Fundamentals of Product and Service Costing: True / False Questions

Chapter 06
Fundamentals of Product and Service Costing

True / False Questions

1. The term "product" often refers to an organization's output and includes both tangible items (e.g., chair,
desk, etc.) and intangible items (e.g., services provided).

True False

2. Individual product costs are relevant for managerial decision-making but irrelevant for preparing the
financial statements.

True False

3. One of the most common decisions facing managers is determining the price at which to sell one of their
products or to provide their services.

True False

4. It is important that cost management systems are designed using the cost-benefit principle so that the costs
of gathering additional information are balanced against the benefits of that information.

True False

5. In general, indirect costs are allocated, while direct costs are assigned.

True False

6. Cost management systems should be designed to report the same costs to each decision-maker.

True False

7. The only purpose of cost information is to determine the individual product cost on a per unit basis in order
to value inventory.

True False

8. "Beginning Balance (BB) plus Transfers Out (TO) equals Ending Balance (EB) plus Transfers In (TI)".

True False

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McGraw-Hill Education.
9. The Transfers In (TI) costs in the basic cost flow model of a manufacturing firm are direct materials, direct
labor, and manufacturing overhead.

True False

10. The basic cost flow model applies only to physical units and not to costs.

True False

11. If the Beginning Balance (BB) equals the Ending Balance (EB), then the Transfers In (TI) equal the
Transfers Out (TO).

True False

12. The predetermined overhead rate is calculated by dividing the prior period's overhead cost by the prior
period's allocation base (i.e., activity level).

True False

13. Overestimating a period's allocation base will understate the predetermined overhead rate.

True False

14. Regression analysis can be used to estimate the strength of the relationship between a cost and potential
allocation bases for that cost.

True False

15. The two-stage cost allocation process allocates costs to multiple cost pools and then to individual cost
objects using different allocation bases.

True False

16. If a company has three cost pools, it should have three different cost allocation bases.

True False

17. The selection of an appropriate cost allocation base is more important for single-stage cost allocation
systems than for two-stage cost allocation systems.

True False

18. Hospitals are more likely to use a process costing system than a job order costing system.

True False

19. Process costing systems do not separate and record direct material and direct labor costs for each individual
unit of product.

True False

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20. Operation costing is a hybrid system used in manufacturing goods that have some common characteristics
and some individual characteristics.

True False

Multiple Choice Questions

21. Which of the following statements is (are) true regarding product costing?
(A) Individual product costs are relevant for managerial decision-making but irrelevant for preparing the
(B) A common decision facing managers is determining the price at which to sell their products or provide
their services.

A. Only A is true.
B. Only B is true.
C. Both A and B are true.
D. Neither A nor B is true.

22. A system that provides information about the costs of processes, products, and services used and produced
by an organization is a:

A. continuous flow process.

B. cost management system.
C. two-stage allocation system.
D. operations cost.

23. Which of the following statements is (are) false regarding cost allocations and product costing?
(A) It is easier to determine the individual product cost for a manufacturer than it is for a wholesaler.
(B) In general, indirect costs are assigned, while direct costs are allocated.

A. Only A is false.
B. Only B is false.
C. Both A and B are false.
D. Neither A nor B is false.

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24. The Cost Flow Diagram for product costing includes all of the following costs except:

A. selling expenses.
B. direct materials.
C. direct labor.
D. fixed manufacturing overhead.

25. Which of the following statements does not reflect one of the fundamental themes underlying the design of
cost systems for managerial purposes?

A. Cost systems should have a decision focus.

B. Different cost information is used for different purposes.
C. Cost information for managerial purposes must meet the cost-benefit principle.
D. The primary purpose of cost systems is to gather information to value inventory.

26. Case (A) Case (B) Case (C)
Beginning Balance (BB) ? $23,000 $7,900
Ending Balance (EB) $67,000 19,200 8,300
Transferred In (TI) 149,600 97,700 ?
Transferred Out (TO) 164,600 ? 21,100
For Case (A) above, what is the Beginning Balance (BB)?

A. $52,000.
B. $82,000.
C. $67,000.
D. $97,600.

For Case (B) above, what is the amount Transferred Out (TO)?

A. $93,900.
B. $101,500.
C. $116,900.
D. $120,700.

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For Case (C) above, what is the amount Transferred In (TI)?

A. $12,800.
B. $20,700.
C. $21,500.
D. $29,400.

29. The basic cost flow model is:

A. BB + TO = TI + EB.
B. BB + TO - TI = EB.
C. EB = BB + TI - TO.
D. EB - BB = TO - TI.


A. EB + TO = TI + BB.
C. EB = BB - TI + TO.


A. EB + BB = TI + TO.
B. BB + EB = TI + TO.
C. EB - BB = TI - TO.


A. BB + TO - TI = EB.
B. BB + EB - TO = TI.
C. BB - TI - TO = EB.
D. BB + TI - TO = EB.

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Beginning Balance (BB) $36,520 $15,100 $5,600
Ending Balance (EB) ? 11,400 12,200
Transferred In (TI) 166,200 ? 68,400
Transferred Out (TO) 164,400 93,200 ?
For Case (A) above, what is the Ending Balance (EB)?

