Chapter 3—Job Costing, Process Costing, and Operations Costing
MULTIPLE CHOICE
1. The accumulating, tracking, and assigning of production costs to the goods and services produced is
called a:
a.
pricing system.
b.
managerial system.
c.
product costing system.
d.
manufacturing system.
2. Companies that manufacture products such as custom-designed decks and pools would most likely use
which type of costing?
a.
Process costing
b.
Job costing
c.
Operations costing
d.
Normal costing
3. Companies that produce a homogeneous product where all the units are the same would most likely
use which type of costing?
a.
Process costing
b.
Job costing
c.
Operations costing
d.
Normal costing
4. Companies that produce large numbers of standardized products within a particular batch would most
likely use which type of costing?
a.
Process costing
b.
Job costing
c.
Operations costing
d.
Normal costing
5. Which of the following companies would be the most likely to adopt a job order costing system?
a.
Beverage manufacturer
b.
Oil Refinery
c.
Custom Home Contractor
d.
Clothing manufacturer
6. Which of the following companies would be the most likely to adopt a process costing system?
a.
Law firm
b.
Toy retailer
c.
Motion Picture Producer
d.
Cement manufacturer
7. Which of the following types of companies would probably not use job order costing?
a.
Car repair shop
b.
Interior decorator
c.
Soft drink manufacturer
d.
Custom cabinet maker
8. Which of the following types of costs would be specifically tracked or traced and assigned to a specific
job in a job order costing system?
a.
Indirect labor
b.
Direct labor
c.
Indirect materials
d.
Supervisor salary
9. Which of the following types of costs are easily tracked or traced and assigned to a specific job in a
job order costing system?
a.
Factory utilities
b.
Factory supervisor
c.
Factory assembly-line worker
d.
Lubricants used on factory machinery
10. Which of the following types of costs is not easily tracked or traced to a specific job or file in
job-order costing?
a.
Fabric used in upholstered furniture
b.
Medication given to a hospital patient
c.
Cleaning supplies used in the factory
d.
Fringe benefits given to assembly-line worker
11. Which of the following would not be included on a job cost report?
a.
Marketing costs
b.
Direct labor costs
c.
Manufacturing overhead costs
d.
Direct materials cost
12. Which of the following statements is correct regarding fringe benefits earned by employees whose
regular wages are normally classified as direct labor?
a.
Fringe benefits should also be classified as direct labor.
b.
Fringe benefits should be classified as indirect labor.
c.
Fringe benefits should be classified as a period cost.
d.
Fringe benefits should not be classified as either a product or period cost.
13. Which of the following should not be considered in the calculation of direct labor cost?
a.
The employer’s portion of social security and unemployment taxes.
b.
The wage rate for each employee multiplied by the number of hours each employee works
on each job.
c.
Fringe benefits given to an employee who works on a job.
d.
Overtime pay to an employee as a result of production problems not related to a specific
job.
14. George Wilson is an assembly-line worker for Gantt Manufacturing. Gantt pays its employees weekly.
The following is a breakdown of all the labor costs traced to George for the previous week:
Regular pay:
40 hours at $16 per hour
Overtime pay:
5 hours at $24 per hour
Fringe benefits received:
$70 per week
Last week, George spent the entire 45 hours he worked on a special order “rush” job for a particular
customer. The overtime was necessary in order to complete the job from start to finish within one
week. Assuming that George was the only employee who worked directly on this job, how much direct
labor cost should be assigned to the job?
a.
$710
b.
$640
c.
$830
d.
$760
15. Costs associated with factory insurance, maintenance, rent, property taxes, and other similar items are
typically included in manufacturing overhead and assigned to products:
a.
primarily based on whatever technique is easiest.
b.
based on a related cost driver that can be identified and measured.
c.
if not treated as a period cost.
d.
based on the relative sales revenue generated by the product.
16. In job order costing, which of the following types of costs is usually the most difficult to trace to a
product?
a.
