Cost Accounting 15th Edition By Charles T. Horngren – Test Bank

 

 

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Sample Questions 

 

Cost Accounting, 15e (Horngren/Datar/Rajan)

Chapter 4   Job Costing

 

Objective 4.1

 

1) Job costing information is used ________.

1.    A) to determine target customers

2.    B) to calculate the percentage of completion

3.    C) for internal financial reporting

4.    D) to enhance public relations

Answer:  C

Diff: 1

Objective:  1

AACSB:  Analytical thinking

 

2) Product costing information will include ________.

1.    A) to increase profits

2.    B) to increase sales and image of the company

3.    C) for cost management

4.    D) for efficient human resource management

Answer:  C

Diff: 1

Objective:  1

AACSB:  Analytical thinking

 

3) A ________ is a grouping of individual indirect cost items.

1.    A) cost allocation base

2.    B) cost assignment

3.    C) cost pool

4.    D) job-costing system

Answer:  C

Diff: 1

Objective:  1

AACSB:  Analytical thinking

 

4) Each indirect-cost pool of a manufacturing firm ________.

1.    A) utilizes a separate cost-allocation rate

2.    B) is a subset of total direct costs

3.    C) relates to multiple cost centres

4.    D) utilizes the same cost-allocation rate for all costs incurred

Answer:  A

Diff: 1

Objective:  1

AACSB:  Analytical thinking

 

5) Direct costs ________.

1.    A) are anything for which a measurement of costs is desired

2.    B) are costs related to a particular cost object that can be traced to that cost object in a cost-effective manner

3.    C) focus specifically on the costing needs of the CFO

4.    D) are costs related to a particular cost object that cannot be traced to that cost object in a cost-effective manner

Answer:  B

Diff: 2

Objective:  1

AACSB:  Analytical thinking

 

6) In a costing system, ________.

1.    A) cost tracing allocates indirect costs

2.    B) cost allocation assigns direct costs

3.    C) a cost-allocation base can be either financial or nonfinancial

4.    D) a cost object should be a product and not a department or a geographic territory

Answer:  C

Diff: 2

Objective:  1

AACSB:  Analytical thinking

 

7) Assigning direct costs to a cost object is called ________.

1.    A) cost allocation

2.    B) cost assignment

3.    C) cost pooling

4.    D) cost tracing

Answer:  D

Diff: 1

Objective:  1

AACSB:  Analytical thinking

 

8) ________ is the process of distributing indirect costs to products.

1.    A) Cost allocation

2.    B) Job cost recording

3.    C) Cost pooling

4.    D) Cost tracing

Answer:  A

Diff: 1

Objective:  1

AACSB:  Analytical thinking

 

 

9) A ________ links an indirect cost to a cost object.

1.    A) cost-allocation base

2.    B) cost pool

3.    C) cost assignment

4.    D) cost tracing

Answer:  A

Diff: 1

Objective:  1

AACSB:  Analytical thinking

10) Which of the following includes both traced direct costs and allocated indirect costs?

1.    A) cost tracing

2.    B) cost pools

3.    C) cost assignments

4.    D) cost allocations

Answer:  C

Diff: 1

Objective:  1

AACSB:  Analytical thinking

 

11) The cost allocation base ________.

1.    A) is a grouping of individual indirect cost items

2.    B) are costs related to a particular cost object that cannot be traced to that cost object in an economically feasible way

3.    C) is anything for which a measurement of costs is desired

4.    D) is a systematic way to link an indirect cost or group of indirect costs to cost objects

Answer:  D

Diff: 1

Objective:  1

AACSB:  Analytical thinking

 

12) Direct costs are allocated to the cost object using a cost-allocation method.

Answer:  FALSE

Explanation:  Indirect costs are allocated to the cost object using a cost-allocation method.

Diff: 1

Objective:  1

AACSB:  Analytical thinking

 

13) A cost object is anything for which a measurement of costs is desired.

Answer:  TRUE

Diff: 1

Objective:  1

AACSB:  Analytical thinking

 

 

14) Direct costs of a cost object are costs related to a particular cost object that can be allocated to that cost object in an economically feasible (cost-effective) way.

Answer:  FALSE

Explanation:  Direct costs of a cost object — costs related to a particular cost object that can be traced to that cost object in an economically feasible (cost-effective) way.