A. $36,920.
B. $36,520.
C. $34,720.
D. $38,320.

For Case (B) above, what is the Transferred-In (TI)?

A. $96,900.
B. $119,700.
C. $89,500.
D. $66,700.

For Case (C) above, what is the Transferred-Out (TO)?

A. $75,000.
B. $61,800.
C. $68,400.
D. $80,600.

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Ending Balance (EB) 34,360 ? 75,100
Transferred Out (TO) 192,800 46,500 181,900

A. $36,400.
B. $32,560.
C. $37,680.
D. $34,040.

For Case (B) above, what is the Ending Balance (EB)?

A. $4,730.
B. $12,530.
C. $46,500.
D. $8,630.

For Case (C) above, what is the Transferred-In (TI)?

A. $146,700.
B. $178,400.
C. $190,790.
D. $185,400.

6-7
Beginning Balance (BB) 64,800 $59,840 ?
Transferred In (TI) 189,100 79,530 65,200
Transferred Out (TO) ? 76,420 67,300
For Case (A) above, what is the Transferred-Out (TO)?

A. $185,600.
B. $192,600.
C. $126,100.
D. $178,890.


A. $139,300.
B. $136,260.
C. $62,950.
D. $56,730.

For Case (C) above, what is the Beginning Balance (BB)?

A. $15,900.
B. $2,100.
C. $11,700.
D. $13,800.

6-8
42. Refresh produces soft drinks and sodas. Production of 100,000 liters was started in February, 85,000 liters
were completed. Material costs were $38,220 for the month while conversion costs were $16,380. There
was no beginning work-in-process; the ending work-in-process was 40% complete. What is the cost of the
product that was completed and transferred to finished goods?

A. $54,600.
B. $51,000.
C. $46,410.
D. $38,220.

43. Refresh produces soft drinks and sodas. Production of 100,000 liters was started in February, 85,000 liters
were completed. Material costs were $38,220 for the month while conversion costs were $16,380. There
was no beginning work-in-process; the ending work-in-process was 40% complete. What is the cost of the
product that remains in work-in-process?

A. $16,380.
B. $51,000.
C. $3,600.
D. $9,000.

44. MegaRock produces quick setting concrete mix. Production of 200,000 tons was started in April, 190,000
tons were completed. Material costs were $3,152,000 for the month while conversion costs were $591,000.
There was no beginning work-in-process; the ending work-in-process was 70% complete. What is the cost
of the product that was completed and transferred to finished goods?

A. $3,610,000.
B. $3,555,850.
C. $2,994,400.
D. $3,743,000.

There was no beginning work-in-process; the ending work-in-process was 70% complete. What is the cost
of the product that remains in work-in-process?

A. $591,000.
B. $131,005.
C. $187,150.
D. $133,000.

6-9
There was no beginning work-in-process; the ending work-in-process was 70% complete. What is the
material cost of the product that remains in work-in-process?

A. $315,200.
B. $157,600.
C. $112,000.
D. $160,000.

47. QuikCard processes credit card receipts for local banks. QuikCard processed 1,400,000 receipts in October.
All receipts are processed the same day they are received. October costs were labor of $14,000 and
overhead of $28,000. What is the cost to process 1,000 receipts?

A. $10.00.
B. $30.00.
C. $20.00.
D. $42.00.

48. Slider processes rebate requests for a large building supply firm. Slider processed 420,000 rebates in
March. All rebates are processed the same day they are received. March costs were labor of $28,000 and
overhead of $14,000. What is the cost to process 1,000 rebates?

A. $66.67.
B. $100.00.
C. $10.00.
D. $42.00.

49. When a manufacturing company has a highly automated manufacturing plant producing many different
products, what is probably the most appropriate basis of applying overhead costs to work-in-process?

A. Direct labor hours.

B. Direct labor dollars.
C. Machine hours.
D. Cost of materials used.

6-10
50. Magnum Company uses direct labor cost as a basis for computing its predetermined overhead rate. In
computing the predetermined overhead rate for 2016, the company misclassified a portion of direct labor
cost as indirect labor. The effect of this misclassification will be to:

A. understate the predetermined overhead rate.

B. overstate the predetermined overhead rate.
C. there will be no effect on the predetermined overhead rate.
D. Can't tell from the information provided.

51. In a labor intensive company in which more overhead is used by the more highly skilled and paid
employees, which activity base would be most appropriate for applying overhead to production?

