Management Accounting, Cdn.

6e (Horngren/Sundem/Stratton/Beaulieu)
Chapter 6 Job-Costing Systems
1) Product costs appear as cost of goods sold in income statements and as finished-goods inventory
values in balance sheets.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 223
Objective: 1
2) Two extremes of product costing are job-order costing and normal costing.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 223
Objective: 1
3) The entry to record the requisition of direct materials would include a debit to WIP Inventory.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 223
Objective: 1
4) A job-order cost system associates costs with particular jobs.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 223
Objective: 1
5) A job-order cost system is especially appropriate for situations where basically similar units flow
through production on a fairly continuous basis.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 223
Objective: 1
6) Labour time tickets indicate the direct labour time worked by an individual on each job.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 223
Objective: 1
7) The work-in-process account will have a balance only if there is unfinished work in the factory.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 223
Objective: 1
8) Materials inventory, work in process, and cost of goods sold would appear in the asset section of the
balance sheet.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 223
Objective: 1

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9) Most firms use actual costing because it provides product cost information on a timely basis.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 223
Objective: 1
10) The most widely used approach in disposing of an overhead variance is proration.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 225
Objective: 2
11) The proration method of disposing of overhead variances prorates the variance among three accounts
including Direct-Materials Inventory, WIP Inventory and Finished Goods Inventory.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 225
Objective: 2
12) Job-order costing can be used only in manufacturing environments.
Answer: FALSE
Diff: 1
Type: TF
Page Ref: 223
Objective: 1
13) In nonprofit organizations, the product is usually called a program or a class of service.
Answer: TRUE
Diff: 1
Type: TF
Page Ref: 260
Objective: 1
14) Which of the following is a product cost?
A) Direct material costs
B) Selling costs
C) Distribution costs
D) Administrative costs
Answer: A
Diff: 1
Type: MC
Page Ref: 223
Objective: 1
15) Which of the following industries is most likely to NOT use a job-order costing system?
A) Construction
B) Chemicals
C) Aircraft
D) Printing
Answer: B
Diff: 1
Type: MC
Page Ref: 223
Objective: 1

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16) Which of the following industries is most likely to NOT use a process costing system?
A) Chemicals
B) Plastics
C) Furniture
D) Meat packing
Answer: C
Diff: 1
Type: MC
Page Ref: 223
Objective: 1
17) A unique individual product would be better accounted for using a
A) process costing system.
B) period costing system.
C) product costing system.
D) job-order costing system.
Answer: D
Diff: 1
Type: MC
Page Ref: 223
Objective: 1
18) Which of the following statements regarding process costing is FALSE?
A) Process costing deals with great masses of like units.
B) Process costing is an averaging process.
C) In process costing the measure of production is small, whereas in job-order costing the measure of
production is large.
D) Process costing is one of the extremes of product costing.
Answer: C
Diff: 1
Type: MC
Page Ref: 223
Objective: 1
19) The centrepiece of a job-costing system is the
A) materials requisition form.
B) job-cost record.
C) labour time ticket.
D) budgeted overhead rate.
Answer: B
Diff: 1
Type: MC
Page Ref: 223
Objective: 8
20) Material requisitions are used for recording
A) materials purchased.
B) materials issued and used in production.
C) materials on hand in the storeroom.
D) none of the above
Answer: B
Diff: 2
Type: MC
Page Ref: 223
Objective: 1

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21) A department that is equipment intensive would most likely use a budgeted factory overhead rate
based on which of the following cost drivers:
A) machine hours
B) direct labour hours
C) direct labour cost
D) units of direct labour used
Answer: A
Diff: 2
Type: MC
Page Ref: 230
Objective: 4
22) Budgeted factory overhead rates are calculated as
A) budgeted total overhead/budgeted total activity.
B) estimated total overhead/actual total activity.
C) actual total overhead/actual total activity.
D) actual total overhead/estimated total activity.
Answer: A
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
23) The overhead costs of a given period might appear in all of the following EXCEPT
A) materials inventory.
B) work in process.
C) finished goods.
D) cost of goods sold.
Answer: A
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
Use the following information to answer the following item(s).
Estimated overhead
Actual overhead costs incurred
Estimated direct labour hours
Actual direct labour hours worked

$320,000
$344,400
40,000
42,000

24) The budgeted factory overhead rate for applying manufacturing overhead would be
A) $7.62.
B) $8.00.
C) $8.20.
D) $8.61.
Answer: B
Diff: 2
Type: MC
Page Ref: 229
Objective: 3

