Job Order Costing

Easy Practice Test

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.

13. A manufacturing company uses direct labor hours as the basis for the predetermined manufacturing overhead rate. Amounts for the year are as follows:

       
         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
         Sell