Labor cost of machine operator
b.
Labor cost of factory supervisor
c.
Wood used to build custom furniture
d.
Rubber used in tire manufacturing
17. Allocation:
a.
is most often used for direct material costs.
b.
is most often used for manufacturing overhead costs.
c.
is most often used for direct labor costs.
d.
is most often used for nonmanufacturing costs.
18. Which of the following costs is the most likely to be allocated to a product in a traditional job costing
environment?
a.
Direct materials
b.
Direct labor
c.
Manufacturing overhead
d.
Selling and administrative
19. Which of the following costs is the most likely not allocated to a product in a job costing
environment?
a.
Indirect materials
b.
Factory maintenance
c.
Factory utilities
d.
Direct labor
20. Which of the following statements is correct?
a.
Overhead consists of a limited variety of costs that should have the same cost driver.
b.
Overhead consists of a wide variety of costs that should have the same cost driver.
c.
Overhead consists of a variety of costs that may potentially have different cost drivers.
d.
Overhead consists of a limited variety of costs that must each have a unique cost driver.
21. A good allocation base:
a.
drives the incurrence of direct material costs.
b.
drives the incurrence of direct labor costs.
c.
drives the incurrence of overhead costs.
d.
drives the incurrence of administrative costs.
22. An allocation base that causes overhead costs to be incurred is called a(n):
a.
revenue driver.
b.
predetermined driver.
c.
cost driver.
d.
applied driver.
23. The key to allocating overhead costs is the determination of the ____.
a.
overhead
b.
cost driver
c.
direct labor
d.
product cost
24. Which of the following statements is true with respect to cost drivers?
a.
Overhead costs should only have one cost driver.
b.
In labor intensive companies, direct labor hours often serves as the cost driver.
c.
When using a cost driver, the same amount of overhead will be allocated to all products.
d.
Cost drivers are only used to allocate machine hours.
25. What should determine whether an allocation base is a good cost driver?
a.
Whether or not the base can be measured in terms of “hours”.
b.
Whether or not the base can be applied plantwide.
c.
Whether or not the base is unique to the overhead being allocated.
d.
Whether or not there is a cause-and-effect relationship between the base and the overhead
cost.
26. Which of the following would probably not be a cost driver in a manufacturing environment?
a.
Machine hours
b.
Direct labor hours
c.
Direct labor cost
d.
Indirect labor hours
27. Maria’s Custom Tailoring is very labor intensive. Therefore, Maria has decided to use direct labor
hours as the cost driver for assigning overhead costs to specific jobs. During the month of February,
the company incurred overhead costs of $4,800. Total direct labor hours during the month totaled
1,200. Out of a total of 45 different jobs worked on during the month, Job #115 required 16 direct
labor hours to complete and Job #195 required 15 direct labor hours. The total amount of overhead
allocated to these two jobs is:
a.
$124.00
b.
$187.50
c.
$137.50
d.
$ 31.00
28. Horatio Ltd. uses job order costing to measure and track product costs. Horatio has determined that
machine hours drive its manufacturing overhead costs. During the month of June, the following data
were available for Product #95:
Direct labor
350 hours at $10 per hour
Direct materials
40 square yards at $25 per yard
Machine hours used
1,000 hours
If total manufacturing overhead costs during the month totaled $10,000 when a total of 25,000
machine hours were used, what will be the total manufacturing cost of Product #95?
a.
$7,000
b.
$5,500
c.
$4,900
d.
$4,500
29. Presley Products Inc. is a manufacturer of limited edition dolls. They use operations costing to
measure and track the costs incurred for specific product lines. While most of the products do require
some machine time, Presley has determined that direct labor hours drive its manufacturing overhead
costs. During the month of April, the following data were available for a particular line of dolls:
Direct labor
3,000 hours at $10 per hour
Direct materials
4,000 pounds at $2 per pound
If total overhead costs during the month totaled $25,000 when a total of 50,000 direct labor hours were
worked, what will be the total manufacturing cost for this line of dolls?
a.
