Chapter 5—Job-Order Costing
TRUE/FALSE
1. Manufacturing and service firms producing unique products or services require job-order accounting
systems.
2. The key feature of job-order costing is that the cost of one job differs from that of another job and
must be kept track of separately.
3. Production costs consist of direct materials, direct labor, and overhead.
4. The difference between actual overhead and applied overhead is called an overhead variance.
5. If actual overhead is greater than applied overhead, the variance is called underapplied overhead.
6. Costs reported on the financial statements must be estimated costs.
7. If the overhead variance is immaterial, it is allocated among the ending balances of Work in Process,
Finished Goods, and Cost of Goods Sold.
8. Departmental overheads cannot be added together to get plantwide overhead.
9. In an actual cost system, actual direct materials, actual direct labor and estimated overhead are used to
determine unit cost.
10. A job-order cost sheet is the source document where direct labor costs are assigned to individual jobs.
11. Using a time ticket, the cost accounting department can enter the cost of direct materials onto the
correct job-order cost sheet.
12. The work-in-process account consists of all the job-order cost sheets for the completed jobs.
13. There are other source documents besides the time ticket and the material requisition form used to fill
out the job-order cost sheet.
14. The raw materials account is an inventory account located on the income statement.
15. The three manufacturing cost elements are direct materials, direct labor, and overhead.
16. The use of normal costing means that actual overhead costs are assigned directly to jobs.
17. The use of a departmental rate has the advantage of being simple and reduces data collection
requirements.
18. Actual overhead is reconciled with applied overhead at the beginning of the period.
19. Actual overhead is used to arrive at the cost of goods manufactured.
20. The cost of goods sold appearing on the income statement as an expense is the normal cost of goods
sold.
21. When materials are put into production, they are taken from the Raw Materials account and put into
the Work in Process account.
22. Overhead costs are assigned to Finished Goods using a predetermined rate.
23. Actual overhead costs are accumulated in the overhead control account.
24. The cost of completed units is always debited to Work-in-Process and credited to Finished Goods.
25. The journal entry for $17,000 materials purchased on account is:
Raw Materials
17,000
Accounts Payable
17,000
26. In job-order costing, the journal entry for $7,200 raw materials requisitioned for use in production is:
Work in Process
7,200
Raw Materials
7,200
27. In job-order costing, the journal entry for $1,700 of unpaid direct labor is:
Work in Process
1,700
Wages Payable
1,700
28. In job-order costing, the journal entry for overhead applied at the rate of $3 per direct labor hour when
210 direct labor hours were worked is:
Work in Process
630
Applied Overhead
630
Work in Process
630
Overhead Control
630
29. In job-order costing, the journal entry for a completed job costing $7,000 but not sold is:
Finished Goods
7,000
Work in Process
7,000
30. The journal entry for $17 of underapplied overhead is:
Cost of Goods Sold
17
Applied Overhead
17
Cost of Goods Sold
17
Overhead Control
17
MATCHING
Match each item with the correct statement below.
a.
actual cost system
b.
job-order costing system
c.
normal cost system
d.
process-costing system
1. An approach that assigns the actual costs of direct materials and direct labor to products but uses a
predetermined rate to assign overhead costs
2. An approach that assigns actual costs of direct materials, direct labor, and overhead to products
3. A costing system in which costs are collected and assigned to units of production for each individual
job
4. A costing system that accumulates production costs by process or by department for a given period of
time
Match each item with the correct statement below.
a.
predetermined overhead rate
b.
plantwide overhead rate
c.
departmental overhead rate
d.
overhead variance
e.
overapplied overhead
f.
underapplied overhead
g.
applied overhead
h.
normal cost of goods sold
5. Overhead assigned to production using predetermined rates
6. An overhead rate computed using estimated data
7. The amount by which actual overhead exceeds applied overhead
8. The difference between actual overhead and applied overhead
9. The amount by which applied overhead exceeds actual overhead
10. A single overhead rate calculated using all estimated overhead for a factory divided by the estimated
activity level across the entire factory
11. Estimated overhead for a single department divided by the estimated activity level for that same
department
Match each item with the correct statement below. Answers may be used more than once.
a.
Job-order cost sheet
b.
Time ticket
c.
Materials requisition form
12. The job order number, or name, head this form.
13. This form asks for the type, quantity, and unit price of direct materials.
14. This form is filled out by each employee every day.
15. Every time a new job is started this is prepared.
16. This form may be used to maintain proper control over a firm’s inventory of direct materials.
Match the following cost flows with the proper event in a job-costing firm:
a.
completion of job
b.
end of each accounting period
17. direct materials, direct labor and applied overhead are totaled to yield manufacturing cost of job
18. the costs of job are transferred from the work-in–process account to finished goods account
19. actual overhead is reconciled with applied overhead
20. cost of materials is removed from materials account and added to work-in– process account
21. costs of product are removed from finished goods and added to cost of goods sold
22. schedule of costs of goods sold is prepared
23. immaterial overhead variance closed to costs of goods sold
COMPLETION
1. A _______ is one distinct unit or set of units.
2. In a _______________________________ costs are accumulated by job.
3. __________________________ is a costing system that accumulates production costs by process or
by department for a given period of time.
