48. Which of the following account balances is not reported on the balance sheet?
a.
Materials Inventory
b.
Manufacturing Patents
c.
Cost of Goods Sold
d.
Work in Process Inventory
49. The presentation of merchandise inventory and cost of goods sold in the financial statements of
merchandising companies most nearly resembles the presentation of __________ inventory and cost of
goods sold in the financial statements of manufacturing companies.
a.
materials
b.
finished goods
c.
manufacturing supplies
d.
work in process
50. The beginning finished goods inventory for Boston Co. was $401,050. Goods completed during the
year were costed at $783,700. The ending finished goods inventory was dangerously low, having been
reduced to $127,700. The cost of goods sold for the year for Boston Co. was
a.
$800,150.
b.
$1,057,050.
c.
$656,000.
d.
$928,600.
51. From Jolier’s year-end income statement, you observe that the finished goods inventory has doubled
during the year. This would indicate that during the year Jolier
a.
sold more goods than were produced.
b.
produced more goods than last year.
c.
produced more goods than were sold.
d.
sold more goods than last year.
52. The income statement for a manufacturing company usually contains a detailed computation of the
a.
total manufacturing cost.
b.
cost of goods sold.
c.
total cost of materials used.
d.
cost of goods manufactured.
53. Cost allocation is the process of assigning which of the following costs to specific cost objects?
a.
Overhead
b.
Direct labor
c.
Selling and administrative expenses
d.
Direct materials
54. Which of the following is a collection of overhead costs related to a cost object?
a.
Cost driver
b.
Cost function
c.
Cost equation
d.
Cost pool
55. Which of the following is an activity that causes changes in the amount of a cost pool?
a.
Cost element
b.
Cost function
c.
Cost driver
d.
Cost allocation
56. Which of the following represents the overhead applied to a product?
a.
Actual Overhead RateEstimated Cost Driver Level
b.
Predetermined Overhead RateActual Cost Driver Level
c.
Predetermined Overhead RateEstimated Cost Driver Level
d.
Actual Overhead RateActual Cost Driver Level
57. If the estimated cost driver level is overstated, the
a.
predetermined overhead rate will be understated.
b.
predetermined overhead rate will be overstated.
c.
product cost will be overstated.
d.
cost pool will be understated.
58. The following budget data are available for Howers Company:
Estimated direct labor hours
16,000
Estimated direct labor dollars
$ 170,000
Estimated overhead costs
$207,200
If overhead is to be applied based on direct labor hours, the predetermined overhead rate per hour
(rounded) is
a.
$13.45.
b.
$12.95.
c.
$12.05.
d.
$11.45.
59. Which of the following is not considered important in the proper allocation of overhead costs?
a.
Forecasting production activity
b.
Estimating total overhead costs
c.
Selecting an appropriate activity base
d.
Estimating the selling price of the product
60. Which of the following results in a predetermined overhead rate?
a.
Estimated overhead divided by estimated units produced
b.
Estimated overhead divided by actual direct labor hours
c.
Actual units produced divided by estimated overhead
d.
Estimated direct labor dollars divided by estimated overhead
61. Predetermined overhead rates generally are useful for all but which of the following?
a.
Price determination
b.
Estimating production levels
c.
Inventory valuation
d.
Product costing
62. If overhead is applied on the basis of direct labor hours, and actual hours worked are less than
budgeted, which of the following is true, assuming estimated overhead is correct?
a.
Overhead is probably overapplied.
b.
Overhead is probably underapplied.
c.
Applied overhead and actual overhead are equal.
d.
None of these is true.
63. Raisin Company’s overhead cost was overapplied by $4,300 in the current year. The estimated
overhead was $170,000, and the applied overhead was $166,000. Compute the actual overhead.
a.
$161,700
b.
$166,700
c.
$165,700
d.
$174,300
64. The following information was taken from the cost records of the Krameer Company:
Estimated overhead
$180,000
Actual overhead
$178,000
Estimated direct labor hours
24,000
Actual direct labor hours
25,000
If overhead is applied based on direct labor hours, the company’s overapplied or underapplied
overhead was
a.