Diff: 1

Objective:  1

AACSB:  Analytical thinking

 

15) The cost-allocation base is a systematic way to link an indirect cost or group of indirect costs to cost objects.

Answer:  TRUE

Diff: 2

Objective:  1

AACSB:  Analytical thinking

16) Cost objects may be jobs, products, or customers.

Answer:  TRUE

Diff: 1

Objective:  1

AACSB:  Analytical thinking

 

17) The cost driver of an indirect cost is often used as the cost-allocation base.

Answer:  TRUE

Diff: 1

Objective:  1

AACSB:  Analytical thinking

 

18) For each item below indicate the source documents that would most likely authorize the journal entry in a job-costing system.

 

Required:

1.    direct materials purchased

2.    direct materials used

3.    direct manufacturing labor

4.    indirect manufacturing labor

5.    finished goods control

6.    cost of goods sold

Answer:

1.    purchase invoice

2.    materials requisition record

3.    labor time card/record

4.    labor time card

5.    job-cost record

6.    sales invoice

Diff: 2

Objective:  1

AACSB:  Analytical thinking

 

 

19) Differentiate between a cost pool and a cost-allocation base.

Answer:  A cost pool is a grouping of individual indirect cost items. The cost-allocation base (number of machine-hours) is a systematic way to link an indirect cost or group of indirect costs (operating costs of all metal-cutting machines) to cost objects (different products).

Diff: 2

Objective:  1

AACSB:  Analytical thinking

 

Objective 4.2

 

1) Process costing is ________.

1.    A) used to enhance employees’ job satisfaction

2.    B) used by businesses to price unique products or identical products produced in batches

3.    C) used by businesses to price identical products

4.    D) used by businesses when manufacturing goods above normal capacity

Answer:  C

Diff: 1

Objective:  2

AACSB:  Analytical thinking

2) Process costing ________.

1.    A) allocates all product costs, including materials, and labor

2.    B) results in different costs for different units produced

3.    C) is commonly used by general contractors who construct custom-built homes

4.    D) is used exclusively in manufacturing

Answer:  A

Diff: 2

Objective:  2

AACSB:  Analytical thinking

 

3) Job costing is ________.

1.    A) used by businesses to price identical products

2.    B) used by businesses to price unique products for different jobs

3.    C) used to calculate equivalent units

4.    D) used to calculate the percentage of work completed

Answer:  B

Diff: 1

Objective:  2

AACSB:  Analytical thinking

 

4) Job costing ________.

1.    A) cannot be used by the service industry

2.    B) records the flow of costs for each product or service

3.    C) allocates an equal amount of cost to each unit made during a time period

4.    D) is used when each unit of output is identical

Answer:  B

Diff: 2

Objective:  2

AACSB:  Analytical thinking

 

5) Job-costing is likely to be used by________.

1.    A) oil refining companies

2.    B) advertising agencies

3.    C) postal service companies

4.    D) beverage production companies

Answer:  B

Diff: 2

Objective:  2

AACSB:  Analytical thinking

 

6) Which of the following differentiates job costing from process costing?

1.    A) Job costing is used when each unit of output is identical, and process costing deals with unique products.

2.    B) Job costing is used when each unit of output is identical and not produced in batches, and process costing deals with unique products produced on large scale.

3.    C) Process costing is used when each unit of output is identical, and job costing deals with unique products not produced in batches.

4.    D) Job costing is used by manufacturing industries, and process costing is used by service industries.

Answer:  C

Diff: 3

Objective:  2

AACSB:  Analytical thinking

7) Which of the following companies will use a process costing system?

1.    A) an oil refining company

2.    B) a manufacturer of ships

3.    C) a custom watch manufacturer

4.    D) an advertising firm

Answer:  A

Diff: 1

Objective:  2

AACSB:  Analytical thinking

 

8) 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.

Answer:  TRUE

Diff: 2

Objective:  2

AACSB:  Analytical thinking

 

9) In each period, job costing divides the total cost of producing an identical or similar product produced in batches by the total number of units produced to obtain a per-unit cost.

Answer:  TRUE

Explanation:  Job costing is used if identical goods are produced in batches.

Diff: 2

Objective:  2

AACSB:  Analytical thinking

 

 

10) Oil refining companies primarily use job costing to estimate costs.