4. Strict ______________________ are rarely used because they cannot provide accurate unit cost
information on a timely basis.
5. A(n) ___________________________ determines unit cost by adding actual direct materials, actual
direct labor, and estimated overhead.
6. The ___________________________ is calculated at the beginning of the year by dividing the total
estimated annual overhead by the total estimated level of cost driver.
7. _________________ is found by multiplying the predetermined overhead rate by the actual use of the
associated activity for the period.
8. The difference between actual overhead and applied overhead is called a (n) _________________.
9. If actual overhead is greater than applied overhead, then the variance is called ___________________.
10. A _____________________ is a single overhead rate calculated by using all estimated overhead for a
factory divided by the estimated activity level across the entire factory.
11. The _____________________ is subsidiary to the work-in-process account and is the primary
document for accumulating all costs related to a particular job.
12. A __________________________ is used by the cost accounting department to enter the cost of direct
materials onto the correct job-order cost sheet.
13. A source document by which direct labor costs are assigned to individual jobs is known as a
_______________.
14. The cost of goods sold before an adjustment for an overhead variance is called
____________________.
15. _________________________ is the amount that appears as an expense on the income statement after
the adjustment for the period’s overhead variance is recorded.
16. When materials are requested for production the cost is removed from ____________ and added to
____________.
17. Applied overhead costs are charged to ________________.
18. When units are sold, their total cost is debited to _______________ and credited to ____________.
19. ________________________ are directly responsible for creating the products or services sold to
customers.
20. The ____________________ of allocation recognizes all interactions among support departments.
MULTIPLE CHOICE
1. Which of the following is not a characteristic of job-order costing?
a.
Wide variety of distinct products.
b.
Unit cost is computed by dividing process costs of the period by the units produced in the
period.
c.
Unit cost is computed by dividing total job costs by units produced on that job.
d.
Costs accumulated by job.
e.
Typically, the cost of one job is different from that of another job.
2. How are unit costs calculated?
a.
by dividing total cost associated with the units produced by the unit cost
b.
by adding all variable costs per unit associated with the units produced
c.
by dividing total fixed costs by the number of units produced
d.
by dividing total cost associated with the units produced by the number of units produced
e.
by adding unit variable costs to total fixed costs
3. Production costs do not include
a.
direct materials.
b.
direct labor.
c.
variable overhead.
d.
fixed overhead.
e.
All of these are production costs.
4. Which of the following are easy to trace to individual jobs?
a.
direct materials and overhead
b.
direct materials and direct labor
c.
direct labor and overhead
d.
overhead and indirect labor
e.
depreciation on machinery and indirect labor
5. Firms in the ____ business are most likely to use a process-costing system.
a.
printing
b.
dental
c.
construction
d.
petroleum
e.
automobile repair
6. Which of the following is the assignment process used with normal costing?
a.
Actual direct materials, actual direct labor and actual overhead cost are assigned to
products.
b.
Actual direct materials cost is assigned to products, but direct labor and overhead costs are
assigned using predetermined rates.
c.
Actual direct labor cost is assigned to products, but direct material and overhead costs are
assigned using predetermined rates.
d.
Actual direct material and direct labor costs are assigned to products, but overhead costs
are assigned using predetermined rates.
e.
All manufacturing costs are assigned using predetermined rates.
7. Which method of measuring costs associated with production is more widely used in practice?
a.
normal Costing
b.
actual Costing
c.
both are used equally.
d.
neither one is used.
e.
cannot be determined.
8. Which type of cost poses the most problems in using an actual cost system?
a.
direct materials
b.
overhead
c.
direct labor
d.
All of these are correct.
e.
None of these are correct.
9. Which of the following statements is true about overhead?
a.
Overhead costs are not incurred uniformly throughout the year.
b.
Overhead costs have a definite, identifiable relationship with units produced.
c.
Low production in one month would give rise to low unit overhead costs.
d.
All of these are correct.
e.
None of these are correct.
Figure 5-1.
Morrow Company applies overhead based on direct labor hours. At the beginning of the year, Morrow
estimates overhead to be $620,000, machine hours to be 180,000, and direct labor hours to be 40,000.
During February, Morrow has 4,200 direct labor hours and 8,000 machine hours.
10. Refer to Figure 5-1. What is the predetermined overhead rate?
a.
$3.44 per machine hour
b.
$147.62 per direct labor hour
c.
$15.50 per direct labor hour
d.
$77.50 per machine hour
e.
None of these are correct.
11. Refer to Figure 5-1. What is the amount of overhead applied for February?
a.
$65,100
b.
$42,000
c.
$24,000
d.
$78,200
e.