$2,000 overapplied.
b.
$2,000 underapplied.
c.
$9,500 overapplied.
d.
$9,500 underapplied.
65. A manufacturing company applies overhead based on direct labor hours. At the beginning of the year,
it estimated that overhead costs would be $720,000 and direct labor hours would be 90,000. Actual
overhead costs incurred were $754,400, and actual direct labor hours were 92,000. Compute the
predetermined overhead rate per direct labor hour.
a.
$7.83
b.
$8.38
c.
$8.20
d.
$8.00
66. A manufacturing company applies overhead based on direct labor hours. At the beginning of the year,
it estimated that overhead costs would be $720,000 and direct labor hours would be 90,000. Actual
overhead costs incurred were $754,400, and actual direct labor hours were 92,000. The entry to assign
overhead costs during the year would be
a.
Overhead 720,000
Cash 720,000
b.
WIP Inventory 736,000
Overhead 736,000
c.
Cash 754,400
Overhead 754,400
d.
Overhead 754,400
WIP Inventory 754,400
67. A manufacturing company applies overhead based on direct labor hours. At the beginning of the year,
it estimated that overhead costs would be $720,000 and direct labor hours would be 90,000. Actual
overhead costs incurred were $754,400, and actual direct labor hours were 92,000. What is the amount
of overapplied or underapplied overhead at the end of the year?
a.
$34,400 overapplied
b.
$18,400 overapplied
c.
$34,400 underapplied
d.
$18,400 underapplied
68. When the amount of underapplied or overapplied overhead is small, it usually is written off to
a.
Work in Process Inventory.
b.
Cost of Goods Sold.
c.
Finished Goods Inventory.
d.
selling expenses.
69. In accounting for an immaterial amount of overapplied overhead, which of the following is part of the
adjusting entry?
a.
A debit to the Work in Process Inventory account
b.
A debit to the Overhead account
c.
A debit to the Cost of Goods Sold account
d.
A credit to the Overhead account
70. Overhead has been underapplied when the
a.
Overhead account has a credit balance.
b.
Overhead account has a debit balance.
c.
company has overspent in the overhead cost area.
d.
adjusting entry to account for the underapplied overhead involves a credit to Cost of
Goods Sold.
71. Lopar Company uses a predetermined overhead rate based on direct labor dollars. Lopar Company
estimated that its 2010 overhead would total $938,000 and that 2010 direct labor costs would be
$670,000. During 2010, actual overhead costs were $960,000, and actual direct labor costs were
$700,000. By how much was Lopar’s overhead over- or underapplied?
a.
$20,000 overapplied
b.
$20,000 underapplied
c.
$18,000 overapplied
d.
$10,000 underapplied
72. Which of the following accounts would be adjusted by the disposal of an immaterial amount of
overapplied overhead?
a.
Finished Goods Inventory
b.
Materials Inventory
c.
Work in Process Inventory
d.
Cost of Goods Sold
73. The activity base that would be most appropriate in a capital-intensive industry is
a.
direct labor dollars.
b.
direct labor hours.
c.
sales volume.
d.
machine hours.
74. When the activity base used in calculating the predetermined overhead rate is units of output, which of
the following also must be known before overhead can be applied to a particular job?
a.
Actual overhead incurred during the period
b.
Estimated direct labor hours for all jobs during the period
c.
Actual units produced for that job
d.
Actual units produced for all jobs during the period
75. Sleney Company applies overhead on the basis of direct labor dollars, using a rate of $1.65 per labor
dollar. How much overhead would be applied to products in January if $18,600 of labor costs were
incurred and 2,200 labor hours were worked?
a.
$40,920
b.
$30,690
c.
$3,630
d.
$18,600
76. The numbers of vendors, products, and engineering change orders are examples of
a.
beneficial relationships.
b.
potential cost drivers.
c.
inputs to processing time.
d.
unavoidable overhead costs.
77. Overhead during the year was underapplied. If the amount is insignificant, what is the entry to close
the overhead account and transfer the underapplied overhead to Cost of Goods Sold?
a.
Overhead XX
Cost of Goods Sold XX
b.
