Job Order Costing

Medium Practice Test

Things You Must Know

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Practice As You Learn

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Self Test

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Easy Practice Test

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Medium Practice Test

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Hard Practice Test

Medium Practice Test

Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.

1. Work in process inventory is credited when

a. 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
B. Work in process is the account that accumulates all the product costs, the cost of production. When the product is complete it is moved out of here and into finished goods. A credit is a reduction to work in process which occurs when the product is complete and the costs are moved to finished goods.

2. Finished goods inventory is credited when

a. direct costs are incurred in production
b. manufactured goods are completed
c. finished goods are sold
d. raw materials are moved to the production line
Answer
C. A credit is a reduction. Finished goods are reduced when they are sold to the customer. Finished goods is debited in b. and not impacted with a. and d.

3. The use of indirect materials is recorded as an increase in

a. work in process
b. supplies expense
c. manufacturing overhead
d. raw materials
Answer
C. Indirect materials is a part of manufacturing overhead. Using is an increase.

4. Which of the following would not be an appropriate activity base for a manufacturer that is not automated?

a. direct labor hours
b. direct labor dollars
c. machine hours
d. total material dollars
Answer
C. A manufacturer that is not automated will have few machines and therefore machine hours used will not cause them to spend overhead dollars. They will have high direct labor costs and will have to provide space and support for this direct labor. They may also incur material dollars and this could be used.

5. A manufacturing company applies manufacturing overhead at a rate of 50% of direct labor dollars incurred. For a job that shows $3,000 manufacturing overhead applied, direct labor dollars incurred was

a. $4,500
b. $1,500
c. $3,000
d. $6,000
Answer

D.

Use the formula Direct labor $ x 50% = Manufacturing O/H applied
                                                 ?      x 50% = 3,000 and ? is 6,000

6. Machine hours used to estimated the predetermined overhead rate were 50,000, actual machine hours used were 46,000 and overhead was under applied by $8,000. Budgeted total manufacturing overhead for the period was

a.$108,000
b. $ 94,000
c. $100,000
d. $200,000
Answer
C. Take the $8,000 and divide it by the difference in hours of 4,000 and you get a rate of $2 per hour. $2 per hour x 50,000 hours = $100,000

7. An amount of over or under applied manufacturing overhead that is not significant should be

a. added to or subtracted from raw materials
b. added to or subtracted from cost of goods sold
c. allocated to work in process, finished goods, and cost of goods sold
d. left in the manufacturing overhead account
Answer
B. When the difference is not significant, an adjustment is made to cost of goods sold. You never leave it in manufacturing overhead, this account must end up at 0 because all actual product costs must be put into WIP

8. When overhead is under applied it indicates that

a. overhead in the next period will be over applied
b. estimated overhead dollars were different than actual overhead dollars
c. estimated overhead activity was different than actual overhead activity
d. either b. or c. or both
Answer
D. Overhead can be under applied because of a spending difference or because of an activity difference. It is not an indication of what will occur in the next period which will depend on what is spent and how much activity actually occurs.

9. A debit to work in process occurs when

a. actual manufacturing overhead is incurred
b. actual manufacturing overhead is paid
c. manufacturing overhead is applied to the cost of production
d. indirect material is used
Answer
C. A debit to work in process occurs when product costs are added. Applying  manufacturing overhead is adding manufacturing overhead costs to the product (to WIP).  The other choices will be a debit to manufacturing overhead which is an expense until transferred to WIP. 

10. The cost of one completed job is calculated

a. direct costs + applied manufacturing overhead
b. direct material + direct labor + actual manufacturing overhead
c. direct costs + actual manufacturing overhead + beginning WIP – ending WIP
d. indirect costs + direct costs
Answer
A. The cost of a completed job is direct costs that can be easily traced plus the manufactured overhead that is applied (allocated to the job). You cannot use actual overhead costs because you do not know what it costs for a particular job. This is why you have to estimate and allocate the overhead costs. (c.) will give you the cost of all completed jobs during the period, not one job.

11. Record the following transactions that occurred at the manufacturing company during the month of January. At the beginning of the year, the company estimated they would incur $900,000 and use 75,000 total annual direct labor hours.

a. raw materials were purchased on account,  $236,000
b. raw materials were issued to production, $194,000
c. salespersons were paid salary, $29,000
d. incurred salaries and wages at the manufacturing facility, direct $89,000 for 7,500 hours and indirect $34,000
e. other factory manufacturing overhead incurred and paid, $62,000
f. utilities that incurred at the factory, $11,000
g. prepaid insurance that was used, corporate, $8,000
h. depreciation on the factory equipment, $17,000
i. 95% of product costs were completed (do not consider under or over applied manufacturing overhead)
j. products that cost $325,000 were sold for $500,000
Answer

a. raw materials were purchased on account, $236,000

Raw materials            $236,000

Accounts Payable             $236,000

 

b. raw materials were issued to production, $194,000

Work in Process             $194,000

Raw materials                   $194,000

 

c. salespersons were paid salary, $29,000

Selling expense – salary            $29,000

                        Cash                     $29,000

 

d. incurred salaries and wages at the manufacturing facility, direct $89,000 for 7,500 hours and indirect $34,000

Work in Process                     $89,000
         Manufacturing Overhead     $34,000

 Salaries Payable                     $123,000

 

e. other factory manufacturing overhead incurred and paid, $62,000

Manufacturing Overhead             $62,000

             Cash                                   $62,000

 

f. utilities that incurred at the factory, $11,000

Manufacturing Overhead             $11,000

             Cash                                    $11,000

 

g. prepaid insurance that was used, corporate, $8,000

Insurance expense – G&A            $8,000

         Prepaid Insurance                 $8,000

 

h. depreciation on the factory equipment, $17,000

Manufacturing overhead                $17,000

Accumulated depreciation              $17,000

 

i. 95% of product costs were completed (do not consider over or under applied)

1st – Apply overhead so that all product costs are in WIP.