A. Direct labor cost.

B. Direct material cost.
C. Direct labor hours.
D. Machine hours.

52. The following information has been gathered for the Harrell Manufacturing Company for its fiscal year
ending December 31:
Actual manufacturing overhead costs $212,500

Actual direct labor hours 54,900
Actual direct labor costs $445,000
Estimated manufacturing overhead costs $210,000
Estimated direct labor $434,000
Estimated direct labor hours 56,000
What is the predetermined manufacturing overhead rate per direct labor hour?

A. $3.87.
B. $3.79.
C. $3.83.
D. $3.75.

6-11
ending December 31:

What is the predetermined manufacturing overhead rate, assuming direct labor cost is used as the activity
base?

A. 48.4%.
B. 47.2%.
C. 49.0%.
D. 47.8%.

54. The predetermined manufacturing overhead rate for 2016 was $4.00 per direct labor hour; employees were
paid $5.00 per hour. If the estimated direct labor cost was $75,000, what was the estimated manufacturing
overhead?

A. $15,000.
B. $60,000.
C. $75,000.
D. $93,750.

55. The Bondi Company uses a predetermined overhead rate in applying overhead to production orders on a
direct labor cost basis in Department A and on a machine hours basis in Department B. At the beginning of
the year, the company made the following estimates:
Dept. A Dept. B
Direct labor cost $60,000 $40,000
Factory overhead $90,000 $45,000
Direct labor hours 6,000 9,000
Machine hours 2,000 15,000
What predetermined overhead rate would be used in Department A and Department B, respectively?

A. 150% and 300%.

B. 150% and $3.00.
C. $1.50 and 300%.
D. $1.50 and $3.00.

6-12
56. Fortify, Inc. uses a predetermined manufacturing overhead rate based on direct labor hours to apply its
indirect product costs to jobs. The following information has been collected for the previous year:
Direct materials $150,000

Direct labor 200,000
Sales commissions 100,000
Indirect labor 50,000
Rent on office equipment 25,000
Depreciation - factory building 75,000
Utilities - factory 125,000
Fortify used 25,000 direct labor hours and 50,000 machine hours during the previous year. What is the
predetermined overhead rate per direct labor hour?

A. $24.00.
B. $15.00.
C. $14.00.
D. $10.00.

57. Rapid Enterprises applies manufacturing overhead to its cost objects on the basis of 75% of direct material
cost. If Job 17X had $72,000 of manufacturing overhead applied to it during May, the direct materials
assigned to Job 17X was:

A. $54,000.
B. $72,000.
C. $96,000.
D. $126,000.

58. The Titan Enterprises Company manufactures cleaning spray for public schools. During 2016, the company
spent $600,000 on prime costs and $800,000 on conversion costs. Overhead is applied at a rate of 150% of
direct labor costs. How much did the company allocate (apply) for manufacturing overhead during 2016?

A. $480,000.
B. $360,000.
C. $320,000.
D. $300,000.

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59. Flare Co. manufactures textiles. Among Flare's 2016 manufacturing costs were the following salaries and
wages:
Loom operators $120,000

Factory foremen 45,000
Machine mechanics 30,000
What was the amount of Flare's 2016 direct labor? (CPA adapted)

A. $195,000.
B. $165,000.
C. $150,000.
D. $120,000.

60. Flare Co. manufactures textiles. Among Flare's 2016 manufacturing costs were the following salaries and
wages:

What was the amount of Flare's 2016 indirect labor? (CPA adapted)

A. $75,000
B. $165,000
C. $150,000
D. $120,000

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61. The following direct labor information pertains to the manufacture of product Scour:
2 direct labor
Time required to make one unit
hours
Number of direct workers 50
Number of productive hours per week,
40
per worker
Weekly wages per worker $500
Workers’ benefits treated as direct labor
20% of wages
costs
What is the standard direct labor cost per unit of product Scour? (CPA adapted)

A. $30.
B. $24.
C. $15.
D. $12.

62. The following direct labor information pertains to the manufacture of product Glaze:
3 direct labor
hours
36
per worker
Workers’ benefits treated as direct labor
30% of wages
costs
What is the standard direct labor cost per unit of product Glaze? (CPA adapted)

A. $19.44.
B. $25.28.
C. $58.33.
D. $75.83.

63. The cost per unit of the allocation base used to charge overhead to products is the:

A. job cost.
B. predetermined overhead rate.
C. operational cost.
D. process cost.

6-15
64. Arbor, Inc. has estimated overhead to be $300,000 and labor hours to be 30,000. Actual overhead turned
out to be $310,000 when 30,500 labor hours were worked. The predetermined overhead rate would be:

A. 101.67%.
B. $10.00.
C. $10.16.
D. $10.33.

65. Arbor, Inc. had overhead of $310,000 during the year when $260,000 in labor costs were incurred.
Estimates at the start of the year for overhead and labor costs were $300,000 for overhead and $250,000 for
labor costs. The predetermined overhead rate would be:

A. 101.67%.
B. 104.00%.
C. 120.00%.
D. 83.33%.

66. The following information has been gathered for Catalyst Legal Services for its fiscal year ending
December 31:
Actual office overhead costs $1,275,500

Actual billable labor hours 44,600
Actual billable labor costs $3,960,000
Estimated office overhead costs $1,080,000
Estimated billable labor hours 48,000
Estimated billable labor costs $4,320,000
What is the predetermined office overhead rate per billable labor hour?

