CHAPTER 2

JOB ORDER COSTING

SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S

TAXONOMY
Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT
True-False Statements
1. 1 K 8. 2 K 15. 2 K 22. 4 C 29. 6 C
2. 1 C 9. 2 C 16. 2 K 23. 4 K 30. 6 C
sg
3. 1 C 10. 2 C 17. 3 K 24. 4 C 31. 1 C
sg
4. 1 C 11. 2 C 18. 3 K 25. 5 C 32. 2 K
sg
5. 1 C 12. 2 C 19. 3 C 26. 5 K 33. 3 K
sg
6. 1 K 13. 2 K 20. 3 C 27. 5 K 34. 4 K
sg
7. 1 C 14. 2 C 21. 3 K 28. 5 K 35. 6 K
Multiple Choice Questions
36. 1 K 59. 2 C 82. 4 AP 105. 5 C 128. 6 C
37. 1 K 60. 2 C 83. 4 AP 106. 5 AP 129. 6 C
38. 1 K 61. 3 K 84. 4 AP 107. 5 C 130. 6 K
39. 1 C 62. 3 K 85. 4 AP 108. 5 C 131. 6 C
40. 1 C 63. 3 AP 86. 4 AP 109. 5 C 132. 6 AP
41. 1 C 64. 3 K 87. 4 AP 110. 5 C 133. 6 C
42. 1 C 65. 3 C 88. 4 AP 111. 5 AP 134. 6 C
43. 1 C 66. 3 K 89. 4 C 112. 5 AP 135. 6 C
44. 2 AP 67. 3 K 90. 4 K 113. 5 AP 136. 6 C
45. 2 K 68. 3 K 91. 4 C 114. 5 C 137. 6 C
46. 2 K 69. 3 C 92. 4 C 115. 5 C 138. 6 C
47. 2 C 70. 3 C 93. 4 K 116. 5 AP 139. 6 C
48. 2 K 71. 3 K 94. 4 AP 117. 5 AP 140. 6 C
st
49. 2 C 72. 3 K 95. 4 C 118. 5 AP 141. 1 K
sg
50. 2 C 73. 3 C 96. 4 K 119. 5 AP 142. 2 K
st
51. 2 C 74. 3 C 97. 4 AP 120. 5 AP 143. 2 K
sg
52. 2 K 75. 3 K 98. 4 AP 121. 5 AP 144. 3 K
st
53. 2 C 76. 3 AP 99. 4 AP 122. 5 AP 145. 3 K
sg
54. 2 K 77. 3 AP 100. 4 AP 123. 5 AP 146. 4 AP
st
55. 2 K 78. 3 AP 101. 4 AP 124. 6 AP 147. 4 K
sg
56. 2 AP 79. 3 AP 102. 5 AP 125. 6 AP 148. 6 C
st
57. 2 K 80. 3 AP 103. 5 C 126. 6 AP 149. 6 K
sg
58. 2 K 81. 4 AP 104. 5 C 127. 6 C 150. 6 K
Brief Exercises
151. 2 AP 153. 3 AP 155. 4 AP 157. 5 AP 159. 6 AP
152. 2 AP 154. 3 AP 156. 4 AP 158. 6 AP 160. 6 AP
sg
This question also appears in the Study Guide.
st
This question also appears in a self-test at the student companion website.
2-2 Test Bank for Managerial Accounting, Fifth Edition

SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S

TAXONOMY
Exercises
161. 2 AP 167. 2–5 AP 173. 2–6 AP 179. 3,5 AP 185. 4,6 AP
162. 2–4 C 168. 2–5 AN 174. 2,3,6 AP 180. 3,4,6 AP 186. 4,6 AP
163. 2–4 AP 169. 2–5 AP 175. 2–6 AP 181. 4,6 AP 187. 5 AP
164. 2–4 C 170. 2,3 AP 176. 3 AP 182. 4,6 AP 188. 5 AP
165. 2,3 AP 171. 2–5 AP 177. 3–5 AN 183. 4 AP
166. 2–5 AP 172. 2,5 AP 178. 3,5 AP 184. 4,6 AP
Completion Statements
189. 1 K 191. 1 K 193. 2 K 195. 3 K 197. 6 K
190. 1 K 192. 2 K 194. 3 AP 196. 4 K 198. 6 K
Matching Statements
199. 1 K
Short-Answer Essay
200. 1 S 202. 4 S 204. 3 S
201. 2 S 203. 4 S 205. 4 S

SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE

Item Type Item Type Item Type Item Type Item Type Item Type Item Type
Study Objective 1
1. TF 5. TF 36. MC 40. MC 141. MC 199. MA
2. TF 6. TF 37. MC 41. MC 189. C 200. SA
3. TF 7. TF 38. MC 42. MC 190. C
4. TF 31. TF 39. MC 43. MC 191. C
Study Objective 2
8. TF 15. TF 48. MC 55. MC 143. MC 165. Ex 172. Ex
9. TF 16. TF 49. MC 56. MC 151. BE 166. Ex 173. Ex
10. TF 32. TF 50. MC 57. MC 152. BE 167. Ex 175. Ex
11. TF 44. MC 51. MC 58. MC 161. Ex 168. Ex 192. C
12. TF 45. MC 52. MC 59. MC 162. Ex 169. Ex 193. C
13. TF 46. MC 53. MC 60. MC 163. Ex 170. Ex 201. SA
14. TF 47. MC 54. MC 142. MC 164. Ex 171. Ex
Study Objective 3
17. TF 63. MC 71. MC 79. MC 164. Ex 173. Ex 194. C
18. TF 64. MC 72. MC 80. MC 165. Ex 174. Ex 195. C
19. TF 65. MC 73. MC 144. MC 166. Ex 175. Ex 204. SA
20. TF 66. MC 74. MC 145. MC 167. Ex 176. Ex
21. TF 67. MC 75. MC 153. BE 168. Ex 177. Ex
33. TF 68. MC 76. MC 154. BE 169. Ex 178. Ex
61. MC 69. MC 77. MC 162. Ex 170. Ex 179. Ex
62. MC 70. MC 78. MC 163. Ex 171. Ex 180. Ex
 Job Order Costing 2-3

Study Objective 4
22. TF 85. MC 93. MC 101. MC 166. Ex 180. Ex 202. SA
23. TF 86. MC 94. MC 146. MC 167. Ex 181. Ex 203. SA
24. TF 87. MC 95. MC 147. MC 168. Ex 182. Ex 205. SA
34. TF 88. MC 96. MC 155. BE 169. Ex 183. Ex
81. MC 89. MC 97. MC 156. BE 171. Ex 184. Ex
82. MC 90. MC 98. MC 162. Ex 173. Ex 185. Ex
83. MC 91. MC 99. MC 163. Ex 175. Ex 186. Ex
84. MC 92. MC 100. MC 164. Ex 177. Ex 196. C
Study Objective 5
25. TF 104. MC 110. MC 116. MC 122. MC 169. Ex 178. Ex
26. TF 105. MC 111. MC 117. MC 123. MC 171. Ex 179. Ex
27. TF 106. MC 112. MC 118. MC 157. BE 172. Ex 187. Ex
28. TF 107. MC 113. MC 119. MC 166. Ex 173. Ex 188. Ex
102. MC 108. MC 114. MC 120. MC 167. Ex 175. Ex
103. MC 109. MC 115. MC 121. MC 168. Ex 177. Ex
Study Objective 6
29. TF 127. MC 133. MC 139. MC 159. BE 182. Ex
30. TF 128. MC 134. MC 140. MC 160. BE 184. Ex
35. TF 129. MC 135. MC 148. MC 173. Ex 185. Ex
124. MC 130. MC 136. MC 149. MC 175. Ex 186. Ex
125. MC 131. MC 137. MC 150. MC 180. Ex 197. C
126. MC 132. MC 138. MC 158. BE 181. Ex 198. C

Note: TF = True-False BE = Brief Exercise C = Completion

MC = Multiple Choice Ex = Exercise MA = Matching
SA = Short-Answer Essay

CHAPTER STUDY OBJECTIVES

1. Explain the characteristics and purposes of cost accounting. Cost accounting involves
the procedures for measuring, recording, and reporting product costs. From the data
accumulated, companies determine the total cost and the unit cost of each product. The two
basic types of cost accounting systems are job order cost and process cost.

2. Describe the flow of costs in a job order costing system. In job order costing companies
first accumulate, manufacturing costs in three accounts: Raw Materials Inventory, Factory
Labor, and Manufacturing Overhead. They then assign the accumulated costs to Work in
Process Inventory and eventually to Finished Goods Inventory and Cost of Goods Sold.

3. Explain the nature and importance of a job cost sheet. A job cost sheet is a form used to
record the costs chargeable to a specific job and to determine the total and unit costs of the
completed job. Job cost sheets constitute the subsidiary ledger for the Work in Process
Inventory control account.

4. Indicate how the predetermined overhead rate is determined and used. The
predetermined overhead rate is based on the relationship between estimated annual
overhead costs and expected annual operating activity. This is expressed in terms of a
common activity base, such as direct labor cost. Companies use this rate to assign overhead
costs to work in process and to specific jobs.
2-4 Test Bank for Managerial Accounting, Fifth Edition

5. Prepare entries for jobs completed and sold. When jobs are completed, companies debit
the cost to Finished Goods Inventory and credit it to Work in Process Inventory. When a job is
sold the entries are: (a) Debit Cash or Accounts Receivable and credit Sales for the selling
price, and (b) Debit Cost of Goods Sold and credit Finished Goods Inventory for the cost of
the goods.

6. Distinguish between under- and overapplied manufacturing overhead. Underapplied

manufacturing overhead indicates that the overhead assigned to work in process is less than
the overhead incurred. Overapplied overhead indicates that the overhead assigned to work in
process is greater than the overhead incurred.

TRUE-FALSE STATEMENTS
1. Cost accounting is primarily concerned with accumulating information about product costs.
Ans: T, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

2. A job order cost system is most appropriate when a large volume of uniform products are
produced.
Ans: F, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Reporting

3. A process cost accounting system is appropriate for similar products that are continuously
mass produced.
Ans: T, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Reporting

4. The perpetual inventory method cannot be used in a job order cost system.
Ans: F, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Reporting

5. A job order cost system and a process cost system are two alternative methods for
valuing inventories.
Ans: T, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

6. A job order cost system identifies costs with a particular job rather than with a set time
period.
Ans: T, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

7. A company may use either a job order cost system or a process cost system, but not both.
Ans: F, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

8. Raw Materials Inventory, Factory Labor, and Manufacturing Overhead are all control
accounts in the general ledger when a job order cost accounting system is used.
Ans: F, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

9. Accumulating and assigning manufacturing costs are two important activities in a job order
cost system.
Ans: T, SO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
FSA
 Job Order Costing 2-5

10. Recording the acquisition of raw materials is a part of accumulating manufacturing costs.
Ans: T, SO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

11. Manufacturing costs are generally incurred in one period and recorded in a subsequent
period.
Ans: F, SO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

12. The Purchases account is credited for all raw materials purchase returns and allowances.
Ans: F, SO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

13. When raw materials are received, there no effort at this point to associate the cost
of materials with specific jobs.
Ans: T, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

14. When raw materials are purchased, the Work in Process Inventory account is debited.
Ans: F, SO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

15. Factory labor should be assigned to selling and administrative expenses on a

proportionate basis.
Ans: F, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

16. Fringe benefits and payroll taxes associated with factory workers should be accumulated
as a part of Factory Labor.
Ans: T, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

17. Job order cost sheets constitute the subsidiary ledger of the control account Work In
Process Inventory.
Ans: T, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
FSA

18. In a job order cost system, each entry to the Work In Process Inventory account should be
accompanied by a posting to one or more job cost sheets.
Ans: T, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

19. Direct materials requisitioned from the storeroom should be charged to the Work In
Process Inventory account and the job cost sheets for the individual jobs on which the
materials were used.
Ans: T, SO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

20. Manufacturing overhead is the only product cost that can be assigned to jobs as soon as
the costs are incurred.
Ans: F, SO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective , AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

21. There should be a separate job cost sheet for each job.
Ans: T, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Business Economics
2-6 Test Bank for Managerial Accounting, Fifth Edition

22. Actual manufacturing overhead costs are assigned to each job by tracing each overhead
cost to a specific job.
Ans: F, SO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
FSA

23. The formula for the predetermined overhead rate is estimated annual overhead costs
divided by an expected annual operating activity.
Ans: T, SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

24. Actual manufacturing overhead costs should be charged to the Work in Process Inventory
account as they are incurred.
Ans: F, SO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

25. A good system of internal control requires that the job order cost sheet be destroyed as
soon as the job is complete.
Ans: F, SO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Management, AICPA PC: None,
IMA: Internal Controls

26. Finished Goods Inventory is charged for the cost of jobs completed during a period.
Ans: T, SO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

27. When goods are sold, the Cost of Goods Sold account is debited and Work in Process
Inventory account is credited.
Ans: F, SO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
FSA

28. Total manufacturing costs for a period consists of the costs of direct materials used, the
cost of direct labor incurred, and the manufacturing overhead applied during the period.
Ans: T, SO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

29. Overapplied overhead means that actual manufacturing overhead costs were greater than
the manufacturing overhead costs applied to jobs.
Ans: F, SO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

30. At the end of the year, the accountant credits the amount of the overapplied overhead to
Cost of Goods Sold.
Ans: T, SO: 6, Bloom: C, Difficulty: Medium, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting

31. A cost accounting system consists of manufacturing cost accounts that are fully integrated
into the general ledger of a company.
Ans: T, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Business Economics

32. The cost of raw materials purchased is credited to Raw Materials Inventory when
materials are received.
Ans: F, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

33. Requisitions for direct materials are posted daily to the individual job cost sheets.
Ans: T, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: None, AICPA PC: None, IMA:
Business Economics
 Job Order Costing 2-7