Answer:  FALSE

Explanation:  Process costing is used to estimate costs in oil refining companies as the same process is used to extract oil.

Diff: 1

Objective:  2

AACSB:  Analytical thinking

 

11) In a job-costing system the cost object is an individual unit, batch, or lot of a distinct product or service.

Answer:  TRUE

Diff: 1

Objective:  2

AACSB:  Analytical thinking

 

12) Normal 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.

Answer:  FALSE

Explanation:  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.

Diff: 1

Objective:  2

AACSB:  Analytical thinking

13) Process costing is used to assign manufacturing costs to unique batches of a product.

Answer:  FALSE

Explanation:  Job costing is used to assign manufacturing costs to unique batches of a product.

Diff: 1

Objective:  2

AACSB:  Analytical thinking

 

14) Using job costing in the shipping industry would be more appropriate than process costing.

Answer:  TRUE

Diff: 1

Objective:  2

AACSB:  Analytical thinking

 

15) Fox Studios, the movie production house, uses process costing to estimate costs.

Answer:  FALSE

Diff: 1

Objective:  2

AACSB:  Analytical thinking

 

 

16) Describe job-costing and process-costing systems. Explain when it would be appropriate to use each.

Answer:  Job costing accumulates costs for different jobs required by specific customers. Process costing computes and allocates an equal amount of cost to each product. Job costing is the logical choice when the production process has many distinct products or many heterogeneous jobs, while process costing is typically used when it is not necessary to keep separate cost records for individual jobs and the products are relatively homogeneous.

Diff: 2

Objective:  2

AACSB:  Analytical thinking

 

Objective 4.3

 

1) Which of the following are reasons for using longer periods, such as a year, to calculate indirect cost rates?

1.    A) shorter the period, the greater is the influence of seasonal patterns on the amount of costs

2.    B) longer the period, the greater is the influence of seasonal patterns on the amount of costs

3.    C) shorter the period, the smaller is the influence of seasonal patterns on the amount of opportunity costs

4.    D) longer the period, the smaller is the influence of seasonal patterns on the amount of opportunity costs

Answer:  A

Diff: 1

Objective:  3

AACSB:  Analytical thinking

2) The actual indirect-cost rate is calculated by ________.

1.    A) dividing actual total indirect costs by the actual total quantity of the cost-allocation base

2.    B) multiplying actual total indirect costs by the actual total quantity of the cost-allocation base

3.    C) dividing the actual total quantity of the cost allocation base by actual total indirect costs

4.    D) multiplying the actual total quantity of the cost allocation base by actual total indirect costs

Answer:  A

Diff: 1

Objective:  3

AACSB:  Analytical thinking

 

3) Actual costing is a costing system that traces direct costs to a cost object by ________.

1.    A) using the budgeted direct cost rates times the budgeted quantities of direct-cost inputs

2.    B) using the actual direct costs rates times the budgeted quantities of the direct-cost inputs

3.    C) using the actual direct cost rates times the actual quantities of the direct-cost inputs

4.    D) using the budgeted direct cost rates times the actual quantities of the direct cost inputs

Answer:  C

Diff: 1

Objective:  3

AACSB:  Analytical thinking

 

 

4) An example of a numerator reason for calculating annual indirect-cost rates includes ________.

1.    A) fewer production workdays in a month

2.    B) cost of raw materials purchased

3.    C) higher snow-removal costs during the winter

4.    D) the number of units produced

Answer:  D

Diff: 3

Objective:  3

AACSB:  Analytical thinking

 

5) An example of a denominator reason for calculating annual indirect-cost rates includes ________.

1.    A) higher heating bills in the winter

2.    B) semi-annual insurance payments in March and September

3.    C) higher levels of output demanded during the fall months

4.    D) All of these answers are correct.

Answer:  C

Diff: 3

Objective:  3

AACSB:  Analytical thinking

 

6) When calculating indirect cost rates, the longer the time period, the greater the

influence of seasonal patterns on the amount of costs.

Answer:  FALSE

Explanation:  The shorter the time period, the greater the influence of seasonal patterns on the amount of costs.

Diff: 1

Objective:  3

AACSB:  Analytical thinking

7) Actual prices paid for materials usually serve as actual direct-cost rates for charging material costs to jobs.

