Saint Vincent College of Cabuyao

Brgy. Mamatid, City of Cabuyao, Laguna

Job Order Costing

Prelim Exam- PART 1

I. True or False.

1. Job-order costing would be more likely to be used than process costing in situations where many
different products or services are produced each period to customer specifications.
2. Job-order costing is used in manufacturing companies and process costing is used in service
firms.
3. In a job-order costing system, costs are traced to departments and then allocated to units of
product using an average process.
4. Normally a job cost sheet is not prepared for a job until after the job has been completed.
5. Job cost sheets contain entries for actual direct material, actual direct labor, and actual
manufacturing overhead cost incurred in completing a job.
6. In order to improve the accuracy of unit costs, most companies recompute the predetermined
overhead rate each month.
7. The following journal entry would be made to apply overhead cost to jobs in a job-order costing
system:

Work in Process ............... XXX

Manufacturing Overhead ... XXX

8. When the predetermined overhead rate is based on direct labor-hours, the amount of overhead
applied to a job is proportional to the amount of actual direct labor-hours incurred on the job.
9. When completed goods are sold the transaction is recorded as a debit to Cost of Goods Sold and a
credit to Work in Process.
10. The most common accounting treatment of underapplied manufacturing overhead is to transfer it
to the Manufacturing Overhead control account.
11. In job-order costing, the Work in Process inventory account contains the actual costs of direct
labor, direct materials, and manufacturing overhead incurred on partially completed jobs.
12. Nonmanufacturing costs are expensed as incurred, rather than going into the Work in Process
account.
13. A credit balance in the Manufacturing Overhead account at the end of the year means that
overhead was underapplied.
14. Indirect materials are not charged to a specific job but rather are included in manufacturing
overhead.
15. The labor time ticket contains a detailed summary of the direct and the indirect labor hours of an
employee.

II. Multiple Choice

16. Which of the following companies would be most likely to use a job-order costing system rather
than a process costing system?

a. fast food restaurant

 b. shipbuilding
c. crude oil refining
d. candy making

17. The computation of unit product costs involves an averaging process in:

a. Yes No
b. Yes Yes
c. No Yes
d. No No

18. Work in Process is a control account supported by detailed cost data contained in:
a. job cost sheets.
b. the Manufacturing Overhead account.
c. the Finished Goods inventory account.
d. purchase requisitions.

19. In job-order costing, all of the following statements are correct with respect to labor time and cost
except:
a. time tickets are kept by employees showing the amount of work on specific jobs.
b. the job cost sheet for a job will contain all direct labor charges to that particular job.
c. labor cost that can be traced to a job only with a great deal of effort is treated as part of
manufacturing overhead.
d. a machine operator performing routine annual maintenance work on a piece of equipment would
charge the maintenance time to a specific job.

20. In a job order cost system, the journal entry to record the application of overhead cost to jobs
would include:

a. a credit to the Manufacturing Overhead account.

b. a credit to the Work in Process inventory account.
c. a debit to Cost of Goods Sold.
d. a debit to the Manufacturing Overhead account.

21. In a job-order cost system, the use of indirect materials would usually be recorded as a debit t

a. Raw Materials.
b. Work in Process.
c. Manufacturing Overhead.
d. Finished Goods.

22. In a job order cost system, the use of direct materials previously purchased usually is recorded as
a debit to:

a. Work in Process inventory.

b. Finished Goods inventory.
c. Manufacturing Overhead.
d. Raw Materials inventory.

23. In a job-order cost system, direct labor costs usually are recorded initially with a debit to:
 a. Manufacturing Overhead.
b. Finished Goods inventory.
c. Direct Labor Expense.
d. Work in Process.

24. If a company applies overhead to jobs on the basis of a predetermined overhead rate, a credit
balance in the Manufacturing Overhead account at the end of any period means that:

a. more overhead cost has been charged to jobs than has been incurred during the period.
b. more overhead cost has been incurred during the period than has been charged to jobs.
c. the amount of overhead cost charged to jobs is greater than the estimated cost for the period.
d. the amount of overhead cost charged to jobs is less than the estimated overhead cost for the
period.

25. In a job order cost system, the amount of overhead cost that has been applied to a job that remains
incomplete at the end of a period:

a. is deducted on the Income Statement as overapplied overhead.

b. is closed to Cost of Goods Sold.
c. is transferred to Finished Goods at the end of the period.
d. is part of the ending balance of the Work in Process inventory account.

26. The Work in Process inventory account of a manufacturing company shows a balance of P2,400
at the end of an accounting period. The job cost sheets of the two uncompleted jobs show charges
of P400 and P200 for direct materials, and charges of P300 and P500 for direct labor. From this
information, it appears that the company is using a predetermined overhead rate, as a percentage
of direct labor costs, of:

a. 80%
b. 125%.
c. 300%
d. 240%.