34. The predetermined overhead rate is based on the relationship between estimated annual
overhead costs and expected annual operating activity expressed in terms of a common
activity base.
Ans: T, SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

35. At the end of the year, underapplied overhead is usually credited to Cost of Goods Sold.
Ans: F, SO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

Answers to True-False Statements

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
1. T 6. T 11. F 16. T 21. T 26. T 31. T
2. F 7. F 12. F 17. T 22. F 27. F 32. F
3. T 8. F 13. T 18. T 23. T 28. T 33. T
4. F 9. T 14. F 19. T 24. F 29. F 34. T
5. T 10. T 15. F 20. F 25. F 30. T 35. F

MULTIPLE CHOICE QUESTIONS

36. Which of the following is one of the components of cost accounting?
a. It involves measuring product costs.
b. It involves the determination of company profits.
c. It requires GAAP to be applied.
d. It requires cost minimizing principles.
Ans: A, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Business Economics

37. A major purpose of cost accounting is to

a. classify all costs as operating or nonoperating.
b. measure, record, and report period costs.
c. provide information to stockholders for investment decisions.
d. measure, record, and report product costs.
Ans: D, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

38. The two basic types of cost accounting systems are

a. job order and job accumulation systems.
b. job order and process cost systems.
c. process cost and batch systems.
d. job order and batch systems.
Ans: B, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Business Economics

39. A process cost system would most likely be used by a company that makes
a. motion pictures.
b. repairs to automobiles.
c. breakfast cereal.
d. college graduation announcements.
Ans: C, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC:
None, IMA: Reporting
2-8 Test Bank for Managerial Accounting, Fifth Edition

40. Which of the following would be accounted for using a job order cost system?
a. The production of personal computers.
b. The production of automobiles.
c. The refining of petroleum.
d. The construction of a new campus building.
Ans: D, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

41. Process costing is used when

a. the production process is continuous.
b. production is aimed at filling a specific customer order.
c. dissimilar products are involved.
d. costs are to be assigned to specific jobs.
Ans: A, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

42. Process costing is not used when

a. similar goods are being produced.
b. large volumes are produced.
c. jobs have distinguishing characteristics.
d. a series of connected manufacturing processes is necessary.
Ans: C, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

43. An important feature of a job order cost system is that each job
a. must be similar to previous jobs completed.
b. has its own distinguishing characteristics.
c. must be completed before a new job is accepted.
d. consists of one unit of output.
Ans: B, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

44. As of December 31, 2011, Stand Still Industries had $2,500 of raw materials inventory. At
the beginning of 2011, there was $2,000 of materials on hand. During the year, the
company purchased $305,000 of materials; however, it paid for only $292,500. How much
inventory was requisitioned for use on jobs during 2011?
a. $292,000
b. $304,500
c. $305,500
d. $293,000
Ans: B, SO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Resource Management, AICPA FN: Reporting, AICPA PC: Problem
Solving, IMA: Business Economics

45. The flow of costs in a job order cost system

a. involves accumulating manufacturing costs incurred and assigning the accumulated
costs to work done.
b. cannot be measured until all jobs are complete.
c. measures product costs for a set time period.
d. generally follows a LIFO cost flow assumption.
Ans: A, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Business Economics
 Job Order Costing 2-9

46. In a job order cost accounting system, the Raw Materials Inventory account is
a. an expense.
b. a control account.
c. not used.
d. a period cost.
Ans: B, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

47. When a job is completed and all costs have been accumulated on a job cost sheet, the
journal entry that should be made is
a. Finished Goods Inventory
Direct Materials
Direct Labor
Manufacturing Overhead
b. Work In Process Inventory
Direct Materials
Direct Labor
Manufacturing Overhead
c. Raw Materials Inventory
Work In Process Inventory
d. Finished Goods Inventory
Work In Process Inventory
Ans: D, SO: 2, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
None, IMA: FSA

48. The two major steps in the flow of costs are

a. allocating and assigning.
b. acquiring and accumulating.
c. accumulating and assigning.
d. accumulating and amortizing.
Ans: C, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Business Economics

49. The Raw Materials Inventory account is

a. a subsidiary account.
b. debited for invoice costs and freight costs chargeable to the purchaser.
c. debited for purchase discounts taken.
d. debited for purchase returns and allowances.
Ans: B, SO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

50. Records of individual items of raw materials would not be maintained

a. electronically.
b. manually.
c. on stores ledger cards.
d. in the Raw Materials Inventory account.
Ans: D, SO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Leverage Technology, AICPA PC:
Project Management, IMA: Business Applications
2 - 10 Test Bank for Managerial Accounting, Fifth Edition

51. Cost of raw materials is debited to Raw Materials Inventory when the
a. materials are ordered.
b. materials are received.
c. materials are put into production.
d. bill for the materials is paid.
Ans: B, SO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

52. Which of the following is not included in factory labor costs?

a. Gross earnings.
b. Net earnings.
c. Fringe benefits.
d. Employer payroll taxes.
Ans: B, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

53. All of the following would be entries in assigning accumulated costs to the Work In
Process Inventory except:
a. the purchase of raw materials.
b. raw materials are used.
c. overhead is applied.
d. factory labor is used.
Ans: A, SO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

54. Factory labor costs

a. are accumulated in a control account.
b. do not include pension costs.
c. include vacation pay.
d. are based on workers’ net pay.
Ans: C, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

55. Factory Labor is a(n)

a. expense account.
b. control account.
c. subsidiary account.
d. manufacturing cost clearing account.
Ans: D, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

56. Kline Manufacturing has the following labor costs:

Factory—Gross wages $390,000
Factory—Net wages 320,000
Employer Payroll Taxes Payable 50,000
The entry to record the cost of factory labor and the associated payroll tax expense will
include a debit to Factory Labor for
a. $440,000.
b. $390,000.
c. $370,000.
d. $340,000.
Ans: A, SO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA
 Job Order Costing 2 - 11

57. Factory labor costs

a. accumulate in advance of utilization.
b. accumulate in a control account.
c. include sick pay earned by factory workers.
d. accumulate in the Factory Labor Expense account.
Ans: C, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

58. Which of the following is not a control account?

a. Manufacturing Overhead
b. Factory Labor
c. Accounts Receivable
d. Raw Materials Inventory
Ans: B, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Business Economics

59. Manufacturing Overhead would not have a subsidiary account for

a. utilities.
b. property taxes.
c. insurance.
d. raw materials inventory.
Ans: D, SO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Business Economics

60. The entry to record the acquisition of raw materials on account is

a. Work in Process Inventory
Accounts Payable
b. Manufacturing Overhead
Raw Materials Inventory
Accounts Payable
c. Accounts Payable
Raw Materials Inventory
d. Raw Materials Inventory
Accounts Payable
Ans: D, SO: 2, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

61. Which one of the following best describes a job cost sheet?
a. It is a form used to record the costs chargeable to a specific job and to determine the
total and unit costs of the completed job.
b. It is used to track manufacturing overhead costs to specific jobs.
c. It is used by management to understand how direct costs affect profitability.
d. It is a daily form that management uses for tracking worker productivity on which
employee raises are based.
Ans: A, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

62. Job cost sheets constitute the subsidiary ledger for the
a. Finished Goods Inventory account.
b. Cost of Goods Sold account.
c. Work In Process Inventory account.
d. Cost of Goods Manufactured account.
Ans: C, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
2 - 12 Test Bank for Managerial Accounting, Fifth Edition

63. A materials requisition slip showed that direct materials requested were $58,000 and
indirect materials requested were $9,000. The entry to record the transfer of materials
from the storeroom is
a. Work In Process Inventory................................................... 58,000
Raw Materials Inventory.............................................. 58,000
b. Direct Materials.................................................................... 58,000
Indirect Materials................................................................. 9,000
Work in Process Inventory.......................................... 67,000
c. Manufacturing Overhead..................................................... 67,000
Raw Materials Inventory.............................................. 67,000
d. Work In Process Inventory................................................... 58,000
Manufacturing Overhead..................................................... 9,000
Raw Materials Inventory.............................................. 67,000
Ans: D, SO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

64. The job cost sheet does not show

a. costs chargeable to a specific job.
b. the total costs of a completed job.
c. the unit cost of a completed job.
d. the cost of goods sold.
Ans: D, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Business Economics

65. Under an effective system of internal control, the authorization for issuing materials is
made
a. orally.
b. on a prenumbered materials requisition slip.
c. by the accounting department.
d. by anyone on the production line.
Ans: B, SO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Management, AICPA PC: None,
IMA: Internal Controls

66. A copy of the materials requisition slip would not include the:
a. quantity.
b. stock number.
c. cost per unit.
d. name of the supplier.
Ans: D, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Internal Controls

67. Materials requisition slips are costed

a. by production supervisors.
b. by factory personnel who work on the production line.
c. after the goods have been sold.
d. using any of the inventory costing methods.
Ans: D, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
FSA
 Job Order Costing 2 - 13

68. Postings to control accounts in a costing system are made

a. monthly.
b. daily.
c. annually.
d. semi-annually.
Ans: A, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA:
Business Applications

69. Which one of the following should be equal to the balance of the Work In Process
Inventory account at the end of the period?
a. The total of the amounts transferred from raw materials for the current period
b. The sum of the costs shown on the job cost sheets of unfinished jobs
c. The total of manufacturing overhead applied to work in process for the period
d. The total manufacturing costs for the period
Ans: B, SO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

70. Which of the following shows entries only to control accounts?

a. Factory Labor
Wages Payable
b. Work in Process
Factory Labor
Raw Materials Inventory
Wages Payable
c. Work in Process
Manufacturing Overhead
Raw Materials Inventory
d. Factory Labor
Raw Materials Inventory
Accounts Payable
Wages Payable
Ans: C, SO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

71. A time ticket does not indicate the

a. employee's name.
b. account to be charged.
c. number of personal exemptions claimed by the employee.
d. job number.
Ans: C, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Business Economics

72. Which one of the following is a source document that impacts the job cost sheet?
a. Raw materials receiving slips.
b. Materials purchase orders.
c. Labor time tickets.
d. Finished goods shipping documents.
Ans: C, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Internal Controls
2 - 14 Test Bank for Managerial Accounting, Fifth Edition

73. Time tickets should be approved by

a. the audit committee.
b. co-workers.
c. the employee's supervisor.
d. the payroll department.
Ans: C, SO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Internal Controls

74. If the entry to assign factory labor showed only a debit to Work In Process Inventory, then
all labor costs were
a. direct labor.
b. indirect labor.
c. overtime related.
d. regular hours.
Ans: A, SO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

75. The principal accounting record used in assigning costs to jobs is

a. a job cost sheet.
b. the cost of goods manufactured schedule.
c. the Manufacturing Overhead control account.
d. the stores ledger cards.
Ans: A, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Business Economics

76. The following information is available for completed Job No. 402: Direct materials,
$80,000; direct labor, $120,000; manufacturing overhead applied, $60,000; units
produced, 5,000 units; units sold, 4,000 units. The cost of the finished goods on hand from
this job is
a. $40,000.
b. $260,000.
c. $52,000.
d. $208,000.
Ans: C, SO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

77. Sportly, Inc. completed Job No. B14 during 2011. The job cost sheet listed the following:
Direct materials $44,000
Direct labor $24,000
Manufacturing overhead applied $16,000
Units produced 3,000 units
Units sold 1,800 units
How much is the cost of the finished goods on hand from this job?
a. $84,000
b. $50,400
c. $33,600
d. $40,800
Ans: C, SO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
 Job Order Costing 2 - 15

78. Madison Inc. uses job order costing for its brand new line of sewing machines. The cost
incurred for production during 2011 totaled $18,000 of materials, $9,000 of direct labor
costs, and $6,000 of manufacturing overhead applied. The company ships all goods as
soon as they are completed which results in no finished goods inventory on hand at the
end of any year. Beginning work in process totaled $15,000, and the ending balance is
$9,000. During the year, the company completed 40 machines. How much is the cost per
machine?
a. $675
b. $975
c. $825
d. $1,200
Ans: B, SO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics

79. As of December 31, 2011, Nilsen Industries had $2,000 of raw materials inventory. At the
beginning of 2011, there was $1,600 of materials on hand. During the year, the company
purchased $274,000 of materials; however it paid for only $264,000. How much inventory
was requisitioned for use on jobs during 2011?
a. $274,400
b. $264,400
c. $263,600
d. $273,600
Ans: D, SO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics

80. Cost of goods manufactured equals $55,000 for 2011. Finished goods inventory is $2,000
at the beginning of the year and $5,500 at the end of the year. Beginning and ending work
in process for 2011 are $4,000 and $5,000, respectively. How much is cost of goods sold
for the year?
a. $57,500
b. $53,000
c. $51,500
d. $58,500
Ans: C, SO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

81. A company expected its annual overhead costs to be $900,000 and direct labor costs to
be $1,000,000. Actual overhead was $870,000, and actual labor costs totaled $1,100,000.
How much is the company’s predetermined overhead rate to the nearest cent?
a. $0.87
b. $0.79
c. $0.90
d. $0.82
Ans: C, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics
2 - 16 Test Bank for Managerial Accounting, Fifth Edition

82. Vektek, Inc. thinks machine hours is the best activity base for its manufacturing overhead.
The estimate of annual overhead costs for its jobs was $820,000. The company used
1,000 hours of processing on Job No. B12 during the period and incurred overhead costs
totaling $840,000. The budgeted machine hours for the year totaled 20,000. How much
overhead should be applied to Job No. B12?
a. $840
b. $41,000
c. $42,000
d. $820
Ans: B, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

83. Barr Mfg. provided the following information from its accounting records for 2011:
Expected production 30,000 labor hours
Actual production 28,000 labor hours
Budgeted overhead $600,000
Actual overhead $580,000
How much is the overhead application rate if Barr bases the rate on direct labor hours?
a. $20.71 per hour
b. $20.00 per hour
c. $19.33 per hour
d. $18.67 per hour
Ans: B, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