Answer:  TRUE

Diff: 1

Objective:  3

AACSB:  Analytical thinking

 

8) The actual indirect-cost rate is calculated by dividing actual total indirect costs by the budgeted total quantity of the cost-allocation base.

Answer:  FALSE

Diff: 1

Objective:  3

AACSB:  Analytical thinking

 

 

Objective 4.4

 

1) A job that shows low profitability may be the result of ________.

1.    A) excessive usage of direct materials

2.    B) inefficient direct manufacturing labor

3.    C) overpricing the job

4.    D) insurance claim of the damaged goods

Answer:  B

Diff: 2

Objective:  4

AACSB:  Analytical thinking

 

2) For a given job the direct costs associated with the job are ________.

1.    A) actual overhead

2.    B) raw materials

3.    C) sunk costs

4.    D) fixed costs

Answer:  B

Diff: 2

Objective:  4

AACSB:  Analytical thinking

 

3) Place the following steps in the order suggested by the seven steps used to assign costs to individual jobs:

 

1.    Identify indirect costs

2.    Compute the total cost of the job

3.    Select cost-allocation bases

4.    Compute the indirect cost rate

 

1.    A) ACDB

2.    B) CADB

3.    C) BACD

4.    D) DCAB

Answer:  B

Diff: 2

Objective:  4

AACSB:  Analytical thinking

4) The basic source document for direct manufacturing labor is the ________.

1.    A) job-cost record

2.    B) materials-requisition record

3.    C) labor-time record

4.    D) labor-requisition record

Answer:  C

Diff: 1

Objective:  4

AACSB:  Analytical thinking

 

 

5) Problems with costing occur when ________.

1.    A) incorrect job numbers are recorded on source documents

2.    B) bar coding is used to record materials used on the job

3.    C) a computer screen requests an employee number before that employee is able to work on information related to a specific job

4.    D) incorrect product delivery forms are entered into the system

Answer:  A

Diff: 2

Objective:  4

AACSB:  Analytical thinking

 

6) The budgeted indirect-cost rate for each cost pool is computed as ________.

1.    A) budgeted annual indirect costs divided by budgeted annual quantity of cost allocation base

2.    B) budgeted annual quantity of cost allocation base divided by budgeted annual indirect costs

3.    C) actual annual indirect costs divided by budgeted annual quantity of cost allocation base

4.    D) budgeted annual indirect costs divided by budgeted actual quantity of cost allocation base

Answer:  A

Diff: 2

Objective:  4

AACSB:  Analytical thinking

 

7) If indirect-cost rates are calculated monthly, distortions might occur because of ________.

1.    A) rental costs paid monthly

2.    B) property tax payments made in July and December

3.    C) routine monthly preventive-maintenance costs that benefit future months

4.    D) salary hikes at the beginning of the financial year

Answer:  B

Diff: 2

Objective:  4

AACSB:  Analytical thinking

8) Bernard Company’s budgeted manufacturing overhead is $3,300,000. Overhead is allocated on the basis of direct labor hours. The budgeted direct labor hours for the period are 60,000. What is the manufacturing overhead rate?

47.  A) $47.00

48.  B) $56.00

49.  C) $75.00

50.  D) $55.00

Answer:  D

Explanation:  D) $3,300,000/60,000 hours = $55.00

Diff: 2

Objective:  4

AACSB:  Application of knowledge

 

 

9) Vision Enterprises manufactures digital video equipment. For each unit, $3,000 of direct material is used and there is $2,000 of direct manufacturing labor at $20 per hour. Manufacturing overhead is applied at $25 per direct manufacturing labor hour. Calculate the profit earned on 50 units if each unit sells for $9,000.

1.    A) $65,000

2.    B) $80,000

3.    C) $75,000

4.    D) $2,500

Answer:  C

Explanation:  C) $3,000 + $2,000 + (($2,000/20) × $25) = $7,500

Profit earned on 50 units = ($9,000 − $7,500) × 50 units = $75,000

Diff: 3

Objective:  4

AACSB:  Application of knowledge

 

10) In a job-costing system, a manufacturing firm typically uses an indirect-cost rate to estimate the ________ allocated to a job.

1.    A) direct materials

2.    B) direct labor

3.    C) manufacturing overhead costs

4.    D) total costs

Answer:  C

Diff: 2

Objective:  4

AACSB:  Analytical thinking

 

11) A job-cost sheet details the ________.

