Chapter 2--measuring Product Costs

C. job costing system.
D. direct costing system.

 

52. Which costing system is generally used by companies who mass-produce homogeneous products, such as a petroleum refining company? 

A. process costing system.
B. variable costing system.
C. job costing system.
D. direct costing system.

 

53. Which costing system would be most appropriate for use by a soft drink bottling company? 

A. process costing system.
B. variable costing system.
C. job costing system.
D. direct costing system.

 

54. To record the cost of producing the same type of tables made of different materials, but undergoing the same manufacturing process, a furniture manufacturing company would most likely use a(n) 

A. process costing system.
B. variable costing system.
C. job costing system.
D. operation costing system.

 

55. Which of the following is true? 

A. In job costing, firms collect costs for each “unit” produced.
B. In process costing, firms accumulate costs in a department or production process during the accounting period, then spread those costs evenly over the units produced that period, computing an average unit cost.
C. Process costing does not require as much record keeping as job costing system because it does not require keeping track of the cost of each job.
D. All of the answers are correct.

 

56. Why do firms collect costs by job? 

A. For performance evaluation
B. To provide information for cost control
C. To compare actual with estimated costs for pricing future jobs
D. All of the answers are correct.

 

57. In process costing, what is the equation for determining average unit cost? 

A. Total Manufacturing Cost Incurred during the Period divided by Total Units Produced during the period.
B. Average Manufacturing Cost Incurred during the Period divided by Total Units Produced during the period.
C. Total Manufacturing Cost Incurred during the Period divided by Average Units Produced during the period.
D. Average Manufacturing Cost Incurred during the Period divided by Average Units Produced during the period.

 

58. Which of the following is a deficiency of process costing? 

A. In process costing, decision makers are informed about the average cost of the units, but not the actual cost of each particular unit or job.
B. In process costing, firms accumulate costs in a department or production process during the accounting period, then spread those costs evenly over the units produced that period, computing an average unit cost.
C. Process costing does not require as much record keeping as job costing system because it does not require keeping track of the cost of each job.
D. None of the answers is a deficiency.

 

59. What is important to recognize when comparing the cost-benefit considerations of job versus process costing? 

A. Job costing provides less detailed information than process costing and job costing costs more to implement than process costing.
B. Job costing provides less detailed information than process costing and job costing costs less to implement than process costing.
C. Job costing provides more detailed information than process costing and job costing costs less to implement than process costing.
D. Job costing provides more detailed information than process costing and job costing costs more to implement than process costing.

 

60. What can be said of the relationship between cost of goods sold and the cost of goods manufactured when finished goods inventories increase? (Assume no change in unit prices.) 

A. They are equal.
B. Cost of Goods Sold greater than Cost of Goods Manufactured
C. Cost of Goods Manufactured greater than Cost of Goods Sold
D. Nothing can be said without additional information.

 

61. What can be said of the relationship between total manufacturing costs and the cost of goods manufactured when work-in-process inventories decrease during the period? (Assume no change in per unit costs.) 

A. They are equal.
B. Total Manufacturing Costs greater than Cost of Goods Manufactured
C. Cost of Goods Manufactured greater than Total Manufacturing Costs
D. Nothing can be said without additional information.

 

62. Which statement is true concerning just-in-time inventory systems? 

A. Just-in-time systems deal only with defective and reworked units.
B. Just-in-time systems require the use of many suppliers.
C. Just-in-time systems keep inventory to a minimum by careful planning.
D. Just-in-time systems work better for small companies than for large companies.

 

63. Which of the following represents a reason management would use JIT methods? 

A. To keep large amounts of materials on hand for production.
B. To provide finished goods just in time for sale.
C. To hide defective units.
D. To prevent laying off workers during slow times.

 

64. Which of the following statements is true?  

A. JIT requires workers to immediately correct a process making defective units.
B. JIT requires hiding of defective units.
C. JIT requires debiting various inventory accounts as goods are processed.
D. JIT requires crediting various inventory accounts as goods are processed.

 

65. Which of the following isnot a component of just-in-time (JIT) production methods? 

A. Management uses JIT methods to obtain materials just in time for production.
B. Management provides finished goods just in time for sale.
C. JIT requires that workers immediately correct a process making defective unit.
D. Workers and supervisors can hide defective units in inventory.