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25) If the budgeted factory overhead rate is used to apply overhead, applied manufacturing overhead
would be
A) $321,000.
B) $328,000.
C) $336,000.
D) $344,400.
Answer: C
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
26) The amount of the overhead variance would be
A) $24,400 overapplied.
B) $24,400 underapplied.
C) $8,400 overapplied.
D) $8,400 underapplied.
Answer: D
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
Witty, Inc. uses a job-order cost system and had the following data available for 20X1.
Direct materials purchased on account
Direct materials requisitioned
Direct-labour cost incurred
Factory overhead incurred
Cost of goods completed
Cost of goods sold
Beginning direct-materials inventory
Beginning WIP inventory
Beginning finished goods inventory
Overhead application rate
(as a percent of direct-labour cost)

$148,000
82,000
130,000
146,000
292,000
256,000
26,000
64,000
58,000
110 percent

27) The journal entry to record the materials placed into production would include a
A) credit to Direct-Materials Inventory for $82,000.
B) debit to Direct-Materials Inventory for $148,000.
C) credit to WIP Inventory for $82,000.
D) debit to WIP Inventory for $148,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 225
Objective: 2

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28) The journal entry to record the factory overhead costs incurred would include a
A) debit to Factory Department Overhead Control for $146,000.
B) credit to Factory Department Overhead Control for $143,000.
C) debit to WIP Inventory for $146,000.
D) credit to WIP Inventory for $143,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 225
Objective: 2
29) The journal entry to record the application of the factory overhead would include a
A) debit to Factory Department Overhead Control for $143,000.
B) debit to WIP Inventory for $143,000.
C) credit to Factory Department Overhead Control for $146,000.
D) credit to WIP Inventory for $146,000.
Answer: B
Diff: 2
Type: MC
Page Ref: 225
Objective: 2
30) The journal entry to record the cost of goods completed would include a
A) debit to WIP Inventory for $256,000.
B) credit to Finished Goods Inventory for $292,000.
C) credit to Cost of Goods Sold for $256,000.
D) credit to WIP Inventory for $292,000.
Answer: D
Diff: 2
Type: MC
Page Ref: 225
Objective: 2
31) The journal entry to record the sale of all jobs would include a
A) debit to Finished Goods Inventory for $292,000.
B) credit to WIP Inventory for $256,000.
C) credit to Finished Goods Inventory for $256,000.
D) credit to Cost of Goods Sold for $292,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 225
Objective: 2
32) The ending inventory of direct materials is
A) $92,000.
B) $174,000.
C) $82,000.
D) $108,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 225
Objective: 2

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Dentlinger Company uses a job-order cost system and had the following data available for 20X2.
Beginning direct-materials inventory
Beginning WIP Inventory
Beginning finished goods inventory
Direct materials purchased on account
Direct materials requisitioned
Direct-labour cost incurred
Factory overhead incurred
Cost of goods completed
Cost of goods sold
Overhead application rate
(as a percent of direct-labour cost)

$ 52,000
128,000
116,000
296,000
164,000
260,000
292,000
584,000
512,000
110 percent

33) The journal entry to record the materials placed into production would include a
A) credit to Direct-Materials Inventory for $164,000.
B) debit to Direct-Materials Inventory for $296,000.
C) credit to WIP Inventory for $164,000.
D) debit to WIP Inventory for $296,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
34) The journal entry to record the factory overhead costs incurred would include a
A) debit to Factory Department Overhead Control for $292,000.
B) credit to Factory Department Overhead Control for $286,000.
C) debit to WIP Inventory for $292,000.
D) credit to WIP Inventory for $286,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
35) The journal entry to record the application of the factory overhead would include a
A) debit to Factory Department Overhead Control for $286,000.
B) debit to WIP Inventory for $286,000.
C) credit to Factory Department Overhead Control for $292,000.
D) credit to WIP Inventory for $292,000.
Answer: B
Diff: 2
Type: MC
Page Ref: 225
Objective: 2

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36) The journal entry to record the cost of goods completed would include a
A) debit to WIP Inventory for $512,000.
B) credit to Finished Goods Inventory for $584,000.
C) credit to Cost of Goods Sold for $512,000.
D) credit to WIP Inventory for $584,000.
Answer: D
Diff: 2
Type: MC
Page Ref: 225
Objective: 2
37) The journal entry to record the sale of all jobs would include a
A) debit to Finished Goods Inventory for $584,000.
B) credit to WIP Inventory for $512,000.
C) credit to Finished Goods Inventory for $512,000.
D) credit to Cost of Goods Sold for $584,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 225
Objective: 2
38) The ending inventory of direct materials is
A) $184,000.
B) $348,000.
C) $164,000.
D) $216,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 225
Objective: 2