A. $28.60.
B. $26.57.
C. $22.50.
D. $24.22.

6-16
December 31:

What is the predetermined office overhead rate per billable labor dollar?

A. 118.10%.
B. 25.00%.
C. 32.21%.
D. 400.00%.

68. The following information has been gathered for Foxmoor Industries for its fiscal year ending December
31:
Estimated factory overhead costs $1,500,000

Actual factory overhead costs $1,776,400
Estimated labor hours 48,000
Actual labor hours 51,700
Estimated labor costs $756,000
Actual labor costs $840,125
Estimated machine hours 96,000
Actual machine hours 102,600
What is the predetermined factory overhead rate per labor dollar?

A. 178.54%.
B. 211.44%.
C. 118.43%.
D. 198.41%.

6-17
31:

What is the predetermined factory overhead rate per labor hour?

A. $29.01.
B. $31.25.
C. $37.01.
D. $34.36.

31:

What is the predetermined factory overhead rate per machine hour?

A. $15.625.
B. $14.620.
C. $18.504.
D. $17.314.

6-18
71. Savor Flavor Supplies applies manufacturing overhead to its products on the basis of 50% of direct material
cost. If a job had $35,000 of manufacturing overhead applied to it during May, the direct materials assigned
to the job was:

A. $17,500.
B. $35,000.
C. $70,000.
D. $140,000.

72. Trippett Industries manufactures cleaning products. During the year, the company spent $600,000 on
chemicals and $728,000 on conversion costs. Overhead is applied at a rate of 180% of direct labor costs.
How much did the company spend on manufacturing overhead during the year?

A. $260,000.
B. $468,000.
C. $128,000.
D. $404,444.

73. The predetermined manufacturing overhead rate for the year was $14.00 per direct labor hour; employees
were paid $17.50 per hour. If the estimated direct labor cost was $315,000, what was the estimated
manufacturing overhead?

A. $22,500.
B. $90,000.
C. $252,000.
D. $393,750.

74. The predetermined manufacturing overhead rate for the year was 140% of direct labor cost; employees
were paid $17.50 per hour. If the estimated direct labor hours were 15,000, what was the estimated

A. $210,000.
B. $187,500.
C. $262,500.
D. $367,500.

75. In computing its predetermined overhead rate, Stiles Company inadvertently left its indirect labor costs out
of the computation. This oversight will cause:

A. Manufacturing Overhead to be overapplied.

B. the Cost of Goods Manufactured to be understated.
C. the debits to the Manufacturing Overhead account to be understated.
D. the ending balance in Work-in-Process to be overstated.

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76. Which of the following is the correct formula to compute the predetermined overhead rate?

A. Estimated total units in the allocation base divided by estimated total manufacturing overhead costs.
B. Estimated total manufacturing overhead costs divided by estimated total units in the allocation base.
C. Actual total manufacturing overhead costs divided by estimated total units in the allocation base.
D. Estimated total manufacturing overhead costs divided by actual total units in the allocation base.

77. Which of the following would probably be the least appropriate allocation base for allocating overhead in a
highly automated manufacturer of specialty valves?

A. Machine-hours.
B. Power consumption.
C. Direct labor-hours.
D. Machine setups.

78. At the beginning of the year, manufacturing overhead for the year was estimated to be $267,500. At the end
of the year, actual direct labor-hours for the year were 22,100 hours, the actual manufacturing overhead for
the year was $262,500, and manufacturing overhead for the year was overapplied by $13,750. If the
predetermined overhead rate is based on direct labor-hours, then the estimated direct labor-hours at the
beginning of the year used in the predetermined overhead rate must have been:

A. 22,100 direct labor-hours.

B. 19,900 direct labor-hours.
C. 21,000 direct labor-hours.
D. 21,400 direct labor-hours.

79. The Work in Process inventory account of a manufacturing firm shows a balance of $3,000 at the end of an
accounting period. The job cost sheets of two uncompleted jobs show charges of $500 and $300 for
materials, and charges of $400 and $600 for direct labor. From this information, it appears that the
company is using a predetermined overhead rate, as a percentage of direct labor costs, of:

A. 83%.
B. 120%.
C. 40%.
D. 300%.

6-20
80. Markham Corporation uses a job-order costing system. The following data are for last year:
Estimated direct labor-hours 12,000

Actual direct labor-hours 11,000
Markham applies overhead using a predetermined rate based on direct labor-hours. What predetermined
overhead rate was used last year?

