True False Questions

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True / False Questions

• The use of a predetermined overhead rate in a job-order cost system makes it possible to

compute the total cost of a job before production is begun.

True False

• If direct labor-hours is used as the allocation base in a job-order costing system, but overhead

costs are not caused by direct-labor hours, then jobs with high direct labor requirements will tend to be undercosted relative to jobs with low direct labor requirements.

True False

3. The formula for computing the predetermined overhead rate is:

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

True False

• When the predetermined overhead rate is based on direct labor-hours, the amount of overhead

applied to a job is proportional to the estimated amount of direct labor-hours for the job.

True False

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2-2 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

• The cost of a completed job in a job-order costing system typically consists of the actual direct

materials cost of the job, the actual direct labor cost of the job, and the manufacturing overhead cost applied to the job.

True False

• Job cost sheets are used to record the costs of preparing routine accounting reports.

True False

• In a job-order cost system, direct labor is assigned to a job using information from the employee

time ticket.

True False

• The cost categories that appear on a job cost sheet include selling expense, manufacturing

expense, and administrative expense.

True False

• When completed goods are sold, the transaction is recorded as a debit to Cost of Goods Sold and

a credit to Finished Goods.

True False

• The following entry would be used to record depreciation on manufacturing equipment:

Work in Process XXX Accumulated Depreciation XXX

True False

• The sum of all amounts transferred from the Work in Process account to the Finished Goods

account represents the Cost of Goods Sold for the period.

True False

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• Indirect materials are charged to specific jobs.

True False

• When a job is completed, the goods are transferred from the production department to the

finished goods warehouse and the journal entry would include a debit to Work in Process.

True False

• Manufacturing overhead is overapplied if actual manufacturing overhead costs for a period are

greater than the amount of manufacturing overhead cost that was charged to Work in Process.

True False

• If the actual manufacturing overhead cost for a period exceeds the manufacturing overhead cost

applied, then manufacturing overhead would be considered to be underapplied.

True False

Multiple Choice Questions

• Emco Company uses direct labor cost as a basis for computing its predetermined overhead rate. In

computing the predetermined overhead rate for last year, the company misclassified a portion of direct labor cost as indirect labor. The effect of this misclassification will be to:

• understate the predetermined overhead rate.

• overstate the predetermined overhead rate.

• have no effect on the predetermined overhead rate.

• cannot be determined from the information given.

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• Departmental overhead rates are generally preferred to plant-wide overhead rates when:

• the activities of the various departments in the plant are not homogeneous.

• the activities of the various departments in the plant are homogeneous.

• most of the overhead costs are fixed.

• all departments in the plant are heavily automated.

• In computing its predetermined overhead rate, Brady Company included its factory insurance cost

twice. This error will result in:

• the ending balance of Finished Goods to be understated.

• the credits to the Manufacturing Overhead account to be understated.

• the Cost of Goods Manufactured to be overstated.

• the Net Operating Income to be overstated.

• Which of the following entries would correctly record the application of overhead cost?

• Work in Process XXX

Accounts Payable XXX

• Manufacturing Overhead XXX

Accounts Payable XXX

• Manufacturing Overhead XXX

Work in Process XXX

• Work in Process XXX

Manufacturing Overhead XXX