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Witty, Inc. uses a job-order cost system and had the following data available for 20X1.
Direct materials purchased on account
Direct materials requisitioned
Direct-labour cost incurred
Factory overhead incurred
Cost of goods completed
Cost of goods sold
Beginning direct-materials inventory
Beginning WIP inventory
Beginning finished goods inventory
Overhead application rate
(as a percent of direct-labour cost)

$148,000
82,000
130,000
146,000
292,000
256,000
26,000
64,000
58,000
110 percent

39) The ending inventory of work in process is

A) $130,000.
B) $127,000.
C) $64,000.
D) $36,000.
Answer: B
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
40) The ending inventory of finished goods is
A) $58,000.
B) $36,000.
C) $94,000.
D) $292,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 229
Objective: 3

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Dentlinger Company uses a job-order cost system and had the following data available for 20X2.
Beginning direct-materials inventory
Beginning WIP Inventory
Beginning finished goods inventory
Direct materials purchased on account
Direct materials requisitioned
Direct-labour cost incurred
Factory overhead incurred
Cost of goods completed
Cost of goods sold
Overhead application rate
(as a percent of direct-labour cost)

$ 52,000
128,000
116,000
296,000
164,000
260,000
292,000
584,000
512,000
110 percent

41) The ending inventory of work in process is

A) $260,000.
B) $254,000.
C) $128,000.
D) $72,000.
Answer: B
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
42) The ending inventory of finished goods is
A) $160,000.
B) $72,000.
C) $188,000.
D) $584,000.
Answer: C
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
43) To compute the budgeted factory-overhead rate, the budgeted cost driver is divided into the
A) actual factory overhead.
B) budgeted work-in-process.
C) estimated cost of goods sold.
D) budgeted total overhead.
Answer: D
Diff: 1
Type: MC
Page Ref: 229
Objective: 3

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44) To apply the budgeted overhead to a job, the budgeted overhead rate is multiplied by the
A) actual cost-driver data.
B) budgeted cost-driver data.
C) actual factory-overhead costs.
D) estimated factory-overhead costs.
Answer: A
Diff: 1
Type: MC
Page Ref: 229
Objective: 3
Harnack Company had the following information:
Budgeted variable factory overhead
Budgeted fixed factory overhead
Actual variable factory overhead
Actual fixed factory overhead

$88,000
62,000
90,000
70,000

Budgeted cost driver activity levels:

Direct-labour hours
Direct-labour costs
Machine hours
Production setups

10,000
50,000
20,000
5,000

Actual cost driver activity levels:

Direct-labour hours
Direct-labour costs
Machine hours
Production setups

10,500
55,200
18,730
4,760

45) The budgeted factory-overhead rate using direct-labour hours as the cost driver is
A) $16.00.
B) $14.29.
C) $15.00.
D) $15.24.
Answer: C
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
46) The budgeted factory-overhead rate using direct-labour costs as the cost driver is
A) 272 percent.
B) 300 percent.
C) 320 percent.
D) 290 percent.
Answer: B
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
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47) The budgeted factory-overhead rate using machine hours as the cost driver is
A) $8.00.
B) $8.01.
C) $8.54.
D) $7.50.
Answer: D
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
48) The budgeted factory-overhead rate using production setups as the cost driver is
A) $31.51.
B) $32.00.
C) $30.00.
D) $33.61.
Answer: C
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
49) If Job 100 used 838 direct-labour hours, the overhead applied using direct-labour hours as the cost
driver should be
A) $11,972.
B) $12,570.
C) $13,408.
D) $12,770.
Answer: B
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
50) If Job 200 used $8,736 of direct labour cost, the overhead applied using direct-labour cost as the cost
driver should be
A) $26,208.
B) $23,762.
C) $27,956.
D) $25,333.
Answer: A
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
51) If Job 300 used 2,558 machine hours, the overhead applied using machine hours as the cost driver
should be
A) $20,490.
B) $20,464.
C) $21,846.
D) $19,185.
Answer: D
Diff: 2
Type: MC
Page Ref: 229
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Objective: 3
52) If Job 400 used 230 production setups, the overhead applied using production setups as the cost driver
should be
A) $6,900.
B) $7,248.
C) $7,360.
D) $7,730.
Answer: A
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
53) The following information was gathered for Barton Company for the year ended December 31, 20X1.
Budgeted direct-labour hours
Actual direct-labour hours
Budgeted factory overhead
Actual factory overhead

