File: ch15, Chapter 15: Job Order Costing

Multiple Choice

1. Cost accounting involves the measuring, recording, and reporting of: a) product costs. b) future costs. c) manufacturing processes. d) managerial accounting decisions. Ans: a Response A: Correct! This is a true statement about cost accounting. Response B: Cost accounting involves the measuring, recording, and reporting of product costs, not future costs. Response C: Cost accounting involves the measuring, recording, and reporting of product costs, not manufacturing processes. Response D: Cost accounting involves the measuring, recording, and reporting of product costs, not managerial accounting decisions.

2. In accumulating raw materials costs, the cost of raw materials purchased in a perpetual system is debited to: a) Raw Materials Purchases. b) Raw Materials Inventory. c) Purchases. d) Work in Process. Ans: b Response A: In a perpetual system, purchases of raw materials are debited to Raw Materials Inventory, not Raw Materials Purchases. Response B: Correct! In a perpetual system, purchases of raw materials are debited to Raw Materials Inventory. Response C: In a perpetual system, purchases of raw materials are debited to Raw Materials Inventory, not Purchases. Response D: In a perpetual system, purchases of raw materials are debited to Raw Materials Inventory, not Work in Process.

3. When incurred, factory labor costs are debited to: a) Work in Process. b) Factory Wages Expense. c) Factory Labor. d) Factory Wages Payable.

Ans: c Response A: When factory labor costs are incurred, they are debited to Factory Labor, not Work in Process. Response B: When factory labor costs are incurred, they are debited to Factory Labor, not Factory Wages Expense. Response C: Correct! When factory labor costs are incurred, they are debited to Factory Labor. Response D: When factory labor costs are incurred, they are debited to Factory Labor and credited to Factory Wages Payable.

4. The source documents for assigning costs to job cost sheets are: a) invoices, time tickets, and the predetermined overhead rate. b) materials requisition slips, time tickets, and the actual overhead costs. c) materials requisition slips, payroll register, and the predetermined overhead rate. d) materials requisition slips, time tickets, and the predetermined overhead rate. Ans: d Response A: Materials requisition slips, not invoices, are used to assign direct materials, time tickets are used to assign direct labor, and the predetermined overhead rate is used to assign manufacturing overhead to job cost sheets. Response B: Materials requisition slips are used to assign direct materials, time tickets are used to assign direct labor and the predetermined overhead rate, not the actual overhead costs, is used to assign manufacturing overhead to job cost sheets. Response C: Materials requisition slips are used to assign direct materials, time tickets, not the payroll register, are used to assign direct labor and the predetermined overhead rate is used to assign manufacturing overhead to job cost sheets. Response D: Correct! Materials requisition slips are used to assign direct materials, time tickets are used to assign direct labor and the predetermined overhead rate is used to assign manufacturing overhead to job cost sheets.

5. In recording the issuance of raw materials in a job order cost system, it would be incorrect to: a) debit Work in Process Inventory. b) debit Finished Goods Inventory. c) debit Manufacturing Overhead. d) credit Raw Materials Inventory. Ans: b Response A: When raw materials are issued for direct materials in a job order cost system, Work in Process Inventory is debited. Response B: Correct! Finished Goods Inventory is debited when goods are transferred from work in process to finished goods, not when raw materials are issued for a job. Response C: When raw materials are issued for indirect materials in a job order cost system, Manufacturing Overhead is debited. Response D: When raw materials are issued in a job order cost system, Raw Materials Inventory is credited.

6. The entry when direct factory labor is assigned to jobs is a debit to: a) Work in Process Inventory and a credit to Factory Labor. b) Manufacturing Overhead and a credit to Factory Labor. c) Factory Labor and a credit to Manufacturing Overhead. d) Factory Labor and a credit to Work in Process Inventory. Ans: a Response A: Correct! This is the entry that should be recorded when direct labor is assigned to jobs. Response B: When direct labor is assigned to jobs, Work in Process Inventory, not Manufacturing Overhead is debited and Factory Labor is credited. Response C: When direct labor is assigned to jobs, Work in Process Inventory, not Factory Labor is debited and Factory Labor, not Manufacturing Overhead is credited. Response D: When direct labor is assigned to jobs, Work in Process Inventory, not Factory Labor is debited and Factory Labor, not Work in Process Inventory is credited.

7. The formula for computing the predetermined manufacturing overhead rate is estimated annual overhead costs divided by an expected annual operating activity, expressed as: a) direct labor cost. b) direct labor hours. c) machine hours. d) any of the above. Ans: d Response A: Direct labor cost can be used in computing the predetermined manufacturing overhead rate, but d is a better answer. Response B: Direct labor hours can be used in computing the predetermined manufacturing overhead rate, but d is a better answer. Response C: Machine hours can be used in computing the predetermined manufacturing overhead rate, but d is a better answer. Response D: Correct! Any of the activity measures mentioned can be used in computing the predetermined manufacturing overhead rate.

8. In Crawford Company, the predetermined overhead rate is 80% of direct labor cost. During the month, $210,000 of factory labor costs are incurred, of which $180,000 is direct labor and $30,000 is indirect labor. Actual overhead incurred was $200,000. The amount of overhead debited to Work in Process Inventory should be: a) $120,000. b) $144,000. c) $168,000. d) $160,000. Ans: b

Response A: Work in Process Inventory should be debited for $144,000 ($180,000 X 80%), the amount of manufacturing overhead applied. Response B: Correct! Work in Process Inventory should be debited for $144,000 ($180,000 X 80%), the amount of manufacturing overhead applied. Response C: Work in Process Inventory should be debited for $144,000 ($180,000 X 80%), the amount of manufacturing overhead applied. Response D: Work in Process Inventory should be debited for $144,000 ($180,000 X 80%), the amount of manufacturing overhead applied.

9. In Mynex Company, Job No. 26 is completed at a cost of $4,500 and later sold for $7,000 cash. A correct entry is: a) Debit Finished Goods Inventory $7,000 and credit Work in Process Inventory $7,000 b) Debit Cost of Goods Sold $7,000 and credit Finished Goods Inventory $7,000. c) Debit Finished Goods Inventory $4,500 and credit Work in Process Inventory $4,500. d) Debit Accounts Receivable $7,000 and credit Sales $7,000. Ans: c Response A: The debit and credit accounts are correct for the completion of a job, but the amounts should be for the cost of the job ($4,500), not the sale amount ($7,000). Response B: The debit and credit accounts are correct for the completion of a job, but the amounts should be for the cost of the job ($4,500), not the sale amount ($7,000). Response C: Correct! When a job costing $4,500 is completed, Finished Goods Inventory is debited for $4,500 and Work in Process Inventory is credited for $4,500. Response D: This answer is incorrect because the debit should be to Cash, not Accounts Receivable.

10. Manufacturing overhead is underapplied if: a) Actual overhead is less than applied. b) Actual overhead is greater than applied. c) The predetermined rate equals the actual rate. d) Actual overhead equals applied overhead. Ans: b Response A: Manufacturing overhead is underapplied if actual overhead is greater than applied overhead. Response B: Correct! Manufacturing overhead is underapplied if actual overhead is greater than applied overhead. Response C: Manufacturing overhead is underapplied if actual overhead is greater than applied overhead. Response D: Manufacturing overhead is underapplied if actual overhead is greater than applied overhead.