Copyright 2018 McGraw-Hill

1 Copyright © 2018 McGraw-Hill Managerial Accounting, 16e (Garrison)

Chapter 2 Job-Order Costing: Calculating Unit Product Costs

1) A cost driver is a factor, such as machine-hours, beds occupied, computer time, or flight- hours, that causes direct costs.

2) Job-order costing systems often use allocation bases that do not reflect how jobs actually use overhead resources.

3) An employee time ticket is an hour-by-hour summary of the employee's activities throughout the day.

4) The formula for computing the predetermined overhead rate is:

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base

5) Generally speaking, when going through the process of computing a predetermined overhead rate, the estimated total manufacturing overhead cost is determined before estimating the amount of the allocation base.

6) If a job is not completed at year end, then no manufacturing overhead cost would be applied to that job when a predetermined overhead rate is used.

7) Actual overhead costs are not assigned to jobs in a job costing system.

8) The amount of overhead applied to a particular job equals the actual amount of overhead caused by the job.

9) If the overhead rate is computed annually based on the actual costs and activity for the year, the manufacturing overhead assigned to any particular job can be computed as soon as the job is completed.

10) Job cost sheets contain entries for actual direct material, actual direct labor, and actual manufacturing overhead cost incurred in completing a job.

11) In a job-order cost system, indirect labor is assigned to a job using information from the employee time ticket.

12) If the allocation base in the predetermined overhead rate does not drive overhead costs, it will nevertheless provide reasonably accurate unit product costs because of the averaging process.

13) A job cost sheet is used to record how much a customer pays for the job once the job is completed.

14) In a job-order costing system, costs are traced to individual units of product. The sum total of such traced costs is called the unit product cost.Managerial Accounting 16th Edition Garrison Test Bank Visit TestBankDeal.com to get complete for all chapters

2 Copyright © 2018 McGraw-Hill 15) The fact that one department may be labor intensive while another department is machine intensive explains in part why multiple predetermined overhead rates are often used in larger companies.

16) A company will improve job cost accuracy by using multiple overhead rates even if it cannot identify more than one overhead cost driver.

17) The appeal of using multiple departmental overhead rates is that they presumably provide a more accurate accounting of the costs caused by jobs.

18) The costs attached to products that have not been sold are included in ending inventory on the balance sheet.

19) In absorption costing, nonmanufacturing costs are assigned to units of product.

20) An employee time ticket is an hour-by-hour summary of the employee's activities throughout the day.

21) A bill of materials is a document that lists the type and quantity of each type of direct material needed to complete a unit of product.

22) Most countries require some form of absorption costing for external reports.

23) In a job-order costing system that is based on machine-hours, which of the following formulas is correct?

• Predetermined overhead rate = Actual manufacturing overhead ÷ Actual machine-hours
• Predetermined overhead rate = Actual manufacturing overhead ÷ Estimated machine-hours
• Predetermined overhead rate = Estimated manufacturing overhead ÷ Estimated machine-

hours

• Predetermined overhead rate = Estimated manufacturing overhead ÷ Actual machine-hours

24) Which of the following is the correct formula to compute the predetermined overhead rate?

• Predetermined overhead rate = Estimated total units in the allocation base ÷ Estimated total

manufacturing overhead costs

• Predetermined overhead rate = Estimated total manufacturing overhead costs ÷ Estimated

total units in the allocation base

• Predetermined overhead rate = Actual total manufacturing overhead costs ÷ Estimated total

units in the allocation base

• Predetermined overhead rate = Estimated total manufacturing overhead costs ÷ Actual total

units in the allocation base.

3 Copyright © 2018 McGraw-Hill 25) Assigning manufacturing overhead to a specific job is complicated by all of the below

except:

• Manufacturing overhead is an indirect cost that is either impossible or difficult to trace to a

particular job.

• Manufacturing overhead is incurred only to support some jobs.
• Manufacturing overhead consists of both variable and fixed costs.
• The average cost of actual fixed manufacturing overhead expenses will vary depending on

how many units are produced in a period.

26) Which of the following statements about using a plantwide overhead rate based on direct labor is correct?

• Using a plantwide overhead rate based on direct labor-hours will ensure that direct labor costs

are correctly traced to jobs.

• Using a plantwide overhead rate based on direct labor costs will ensure that direct labor costs

will be correctly traced to jobs.

• It is often overly simplistic and incorrect to assume that direct labor-hours is a company's

only manufacturing overhead cost driver.

• The labor theory of value ensures that using a plantwide overhead rate based on direct labor

will do a reasonably good job of assigning overhead costs to jobs.

27) Which of the following would usually be found on a job cost sheet under a normal cost system?

Actual direct material cost Actual manufacturing overhead cost

• Yes Yes
• Yes No
• No Yes
• No No

• Choice A
• Choice B
• Choice C
• Choice D

28) Which of the following statements is not correct concerning multiple overhead rate systems?

• A multiple overhead rate system is more complex than a system based on a single plantwide

overhead rate.

• A multiple overhead rate system is usually more accurate than a system based on a single

plantwide overhead rate.

• A company may choose to create a separate overhead rate for each of its production

departments.

• In departments that are relatively labor-intensive, their overhead costs should be applied to

jobs based on machine-hours rather than on direct labor-hours.

4 Copyright © 2018 McGraw-Hill 29) Johansen Corporation uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. The Corporation has provided the following estimated

costs for the next year:

Direct materials $ 6,000 Direct labor $ 20,000 Rent on factory building $ 15,000 Sales salaries $ 25,000 Depreciation on factory equipment $ 8,000 Indirect labor $ 12,000 Production supervisor's salary $ 15,000

Jameson estimates that 20,000 direct labor-hours will be worked during the year. The

predetermined overhead rate per hour will be:

• $2.50 per direct labor-hour
• $2.79 per direct labor-hour
• $3.00 per direct labor-hour
• $4.00 per direct labor-hour

30) The Silver Corporation uses a predetermined overhead rate to apply manufacturing overhead to jobs. The predetermined overhead rate is based on labor cost in Dept. A and on machine-hours in Dept. B. At the beginning of the year, the Corporation made the following estimates:

Dept. A Dept. B Direct labor cost $ 60,000 $ 40,000 Manufacturing overhead $ 90,000 $ 45,000 Direct labor-hours 6,000 9,000 Machine-hours 2,000 15,000

What predetermined overhead rates would be used in Dept. A and Dept. B, respectively?

• 67% and $3.00
• 150% and $5.00
• 150% and $3.00
• 67% and $5.00

31) Purves Corporation is using a predetermined overhead rate that was based on estimated total fixed manufacturing overhead of $121,000 and 10,000 direct labor-hours for the period. The company incurred actual total fixed manufacturing overhead of $113,000 and 10,900 total direct

labor-hours during the period. The predetermined overhead rate is closest to:

A) $10.37

B) $12.10

C) $11.10

D) $11.30