A. $3.55 per direct labor-hour.

B. $3.25 per direct labor-hour.
C. $3.08 per direct labor-hour.
D. $3.36 per direct labor-hour.

81. Hyu Corporation bases its predetermined overhead rate on the estimated labor-hours for the upcoming year.
At the beginning of the most recently completed year, the company estimated the labor-hours for the
upcoming year at 52,000 labor-hours. The estimated variable manufacturing overhead was $2.78 per labor-
hour and the estimated total fixed manufacturing overhead was $1,192,360. The actual labor-hours for the
year turned out to be 52,600 labor-hours. The predetermined overhead rate for the recently completed year
was closest to:

A. $2.78.
B. $25.45.
C. $25.71.
D. $22.93.

82. Marvel Company uses a predetermined overhead rate in applying overhead to production orders on a labor
cost basis in Department A and on a machine-hours basis in Department B. At the beginning of the most
recently completed year, the company made the following estimates:
Dept. A Dept. B
Direct labor-hours 8,000 9,000
Machine-hours 4,000 15,000

A. 83% and $5.

B. 83% and $3.
C. 120% and $3.
D. 120% and $5.

6-21
83. Moore Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming
year. Data for the most recently completed year appear below:
Estimates made at the

beginning of the year:
Estimated machine-hours 19,000
Estimated variable per machine-
$7.89
manufacturing overhead hour
Estimated total fixed
$465,880
manufacturing overhead
Actual machine-hours for the
20,200
year
The predetermined overhead rate for the recently completed year was closest to:

A. $7.89.
B. $30.95.
C. $24.52.
D. $32.41.

84. Ashland Corporation estimates its manufacturing overhead costs to be $160,000 and its direct labor costs to
be $320,000 for 2016. The actual manufacturing labor costs were $80,000 for job 1, $120,000 for job 2 and
$160,000 for job 3 during 2016. Manufacturing overhead is applied to jobs on the basis of direct labor costs
using a predetermined overhead rate. The actual manufacturing overhead cost for the year was $172,000.
The amount of overhead assigned to Job 3 during 2016 was:

A. $80,000.
B. $320,000.
C. $160,000.
D. $71,110.

85. The predetermined overhead rate for manufacturing overhead for Ashland Corporation was $8.00 per direct
labor hour. The estimated labor rate was $10.00 per hour. If the estimated direct labor cost was $150,000,
what was the estimated manufacturing overhead?

A. $93,750.
B. $75,000.
C. $120,000.
D. $15,000.

6-22
86. The Crater Company uses predetermined overhead rates to apply manufacturing overhead to jobs. The
predetermined overhead rate is based on labor cost in Dept. A and machine-hours in Dept. B. At the
beginning of the year, the company made the following estimates:
Dept A Dept B
Manufacturing overhead $91,000 $48,000
What predetermined overhead rates would be used in Dept A and Dept B, respectively?

A. 71% and $4.00.

B. 140% and $4.00.
C. 140% and $4.80.
D. 71% and $4.80.

87. Flambe Corporation bases its predetermined overhead rate on the estimated machine-hours for the
upcoming year. At the beginning of the most recently completed year, the company estimated the machine-
hours for the upcoming year at 22,000 machine-hours. The estimated variable manufacturing overhead was
$8.65 per machine-hour and the estimated total fixed manufacturing overhead was $609,400. The
predetermined overhead rate for the recently completed year was closest to:

A. $36.35 per machine-hour.

B. $27.70 per machine-hour.
C. $33.32 per machine-hour.
D. $8.65 per machine-hour.

6-23
88. Horton Industries Company uses a predetermined overhead rate based on machine-hours to apply
manufacturing overhead to jobs. The company has provided the following estimated costs for next year:

Direct labor $30,000
Sales commissions $40,000
Salary of production supervisor $20,000
Indirect materials $4,000
Advertising expense $8,000
Rent on factory equipment $10,000
Horton estimates that 5,000 direct labor-hours and 10,000 machine-hours will be worked during the year.
The predetermined overhead rate per hour will be:

A. $6.80.
B. $6.40.
C. $3.40.
D. $8.20.

89. Spring Corporation bases its predetermined overhead rate on the estimated machine-hours for the upcoming
year. Data for the upcoming year appear below:

$6.68
$1,283,800

A. $6.68.
B. $25.02.
C. $25.59.
D. $18.34.

6-24
90. The following data have been recorded for recently completed Job 674 on its job cost sheet. Direct
materials cost was $2,039. A total of 32 direct labor-hours and 175 machine-hours were worked on the job.
The direct labor wage rate is $14 per labor-hour. The company applies manufacturing overhead on the basis
of machine-hours. The predetermined overhead rate is $15 per machine-hour. The total cost for the job on
its job cost sheet would be:

A. $2,967.
B. $2,487.
C. $2,068.
D. $5,112.

91. Job 731 was recently completed. The following data have been recorded on its job cost sheet:

Direct labor-hours 69 labor-hours
Direct labor wage rate $13 per labor-hour
Machine-hours 129 machine-hours
The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead
rate is $14 per machine-hour. The total cost that would be recorded on the job cost sheet for Job 731 would
be:

A. $3,288.
B. $5,094.
C. $4,254.
D. $2,418.

6-25
92. Under Pierre Company's job-order costing system, manufacturing overhead is applied to Work in Process
inventory using a predetermined overhead rate. During January, Pierre's transactions included the
following:
Direct materials issued to

$90,000
production
Indirect materials issued to
$8,000
production
Manufacturing overhead
$125,000
cost incurred
$113,000
cost applied
Direct labor cost incurred $107,000
Pierre Company had no beginning or ending inventories. What was the cost of goods manufactured for
January? (CMA adapted)

A. $302,000.
B. $310,000.
C. $322,000.
D. $330,000.

93. Buster Corporation, a manufacturing company, has provided data concerning its operations for September.
The beginning balance in the raw materials account was $37,000 and the ending balance was $29,000. Raw
materials purchases during the month totaled $57,000. Manufacturing overhead cost incurred during the
month was $102,000, of which $2,000 consisted of raw materials classified as indirect materials. The direct
materials cost for September was:

A. $63,000.
B. $57,000.
C. $65,000.
D. $49,000.

94. Morton Inc. has provided the following data for the month of November. The balance in the Finished
Goods inventory account at the beginning of the month was $49,000 and at the end of the month was
$45,000. The cost of goods manufactured for the month was $226,000. The actual manufacturing overhead
cost incurred was $74,000 and the manufacturing overhead cost applied to Work in Process was $70,000.
The adjusted cost of goods sold that would appear on the income statement for November is:

A. $226,000.
B. $230,000.
C. $222,000.
D. $234,000.

6-26
95. A company is considering the use of a single-stage cost allocation process. Under what conditions would
this choice be justified?

A. The company has many service departments but only one production department.
B. The company produces a few products with similar characteristics in a few departments.
C. The company has no service departments but many production departments.
D. The company produces a wide selection of differing products.

96. Which of the following statements regarding the two-stage cost allocation process is (are) false?
(A) If a company has three cost pools, then it should also have three different cost allocation bases.
(B) The selection of an appropriate cost allocation base is more important for single-stage cost allocation

A. Only A is false.
B. Only B is false.

97. Cost pools are:

A. costs that are accumulated before being allocated to cost objects on some common basis.
B. costs that are relevant to decision-making but irrelevant to financial reporting.
C. product costs that are assigned to cost objects using direct labor or machine hours.
D. accounts in the product life cycle from research and development to customer service.

98. The process of first allocating costs to intermediate cost pools and then to the individual cost objects using
different allocation bases is a(n):


D. operations cost.

99. Which of the following would be the least appropriate allocation base for allocating overhead in a highly
automated (i.e., capital-intensive) manufacturing company?

A. Electricity used.
B. Machine hours.
D. Material consumed.

6-27
100. A system that mass-produces a single, homogenous output in a continuous process is a(n):


D. operation costing.

101. A hybrid costing system that is often used when manufacturing goods that have some common
characteristics plus some individual characteristics is called:


D. operations cost.

102. Which of the following statements is true?

A. Job costing can only be used when a single unit is produced rather than a batch.
B. Process costing is used when products are customized.
C. Job costing must be used in a continuous flow processing environment.
D. Process costing does not separately record the costs for each unit.

103. For which of the following businesses would the job order cost system be appropriate?

A. Law office.
B. Crude oil refinery.
C. Baby formula manufacturer.
D. Soft drink producer.

104. The loan department of a financial corporation makes loans to businesses. The costs of processing these
loans are often several thousand dollars. All loans are initially evaluated using the same financial analysis
software, but some require outside services such as appraisals and legal services. Which is the most
appropriate costing system for the loan department?

A. Job-order costing.
B. Process costing.
C. Operation costing.
D. Batch costing.

6-28
105. The Paris Manufacturing Company produces a single uniform product throughout the year. Which of the
following product costing systems should be used by Paris?

