Question 1

Morris Company applies overhead based on direct labor costs. For the current year, Morris Company estimated total overhead costs to be $400,000, and direct labor costs to be $2,000,000. Actual overhead costs for the year totaled $380,000, and actual direct labor costs totaled $1,800,000. At year-end, the balance in the Factory Overhead account is a:
A) $380,000 Debit balance.
B) $360,000 Debit balance.
C) $20,000 Debit balance.
D) $400,000 Credit balance.
E) $20,000 Credit balance.

Accepted Answer

Predetermined overhead rate = $400,000 estimated overhead cost / $2,000,000 estimated direct labor cost = 20% Overhead incurred, $380,000 - Overhead applied, $360,000
 
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Question 2

If overhead is underapplied all of the following are true except:
A) The Factory Overhead account has a debit balance.
B) Jobs are undercosted.
C) Jobs are overcosted.
D) The adjusting journal entry requires a debit to Cost of Goods Sold.
E) The adjusting journal entry requires a credit to Factory Overhead.

Accepted Answer

If overhead is underapplied, it means that actual overhead costs exceed the overhead costs applied to production. This results in jobs being undercosted, not overcosted. The adjusting journal entry would require a debit to Manufacturing Overhead and a credit to Cost of Goods Sold to remedy the underapplied overhead. Therefore, choices A, D, and E are all true.

Question 3

The amount by which overhead incurred during a period exceeds the overhead applied to jobs is:
A) Balanced overhead.
B) Predetermined overhead.
C) Actual overhead.
D) Underapplied overhead.
E) Overapplied overhead.

Accepted Answer

Underapplied overhead occurs when the actual overhead incurred during a period is greater than the overhead applied to jobs. This means that the overhead cost is not fully accounted for and must be allocated among the products or services produced during the period.

Question 4

The amount by which the overhead applied to jobs during a period exceeds the overhead incurred during the period is known as:
A) Adjusted overhead.
B) Estimated overhead.
C) Predetermined overhead.
D) Underapplied overhead.
E) Overapplied overhead.

Accepted Answer

Overapplied overhead occurs when the overhead applied to jobs (based on the predetermined overhead rate) exceeds the actual overhead costs incurred.

Question 5

Morris Company applies overhead based on direct labor costs. For the current year, Morris Company estimated total overhead costs to be $400,000, and direct labor costs to be $2,000,000. Actual overhead costs for the year totaled $380,000, and actual direct labor costs totaled $1,800,000. At year-end, Factory Overhead is:
A) Overapplied by $20,000.
B) Overapplied by $190,000.
C) Underapplied by $20,000.
D) Overapplied by $40,000.
E) Neither overapplied nor underapplied.

Accepted Answer

Predetermined overhead rate = $400,000 estimated overhead cost / $2,000,000 estimated direct labor cost = 20%
Overhead applied = actual direct labor cost $1,800,000 × 20% = $360,000
Overhead incurred, $380,000 − Overhead applied, $360,000
 
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Question 6

If one unit of Product Z2 used $2.50 of direct materials and $3.00 of direct labor, sold for $8.00, and was assigned overhead at the rate of 30% of direct labor costs, how much gross profit was realized from this sale?
A) $8.00.
B) $5.50.
C) $2.50.
D) $1.60.
E) $0.90.

Accepted Answer

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Question 7

Andrew Industries purchased $165,000 of raw materials on account during the month of March. The beginning Raw Materials Inventory balance was $22,000, and the materials used to complete jobs during the month were $141,000 of direct materials and $13,000 of indirect materials. What amount will Andrew debit to Work in Process Inventory for the month of March?
A) $165,000
B) $154,000
C) $13,000
D) $141,000
E) $33,000

Accepted Answer

Only direct materials used of $141,000 should be transferred to Work in Process Inventory for March.

Question 8

The ending inventory of finished goods has a total cost of $9,000 and consists of 600 units. If the overhead applied to these goods is $3,000, and the overhead rate is 75% of direct labor, how much direct materials cost was incurred in producing these units?
A) $3,750.
B) $2,000.
C) $4,000.
D) $6,000.
E) $9,000.

Accepted Answer

DM + DL + OH = Total cost
DM + ($3,000/.75) + $3,000 = $9,000
DM + $4,000 + $3,000 = $9,000; DM = $2,000

Question 9

At the current year-end, Ruiz Company found that its overhead was underapplied by $2,500, and this amount was not considered material. Based on this information, Ruiz should:
A) close the $2,500 to Cost of Goods Sold.
B) close the $2,500 to Finished Goods Inventory.
C) do nothing about the $2,500, since it is not material, and it is likely that overhead will be overapplied by the same amount next year.
D) carry the $2,500 to the income statement as "Other Expense".
E) carry the $2,500 to the next period.