 

66. What method of production eliminates the need for inventories because no production takes place until the firm knows that it will sell the item? 

A. First-in, last-out methods
B. Last-in, first-out methods
C. Just-in-time methods
D. Next-in, first-out methods

 

67. Which is not correct for just-in-time (JIT) methods? 

A. JIT attempts to obtain materials just in time for production and to provide finished goods just in time for sale.
B. JIT reduces, or potentially eliminates, inventories and the cost of carrying them.
C. JIT compels workers to immediately correct a process making defective units.
D. JIT relies on cheap, low quality materials from multiple suppliers, to meet production objectives.

 

68. Just-in-time (JIT) methods 

A. do not start production until the firm receives an order for the finished product.
B. do not order raw materials until the firm receives an order for the finished product.
C. ends production as soon as an order for the finished product is filled.
D. All of the answers are correct.

 

69. Accounting in a JIT environment charges all costs directly to Cost of Goods Sold and charges them to Inventory accounts when needed using which of the following costing methods? 

A. job order costing.
B. process costing.
C. hybrid costing.
D. backflush costing.

 

70. Which method of costing is used to record all manufacturing costs directly in Cost of Goods Sold, and if any inventories occur at the end of the accounting period, the appropriate costs are transferred back to the inventory accounts? 

A. Put-back costing
B. Traditional costing
C. Reverse costing
D. Backflush costing

 

71. Which of the following is true regarding waste and spoilage? 

A. Accountants typically include the cost of normal waste in the cost of goods manufactured during the period.
B. Accountants typically treat the cost of abnormal waste as an expense during the period.
C. Companies concerned about quality production do not treat waste or spoiled goods as normal and remove all waste and spoilage costs from the product cost.
D. All of the answers are correct.

 

72. Companies concerned about quality production do not treat waste or spoiled goods as a normal cost of production and remove all waste and spoilage costs from the product cost. Some companies have found that waste or spoilage costs range from 

A. 1 to 5 percent of their total product costs.
B. 5 to 10 percent of their total product costs.
C. 10 to 20 percent of their total product costs.
D. 20 to 30 percent of their total product costs.

 

73. Which costing system uses equivalent units in the computation of costs? 

A. Job costing
B. Process costing
C. Both a and b
D. Neither a nor b

 

74. Using the following information, calculate equivalent units of production for XYZ Company using the FIFO method:

Beginning Inventory: 50,000 units, 70% complete
Units started & completed: 100,000 units
Units in ending inventory: 25,000 units, 40% complete 
A. 175,000
B. 150,000
C. 145,000
D. 125,000

 

75. Using the following information, calculate equivalent units of production for Jetton Manufacturing using the FIFO method:

Beginning Inventory: 30,000 units, 40% complete
Units started & completed: 75,000 units
Units in ending inventory: 20,000 units, 70% complete 
A. 93,000
B. 107,000
C. 105,000
D. 125,000

 

76. Which of the following companies would most likely use a job costing system? 

A. Pillsbury (flour)
B. Heinz (catsup)
C. Universal Studios (movies)
D. Budweiser (beer)

 

77. Which of the following companies would most likely use a process costing system? 

A. PriceWaterhouseCoopers (auditing engagements)
B. Accenture (consulting)
C. Universal Studios (movies)
D. Miller Brewing Company (beer)

 

78. Different types of companies use different types of cost systems. An effective cost system must have all of the following characteristics except: 

A. Benefits from the cost system that exceed its costs.
B. Different costs for different purposes.
C. Decision focus.
D. Costs from the cost system that exceed benefits.

 

79. Which of the following costs is not part of manufacturing overhead? 

A. Depreciation of factory equipment
B. Health insurance for sales staff
C. Salaries for the production supervisors
D. Electricity for the factory

 

80. Which of the following accounts does not appear on the balance sheet? 

A. Raw Materials Inventory
B. Work in Process Inventory
C. Cost of Goods Sold
D. Finished Goods Inventory

 

81. If the balance in the Finished Goods Inventory account increased by $30,000 during the period and the cost of goods manufactured was $220,000, what was the cost of goods sold? 