B. Process costing.
D. Batch costing.

Essay Questions

6-29
106. Logansville Manufacturing produces lamps for large department stores. For 2016, the two production
departments had budgeted allocation bases of 100,000 machine hours in Department 1 and 50,000 direct
manufacturing labor hours in Department 2. The budgeted manufacturing overheads for 2016 were
$1,200,000 for Department 1 and $1,000,000 for Department 2. For Job 100, the actual costs incurred in
the two departments were as follows:
Department Department

1 2
Direct materials purchased $44,000 $71,000
Direct materials used 34,000 7,600
Direct manufacturing labor 21,000 21,400
Indirect manufacturing
4,400 3,600
labor
Indirect materials used 3,000 1,900
Lease on equipment 6,500 1,500
Utilities 1,000 1,200
Job 100 incurred 700 machine hours in Department 1 and 75 in Department 2 and 200 manufacturing
labor hours in Department 1 and 250 in Department 2. The company uses a budgeted departmental
overhead rate for applying overhead to production. Job 100 consisted of 3,000 lamps.
Required:
Calculate the total cost and per unit cost of Job 100.

6-30

Number of units completed 3,000 units
The company applies manufacturing overhead on the basis of machine-hours. The predetermined overhead
rate is $12 per machine-hour.
Required:
Compute the unit product cost that would appear on the job cost sheet for this job.

6-31

Direct labor-hours 1,147 DLHs
Direct labor wage rate $11 per DLH
The company applies manufacturing overhead on the basis of direct labor-hours. The predetermined
overhead rate is $20 per direct labor-hour.
Required:

6-32
109. Assume that the following events occurred at a division of Sawyer Enterprises for the current year.
(1) Purchased $900,000 in direct materials.

(2) Incurred direct labor costs of $520,000.
(3) Determined that manufacturing overhead was $820,000.
(4) Transferred 75% of the materials purchased to Work-in-Process Inventory.
(5) Completed work on 60% of the work in process. Costs assigned equally across all work-in-process.
(6) The inventory accounts have no beginning balances. All costs incurred were debited to the appropriate
account and credited to Accounts Payable.
Required:
Compute the following amounts in the Work-in-Process Inventory account:
(a) Transfers-in (TI).

(b) Transfers-out (TO).
(c) Ending balance (EB).

6-33
110. Assume that the following events occurred at a division of Advanced Enterprises for the current year.

(6) The inventory accounts have no beginning balances.
Required:


6-34
111. Determine the missing values from the table below:
Case
Case (A) Case (B) Case (D)
(C)
Beginning
$41,520 $24,100 $5,450 ?
Balance (BB)
Ending Balance
? 22,400 11,370 $38,910
(EB)
Transferred In
224,870 ? 84,400 189,460
(TI)
Transferred Out
217,400 106,200 ? 193,610
(TO)

Case (A) Case (B) Case (C) Case (D)

Beginning
? $25,760 $12,050 $11,450
Balance (BB)
Ending Balance
$19,455 ? 21,200 5,370
(EB)
Transferred In
199,460 214,870 ? 87,300
(TI)
Transferred Out
193,610 217,400 131,200 ?
(TO)

6-35
113. Flynn and Morgan Refiners began business on July 1. The following operations data are available for July
and the one product the company produces:
Gallons
Beginning inventory -0-
Started in July 310,000
Ending work-in-process inventory
(80% complete) 30,000
Cost incurred in July were:
Materials $250,000
Labor 52,000
Manufacturing overhead 154,000
All production at Flynn and Morgan is sold as it is produced (i.e., there are no finished goods inventories).
Required:
(a) Compute cost of goods sold for July.

(b) What is the value of the work-in-process inventory on July 31?

6-36
114. Mason Industries restarted operations on September 1 after a 3 month shutdown. There were no beginning
inventories. The following operations data are available for September and the one product the company
refines:
Gallons
Completed in September 450,000
(70% complete) 15,000
Cost incurred in September were:
Materials $560,400
Labor 164,300
All production at Mason is sold immediately.
Required:
(a) Compute cost of goods sold for September.

(b) What is the value of the work-in-process inventory on September 30?

6-37
115. Hindsville produces a cleaning solvent. Production of 200,000 gallons was started in February, 170,000
gallons were completed. Material costs were $138,220 for the month while conversion costs were
$116,380. There was no beginning work-in-process; the ending work-in-process was 60% complete.
Required:
(a) What is the total cost of the product that was completed and transferred to finished goods?
(b) What is the value of the ending work-in-process?