$40,500
b.
$44,000
c.
$63,000
d.
$39,500
30. Griffin Manufacturing uses job order costing to measure and track the costs incurred for specific jobs.
Griffin has determined that direct labor cost drives its manufacturing overhead costs. During the month
of August, the following data were available for Job #45:
Direct labor
200 hours at $15 per hour
Direct materials
90 gallons at $6 per gallon
Machine hours used
100 hours
If total overhead costs during the month totaled $4,000 when a total of $20,000 in direct labor costs
were incurred, what will be the total manufacturing cost of Job #45?
a.
$4,140
b.
$3,580
c.
$7,540
d.
$3,540
31. Benjamin Products uses job order costing and assigns overhead to specific jobs using direct labor
hours. During the month of June, a total of 1,800 direct labor hours at a cost of $16 per hour were
incurred for all jobs. Actual overhead costs for the month totaled $9,000. If a specific job required 36
direct labor hours of work, how much overhead should be applied to that job?
a.
$179.20
b.
$212.80
c.
$180.00
d.
$348.00
32. Which of the following statements regarding plantwide overhead rates is true?
a.
Plantwide overhead rates based on the direct labor hours or machine time works well for
all company.
b.
Plantwide overhead rates must use machine hours as their cost driver.
c.
As the number of diverse products a company makes increases, the likelihood that a
company will replace a plantwide overhead rate with a departmental overhead rate
increases.
d.
Plantwide overhead rates are usually more costly to prepare than a departmental overhead
rate.
33. When using job-order costing, which of the following costs is least likely to be known in a timely
manner for decision-making purposes?
a.
Direct labor costs
b.
Administrative salaries
c.
Direct materials costs
d.
Manufacturing overhead costs
34. Why do many managers desire to use a predetermined overhead rate instead of an actual overhead
rate?
a.
Because it is impossible to ever know actual overhead costs.
b.
Because predetermined overhead rates are more accurate than actual overhead rates.
c.
Because actual overhead amounts are often not known in a timely enough manner to make
decisions.
d.
Because the use of predetermined overhead rates will always result in lower product
prices.
35. Which of the following is not true regarding predetermined overhead rates?
a.
They are useful in estimating product costs before actual overhead amounts are known
with certainty.
b.
They can normalize seasonal and random fluctuations in overhead costs so that product
costs will be consistent throughout the year.
c.
With their use, it is no longer necessary to be able to identify a cost driver.
d.
With their use, too much or too little overhead may end up being allocated to a product or
job.
36. The formula for calculating the predetermined overhead rate for a cost pool is:
a.
Actual overhead for the cost pool Estimated units of the cost driver
b.
Estimated overhead for the cost pool Actual units of the cost driver
c.
Actual overhead for the cost pool Actual units of the cost driver
d.
Estimated overhead for the cost pool Estimated units of the cost driver
37. The formula for calculating the amount of applied overhead to a product is:
a.
Predetermined overhead rate Estimated units of cost driver
b.
Predetermined overhead rate Actual overhead costs
c.
Predetermined overhead rate Actual units of cost driver
d.
Predetermined overhead rate Estimated overhead costs
Aronson & Associates LLP
Aronson & Associates LLP, an accounting firm, assigns overhead to clients based on direct labor
hours. The following information is available for the month of March:
Estimated direct labor hours
8,000 hours
Estimated overhead costs
$16,000
Actual direct labor hours
8,100 hours
Actual overhead costs
$16,190
38. Refer to the Aronson & Associates LLP information above. The predetermined overhead rate for the
month of March is:
a.
$2.00 per direct labor hour
b.
$1.50 per direct labor hour
c.
$1.95 per direct labor hour
d.
$1.90 per direct labor hour
39. Refer to the Aronson & Associates LLP information above. The amount of applied overhead for
March will be:
a.
$8,000
b.
$16,200
c.
$16,190
d.
