Question 1

The fact that one department may be labor intensive while another department is machine intensive explains in part why multiple predetermined overhead rates are often used in larger companies.

Accepted Answer

This statement is true. Since different departments may have different levels of labor and machine usage, it makes sense to calculate separate overhead rates for each department based on their specific usage. This allows for more accurate costing and budgeting.

Question 2

The costs attached to products that have not been sold are included in ending inventory on the balance sheet.

Accepted Answer

According to the Generally Accepted Accounting Principles (GAAP), the costs of products that have not been sold, also known as the cost of goods sold (COGS), should be included in ending inventory on the balance sheet until the products are sold. Once the products are sold, the COGS are moved to the income statement as an expense.

Question 3

A bill of materials is a document that lists the type and quantity of each type of direct material needed to complete a unit of product.

Accepted Answer

This is correct. A bill of materials (BOM) is a comprehensive list of raw materials, assemblies, and subassemblies required to create a finished product. It specifies the quantity of each component needed to produce one unit of the product.

Question 4

Actual overhead costs are not assigned to jobs in a job costing system.

Accepted Answer

In a job costing system, estimated overhead costs are applied to jobs using a predetermined overhead rate, rather than assigning actual overhead costs directly to each job.

Question 5

A job cost sheet is used to record how much a customer pays for the job once the job is completed.

Accepted Answer

A job cost sheet is used to record the cost of a job as it is being completed, including materials, labor, and overhead expenses. It is used to track the total cost of the job and compare it to the estimated cost to ensure profitability. The final amount the customer pays may be calculated based on the job cost sheet, but it is not the primary purpose of the document.

Question 6

Job cost sheets contain entries for actual direct material, actual direct labor, and actual manufacturing overhead cost incurred in completing a job.

Accepted Answer

The answer of Job cost sheets contain entries for actual...

Question 7

An employee time ticket is an hour-by-hour summary of the employee's activities throughout the day.

Accepted Answer

An employee time ticket is a detailed record of the hours worked by an employee, including start and end times, any breaks or meal periods, and the total number of hours worked each day. It does not necessarily include a summary of the employee's specific activities throughout the day.

Question 8

If the overhead rate is computed annually based on the actual costs and activity for the year, the manufacturing overhead assigned to any particular job can be computed as soon as the job is completed.

Accepted Answer

The overhead rate computed annually based on actual costs and activity for the year can only be accurately determined after the year ends, making it impossible to compute the exact manufacturing overhead for a particular job immediately upon its completion.

Question 9

A company will improve job cost accuracy by using multiple overhead rates even if it cannot identify more than one overhead cost driver.

Accepted Answer

Using multiple overhead rates is beneficial for improving job cost accuracy only if a company can identify different overhead cost drivers that correlate with the costs incurred. Without identifying more than one overhead cost driver, applying multiple rates would not be based on meaningful distinctions and thus would not necessarily improve accuracy.

Question 10

The formula for computing the predetermined overhead rate is:Predetermined overhead rate = Estimated total amount of the allocation base÷ Estimated total manufacturing overhead cost

Accepted Answer

The correct formula for computing the predetermined overhead rate is: Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base.

Question 11

The appeal of using multiple departmental overhead rates is that they presumably provide a more accurate accounting of the costs caused by jobs.

Accepted Answer

Using multiple departmental overhead rates allows for a more accurate allocation of overhead costs to jobs based on the specific department or function that incurs those costs. This can provide a more accurate reflection of the actual costs incurred by each job, as opposed to using a single plantwide overhead rate that may not consider the different cost drivers among departments.

Question 12

If the allocation base in the predetermined overhead rate does not drive overhead costs, it will nevertheless provide reasonably accurate unit product costs because of the averaging process.

Accepted Answer

The predetermined overhead rate is used to allocate overhead costs based on an allocation base that should reflect the use of overhead resources. If the allocation base does not drive overhead costs, it will not accurately reflect the consumption of overhead resources by different products, leading to inaccurate product costing despite the averaging process.

Question 13

In a job-order cost system, indirect labor is assigned to a job using information from the employee time ticket.

Accepted Answer

Indirect labor costs are not directly assigned to specific jobs using time tickets; instead, they are allocated to all jobs based on a predetermined overhead rate, as they are part of the manufacturing overhead costs.

Question 14

The amount of overhead applied to a particular job equals the actual amount of overhead caused by the job.

Accepted Answer

The amount of overhead applied to a particular job is determined by a predetermined rate, which may not necessarily reflect the actual amount of overhead caused by the job.

Question 15

If a job is not completed at year end, then no manufacturing overhead cost would be applied to that job when a predetermined overhead rate is used.

Accepted Answer

When a predetermined overhead rate is used, manufacturing overhead costs are applied to jobs throughout the year based on the rate, regardless of whether the job is completed by year end.

Question 16

An employee time ticket is used to record points that are earned by employees based on the hours they worked that can be used to pay for coffee, food in the cafeteria, and even in some cases for vacation travel.

Accepted Answer

An employee time ticket is actually used to record the hours worked by an employee, primarily for payroll purposes, rather than earning points for rewards or purchases.

Question 17

In absorption costing, nonmanufacturing costs are assigned to units of product.

Accepted Answer

In absorption costing, only manufacturing costs (direct materials, direct labor, and manufacturing overhead) are assigned to units of product; nonmanufacturing costs (selling and administrative expenses) are not allocated to products.

Question 18

Generally speaking, when going through the process of computing a predetermined overhead rate, the estimated total manufacturing overhead cost is determined before estimating the amount of the allocation base.

Accepted Answer

The answer of Generally speaking, when going through the process...

Question 19

In a job-order costing system, costs are traced to individual units of product. The sum total of such traced costs is called the unit product cost.

Accepted Answer

The answer of In a job-order costing system, costs are...

Question 20

Job-order costing systems often use allocation bases that do not reflect how jobs actually use overhead resources.

Accepted Answer

Job-order costing systems typically use predetermined overhead rates, which are based on an allocation base such as direct labor hours or machine hours. However, these allocation bases may not always accurately reflect how overhead costs are actually incurred by the jobs. For example, a job may require more setup time or engineering costs than another job with the same number of direct labor hours, but if the predetermined overhead rate is based solely on direct labor hours, the actual overhead costs may be misallocated.

Quiz 2: Job-Order Costing: Calculating Unit Product Costs