Job Order Costing
Easy Practice Test
Cost Accounting
Easy Practice Test
Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
1. When over or under applied manufacturing overhead is a significant amount relative to total inventory costs, it is
a. added to cost of goods sold
b. allocated to raw materials, work in process and finished goods
c. allocated to work in process, finished goods and cost of goods sold
d. allocated to cost of goods sold and finished goods
Answer
C. An amount that is material must be allocated to all the accounts that contain product costs. The over or under occurs because of production and raw material costs have not been put into production yet.
2. Manufacturing overhead costs are indirect and
a. require the company to allocate the costs to individual jobs
b. can be easily traced to units produced
c. a predetermined overhead rate is not necessary
d. cannot be allocated to individual products
Answer
A. Indirect costs can not be directly traced to an individual product and must be allocated in order to determine the total cost of a job or product. The predetermined overhead rate is used to allocated manufacturing overhead.
3. To apply overhead costs, a company must
a. take actual activity times an actual overhead rate
b. take estimated activity times an actual overhead rate
c. take estimated activity times an estimated overhead rate
d. take actual activity times an estimated overhead rate
Answer
D. Manufacturing overhead is applied by taking the actual activity that occurred during the period times the predetermined overhead rate per acticity (which is an estimate because budgeted amounts are used)
4. The main document that keeps track of what it costs to make a product is
a. a time sheet
b. a cost sheet
c. a materials requisition sheet
d. a production report
Answer
B. The cost sheet states the direct material, direct labor, and allocated overhead that is required to make a product or job.
5. Raw materials inventory is credited when
a. all direct costs are incurred in production
b. manufactured goods are completed
c. manufactured goods are sold
d. raw materials are moved to the production line
Answer
D. As raw materials are moved to the production line they are taken out of the raw materials account. The raw materials account represents materials that are on the shelf and not yet on the production line. A credit indicates a reduction to this account. All direct costs include direct labor (a.)
6. Work in process inventory is debited when
a. direct costs are incurred in production
b. actual manufacturing overhead costs are incurred
c. manufactured goods are sold
d. raw materials are purchased
Answer
A. When direct costs are incurred on the production line, costs are added directly to the product, and work in process is increased; debited.
7. When applying overhead to product costs, the accountant will
a. debit work in process
b. credit work in process
c. debit manufacturing overhead
d. debit raw materials
Answer
A. Applying overhead means to add overhead costs to the product. Whenever costs are added to the product, work in process is increased, and debited. Manufacturing overhead is credited as the cost is moved from manufacturing overhead to work in process.
8. When manufacturing overhead is under applied
a. actual overhead costs are higher than estimated overhead costs
b. actual overhead costs are lower than estimated overhead costs
c. actual overhead costs this period are higher than last years
d. budgeted overhead costs are higher than estimated overhead costs
Answer
A. Underapplied means that you did not add enough costs to the product, and that actual costs are higher than estimated because applying is using an estimate. Over or under compares actual to applied, and does not compare to last year. Budgeted is the same thing as estimated.
9. A predetermined overhead rate is calculated as
a. total actual overhead / total actual activity
b. total estimated overhead / total actual activity
c. total estimated overhead / total estimated activity
d. total actual overhead / total budgeted activity
Answer
C. The formula for calculating a predetermined overhead rate is in c. The formula uses budgeted amounts only as it is an estimate at the beginning of the year.
10. The predetermined overhead rate is normally determined
a. at the end of each period
b. at the beginning of the year
c. when the actual manufacturing overhead costs are known
d. as each job is completed
Answer
B. The rate is an estimate that is determined at the beginning of the year and the same rate is used throughout the year to apply overhead as jobs are completed.
11. A manufacturing company applies manufacturing overhead based on direct labor of 10,000 hours. The predetermined overhead rate is $5. During the period, direct labor worked 11,075 hours. Manufacturing overhead was over applied by $12,000. Actual manufacturing overhead incurred was
a. $55,375
b. $67,375
c. $50,000
d. $43,375
Answer
D. First determine the amount of overhead that was applied by taking the rate x the actual activity. 11,075 actual hours x $5 per hour = $55,375. If overhead was over applied by $12,000, that means that actual was $12,000 less. $55,375 – $12,000 = $43,375
12. Actual manufacturing overhead costs are put in work in process when
a. they are incurred
b. they are paid
c. they are applied
d. they are budgeted
Answer
C. Applying overhead means to move overhead costs into work in process. When overhead costs are incurred/paid they are put into a temporary expense account called manufacturing overhead until they are moved to work in process to be a part of the product cost of the completed product.
Estimated total manufacturing overhead $500,000
Estimated total direct labor hours 100,000
Estimated total machine hours 40,000
Actual total manufacturing overhead $467,000
Actual direct labor costs $805,000
Actual total direct labor hours 89,405
Actual total machine hours 39,100
Raw materials purchased $106,000
Raw materials requisitioned $ 92,000
General and Administrative expenses $ 89,000
Warehouse expenses $ 64,000
A. Record all transactions for the manufacturing company for the year.
B. Calculate the total cost of the products.
Answer
A. Record all transactions: You can only make journal entries for dollar amounts.
The answer is given in the normal order they would occur, not as listed.
