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Test bank_Ch: 2
Quation1: TRUE/FALSE

1. Direct costs are allocated to the cost object using a cost-allocation method. F
2. Quality control costs may be a direct cost of the Manufacturing Department, but
an indirect cost of an individual job. T
3. Cost objects may be jobs, products, or customers. T
4. The cost driver of an indirect cost is often used as the cost-allocation base. T
5. A company may use job costing to assign costs to different product lines and
then use process costing to calculate unit costs within each product line. T
6. Job costing is commonly used to estimate costs in beverage production. F
7. In a job-costing system the cost object is an individual unit, batch, or lot of a
distinct product or service. T
8. Actual costing is a method of job costing that allocates an indirect cost based on
the actual indirect-cost rate times the actual quantity of the cost-allocation
base.T
9. Process costing is used to assign manufacturing costs to unique batches of a
product. F
10. Job costing and process costing systems share the same objective of estimating
product costs. T
11. While costs are measured for individual jobs in a job cost system, they are
measured for individual process stages in a process costing system. T
12. In job costing, only direct costs are used to determine the cost of a job. F
13. Indirect manufacturing costs should be allocated equally to each job. F
14. Each cost pool may have multiple cost allocation bases. F
15. Direct costs are traced the same way for actual costing and normal costing. T

Quation2:MULTIPLE CHOICE

1. A cost-allocation base may be any of the following except a

a. cost driver.
b. cost pool.
c. way to link indirect costs to a cost object.
d. nonfinancial quantity.
2. A company that manufactures dentures for use by local dentists would use
a. process costing. c. operations costing.
b. personal costing. d. job costing.
3. The first step in the seven-step approach to job costing is to
a. select the cost-allocation base to use in assigning indirect costs to the job.
b. identify the direct costs of the job.
c. identify the job that is the chosen cost object.
d. identify the indirect-cost pools associated with the job.
4. Using normal costing rather than actual costing requires that the allocating of indirect
manufacturing costs to work in process be
a. done on a more timely basis, such as every two weeks rather than every month.
b. journalized only at year end when adjusting entries are normally made.
c. calculated by using the budgeted rate times actual quantity of allocation base.
d. calculated by using the budgeted rate times the budgeted quantity of allocation base.
5. What is the best design for costing systems?
a. To be tailored to the underlying operations of the company
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b. In accordance with generally accepted accounting principles for financial accounting

reporting
c. To be compatible with the latest technology for data collection regardless of the cost
d. According to guidelines established by the Institute of Management Accountants for
aiding management decision making
6. Which of the following accounts is not classified as an asset?
a. Manufacturing Overhead Control
b. Materials Control
c. Work-in-Process Control
d. Finished Goods Control
7. The costs incurred on jobs which are currently in production but are not yet complete
would appear in the
a. Materials Control account.
b. Finished Goods Control account.
c. Manufacturing Overhead Control account.
d. Work-in-Process Control account.
8. Job costing information is used:
a. to develop strategies
b. to make pricing decisions
c. for external financial reporting
d. All of these answers are correct.
9. Product costing information is used by managers:
a. to make decisions and strategy
b. for planning and control
c. for cost management
d. All of these answers are correct.
10. Each indirect-cost pool of a manufacturing firm:
a. utilizes a separate cost-allocation rate
b. is a subset of total indirect costs
c. relates to one cost object
d. All of these answers are correct.
11. An updated costing system should:
a. be installed even if the costs outweigh the additional benefits
b. be tailored to fit the underlying operations rather than the current
cost system
c. focus specifically on the costing needs of the CFO
d. provide all information for management decision needs
12. In a costing system:
a. cost tracing allocates indirect costs
b. cost allocation assigns direct costs
c. a cost-allocation base can be either financial or nonfinancial
d. a cost object should be a product and not a department or a geographic
territory
13. Assigning direct costs to a cost object is called:

a. cost allocation b. cost assignment

c. cost pooling d. cost tracing
14. __________ is the process of distributing indirect costs to products.
a. Cost allocation
b. Job cost recording d. Cost tracing
c. Cost pooling
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15. A __________ links an indirect cost to a cost object.

a. cost-allocation base c. cost assignment
b. cost pool d. cost tracing
16. Which of the following includes both traced direct costs and allocated indirect
costs?
a. cost tracing c. cost assignments
b. cost pools d. cost allocations
17. __________ costing is a cost management system that measures the cost of
products, services, and customers.
a. Job b. Process
c. Normal d. All of these answers are correct.
18. Process costing:
a. allocates all product costs, including materials and labor
b. results in different costs for different units produced.
c. is commonly used by general contractors who construct custom-built
homes
d. is used exclusively in manufacturing
19. __________ costing is used by a business to price unique products for different
jobs.
a. Actual c. Process
b. Job d. Traditional
20. Job costing:
a. can only be used in manufacturing
b. records the flow of costs for each customer
c. allocates an equal amount of cost to each unit made during a time period
d. is commonly used when each unit of output is identical