27. Freeman Company uses a predetermined overhead rate based on direct labor hours to apply
manufacturing overhead to jobs. At the beginning of the year, the company estimated
manufacturing overhead would be P150,000 and direct labor hours would be 10,000. The actual
figures for the year were P186,000 for manufacturing overhead and 12,000 direct labor hours.
The cost records for the year will show:

a. overapplied overhead of P30,000.

b. underapplied overhead of P30,000.
c. underapplied overhead of P6,000.
d. overapplied overhead of P6,000.

28. Harrell Company uses a predetermined overhead rate based on direct labor hours to apply
manufacturing overhead to jobs. At the beginning of the year the company estimated its total
manufacturing overhead cost at P400,000 and its direct labor-hours at 100,000 hours. The actual
overhead cost incurred during the year was P350,000 and the actual direct labor hours incurred on
jobs during the year was 90,000 hours. The manufacturing overhead for the year would be:

a. P10,000 underapplied.
 b. P10,000 overapplied.
c. P50,000 underapplied.
d. P50,000 overapplied.

29. For the current year, Paxman Company incurred P150,000 in actual manufacturing overhead cost.
The Manufacturing Overhead account showed that overhead was overapplied in the amount of
P6,000 for the year. If the predetermined overhead rate was P8.00 per direct labor hour, how
many hours were worked during the year?

a. 19,500 hours
b. 18,000 hours
c. 18,750 hours
d. 17,750 hours

30. Carlo Company uses a predetermined overhead rate based on direct labor hours to apply
manufacturing overhead to jobs. The company estimated manufacturing overhead at P255,000 for
the year and direct labor-hours at 100,000 hours. Actual manufacturing overhead costs incurred
during the year totaled P270,000. Actual direct labor hours were 105,000. What was the
overapplied or underapplied overhead for the year?

a. P2,250 overapplied.
b. P2,250 underapplied.
c. P15,000 overapplied.
d. P15,000 underapplied.

31. Sawyer Manufacturing Company uses a predetermined overhead rate based on direct labor hours
to apply manufacturing overhead to jobs. Last year, the company worked 57,000 actual direct
labor hours and incurred P345,000 of actual manufacturing overhead cost. The Company had
estimated that it would work 55,000 direct labor hours during the year and incur P330,000 of
manufacturing overhead cost. The company's manufacturing overhead cost for the year was:

a. overapplied by P15,000.
b. underapplied by P15,000.
c. overapplied by P3,000.
d. underapplied by P3,000.

32. The Watts Company uses predetermined overhead rates 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 company made the following estimates:

Dept. A Dept. B
Direct labor cost ........ P30,000 P40,000
Manufacturing overhead ... 60,000 50,000
Direct labor hours ....... 6,000 8,000
Machine hours ............ 2,000 10,000

What predetermined overhead rates would be used in Dept A and Dept B, respectively?

a. 50% and P8.00

b. 50% and P5.00
c. P15 and 110%
 d. 200% and P5.00

33. Compton Company uses a predetermined overhead rate in applying overhead to production
orders on a labor cost basis in Department A and on a machine hours basis in Department B. At
the beginning of the most recently completed year, the company made the following estimates:

Dept. A Dept. B
Direct labor cost ........ P56,000 P33,000
Factory overhead ......... 67,200 45,000
Direct labor hours ....... 8,000 9,000
Machine hours ............ 4,000 15,000

What predetermined overhead rate would be used in Department A and Department B, respectively?

a. 83% and P5
b. 83% and P3
c. 120% and P3
d. 83% and P3

34. Kelsh Company uses a predetermined overhead rate based on machine hours to apply
manufacturing overhead to jobs. The company has provided the following estimated costs for
next year:

Direct materials .................. P10,000

Direct labor ...................... 30,000
Sales commissions ................. 40,000
Salary of production supervisor . 20,000
Indirect materials ................ 4,000
Advertising expense ............... 8,000
Rent on factory equipment ......... 10,000

Kelsh estimates that 5,000 direct labor hours and 10,000 machine hours will be worked during the year.
The predetermined overhead rate per hour will be:

a. P6.80.
b. P6.40.
c. P3.40.
d. P8.20.

35. Simplex Company has the following estimated costs for next year:

Direct materials .................... P15,000

Direct labor ........................ 55,000
Sales commissions ................... 75,000
Salary of production supervisor ..... 35,000
Indirect materials .................. 5,000
Advertising expense ................. 11,000
Rent on factory equipment ........... 16,000

Simplex estimates that 10,000 direct labor and 16,000 machine hours will be worked during the year. If
overhead is applied on the basis of machine hours, the overhead rate per hour will be:
a. P8.56.
b. P7.63.
c. P6.94.
d. P3.50.