Accepted Answer

When overhead is underapplied, it means that actual overhead costs exceeded the amount applied to production. This results in an unfavorable variance to the income statement. Closing the underapplied overhead amount to Cost of Goods Sold will increase the cost of goods sold by $2,500, which will decrease the net income by the same amount. Since the amount is not considered material, it is not necessary to carry it forward to the next period.

Question 10

Andrew Industries purchased $165,000 of raw materials on account during the month of March. The beginning Raw Materials Inventory balance was $22,000, and the materials used to complete jobs during the month were $141,000 of direct materials and $13,000 of indirect materials. What journal entry should Andrew use to account for direct materials used in March:
A) Debit Raw Materials Inventory $141,000; credit Accounts Payable $141,000.
B) Debit Work in Process Inventory $141,000; credit Raw Materials Inventory $141,000.
C) Debit Work in Process Inventory $141,000; credit Accounts Payable $141,000.
D) Debit Finished Goods Inventory $22,000; credit Raw Materials Inventory $22,000.
E) Debit Raw Materials Inventory $153,000; credit Work in Process Inventory $153,000.

Accepted Answer

The journal entry should reflect the direct materials used in production, which is represented by the increase in Work in Process Inventory and a decrease in Raw Materials Inventory. Option B correctly reflects this transaction by debiting Work in Process Inventory for $141,000 and crediting Raw Materials Inventory for $141,000. Option A incorrectly credits Accounts Payable instead of Raw Materials Inventory. Option C incorrectly debits Accounts Payable instead of Work in Process Inventory. Option D debits Finished Goods Inventory, which is only used for completed products, not raw materials. Option E incorrectly has the debit and credit accounts reversed.

Question 11

Using the following accounts and a predetermined overhead rate of 90% of direct labor cost, determine the amount of applied overhead.

A) $79,200.
B) $167,200.
C) $34,320.
D) $88,000.
E) $35,376.

Accepted Answer

$17,600 + 52,800 + DL + OH − 201,520 = $36,080
DL + OH = $167,200
DL + .9DL = $167,200
1.9DL = $167,200; DL = $88,000
$88,000 + OH = $167,200; OH = $79,200
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Question 12

Marina Corp. applied overhead to jobs during the period as follows:

$$\begin{array} { l r r } 
\text { Jobs finished and sold } & \$ 46,000 \
\text { Jobs started and in process } & 54,000 \
\text { Jobs finished and ursold } & 100,000
\end{array}$$ 
The application of overhead has resulted in a $5,600 credit balance in the Factory Overhead account. The entry to dispose of this remaining factory overhead balance is:
A) Debit Cost of Goods Sold $5,600; credit Factory Overhead $5,600.
B) Debit Factory Overhead $5,600; credit Cost of Goods Sold $5,600.
C) Debit Factory Overhead $5,600; credit Work in Process Inventory $5,600.
D) Debit Work in Process Inventory $5,600; credit Factory Overhead $5,600.
E) No entry is needed.

Accepted Answer

The answer of Marina Corp. applied overhead to jobs during...

Question 13

If overhead applied is less than actual overhead incurred, it is:
A) Fully applied.
B) Underapplied.
C) Overapplied.
D) Expected.
E) Normal.

Accepted Answer

If overhead applied is less than actual overhead incurred, it means that not enough overhead was allocated to the products or services, resulting in an underapplied overhead situation.

Question 14

Clemmens Company applies overhead based on direct labor cost. Estimated overhead and direct labor costs for the year were $112,500 and $125,000, respectively. During the year, actual overhead was $107,400 and actual direct labor cost was $120,000. The entry to close the over- or underapplied overhead at year-end, assuming an immaterial amount, would include
A) a debit to Cost of Goods Sold for $600.
B) a credit to Factory Overhead for $600.
C) a credit to Finished Goods Inventory for $600.
D) a debit to Work in Process Inventory for $600.
E) a credit to Cost of Goods Sold for $600.

Accepted Answer

OH = $112,500/$125,000 = 90% of DLC
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Question 15

Mango Company applies overhead based on direct labor costs. For the current year, Mango Company estimated total overhead costs to be $300,000, and direct labor costs to be $150,000. Actual overhead costs for the year totaled $330,000, and actual direct labor costs totaled $170,000. At year-end, Factory Overhead account is:
A) Overapplied by $10,000.
B) Overapplied by $170,000.
C) Underapplied by $10,000.
D) Overapplied by $20,000.
E) Neither overapplied nor underapplied.

Accepted Answer

Predetermined overhead rate = $300,000 estimated overhead cost / $150,000 estimated direct labor cost = 200%
Applied overhead = $170,000 actual direct labor cost × 200% = $340,000.
Overhead incurred, $330,000 − Overhead applied, $340,000
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Question 16

If a company applies overhead to production with a predetermined overhead rate, a credit balance in the Factory Overhead account at the end of the period means that:
A) The bookkeeper has made an error because the debits don't equal the credits.
B) The balance will be carried forward to the next period as an overhead cost.
C) Actual overhead incurred was less than the overhead amount applied to production.
D) The overhead was underapplied for the period.
E) Actual overhead was greater than the overhead amount applied to production.