1.    A) direct materials purchased and paid

2.    B) direct labor costs incurred

3.    C) indirect labor costs incurred

4.    D) actual indirect overhead costs incurred

Answer:  B

Diff: 2

Objective:  4

AACSB:  Analytical thinking

12) A job-cost record uses information from ________.

1.    A) a materials-requisition record to record raw material purchases from suppliers

2.    B) a materials-requisition report to record the type and quantity of item received in an order from a supplier

3.    C) a labor-time card to record an employee’s wage rate and hours spent on a particular job

4.    D) the bill of materials to ensure the goods are of the prescribed quality

Answer:  C

Diff: 2

Objective:  4

AACSB:  Analytical thinking

 

 

13) Costs that are subject to short-run fluctuations for given jobs are ________.

1.    A) actual costs

2.    B) budgeted direct costs

3.    C) budgeted indirect costs

4.    D) normal costs

Answer:  A

Diff: 1

Objective:  4

AACSB:  Analytical thinking

 

14) An increase in direct labor cost per unit ________.

1.    A) increases the fixed cost

2.    B) increases profits

3.    C) increases the variable cost

4.    D) increases overhead costs

Answer:  C

Diff: 2

Objective:  4

AACSB:  Analytical thinking

 

15) Fixed costs remain constant at $400,000 per month. During high-output months variable costs are $320,000, and during low-output months variable costs are $80,000. What are the respective high and low indirect-cost rates if budgeted professional labor-hours are 16,000 for high-output months and 4,000 for low-output months?

45.  A) $45.00 per hour; $120.00 per hour

46.  B) $45.00 per hour; $45.00 per hour

47.  C) $25.00 per hour; $20.00 per hour

48.  D) $56.20 per hour; $120.00 per hour

Answer:  A

Explanation:  A)      $400,000 / 16,000 = $25.00              $400,000 / 4,000 = $100.00

$320,000 / 16,000 = 20.00                     $80,000 / 4,000 = 20.00

High Month = $45.00                      Low Month = $120.00

Diff: 2

Objective:  4

AACSB:  Application of knowledge

16) Managers and accountants collect most of the cost information that goes into their systems through ________.

1.    A) an information databank

2.    B) computer programs

3.    C) source documents

4.    D) time surveys

Answer:  C

Diff: 1

Objective:  4

AACSB:  Analytical thinking

 

 

Answer the following questions using the information below:

 

For 2014, Bakers Manufacturing uses machine-hours as the only overhead cost-allocation base. The direct cost rate is $3.00 per unit. The selling price of the product is $20.00. The estimated manufacturing overhead costs are $240,000 and estimated 40,000 machine hours. The actual manufacturing overhead costs are $300,000 and actual machine hours are 50,000.

 

17) Using job costing, the 2014 actual indirect-cost rate is ________.

6.    A) $6.00 per machine-hour

7.    B) $5.80 per machine-hour

8.    C) $6.50 per machine-hour

9.    D) $6.75 per machine-hour

Answer:  A

Explanation:  A) $300,000 / 50,000 mh = $6.00

Diff: 2

Objective:  4

AACSB:  Application of knowledge

 

18) What is the profit margin earned if each unit requires two machine-hours?

53.  A) 53.33%

54.  B) 33.33%

55.  C) 66.67%

56.  D) 58.73%

Answer:  B

Explanation:  B) $20 − $3.00 − ($6.00 × 2) = $5; $5/$15 = 33.33%

Diff: 2

Objective:  4

AACSB:  Application of knowledge

 

19) Tiscara Company manufactures insulation and applies manufacturing overhead costs to production at a budgeted indirect-cost rate of $15 per direct labor-hour. The following data are obtained from the accounting records for June 2014:

 

Direct materials                                                                                $440,000

Direct labor (3,500 hours @ $11/hour)                                            38,500

Indirect labor                                                                                         15,000

Plant facility rent                                                                                  50,000

Depreciation on plant machinery and equipment                    35,000

Sales commissions                                                                              10,000

Administrative expenses                                                                   25,000

 

The actual amount of manufacturing overhead costs incurred in June 2014 totals ________.