21. Actual costing is a costing method that allocates______________ indirect costs.

a. actual c. estimated
b. budgeted d. predetermined
22. A job that shows low profitability may be the result of:
a. wasting direct materials
b. inefficient direct manufacturing labor
c. underpricing the job
d. All of these answers are correct.
23. Place the following steps in the order suggested by the seven steps used to
assign costs to individual jobs:
A. Identify indirect costs
B. Compute the total cost of the job
C. Select cost-allocation bases
D. Compute the indirect cost rate
a. ACDB
b. CADB
c. BACD
d. DCAB
24. All of the following increase (are debited to) the Work-in-Process Control
account EXCEPT:
a. actual plant insurance costs
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b. direct materials
c. allocated manufacturing overhead costs
d. direct manufacturing labor
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 25 AND 26:
Rhett Company has two departments, Machining and Assembly. The following
estimates are for the coming year:
Machining Assembly
Direct manufacturing labor-hours 10,000 50,000
Machine-hours 40,000 20,000
Manufacturing overhead $200,000 $400,000

25. A single indirect-cost rate based on direct manufacturing labor-hours for the
entire plant is:
a. $ 8 per direct labor-hour
b. $10 per direct labor-hour
c. $20 per direct labor-hour
d. None of these answers is correct.
$600,000 / 60,000 dlh = $10
26. The budgeted indirect-cost driver rate for the Machining Department based on
the number of machine-hours in that department is:
a. $5 per machine-hour
b. $10 per machine-hour
c. $20 per machine-hour
d. None of these answers is correct.
Terms to Learn: budgeted indirect-cost rate
$200,000 / 40,000 mh = $5

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 27 THROUGH

29:
Bauer Manufacturing uses departmental cost driver rates to allocate manufacturing
overhead costs to products. Manufacturing overhead costs are allocated on the basis of
machine-hours in the Machining Department and on the basis of direct labor-hours in
the Assembly Department. At the beginning of 20X3, the following estimates were
provided for the coming year:
Machining Assembly
Direct labor-hours 30,000 60,000
Machine-hours 80,000 20,000
Direct labor cost $500,000 $900,000
Manufacturing overhead costs $420,000 $240,000
The accounting records of the company show the following data for Job #316:
Machining Assembly
Direct labor-hours 120 70
Machine-hours 60 5
Direct material cost $300 $200
Direct labor cost $100 $400

27. For Bauer Manufacturing, what is the annual manufacturing overhead cost-
allocation rate for the Machining Department?
a. $4.00 b. $4.20
c. $4.67 d. $5.25
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$420,000/80,000mh = $5.25 per mh

27. What amount of manufacturing overhead costs will be allocated to Job #316?
a. $439
b. $502
c. $595
d. $532
($420,000 / 80,000 mh x 60 mh) + [($240,000/60,000) x 70dlh] = $595
29. What are the total manufacturing costs of Job #316?
a. $715
b. $880
c. $1,595
d. $1,000
DM $500 + DML $500 + MOH $595 = $1,595
Quation3:
1. Hill Manufacturing uses departmental cost driver rates to apply
manufacturing overhead costs to products. Manufacturing overhead costs are
applied on the basis of machine-hours in the Machining Department and on
the basis of direct labor-hours in the Assembly Department. At the beginning
of 20X5, the following estimates were provided for the coming year:
Machining Assembly
Direct labor-hours 10,000 dlh 90,000 dlh
Machine-hours 100,000 mh 5,000 mh
Direct labor cost $ 80,000 $720,000
Manufacturing overhead costs $250,000 $360,000
The accounting records of the company show the following data for Job #846*:
Machining Assembly
Direct labor-hours 50 dlh 120 dlh
Machine-hours 170 mh 10 mh
Direct material cost $2,700 $1,600
Direct labor cost $ 400 $ 900
Required:
a. Compute the manufacturing overhead allocation rate for each department.
b.Compute the total cost of Job #846*.
c. Provide possible reasons why Hill Manufacturing uses two different cost
allocation rates.

