ACCT 5002 V – Quiz 3 (Fall 2022)

1. Darrow Company uses a predetermined overhead rate based on direct

labour hours to apply manufacturing overhead to jobs. Last year, the
company worked 10,000 direct labour hours and incurred $80,000 of
actual manufacturing overhead costs. If overhead was underapplied by
$2,000, the predetermined overhead rate for the company must have
been:

$7.80 ($80,000 - $2,000) = $78,000/10,000 = $7.80

$8.00
$8.20
$8.40

2. Baitem Inc. had budgeted for $4,760,000 of manufacturing overhead.

During the year, the company had worked 125,000 labours, but had
budgeted for 140,000 hours. Manufacturing overhead is charged on the
basis of direct labour hours. Actual manufacturing overhead costs for
the year was $4,575,000. What was the amount of over or under-applied
overhead?

$325,000 underapplied

$756,200 overapplied
$185,000 overapplied
$510,000 underapplied

Solution:
POHR = $4,760,000/140,000DLH = $34/DLH
DL Applied = $34 x 125,000 DLH = $4,250,000
Underapplied = $4,575,000 - $4,250,000 = $325,000

3. A law office employs full-time attorneys and five paraprofessionals. For

the current year indirect costs were budgeted at $225,000, but actually
amounted to $350,000.
 Direct and indirect costs are applied on a professional labour-hour basis
which includes both attorney and paraprofessional hours. Total
budgeted labour-hours were 25,000; however, actual labour-hours were
30,000.
What is the overhead applied to jobs if the law office uses normal costing?

$270,000 ($225,000/25,000 = $9/DLHx30,000 DLH =$270,000)

$420,000
$350,000
$225,000

4. A local financial consulting firm employs 30 full-time staff. The

budgeted compensation per employee is $50,000, for 2,000 hours. All
direct labour costs are charged to clients.
Any other costs are included in a single indirect-cost pool, allocated according
to labour-hours. Actual indirect costs were $750,000. Budgeted indirect costs
for the year are $525,000 and the firm expects to have 60 clients during the
coming year.
What is the total cost of a job which took 27 hours, using normal costing?
$1,012.50
$27,337.50
$30,375.00

$911.25
Solution:
Explanation:
$50,000/2,000 hours = $25.00 per hour DL
$525,000/(30 × 2,000) = $8.75 indirect
total cost per hour = $33.75
total hours = 27
total cost = $911.25
 5. XYZ Company uses a normal job costing system. The direct labour rate
is $27 per hour; and, the budgeted indirect cost allocation rate is $20
and uses direct labour hours as the cost allocation base.
Direct labour hours 1,000
Direct materials cost $12,000
Marketing costs $17,000
Non-manufacturing overhead $9,000
What amount should be added to Work-in-Process control?
$47,000

$59,000

$76,000
$85,000
Solution:
Direct Material $12,000
Direct Labour $27,000 (1,000 x $$27)
MOH $20,000 ($20 x 1,000 DLH)
Total $59,000

6. Jim's Computer Products manufactures keyboards for computers. In June, the two production
departments had budgeted allocation bases of 10,000 machine hours in Department 1 and
5,000 direct manufacturing labour hours in Department 2. The budgeted manufacturing
overheads for the month were $34,500 and $37,500, respectively. For Job 501, the actual costs
incurred in the two departments were as follows: [3 marks]

Department 1 Department 2
Direct materials purchased on account $66,000 $106,500
Direct materials used 19,500 8,100
Direct manufacturing labour 31,500 32,100
Indirect manufacturing labour 6,600 5,400
Indirect materials used 4,500 2,850
Lease on equipment 9,750 2,250
Utilities 600 750
Job 501 incurred 1,000 machine hours in Department 1 and 300 manufacturing labour hours in
Department 2. The company uses a budgeted departmental overhead rate for applying overhead to
production.
What is the total cost assigned to Job 501 based on normal costing?

Solution: (Grading – highlighted 1 mark each)

POHR (Dept 1) = $34,500/10,000 = $3.45/MH
POHR (Dept 2) = $37,500/5,000 = $7.50/DLH

Cost:
Direct Materials = $19,500 + $8,100 = $27,600
Direct Labour = $31,500 + $32,100 = $63,600
MOH = 1,000 ($3.45) + 300 ($7.50) = $5,700
Total Cost = $96,900

7. Moira Company has just finished its first year of operations and must decide which method to
use for adjusting cost of goods sold. The company used a budgeted indirect-cost rate for its
manufacturing operations. The amount that was allocated ($435,000) to cost of goods sold was
different from the actual amount incurred ($425,000). These were the respective ending
balances in the Manufacturing Overhead Allocated and Manufacturing Overhead control
accounts.[2 marks]

Ending balances in the relevant accounts were:

Work-in-Process $40,000
Finished Goods 80,000
Cost of Goods Sold 680,000
Required:
Using the proration method, prepare a journal entry to adjust the ending balances in each of the
manufacturing overhead, work-in-process, finished goods and cost of goods sold accounts.

Solution: (Grading: 1 mark – Dr. 10,000 MOH, 1 – Cr. $8,500 to COGS)

Work-in-process $40,000 5 % × $10,000 = $500

Finished goods 80,000 10 × $10,000 = 1,000
Cost of goods sold 680,000 85 × $10,000 = 8,500
Total $800,000 100 % $10,000

Manufacturing Overhead Overallocated by $425,000 - $435,000 = $10,000

Dr. Cr.
Manufacturing overhead $10,000
Work-in-Process 500
Finished Goods 1,000
Cost of Goods Sold 8,500

Note: Students could also have

Manufacturing Overhead Allocated 435,000
Work-in-Process 500
Finished Goods 1,000
Cost of Goods Sold 8,500
Manufacturing Overhead Control 425,000