Job Order Costing
Self Test
Self Test
Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
1. In a job order costing system, the document that notes what it costs to make the product is
a. materials requisition sheet
b. cost sheet
c. time sheet
d. inventory report at end of the period
Answer
B. A cost sheet details out the material required and the cost each, the amount of hours required and the cost per hour, and the estimated overhead.
2. When a company assigns overhead to a job it is called
a. budgeting
b. applying
c. job order costing
d. manufacturing overhead actual costing
Answer
B. Applying overhead to a job is estimating the amount of overhead that was incurred to make the job.
3. The total cost of all jobs that are not yet finished is equal to the balance in the account
a. raw materials
b. salaries payable
c. cost of goods available for sale
d. work in process
Answer
D. The balance in the work in process at the end of the period is the total cost of all work that is not complete.
4. When using job order costing, which of the following is an expense account?
a. work in process
b. manufacturing overhead
c. finished goods available for sale
d. salaries payable
Answer
D. Manufacturing overhead is an expense account that is made to equal 0 at the end of the period. The costs accumulated in this account are moved to become part of the product costs as work is completed. Work in process and finished goods are asset accounts. Salaries payable is a liability.
5. The materials requisition sheet would include which of the following?
a. a job number
b. a description of the material issued to production
c. the quantity of the material issued to production
d. all of the above
Answer
D. All of the above information is listed on the materials requisition sheet.
6. A company can track how much time is spent on an individual job by using
a. a time sheet
b. the total in the work in process account
c. a direct labor requisition sheet
d. none of the above
Answer
A. Employees record the time spent on a particular job on a time sheet. Work in process has dollar amounts and not quantity. There is no such thing as a labor requisition sheet.
7. In a job costing system, product costs are assigned to jobs when
a. the cost is paid for
b. direct costs are incurred and manufacturing overhead is applied
c. direct costs are incurred and actual manufacturing overhead is known
d. at the end of the period when actual costs are known.
Answer
B. Costs are put into jobs for material and labor as incurred and manufacturing overhead is applied to each job when it is completed.
8. Costs flow through the accounts of a manufacturing firm in which order?
a. raw materials, work in process, cost of goods sold, finished goods
b. work in process, raw materials, finished goods
c. raw materials, work in process, finished goods, cost of goods sold
d. raw materials, direct labor, cost of goods sold, finished goods
Answer
C. Raw materials are purchased and then put on the productions line (WIP) where labor and manufacturing overhead are used to complete the product. When complete it becomes finished goods and when sold it becomes cost of goods sold.
9. Job order costing is used when a company manufactures products
a. mass production, all products are the same
b. custom produced or in batches
c. easy to determine the cost per unit
d. with all the same materials
Answer
B. Custom produced or in batches requires job costing to determine the cost of the product. If all products are the same you can take the total cost and divide by the number of units and get an average cost (process costing) and there is no need to track costs by job.
10. Job costing is used by a company’s accountant to
a. value inventory that is mass produced and is all the same
b. allocate all operating costs to the company’s products
c. allocate all costs based on an expected level of activity
d. value inventory when it is produced in batches
Answer
D. See the answer in 9. above. Period costs are not allocated to products (b.) Direct costs are not allocated.
Do you understand the formula for predetermined overhead?
1. The predetermined overhead rate is calculated
a. total actual overhead divided by total actual activity
b. total estimated overhead divided by total actual activity
c. total estimated overhead divided by total estimated activity
d. total actual overhead divided by total budgeted activity
Answer
C. The predetermined overhead account is an estimate. All factors used in the calculation are estimated amounts.
2. When calculating a predetermined overhead rate, the numerator is always
a. budgeted manufacturing overhead costs for the period
b. actual manufacturing overhead costs for the period
c. budgeted total activity for the period
d. actual total activity for the period.
Answer
A. Budgeted manufacturing overhead costs go on the top of the formula.
3. When calculating a predetermined overhead rate, the denominator is always
a. budgeted manufacturing overhead costs for the period
b. actual manufacturing overhead costs for the period
c. budgeted total activity for the period
d. actual total activity for the period.
Answer
C. Budgeted total activity for the period goes on the bottom of the formula.
4. A company has estimated that during the year the following costs will be incurred when 3,000 products are produced working 10,000 direct labor hours: direct materials $100,000, direct labor $125,000, manufacturing overhead $250,000. The predetermined overhead ate based on direct labor hours will be
a. $22.50
b. $25.00
c. $10.00
d. $47.50
Answer
B. Use the formula: Total estimated overhead $ / Total estimated activity base $250,000 / 10,000 = $25 per direct labor hour Ignore all other information given.