84. Kinney Company applies overhead on the basis of 150% of direct labor cost. Job No. 176
is charged with $75,000 of direct materials costs and $90,000 of manufacturing overhead.
The total manufacturing costs for Job No. 176 is
a. $165,000.
b. $300,000.
c. $225,000.
d. $202,500.
Ans: C, SO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

85. Redman Company manufactures customized desks. The following pertains to Job No.
978:
Direct materials used $9,450
Direct labor hours worked 360
Direct labor rate per hour $15.00
Machine hours used 300
Applied factory overhead rate per machine hour $22.00
What is the total manufacturing cost for Job No. 978?
a. $19,650
b. $21,450
c. $22,950
d. $24,750
Ans: B, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
 Job Order Costing 2 - 17

86. Henson Company applies overhead on the basis of 120% of direct labor cost. Job No. 190
is charged with $80,000 of direct materials costs and $120,000 of manufacturing
overhead. The total manufacturing costs for Job No. 190 is
a. $200,000.
b. $344,000.
c. $216,000.
d. $300,000.
Ans: D, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

87. Norman Company manufactures customized desks. The following pertains to Job No.
953:
Direct materials used $16,800
Direct labor hours worked 600
Direct labor rate per hour $16.00
Machine hours used 400
Applied factory overhead rate per machine hour $30.00
What is the total manufacturing cost for Job No. 953?
a. $35,200
b. $38,400
c. $41,200
d. $44,400
Ans: B, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

88. Minton Company provided the following information from its accounting records for 2011:
Expected production 60,000 labor hours
Actual production 56,000 labor hours
Budgeted overhead $1,200,000
Actual overhead $1,160,000
How much is the overhead application rate if Minton Company bases it on direct labor
hours?
a. $20.00 per hour
b. $21.43 per hour
c. $20.71 per hour
d. $19.33 per hour
Ans: A, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

89. The labor costs that have been identified as indirect labor should be charged to
a. manufacturing overhead.
b. direct labor.
c. the individual jobs worked on.
d. salary expense.
Ans: A, SO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Reporting
2 - 18 Test Bank for Managerial Accounting, Fifth Edition

90. Manufacturing overhead is applied to each job

a. at the time when the overhead cost is incurred.
b. by means of a predetermined overhead rate.
c. at the end of the year when actual costs are known.
d. only if the overhead costs can be directly traced to that job.
Ans: B, SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

91. The predetermined overhead rate is based on the relationship between

a. estimated annual costs and actual activity.
b. estimated annual costs and expected annual activity.
c. actual monthly costs and actual annual activity.
d. estimated monthly costs and actual monthly activity.
Ans: B, SO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

92. The predetermined overhead rate is

a. determined on a moving average basis throughout the year.
b. not calculated until actual overhead costs are incurred.
c. determined at the beginning of the year.
d. determined at the end of the current year.
Ans: C, SO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

93. In calculating a predetermined overhead rate, a recent trend in automated manufacturing

operations is to choose an activity base related to
a. direct labor hours.
b. indirect labor dollars.
c. machine hours.
d. raw materials dollars.
Ans: C, SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

94. If annual overhead costs are expected to be $800,000 and direct labor costs are expected
to be $1,000,000, then if the activity base is direct labor costs:
a. $1.25 is the predetermined overhead rate.
b. for every dollar of manufacturing overhead, 80 cents of direct labor will be assigned.
c. for every dollar of direct labor, 80 cents of manufacturing overhead will be assigned.
d. a predetermined overhead rate cannot be determined.
Ans: C, SO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics

95. Overhead application is recorded with a

a. credit to Work in Process Inventory.
b. credit to Manufacturing Overhead.
c. debit to Manufacturing Overhead.
d. credit to job cost sheets.
Ans: B, SO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA
 Job Order Costing 2 - 19

96. Manufacturing overhead applied is added to direct labor incurred and to what other item to
equal total manufacturing costs for the period?
a. Goods available for sale.
b. Raw materials purchased.
c. Work in process.
d. Direct materials used.
Ans: D, SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

97. Simmons Inc. applies overhead to production at a predetermined rate of 90% based on
direct labor cost. Job No. 250, the only job still in process at the end of August, has been
charged with manufacturing overhead of $3,600. What was the amount of direct materials
charged to Job 250 assuming the balance in Work in Process inventory is $15,000?
a. $3,750.
b. $4,000.
c. $7,400.
d. $15,000.
Ans: C, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

98. Spencer Inc. applies overhead to production at a predetermined rate of 80% based on
direct labor cost. Job No. 130, the only job still in process at the end of August, has been
charged with manufacturing overhead of $3,000. What was the amount of direct materials
charged to Job 130 assuming the balance in Work in Process inventory is $12,000?
a. $3,000.
b. $3,750.
c. $5,250.
d. $12,000.
Ans: C, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

99. For Jacobs Company, the predetermined overhead rate is 70% of direct labor cost. During
the month, $300,000 of factory labor costs are incurred of which $80,000 is indirect labor.
Actual overhead incurred was $160,000. The amount of overhead debited to Work in
Process Inventory should be:
a. $154,000
b. $160,000
c. $210,000
d. $220,000
Ans: A, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics

100. Simpson Company applies overhead on the basis of 200% of direct labor cost. Job No.
305 is charged with $90,000 of direct materials costs and $120,000 of manufacturing
overhead. The total manufacturing costs for Job No. 305 is:
a. $210,000
b. $270,000
c. $300,000
d. $330,000
Ans: B, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
2 - 20 Test Bank for Managerial Accounting, Fifth Edition

101. For Wilton Company, the predetermined overhead rate is 70% of direct labor cost. During
the month, $350,000 of factory labor costs are incurred of which $100,000 is indirect labor.
Actual overhead incurred was $180,000. The amount of overhead debited to Work in
Process Inventory should be:
a. $175,000
b. $180,000
c. $245,000
d. $250,000
Ans: A, SO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics

102. At the beginning of the year, Monroe Company estimates annual overhead costs to be
$1,200,000 and that 300,000 machine hours will be operated. Using machine hours as a
base, the amount of overhead applied during the year if actual machine hours for the year
was 315,000 hours is
a. $1,200,000.
b. $1,142,857.
c. $840,000.
d. $1,260,000.
Ans: D, SO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

103. Cost of goods sold is obtained from

a. analysis of all the control accounts in the cost system.
b. the finished goods inventory records.
c. the work in process inventory records.
d. the Raw Materials Inventory control account.
Ans: B, SO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

104. When determining costs of jobs, how does a company account for indirect materials?
a. It is added to work in process as used.
b. It remains part of raw materials inventory.
c. It is transferred out of raw materials into manufacturing overhead when used.
d. It is transferred out of raw materials into work in process as used.
Ans: C, SO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

105. In a job order cost system, a credit to Manufacturing Overhead will be accompanied by a
debit to
a. Cost of Goods Manufactured.
b. Finished Goods Inventory.
c. Work in Process Inventory.
d. Raw Materials Inventory.
Ans: C, SO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA
 Job Order Costing 2 - 21

106. During 2011, Tanner Manufacturing expected Job No. 26 to cost $300,000 of overhead,
$500,000 of materials, and $200,000 in labor. Tanner applied overhead based on direct
labor cost. Actual production required an overhead cost of $560,000, $550,000 in
materials used, and $220,000 in labor. All of the goods were completed. What amount
was transferred to Finished Goods?
a. $1,000,000
b. $1,050,000
c. $1,070,000
d. $1,100,000
Ans: D, SO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

107. Debits to Work in Process Inventory are accompanied by a credit to all but which one of
the following accounts?
a. Raw Materials Inventory
b. Factory Labor
c. Manufacturing Overhead
d. Cost of Goods Sold
Ans: D, SO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

108. Which of the following is not viewed as part of accumulating manufacturing costs in a job
order cost system?
a. Cost of goods sold is recognized
b. Raw materials are purchased
c. Factory labor is incurred
d. Manufacturing overhead is incurred
Ans: A, SO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

109. Which of the following is not viewed as part of assigning manufacturing costs in a job
order cost system?
a. Manufacturing overhead is applied
b. Raw materials are used
c. Manufacturing overhead is incurred
d. Completed goods are recognized
Ans: C, SO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

110. In determining total manufacturing costs on the cost of goods manufactured schedule,
a. beginning work in process inventory should have a zero balance.
b. actual manufacturing overhead costs appear as a deduction.
c. manufacturing overhead applied is added to direct materials and direct labor.
d. ending work in process inventory is deducted from beginning work in process
inventory.
Ans: C, SO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
2 - 22 Test Bank for Managerial Accounting, Fifth Edition

111. Gulick Company developed the following data for the current year:
Beginning work in process inventory $120,000
Direct materials used 72,000
Actual overhead 144,000
Overhead applied 108,000
Cost of goods manufactured 132,000
Total manufacturing costs 360,000

Gulick Company's direct labor cost for the year is

a. $36,000.
b. $180,000.
c. $108,000.
d. $144,000.
Ans: B, SO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem
Solving, IMA: Reporting

112. Gulick Company developed the following data for the current year:
Beginning work in process inventory $120,000
Direct materials used 72,000
Actual overhead 144,000
Overhead applied 108,000
Cost of goods manufactured 132,000
Total manufacturing costs 360,000

Gulick Company's ending work in process inventory is

a. $348,000.
b. $240,000.
c. $228,000.
d. $108,000.
Ans: A, SO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

113. Hayward Manufacturing Company developed the following data:

Beginning work in process inventory $270,000
Direct materials used 210,000
Actual overhead 330,000
Overhead applied 240,000
Cost of goods manufactured 360,000
Ending work in process 450,000
Hayward Manufacturing Company's total manufacturing costs for the period is
a. $570,000.
b. $540,000.
c. $390,000.
d. cannot be determined from the data provided.
Ans: B, SO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
 Job Order Costing 2 - 23

114. Which of the following is not used in assigning manufacturing costs to work in process
inventory?
a. Actual manufacturing overhead
b. Time tickets
c. Materials requisitions
d. Predetermined overhead rate
Ans: A, SO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

115. On the cost of goods manufactured schedule, the cost of goods manufactured agrees with
the
a. balance of Finished Goods Inventory at the end of the period.
b. total debits to Work in Process Inventory during the period.
c. amount transferred from Work in Process Inventory to Finished Goods during the
period.
d. debits to Cost of Goods Sold during the period.
Ans: C, SO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

116. Gannon Company had the following information at December 31:

Finished goods inventory, January 1 $ 30,000
Finished goods inventory, December 31 90,000
If the cost of goods manufactured during the year amounted to $1,260,000 and annual
sales were $1,650,000, the amount of gross profit for the year is
a. $390,000.
b. $1,200,000.
c. $450,000.
d. $330,000.
Ans: C, SO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

117. Haight Company incurred direct materials costs of $1,000,000 during the year. Manu-
facturing overhead applied was $180,000 and is applied at the rate of 60% of direct labor
costs. Haight Company’s total manufacturing costs for the year was
a. $1,480,000.
b. $1,288,000.
c. $1,180,000.
d. $1,888,000.
Ans: A, SO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
2 - 24 Test Bank for Managerial Accounting, Fifth Edition

118. Greer Company developed the following data for the current year:
Beginning work in process inventory $ 68,000
Direct materials used 104,000
Actual overhead 88,000
Overhead applied 92,000
Cost of goods manufactured 450,000
Total manufacturing costs 428,000

How much is Greer Company's direct labor cost for the year?
a. $254,000
b. $300,000
c. $232,000
d. $164,000
Ans: C, SO: 5, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics

119. Greer Company developed the following data for the current year:
Beginning work in process inventory $ 68,000
Direct materials used 104,000
Actual overhead 88,000
Overhead applied 92,000
Cost of goods manufactured 450,000
Total manufacturing costs 428,000

How much is Greer Company's ending work in process inventory for the year?
a. $46,000
b. $242,000
c. $42,000
d. $186,000
Ans: A, SO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

120. Chmelar Manufacturing Company developed the following data:

Beginning work in process inventory $ 60,000
Direct materials used 360,000
Actual overhead 420,000
Overhead applied 405,000
Cost of goods manufactured 960,000
Ending work in process 45,000

How much are total manufacturing costs for the period?

a. $1,185,000
b. $945,000
c. $825,000
d. $915,000
Ans: B, SO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics
 Job Order Costing 2 - 25

121. Barger Company had the following information at December 31:

Finished goods inventory, January 1 $60,000
Finished goods inventory, December 31 84,000
If the cost of goods manufactured during the year amounted to $1,330,000 and annual
sales were $1,996,000, how much is the amount of gross profit for the year?
a. $666,000
b. $606,000
c. $1,306,000
d. $690,000
Ans: D, SO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

122. Emley Company incurred direct materials costs of $450,000 during the year.
Manufacturing overhead applied was $420,000 and is applied based on direct labor costs.
The predetermined overhead rate is 70%. How much are Emley Company’s total
manufacturing costs for the year?
a. $1,164,000
b. $1,050,000
c. $870,000
d. $1,470,000
Ans: D, SO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

123. During 2011, Durham Manufacturing expected Job No. 51 to cost $300,000 of overhead,
$500,000 of materials, and $200,000 in labor. Durham applied overhead based on direct
labor cost. Actual production required an overhead cost of $280,000, $550,000 in
materials used, and $220,000 in labor. All of the goods were completed. What amount
was transferred to Finished Goods?
a. $1,070,000
b. $1,100,000
c. $1,000,000
d. $1,050,000
Ans: B, SO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