$16,000
40. Refer to the Aronson & Associates LLP information above. By how much was overhead over– or
underapplied for the month of March?
a.
$10 overapplied
b.
$190 overapplied
c.
$10 underapplied
d.
$190 underapplied
Rolling Hills Construction
Rolling Hills Construction Co. assigns overhead to specific jobs based on actual direct labor cost
(dollars). The following information is available for the month of June:
Estimated direct labor hours
2,000 hours
Estimated direct labor cost per hour
$12/hour
Estimated overhead costs
$3,000
Actual direct labor hours
2,300 hours
Actual direct labor cost per hour
$13/hour
Actual overhead costs
$3,300
41. Refer to the Rolling Hills Construction information above. The predetermined overhead rate for the
month of June is:
a.
$0.125 per direct labor dollar
b.
$1.250 per direct labor dollar
c.
$0.110 per direct labor dollar
d.
$8.000 per direct labor dollar
42. Refer to the Rolling Hills Construction information above. The amount of overhead applied for June
is:
a.
$3,450.00
b.
$3,000.00
c.
$3,737.50
d.
$5,900.00
43. Martin Manufacturing assigns overhead to jobs based on machine hours. At the beginning of the
current year, estimated overhead costs were $250,000 and estimated machine hours were 50,000.
During the year, 150 machine hours were used on Job #108. By the end of the year, actual overhead
costs were calculated to be $232,500 and actual machine hours were 5,000.
How much overhead was applied to Job #108 during the year?
a.
$630.00
b.
$708.75
c.
$622.22
d.
$750.00
Giles Inc.
Giles Inc. manufactures high quality golfing equipment. Giles assigns overhead to products based on
machine hours. At the beginning of the current year, estimated overhead costs were $500,000 and
estimated machine hours were 50,000. During the year, 54,000 machine hours were actually used. By
the end of the year, actual overhead costs were calculated to be $529,200.
44. Refer to the Giles Inc. information above. What was the predetermined overhead rate?
a.
$10.00 per machine hour
b.
$ .10 per machine hour
c.
$ 9.80 per machine hour
d.
$10.58 per machine hour
45. Refer to the Giles Inc. information above. How much total overhead was applied to products during
the year?
a.
$571,536
b.
$540,000
c.
$490,000
d.
$529,200
46. Refer to the Giles Inc. information above. By how much was overhead over– or underapplied for the
year?
a.
$39,200 underapplied
b.
$29,200 underapplied
c.
$10,800 overapplied
d.
$42,336 overapplied
Teresa Summerlin
Teresa Summerlin manufactures hand-crafted pottery. Overhead is applied to products based on direct
labor hours. At the beginning of the current year, Teresa estimated total overhead costs would be
$30,000 and estimated direct labor hours would be 20,000. Actual overhead costs for the year totaled
$36,000 for 18,000 actual direct labor hours.
47. Refer to the Teresa Summerlin information above. How much overhead was applied during the year?
a.
$27,000
b.
$40,000
c.
$32,400
d.
$33,400
48. Refer to the Teresa Summerlin information above. By how much was overhead underapplied for the
year?
a.
$2,600 underapplied
b.
$9,000 underapplied
c.
$3,000 underapplied
d.
$6,000 underapplied
49. Nelson Manufacturing applies overhead to its manufactured products based on direct labor hours. Last
year, total overhead costs were estimated to be $108,900. Actual overhead costs ended up totaling
$115,000 when 10,000 direct labor hours were actually worked. At the end of the year, overhead was
overapplied by $6,000.
What was the predetermined overhead rate that must have been used during the year?
a.
$11.50 per direct labor hour
b.
$10.60 per direct labor hour
c.
$12.10 per direct labor hour
d.
$10.90 per direct labor hour
50. Southern Manufacturing applies overhead to its products based on direct labor hours. During 2011 the
company allocated overhead using a predetermined overhead rate of $5.25. At the end of 2011 it was
determined that overhead was underapplied by $10,000. Which of the following could not be a
possible reason for overhead being underapplied?
a.
