Job Order Costing
Hard Practice Test
Cost Accounting
Hard Prectice Test
Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
1. A manufacturing company over estimated manufacturing overhead costs for the year and activity were as expected. This will result in manufacturing overhead
a. over applied
b. under applied
c. not applied
d. added to cost of goods sold
Answer
A. When the company overestimated the total costs, it also over estimated the cost per activity. When activity is as expected, more cost per activity will be added to the product than was incurred. Therefore, overhead will be over applied.
2. A company has two jobs that are not completed resulting in a balance in work in process of $6,000. The two jobs show $1,000 and $600 for materials used and $800 and $1,200 for direct labor. What is the predetermined overhead rate based on direct labor dollars?
a. 80%
b. 120%
c. 20%
d. 240%
Answer
B. Work in process has direct material + direct labor + overhead applied in the account. Therefore 6,000 = 1,000 + 600 +800 + 1,200 + OH ? and overhead has to be 2,400. Overhead / total direct labor dollars is the rate. $2,400 / $2,000 = 120%
3. Manufacturing overhead is $5 per direct labor hour. The company incurred $300,000 in manufacturing overhead costs. Overhead was over applied by $23,000. How many direct labor hours were incurred?
a. 64,600
b. 60,000
c. 4,600
d. not enough information to determine
Answer
A. Overhead was over applied means that the amount applied was higher than actual, therefore, applied is $323,000. Total applied of $323,000 / $5 per hour = 64,600 hours worked. Another to look at it is: ? hours x $5 per hour = $323,000 applied
4. Actual overhead costs equaled estimated overhead costs. Actual direct labor hours were higher than budgeted direct labor hours. Overhead will be.
a. under applied
b. over applied
c. equal to $0
d. can not be determined from the information provided
Answer
B. Overhead is applied by taking the actual direct labor hours x rate per hour. When actual hours is higher than estimated, the amount applied will be higher than actual incurred. This is over applied.
5. A materials requisition form is a document used to
a. debit work in process
b. credit work in process
c. debit manufacturing overhead
d. credit manufacturing overhead
Answer
A. A materials requisition form is used to move direct materials to the production line. This is recorded with a debit to work in process and a credit to raw materials.
6. If time spent is charged to the wrong job number, the job charged will
a. show to be more profitable than it really was
b. show less work in process
c. show more work in process
d. show less total cost than really incurred
Answer
C. Direct labor time spent is added to work in process. Work in process becomes finished goods when complete and cost of goods sold when sold to the customer. Added costs make it less profitable. (a. & d.)
7. The dollar amount of the debit to finished goods and the credit to work in process is the amount that
a. was added to costs during the period
b. was the total cost in process during the period
c. was completed and sold during the period
d. was completed during the period
Answer
D. The transaction that debits finished goods and credits work in process occurs when the product is complete. Costs can be added and still be in process, which may be the case with (a.) & (b.)
8. Over applied manufacturing overhead occurs when
a. overhead costs incurred were less than originally estimated
b. overhead costs incurred were less than applied to production
c. the plant was operated at less than expected capacity
d. overhead costs incurred were more than applied to production
Answer
B. Over applied means that the amount of costs that were added to the product were more than was actually incurred. (a.) is not correct since over or under compares the actual to applied, and the original estimate is not considered. When over applied, more activity is generally used, which would be higher than expected capacity. (c.)
9. A job order cost system is likely to provide
a. more accurate inventory valuations
b. better control over inventory
c. information used for pricing products
d. all of the above
Answer
D. A job order costing provides all of the above benefits.
10. In a job costing system, overhead is assigned at
a. completion of the job
b. completion of all jobs during the period
c. the end of the period and it is assigned in total not by job
d. the beginning of the period when the predetermined overhead rate is determined
Answer
A. Overhead is assigned to the job once the activity that was incurred on that job is known, which is the completion of the job. Assigning overhead is a means to estimate the overhead costs associated with the products. Overhead costs are indirect costs and the exact amount incurred is not known.
11. A manufacturing company estimated that overhead would be applied at a rate of $8 per machine hour used. Any under or over applied overhead is taken to cost of goods sold. During the month, the following transactions occurred.
a. raw materials purchased, $29,000
b. raw materials requisitioned, $25,500
c. direct labor hours worked, 3,025 and machine hours used 4,556
d. direct labor cost incurred, $37,054 and indirect labor costs, $19,045
e. actual manufacturing overhead costs incurred, $18,395
The beginning of the month balance in work in process was $8,900. At the end of the month the company had inventory balances of $11,040 in raw materials and $13,060 for work in process. Beginning finished goods was $43,075 and ending finished goods was $56,400.
Make all required journal entries related to production for the company for the month and calculate the following:
a. the beginning balance in the raw materials account
b. the cost of goods manufactured during the month
c. the cost of goods sold during the month
Answer
Make all required journal entries:
a. raw materials purchased, $29,000
Raw materials $29,000
Accounts Payable $29,000
b. raw materials requisitioned, $25,500
Work In Process $25,500
Raw materials $25,500
c. direct labor hours worked, 3,025 and machine hours used 4,556
Ignore direct labor hours and apply manufacturing overhead based
on machine hours:
4,556 machine hours x $8 per machine hour = $36,448
Work In Process $36,448
Manufacturing Overhead $36,448
d. direct labor cost incurred, $37,054 and indirect labor costs, $19,045
Work In Process $37,054
Manufacturing Overhead $19,045
Salaries Payable $56,099
e. actual manufacturing overhead costs incurred, $18,395
Manufacturing overhead $18,395
Cash or Accounts Pay $18,395
You also have to close out (get to 0) the manufacturing overhead account.