$66,410
12. Refer to Figure 5-1. If the actual overhead for February is $64,700, what is the overhead variance and
is it overapplied or underapplied?
a.
$400 underapplied
b.
$200 overapplied
c.
$1,000 underapplied
d.
$400 overapplied
e.
$600 overapplied
Figure 5-2.
At the beginning of the year, Kyla Inc. estimated that overhead would be $880,000 and direct labor
hours would be 220,000. At the end of the year, actual overhead was $920,600 and there were actually
230,000 direct labor hours.
13. Refer to Figure 5-2. What is the overhead variance?
a.
$600 underapplied
b.
$600 overapplied
c.
$200 underapplied
d.
$400 overapplied
e.
$800 underapplied
14. Refer to Figure 5-2. What is the predetermined overhead rate?
a.
$4 per direct labor hour
b.
$2.63 per direct labor hour
c.
$4.18 per direct labor hour
d.
$880,000
e.
None of these are correct.
Figure 5-3.
Mitchell’s Softball Gloves Company estimated the following at the beginning of the year:
Assembly Department
Total
Overhead
$570,000
$700,000
Direct Labor Hours
142,500
175,000
Machine Hours
32,000
97,000
Mitchell uses departmental overhead rates. In the assembly department, direct labor hours are used to
apply overhead. Machine hours are used to apply overhead in the testing department.
Actual data for August is as follows:
Assembly Department
Total
Overhead
$42,000
$54,000
Direct Labor Hours
13,500
15,930
Machine Hours
4,020
15,020
15. Refer to Figure 5-3. If Mitchell uses a plantwide overhead rate based on direct labor hours, instead of
departmental rates, what is the predetermined overhead rate rounded to the nearest cent?
a.
$5 per direct labor hour
b.
$7.22 per machine hour
c.
$4 per direct labor hour
d.
$2.57 per direct labor hour
e.
$0.52 per direct labor hour
16. Refer to Figure 5-3. Using departmental overhead rates, which of the following is correct?
a.
Applied overhead for the assembly department is $54,000.
b.
Applied overhead for the testing department is $4,860.
c.
Applied overhead for both departments combined is $63,720.
d.
Overhead for the assembly department is underapplied.
e.
None of these are correct.
17. Refer to Figure 5-3. Mitchell decides to continue using departmental overhead rates. What are the
predetermined rates for the Assembly and Testing departments respectively?
a.
assembly: $4 per direct labor hour; testing: $2 per machine hour
b.
assembly: $2 per direct labor hour; testing: $4 per machine hour
c.
assembly: $4 per direct labor hour; testing: $4 per direct labor hour
d.
assembly: $7.22 per machine hour; testing: $7.22 per machine hour
e.
None of these.
18. Refer to Figure 5-3. Mitchell decides to continue using departmental overhead rates. If a job spends 4
hours in assembly and 3 hours in testing, what is the amount of overhead charged to the job?
a.
$22
b.
$20
c.
$28
d.
$50.54
e.
None of these.
19. The predetermined overhead rate is calculated by
a.
estimated annual overhead/Estimated manufacturing cost.
b.
actual annual overhead/Estimated annual activity level.
c.
estimated annual overhead/Actual annual activity level.
d.
actual annual overhead/Actual annual activity level.
e.
estimated annual overhead/Estimated annual activity level.
20. The overhead variance is least likely to be
a.
zero (actual overhead equals applied overhead).
b.
underapplied.
c.
overapplied.
d.
immaterial.
e.
underapplied and material.
21. The unit cost of a job consists of the total costs of
a.
materials used on the job.
b.
labor worked on the job.
c.
applied overhead.
d.
All of these are correct.
e.
None of these are correct.
22. Smith has applied overhead of $73,000 and actual overhead of $87,600 for the month of November. It
applies overhead based on direct labor hours and those equaled 14,600 in November. Overhead for the
year was estimated to be $900,000. How many direct labor hours were estimated for the year?
a.
175,200
b.
180,000
c.
$5
d.
150,000
e.
$6
23. At the beginning of the year, Wilson Company estimated the following:
Overhead
$360,000
Direct labor hours
60,000
Wilson used normal costing and applies overhead on the basis of direct labor hours. For the month of
September, direct labor hours equaled 9,350 and actual overhead equaled $46,750.
Calculate the overhead applied to production in September.
a.
$56,100
b.
$30,000
c.
$46,750
d.
$5 per direct labor hour
e.
None of these.
24. On February 1, Job 12 had a beginning balance of $200. During February, direct materials of $500 and
direct labor of $200 were added to the job. Overhead is applied to production at a rate of 55% of direct
labor. There are 5 units in Job 12.
What is the unit cost?
a.
$202
b.
$1,010
c.
$162
d.
$810
e.
None of these.
25. Manufacturing overhead
a.
consists of all costs other than direct materials.
b.
consists of all manufacturing costs other than direct materials.
c.
consists of all costs other than direct materials and direct labor.
d.
consists of all manufacturing costs other than direct materials and direct labor.