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Exam 5: Systems Design: Job-Order Costing

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Question 1

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In a normal job-order costing system,the journal entry to record the application of overhead cost to jobs includes which of the following?

A) A credit to the Work in Process inventory account.
B) A credit to the Manufacturing Overhead account.
C) A debit to Cost of Goods Sold.
D) A debit to the Manufacturing Overhead account.

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Question 2

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The most common accounting treatment of underapplied manufacturing overhead is to transfer it to the Manufacturing Overhead control account.

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Question 3

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Simplex Company has the following estimated costs for next year: Simplex estimates that 10,000 direct labour and 16,000 machine hours will be worked during the year.If overhead is applied on the basis of machine hours,what will be the overhead rate per hour?

The balances in White Company's Work in Process inventory account were $15,000 on August 1 and $18,000 on August 31.The company incurred $30,000 in direct labour cost during August and requisitioned $25,000 in raw materials (all direct material) .The sum of the debits to the Manufacturing Overhead account totalled $28,000 for the month while the sum of the credits totalled $30,000.Which of the following statements is correct?

What was the amount of direct materials used during November if $20,000 in raw materials were purchased during the month,all raw materials are direct,and if the inventories were as follows?

Non-manufacturing costs are expensed as incurred,rather than going into the Work in Process account.

Raw materials can be direct materials,but NOT all direct materials need to be raw materials.

Freeman Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs.At the beginning of the year,the company estimated manufacturing overhead would be $150,000 and direct labour hours would be 10,000.The actual figures for the year were $186,000 for manufacturing overhead and 12,000 direct labour hours.The cost records for the year will show which of the following?

How much of any underapplied or overapplied overhead would have been due to the fact that the estimated overhead allocation base was different from the actual?

Scanlon Company has a job-order costing system and applies manufacturing overhead cost to products on the basis of machine hours.The following estimates were used in preparing the predetermined overhead rate for the most recent year: During the most recent year,a severe recession in the company's industry caused the curtailment of production and a buildup of inventory in the company's warehouses.The company's cost records revealed the following actual cost and operating data for the year: Required: (a. )Compute the company's predetermined overhead rate for the year and the amount of under- or overapplied overhead for the year. (b. )Determine the difference between net income for the year if the under- or overapplied overhead is allocated to the appropriate accounts rather than closed out directly to Cost of Goods Sold.

In a job-order costing system,direct labour costs usually are recorded initially with a debit to which of the following accounts?

(Appendix 5A)Basing predetermined overhead rate on capacity will almost certainly result in overapplied overhead.

Which of the following contain(s) the detailed cost data that support the Work in Process control account?

Bakerston Company is a manufacturing firm that uses job-order costing.The company's inventory balances at the beginning and end of the year were as follows: The company applies overhead to jobs using a predetermined overhead rate based on machine hours.At the beginning of the year,the company estimated that it would work 33,000 machine hours and incur $231,000 in manufacturing overhead cost.The following transactions were recorded for the year: a. )Raw materials purchased: $315,000. b. )Raw materials requisitioned for use in production: $307,000 ($281,000 direct and $26,000 indirect). c. )The following employee costs were incurred: d. )Selling costs: $147,000. e. )Factory utility costs: $10,000. f. )Depreciation for the year: $127,000,of which $120,000 is related to factory operations and $7,000 is related to selling and administrative activities. g. )Manufacturing overhead was applied to jobs.The actual level of activity for the year was 34,000 machine hours. h. )Sales for the year: $1,253,000. Required: a.Prepare a schedule of cost of goods manufactured in good form. b.Was the manufacturing overhead under- or overapplied? By how much? c.Prepare an income statement for the year in good form.The company closes out any under- or overapplied overhead to Cost of Goods Sold.

Stan Wilson,a newly hired worker at Superior Moulding,was puzzled by the job cost sheets attached to the jobs he worked on.He understood the materials and labour cost entries;these entries represent the actual costs of materials he requisitioned for the job and the cost of the labour hours he recorded for the job.However,he did not understand the entry for Manufacturing Overhead.This entry was made at the end of the day by the accountants,and he had no idea where this number came from.He asked the company's controller,Mary Donner,but the only part of the explanation he understood was that the overhead entries do not represent actual overhead costs. Required: Explain to Stan what the Manufacturing Overhead entries on the job cost sheet mean.

(Appendix 5A)If the predetermined overhead rate is based on the estimated total amount of the allocation base at capacity,it is more likely that overhead will be underapplied than overapplied.

A public accounting firm employs 10 full-time professionals who provide services to clients.All professional labour compensation is traced directly to clients on a per professional labour-hour basis.Any other costs are included in a single indirect-cost pool (same as overhead)and allocated to individual clients according to billable professional labour-hours. Operating costs and data for the year included the following: Required: a.By how much,if any,was the overhead cost underapplied or overapplied? b.Prepare a summary journal entry to close any underapplied or overapplied overhead cost to a Cost of Services Provided account. c.Explain qualitatively and quantitatively (in as much detail as possible)the source(s)of any underapplied or overapplied overhead cost.

During the year,Paul Company used a predetermined overhead rate of $3.50 per direct labour hour,based on an estimate of 22,000 direct labour hours to be worked during the year.Actual overhead cost and activity during the year were: What was the under- or overapplied overhead for the year?

Carlo Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing overhead to jobs.The company estimated manufacturing overhead at $255,000 for the year and direct labour hours at 100,000 hours.Actual manufacturing overhead costs incurred during the year totalled $270,000;actual direct labour hours were 105,000.What was the overapplied or underapplied overhead for the year?

At the beginning of the current year CR Company estimated the following costs: CR Company estimated 20,000 labour hours to be worked during the year.Actual labour hours worked were 22,000 hours.If overhead is applied on the basis of direct labour hours,what will be the overhead applied for the year?