Estimated overhead costs differed from actual overhead costs.
b.
Estimated direct labor hours differed from actual direct labor hours.
c.
The cost driver does not have enough correlation with overhead costs.
d.
Applied overhead was higher than actual overhead.
51. Wintergreen Products allocates overhead based on direct labor hours. During 2011 overhead was
overapplied by $4,000. Assuming that the year-end adjustment to clear out the overapplied overhead
has not yet been done, which of the following statements is most likely true if there are no ending
inventories?
a.
Direct material costs are understated
b.
Direct labor costs are understated
c.
Cost of goods sold is overstated
d.
Net income is overstated
52. Newman Manufacturing underapplied its manufacturing overhead during 2011. Which of the
following statements is true regarding the adjustment to clear out the underapplied overhead?
a.
Period costs will be increased
b.
Cost of goods sold will be increased
c.
Work-in-process will be decreased
d.
Finished goods will be decreased
53. If the under- or overapplied overhead amount is considered material, which of the following accounts
would be the least likely to be adjusted at the end of the year?
a.
Work-in-process
b.
Finished goods
c.
Cost of goods sold
d.
Raw materials
54. Which of the following statements is true regarding process costing?
a.
Product costs are tracked and assigned to each job.
b.
Product costs are tracked to particular departments and then assigned evenly to the
products that pass through each department.
c.
There should not be any beginning or ending work–in-process inventory.
d.
The units produced by a processing department should all be different in some way or
another.
55. Which type(s) of cost(s) are accumulated, tracked, and assigned to products when a company uses
process costing?
a.
Direct materials only
b.
Direct labor only
c.
Direct labor and overhead only
d.
Direct materials, direct labor, and overhead
56. In its initial year of operation, Montoya Manufacturing started and completed 4,000 identical widgets
and had 1,000 widgets that were 40% complete in work–in-process at the end of the year. Total
production costs for the year were $55,000. What was the equivalent units of production during the
year?
a.
4,600 equivalent units
b.
5,000 equivalent units
c.
4,000 equivalent units
d.
4,400 equivalent units
57. In its initial year of operation, Montoya Manufacturing started and completed 4,000 identical widgets
and had 1,000 widgets that were 40% complete in work–in-process at the end of the year. Total
production costs for the year were $55,000. What is the cost per equivalent unit?
a.
$12.50
b.
$11.00
c.
$11.96
d.
$13.75
58. Howell Manufacturers had no units in process at the beginning of the year. During the current year,
40,000 units were started. There were 5,000 units in work-in-process at the end of the year. These units
were 35% complete. How many total equivalent units were completed during the year?
a.
38,250 equivalent units
b.
36,750 equivalent units
c.
43,250 equivalent units
d.
41,750 equivalent units
59. Howell Manufacturers had no units in process at the beginning of the year. During the current year,
40,000 units were started. There were 5,000 units in work-in-process at the end of the year. These units
were 35% complete. If total production costs for the year were $275,625, what should be the cost per
equivalent unit?
a.
$6.37
b.
$6.13
c.
$7.21
d.
$7.50
60. Reliable Manufacturers had no units in process at the beginning of the year. During the current year,
140,000 units were started. There were 15,000 units in work-in-process at the end of the year. These
units were 40% complete. If total production costs for the year were $393,000 what should be the cost
per equivalent unit?
a.
$3.00
b.
$3.14
c.
$2.69
d.
$2.93
61. Jet Products had no units in process at the beginning of the year. Jet uses process costing and has
calculated 47,000 total equivalent units completed during the year. If there were 53,000 units started in
the current period and 10,000 units in ending work-in-process, what percentage complete were the
ending inventory units?
a.
50%
b.
60%
c.
40%
d.
22%
62. Which of the following statements is false regarding process costing?
a.
Units that are partially complete can be expressed in terms of equivalent units.
b.
Only one work-in-process account is allowed.
c.