Accepted Answer

A credit balance in the Factory Overhead account means that the actual overhead incurred was less than the overhead amount applied to production, which is a favorable situation for the company. Therefore, the balance will be carried forward to the next period as an overhead cost. Option A is incorrect because a credit balance does not necessarily mean an error has occurred. Option B is partly correct, but the reason for the balance being carried forward is actual overhead being less. Option D is incorrect because underapplied overhead would result in a debit balance, not a credit balance. Option E is also incorrect because actual overhead being greater would result in an overapplied overhead scenario.

Question 17

At year-end, Marshall Enterprise's Factory Overhead account has a credit balance of $5,000, which is not a material amount. What entry should Marshall make at year-end?
A) No entry is needed.
B) Debit Factory Overhead $5,000; credit Cost of Goods Sold $5,000.
C) Debit Cost of Goods Sold $5,000; credit Factory Overhead $5,000.
D) Debit Factory Overhead $5,000; credit Work in Process Inventory $5,000.
E) Debit Factory Overhead $5,000; credit Finished Goods Inventory $5,000.

Accepted Answer

A credit balance in the Factory Overhead account indicates that overhead has been overapplied. The correct adjustment is to debit Factory Overhead and credit Cost of Goods Sold, which decreases the cost of goods sold for the amount of overhead that was overapplied.

Question 18

Andrew Industries purchased $165,000 of raw materials on account during the month of March. The beginning Raw Materials Inventory balance was $22,000, and the materials used to complete jobs during the month were $141,000 direct materials and $13,000 indirect materials. How should Andrews record the purchase of raw materials for March?
A) Debit Raw Materials Inventory $165,000; credit Accounts Payable $165,000
B) Debit Work in Process Inventory $165,000; credit Raw Materials Inventory $165,000
C) Debit Raw Materials Inventory $187,000; credit Cash $187,000
D) Debit Accounts Payable $165,000; credit Raw Materials Inventory $165,000
E) Debit Accounts Payable $187,000; credit Raw Materials Inventory $187,000

Accepted Answer

The correct way to record the purchase of raw materials on account is to debit the Raw Materials Inventory for the amount purchased ($165,000) and credit Accounts Payable for the same amount. This reflects the increase in inventory and the corresponding liability to pay for it.

Question 19

Mango Company applies overhead based on direct labor costs. For the current year, Mango Company estimated total overhead costs to be $300,000, and direct labor costs to be $150,000. Actual overhead costs for the year totaled $330,000, and actual direct labor costs totaled $170,000. At year-end, the balance in the Factory Overhead account is a:
A) $330,000 Debit balance.
B) $170,000 Debit balance.
C) $10,000 Credit balance.
D) $340,000 Credit balance.
E) $10,000 Debit balance.

Accepted Answer

Predetermined overhead rate = $300,000 estimated overhead cost / $150,000 estimated direct labor cost = 200%
Applied overhead = $170,000 actual direct labor cost × 200% = $340,000.
Overhead incurred, $330,000 − Overhead applied, $340,000
 
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Question 20

Andrew Industries purchased $165,000 of raw materials on account during the month of March. The beginning Raw Materials Inventory balance was $22,000, and the materials used to complete jobs during the month were $141,000 of direct materials and $13,000 of indirect materials. What is the ending Raw Materials Inventory balance for March?
A) $46,000
B) $11,000
C) $33,000
D) $24,000
E) $9,000

Accepted Answer

Beginning RM $22,000 + RM Purchased $165,000 − Direct RM used $141,000 − Indirect RM used $13,000 = $33,000 Ending RM Balance
 
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Quiz 2: Job Order Costing and Analysis

If overhead is underapplied all of the following are true except:

The amount by which overhead incurred during a period exceeds the overhead applied to jobs is:

The amount by which the overhead applied to jobs during a period exceeds the overhead incurred during the period is known as:

If one unit of Product Z2 used $2.50 of direct materials and $3.00 of direct labor, sold for $8.00, and was assigned overhead at the rate of 30% of direct labor costs, how much gross profit was realized from this sale?

The ending inventory of finished goods has a total cost of $9,000 and consists of 600 units. If the overhead applied to these goods is $3,000, and the overhead rate is 75% of direct labor, how much direct materials cost was incurred in producing these units?

At the current year-end, Ruiz Company found that its overhead was underapplied by $2,500, and this amount was not considered material. Based on this information, Ruiz should:

Using the following accounts and a predetermined overhead rate of 90% of direct labor cost, determine the amount of applied overhead.

If overhead applied is less than actual overhead incurred, it is:

If a company applies overhead to production with a predetermined overhead rate, a credit balance in the Factory Overhead account at the end of the period means that:

At year-end, Marshall Enterprise's Factory Overhead account has a credit balance of $5,000, which is not a material amount. What entry should Marshall make at year-end?