Actual 37,440 (19,045 + 18,395)
Applied 36,448
Under applied 992
When under applied, you have to add costs. This is done with a debit to CGS
since it is not significant.
Cost of good sold $992
Manufacturing O/H $992
You also have to record the transfer to finished goods and the cost of goods
sold which is calculated and done below.
a. Calculate the beginning balance in the raw materials account: 7,540
a. set up the calculation and put in what you know and plug
Beginning raw materials ? solve for 7,540
+ Purchases 29,000
- Ending raw materials (11,040)
= raw materials used 25,500
b. Calculate cost of goods manufactured:
Direct materials used 25,500
+ Direct labor used 37,054
+Manufacturing O/H applied 36,448
+ Under applied O/H 992
+ Beginning WIP 8,900
- Ending WIP (13,060)
= CGM 95,834
This will also be the amount that is transferred to finished goods
Finished Goods $95,834
Work In Process $95,834
c. Calculate the Cost of Goods Sold:
Beginning Finished Goods 43,075
+ CGM 95,834
- Ending Finished Goods (56,400)
= Cost of Goods Sold 82,509
This is recorded as follows:
Cost of Goods Sold $82,509
Finished Goods $82,509
12. The manufacturing company uses a job costing system and applies overhead based on direct labor cost. You have the following information:
Direct materials used $ 2,400
Applied manufacturing overhead $ 6,600
Selling & Admin costs $ 2,000
Total manufacturing costs $12,000
Inventory Beginning Ending
Raw materials $500 $600
Work In Process $700 $900
Finished Goods $400 $300
Compute:
a. The cost of materials purchased
b. The predetermined overhead rate
c. The cost of goods manufactured for the year
d. The cost of goods sold for the year
Answer
a. set up the calculation and put in what you know and plug
Beginning raw materials 500
+ Purchases ? ? = 2,500
- Ending raw materials (600)
= raw materials used 2,400
b. The predetermined O/H rate is determined as follows:
direct materials used 2,400
+ direct labor ?
+ manufacturing overhead applied 6,600
= total manufacturing cost 12,000
Direct labor has to be $3,000
manufacturing OH $ / direct labor $ = % applied
$6,600 / $3,000 = 220% of direct labor dollars
c. Cost of goods manufactured is equal to
Total costs (DM + DL + MOH) 12,000
+ beginning WIP 700
- Ending WIP (900)
= CGM 11,800
d. Cost of goods sold is equal to
Beginning FG 400
+ CGM 11,800
- Ending FG (300)
= CGS 11,900
13. The following is related to a manufacturing company that uses job order costing.
Beginning Ending
Finished Goods $ 65,000 $ 79,000
Raw Materials $ 89,000 $109,000
Work In Process $ 16,000 $ 19,000
At the beginning of the year, the company estimated that it would use 35,000 machine hours and incur $210,000 in total manufacturing overhead costs. During the period, raw materials of $196,000 were purchased. Direct labor was paid $127,000 and plant management was paid $69,000. Company depreciation expense was $15,000 related to the manufacturing plant and $12,000 related to corporate activities. Costs to operate the manufacturing facility were $116,000. Machine hours used during the period totaled 33,074. Corporate expenses were $267,000. Sales for the period were $907,000.
Record all transactions for the company during the period.
Answer
All transactions will be the following. These are the transactions all
manufacturing companies do.
Purchase materials
Use materials, requisition to the production line
Incur manufacturing overhead – included indirect costs
Pay labor – direct and indirect
Apply overhead
Get manufacturing overhead to 0 – make applied = to actual
Transfer completed goods to finished goods
Record goods sold and sales
Record period expenses
Purchase materials
Raw materials $196,000
Accounts Payable/Cash $196,000
Use materials, requisition to the production line
Work In Process $176,000
Raw materials $176,000
This is calculated by: BI + Purch – Ending = Used
89,000 + 196,000 – 109,000 = 176,000
Incur manufacturing overhead – included indirect costs
Manufacturing overhead $131,000
Cash/Accounts Payable $116,000
Accumulated depreciation $ 15,000
Pay labor – direct and indirect
Work In Process $127,000
Manufacturing Overhead $ 69,000
Salaries Payable $196,000
Apply overhead
Work In Process $198,444
Manufacturing Overhead $198,444
$210,000 / 35,000 = $6 per machine hour x 33,074 machine hours
Get manufacturing overhead to 0 – make applied = to actual
Actual $200,000 (131,000 + 69,000)
Applied $198,444
Under applied $1,556 so costs must be added, not material
Cost of Goods Sold $1,556
Manufacturing Overhead $1,556
Transfer completed goods to finished goods
You must calculate this as follows:
+ Direct material added to WIP 176,000
+ Direct labor added to WIP 127,000
+ manufacturing overhead applied – (+ WIP) 198,444
+ manufacturing overhead adjustment 1,556
+ Beginning WIP 16,000
- Ending WIP (19,000)
= CGM, Transferred to Finished Goods 500,000
Finished Goods $500,000
Work In Process $500,000
Record goods sold and sales
You have to calculate this as follows:
Beginning FG 65,000
+ CGM 500,000
- Ending FG (79,000)
= CGS 486,000
Cost of Goods Sold $486,000
Finished Goods $486,000
Accounts Receivable $907,000
Sales $907,000
Record period expenses
Administrative expenses $279,000
Accounts Payable/Cash $267,000
Accumulated Depreciation $ 12,000