124. During 2011, Cotte Manufacturing expected Job No. 59 to cost $300,000 of overhead,
$500,000 of materials, and $200,000 in labor. Cotte applied overhead based on direct
labor cost. Actual production required an overhead cost of $280,000, $550,000 in
materials used, and $220,000 in labor. All of the goods were completed. How much is the
amount of over- or underapplied overhead?
a. $20,000 underapplied
b. $20,000 overapplied
c. $50,000 underapplied
d. $50,000 overapplied
Ans: D, SO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics
2 - 26 Test Bank for Managerial Accounting, Fifth Edition

125. Kimble Company applies overhead on the basis of machine hours. Given the following
data, compute overhead applied and the under- or overapplication of overhead for the
period:
Estimated annual overhead cost $1,200,000
Actual annual overhead cost $1,155,000
Estimated machine hours 400,000
Actual machine hours 380,000
a. $1,140,000 applied and $15,000 overapplied
b. $1,200,000 applied and $15,000 overapplied
c. $1,140,000 applied and $15,000 underapplied
d. $1,145,000 applied and neither under- nor overapplied
Ans: C, SO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics

126. Barnes Company applies overhead on the basis of machine hours. Given the following
data, compute overhead applied and the under- or overapplication of overhead for the
period:
Estimated annual overhead cost $1,500,000
Actual annual overhead cost $1,470,000
Estimated machine hours 300,000
Actual machine hours 290,000
a. $1,450,000 applied and $20,000 overapplied
b. $1,500,000 applied and $20,000 overapplied
c. $1,450,000 applied and $20,000 underapplied
d. $1,470,000 applied and neither under- nor overapplied
Ans: C, SO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics

127. A company assigned overhead to work in process. At year end, what does the amount of
overapplied overhead mean?
a. The overhead assigned to work in process is greater than the estimated overhead
costs.
b. The overhead assigned to work in process is less than the estimated overhead costs.
c. The overhead assigned to work in process is less than the actual overhead.
d. The overhead assigned to work in process is greater than the overhead incurred.
Ans: D, SO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

128. If the Manufacturing Overhead account has a debit balance at the end of a period, it
means that
a. actual overhead costs were less than overhead costs applied to jobs.
b. actual overhead costs were greater than overhead costs applied to jobs.
c. actual overhead costs were equal to overhead costs applied to jobs.
d. no jobs have been completed.
Ans: B, SO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Business Economics
 Job Order Costing 2 - 27

129. If the manufacturing overhead costs applied to jobs worked on were greater than the
actual manufacturing costs incurred during a period, overhead is said to be
a. underapplied.
b. overapplied.
c. in error.
d. prepaid.
Ans: B, SO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Business Economics

130. At the end of the year, any balance in the Manufacturing Overhead account is generally
eliminated by adjusting
a. Work In Process Inventory.
b. Finished Goods Inventory.
c. Cost of Goods Sold.
d. Raw Materials Inventory.
Ans: C, SO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Business Economics

131. If Manufacturing Overhead has a credit balance at the end of the period, then
a. overhead has been underapplied.
b. the overhead assigned to Work in Process Inventory is less than the overhead incurred.
c. overhead has been overapplied.
d. management must take corrective action.
Ans: C, SO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Business Economics

132. The Manufacturing Overhead account shows debits of $30,000, $24,000, and $28,000
and one credit for $86,000. Based on this information, manufacturing overhead
a. has been overapplied.
b. has been underapplied.
c. has not been applied.
d. shows a zero balance.
Ans: A, SO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

133. If Manufacturing Overhead has a debit balance at the end of the period, then
a. overhead has been underapplied.
b. the overhead assigned to Work in Process Inventory is less than the overhead incurred.
c. overhead has been overapplied.
d. management must take corrective action.
Ans: A, SO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

134. If actual overhead is greater than applied manufacturing overhead, then manufacturing
overhead is:
a. underapplied.
b. overapplied.
c. a loss on the income statement under "Other Expenses and Losses."
d. considered a miscellaneous expense.
Ans: A, SO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
2 - 28 Test Bank for Managerial Accounting, Fifth Edition

135. If actual overhead is less than applied manufacturing overhead, then manufacturing
overhead is:
a. underapplied.
b. overapplied.
c. a loss on the income statement under "Other Expenses and Losses."
d. considered a miscellaneous expense
Ans: B, SO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

136. If manufacturing overhead has been underapplied during the year, the adjusting entry at
the end of the year will show a
a. debit to Manufacturing Overhead.
b. credit to Cost of Goods Sold.
c. debit to Work in Process Inventory.
d. debit to Cost of Goods Sold.
Ans: D, SO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

137. If manufacturing overhead has been overapplied during the year, the adjusting entry at the
end of the year will show a
a. debit to Manufacturing Overhead.
b. credit to Finished Goods Inventory
c. debit to Cost of Goods Sold.
d. credit to Work in Process Inventory.
Ans: A, SO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

138. The existence of under- or overapplied overhead at the end of the year:
a. requires an adjustment to Cost of Goods Sold.
b. indicates that an error has been made.
c. requires a retroactive adjustment to the cost of all jobs completed.
d. is written off as a bad estimate expense.
Ans: A, SO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

139. Conceptually, any under- or overapplied overhead at the end of the year should be
allocated among all of the following except
a. cost of goods sold.
b. ending work in process inventory.
c. ending raw materials inventory.
d. ending finished goods inventory.
Ans: C, SO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

140. If, at the end of the year, Manufacturing Overhead has been overapplied, it means that
a. actual overhead costs were greater than the overhead assigned to jobs.
b. actual overhead costs were less than the overhead assigned to jobs.
c. overhead has not been applied to jobs still in process.
d. cost of goods will have to be increased by the amount of the overapplied overhead.
Ans: B, SO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
 Job Order Costing 2 - 29

141. A process cost system would be used for all of the following except the
a. manufacture of cereal.
b. refining of petroleum.
c. printing of wedding invitations.
d. production of automobiles.
Ans: C, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Business Applications

142. In a job order cost system, it would be correct in recording the purchase of raw materials
to debit
a. Work in Process Inventory.
b. Work in Process and Manufacturing Overhead.
c. Raw Materials Inventory.
d. Finished Goods Inventory.
Ans: C, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

143. In a manufacturing company, the cost of factory labor consists of all of the following
except
a. employer payroll taxes.
b. fringe benefits incurred by the employer.
c. net earnings of factory workers.
d. gross earnings of factory workers.
Ans: C, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

144. Which of the following is not a control account?

a. Raw Materials Inventory
b. Factory Labor
c. Manufacturing Overhead
d. All of these are control accounts.
Ans: B, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

145. When the company assigns factory labor costs to jobs, the direct labor cost is debited to
a. Direct Labor.
b. Factory Labor.
c. Manufacturing Overhead.
d. Work in Process Inventory.
Ans: D, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

146. Jinnah Company applies overhead on the basis of 200% of direct labor cost. Job No. 501
is charged with $90,000 of direct materials costs and $120,000 of manufacturing
overhead. The total manufacturing costs for Job No. 501 is
a. $210,000.
b. $330,000.
c. $270,000.
d. $300,000.
Ans: C, SO: 4, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
2 - 30 Test Bank for Managerial Accounting, Fifth Edition

147. Companies assign manufacturing overhead to work in process on an estimated basis

through the use of a(n)
a. actual overhead rate.
b. estimated overhead rate.
c. assigned overhead rate.
d. predetermined overhead rate.
Ans: D, SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

148. Overapplied manufacturing overhead exists when overhead assigned to work in process is
a. more than overhead incurred and there is a debit balance in Manufacturing Overhead
at the end of a period.
b. less than overhead incurred and there is a debit balance in Manufacturing Overhead
at the end of a period.
c. more than overhead incurred and there is a credit balance in Manufacturing Overhead
at the end of a period.
d. less than overhead incurred and there is a credit balance in Manufacturing Overhead
at the end of a period.
Ans: C, SO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

149. Usually, under- or overapplied overhead is considered to be an adjustment to

a. work in process.
b. finished goods.
c. finished goods and cost of goods sold.
d. cost of goods sold.
Ans: D, SO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

150. Which of the following statements about under- or overapplied manufacturing overhead is
correct?
a. After the entry to transfer over- or underapplied overhead to Cost of Goods Sold is
posted, Manufacturing Overhead will have a zero balance.
b. When Manufacturing Overhead has a credit balance, overhead is said to be under-
applied.
c. At the end of the year, under- or overapplied overhead is eliminated by a closing entry.
d. When annual financial statements are prepared, overapplied overhead is reported in
current liabilities.
Ans: A, SO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting
 Job Order Costing 2 - 31

Answers to Multiple Choice Questions

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
36. a 53. a 70. c 87. b 104. c 121. d 138. a
37. d 54. c 71. c 88. a 105. c 122. d 139. c
38. b 55. d 72. c 89. a 106. d 123. b 140. b
39. c 56. a 73. c 90. b 107. d 124. d 141. c
40. d 57. c 74. a 91. b 108. a 125. c 142. c
41. a 58. b 75. a 92. c 109. c 126. c 143. c
42. c 59. d 76. c 93. c 110. c 127. d 144. b
43. b 60. d 77. c 94. c 111. b 128. b 145. d
44. b 61. a 78. b 95. b 112. a 129. b 146. c
45. a 62. c 79. d 96. d 113. b 130. c 147. d
46. b 63. d 80. c 97. c 114. a 131. c 148. c
47. d 64. d 81. c 98. c 115. c 132. a 149. d
48. c 65. b 82. b 99. a 116. c 133. a 150. a
49. b 66. d 83. b 100. b 117. a 134. a
50. d 67. d 84. c 101. a 118. c 135. b
51. b 68. a 85. b 102. d 119. a 136. d
52. b 69. b 86. d 103. b 120. b 137. a

BRIEF EXERCISES
BE 151
During the first year of operations, Shapiro Tool accumulated the following manufacturing costs:
Raw materials purchased on account $9,000
Factory labor accrued 6,000
Incurred manufacturing overhead on account 3,000

Instructions
Prepare separate journal entries for each manufacturing cost.
Ans: N/A, SO: 2, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

Solution 151 (4 min.)

Raw Materials Inventory..................................................................... 9,000
Accounts Payable...................................................................... 9,000

Factory Labor..................................................................................... 6,000

Factory Wages Payable............................................................. 6,000

Manufacturing Overhead.................................................................... 3,000

Accounts Payable...................................................................... 3,000
2 - 32 Test Bank for Managerial Accounting, Fifth Edition

BE 152
In January, Harlan, Inc. production supervisor requisitioned raw materials for production as
follows: Job 1 $600, Job 2 $700, Job 3 $300, and general factory use, $520.

Instructions
Prepare a summary journal entry to record raw materials used.
Ans: N/A, SO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

Solution 152 (2 min.)

Work in Process Inventory.................................................................. 1,600
Manufacturing Overhead.................................................................... 520
Raw Materials Inventory............................................................ 2,120

BE 153
Lando Company reported the following amounts for 2011:
Raw materials purchased $93,000 Ending work in process inventory $ 6,300
Beginning raw materials inventory 5,200 Manufacturing overhead costs applied 36,000
Ending raw materials inventory 4,500 Beginning work in process inventory 6,100

Instructions
Calculate the cost of materials used in production
Ans: N/A, SO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics

Solution 153 (2 min.)

$5,200 + $93,000 – $4,500 = $93,700

BE 154
Builder Bug Company allocates overhead at $9 per direct labor hour. Job A45 required 4 boxes of
direct materials at a cost of $30 per box and took employees 10 hours to complete. Employees
earn $15 per hour.

Instructions
Compute the total cost of Job A45.
Ans: N/A, SO: 3, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics

Solution 154 (4 min.)

Direct materials (4 × $30) $120
Direct labor (10 hours × $15) 150
Overhead (10 hours × $9) 90
Total job cost $360
 Job Order Costing 2 - 33

BE 155
Colby Company estimates that annual manufacturing overhead costs will be $800,000.
Estimated annual operating activity bases are: direct labor cost $460,000, direct labor hours
40,000 and machine hours 80,000. The actual manufacturing overhead cost for the year was
$801,000 and the actual direct labor cost for the year was $456,000. Actual direct labor hours
totaled 40,200 and machine hours totaled 79,000. Colby applies overhead based on direct labor
hours.

Instructions
Compute the predetermined overhead rate and determine the amount of manufacturing overhead
applied. Determine if overhead is over- or underapplied and the amount.
Ans: N/A, SO: 4, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics

Solution 155 (5 min.)

Rate = $800,000 ÷ 40,000 = $20 per direct labor hour
Applied = $20  40,200 = $804,000
Overapplied = $804,000 - $801,000 = $3,000

BE 156
Martin Company applies manufacturing overhead based on direct labor hours. Information
concerning manufacturing overhead and labor for the year follows:
Actual manufacturing overhead $140,000
Estimated manufacturing overhead $130,000
Direct labor hours incurred 4,800
Direct labor hours estimated 5,000

Instructions
Compute the predetermined overhead rate.
Ans: N/A, SO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics

Solution 156 (2 min.)

$130,000 ÷ 5,000 = $26.00 per direct labor hour

BE 157
The manufacturing operations of Bryant, Inc. had the following balances for the month of January:
Inventories January 1 January 31
Raw materials $12,000 $13,000
Work in process 21,000 23,000
Finished goods 14,000 16,000

Bryant transferred $250,000 of completed goods out of work in process during January.

Instructions
Compute the cost of goods sold.
Ans: N/A, SO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
2 - 34 Test Bank for Managerial Accounting, Fifth Edition

Solution 157 (2 min.)

$14,000 + $250,000 – $16,000 = $248,000

BE 158
The following amounts were reported by Burke Company before adjusting its immaterial
overapplied manufacturing overhead of $8,000.
Raw Materials Inventory $ 40,000
Finished Goods Inventory 60,000
Work in Process Inventory 100,000
Cost of Goods Sold 790,000

Instructions
Compute what amount Burke will report as cost of goods sold after it disposes of its overapplied
overhead.
Ans: N/A, SO: 6, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

Solution 158 (2 min.)

