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