Cost of Goods Sold XX
Overhead XX
c.
Overhead XX
Finished Goods Inventory XX
d.
Cost of Goods Sold XX
Finished Goods Inventory XX
SHORT ANSWER
1. Complete the following chart by placing an “X” under the applicable column headings. Classify each
cost as a fixed cost or a variable cost and as either a direct or indirect product cost or a period cost.
Item
Cost Behavior
Product Costs
Period Cost
Fixed
Variable
Direct
Indirect
Glue used in furniture
Cost of workers sanding a
product
Wages of factory custodian
Grapes used in jelly
Rent of factory equipment
Factory insurance
Controller’s salary
Factory washroom supplies
Sugar in candy products
Wages of a machinist
Office supplies used
ANS:
Glue used in furniture
2. Complete the following chart by placing an “X” under the applicable column heading. Classify each
cost as a fixed cost or variable cost and as either a direct or indirect product cost or a period cost.
Item
Cost Behavior
Product Costs
Period Cost
Fixed
Variable
Direct
Indirect
Assembly line workers
Office salaries
Factory supervisor
Depreciation on factory
Sales commissions
Paper used to make books
Factory property taxes
Screws in a calculator
Office Receptionist’s payroll
Wages of machineman
Advertising
Depreciation on factory
Wages of machineman
Controller’s salary
3. The costs listed below are related to a manufacturer of all-natural ice cream. In the space provided,
indicate whether the cost should be classified as direct materials (DM), direct labor (DL), or overhead
(OH).
_____ a. Maintenance on factory building
_____ b. Cream
_____ c. Mixing department wages
_____ d. Vanilla
_____ e. Factory supervisor’s salary
_____ f. Machine oil for mixing machines
_____ g. Sugar
_____ h. Machine operator wages
_____ i. Factory maintenance labor
_____ j. Depreciation on factory equipment
4. Identify the document needed to support each of the following activities in a manufacturing
organization:
__________ a. Placing an order for direct materials with a supplier
__________ b. Recording direct labor time at the beginning and end of each work shift
__________ c. Issuing direct materials into production
__________ d. Recording the costs of a specific job requiring direct materials, direct labor, and
overhead
__________ e. Billing a customer for a completed order
__________ f. Receiving direct materials at the shipping dock
5. Use the information below for the year ended December 31, 20xx, to prepare the statement of cost of
goods manufactured.
Inventories
Beginning
Ending
Materials inventory
$32,300
$ 33,900
Work in process inventory
40,500
41,900
Direct materials purchased
158,300
Total direct labor costs
231,300
Total indirect labor costs
45,200
Utilities
27,100
Depreciation
36,200
Small tools
3,100
Factory insurance
1,800
Factory supervision
39,500
Miscellaneous overhead costs
6,200
6. Use the information below for the year ended December 31, 20xx, to prepare the statement of cost of
goods manufactured.
Inventories
Beginning
Ending
Materials inventory
$41,000
$ 51,000
Work in process inventory
62,000
78,000
Direct materials used
Direct labor costs
Overhead costs
3,100
1,800
Total manufacturing costs
Add work in process inventory, January 1
Total cost of work in process during the year
Less work in process inventory, December 31
Direct materials purchased
258,000
Total direct labor costs
372,000
Total indirect labor costs
67,000
Utilities
41,000
Depreciation
54,000
Small tools
5,000
Factory insurance
3,000
Factory supervision
66,000
Miscellaneous overhead costs
11,000
7. Fill in the missing data for Company B:
Company B
Direct materials used
$ 9,000
Direct labor cost
4,000
Overhead
(a)
Total manufacturing costs
25,000
Work in process inventory, Jan. 1
1,000
Work in process inventory, Dec. 31
3,500
Sales revenue
40,000
Finished goods inventory, Jan. 1
(b)
Direct materials used
Direct labor costs
Overhead costs
Total manufacturing costs
Add work in process inventory, January 1
Total cost of work in process during the year
Less work in process inventory, December 31
Cost of goods manufactured
(c)
Cost of goods available for sale
(d)
Finished goods inventory, Dec. 31
4,000