$790,000 – $8,000 = $782,000

BE 159
During 2011, Arb Company incurred the following direct labor costs: January $15,000 and
February $30,000. Arb uses a predetermined overhead rate of 120% of direct labor cost.
Estimated overhead for the 2 months, respectively, totaled $19,500 and $35,700. Actual overhead
for the 2 months, respectively, totaled $18,400 and $32,500.

Instructions
Determine if overhead is over- or underapplied for each of the two months and the respective
amounts.
Ans: N/A, SO: 6, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics

Solution 159 (4 min.)

Overhead applied:
January: 120% × $15,000 = $18,000
February: 120% × $30,000 = $36,000

Over- or underapplied:
January: $18,000 – $18,400 = $400 underapplied
February: $36,000 – $32,500 = $3,500 overapplied
 Job Order Costing 2 - 35

BE 160
At December 31, Ding Company reported the following balances in its accounts:
Cost of Goods Sold $210,000
Finished Goods Inventory 30,000

The company’s balance in its Manufacturing Overhead account at the same date was a debit of
$4,400.

Instructions
Prepare the entry to adjust the over- or underapplied overhead amount at December 31.
Ans: N/A, SO: 6, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

Solution 160 (2 min.)

Cost of Goods Sold............................................................................... 4,400
Manufacturing Overhead................................................................ 4,400

EXERCISES
Ex. 161
The manufacturing operations of Beatly, Inc. had the following balances for the month of January:
January 1 January 31
Raw materials $12,000 $13,000
Work in process 21,000 23,000
Finished goods 14,000 12,000

Beatly transferred $220,000 of completed goods out of work in process during January.

Instructions
Compute the cost of goods sold for January.
Ans: N/A, SO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

Solution 161 (3 min.)

$14,000 + $220,000 - $12,000 = $222,000

Ex. 162
A selected list of accounts used by Cline Manufacturing Company follows:
Code Code
A Cash F Accounts Payable
B Accounts Receivable G Factory Labor
C Raw Materials Inventory H Manufacturing Overhead
D Work In Process Inventory I Cost of Goods Sold
E Finished Goods Inventory J Sales

Cline Manufacturing Company uses a job order system and maintains perpetual inventory
records.
2 - 36 Test Bank for Managerial Accounting, Fifth Edition

Ex. 162 (Cont.)

Instructions
Place the appropriate code letter in the columns indicating the appropriate account(s) to be
debited and credited for the transactions listed below.
———————————————————————————————————————————
Account(s) Account(s)
Transactions Debited Credited
———————————————————————————————————————————
1. Raw materials were purchased on account.
———————————————————————————————————————————
2. Issued a check to Dixon Machine Shop for
repair work on factory equipment.
———————————————————————————————————————————
3. Direct materials were requisitioned for Job 280.
———————————————————————————————————————————
4. Factory labor was paid as incurred.
———————————————————————————————————————————
5. Recognized direct labor and indirect labor used.
———————————————————————————————————————————
6. The production department requisitioned indirect
materials for use in the factory.
———————————————————————————————————————————
7. Overhead was applied to production based on a
predetermined overhead rate of $8 per labor hour.
———————————————————————————————————————————
8. Goods that were completed were transferred to
finished goods.
———————————————————————————————————————————
9. Goods costing $80,000 were sold for $105,000
on account.
———————————————————————————————————————————
10. Paid for raw materials purchased previously
on account.
———————————————————————————————————————————
Ans: N/A, SO: 2, 3, 4, Bloom: C, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: FSA
 Job Order Costing 2 - 37

Solution 162 (10–15 min.)

———————————————————————————————————————————
Account(s) Account(s)
Transactions Debited Credited
———————————————————————————————————————————
1. Raw materials were purchased on account. C F
———————————————————————————————————————————
2. Issued a check to Dixon Machine Shop for H A
repair work on factory equipment.
———————————————————————————————————————————
3. Direct materials were requisitioned for Job 280 D C
———————————————————————————————————————————
4. Factory labor was paid as incurred. G A
———————————————————————————————————————————
5. Recognized direct labor and indirect labor used D, H G
———————————————————————————————————————————
6. The production department requisitioned indirect H C
materials for use in the factory.
———————————————————————————————————————————
7. Overhead was applied to production based on a
on a predetermined overhead rate of $8 per labor hour D H
———————————————————————————————————————————
8. Goods that were completed were transferred to E D
finished goods.
———————————————————————————————————————————
9. Goods costing $80,000 were sold for $105,000 B, I J, E
on account.
———————————————————————————————————————————
10. Paid for raw materials purchased previously F A
on account.

Ex. 163
Finn Manufacturing Company uses a job order cost accounting system and keeps perpetual
inventory records. Prepare journal entries to record the following transactions during the month of
June.

June 1 Purchased raw materials for $20,000 on account.

8 Raw materials requisitioned by production:

Direct materials $8,000
Indirect materials 1,000

15 Paid factory utilities, $2,100 and repairs for factory equipment, $3,000.

25 Incurred $84,000 of factory labor.

25 Time tickets indicated the following:

Direct Labor (5,000 hrs × $12 per hr) = $60,000
Indirect Labor (3,000 hrs × $8 per hr) = 24,000
$84,000
2 - 38 Test Bank for Managerial Accounting, Fifth Edition

Ex. 163 (Cont.)

25 Applied manufacturing overhead to production based on a predetermined overhead
rate of $7 per direct labor hour worked.

28 Goods costing $18,000 were completed in the factory and were transferred to finished
goods.

30 Goods costing $15,000 were sold for $20,000 on account.

Ans: N/A, SO: 2, 3, 4, Bloom: AP, Difficulty: Medium, Min: 16, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement,
AICPA PC: Problem Solving, IMA: FSA

Solution 163 (16–23 min.)

June 1 Raw Materials Inventory ..................................................... 20,000
Accounts Payable ...................................................... 20,000
(Purchase of raw materials on account)

8 Work In Process Inventory .................................................. 8,000

Manufacturing Overhead .................................................... 1,000
Raw Materials Inventory ............................................. 9,000
(To assign materials to jobs and overhead)

15 Manufacturing Overhead .................................................... 5,100

Cash .......................................................................... 5,100
(To record payment of factory utilities and repairs)

25 Factory Labor ...................................................................... 84,000

Factory Wages Payable ............................................. 84,000
(To record factory labor costs)

25 Work In Process Inventory .................................................. 60,000

Manufacturing Overhead .................................................... 24,000
Factory Labor ............................................................. 84,000
(To assign factory labor to jobs and overhead)

25 Work In Process Inventory .................................................. 35,000

Manufacturing Overhead ............................................ 35,000
(To apply overhead to jobs)

28 Finished Goods Inventory ................................................... 18,000

Work In Process Inventory ......................................... 18,000
(To record completion of production)

30 Accounts Receivable .......................................................... 20,000

Cost of Goods Sold ............................................................. 15,000
Sales .......................................................................... 20,000
Finished Goods Inventory .......................................... 15,000
(To record sales of finished goods and its cost)
 Job Order Costing 2 - 39

Ex. 164
Selected accounts of Kosar Manufacturing Company at year end appear below:

RAW MATERIALS INVENTORY WORK IN PROCESS INVENTORY

(a) 40,000 (d) 25,000 (d) 25,000 (g) 140,000
(e) 80,000
(f) 100,000

FINISHED GOODS INVENTORY COST OF GOODS SOLD

(g) 140,000 (h) 120,000 (h) 120,000

FACTORY LABOR MANUFACTURING OVERHEAD

(b) 110,000 (e) 110,000 (c) 75,000 (f) 100,000
(e) 30,000

Instructions
Explain the probable transaction that took place for each of the items identified by letters in the
accounts. For example:
(a) Raw materials costing $40,000 were purchased.
Ans: N/A, SO: 2, 3, 4, Bloom: C, Difficulty: Hard, Min: 9, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: FSA

Solution 164 (9–14 min.)

(a) Raw materials costing $40,000 were purchased.
(b) Factory labor costs incurred amounted to $110,000.
(c) Actual manufacturing overhead costs incurred were $75,000.
(d) Direct materials requisitioned for production amounted to $25,000.
(e) Factory labor used consisted of:
Direct labor $80,000
Indirect labor 30,000
(f) Manufacturing overhead applied to production was $100,000.
(g) Completed goods costing $140,000 were transferred to finished goods inventory.
(h) Finished goods costing $120,000 were sold.

Ex. 165
Sardin Company begins the month of March with $17,000 of work in process costs from Job 324.
Information from job cost sheets shows the following additional costs assigned during March,
April, and May of 2011:
Manufacturing Costs Assigned
Job No. March April May
324 $26,000
325 20,000 $23,000 $15,000
326 41,000 11,000
327 16,000 34,000
328 29,000 46,000

Job 324 was completed in March. Jobs 325 and 327 were completed in May, and Job 326 was
completed in April. Jobs are sold during the month after completion. Total revenue for jobs sold
during the 3-month period is $145,000.
2 - 40 Test Bank for Managerial Accounting, Fifth Edition

Ex. 165 (Cont.)

Instructions
Calculate the balances of the work in process and finished goods inventory accounts at the end
of May.
Ans: N/A, SO: 2,3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Business Economics

Solution 165 (5–6 min.)

Work in process
Job 328 $29,000 + $46,000 = $75,000

Finished goods
Job 325 $20,000 + $23,000 + $15,000 = $ 58,000
Job 327 $16,000 + $34,000 = 50,000
$108,000

Ex. 166
The gross earnings of factory workers for Dinkel Company during the month of January are
$300,000. The employer's payroll taxes for the factory payroll are $36,000. Of the total
accumulated cost of factory labor, 75% is related to direct labor and 25% is attributable to indirect
labor.

Instructions
(a) Prepare the entry to record the factory labor costs for the month of January.
(b) Prepare the entry to assign factory labor to production.
(c) Prepare the entry to assign manufacturing overhead to production, assuming the
predetermined overhead rate is 125% of direct labor cost.
Ans: N/A, SO: 2, 3, 4, 5, Bloom: AP, Difficulty: Medium, Min: 8, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement,
AICPA PC: Problem Solving, IMA: FSA

Solution 166 (8–12 min.)

(a) Factory Labor............................................................................... 336,000
Factory Wages Payable....................................................... 300,000
Payroll Taxes Payable.......................................................... 36,000

(b) Work in Process Inventory............................................................ 252,000

Manufacturing Overhead.............................................................. 84,000
Factory Labor....................................................................... 336,000
($336,000 × 75% = $252,000)

(c) Work in Process Inventory............................................................ 315,000

Manufacturing Overhead..................................................... 315,000
($252,000 × 125% = $315,000)
 Job Order Costing 2 - 41

Ex. 167
Foster Manufacturing uses a job order cost accounting system. On April 1, the company has
Work in Process Inventory of $7,600 and two jobs in process: Job No. 221, $3,600, and Job No.
222, $4,000. During April, a summary of source documents reveals the following:
For Materials Requisition Slips Labor Time Tickets
Job No. 221 $1,200 $ 2,600
222 1,700 2,200
223 2,400 2,900
224 2,100 2,800
General use 600 400
Totals $8,000 $10,900

Foster applies manufacturing overhead to jobs at an overhead rate of 60% of direct labor cost.
Job No. 221 is completed during the month.

Instructions
(a) Prepare summary journal entries to record the raw materials requisitioned, factory labor
used, the assignment of manufacturing overhead to jobs, and the completion of Job No. 221.
(b) Calculate the balance of the Work in Process Inventory account at April 30.
Ans: N/A, SO: 2, 3, 4, 5, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement,
AICPA PC: Problem Solving, IMA: FSA

Solution 167 (10–15 min.)

(a) April 30 Work in Process Inventory............................................. 7,400
Manufacturing Overhead................................................ 600
Raw Materials Inventory........................................ 8,000
Work in Process Inventory............................................. 10,500
Manufacturing Overhead................................................ 400
Factory Labor........................................................ 10,900
Work in Process Inventory............................................. 6,300
Manufacturing Overhead....................................... 6,300
($10,500 × 60% = $6,300)
Finished Goods Inventory.............................................. 8,960
Work in Process Inventory..................................... 8,960
($3,600 + $1,200 + $2,600 + $1,560 = $8,960)

(b) Work in Process Inventory, April 30 = $24,440

Job No. 222 $9,220 ($4,000 + $1,700 + $2,200 + $1,320)

Job No. 223 7,040 ($2,400 + $2,900 + $1,740)
Job No. 224 6,580 ($2,100 + $2,800 + $1,680)
$22,840
2 - 42 Test Bank for Managerial Accounting, Fifth Edition

Ex. 168
Manufacturing cost data for Dolan Company, which uses a job order cost system, are presented
below:
Case A Case B
Direct Materials Used (a) $103,000
Direct Labor $ 70,000 140,000
Manufacturing Overhead Applied 63,000 (d)
Total Manufacturing Costs 240,000 (e)
Work in Process, 1/1/11 (b) 45,000
Total Cost of Work in Process 300,000 (f)
Work in Process, 12/31/11 (c) 40,000
Cost of Goods Manufactured 205,000 (g)

Instructions
Indicate the missing amount for each letter. Assume that overhead is applied on the basis of
direct labor cost and that the rate is the same for both cases.
Ans: N/A, SO: 2, 3, 4, 5, Bloom: AN, Difficulty: Hard, Min: 9, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Business Economics

Solution 168 (9–12 min.)