62,000
64,800
$294,500
$299,960

Assume that direct-labour hours is the cost driver. What is the budgeted factory-overhead rate?
A) $4.63
B) $4.54
C) $4.75
D) $4.84
Answer: C
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
The following information was gathered for Larsen Company for the year ended December 31, 20X1.
Budgeted direct-labour hours
Actual direct-labour hours
Budgeted factory overhead
Actual factory overhead

15,500
16,200
$73,625
$74,990

54) Assume that direct-labour hours is the cost driver. What is the budgeted factory-overhead rate?
A) $4.75
B) $4.63
C) $4.54
D) $4.84
Answer: A
Diff: 2
Type: MC
Page Ref: 229
Objective: 3

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55) Assume that direct-labour hours is the cost driver. What is the amount of factory overhead applied?
A) $73,625
B) $76,950
C) $71,765
D) $74,990
Answer: B
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
56) As managers seek more accurate product costing, overhead application solely on the basis of directlabour hours or direct-labour cost is certain to
A) increase in popularity.
B) remain about as popular as it currently is.
C) decrease in popularity.
D) increase or decrease depending upon amounts involved.
Answer: C
Diff: 1
Type: MC
Page Ref: 223
Objective: 1
57) A normal costing system uses the following:
A) actual direct material, actual direct labour, and actual overhead.
B) actual direct material, actual direct labour, and applied overhead.
C) actual direct material, applied direct labour, and actual overhead.
D) applied direct material, applied direct labour, and actual overhead.
Answer: B
Diff: 1
Type: MC
Page Ref: 232
Objective: 5
58) Which of the following is NOT a contributory cause of overhead variances?
A) Poor forecasting
B) Inefficient use of overhead items
C) Calendar variations, number of workdays in a month
D) Operating at the level of volume used as a denominator in calculating the budgeted overhead rate
Answer: D
Diff: 1
Type: MC
Page Ref: 223
Objective: 1
59) A company that produces less than its planned volume for a year will
A) underapply overhead.
B) not have an overhead variance.
C) overapply overhead.
D) not necessarily over- or underapply overhead.
Answer: D
Diff: 1
Type: MC
Page Ref: 229
Objective: 3

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60) The excess of actual overhead over the overhead applied to products is called
A) overapplied overhead.
B) underapplied overhead.
C) overestimated overhead.
D) prorated overhead.
Answer: B
Diff: 1
Type: MC
Page Ref: 223
Objective: 1
61) The most widely used approach to disposing of overhead variances is
A) proration.
B) to allocate between cost of goods sold and finished goods inventory.
C) immediate write-off.
D) to capitalize as a cost of finished goods inventory.
Answer: C
Diff: 2
Type: MC
Page Ref: 225
Objective: 2
62) In the immediate write-off approach, underapplied overhead is regarded as
A) a reduction in current income.
B) an addition to the cost of inventory.
C) a decrease in cost of goods sold.
D) a decrease in the cost of inventory.
Answer: A
Diff: 1
Type: MC
Page Ref: 225
Objective: 2
63) In the immediate write-off approach, overapplied overhead is regarded as
A) a decrease in current income.
B) a decrease in cost of goods sold.
C) an addition to the cost of inventory.
D) a reduction to the cost of inventory.
Answer: B
Diff: 1
Type: MC
Page Ref: 225
Objective: 2
64) If the overhead control account has a debit balance at the end of the period,
A) overhead is overapplied and the difference should be credited to the proper accounts.
B) overhead is overapplied and the difference should be debited to the proper accounts.
C) overhead is underapplied and the difference should be debited to the proper accounts.
D) overhead is underapplied and the difference should be credited to the proper accounts.
Answer: C
Diff: 1
Type: MC
Page Ref: 225
Objective: 2

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65) If the overhead control account has a credit balance at the end of the period,
A) overhead is overapplied and the difference should be credited to the proper accounts.
B) overhead is overapplied and the difference should be debited to the proper accounts.
C) overhead is underapplied and the difference should be debited to the proper accounts.
D) overhead is underapplied and the difference should be credited to the proper accounts.
Answer: A
Diff: 2
Type: MC
Page Ref: 225
Objective: 2
66) The proration method of disposing of overhead variances assigns the variance in proportion to the
sizes of the ending account balances to
A) WIP and finished goods inventory.
B) cost of goods sold and WIP inventory.
C) direct materials and WIP inventory.
D) cost of goods sold, WIP and finished goods inventory.
Answer: D
Diff: 1
Type: MC
Page Ref: 225
Objective: 2
67) Reed Company incurred actual overhead costs of $640,000 for the year. A budgeted factory-overhead
rate of 210 percent of direct-labour cost was determined at the beginning of the year. Budgeted factory
overhead was $630,000, and budgeted direct-labour cost was $300,000. Actual direct-labour cost was
$320,000 for the year.
The factory overhead variance for the year was
A) $10,000 underapplied.
B) $10,000 overapplied.
C) $32,000 underapplied.
D) $32,000 overapplied.
Answer: D
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
68) Fulton Company incurred actual overhead costs of $160,000 for the year. A budgeted factory-overhead
rate of 210 percent of direct-labour cost was determined at the beginning of the year. Budgeted factory
overhead was $157,500, and budgeted direct-labour cost was $75,000. Actual direct-labour cost was
$80,000 for the year.
The factory overhead variance for the year was
A) $2,500 underapplied.
B) $2,500 overapplied.
C) $8,000 underapplied.
D) $8,000 overapplied.
Answer: D
Diff: 2
Type: MC
Page Ref: 229
Objective: 3

