Question 1

Job-order costing is used in those situations where units of a product are homogeneous, such as in the manufacture of sugar.

Accepted Answer

Job-order costing is used in situations where units of a product are not homogeneous, such as in custom furniture manufacturing. Process costing, on the other hand, is used in situations where units of a product are homogeneous, such as in the production of sugar, oil, or chemicals. In process costing, costs are accumulated by department or process and then averaged over all units produced.

Question 2

Period costs are expensed as incurred, rather than going into the Work in Process account

Accepted Answer

Process costing is used in situations where identical or similar products are mass-produced, while job-order costing is used when products are customized to the specifications of a particular customer. In process costing, period costs such as salaries, rent, and advertising are expensed as incurred, while in job-order costing, these costs are allocated to specific jobs or projects.

Question 3

The Bristol Company uses a job-order cost system. The following data were recorded for June:$\begin{array}{lrr}
&  \text {June 1   } && \text {Added During June  } \
 &\text {Work in Process  } & \text { Direct} & \text {Direct}\\\end{array}$
$\begin{array}{lrr}\text { Job Number} &\text {  Stock }& \text { Materials }&\text { Labour }\
235 & £ 2,500  & £ 600  &£ 400  \
236 &£ 1,500 & £ 800  & £ 1,000  \
237 & £ 1,000 & £ 1,200 & £ 1,750 \
238 & £ 800 & £ 1,500 &£ 2,250 
\end{array}$

In the previous question overhead is charged to production at 80% of direct materials cost. Jobs 235, 237, and 238 were completed during June and transferred to finished goods. Jobs 235 and 238 have been delivered to customers.
Assume that the company wants to recalculate the overhead rate and now wants to charge overhead to production at 75% of direct material cost. Bristol's Work in Process Stock balance on June 30 would change to:

Accepted Answer

To calculate the new Work in Process (WIP) balance, we need to recalculate the overhead rate using the new percentage of 75% for direct material cost.

New Overhead Rate = 75% x £20,800 = £15,600

Now we can calculate the new amount of overhead applied to production for the three completed jobs:

Job 235: (£12,000 x 75%) = £9,000 applied overhead 
Job 237: (£7,200 x 75%) = £5,400 applied overhead 
Job 238: (£5,760 x 75%) = £4,320 applied overhead

Total applied overhead = £9,000 + £5,400 + £4,320 = £18,720

We can then calculate the new total cost for the three completed jobs:

Job 235: £12,000 + £9,600 = £21,600 
Job 237: £7,200 + £5,850 = £13,050 
Job 238: £5,760 + £4,560 = £10,320

Total cost of completed jobs = £21,600 + £13,050 + £10,320 = £45,970

Finally, we can calculate the new WIP balance by subtracting the cost of completed jobs and the applied overhead from the total manufacturing costs:

Total manufacturing costs = £20,800 + £23,600 + £19,200 = £63,600

New WIP balance = £63,600 - £45,970 - £18,720 = £910

Therefore, the new WIP balance on June 30 would be £3,900 (£910 higher than the original balance of £2,990).

Question 4

Galbraith Company applies overhead cost to jobs on the basis of 70% of direct Labour cost. If Job 201 shows £28,000 of manufacturing overhead applied, the direct Labour cost on the job was

Accepted Answer

The direct labor cost is calculated by dividing the manufacturing overhead applied by the overhead rate. Given that the overhead rate is 70% of direct labor cost, and the manufacturing overhead applied is £28,000, the direct labor cost is £28,000 / 0.70 = £40,000.

Question 5

In a job order cost system, the use of indirect materials previously purchased is recorded as a decrease in

Accepted Answer

Indirect materials are initially recorded in Raw Materials Stock and when used, they are transferred to Manufacturing Overhead, decreasing Raw Materials Stock.

Question 6

The three cost categories appearing on a job cost sheet are: selling expense, manufacturing expense, and administrative expense

Accepted Answer

The three cost categories typically appearing on a job cost sheet are direct materials, direct labor, and manufacturing overhead, not selling expense, manufacturing expense, and administrative expense.

Question 7

There are two acceptable methods for closing out any balance of under- or overapplied overhead. One method involves allocation, whereas the other closes any balance directly to

Accepted Answer

The most appropriate method for closing out any balance of under- or overapplied overhead is to allocate it to Cost of Goods Sold. This is because any overhead costs that are not applied to products during the manufacturing process are considered indirect costs that must be included in the cost of goods sold when the product is sold. Direct costs are included in the cost of goods manufactured and finished goods inventories. Therefore, choice (B) is the most appropriate option for closing out the balance of under- or overapplied overhead.