$900,000 / 75,000 = $12 per hour x 7,500 actual hours = $90,000

Work in Process             $90,000

Manufacturing overhead             $90,000

 

2nd – Total all product costs for the period:

direct material used                                     194,000
direct labor used                                             89,000
manufacturing overhead applied                90,000
total product costs                                       373,000
x 95% complete .                                               95     
cost of finished products                             354,350

Finished Goods                         $354,350

        Work In Process                        $354,350

 

j. products that cost $325,000 were sold for $500,000

Cost of goods sold             $325,000

          Finished Goods             $325,000

 

Cash                         $500,000

Sales                         $500,000

 

You were not asked to do this, but you should also 0 out the manufacturing overhead account and make the costs in WIP equal to actual and not estimated.

Actual                         124,000             (34 + 62 + 11 + 17)
-Applied                      90,000
Under applied           34,000

 

This is significant and would be allocated and debited to WIP, FG, and CGS based on the balances in the accounts. You would credit manufacturing overhead for 34,000 to get the manufacturing overhead account to 0.

12. A manufacturing company that produces product using mostly automation had the following for the current period.

Actual manufacturing overhead costs incurred                $345,976
Budgeted manufacturing overhead costs                          $400,000
Budgeted direct labor costs                                                  $ 90,000
Actual direct labor costs                                                        $ 86,542
Budgeted direct labor hours                                                 8,182
Actual direct labor hours                                                       7,902
Budgeted machine related costs                                          $172,000
Actual machine related costs                                                $185,347
Budgeted machine hours                                                     20,000
Actual machine hours                                                            20,945

 

The company uses machine hours as the activity base for allocating overhead to products. Over and under applied overhead is recorded to cost of goods sold. Record all necessary journal entries related to overhead for the period.

Answer

Ignore all information related to direct labor costs and direct labor hours as this is not relevant. The company used machine hours not labor hours. Calculate the predetermined overhead rate per machine hour.

Budgeted MOH costs              $400,000 = $20 per machine hour
Budgeted machine hours        20,000

 

Then apply manufacturing overhead – add costs to WIP

Actual machine hours used x rate per machine hour

20,945 x $20 = 418,900

 

Work in Process                             $418,900

Manufacturing overhead              $418,900

 

Record actual manufacturing overhead costs incurred.

Manufacturing overhead             $345,976

       Cash                                          $345,976

 

Do not record the machine related costs, they are already included in total manufacturing overhead incurred

 

Zero out the manufacturing overhead account.

 

Actual                            345,976
Applied                         418,900
Over applied                72,924

too much cost put in the product so you have to reduce the cost

 

Manufacturing overhead             $72,924

Cost of goods sold                         $72,924

13. A manufacturing company uses a job costing system and recorded the following activity for the month.

Job # Direct Materials Direct Labor
34 $305 $560
35 $210 $965
36 $690 $315

The company estimated that total manufacturing overhead incurred would be $150,000 and total material dollars used would be $75,000. Job # 34 was completed and delivered to the customer. The other two jobs are completed and not delivered to the customer.

Calculate the following:

a. the total product costs recorded for each of the 3 jobs during the month
b. the cost of goods sold for the month
c. the ending balance in work in process for the month
d. the ending balance in finished goods
e. record the journal entries for the costs moving through the production line

 

Answer

a. Total product costs consist of direct material, direct labor, and manufacturing overhead applied. Apply overhead and get the total for all 3 jobs

Calculate a predetermined overhead rate:

Total budgeted O/H $ / total activity
$150,000 / $75,000 = 200% of direct material costs
 

Overhead applied is Material $ x 2.00

                           #34                 #35                 #36
DM                     305                 210                 690
DL                      560                 965                  315
OH applied      610                 420                 1,380
Total cost       1,475             1,595                2,385

 

b. Job #34 was completed and delivered to the customer. The cost of this job is also cost of goods sold. $1,475

c. WIP at the end of the period is 0 since there are no jobs current unfinished.

d. The cost of finished goods is the cost of jobs #35 and #36 – $3,980

e. Adding product costs for direct material and direct labor is recorded as

 

        Work in process – #34          865
        Work in process – #35         1175
        Work In process – #36         1005
                  Raw materials                     1,205
                   Salaries payable                 1,840

Apply the manufacturing overhead:

        Work in process – #34         610
        Work in process – #35         420
        Work In process – #36      1,380
                   Manufacturing overhead         2,410

Move the cost of completed products

        Finished Goods 5,455
                 Work in process – #34         1,475
                 Work in process – #35         1,595
                 Work In process – #36         2,385

Record the cost of the goods delivered to the customer

        Cost of goods sold         1,475
                 Finished goods                  1,475