000 40,000
Machine-hours 40,000 20,000
Manufacturing overhead $200,000 $400,000
8) A single indirect-cost rate based on direct manufacturing labor-hours for the entire plant is ________.
A) $15 per direct labor-hour
B) $10 per direct labor-hour
C) $21 per direct labor-hour
D) $12 per direct labor-hour
9) The budgeted indirect-cost driver rate for Y based on the number of machine-hours is in excess of X by
________.
A) $15 per machine-hour
B) $10 per machine-hour
C) $20 per machine-hour
D) $8 per machine-hour
10) Kamrock applies manufacturing overhead costs to products at a budgeted indirect-cost rate of $60 per
direct manufacturing labor-hour. A retail outlet has requested a bid on a special order of the Toy Mouse
product. Estimates for this order include: Direct materials of $50,000; 600 direct manufacturing labor-
hours at $20 per hour; and a 20% markup rate on total manufacturing costs. Manufacturing overhead
cost estimates for this special order total ________.
A) $46,000
B) $34,000
C) $36,000
D) $40,000