Question 8

Birk applies overhead to jobs at a predetermined rate of 80% of direct Labour cost. Job No. 5, the only job still in process on April 30, has been charged with direct Labour of £2,000. What was the amount of direct materials charged to Job No. 5

Accepted Answer

The answer of Birk applies overhead to jobs at a...

Question 9

Snappy Company has a job-order cost system and uses a predetermined overhead rate based on direct Labour-hours to apply manufacturing overhead to jobs. Manufacturing overhead cost and direct Labour-hours were estimated at £100,000 and 40,000 hours, respectively, for the year. In July, Job #334 was completed at a cost of £5,000 in direct materials and £2,400 in direct Labour. The Labour rate is £6 per hour. By the end of the year, Snappy had worked a total of 45,000 direct Labour-hours and had incurred £110,250 actual manufacturing overhead cost.
-Snappy's manufacturing overhead for the year was:

Accepted Answer

The predetermined overhead rate is calculated as estimated overhead cost divided by estimated direct labor hours, which is £100,000 / 40,000 hours = £2.50 per direct labor hour. By the end of the year, Snappy worked a total of 45,000 direct labor hours, so the applied overhead is 45,000 hours * £2.50 = £112,500. The actual manufacturing overhead cost was £110,250, so the overhead was overapplied by £112,500 - £110,250 = £2,250.

Question 10

Snappy Company has a job-order cost system and uses a predetermined overhead rate based on direct Labour-hours to apply manufacturing overhead to jobs. Manufacturing overhead cost and direct Labour-hours were estimated at £100,000 and 40,000 hours, respectively, for the year. In July, Job #334 was completed at a cost of £5,000 in direct materials and £2,400 in direct Labour. The Labour rate is £6 per hour. By the end of the year, Snappy had worked a total of 45,000 direct Labour-hours and had incurred £110,250 actual manufacturing overhead cost.
-
If Job #334 contained 200 units, the unit cost on the completed job cost sheet would be:

Accepted Answer

The answer of Snappy Company has a job-order cost system...

Question 11

Precision Company data:$\begin{array}{lrr}
  \text {  Actual manufacturing overhead cost incurred} &£ 84,000\
 \text {Actual direct Labour hours worked  } &
27,000\
\end{array}$
 
Precision Company used a predetermined overhead rate last year of £3 per direct Labour hour, based on an estimate of 24,000 direct Labour hours to be worked during the year.
The under- or overapplied overhead for the year was:

Accepted Answer

The predetermined overhead rate was £3 per direct labor hour, and 27,000 hours were actually worked, leading to applied overhead of £81,000 (27,000 hours x £3). The actual overhead was £84,000, resulting in £3,000 underapplied (£84,000 - £81,000).

Question 12

Jameson Company uses a predetermined overhead rate based on direct Labour hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for the next year:$\begin{array}{lrr}
  \text { Direct materials } &£ 5,000 \
 \text { Direct Labour } &19,000\
 \text { Rent on factory building } &16,000\
 \text { Sales salaries } &24,000\
 \text {Depreciation on factory equipment  } &7,000\
 \text { Indirect Labour } &11,000\
 \text {Production supenisor's salary  } &14,000
\end{array}$

Jameson estimates that 24,000 direct Labour hours will be worked during the year. The predetermined overhead rate per hour will be:

Accepted Answer

The answer of Jameson Company uses a predetermined overhead rate...

Question 13

A proper journal entry to record issuing raw materials to be used on a job would be:
a. $\begin{array}{lrr}
  \text { Finished Goods } &xxx\
 \text {Raw Materials.  } &xxx\
\end{array}$
  b. $\begin{array}{lrr}
  \text { Raw Materials.  } &xxx\
 \text { Work in Process} &xxx\
\end{array}$
 
 c. $\begin{array}{lrr}
  \text { Work in Process  } &xxx\
 \text { Raw Materials.} &xxx\
\end{array}$
  
 d. $\begin{array}{lrr}
  \text { Raw Materials.  } &xxx\
 \text { Finished Goods} &xxx\
\end{array}$

Accepted Answer

When issuing raw materials for a job, the correct journal entry debits Work in Process (indicating the materials are now part of the production process) and credits Raw Materials (indicating a reduction in raw materials inventory). This reflects the movement of materials from inventory into production.

Question 14

Parsons Co. uses a predetermined overhead rate based on direct Labour hours to apply manufacturing overhead to jobs. Last year Parsons incurred £250,000 in actual manufacturing overhead cost. The Manufacturing Overhead account showed that overhead was overapplied in the amount of £12,000 for the year. If the predetermined overhead rate was £8.00 per direct Labour hour, how many hours were worked during the year

Accepted Answer

The answer of Parsons Co. uses a predetermined overhead rate...