A. $190,000
B. $220,000
C. $250,000
D. $110,000

 

82. Which of the following lists presents the accounts in the order in which product costs flow? 

A. Work in Process Inventory, Finished Goods Inventory, Cost of Goods Sold, Raw Materials Inventory
B. Raw Materials Inventory, Work in Process Inventory, Finished Goods Inventory, Cost of Goods Sold
C. Cost of Goods Sold, Work in Process Inventory, Raw Materials Inventory,
Finished Goods Inventory
D. Raw Materials Inventory, Finished Goods Inventory, Work in Process Inventory, Cost of Goods Sold

 

83. Michael Visual Works, Inc. uses a normal costing system and estimated its overhead costs for the current year to be as follows: fixed, $525,000; variable, $4 per unit. Michael expected to produce 350,000 units during the year. During the year, the company incurred overhead costs of $2,100,000 and produced 400,000 units.Calculate the rate to be used to apply manufacturing overhead costs to products. 

Fixed overhead rate	=	1.50 ($525,000/350,000 units)
Variable overhead rate	=	4.00 (given)
Total overhead rate	=	5.50 per unit

 

84. Leon Manufacturing Company

Leon Manufacturing Company uses a normal costing system. During the current year, the following events took place:

1.	Purchased direct materials	$100,000
2.	Incurred direct labor costs of	$ 60,000
3.	Incurred indirect labor costs of	$ 30,000
4.	Incurred utilities, rent, and depreciation of	$ 50,000
5.	Direct materials issued to production	$ 85,000
6.	Applied overhead at 150 percent of direct labor costs
7.	Transferred to finished goods	$210,000
8.	Cost of goods sold during period	$190,000

Refer to Leon Manufacturing Company. Calculate the direct materials ending inventory (there was no beginning direct materials inventory). 

Direct materials purchases	$100,000
Less direct materials used	_(85,000)
Direct materials ending inventory	$ 15,000

 

85. Leon Manufacturing Company

Leon Manufacturing Company uses a normal costing system. During the current year, the following events took place:

1.	Purchased direct materials	$100,000
2.	Incurred direct labor costs of	$ 60,000
3.	Incurred indirect labor costs of	$ 30,000
4.	Incurred utilities, rent, and depreciation of	$ 50,000
5.	Direct materials issued to production	$ 85,000
6.	Applied overhead at 150 percent of direct labor costs
7.	Transferred to finished goods	$210,000
8.	Cost of goods sold during period	$190,000

Refer to Leon Manufacturing Company. Calculate the work-in-process ending inventory (there was no beginning work-in-process inventory). 

Direct materials used	$ 85,000
Direct labor	60,000
Factory overhead applied
(150 percent direct labor)	90,000
Total manufacturing costs	$235,000
Less transferred to finished goods	210,000
Work-in-process ending inventory	$ 25,000

 

86. Leon Manufacturing Company

Leon Manufacturing Company uses a normal costing system. During the current year, the following events took place:

1.	Purchased direct materials	$100,000
2.	Incurred direct labor costs of	$ 60,000
3.	Incurred indirect labor costs of	$ 30,000
4.	Incurred utilities, rent, and depreciation of	$ 50,000
5.	Direct materials issued to production	$ 85,000
6.	Applied overhead at 150 percent of direct labor costs
7.	Transferred to finished goods	$210,000
8.	Cost of goods sold during period	$190,000

Refer to Leon Manufacturing Company. Calculate the finished goods ending inventory (there was no beginning finished goods inventory). 

Transferred to finished goods	$210,000
Sold during period	190,000
Finished goods ending inventory	$ 20,000

 

87. Jenkins Company

Jenkins Company applies overhead costs to products at a rate of 50 percent of direct labor costs. The following data relate to the manufacturing activities of Jenkins Company during April:

	April 1	April 30
Direct materials inventory	60,250	61,750
Work-in-process inventory	44,000	43,500
Finished goods inventory	24,150	23,000

Factory costs incurred during the month were:

Direct materials purchased	$155,000
Direct labor costs incurred	$270,000
Factory utilities	$ 35,000
Factory rent	$ 52,000
Factory supervisor	$ 43,000
Depreciation on factory equipment	$ 25,000

Refer to Jenkins Company. Calculate the cost of direct materials used during April. 