Answer:
a. Machining Department cost-allocation rate: $2.50 / mh =
$250,000/100,000 mh
Assembly Department cost-allocation rate: $4.00 / dlh = $360,000/90,000 dlh

b. Total cost of Job #846 is $6,505 = Direct materials $4,300 + Direct labor
$1,300 + Manufacturing overhead costs $905 (Machining $425 + Assembly
$480).

c. Ideally, the cost-allocation base should reflect the factors that cause
manufacturing overhead costs to increase. Apparently, Hill regards the use of
machines as the principal cause of manufacturing overhead costs (such as
depreciation and repairs) in the Machining Department. In contrast, Hill regards
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direct labor-hours as the principal cause of manufacturing overhead costs (such as

indirect labor) in the Assembly Department

Salma Manufacturing uses departmental cost driver rates to apply manufacturing

overhead costs to products. Manufacturing overhead costs are applied on the basis:
machine-hours in Department NO. 1 , direct labor-hours in Department NO. 2 and
Direct cost in Department NO. 3. At the beginning of 2014, the following estimates
were provided for the coming year:
Department NO. 1 Department NO.2 Department NO. 3
Direct labor-hours 80,000 dlh 90,000 dlh 156,000 dlh
Machine-hours 100,000 mh 10,000 mh 20,000 mh
Direct cost $ 55,000 $78,000 $50,000
O. H costs $300,000 $360,000 $250,000
The accounting records of the company show the following data for Job *405:
Department NO. 1 Department NO.2 Department NO. 3
Direct labor-hours 500 dlh 2,500 dlh 188 dlh
Machine-hours 2,000 mh 1000 mh 6000 mh
Direct material cost $ 29,000 $24,000 $ 6,000
Direct labor cost $ 35,000 $26,000 $4,000

Required:
a. Compute cost-allocation rate for each department.
b. Compute the total cost of Job *405, by using overhead allocation rate for
each department.
c. Compute the total cost of Job *405, by using overhead allocation rate
based on Machine-hours for the entire plant.
Answer
a.
Department NO.1 cost-allocation rate = 300,000 /100,000 = 3 $/mh
Department NO.2 cost-allocation rate = 360,000 /90,000 = 4 $/dlh
Department NO.3 cost-allocation rate = 250,000 /50,000 = 5 $/D.cost

Steps Department Department Department Total

NO.1 NO.1 NO.1
1. Job no. Job * 405
2. D. cost 29,000 +35,000 24,000 +26,000 6,000 +4,000 124,000 $
D .M + D. L = 64,000 $ = 50,000 $ = 10,000 $
3. cost-allocation base machine-hours direct labor- Direct cost
100,000 mh hours 50,000 $
90,000 dlh
4. indirect costs ( O H ) $ 300,000 $ 360,000 $ 250,000

5. Overhead Rate 300,000 /100,000 360,000 /90,000 250,000

= 3$/mh = 4$/dlh /50,000
= 5$/D.cost
6. Allocate overhead to 3$/mh x 2,000 4$/dlh x 2,500 5$ x 10,000
job = 6,000 $ = 10,000 $ = 50,000 $ 66,000 $
7. total job costs 80,000 $ 60 000 $ 60,000 $ 190,000 $

b.
Cost-allocation rate = 910,000 /130,000 = 7 $/dlh
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Steps Entire plant

1. Job no. Job * 405
2. D. cost (64,000+50,000+10,000)
D .M + D. L = 124,000 $
3. cost-allocation base machine-hours
125,000 mh
4. indirect costs ( O H ) $ 910,000
5. Overhead Rate 910,000 /125,000
= 7.28 $/mh
6. Allocate overhead to job 7 $/mh x 9,000
= 63,000 $
7. total job costs 187,000 $

Journals + T_Account
Bradon Company uses normal costing in its job-costing system. The company produces
custom bikes for toddlers. The beginning balances in their inventory accounts are as
follows:
Beginning Balance 1/1
Materials Control $13,600
Work-in-Process Control 6,700
Finished Goods Control 4,400

Additional information follows:

1- Raw materials purchased during the year were $166,400 on credit.
2- Raw materials were requisitioned for use in production, $175,000 ($ 130,000
direct and $45,000 indirect).
3- The manufacturing labor costs were incurred: direct manufacturing labor,
$100,000, and indirect manufacturing labor, $14,400.
4- Manufacturing overhead has been allocated at 110% of direct manufacturing
labor costs.
5- The cost of jobs completed (cost of goods manufactured) for the year was
$234,000.
6- Cost of jobs sold for the year was $219,000 at selling price $300,000 cash.
7- During the month the company incurred the following actual overhead costs:
- Utilities (heat, water, and power) $5,600
- Depreciation of factory equipment $40,000
- Property taxes payable on factory $3,000
8- During the year, Bradon Company paid salaries for the employees in the selling
department of $3,400.
9- The company closes any underallocated or overallocated overhead to Cost of
Goods Sold.
Instructions
1. Prepare journal entries to record the transactions for 2016 including an entry
to close out over- or under allocated overhead to cost of goods sold.
2. Prepare the necessary T- accounts for inventories and cost of goods sold