Question 15

Axe applies overhead to jobs at a predetermined rate of 80% of direct Labour cost. Job No. 9, the only job still in process at the end of March, has been charged with direct Labour of £1,000. The amount of direct materials charged to Job No. 9 was

Accepted Answer

We need to find the amount of direct materials charged to Job No. 9. There is no information given about the actual direct materials used, but we know that Axe applies overhead at a rate of 80% of direct labour cost. Since we are given that the direct labour charged to Job No. 9 is £1,000, we can calculate the overhead applied as 80% of £1,000, which is £800. 
Therefore, the total cost charged to Job No. 9 would be £1,000 + £800 = £1,800. Since we know that direct labour is only a part of the total cost, we can use the overhead rate to back-calculate the direct materials cost. 
Let "x" be the direct materials cost. 
We know that £1,000 (direct labour cost) is 100% of direct labour cost, and £800 (overhead applied) is 80% of direct labour cost, so we can set up the equation: 
£1,000 + £800 + x = total cost charged 
Simplifying, we get: 
£1,800 + x = total cost charged 
Substituting the given answer choices, we find that only choice C satisfies this equation, which is £2,600.

Question 16

During the month of March, Nale Co. used £300,000 of direct materials. At March 31, Nale's direct materials Stock was £50,000 more than it was at March 1. Direct material purchases during the month of March amounted to

Accepted Answer

Direct materials used during the month of March = £300,000

Direct materials Stock difference between March 1 and March 31 = £50,000

To calculate the direct material purchases during the month of March, we can use the following formula:

Direct material purchases = Direct materials used during the month + Increase in direct materials stock

Direct material purchases = £300,000 + £50,000 = £350,000

Therefore, the answer is D, £350,000.

Question 17

Top-management salaries should not go into the Manufacturing Overhead account

Accepted Answer

Top-management salaries are considered administrative expenses and should not be allocated to the Manufacturing Overhead account, which is meant for costs directly related to the production process.

Question 18

The manufacturing operation that would be most likely to use a job-order costing system is

Accepted Answer

Shipbuilding is a complex and unique process that involves the production of customized ships in limited quantities. Therefore, it requires a job-order costing system to track the costs of materials, labor, and overheads associated with each ship. This system enables the shipbuilder to calculate the cost of each job and determine the selling price of the ship. Toy and candy manufacturing involve the production of homogeneous products in large quantities, making them better suited for a process costing system. Crude oil refining involves continuous processing, making it suitable for a process costing system as well.

Question 19

The Bristol Company uses a job-order cost system. The following data were recorded for June:$\begin{array}{lrr}
&  \text {June 1   } && \text {Added During June  } \
 &\text {Work in Process  } & \text { Direct} & \text {Direct}\\\end{array}$
$\begin{array}{lrr}\text { Job Number} &\text {  Stock }& \text { Materials }&\text { Labour }\
235 & £ 2,500  & £ 600  &£ 400  \
236 &£ 1,500 & £ 800  & £ 1,000  \
237 & £ 1,000 & £ 1,200 & £ 1,750 \
238 & £ 800 & £ 1,500 &£ 2,250 
\end{array}$

In the previous question overhead is charged to production at 80% of direct materials cost. Jobs 235, 237, and 238 were completed during June and transferred to finished goods. Jobs 235 and 238 have been delivered to customers.
Assume that the company wants to recalculate the overhead rate and now wants to charge overhead to production at 75% of direct material cost. Bristol Company's cost of goods sold for June would change to:

Accepted Answer

To calculate the revised overhead rate, we need to use the formula: 
Revised Overhead Rate = Estimated Overhead Costs / Estimated Direct Material Costs x 100%
Using the new information, the Revised Overhead Rate = £7,740 / £10,320 x 100% = 75%

To calculate the cost of goods sold, we need to use the formula: 
Cost of Goods Sold = Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory
The Cost of Goods Manufactured is calculated as: 
Direct Materials Used + Direct Labor + Manufacturing Overhead Applied
Using the new overhead rate of 75%, the Manufacturing Overhead Applied would be: 
Manufacturing Overhead Applied = Direct Materials Cost x 75% = £7,740

So, the Cost of Goods Sold = £0 + (£12,700 + £3,840 + £7,740) - £4,655 = £19,625 - £4,655 = £14,970

Therefore, the correct answer is C) £9,625.

Question 20

The process of assigning overhead cost to jobs is known as overhead application

Accepted Answer

Process costing is used for homogeneous products that are produced in a continuous process, while job-order costing is used for customized products that are produced in batches or on a specific order.

Quiz 3: A Costing Framework and Cost Allocation