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69) Reed Company incurred actual overhead costs of $640,000 for the year. A budgeted factory-overhead
rate of 210 percent of direct-labour cost was determined at the beginning of the year. Budgeted factory
overhead was $630,000, and budgeted direct-labour cost was $300,000. Actual direct-labour cost was
$320,000 for the year.
The disposition of the variance, assuming an immaterial amount, would include a
A) debit to Cost of Goods Sold for $32,000.
B) credit to Cost of Goods Sold for $32,000.
C) debit to Cost of Goods Sold for $10,000.
D) credit to Cost of Goods Sold for $10,000.
Answer: B
Diff: 2
Type: MC
Page Ref: 225
Objective: 2
70) Reed Company incurred actual overhead costs of $640,000 for the year. A budgeted factory-overhead
rate of 210 percent of direct-labour cost was determined at the beginning of the year. Budgeted factory
overhead was $630,000, and budgeted direct-labour cost was $300,000. Actual direct-labour cost was
$320,000 for the year.
The disposition of the variance, assuming a material amount, would include a
A) debit to Factory Department Overhead Control for $32,000.
B) credit to Factory Department Overhead Control for $10,000.
C) debit to Cost of Goods Sold for $32,000.
D) credit to Cost of Goods Sold for $10,000.
Answer: A
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
71) Fulton Company incurred actual overhead costs of $160,000 for the year. A budgeted factory-overhead
rate of 210 percent of direct-labour cost was determined at the beginning of the year. Budgeted factory
overhead was $157,500, and budgeted direct-labour cost was $75,000. Actual direct-labour cost was
$80,000 for the year.
The disposition of the variance, assuming an immaterial amount, would include a
A) debit to Cost of Goods Sold for $8,000.
B) credit to Cost of Goods Sold for $8,000.
C) debit to Cost of Goods Sold for $2,500.
D) credit to Cost of Goods Sold for $2,500.
Answer: B
Diff: 2
Type: MC
Page Ref: 225
Objective: 2

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72) Fulton Company incurred actual overhead costs of $160,000 for the year. A budgeted factory-overhead
rate of 210 percent of direct-labour cost was determined at the beginning of the year. Budgeted factory
overhead was $157,500, and budgeted direct-labour cost was $75,000. Actual direct-labour cost was
$80,000 for the year.
The disposition of the variance, assuming a material amount, would include a
A) debit to Factory Department Overhead Control for $8,000.
B) credit to Factory Department Overhead Control for $2,500.
C) debit to Cost of Goods Sold for $8,000.
D) credit to Cost of Goods Sold for $2,500.
Answer: A
Diff: 2
Type: MC
Page Ref: 225
Objective: 2
The following information was gathered for Larsen Company for the year ended December 31, 20X1.
Budgeted direct-labour hours
Actual direct-labour hours
Budgeted factory overhead
Actual factory overhead

15,500
16,200
$73,625
$74,990

73) Assume that direct-labour hours is the cost driver.What is the amount of over/underapplied
overhead?
A) $1,365 underapplied.
B) $1,365 overapplied.
C) $3,225 underapplied.
D) $1,960 overapplied.
Answer: D
Diff: 2
Type: MC
Page Ref: 229
Objective: 3
74) A variance that results when applied overhead is greater than the actual overhead cost incurred.
Answer: Overapplied overhead
Diff: 1
Type: SA Page Ref: 223
Objective: 1
75) A difference between actual overhead and applied overhead.
Answer: Overhead variance
Diff: 1
Type: SA Page Ref: 223
Objective: 1
76) A cost accumulation method that accumulates costs by processes or departments.
Answer: Process costing system
Diff: 1
Type: SA Page Ref: 223
Objective: 1

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77) The overhead assigned to production using a predetermined overhead rate.