Beginning direct materials inventory	$ 60,250
Direct materials purchases	155,000
Direct materials available	$215,250
Less ending direct materials inventory	61,750
Direct materials used	$153,500

 

88. Jenkins Company

Jenkins Company applies overhead costs to products at a rate of 50 percent of direct labor costs. The following data relate to the manufacturing activities of Jenkins Company during April:

	April 1	April 30
Direct materials inventory	60,250	61,750
Work-in-process inventory	44,000	43,500
Finished goods inventory	24,150	23,000

Factory costs incurred during the month were:

Direct materials purchased	$155,000
Direct labor costs incurred	$270,000
Factory utilities	$ 35,000
Factory rent	$ 52,000
Factory supervisor	$ 43,000
Depreciation on factory equipment	$ 25,000

Refer to Jenkins Company. Using actual costing, calculate the cost of the units completed during April and transferred to the finished goods storeroom. 

Direct materials used		153,500
Direct labor		270,000
Actual overhead:
Factory utilities	35,000
Factory rent	52,000
Factory supervisor	43,000
Factory depreciation	25,000	155,000
Total manufacturing costs		$578,500
Beginning work-in-process inventory		44,000
Total In Process		$622,500
Less ending work-in-process inventory		(  43,500)
Cost of goods manufactured		$579,000

 

89. Jenkins Company

Jenkins Company applies overhead costs to products at a rate of 50 percent of direct labor costs. The following data relate to the manufacturing activities of Jenkins Company during April:

	April 1	April 30
Direct materials inventory	60,250	61,750
Work-in-process inventory	44,000	43,500
Finished goods inventory	24,150	23,000

Factory costs incurred during the month were:

Direct materials purchased	$155,000
Direct labor costs incurred	$270,000
Factory utilities	$ 35,000
Factory rent	$ 52,000
Factory supervisor	$ 43,000
Depreciation on factory equipment	$ 25,000

Refer to Jenkins Company. Using normal costing, calculate the cost of units completed during April and transferred to the finished goods storeroom. 

Direct materials used	153,500
Direct labor	270,000
Applied overhead (50 percent of direct labor)	135,000
Total manufacturing costs	$558,500
Plus beginning work-in-process inventory	44,000
Total In Process	$602,500
Less ending work-in-process inventory	43,500
Cost of goods manufactured	$559,000

 

90. For the month of May, Straight & Narrow, CPAs, worked 300 hours for client A and 400 hours for client B. Straight & Narrow bills clients at the rate of $120 per hour. The accounting staff is paid $75 per hour. The accounting staff worked a total of 800 hours during the month, but 100 of these hours were unbillable. Service overhead costs paid during the month totaled $5,600. Service overhead is assigned to clients based proportionally on direct labor hours. The company also spent $3,000 in marketing and administrative costs. Calculate the overhead rate and the amounts allocated to clients A & B. 

Overhead $5,600/700 billable hours = $8 per hour

Assigned to client A = $2,400 ($8 ´ 300 hours)

Assigned to client B = $3,200 ($8 ´ 400 hours)

 

91. Use this information to answer the following question(s):

Assume the following facts:
Beginning materials inventory	$50
Beginning work-in-process inventory	29
Beginning finished goods inventory	80
Direct materials requisitioned	80
Direct labor	67
Manufacturing overhead	53
Ending materials inventory	12
Ending work-in-process inventory	31
Ending finished goods inventory	27

Refer to the above information; determine the amount of materials purchased during the period. 

$12 [50 + X - (80 + 12) = 12]

 

92. Use this information to answer the following question(s):

Assume the following facts:
Beginning materials inventory	$50
Beginning work-in-process inventory	29
Beginning finished goods inventory	80
Direct materials requisitioned	80
Direct labor	67
Manufacturing overhead	53
Ending materials inventory	12
Ending work-in-process inventory	31
Ending finished goods inventory	27

Refer to the above information; determine the cost of goods manufactured during the period. 

$198 (29 + 80 + 67 + 53 - 31)

 

93. Use this information to answer the following question(s):

Assume the following facts:
Beginning materials inventory	$50
Beginning work-in-process inventory	29
Beginning finished goods inventory	80
Direct materials requisitioned	80
Direct labor	67
Manufacturing overhead	53
Ending materials inventory	12
Ending work-in-process inventory	31
Ending finished goods inventory	27

Refer to the above information; determine the cost of goods sold during the period. 