1.    A) $278,500

2.    B) $100,000

3.    C) $80,000

4.    D) $110,000

Answer:  B

Explanation:  B) $15,000 + $50,000 + $35,000 = $100,000

Diff: 2

Objective:  4

AACSB:  Application of knowledge

 

Answer the following questions using the information below:

 

Roiann and Dennett Law Office employs 12 full-time attorneys and 10 paraprofessionals. Direct and indirect costs are applied on a professional labor-hour basis that includes both attorney and paraprofessional hours. Following is information for 2014:

 

                                                                                                         Budget                  Actual

Indirect costs                                                              $270,000               $300,000

Annual salary of each attorney                            $100,000               $110,000

Annual salary of each paraprofessional           $ 29,000                $ 30,000

Total professional labor-hours                               50,000 dlh            60,000 dlh

 

20) What are the actual direct-cost rate and the actual indirect-cost rate, respectively, per professional labor-hour?

27.  A) $27.00; $4.17

28.  B) $29.80; $5.40

29.  C) $32.40; $5.00

30.  D) $27.00; $5.00

Answer:  D

Explanation:  D) [($110,000 × 12) + ($30,000 × 10)] / 60,000 = $27.00 actual direct rate

$300,000 / 60,000 = $5.00 actual indirect rate

Diff: 2

Objective:  4

AACSB:  Application of knowledge

 

21) How much should the client be billed in an actual costing system if 200 professional labor-hours are used?

1.    A) $5,000

2.    B) $6,960

3.    C) $7,480

4.    D) $6,400

Answer:  D

Explanation:  D) [($110,000 × 12) + ($30,000 × 10)] / 60,000 × 200         = $5,400

+ $300,000 / 60,000 × 200                                                                                    = $1,000

= $6,400

Diff: 3

Objective:  4

AACSB:  Application of knowledge

 

22) If indirect-cost rates were based on actual short-term usage, periods of lower demand would result in lower costs per unit.

Answer:  FALSE

Explanation:  If indirect-cost rates were based on actual short-term usage, periods of lower demand would result in higher costs per unit.

Diff: 2

Objective:  4

AACSB:  Analytical thinking

 

23) In job costing, only direct costs are used to determine the cost of a job.

Answer:  FALSE

Explanation:  Both direct and indirect costs are used to determine the cost of a job.

Diff: 1

Objective:  4

AACSB:  Analytical thinking

 

24) Indirect manufacturing costs should be allocated equally to each job.

Answer:  FALSE

Explanation:  Not equally to each job, but according to the use of indirect resources by individual jobs.

Diff: 2

Objective:  4

AACSB:  Analytical thinking

 

25) Each cost pool may have multiple cost allocation bases.

Answer:  FALSE

Explanation:  There is only one cost-allocation base for each cost pool.

Diff: 2

Objective:  4

AACSB:  Analytical thinking

 

26) Normal costing is a costing system that traces direct costs to a cost object by using the actual direct-cost rates times the actual quantities of the direct-cost inputs.

Answer:  TRUE

Diff: 1

Objective:  4

AACSB:  Analytical thinking

27) Companies often use multiple cost-allocation bases to allocate indirect costs because different indirect costs have different cost drivers.

Answer:  TRUE

Diff: 1

Objective:  4

AACSB:  Analytical thinking

 

28) A materials-requisition record is an example of a source document.

Answer:  TRUE

Diff: 2

Objective:  4

AACSB:  Application of knowledge

 

29) All costs other than direct materials and direct manufacturing labor are classified as indirect costs.

Answer:  TRUE

Diff: 1

Objective:  4

AACSB:  Analytical thinking

 

30) To smooth fluctuating levels of output, separate indirect-cost rates should be calculated for each month.

Answer:  FALSE

Explanation:  To smooth seasonal costs and fluctuating levels of output, indirect-cost rates should be calculated on an annual basis.

Diff: 2

Objective:  4

AACSB:  Analytical thinking

 

31) Grounds-maintenance costs incurred during the summer months will distort indirect-cost rates that are computed monthly.

Answer:  TRUE

Diff: 2

Objective:  4

AACSB:  Analytical thinking

 

32) One reason for using longer time periods to calculate indirect-cost rates is seasonal cost fluctuations.

Answer:  TRUE

Diff: 2

Objective:  4

AACSB:  Analytical thinking

 

33) What are the direct costs of a job and in which source documents are they recorded?