Answer: Applied overhead
Diff: 1
Type: SA Page Ref: 223
Objective: 1
78) A system that accumulates manufacturing costs by jobs.
Answer: Job-order costing system
Diff: 1
Type: SA Page Ref: 223
Objective: 1
79) A rate that is calculated by dividing budgeted overhead by budgeted cost-driver activity.
Answer: Budgeted factory overhead rate
Diff: 1
Type: SA Page Ref: 223
Objective: 1
80) A variance that results when the actual overhead cost incurred is greater than applied overhead
Answer: Underapplied overhead
Diff: 1
Type: SA Page Ref: 223
Objective: 1

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81) Bombast Industries identified the following budgeted overhead activities and drivers:
Activity Pools
Machining
Setups
Purchasing

$80,000
15,000
10,000

Activity Drivers
Machine hours 10,000
Number of setups 5,000
Purchase orders 2,000

Data associated with Job 786 follows.

Direct materials $1,000
Direct labour
3,500
Machine hours
300
Number of setups
50
Purchase orders
20
a. Calculate a unit-based overhead rate using machine hours.
b. What is the total cost of Job 786 using the above rate?
c. Calculate three activity-based overhead rates.
d. What is the cost of Job 786 using the above three activity rates?
e. Which method of overhead application (activity-based rates or budgeted factory overhead rate) is more
accurate?
Answer:
a.
Unit-based Overhead Rate using machine hours:
Per hour rate = Total Overhead Costs/Activity
= ($80,000 + $15,000 + $10,000)/10,000 machine hours
= $105,000/10,000 machine hours
= $10.50 per machine hour
b.
Total cost of Job 786 using the above rate:
Direct Materials
Direct labour
Overhead (300 machine hours x $10.50)
Total cost

$1,000
3,500
3,150
$7,650

c.
Three activity-based overhead rates:
Machine rate
= $80,000/10,000
Setup rate
= $15,000/5,000
Purchasing rate
= $10,000/2,000

= $8 per machine hour

= $3 per setup
= $5 per purchase order
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d.
Cost of Job 786 using the above three activity-based overhead rates:
Direct Materials
Direct labour
Overhead:
Machines (300 hours x $8.00)
Setups (50 x $3)
Purchasing (20 x $5)
Total cost

$1,000
3,500
2,400
150
100
$7,150

e.
Activity-based rates are more accurate than budgeted factory overhead rate.
Diff: 3
Type: ES
Page Ref: 236

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82) The FSR Company uses a budgeted factory overhead rate to apply manufacturing overhead to
production. The rate is based on direct labour hours. Estimates for the year 2006 are given below:
Estimated manufacturing overhead
Estimated direct labour hours

$500,000
50,000

During 2006 the Paine Company used 60,000 direct labour hours. At the end of 2006, the company's
records revealed the following information:
Raw materials inventory
Work-in-process inventory
Finished goods inventory
Cost of goods sold
Manufacturing overhead

$ 40,000
100,000
200,000
700,000
510,000

a. Calculate the budgeted overhead rate for 2006.

b. Determine the amount of underapplied or overapplied overhead for 2006.
c. If underapplied or overapplied overhead is treated as an adjustment to cost of goods sold, determine
the cost of goods sold that would appear on the company's income statement.
Answer:
a.
Budgeted Factory Overhead Rate:
Estimated Total Manufacturing Overhead/Estimated Total Activity
= $500,000/50,000 DLH = $10 per DLH
b.
Overapplied overhead for 2006:
Actual overhead costs
Overhead applied during 2006
(60,000 DLH x $10 per DLH)
Overapplied overhead

$510,000
600,000
$ 90,000

c.
Adjusted cost of goods sold:
Cost of goods sold
Overapplied overhead
Adjusted cost of goods sold

$700,000
90,000
$610,000

Since overhead was overapplied, cost of goods sold is reduced.

Diff: 3
Type: ES
Page Ref: 229
Objective: 3

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83) Truss Inc. has two producing departments: assembly and finishing. The company has been using a
plant-wide predetermined overhead rate based on direct labour cost. The following estimates were made
for the current year:

Manufacturing overhead
Direct labour cost
Machine hours

ASSEMBLY

FINISHING

TOTAL

$240,000
$300,000
15,000

$160,000
$500,000
10,000

$400,000
$800,000
25,000

a. Calculate a budgeted factory overhead rate for the current year based on direct labour cost.
b. Calculate separate departmental overhead rates based upon direct labour cost for assembly and
machine hours for finishing.
Answer:
a.
Budgeted Factory Overhead Rate