Case A
(a) + $70,000 + $63,000 = $240,000 $300,000 – (c) = $205,000
(a) = $107,000 (c) = $95,000
$240,000 + (b) = $300,000
(b) = $60,000

Case B [Note that the overhead rate from Case A is 90% ($63,000 ÷ $70,000)]
$140,000 × 90% = (d) $369,000 + $45,000 = (f)
(d) = $126,000 (f) = $414,000
$103,000 + $140,000 + $126,000 = (e) $414,000 – $40,000 = (g)
(e) = $369,000 (g) = $374,000

Ex. 169
Fort Corporation had the following transactions during its first month of operations:
1. Purchased raw materials on account, $85,000.
2. Raw Materials of $30,000 were requisitioned to the factory. An analysis of the materials
requisition slips indicated that $6,000 was classified as indirect materials.
3. Factory labor costs incurred were $100,000 of which $80,000 pertained to factory wages
payable and $20,000 pertained to employer payroll taxes payable.
4. Time tickets indicated that $84,000 was direct labor and $16,000 was indirect labor.
5. Overhead costs incurred on account were $112,000.
6. Manufacturing overhead was applied at the rate of 150% of direct labor cost.
7. Goods costing $115,000 are still incomplete at the end of the month; the other goods were
completed and transferred to finished goods.
8. Finished goods costing $100,000 to manufacture were sold on account for $130,000.
 Job Order Costing 2 - 43

Ex. 169 (Cont.)

Instructions
Journalize the above transactions for Fort Corporation.
Ans: N/A, SO: 2, 3, 4, 5, Bloom: AP, Difficulty: Medium, Min: 12, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement,
AICPA PC: Problem Solving, IMA: FSA

Solution 169 (12–17 min.)

1. Raw Materials Inventory.................................................................. 85,000
Accounts Payable................................................................... 85,000
2. Work in Process Inventory............................................................... 24,000
Manufacturing Overhead................................................................. 6,000
Raw Materials Inventory......................................................... 30,000
3. Factory Labor.................................................................................. 100,000
Factory Wages Payable.......................................................... 80,000
Payroll Taxes Payable............................................................ 20,000
4. Work in Process Inventory............................................................... 84,000
Manufacturing Overhead................................................................. 16,000
Factory Labor......................................................................... 100,000
5. Manufacturing Overhead................................................................. 112,000
Accounts Payable................................................................... 112,000
6. Work in Process Inventory............................................................... 126,000
Manufacturing Overhead........................................................ 126,000
($84,000 × 150% = $126,000)
7. Finished Goods Inventory................................................................ 119,000
Work in Process Inventory...................................................... 119,000
($24,000 + $84,000 + $126,000 = $234,000)
($234,000 – $115,000 = $119,000)
8. Accounts Receivable....................................................................... 130,000
Sales...................................................................................... 130,000
Cost of Goods Sold......................................................................... 100,000
Finished Goods Inventory....................................................... 100,000

Ex. 170
Lando Company reported the following amounts for 2011:
Raw materials purchased $98,000
Beginning raw materials inventory 5,200
Ending raw materials inventory 4,500
Beginning finished goods inventory 7,600
Ending finished goods inventory 8,000
Direct labor used 25,000
Manufacturing overhead costs applied 30,000
Beginning work in process inventory 6,100
Ending work in process inventory 6,300
2 - 44 Test Bank for Managerial Accounting, Fifth Edition

Ex. 170 (Cont.)

Instructions
Calculate (a) the cost of materials used in production and (b) total manufacturing costs.
Ans: N/A, SO: 2,3, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Business Economics

Solution 170 (4 min.)

(a) Cost of materials used in production: $5,200 + $98,000 – $4,500 = $98,700
(b) Total manufacturing costs: $98,700 + $25,000 + $30,000 = $153,700

Ex. 171
A job cost sheet of Fugate Company is given below.

Job Cost Sheet

JOB NO. 172 Quantity 2,000
FOR James Company Date Completed 5/31

Date Direct Direct Manufacturing

Materials Labor Overhead
5/10 1,030
12 1,120
15 550 825
22 480 720
24 2,000
27 1,870
31 670 1,005
Cost of completed job:
Direct materials ________
Direct labor ________
Manufacturing Overhead ________
Total cost ________
Unit cost ________

Instructions
(a) Answer the following questions.
(1) What is the predetermined manufacturing overhead rate?
(2) What are the total cost and the unit cost of the completed job?
(b) Prepare the entry to record the completion of the job.
Ans: N/A, SO: 2, 3, 4, 5, Bloom: AP, Difficulty: Medium, Min: 8, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement,
AICPA PC: Problem Solving, IMA: Business Economics
 Job Order Costing 2 - 45

Solution 171 (8 min.)

(a)
(1) The predetermined overhead rate is 150% of direct labor cost. For example, on May 15, the
computation is $825 ÷ $550 = 150%. The same result is obtained on May 22 and 31.

(2) The total cost is:

Direct materials...................................................... $6,020
Direct labor............................................................ 1,700
Manufacturing overhead........................................ 2,550
10,270
The unit cost is $5.14 ($10,270 ÷ 2,000)

(b) May 31 Finished Goods Inventory ....................... 10,270

Work in Process Inventory................... 10,270

Ex. 172
At May 31, 2011, the accounts of Kuhlmann Manufacturing Company show the following.

1. May 1 inventories—finished goods $12,600, work in process $14,700, and raw materials
$8,200.
2. May 31 inventories—finished goods $8,500, work in process $22,900, and raw materials
$7,100.
3. Debit postings to work in process were: direct materials $67,400, direct labor $32,000, and
manufacturing overhead applied $45,000.
4. Sales totaled $210,000.

Instructions
(a) Prepare a condensed cost of goods manufactured schedule.
(b) Prepare an income statement for May through gross profit.
Ans: N/A, SO: 2,5, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

Solution 172 (10 min.)

(a) KUHLMANN MANUFACTURING COMPANY
Cost of Goods Manufactured Schedule
For the Month Ended May 31, 2011
_____________________________________________________________________________
Work in process, May 1.............................................. $ 14,700
Direct materials used.................................................. $67,400
Direct labor................................................................. 32,000
Manufacturing overhead applied................................ 45,000
Total manufacturing costs................................... 144,400
Total cost of work in process....................................... 159,100
Less: Work in process, May 31................................... 22,900
Cost of goods manufactured....................................... $136,200
2 - 46 Test Bank for Managerial Accounting, Fifth Edition

Solution 172 (Cont.)

(b) KUHLMANN MANUFACTURING COMPANY

Cost of Goods Manufactured Schedule
For the Month Ended May 31, 2011
_____________________________________________________________________________
Sales............................................................................. $210,000
Cost of goods sold
Finished goods, May 1........................................... $ 12,600
Cost of Goods manufactured................................. 136,200
Cost of goods available for sale............................. 148,800
Finished goods, May 31......................................... 8,500
Cost of goods sold...................................... 140,300
Gross profit.................................................................... $69,700

Ex. 173
Watson Manufacturing Company employs a job order cost accounting system and keeps
perpetual inventory records. The following transactions occurred in the first month of operations:
1. Direct materials requisitioned during the month:
Job 101 $22,000
Job 102 16,000
Job 103 24,000
$62,000

2. Direct labor incurred and charged to jobs during the month was:
Job 101 $30,000
Job 102 26,000
Job 103 20,000
$76,000

3. Manufacturing overhead was applied to jobs worked on using a predetermined overhead rate
based on 75% of direct labor costs.

4. Actual manufacturing overhead costs incurred during the month amounted to $66,000.

5. Job 101 consisting of 1,000 units and Job 103 consisting of 200 units were completed during
the month.

Instructions
(a) Prepare journal entries to record the above transactions.
(b) Answer the following questions:
1. How much manufacturing overhead was applied to Job 103 during the month?
2. Compute the unit cost of Jobs 101 and 103.
3. What is the balance in Work In Process Inventory at the end of the month?
4. Determine if manufacturing overhead was under- or overapplied during the month. How
much?
Ans: N/A, SO: 2, 3, 4, 5, 6, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement,
AICPA PC: Problem Solving, IMA: FSA
 Job Order Costing 2 - 47

Solution 173 (15–20 min.)

(a) 1. Work in Process Inventory....................................................... 62,000

Raw Materials Inventory.................................................. 62,000
2. Work in Process Inventory....................................................... 76,000
Factory Labor ................................................................. 76,000
3. Work in Process Inventory....................................................... 57,000
Manufacturing Overhead................................................. 57,000
4. Manufacturing Overhead.......................................................... 66,000
Cash, Payables, etc......................................................... 66,000
5. Finished Goods Inventory........................................................ 133,500
Work in Process Inventory............................................... 133,500
[Job 101 $74,500; Job 103 $59,000—see (b) 2]

(b) 1. $15,000 ($20,000 × 75%).

2. Unit cost: Job 101, $74.50; Job 103, $300.
Job 101 Job 103
Direct materials $22,000 $24,000
Direct labor 30,000 20,000
Overhead applied 22,500 15,000
Total cost 74,500 59,000
Units ÷ 1,000 ÷ 200
Unit cost $ 74.50 $295
3. Work In Process Inventory is $61,500 and consists of work performed on Job 102.
Job 102
Direct materials $16,000
Direct labor 26,000
Overhead applied 19,500
Total cost $61,500
4. Manufacturing overhead costs were underapplied by $9,000 during the month.
Actual manufacturing overhead $66,000
Manufacturing overhead applied 57,000
Underapplied overhead $ 9,000

Ex. 174
Graham Manufacturing is a small manufacturer that uses machine-hours as its activity base for
assigned overhead costs to jobs. The company estimated the following amounts for 2011 for the
company and for Job 62:
Company Job 62
Direct materials $60,000 $4,500
Direct labor $25,000 $2,500
Manufacturing overhead costs $72,000
Machine hours 90,000 1,350

During 2011, the actual machine-hours totaled 94,000, and actual overhead costs were $71,000.
2 - 48 Test Bank for Managerial Accounting, Fifth Edition

Ex. 174 (Cont.)

Instructions
(a) Compute the predetermined overhead rate.
(b) Compute the total manufacturing costs for Job 62.
(c) How much overhead is over or underapplied for the year for the company? State amount and
whether it is over- or underapplied.
(d) If Graham Manufacturing sells Job 62 for $14,000, compute the gross profit.
Ans: N/A, SO: 2,3,6, Bloom: AP, Difficulty: Medium, Min: 7, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Business Economics

Solution 174 (7–9 min.)

(a) $72,000  90,000 = $0.80 per machine hour
(b) $4,500 + $2,500 + ($0.80 × 1,350) = $8,080
(c) Actual – Applied = Over/Underapplied
$71,000 – ($0.80 × 94,000) = $4,200 overapplied
(d) $14,000 – $8,080 (from (b) above) = $5,920

Ex. 175
The following inventory information is available for Ricci Manufacturing Corporation for the year
ended December 31, 2011:
Beginning Ending
Inventories:
Raw materials $17,000 $19,000
Work in process 9,000 14,000
Finished goods 11,000 8,000
Total $37,000 $41,000
In addition, the following transactions occurred in 2011:
1. Raw materials purchased on account, $75,000.
2. Incurred factory labor, $90,000, all is direct labor. (Credit Factory Wages Payable).
3. Incurred the following overhead costs during the year: Utilities $6,800, Depreciation on
manufacturing machinery $8,000, Manufacturing machinery repairs $9,200, Factory insurance
$9,000 (Credit Accounts Payable and Accumulated Depreciation).
4. Assigned $90,000 of factory labor to jobs.
5. Applied $36,000 of overhead to jobs.

Instructions
(a) Journalize the above transactions.
(b) Reproduce the manufacturing cost and inventory accounts. Use T-accounts.
(c) From an analysis of the accounts, compute the following:
1. Raw materials used.
2. Completed jobs transferred to finished goods.
3. Cost of goods sold.
4. Under- or overapplied overhead.
Ans: N/A, SO: 2, 3, 4, 5, 6, Bloom: AP, Difficulty: Medium, Min: 16, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement,
AICPA PC: Problem Solving, IMA: FSA
 Job Order Costing 2 - 49

Solution 175 (16–22 min.)

(a) 1. Raw Materials Inventory........................................................... 75,000
Accounts Payable............................................................ 75,000
2. Factory Labor........................................................................... 90,000
Factory Wages Payable................................................... 90,000
3. Manufacturing Overhead.......................................................... 33,000
Accounts Payable............................................................ 25,000
Accumulated Depreciation............................................... 8,000
4. Work in Process Inventory....................................................... 90,000
Factory Labor.................................................................. 90,000
5. Work in Process Inventory....................................................... 36,000
Manufacturing Overhead................................................. 36,000

(b)
Raw Materials Inventory Work in Process Inventory
Bal. 17,000 Bal. 9,000
(1) 75,000 (4) 90,000
Bal. 19,000 (5) 36,000
Bal. 14,000

Finished Goods Inventory Factory Labor

Bal. 11,000 (2) 90,000 (4) 90,000

8,000

Manufacturing Overhead Cost of Goods Sold

(3) 33,000 (5) 36,000

(c) 1. Raw materials used = $17,000 + $75,000 – $19,000 = $73,000.

2. Completed jobs transferred to finished goods = W/P debits
$9,000 + $126,000 – $14,000 = $121,000.
3. Cost of goods sold = $11,000 + $121,000 – $8,000 = $124,000.
4. Overhead overapplied = $3,000 (credit balance in Manufacturing Overhead).

Ex. 176
Builder Bug Company allocates manufacturing overhead at $9 per direct labor hour. Job A45
required 5 boxes of direct materials at a cost of $30 per box and took employees 12 hours to
complete. Employees earn $15 per hour.

Instructions
Compute the total cost of Job A45.
Ans: N/A, SO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics
2 - 50 Test Bank for Managerial Accounting, Fifth Edition

Solution 176 (5 min.)