Answer:  The direct costs of a job are direct materials and direct labor. Direct materials are recorded in a basic source document called a materials-requisition record, which contains information about the cost of direct materials used on a specific job and in a specific department. Direct manufacturing labor is recorded in a labor-time sheet, which contains information about the amount of labor time used for a specific job in a specific department.

Diff: 2

Objective:  4

AACSB:  Analytical thinking

34) What is the difference between an actual cost system and a normal cost system?

Answer:  An actual cost system is one that traces direct costs to a cost object by using the actual direct-cost rates times the actual quantities of direct-cost inputs, and allocates indirect costs based on the actual indirect cost rates times the actual quantities of the cost-allocation bases. A normal cost system is one that traces direct costs to a cost object by using the actual direct-cost rates times the actual quantities of direct-cost inputs, and allocates indirect costs based on the budgeted indirect cost rates times the actual quantities of the cost-allocation bases. Both systems trace direct costs to jobs the same way. An actual cost system traces indirect costs to jobs using actual indirect cost rates, but a normal cost system uses budgeted indirect cost rates to trace indirect costs to jobs.

Diff: 2

Objective:  4

AACSB:  Analytical thinking

 

Objective 4.5

 

1) The budgeted indirect-cost rate is calculated ________.

1.    A) at the beginning of the year

2.    B) during the year

3.    C) at the end of each quarter

4.    D) at the end of the year

Answer:  A

Diff: 1

Objective:  5

AACSB:  Analytical thinking

 

2) The difference between actual costing and normal costing is ________.

1.    A) normal costing uses actual quantities of direct-costs

2.    B) actual costing uses actual quantities of direct-costs

3.    C) normal costing uses budgeted indirect-costs

4.    D) actual costing uses actual quantities of cost-allocation bases

Answer:  C

Diff: 1

Objective:  5

AACSB:  Analytical thinking

 

3) Which of the following statements about normal costing is true?

1.    A) Direct costs and indirect costs are traced using an actual rate.

2.    B) Direct costs and indirect costs are traced using budgeted rates.

3.    C) Direct costs are traced using a budgeted rate, and indirect costs are allocated using an actual rate.

4.    D) Direct costs are traced using an actual rate, and indirect costs are allocated using a budgeted rate.

Answer:  D

Diff: 2

Objective:  5

AACSB:  Analytical thinking

 

4) When using a normal costing system, manufacturing overhead is allocated using the ________ manufacturing overhead rate and the ________ quantity of the allocation base.

1.    A) budgeted; actual

2.    B) budgeted; budgeted

3.    C) actual; budgeted

4.    D) actual; actual

Answer:  A

Diff: 1

Objective:  5

AACSB:  Analytical thinking

 

5) Which of the following statements about actual costing is true?

1.    A) Manufacturing costs of a job are available earlier under actual costing.

2.    B) Corrective actions can be implemented sooner under actual costing.

3.    C) Actual costing uses budgeted indirect-cost rates calculated annually.

4.    D) Actual costing uses actual indirect-cost rates calculated annually.

Answer:  D

Diff: 1

Objective:  5

AACSB:  Analytical thinking

 

Answer the following questions using the information below:

 

For 2014, Thomas Manufacturing uses machine-hours as the only overhead cost-allocation base. The estimated manufacturing overhead costs are $300,000 and estimated machine hours are 50,000. The actual manufacturing overhead costs are $420,000 and actual machine hours are 70,000.

 

6) Using job costing, the 2014 budgeted manufacturing overhead rate is ________.

6.    A) $6.50 per machine-hour

7.    B) $4.80 per machine-hour

8.    C) $5.50 per machine-hour

9.    D) $6.00 per machine-hour

Answer:  D

Explanation:  D) $300,000 / 50,000 mh = $6 per machine-hour

Diff: 2

Objective:  5

AACSB:  Application of knowledge

 

7) What is the difference between the budgeted and the actual manufacturing overhead using job costing?

1.    A) $0.20

2.    B) $0.50

3.    C) $1.00

4.    D) $1.20

Answer:  C

Explanation:  C) Actual manufacturing overhead is $420,000/70,000 = $7.00 per machine hour.

Difference is $7.00 – $6.00 = $1

Diff: 2

Objective:  5

AACSB:  Application of knowledge

Answer the following questions using the information below:

 

Sky High Company has two departments, X and Y. The following estimates are for the coming year:

 

                                                                                                       X                             Y

Direct manufacturing labor-hours                  20,000                   40,000

Machine-hours                                                      40,000                   20,000

Manufacturing overhead                              $200,000               $400,000

 

8) A single indirect-cost rate based on direct manufacturing labor-hours for the entire plant is ________.