=Overhead/Direct Labour Cost

= $400,000/$800,000
= 50% of Direct Labour Cost

b.
Assembly Application Rate:
Overhead/Direct Labour Cost

= $240,000/$300,000
= 80% of Direct Labour Cost

Finishing Application Rate:

Overhead/Machine Hours = $160,000/10,000 Hours
= $16 Per Machine Hour
Diff: 3
Type: ES
Page Ref: 229
Objective: 3

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84) IIF Industries uses a job-order costing system and applies overhead on the basis of direct labour
hours.
At the beginning of 2006, management estimated that 200,000 direct labour hours would be worked and
$600,000 of overhead costs would be incurred.
During the year, the company actually worked 220,000 direct labour hours and incurred the following
manufacturing costs:
Indirect labour
Indirect materials
Insurance
Utilities
Repairs & maintenance
Depreciation
Direct materials used in production
Direct labour

$140,000
100,000
50,000
90,000
80,000
180,000
540,000
700,000

a. Calculate the budgeted factory overhead application rate for 2006.

b. Determine the amount of manufacturing overhead applied to work in process during 2006.
c. Determine the amount of underapplied or overapplied overhead for the year.
d. If goods with a cost of $1,500,000 were completed and transferred to finished goods during 2006,
determine the cost of work in process at the end of the period.
e. Prepare the journal entry to close underapplied or overapplied overhead to cost of goods sold.
Answer:
a.
Budgeted Factory Overhead Rate = Estimated Overhead/Estimated Activity
= $600,000/200,000 DLH
= $3.00 per DLH
b.
Overhead applied to work in process during 2006:
= Actual Activity x Predetermined Rate
= 220,000 DLH x $3.00 per DLH
= $660,000

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c.
Overapplied overhead for 2006:
OVERHEAD CONTROL
(Actual Costs)
(Applied)
Indirect labour
$140,000
Indirect materials
$ 100,000
Insurance
$ 50,000
Utilities
90,00
Repairs & maintenance 80,000
Depreciation
180,000
Overhead Applied
Overapplied

$ 660,000
$20,000

d.
Cost of work in process:

(Actual Costs)
Direct materials
Direct labour
Overhead applied

WORK IN PROCESS
(Applied)
$540,000
$700,000
660,000
Goods Completed

Ending Balance

$1,500,000

$400,000

e.
The journal entry to close overapplied overhead to Cost of Goods Sold is:
Overhead Control
Cost of Goods Sold

20,000

20,000

Since overhead was overapplied, Cost of Goods Sold is reduced by $20,000.

Diff: 3
Type: ES
Page Ref: 229
Objective: 3

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85) Cowbell Incorporated uses a job-order costing system and a budgeted factory overhead rate based on
machine hours. At the beginning of the year, Cowbell estimated manufacturing overhead for the year at
$50,000. Machine hours were estimated at 8,000. The following information pertains to December of the
current year:
Job No. 77 Job No. 79 Job No. 73

Totals

Work in process, December 1

$6,000

$2,500

$1,500

$10,000

Materials requisitioned

$1,200

$ 800

$ 650

$ 2,650

Direct labour costs

$1,000

$ 400

$ 250

$ 1,650

300

200

100

600

Machine hours

Actual manufacturing overhead costs incurred in December were $5,000 of which $1,000 was depreciation
on the factory building and $500 was depreciation on the production equipment.
a. Compute the budgeted factory overhead application rate.
b. Prepare the journal entries to record the activity for the month of December.
c. Determine the cost associated with each job.
d. If Job No. 77 was completed during December, what is the balance of Work in Process as at December
31?
e. If there was no balance in the Overhead Control account on December 1, what is the balance as at
December 31?
f. Prepare the journal entry to close underapplied or overapplied overhead to cost of goods sold.
Answer:
a.
Budget Factory Overhead

= $50,000/8,000 Machine Hours

= $6.25 Per Machine Hours

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b.
Journal entries to record the activity for the month of December:
- Entry to record issuance of direct materials for production:
Work in Process
Raw Materials Inventory

2,650

2,650

- Entry to record direct labour used in production:

Work in Process
Wages Payable

1,650

1,650

- Entry to record actual overhead costs incurred during December:

Overhead Control
5,000
Accounts Payable
Accumulated Depreciation - Building
Accumulated Depreciation - Equipment

3,500
1,000
500

- Entry to record overhead applied during December:

Work in Process
Overhead Control
*($6.25 600)

3,750*

3,750

c.
Job No. 77
Work in Process, December 1

6,000

Job No. 79

Job No. 73

2,500

1,500

December Production Activity:

Materials

1,200

800

650

Direct Labour

1,000

400

250

Manufacturing Overhead:
$6.25 300 Machine Hours

1,875

$6.25 200 Machine Hours

1,250

$6.25 100 Machine Hours

Totals

625
$10,075

4,950

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3,025

d.
If Job No. 77 was completed during December, Work in Process at December 31 would have a balance of
$7,975 (Job No. 79 at $4,950 and Job No. 73 at $3,025).
e.
The balance in the Overhead Control account at December 31 could be calculated as follows:
OVERHEAD CONTROL
(Actual Costs)
(Applied)
$5,000
$3,750
Underapplied

$1,250

f.
Journal entry to close underapplied overhead to cost of goods sold:
Cost of Goods Sold
1,250
Overhead Control

1,250

Since overhead was underapplied, Cost of Goods Sold is increased by $1,250.

Diff: 3
Type: ES
Page Ref: 229
Objective: 3

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86) Samsonite Corp. uses a budgeted factory-overhead rate to apply overhead to production. The
following data are available for the year ended December 31, 20X1.
Budgeted factory overhead
Actual factory overhead
Budgeted direct-labour costs
Actual direct-labour costs
Budgeted direct-labour hours
Actual direct-labour hours

$337,500
$358,000
$225,000
$216,000
25,000
26,650

Required:
a. Determine the budgeted factory-overhead rate based on direct-labour costs.
b. Determine the budgeted factory-overhead rate based on direct-labour hours.
c. What is the applied overhead based on direct-labour costs?
d. What is the applied overhead based on direct-labour hours?
e. Assuming the variance is immaterial, give the journal entry to write off the variance based on directlabour hours.
Answer:
a. $337,500/$225,000 = 150 percent
b. $337,500/25,000 hrs. = $13.50 per hour
c. 150 percent $216,000 = $324,000
d. $13.50 26,650 hrs. = $359,775
e. $358,000 - $359,775 = $1,775 overapplied
Factory Department Overhead Control
Cost of Goods Sold
Diff: 3
Type: ES
Page Ref: 229
Objective: 3

1,775

1,775

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87) Sanford Company applies overhead based upon machine hours. Budgeted factory overhead was
$532,800 and budgeted machine hours were 37,000. Actual factory overhead was $575,840 and actual
machine hours were 38,100. Before disposition of under/overapplied overhead, the cost of goods sold was
$1,120,000 and ending inventories were as follows:
Direct materials
WIP
Finished goods
Total

$ 120,000
380,000
500,000
$1,000,000

Required:
a. Determine the budgeted factory-overhead rate per machine hour.
b. Compute the over/underapplied overhead.
c. Assuming the variance is immaterial, give the journal entry to dispose of the variance.
d. Assuming the variance is material, give the journal entry to dispose of the variance using proration.
Answer:
a. $532,800/37,000 hrs. = $14.40 per hour
b.

$14.40 38,100 hours = $548,640 - $575,840 = $27,200 underapplied overhead

c.

Cost of Goods Sold

27,200
Factory Department Overhead Control

27,200

d. $1,120,000 + $380,000 + $500,000 = $2,000,000

Cost of Goods Sold:
$1,120,000/$2,000,000 = 56 percent $27,200 = $15,232
WIP:
$380,000/$2,000,000 = 19 percent $27,200 = $5,168
Finished Goods:
$500,000/$2,000,000 = 25 percent $27,200 = $6,800
Cost of Goods Sold
WIP Inventory
Finished Goods Inventory
Factory Department Overhead Control
Diff: 3
Type: ES
Objective: 3

15,232
5,168

6,800
27,200

Page Ref: 229

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88) Russell Company had the following balances as of December 31, 20X5.
Cost of goods sold
Direct-materials inventory
WIP inventory
Finished goods inventory
Factory department overhead control

$500,000
100,000
340,000
160,000
50,000 Cr.

Required:
a. Does the variance represent over- or underapplied overhead?
b. Prepare the entry to dispose of the variance using the proration method.
c. What effect, if any, did the entry in part b have on gross profit?
Answer:
a.
Overapplied
b.

$500,000 + $340,000 + $160,000 = $1,000,000

Cost of Goods Sold:
$500,000/$1,000,000 = 50 percent $50,000 = $25,000
WIP:
$340,000/$1,000,000 = 34 percent $50,000 = $17,000
Finished Goods:
$160,000/$1,000,000 = 16 percent $50,000 = $8,000
Factory Department Overhead Control
Cost of Goods Sold
WIP Inventory
Finished Goods Inventory

50,000

25,000
17,000
8,000

c.
The gross profit would increase by $25,000.
Diff: 3
Type: ES
Page Ref: 229
Objective: 3

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