1. When you have a situation of over or under applied manufacturing overhead, you can allocate to three accounts or you can record the difference to
a. work in process
b. finished goods
c. cost of goods sold
d. the inventory account with the smallest balance
Answer
C. Cost of goods sold. When the amount of over or under applied is not significant you put the full amount in cost of goods sold.
2. Which of the following would not be a good activity base to use in a manufacturing plant that is highly automated?
a. direct labor
b. machine hours
c. utility costs
d. machine maintenance costs
Answer
A. A highly automated facility will not have a significant amount of direct labor hours causing them to incur manufacturing overhead dollars.
3. Manufacturing overhead is always allocated based on
a. number of jobs
b. units sold
c. units produced
d. an activity that causes the company to incur overhead dollars
Answer
D. A company should allocate using the activity that causes them to incur overhead dollars. It could be any of the other ones listed and more.
1. A manufacturing company applies overhead based on machine hours. The company estimated total overhead costs to be $500,000 and total machine hours to be 50,000. Actual total overhead costs were $480,000 and 50,000 total machine hours were used. The company will have
a. under applied manufacturing overhead
b. over applied manufacturing overhead
c. no difference in actual and applied overhead
d. none of the above
Answer
B. Calculate a predetermined overhead rate: $500,000 / 50,000 = $10 Calculate the amount that is applied: Actual of 50,000 x $10 = $500,000. Compare the actual of $480,000 to the applied of $500,000. Applied is more than actual which is over applied.
2. When manufacturing overhead is over 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
B. Overhead is applied using an estimate. When over applied the estimate was higher than actual which is the same thing as actual lower than estimated. Over and under is relative only to the current year. Budgeted is the same as estimated.
3. When manufacturing overhead is applied on the basis of direct labor dollars, actual is equal to estimated total manufacturing costs and the amount of direct labor hours worked is less than expected,
a. manufacturing overhead is most likely underapplied
b. manufacturing overhead is most likely overapplied
c. actual manufacturing overhead is most likely equal to estimated
d. actual manufacturing overhead is most likely more than estimated
Answer
A. The amount applied will be less than actual incurred. Applied is done based on actual activity, which when less, will cause overhead be under applied.
1. When using job order costing, the use of indirect materials is recorded as
a. a decrease to manufacturing overhead
b. an increase to work in process
c. a decrease to work in process
d. an increase to manufacturing overhead
Answer
D. Indirect materials are part of manufacturing overhead. When this cost is incurred it is an increase to manufacturing overhead.
2. When a product is completed, the associated costs are transferred from
a. finished goods to cost of goods available for sale
b. work in process to cost of goods sold
c. work in process to finished goods
d. raw materials to work in process
Answer
C. All costs to produce the product are accumulated in the work in process account and moved to finished goods when completed.
3. When goods are sold to customers, the associated costs are transferred from
a. finished goods to cost of goods sold
b. work in process to cost of goods sold
c. work in process to finished goods
d. raw materials to work in process
Answer
A. The cost of goods ready to be sold to customers is in finished goods. When sold to the customer, these costs are moved to cost of goods sold from finished goods.
4. Work in process inventory is debited when
a. direct costs are incurred in production
b. manufacturing overhead is applied
c. actual manufacturing overhead is paid
d. both a. & b.
Answer
D. Work in process is increased, debited, when direct material and direct labor are added to the production line (a.) and manufacturing overhead is added to the cost of the product (b.).
5. Manufacturing overhead would not be debited for which of the following?
a. labor working on the production line
b. quality inspector salaries
c. indirect materials used
d. depreciation on factory machines
Answer
A. This is a cost of direct labor and work in process is debited for direct costs. All of the rest are manufacturing overhead costs and are debited when incurred.
6. For each of the following transactions, write the letter of what you would do to record the transaction.
A. Debit work in process
B. Debit manufacturing overhead
C. Debit raw materials
D. Debit finished goods inventory
E. Debit cost of goods sold
F. Credit manufacturing overhead
Answer
D Complete production
C Purchase raw materials
A Use direct labor
B Pay manufacturing overhead costs
E Sell the product to the customer
A Requisition of raw materials
B Use indirect labor
B Use indirect material
A& F Apply manufacturing overhead costs