The products produced by a certain process are all identical.
d.
The use of a predetermined overhead rate is allowed.
63. Lee Manufacturing uses process costing. The following information is available for the current year:
2,000
10,000
12,000
(1,600)
10,400
If Lee uses the FIFO method of process costing, which units are assumed to be the first ones finished
during the year?
a.
The 1,600 units in ending inventory
b.
The 10,000 units that were started in the current period
c.
The 1,000 units in beginning inventory
d.
The 12,000 units that were available in the current period
64. Under which of the following conditions will the first-in, first-out method produce the same cost of
goods manufactured as the weighted-average method?
a.
There is no ending work in process inventory.
b.
There is no beginning work in process inventory.
c.
The beginning and ending work in process inventories are equal.
d.
The beginning and ending work in process inventories are both 50% complete.
65. Which of the following statements is true regarding the FIFO method of process costing?
a.
It assumes that the units in beginning inventory are not worked on during the current
period.
b.
It assumes that the units in beginning inventory were started into production during the
current period.
c.
It assumes that the units in beginning inventory were finished first during the current
period.
d.
It assumes that the units in beginning inventory were the same percentage complete as the
units in ending inventory.
66. Which of the following statements is true regarding the weighted-average method of process costing?
a.
It assumes that there are an equal number of units in beginning and ending inventories.
b.
It assumes that the units in beginning inventory were started into production during the
current period.
c.
It assumes that the units in beginning inventory were finished last in the current period.
d.
It assumes that the units in beginning inventory were the same percentage complete as the
units in ending inventory.
67. Which costs should be included in the calculation of the cost per equivalent unit using the FIFO
method of process costing?
a.
Current period costs only
b.
Current period costs plus those from beginning work-in-process inventory
c.
Current period costs less those from beginning work-in-process inventory
d.
Current period costs less those from ending work-in-process inventory
68. Which costs should be included in the calculation of the cost per equivalent unit using the
weighted-average method of process costing?
a.
Current period costs only
b.
Current period costs plus those from beginning work-in-process inventory
c.
Current period costs less those from beginning work-in-process inventory
d.
Current period costs less those from ending work-in-process inventory
Rollins Manufacturing
Rollins Manufacturing uses process costing. The following information was available for the current
year:
4,000
(30% complete)
35,000
3,000
(80% complete)
69. Refer to the Rollins Manufacturing information above. If Rollins uses the first-in, first-out (FIFO)
method, how many total equivalent units were completed in the current period?
a.
37,200 equivalent units
b.
35,600 equivalent units
c.
41,200 equivalent units
d.
35,400 equivalent units
70. Refer to the Rollins Manufacturing information above. If Rollins uses the weighted-average method,
how many total equivalent units were completed in the current period?
a.
37,400 equivalent units
b.
39,000 equivalent units
c.
38,800 equivalent units
d.
38,400 equivalent units
Peace Products Inc.
Peace Products Inc. uses process costing. The following information was available for the current year:
Number
of units
Production
Costs
1,000
$ 11,700
40,000
604,500
6,000
71. Refer to the Peace Products Inc. information above. If Peace uses the first-in, first-out (FIFO) method
of computing equivalent units and assigning product costs, how many total equivalent units were
completed in the current period?
a.
40,000 equivalent units
b.
37,600 equivalent units
c.
34,600 equivalent units
d.
45,000 equivalent units
72. Refer to the Peace Products Inc. information above. If Peace uses the first-in, first-out (FIFO) method
of computing equivalent units and assigning product costs, what is the cost per equivalent unit? (round
to nearest penny)
a.
$15.11
b.
$13.56
c.
$16.00
d.
$15.65
73. Refer to the Peace Products Inc. information above. If Peace uses the first-in, first-out (FIFO) method
of computing equivalent units and assigning product costs, what is the cost of ending work–in-process
inventory?
a.
$48,000
b.
$65,730
c.
$96,000
d.
$93,900