1.    A) $15 per direct labor-hour

2.    B) $10 per direct labor-hour

3.    C) $21 per direct labor-hour

4.    D) $12 per direct labor-hour

Answer:  B

Explanation:  B) $600,000 / 60,000 dlh = $10

Diff: 2

Objective:  5

AACSB:  Application of knowledge

 

9) The budgeted indirect-cost driver rate for Y based on the number of machine-hours is in excess of X by ________.

1.    A) $15 per machine-hour

2.    B) $10 per machine-hour

3.    C) $20 per machine-hour

4.    D) $8 per machine-hour

Answer:  A

Explanation:  A) X = $200,000 / 40,000 mh = $5

Y = $400,000/ 20,000 mh = $20; Excess = $20 − $5 = $15

Diff: 2

Objective:  5

AACSB:  Application of knowledge

 

10) Kamrock applies manufacturing overhead costs to products at a budgeted indirect-cost rate of $60 per direct manufacturing labor-hour. A retail outlet has requested a bid on a special order of the Toy Mouse product. Estimates for this order include: Direct materials of $50,000; 600 direct manufacturing labor-hours at $20 per hour; and a 20% markup rate on total manufacturing costs.  Manufacturing overhead cost estimates for this special order total ________.

1.    A) $46,000

2.    B) $34,000

3.    C) $36,000

4.    D) $40,000

Answer:  C

Explanation:  C) $60 × 600 dlh = $36,000

Diff: 2

Objective:  5

AACSB:  Application of knowledge

 

Answer the following questions using the information below:

 

Comfort Manufacturing is a small textile manufacturer using machine-hours as the single indirect-cost rate to allocate manufacturing overhead costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for the Winton High School band jacket job.

 

                                                                              Company           Winton High School Job

Direct materials                                          $40,000                           $2,000

Direct labor                                                  $10,000                               $400

Manufacturing overhead costs              $45,000

Machine-hours                                           100,000  mh                         900 mh

 

11) For Comfort Manufacturing, what is the annual manufacturing overhead cost-allocation rate?

1.    A) $0.50

2.    B) $0.80

3.    C) $0.45

4.    D) $33.33

Answer:  C

Explanation:  C) $45,000/100,000 mh = $0.45 per mh

Diff: 2

Objective:  5

AACSB:  Application of knowledge

 

12) What amount of manufacturing overhead costs will be allocated to this job?

1.    A) $405

2.    B) $425

3.    C) $270

4.    D) $465

Answer:  A

Explanation:  A) 900 mh × $45,000 / 100,000 mh = $405

Diff: 2

Objective:  5

AACSB:  Application of knowledge

 

13) What are the total manufacturing costs of this job?

1.    A) $1,970

2.    B) $2,805

3.    C) $2,905

4.    D) $1,920

Answer:  B

Explanation:  B) DM $2,000 + DML $400 + MOH $405 = $2,805

Diff: 3

Objective:  5

AACSB:  Application of knowledge

 

14) What is the bid price for the Winton High School job if the company uses a 40% markup of total manufacturing costs?

1.    A) $2,310

2.    B) $2,880

3.    C) $2,058

4.    D) $3,927

Answer:  D

Explanation:  D) (DM $2,000 + DML $400 + MOH $405) × 1.40 = $3,927

Diff: 3

Objective:  5

AACSB:  Application of knowledge

 

Answer the following questions using the information below:

 

Apple Valley Corporation uses a job cost system and has two production departments, A and B. Budgeted manufacturing costs for the year are:

 

                                                                                        Department A               Department B

Direct materials                                                $700,000                         $100,000

Direct manufacturing labor                          $200,000                         $800,000

Manufacturing overhead                              $600,000                         $400,000

 

The actual material and labor costs charged to Job #432 were as follows:

 

                                                                                                   Total

Direct materials:                                                 $25,000

Direct labor:

Department A                                               $ 8,000

Department B                                              $12,000

$20,000

 

Apple Valley applies manufacturing overhead costs to jobs on the basis of direct manufacturing labor cost using departmental rates determined at the beginning of the year.