Direct materials (5 boxes × $30) $150
Direct labor (12 hours × $15) 180
Manufacturing overhead (12 hours × $9) 108
Total job cost of Job A45 $438

Ex. 177
Job cost sheets for Howard Manufacturing are as follows:
Job No 210 Quantity 1,400

Manufacturing
Date Direct Materials Direct Labor Overhead
July 1 7,000 8,000 10,000
8 8,500
10 10,000
15 5,500
25 15,000

Job No 211 Quantity 1,200

Manufacturing
Date Direct Materials Direct Labor Overhead
July 1 4,000 6,000 7,500
10 9,000
15 8,000
20 7,000
27 12,000

Instructions
(a) Answer the following questions.
1. What was the balance in Work in Process Inventory on July 1 if these were the only
unfinished jobs?
2. What was the predetermined overhead rate in June if overhead was applied on the basis
of direct labor cost?
3. If July is the start of a new fiscal year and the overhead rate is 20% higher than in the
preceding year, how much overhead should be applied to Job 210 in July?
4. Assuming Job 210 is complete, what is the total and unit cost of the job?
5. Assuming Job 211 is the only unfinished job at July 31, what is the balance in Work in
Process Inventory on this date?

(b) Journalize the summary entries to record the assignment of costs to the jobs in July.
(Note: Make one entry in total for each manufacturing cost element.)
Ans: N/A, SO: 3, 4, 5, Bloom: AN, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA
PC: Problem Solving, IMA: Reporting
 Job Order Costing 2 - 51

Solution 177 (15–20 min.)

(a) 1. Job 210 — $7,000 + $8,000 + $10,000 = $25,000
Job 211 — $4,000 + $6,000 + $7,500 = 17,500
$42,500

2. Manufacturing overhead rate = 125% of direct labor cost ($10,000 ÷ $8,000

or $7,500 ÷ $6,000)

3. July overhead rate = 125% × 120% = 150%

Overhead applied in July = $25,000 × 150% = $37,500

4. Direct materials $ 21,000

Direct labor 33,000
Manufacturing overhead ($10,000 + $37,500) 47,000
Total cost $101,500
Unit cost ($101,500 ÷ 1,400) $ 72.50

5. Direct materials $20,000

Direct labor 26,000
Manufacturing overhead ($7,500 + $30,000) 37,500
Total cost of work in process $83,500

(b) Work in Process Inventory............................................................. 30,000

Raw Materials Inventory........................................................ 30,000
Work in Process Inventory............................................................. 45,000
Factory Labor........................................................................ 45,000
Work in Process Inventory............................................................. 67,500
Manufacturing Overhead....................................................... 67,500

Ex. 178
Garner Company begins operations on July 1, 2011. Information from job cost sheets shows the
following:
Manufacturing Costs Assigned
Job No. July August September
100 $12,000 $8,800
101 7,800 9,700 $12,000
102 5,000
103 11,800 6,000
104 5,800 7,000

Job 102 was completed in July. Job 100 was completed in August, and Jobs 101 and 103 were
completed in September. Each job was sold for 60% above its cost in the month following
completion.
2 - 52 Test Bank for Managerial Accounting, Fifth Edition

Ex. 178 (Cont.)

Instructions
(a) Compute the balance in Work in Process Inventory at the end of July.
(b) Compute the balance in Finished Goods Inventory at the end of September.
(c) Compute the gross profit for August.
Ans: N/A, SO: 3,5, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

Solution 178 (10–13 min.)

(a) Work in Process Inventory
July Job 100 $12,000
Job 101 7,800
Balance, July 31 $19,800
(b) Finished Goods Inventory
Job 101 $29,500
Job 103 17,800
Balance, Sept. 30 $47,300
(c) Gross Profit
Month Job Number Sales COGS Gross Profit
August 102 $8,000 $5,000 $3,000

Ex. 179
The accounting records of Roland Manufacturing Company include the following information:
Dec. 31 Jan. 1
Work in process inventory $ 20,000 $ 50,000
Finished goods inventory 120,000 140,000
Direct materials used 350,000
Direct labor 160,000
Selling expenses 125,000

Manufacturing overhead is applied at a rate of 150% of direct labor cost.

Instructions
Answer the following questions:
1. What is the total of the debits to Work in Process Inventory during the year?
2. What is the amount transferred to Finished Goods Inventory during the year?
3. What is the cost of goods sold?
Ans: N/A, SO: 3,5, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: FSA
 Job Order Costing 2 - 53

Solution 179 (10–14 min.)

1. Direct Materials $ 350,000
Direct Labor 160,000
Manufacturing Overhead Applied ($160,000 × 150%) 240,000
Total debits $750,000

2. WORK IN PROCESS INVENTORY

Balance 50,000 Transferred to
From (1) 750,000 Finished Goods 780,000
Balance 20,000

3. FINISHED GOODS INVENTORY

Balance 140,000 Cost of Goods Sold 800,000
From WIP (see 2) 780,000
Balance 120,000

Ex. 180
Grant Marwick and Associates, a CPA firm, uses job order costing to capture the costs of its audit
jobs. There were no audit jobs in process at the beginning of November. Listed below are data
concerning the three audit jobs conducted during November.

Rondelli Preston Lopez

Direct materials $900 $600 $300
Auditor labor costs $5,900 $6,600 $3,700
Auditor hours 72 88 45

Overhead costs are applied to jobs on the basis of auditor hours, and the predetermined
overhead rate is $60 per auditor hour. The Rondelli job is the only incomplete job at the end of
November. Actual overhead for the month was $12,800
Instructions
(a) Determine the cost of each job.
(b) Indicate the balance of the Work in Process account at the end of November.
(c) Calculate the ending balance of the Manufacturing Overhead account for November.
Ans: N/A, SO: 3, 4, 6, Bloom: AP, Difficulty: Medium, Min: 8, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

Solution 180 (8 min.)

(a) Rondelli Preston Lopez
Direct materials $ 900 $ 600 $ 300
Auditor labor costs 5,900 6,600 3,700
Applied overhead 4,320 5,280 2,700
Total cost $11,120 $12,480 $6,700

(b) The Rondelli job is the only incomplete job, therefore, $11,120

(c) Actual overhead $12,800 (DR)

Applied overhead 12,300 (CR)
Balance $ 500 (DR)
2 - 54 Test Bank for Managerial Accounting, Fifth Edition

Ex. 181
Gallagher Company applies manufacturing overhead to jobs on the basis of machine hours used.
Overhead costs are expected to total $400,000 for the year, and machine usage is estimated at
125,000 hours.
For the year, $422,000 of overhead costs are incurred and 130,000 hours are used.

Instructions
(a) Compute the manufacturing overhead rate for the year.
(b) What is the amount of under - or overapplied overhead at December 31?
(c) Assuming the under - or overapplied overhead for the year is not allocated to inventory
accounts, prepare the adjusting entry to assign the amount to cost of goods sold
Ans: N/A, SO: 4, 6, Bloom: AP, Difficulty: Medium, Min: 6, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Business Economics

Solution 181 (6 min.)

(a) $3.20 per machine hour ($400,000 ÷ 125,000).

(b) ($422,000) – ($3.20  130,000 Machine Hours)

$422,000 – $416,000 = $6,000 underapplied

(c) Cost of Goods Sold............................... 6,000

Manufacturing Overhead........................... 6,000

Ex. 182
Fancy Decorating uses a job order costing system to collect the costs of its interior decorating
business. Each client's consultation is treated as a separate job. Overhead is applied to each job
based on the number of decorator hours incurred. Listed below are data for the current year.

Budgeted overhead $880,000

Actual overhead $911,500
Budgeted decorator hours 40,000
Actual decorator hours 41,000

The company uses Operating Overhead in place of Manufacturing Overhead.

Instructions
(a) Compute the predetermined overhead rate.
(b) Prepare the entry to apply the overhead for the year.
(c) Determine whether the overhead was under - or overapplied and by how much.
Ans: N/A, SO: 4, 6, Bloom: AP, Difficulty: Medium, Min: 6, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Business Economics
 Job Order Costing 2 - 55

Solution 182 (6 min.)

(a) Predetermined overhead rate = Budgeted overhead ÷ Budgeted
decorator hours
= $880,000 ÷ 40,000 decorator hours
= $22 per decorator hour

(b) Applied Overhead

Work in Process (41,000 hrs  $22).............. 902,000
Operating Overhead............. 902,000

(c) Actual overhead $911,500

Applied overhead 902,000
Balances $ 9,500 underapplied

Ex. 183
Martin Company applies manufacturing overhead based on direct labor hours. Information
concerning manufacturing overhead and labor for the year follows:
Actual manufacturing overhead $96,000
Estimated manufacturing overhead $90,000
Direct labor hours incurred 4,800
Direct labor hours estimated 5,000

Instructions
Compute (a) the predetermined overhead rate and (b) the amount of applied manufacturing
overhead.
Ans: N/A, SO: 4, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
Problem Solving, IMA: Business Economics

Solution 183 (4 min.)

(a) Predetermined overhead rate: $90,000  5,000 = $18 per direct labor hour
(b) Applied manufacturing overhead: 4,800 × $18 = $86,400

Ex. 184
Landis Company uses a job order cost system in each of its two manufacturing departments.
Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department A and
machine hours in Department B. In establishing the predetermined overhead rates for 2010, the
following estimates were made for the year:
Department
A B
Manufacturing overhead $2,100,000 $1,600,000
Direct labor cost 1,200,000 1,200,000
Direct labor hours 100,000 100,000
Machine hours 200,000 400,000
2 - 56 Test Bank for Managerial Accounting, Fifth Edition

Ex. 184 (Cont.)

During January, the job cost sheet showed the following costs and production data:
Department
A B
Direct materials used $195,000 $128,000
Direct labor cost 100,000 110,000
Manufacturing overhead incurred 180,000 135,000
Direct labor hours 8,000 8,400
Machine hours 16,000 33,000

Instructions
(a) Compute the predetermined overhead rate for each department.
(b) Compute the total manufacturing cost assigned to jobs in January in each department.
(c) Compute the balance in the Manufacturing Overhead account at the end of January and
indicate whether overhead is over- or underapplied.
Ans: N/A, SO: 4, 6, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Business Economics

Solution 184 (15–20 min.)

(a) Predetermined overhead rates:
Department A (using direct labor cost): $2,100,000 ÷ $1,200,000 = 175%
Department B (using machine hours): $1,600,000 ÷ 400,000 = $4 per machine hour
(b) Total manufacturing costs by department:
Department A:
Direct materials $195,000
Direct labor cost 100,000
Manufacturing overhead applied ($100,000 × 175%) 175,000
Total manufacturing costs $470,000
Department B:
Direct materials $128,000
Direct labor cost 110,000
Manufacturing overhead applied (33,000 hrs. × $4) 132,000
Total manufacturing costs $370,000

(c) MANUFACTURING OVERHEAD

Dept. A 180,000 Dept. A 175,000
Dept. B 135,000 Dept. B 132,000
315,000 307,000
Bal. Underapplied 8,000
 Job Order Costing 2 - 57

Ex. 185
Edwards Company applies manufacturing overhead to jobs on the basis of machine hours used.
Overhead costs are expected to total $1,200,000 for the year, and machine usage is estimated at
200,000 hours.

In January, $128,000 of overhead costs are incurred and 22,000 machine hours are used. For the
remainder of the year, $1,296,000 of additional overhead costs are incurred and 214,000
additional machine hours are worked.

Instructions
(a) Compute the manufacturing overhead rate for the year.
(b) What is the amount of over- or underapplied overhead at January 31?
(c) What is the amount of over- or underapplied overhead at December 31?
Ans: N/A, SO: 4, 6, Bloom: AP, Difficulty: Medium, Min: 11, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Business Economics

Solution 185 (11–14 min.)

(a) $6 per machine hour ($1,200,000 ÷ 200,000)

(b) Incurred $128,000

Applied ($6 × 22,000) 132,000
Overapplied overhead $ 4,000

(c) Incurred ($128,000 + $1,296,000) $1,424,000

Applied ($6 × 236,000) 1,416,000
Underapplied overhead $ 8,000

Ex. 186
Klinger Company estimates that annual manufacturing overhead costs will be $3,600,000 for
2011. The actual overhead costs at the end of 2011 are $3,740,000. Activity base information for
2011 follows:
Activity Base Estimated Actual
Direct Labor Cost $3,000,000 $3,150,000
Direct Labor Hours 200,000 212,000
Machine Hours 150,000 152,000
Instructions
(a) Compute the predetermined overhead rate for each activity base.
(b) Compute the amount of overhead applied in 2011 for each activity base.
(c) Compute the amount of under- or overapplied overhead for 2011 for each activity base.
Ans: N/A, SO: 4, 6, Bloom: AP, Difficulty: Medium, Min: 12, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Problem Solving, IMA: Business Economics
2 - 58 Test Bank for Managerial Accounting, Fifth Edition

Solution 186 (12–16 min.)

(a) Predetermined overhead rate as a % of direct labor cost:
$3,600,000 ÷ $3,000,000 = 120%

Predetermined overhead rate per hour of direct labor:

$3,600,000 ÷ 200,000 = $18 per hour

Predetermined overhead rate per machine hour used:

$3,600,000 ÷ 150,000 = $24 per machine hour

(b) Overhead applied as a % of direct labor cost: (c) Over- or Underapplied Overhead
$3,150,000 × 1.20 = $3,780,000 ($3,780,000 – $3,740,000 =
$40,000 Overapplied)
Overhead applied per hour of direct labor:
212,000 × $18 = $3,816,000 ($3,816,000 – $3,740,000 =
$76,000 Overapplied)
Overhead applied per machine hour used:
152,000 × $24 = $3,648,000 ($3,648,000 – $3,740,000 =
$92,000 Underapplied)

Ex. 187
Jensen Manufacturing Company makes specialty tools. In January, Jensen incurs manufacturing
costs of $10,000,000 for direct materials, direct labor, and overhead. 20% of the total costs
represents overhead applied. The overhead rate is $1 for every $2 of direct labor costs incurred.
Inventory balances were:

January 1 January 31
Raw materials $300,000 $500,000
Work in process 600,000 400,000
Finished goods 400,000 200,000

At the end of January, there was $1,000 of overapplied overhead.