$251 (80 + 198 - 27)

 

94. Fisher Products Company

The Fisher Products Company uses a job costing system. The company estimated its annual overhead to be $100,000, and the number of direct labor hours for the year to be 20,000 hours. In the first month, the following jobs were completed:

	Job #115	Job #205
Direct materials used	$11,000	$14,500
Direct labor cost	$23,000	$12,500
Direct labor hours	1,500 hours	1,250 hours

Refer to the Fisher Products Company. What is the company's predetermined overhead rate using direct labor hours as the base? 

$100,000/20,000 hours = $5/direct labor hour

 

95. Fisher Products Company

The Fisher Products Company uses a job costing system. The company estimated its annual overhead to be $100,000, and the number of direct labor hours for the year to be 20,000 hours. In the first month, the following jobs were completed:

	Job #115	Job #205
Direct materials used	$11,000	$14,500
Direct labor cost	$23,000	$12,500
Direct labor hours	1,500 hours	1,250 hours

Refer to the Fisher Products Company. What is the overhead assigned to job #115? 

1,500 hours @ $5 per hour = $7,500

 

96. Fisher Products Company

The Fisher Products Company uses a job costing system. The company estimated its annual overhead to be $100,000, and the number of direct labor hours for the year to be 20,000 hours. In the first month, the following jobs were completed:

	Job #115	Job #205
Direct materials used	$11,000	$14,500
Direct labor cost	$23,000	$12,500
Direct labor hours	1,500 hours	1,250 hours

Refer to the Fisher Products Company. What is the overhead assigned to job #205? 

1,250 hours @ $5 per hour = $6,250

 

97. Fisher Products Company

The Fisher Products Company uses a job costing system. The company estimated its annual overhead to be $100,000, and the number of direct labor hours for the year to be 20,000 hours. In the first month, the following jobs were completed:

	Job #115	Job #205
Direct materials used	$11,000	$14,500
Direct labor cost	$23,000	$12,500
Direct labor hours	1,500 hours	1,250 hours

Refer to the Fisher Products Company. What is the total manufacturing cost of job #115? 

$11,000 + $23,000 + $7,500 = $41,500

 

98. Fisher Products Company

The Fisher Products Company uses a job costing system. The company estimated its annual overhead to be $100,000, and the number of direct labor hours for the year to be 20,000 hours. In the first month, the following jobs were completed:

	Job #115	Job #205
Direct materials used	$11,000	$14,500
Direct labor cost	$23,000	$12,500
Direct labor hours	1,500 hours	1,250 hours

Refer to the Fisher Products Company. What is the total manufacturing cost of job #205? 

$14,500 + $12,500 + $6,250 = $33,250

 

99. The Mega-Audits Accounting Firm uses a job costing system. For Year 6, the firm estimated total overhead to be $80,000 and the number of direct labor hours to be 20,000. In the last quarter, the firm completed the following audit jobs:

Job	No. 242	No. 301
Supplies	$   200	$   600
Direct labor costs	$11,000	$14,000
Direct labor hours	220 hours	280 hours

Calculate the predetermined overhead rate. 

Predetermined overhead rate: $80,000/20,000 = $4 per Direct labor hour

 

100. Susan Johnson Products Company

The Susan Johnson Products Company uses a job costing system. For Year 4, the firm estimated total overhead to be $40,000 and the number of direct labor hours to be 10,000.

Refer to the Susan Johnson Products Company. Calculate the predetermined overhead rate. 

$4 per direct hour: $40,000/10,000 hours

 

101. Susan Johnson Products Company

The Susan Johnson Products Company uses a job costing system. For Year 4, the firm estimated total overhead to be $40,000 and the number of direct labor hours to be 10,000.

Refer to the Susan Johnson Products Company. Job 247 is a special order of 100 special-design tables. The work-in-process inventory account for this job shows raw material costs of $4,600 and direct labor costs of $7,600. The firm has charged 1,200 direct labor hours to the job. What is the total cost of Job 247? 

Raw material	$ 4,600
Direct labor	7,600
Overhead (1,200 ´ $4)	4,800
Total cost	$17,000