The answer
Date :during the year Account name Debit Credit
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Purchase of materials on Materials Control 166,400

credit. Accounts Payable Control 166,400

Requisition of direct and Work-in-Process Control (D.M) 130,000

indirect materials (OH) Manufacturing Overhead Control (in D.M) 45,000
into production Materials Control 175,000

Incurred direct and indirect Work-in-Process Control 100,000

(OH) labor wages Manufacturing Overhead Control 14,400
Cash Control 114,400
Allocation of indirect costs Work-in-Process Control 110,000
(overhead) to the work-in- Manufacturing Overhead Allocated 110,000
process account (100,000 x
110%)
Products are completed and Finished Goods Control 234,000
transferred out of Work-in-Process Control 234,000
production in preparation
for being sold
The associated costs are Cost of Goods Sold 219,000
transferred to an expense Finished Goods Control 219,000
(cost) account
Products are sold to Cash 300,000
customers Cash Sales revenues 300,000
Incurring or recording of Manufacturing Overhead Control 48,600
various actual indirect Utilities payable 5,600
costs Acc. Depreciation Control 40,000
Taxes payable 3,000
Selling and admin. Salaries expenses 3,400
Expenses Cash 3,400

One mark
Allocated OH $110,000
Actual OH = $45,000+$14,400+ $8,600+ $40,000=$108,000
Over applied= $2,000
Manufacturing Overhead Allocated 110,000
Cost of Goods Sold 2,000
Manufacturing Overhead Control 108,000

Materials Control (31/12)

Beginning inventory 13,600
(1) Material used for manufacturing 175,000
Material Purchases 166,400

Ending inventory 5,000

Material used for manufacturing = 715,000 (WIP: 130,000 + OH Control: 45,000)

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Work-in-Process Control(31/12)
beginning inventory 6,700 Transferred to finished goods 234,000
D. Materials 130,000 (cost of goods manufactured for
December)
D. labor 100,000
Manuf. Overhead Allocated 110,000

Ending inventory31/12 112,700

Finished Goods Control

beginning inventory 4,400 Cost of goods sold 219,000
W. I. P. 234,000

ending inventory 19,400

Cost of Goods Sold

Finished goods Sold 219,000 Closing entry 2,000
Over allocated cost (2000)

Balance (Income statement) 217,000

Manufacturing Overhead Allocated

(c) (O.H control) 110,000 110,000
overallocated
110,000
110,000

Manufacturing Overhead Control

Balance through 12/31 108,000 (c) Closing entry 110,000
Cost of goods sold 2,000 (O.H Allocated)

108,000 108,000

Ex.2 ABC company is a small machine shop that uses normal costing in its job-costing
system, the following information in 30-12-2013(one day before year-end).
Account name Total debits Total credits
Materials control $ 200000 $ 120000
Work-in-process 380000 328000
Manufacturing O. H. control 95000 ---------
Finished goods control 350000 320000
Cost of goods sold ???? -------
Manufacturing O. H. allocated --------- 90000
Additional information:
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- materials purchased during the year were $ 170000 (All direct).

- Direct Manufacturing labor costs even 30-12- 2012 totaled $ 150000,
- Manufacturing direct labor costs per day $ 5000, indirect labor $ 1000.
- Manufacturing O. H. has been allocated as a percentage of direct labor costs.
- Miscellaneous Manufacturing O. H incurred on 31-december $ 3000.
- The Company use Write-Off Approach to adjust the difference in Cost of Goods Sold.
- Sold goods 400,000 on credit.
Required:
1. Prepare all adjusting and closing journal entries for the preceding accounts. Assume that all
under-or overallocated manufacturing overhead is closed directly to cost of goods sold.
2. Use T- account to compute the January1,2013 beginning balances for above accounts.
The answer
1. journal entries
Date :during the year Account name Debit Credit
Purchase of materials on Materials Control 170,000
credit. Accounts Payable Control 170,000
Requisition of direct and Work-in-Process Control 120,000
indirect materials (OH) Manufacturing Overhead Control 0,000
into production Materials Control 120,000
Incurred direct and Work-in-Process Control 150,000
indirect (OH) labor wages Manufacturing Overhead Control 0,000
Cash Control 150,000
Incurring or recording of Manufacturing Overhead Control 99,000
various actual Salaries Payable Control
indirect costs Accounts Payable Control 99,000
Accumulated Depreciation
Control
Prepaid Expenses Control
Allocation or application Work-in-Process Control 90,000
of indirect costs Manufacturing Overhead 90,000
(overhead) to the work-in- Allocated
process account
Products are completed Finished Goods Control 328,000
and transferred out of Work-in-Process Control 328,000
production in preparation
for being sold
Products are sold to Accounts Receivable Control 400,000
customers on credit Sales revenues 400,000
The associated costs are Cost of Goods Sold 320,000
transferred to an expense Finished Goods Control 320,000
(cost) account