Cost of goods sold
26,500
Gross margin
(e)
Operating expenses
(f)
Net operating income
5,500
ANS:
8. Fill in the missing data for Company C:
Company C
Direct materials used
$ 6,000
Direct labor cost
(a)
Overhead
7,000
Total manufacturing costs
18,000
Work in process inventory, Jan. 1
2,000
Work in process inventory, Dec. 31
(b)
Sales revenue
30,000
Finished goods inventory, Jan. 1
7,000
Cost of goods manufactured
(c)
Cost of goods available for sale
23,000
Finished goods inventory, Dec. 31
(d)
Cost of goods sold
18,000
Gross margin
(e)
Operating expenses
(f)
Operating income
3,000
9. Taperno Manufacturing Company has made the following cost estimates for next year:
Direct labor
$90,000
Direct materials
72,000
Indirect labor
19,200
Indirect materials
8,400
Depreciation—factory building
8,200
Depreciation—factory machinery
4,200
Depreciation—office equipment
500
Factory utilities
4,900
Factory property taxes
3,100
Selling expenses
25,000
Miscellaneous overhead costs
5,600
General and administrative expenses
19,000
The company applies overhead based on direct labor hours. The estimated direct labor hours for next
year are 16,000 hours.
Compute the overhead application rate that will be used to apply overhead during the next year.
10. At the beginning of 2010, Zuir Company’s accounting department calculated the following estimates
for the coming year’s production:
Estimated overhead
$441,600
Direct labor hours
9,200 hr
During the year, Zuir Company experienced $440,000 in actual overhead costs and actually worked
9,100 direct labor hours. Zuir applies overhead to production using a predetermined overhead rate
based on direct labor hours.
a. Calculate the predetermined overhead rate Zuir uses to apply overhead. (Show your computations.)
b. By what amount was overhead over– or underapplied for 2010? (Show your computations.)
c. Assuming the amount of over- or underapplied overhead is not significant, will the Cost of Goods
Sold account be increased or decreased to correct the application of overhead?
ANS:
Overhead costs:
Indirect labor
Indirect materials
Depreciation—factory building
Depreciation—factory machinery
Factory utilities
Factory property taxes
Miscellaneous overhead costs
11. The Sorrel Pharmaceuticals Corporation manufactures a variety of drugs that are marketed
internationally. Inventories on May 31 and June 30 were as follows:
May 31
June 30
Materials Inventory
$354,100
$327,400
Work in Process Inventory
112,600
116,400
Finished Goods Inventory
138,500
142,800
Purchases of materials for June were $142,600. Direct labor costs were incurred and computed on the
basis of 27,000 hours at $8 per hour. Actual overhead costs incurred in June were as follows: operating
supplies used, $5,700; janitorial and materials handling labor, $38,100; employee benefits, $110,800;
heat, light, and power, $50,000; factory depreciation, $8,400; property taxes, $8,000; and expired
portion of insurance premiums, $12,000. Net sales for June were $992,700. Selling and administrative
expenses were $165,000.
Prepare a statement of cost of goods manufactured for the month ended June 30.
Direct materials used
Direct labor costs
Overhead costs
Total overhead costs
Add work in process inventory, May 31, 20xx
12. As the management accountant for Bynami Enterprises, Inc., you have been asked to prepare a
statement of cost of goods manufactured at the end of the first quarter. Account balances at that time
were as follows:
Materials inventory, January 1, 20xx
$ 510,500
Work in process inventory, January 1, 20xx
697,300
Finished goods inventory, January 1, 20xx
701,200
Direct materials purchased during the quarter
1,105,400
Direct labor costs
154,800
Depreciation expense, plant and equipment
16,200
Plant supervisors’ salaries
50,600
Insurance expense, plant and equipment
1,100
Utilities expense, plant
4,000
Indirect labor costs
16,800
Manufacturing supplies expense
3,400
Small tools expense
1,500
March 31 inventories were as follows: materials, $540,200; work in process, $795,400; and finished
goods, $604,100. Prepare the statement of cost of goods manufactured for the first quarter of 20xx.