Instructions
(a) Determine the cost of raw materials purchased in January.
(b) Prepare a cost of goods manufactured schedule for January 2011.
(c) Compute the cost of goods sold for January.
Ans: N/A, SO: 5, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting

Solution 187 (15–20 min.)

(a) Overhead applied ($10,000,000 × 20%) = $2,000,000
Direct labor used ($2 × $2,000,000) = $4,000,000
Direct materials used ($10,000,000 – $6,000,000) = $4,000,000
 Job Order Costing 2 - 59

Solution 187 (Cont.)

Ending raw materials inventory $ 500,000

Direct materials used 4,000,000
4,500,000
Less: Beginning raw materials inventory 300,000
Raw materials purchases $4,200,000

(b) JENSEN MANUFACTURING COMPANY

Cost of Goods Manufactured Schedule
For the Month Ended January 31, 2011
———————————————————————————————————————————
Work in process, January 1............................................... $ 600,000
Direct materials used........................................................ $2,000,000
Direct labor....................................................................... 4,000,000
Manufacturing overhead applied....................................... 4,000,000
Total manufacturing costs........................................... 10,000,000
Total cost of work in process............................................. 10,600,000
Less: Work in process, January 31.................................. 400,000
Cost of goods manufactured............................................. $ 10,200,000

(c) Finished goods, January 1....................................................................... $ 400,000

Cost of goods manufactured.................................................................... 10,200,000
Cost of goods available for sale............................................................... 10,600,000
Finished goods, January 31..................................................................... 200,000
Cost of goods sold .................................................................................. $10,400,000

Ex. 188
The following information is available for Marks Company at December 31, 2011:

1. Inventory balance Beginning of Year End of Year

Finished Goods $14,000 $10,000
Work in Process 6,000 12,000
Raw Materials 10,300 6,500

2. Debit postings to Work in Process Inventory during the year were:

Direct materials $80,000
Direct labor 50,000
Manufacturing overhead applied 75,000

3. Sales totaled $310,000 for the year.

Instructions
(a) Prepare a condensed cost of goods manufactured schedule.
(b) Prepare an income statement for the year through gross profit.
Ans: N/A, SO: 5, Bloom: AP, Difficulty: Medium, Min: 14, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
2 - 60 Test Bank for Managerial Accounting, Fifth Edition

Solution 188 (14–18 min.)

(a) MARKS COMPANY
Cost of Goods Manufactured Schedule
For the Year Ended December 31, 2011

Work in process, January 1 $ 6,000

Direct materials used $80,000
Direct labor 50,000
Manufacturing overhead applied 75,000
Total manufacturing costs 205,000
Total cost of work in process 221,000
Less: Work in process, December 31 12,000
Cost of goods manufactured $199,000

(b) MARKS COMPANY

(Partial) Income Statement
For the Year Ended December 31, 2011

Sales $310,000
Cost of Goods Sold
Finished Goods, January 1 $ 14,000
Cost of goods manufactured 199,000
Cost of goods available for sale 213,000
Finished Goods, December 31 10,000
Cost of goods sold 203,000
Gross profit $107,000

COMPLETION STATEMENTS
189. Cost accounting involves the measuring, recording, and reporting of ______________
costs.
Ans: N/A, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Applications

190. There are two basic types of cost accounting systems: (1)__________________ system,
and (2)__________________ system.
Ans: N/A, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Business Economics

191. A ______________ cost system is appropriate when similar products are continuously
produced, whereas a ______________ cost system would be more appropriate if the
product is custom-made.
Ans: N/A, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Business Applications

192. In a job order system, raw materials purchased are charged to the ______________
account.
Ans: N/A, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA
 Job Order Costing 2 - 61

193. Of these three accounts; Raw Materials Inventory, Factory Labor, and Manufacturing
Overhead, ______________ is not a control account.
Ans: N/A, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA:
Reporting

194. If $20,000 direct materials are requisitioned for a job and $7,000 of indirect materials are
requisitioned for general use, the debit to Work In Process Inventory should be for
$______________.
Ans: N/A, SO: 3, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

195. The cost of producing a particular job under a job cost system is accumulated on a record
called a ___________________.
Ans: N/A, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

196. Manufacturing overhead is applied to jobs by means of a ___________________ rate.

Ans: N/A, SO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

197. If actual manufacturing overhead was greater than the amount of manufacturing overhead
applied to jobs, the Manufacturing Overhead account will have a ___________ balance
and overhead is said to be ______________.
Ans: N/A, SO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Business Economics

198. At the end of the year, any balance in the Manufacturing Overhead account should be
eliminated as an adjustment to ___________________.
Ans: N/A, SO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

Answers to Completion Statements

189. product
190. job order cost, process cost
191. process, job order
192. Raw Materials Inventory
193. Factory Labor
194. 20,000
195. job cost sheet
196. predetermined overhead
197. debit, underapplied
198. cost of goods sold
2 - 62 Test Bank for Managerial Accounting, Fifth Edition

MATCHING
199. Match the items in the two columns below by entering the appropriate code letter in the
space provided.

A. Cost accounting F. Process cost system

B. Materials requisition slip G. Job cost sheets
C. Time ticket H. Predetermined overhead rate
D. Cost accounting system I. Overapplied overhead
E. Job order cost system J. Underapplied overhead

_____ 1. Used to apply manufacturing overhead to jobs.

_____ 2. Measures, records, and reports product costs.

_____ 3. When actual manufacturing overhead costs are greater than the overhead applied to
products.

_____ 4. Manufacturing cost accounts are fully integrated into the general ledger.

_____ 5. Source document which authorizes issuance of raw materials to production.

_____ 6. Appropriate when products have distinguishing and heterogeneous characteristics.

_____ 7. Constitute a subsidiary ledger for Work in Process Inventory.

_____ 8. Indicates number of hours that employees work and the account to be charged.

_____ 9. Appropriate when products are similar and are produced continuously.

_____ 10. When actual manufacturing overhead costs are less than the overhead applied to
products.
Ans: N/A, SO: 1, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: FSA

Answers to Matching
1. H 6. E
2. A 7. G
3. J 8. C
4. D 9. F
5. B 10. I
 Job Order Costing 2 - 63

SHORT-ANSWER ESSAY QUESTIONS

S-A E 200
(a) Distinguish between the two types of cost accounting systems. (b) May a company use both
types of cost accounting systems?
Ans: N/A, SO: 1, Bloom: S, Difficulty: Easy, Min: 5, AACSB: Communications, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC:
Communications, IMA: Business Applications

Solution 200
(a) The two principal types of cost accounting systems are; (1) job order costing and (2)
process costing. Under a job order cost system, costs are assigned to each job or batch of
goods; at all times each job or batch of goods can be separately identified. A job order cost
system measures costs for each completed job, rather than for set time periods. Under a
process cost system, product-related costs are accumulated by or assigned to departments
or processes for a set period of time. Job order costing lends itself to specific, special-order
manufacturing or servicing while process costing is better suited to similar, large-volume
products and continuous process manufacturing.
(b) A company may use both types of systems. For example, General Motors uses process
costing for standard model cars and job order costing for custom-made vehicles.

S-A E 201
A job order cost accounting system is fully integrated into the general ledger of a company.
Identify the major general ledger accounts used in a job order cost system. Explain how
manufacturing costs flow through these accounts so that inventories may be costed and income
determined when goods are sold.
Ans: N/A, SO: 2, Bloom: S, Difficulty: Easy, Min: 5, AACSB: Communications, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Communications, IMA: Business Economics

Solution 201
When a job order cost accounting system is fully integrated into the general ledger of a company,
the major general ledger accounts used are Raw Materials Inventory, Factory Labor,
Manufacturing Overhead, Work in Process Inventory, and Finished Goods Inventory. As
manufacturing costs are incurred, they are debited to the Raw Materials Inventory, Factory Labor,
and Manufacturing Overhead accounts. As materials are used, labor is assigned, or overhead is
applied, the costs are taken out of these accounts and debited to Work in Process Inventory.
When jobs are finished, the costs flow from the Work in Process Inventory account to the
Finished Goods Inventory account, and when jobs are sold, the costs are transferred to Cost of
Goods Sold from Finished Goods Inventory.

S-A E 202
Manufacturing overhead items are indirect product costs that cannot be traced to individual
products. Explain how manufacturing overhead costs are accumulated and how they are
assigned to products in a job order cost system.
Ans: N/A, SO: 4, Bloom: S, Difficulty: Easy, Min: 5, AACSB: Communications, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA
PC: Communications, IMA: Business Economics
2 - 64 Test Bank for Managerial Accounting, Fifth Edition

Solution 202
As manufacturing overhead costs are incurred, they are debited to the Manufacturing Overhead
account. As jobs move through the factory, manufacturing overhead costs are applied to specific
jobs using the predetermined overhead rate. This rate is computed prior to the beginning of the
year by dividing estimated annual overhead costs by expected annual operating activity
(generally expressed as direct labor hours, direct labor cost, or machine hours). The overhead is
applied by determining how much activity was expended on a particular job (for example, direct
labor hours), and applying the rate to that activity.

S-A E 203
Mike Hilyer is confused about under and overapplied manufacturing overhead. Define the terms
for Mike and indicate the balance in the manufacturing overhead account applicable to each term.
Ans: N/A, SO: 4, Bloom: S, Difficulty: Easy, Min: 5, AACSB: Ethics, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Communications, IMA: Business Economics

Solution 203
Underapplied overhead means that the overhead assigned to work in process is less than the
overhead incurred. Overapplied overhead means than the overhead assigned to work in process
is greater than the overhead incurred. Manufacturing overhead will have a debit balance when
overhead is underapplied and a credit balance when overhead is overapplied.

S-A E 204 (Ethics)

People Carrier Systems, Inc. (PCS) modifies vans that seat 15–20 people by adding additional
safety features or wheelchair ramps. Most of its customers are cities and counties, who use the
vans to transport school children, the elderly, or the handicapped. The company has specialized
in a no-frills approach, emphasizing safety, high quality, and low cost. The company's president
was quoted as saying, "Let the other guys make a van pretty. We get people where they need to
go—faster, better, and cheaper than anybody else."
The company obtains jobs by being the lowest bidder in a sealed bidding process. Recently, the
company was solicited by a top-10 college to submit a bid for a van to be used by its athletic
team. Some specialized items were required, such as the school's logo on the outside of the van,
and the vinyl seats had to be covered in school colors. The company submitted a bid, and was
very surprised to obtain it.
When the job was being prepared, the job manager pointed out that several extra costs could
result in this job showing a loss. The boss, an ardent supporter of sports in general and this team
in particular, told the manager to just record the standard labor and overhead cost for this job. He
says that they could use the preset rate for specialized jobs, and increase the overhead
application rate (used in submitting bids) by 5% for future routine jobs. "After all," he says,
"nobody else comes close to our price anyway. This could start a whole new line of business for
us."

Required:
1. Who are the stakeholders in the decision to increase overhead for routine jobs?
2. Is the decision to subsidize special jobs by increasing the overhead rate on routine jobs
ethical? Briefly explain.
Ans: N/A, SO: 3, Bloom: S, Difficulty: Easy, Min: 5, AACSB: Ethics, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC:
Communications, IMA: Business Economics
 Job Order Costing 2 - 65

Solution 204
1. The stakeholders include:
 The employees and managers of PCS
 Customers who purchase standard vans
 Customers who purchase sports vans
 Shareholders of PCS

2. The decision could be considered ethical, if the company clearly understands that it is
allowing the customers of the standard vans to cover some of the costs of the specialty ones.
This might not be a bad decision, especially if the specialty business is only a small fraction of
the total business.
The company might be compromising its own best interests, however, if it arbitrarily damages
relationships with existing customers in order to gain others. It seems undeniable that
established customers are preferable to untested ones. While probably ethical, the decision
may not be a good one.

S-A E 205 (Communication)

Bridal Treasures, Inc. makes customized wedding gowns. The customer selects a pattern for the
basic gown, and then selects fabric and trim. Once the design and the materials have been
agreed upon, a Statement of Estimated Cost is signed by the company and by the customer.
Overhead is applied based on the number of days a gown is in process. Usually, five gowns are
being worked on at a time. Therefore, each gown is charged 1/5 of a daily estimated overhead
amount.
Customer Mary Landon's wedding dress took four days to complete. However, after the first three
days had elapsed, Hanna Hunt, a movie personality, suddenly decided to get married, and
ordered a very lavish gown. All other work was suspended, and the work on Ms. Landon's dress
was delayed six days. The final day of its construction was on the tenth day after it had been
begun.

Required:
You are the accounting manager for Bridal Treasures. Write a memo to the billing department.
Instruct them as to the appropriate number of overhead days to charge to Ms. Landon's account.
Ans: N/A, SO: 4, Bloom: S, Difficulty: Easy, Min: 5, AACSB: Communications, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC:
Communications, IMA: Business Economics
2 - 66 Test Bank for Managerial Accounting, Fifth Edition

Solution 205

TO: Billing Department

FROM: M. Long, Accounting Manager

RE: Overhead billing, Gordon account

As you know, our standard procedure in billing overhead is to simply multiply our
daily overhead rate by the number of days the gown was in our possession.
However, for the Landon gown, and any other jobs we suspended for the Hanna
Hunt gown, we should not charge for the days the gowns were in our possession
but not being worked on.

We should adjust the billing for the Linda Lony gown, so that it absorbs the full
daily cost of overhead, since it actually was the only job worked on during those
six days. The Landon job should be charged only four days of overhead. Other
suspended jobs should be treated similarly.

Please call if you have questions.

(signed)