adjusting entries:
Date 31/12 Account name Debit Credit
Work-in-Process Control 5,000
labor payable 5,000
Work-in-Process Control 3,000
O.H allocated payable 3,000
Manufacturing Overhead Costs 4,000
indirect labor payable 1,000
Miscellaneous payable 3,000
Close O.H Manufacturing Overhead Allocated 93,000
underallocated Cost of Goods Sold 6,000
99,0000
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Manufacturing Overhead
Control
2. T- accounts

Materials Control
Beginning inventory 30,000 (1) Material used for 120,000
Material Purchases 170,000 manufacturing

200,000 120,000
ending inventory 80,000

Work-in-Process Control
beginning inventory 20,000 (4) Transferred to 328,000
(1) DM 120,000 finished goods
(2) DL 150,000
(3) Manuf. Overhead Allocated 90,000
360,000
380,000 328,000
(a) labor payable 5,000
(c) O.H allocated payable 3,000
ending inventory 60,000

Finished Goods Control

beginning inventory 22,000 (5) Cost of goods sold 320,000
(4) W. I. P. 328,000
350,000 320,000
ending inventory 30,000

Cost of Goods Sold

(5) Finished goods Sold 320,000
6000
Adjusted underallocated O H 326000 326000

Manufacturing Overhead Control

Manufacturing Overhead Costs 95,000 (d) closed in Manufacturing 93,000
(a) indirect labor payable 1,000 Overhead Allocated
(b) Miscellaneous payable 3,000 COGS 6000

99000 99000

Manufacturing Overhead Allocated

(d) Manufacturing Department 93,000 (3) Manufacturing overhead 90,000
Overhead Control allocated to work in process
3,000
(c) Manufacturing overhead 93000
93000 allocated to work in process
underallocated O H
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Manufacturing overhead cost rate = $90,000 ÷ $150,000 = 60%

Ex.3 An effective approach to this problem is to draw T-accounts and insert all the
known figures. Then, working with T-account relationships, solve for the unknown
figures (here coded by the letter X for beginning inventory figures and Y for ending
inventory figures).
Materials Control
Beginning inventory 15,000 Work-in-Process Control 70,000
Purchases 85,000
100,000 70,000
Ending inventory 30,000

Work-in-Process Control
Beginning inventory 10,000 Finished Goods Control 305,000
(1) DM 70,000
(2) DL 150,000
(3) Overhead A. 90,000 310,000
320,000 305,000
(a) DL payable 5,000
(c) Overhead A. 3,000
Ending inventory 23,000

Finished Goods Control

Beginning inventory 20,000 Cost of Goods Sold 300,000
Work-in-Process Control 305,000
325,000 300,000
Ending inventory 25,000

Cost of Goods Sold

Finished Goods Control 300,000 Adjusted overallocated O H 6,000
(6,000)
Ending balance 294,000

Manufacturing Department Overhead Control

85,000 Manufacturing Overhead Allocated 93,000
(a) 1,000
(b) 1,000
COGS 6,000

Manufacturing Overhead Allocated

Manufacturing Overhead Control 93,000 (3) 90,000
(c) 3,000
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Manufacturing overhead cost rate = $90,000 ÷ $150,000 = 60%

Wages Payable Control
(a) 6,000

Various Accounts
(b) 1,000

Adjusting and closing entries:

(a) Work-in-Process Control 5,000

Manufacturing Department Overhead Control 1,000
Wages Payable Control 6,000
(b) Manufacturing Department Overhead Control 1,000
Various accounts 1,000
(c) Work-in-Process Control 3,000
Manufacturing Overhead Allocated 3,000
(d)Manufacturing Overhead Allocated 93,000
Manufacturing Department Overhead Control 87,000
Cost of Goods Sold 6,000