Direct materials used
Materials inventory, January 1
Direct materials purchased
Cost of direct materials available for use
Less materials inventory, March 31
Cost of direct materials used
Direct labor costs
Overhead costs
Depreciation expense, plant and equipment
Plant supervisors’ salaries
Insurance expense, plant and equipment
Utilities expense, plant
Indirect labor costs
Manufacturing supplies expense
Small tools expense
Total overhead costs
Total manufacturing costs
Total cost of work in process during the quarter
Total cost of work in process during the month
Less work in process inventory, June 30, 20xx
13. Yamishi Production had the following inventories for the first quarter of 20xx:
Beginning
Ending
Materials
$606,600
$522,100
Work in process
312,100
280,800
Finished goods
416,100
540,200
Purchases of materials during the quarter were $427,800. Total direct labor costs were incurred in the
amount of $1,482,000. Actual overhead costs were incurred as follows: operating supplies used,
$17,100; janitorial and maintenance, $87,300; employee benefits, $26,400; utilities, $162,000;
depreciation of factory, $43,200; property taxes, $24,000; factory insurance, $29,000. Net sales for the
quarter were $3,562,200. Selling and administrative expenses were $508,000. Income taxes should be
computed at 40 percent.
Prepare a statement of cost of goods manufactured for the first quarter of 20xx.
Direct materials used
Direct labor
Overhead costs
Janitorial and maintenance
87,300
26,400
43,200
24,000
Total manufacturing costs
Add work in process inventory, January 1
Less work in process inventory, March 31
Cost of goods manufactured
Less work in process inventory, March 31
14. The following information has been made available to you. Assume that overhead is applied on the
basis of direct labor hours.
Estimated overhead
$1,638,000
Estimated direct labor hours
390,000
Actual direct labor hours
442,000
Actual overhead
$1,862,000
a. Compute the predetermined overhead rate.
b. Compute the amount of applied overhead for the year.
c. Compute the amount of underapplied or overapplied overhead.
actual overhead incurred
15. The following information has been made available to you. Assume that overhead is applied on the
basis of direct labor hours.
Actual overhead
$47,400
Estimated overhead
$48,300
Actual direct labor hours
8,900
Estimated direct labor hours
9,200
a. Compute the predetermined overhead rate.
b. Compute overhead applied.
c. Compute over- or underapplied overhead (indicate amount and direction).
d. Indicate whether cost of goods sold should be increased or decreased to adjust the balance to actual
costs.
16. The controller for Drisau Company is trying to decide whether or not the company should switch from
the traditional approach of overhead cost allocation to the activity-based costing approach. She has
gathered the following overhead data on the company’s two products: estimated total overhead,
$180,000 (consisting of the $70,000 for setups and $110,000 for assembly); estimated direct labor
hours (Product A, 6,000; Product B, 3,000); estimated number of setups (Product A, 750; Product B,
1,250); estimated number of machine hours used in assembly (Product A, 3,000; Product B, 5,000);
estimated number of units produced (Product A, 500; Product B, 200).
Using the traditional approach:
a. Calculate the predetermined overhead rate using direct labor hours as the cost driver.
b. Compute the amount of overhead costs applied to each product in total and per unit.
17. Job 29 consists of 300 units and has total manufacturing costs of direct materials, $4,500; direct labor,
$7,500; and overhead, $3,600.
a. What is the unit product cost?
b. What are the prime costs per unit?
c. What are the conversion costs per unit?
18. Compute the overhead rate per shipping request for the Shipping Department if the estimated overhead
costs are $18,290 and the number of estimated shipping requests is 3,100.
19. Dale, Smith, and Associates, a CPA firm, is trying to determine the hourly cost of its junior
accountants in the auditing department. The following data have been gathered.
Monthly salaries for 4 juniors @ $3,000 each
$12,000
Monthly auditing department overhead costs
$83,160
Average number of hours worked each month
800
hr
Assuming 40 percent of the monthly overhead costs for the auditing department are attributable to the
junior accountants, compute the hourly cost of their services.
20. Calculate the amount of overhead costs applied to production if the predetermined overhead rate is $4
per direct labor hour and 1,200 direct labor hours were worked.