Purchase materials
Raw materials $106,000
Accounts Payable/Cash $106,000
Use materials, requisition to the production line
Work In Process $92,000
Raw materials $92,000
Actual manufacturing overhead incurred
Manufacturing overhead $467,000
Cash/Accounts Payable $467,000
Actual direct labor costs
Work In Process $805,000
Salaries Payable $805,000
Apply overhead – not on the list, however, it must be done
Work In Process $447,025
Manufacturing Overhead $447,025
$500,000 / 100,000 = $5 per direct labor hour x 89,405 hours
Estimated / activity base quantity
Get manufacturing overhead to 0 – make applied = to actual – this is not
on the list, however, it must be done.
Actual $467,000 (131,000 + 69,000)
Applied $447,025
Under applied $19,975 so costs must be added, not material
Cost of Goods Sold $19,975
Manufacturing Overhead $19,975
Record period expenses
Administrative expenses $89,000
Warehouse expenses $64,000
Accounts Payable/Cash $153,000
Total cost of the products will be the 3 costs that were put into work in process.
Direct material 92,000
Direct labor 805,000
Manufacturing overhead 447,025
Under applied O/H 19,975
Total product costs 1,364,000
** Machine hour information is ignored in this problem – it is not the base
that is used for allocating manufacturing overhead
14. At the beginning of the period, the manufacturing company estimated that manufacturing overhead would total $240,000 and the activity base would be a total of 30,000 direct labor hours. Transactions that occurred during the first year of operations are as follows:
1. Purchased raw materials, $106,000
2. Moved raw materials to the production line (requisitioned), $94,000
3. Used indirect materials in production, $3,000
4. Paid workers on the production line, $126,000 for 16,260 hours worked
5. Paid the plant manager and the supervisors; $99,000
6. Paid the rent on the manufacturing plant, $16,000
7. Depreciation on factory machines totaled $22,000
8. Paid salespersons commissions, $24,000
9. 28,035 machine hours were used during the period
10. The difference in actual and applied overhead is not material
11. 80 % of the products that were produced are completed.
A. Calculate the predetermined overhead rate
B. Record the above transactions
C. Determine the balance in work in process at the end of the period.
Answer
A. $240,000 / 30,000 direct labor hours = $8 per direct labor hour
B. record transactions:
1. Purchased raw materials, $106,000
Raw materials $106,000
Accounts payable/cash $106,000
2. Moved raw materials to the production line (requisitioned), $94,000
Work In Process $94,000
Raw materials $94,000
3. Used indirect materials in production, $3,000
Manufacturing overhead $3,000
Raw materials (or supplies) $3,000
4. Paid workers on the production line, $126,000 for 16,260 hours worked
Work In Process $126,000
Cash $126,000
5. Paid the plant manager and supervisors,$99,000
Manufacturing overhead $99,000
Cash $99,000
6. Paid the rent on the manufacturing plant, $16,000
Manufacturing overhead $16,000
Cash $16,000
7. Depreciation on factory machines totaled $22,000
Manufacturing overhead $22,000
Accumulated depreciation $22,000
8. Paid salespersons commissions, $24,000
Selling expense $24,000
Cash $24,000
9. 28,035 machine hours were used during the period. You must apply manufacturing
overhead even if it is not on the list of transactions.
The amount of machine hours is ignored and not used because the manufacturing
overhead is applied based on direct labor hours. Find the amount of direct labor
hours used. You calculated the cost to be $8 per direct labor hour.
To apply overhead take $8 x 16,260 direct labor hours worked = $130,080
Work in process $130,080
Manufacturing overhead $130,080
10. The difference in actual and applied overhead is not material
Actual overhead recorded 140,000 (3 + 99 + 16 + 22)
Applied overhead 130,080
Under applied 9,920
Cost of goods sold $9,920
Manufacturing overhead $9,920
11. 80 % of the products that were produced are completed.
First you must get the total of the product costs that were put into WIP
Direct material 94,000
Direct labor 126,000
Overhead applied 130,080
Total product costs 350,080 x 80% = 280,064
This is the amount that was complete and moved to finished goods
Finished Goods $280,064
Work In Process $280,064
The over and under was not added to the total product costs. It was
immaterial and was already put into cost of goods sold above.
C. The balance in WIP is the net of what went into the account, all product costs, and
what was transferred out of WIP to finished goods.
Into WIP as a debit 350,080
Out of WIP as a credit (280,064)
Balance in WIP 70,016
A. Record the total actual manufacturing overhead incurred.
B. Calculate the predetermined overhead rate
C. Record overhead applied
D. Determine the amount that manufacturing overhead is under or over applied.
Answer
A. Manufacturing overhead $527,035
Cash/Accounts Payable $527,035
B. Overhead is based on direct labor hours, so total direct labor hours should be
the denominator.
$500,000 / 20,000 = $25 per direct labor hour.
C. Actual direct labor hours worked * 19,055
x predetermined O/H rate $25
= overhead applied $476,375
Work In Process $476,375
Manufacturing overhead $476,375
* Used direct labor hours because overhead is applied based on direct
labor hours.
D. Actual overhead incurred $527,035
- Overhead applied $476,375
= under applied $ 50,660
You did not put enough costs into the product. The amount of costs that go into
the product have to be adjusted to the actual cost and costs have to be added.