116. Fender Magic produces a paint solvent. Production of 400,000 pounds was started in February, 350,000
pounds were completed. Material costs were $260,130 for the month while conversion costs were
Required:

6-38
117. EZ Set produces a quick setting concrete powder. Production of 15,000 tons was started in September,
14,000 tons were completed. Material costs were $394,670 for the month while conversion costs were
Required:

118. Fill in the missing items for the following inventories:
(A) (B) (C) (D) (E)

Beginning
$68,000 $7,100 $100,000 ? $85,200
Bal.
Ending
? 6,200 110,000 134,400 74,400
Balance
Transferred
64,000 ? 75,000 153,600 ?
in
Transferred
76,000 22,000 ? 182,400 264,000
out

6-39
(A) (B) (C) (D) (E)

Beginning
$85,000 $3,550 $780,000 $36,000 ?
Bal.
Ending
? 3,210 640,000 $36,000 32,000
Balance
Transferred
80,000 10,550 ? 75,000 64,000
in
Transferred
76,000 ? 1,400,000 ? 42,000
out

6-40
120. Assume that the following T-accounts represent data from the Morgensen Corporation's accounting
records.
Required:
(a) Find the missing amounts represented by the letters a, b, c, d and e.

(b) Determine the company's predetermined overhead rate, based on labor cost.
BB = Beginning Balance; EB = Ending Balance TO = Transferred Out
Raw-Material Finished
Cost of Goods Sold
Inventory Goods
BB
39,750 BB (a)
6,750
(1) TO
(c) (d)
22,500 15,750
EB
EB 7,125
10,950
Work-in-Process Manufacturing

Inventory Overhead
BB 4,500 17,400 12,000
Mat’s (b)
Labor 24,000
Overhead (e) 43,950
EB 12,300
(1) Denotes materials purchased

6-41
121. Smooth Sailing Company, experienced the following events during 2016:
Purchased $1,800,000 of lumber and other materials for building boats.
Incurred $200,000 for advertising.
Paid $60,000 to have lumber transported to its factory.
Had sales revenue of $6,000,000 during the year.
Incurred $400,000 of general and administrative expenses.
Took a periodic inventory at year-end and determined that material costing $400,000 was on hand. The
inventory at the beginning of the year was $200,000.
All costs incurred were added to the appropriate accounts. All sales were on credit.
Required:
Solve for the following items in Smooth Sailing Company's Raw-Material inventory account:
a) Transfers in (TI).
b) Beginning balance (BB).
c) Transfers out (TO).
d) Ending balance (EB).

6-42
122. Gentry Cabinetry produces two models of home shelving, the Basic and the Mega. Data on operations and
costs for November are:
Basic Mega Total

Machine hours 8,000 4,000 12,000
Direct labor hours 6,000 4,000 10,000
Units produced 1,000 250 1,250
Direct material costs $20,000 $7,500 $27,500
Direct labor costs 129,000 71,000 200,000
348,200
costs
Total costs $575,700
Required:
Compute the predetermined overhead rate, assuming Gentry Cabinetry uses:

(a) Direct labor hours to allocate overhead costs.
(b) Direct labor costs to allocate overhead costs.
(c) Machine hours to allocate overhead costs.
(d) Compute the unit cost for each model using direct labor costs to allocate overhead.

6-43
123. Gentry Cabinetry produces two models of home shelving, the Basic and the Mega. Data on operations and
costs for November are:
Basic Mega Total
Machine hours 8,000 4,000 12,000
348,200
costs
Required:
Compute the unit cost for each model, assuming Gentry Cabinetry uses:


6-44
124. Barton Carts produces two models of push carts, the Standard and the Deluxe. Data on operations and costs
for the month are:
Standard Deluxe Total

Machine hours 16,000 8,000 24,000
Units produced 4,000 1,000 5,000
Manufacturing
557,400
overhead costs
Total costs $1,067,400
Required:
Compute the total cost for each model, assuming Barton Carts uses:


6-45
125. Misner Office Products produces three models of commercial shelving, the Basic, the Advanced and the
Superior. Data on operations and costs for the month are:
Superio
Basic Advanced Total
r
Machine hours 8,000 6,000 4,000 18,000
Direct labor
6,000 6,000 4,000 16,000
hours
Units produced 1,000 500 250 1,750
Direct material
$20,000 $12,500 $7,500 $40,000
costs
Direct labor
129,000 100,000 71,000 300,000
costs
Manufacturing
540,800
overhead costs
Required:
Compute the predetermined overhead rate, assuming Misner Office Products uses:

6-46
Superio
Basic Advanced Total
r
Machine hours 8,000 6,000 4,000 18,000
Direct labor
6,000 6,000 4,000 16,000
hours
Units produced 1,000 500 250 1,750
Direct material
$20,000 $12,500 $7,500 $40,000
costs
Direct labor
129,000 100,000 71,000 300,000
costs
Manufacturing
540,800
overhead costs
Required:
Compute the unit cost for each model, assuming Misner Office Products uses:


6-47
127. Pierce Carts produces three models of push carts, the Economy, the Standard, and the Deluxe. Data on
operations and costs for the month are:
Econom Standar
Deluxe Total
y d
Machine hours 8,000 16,000 8,000 32,000
Direct labor
4,000 12,000 8,000 24,000
hours
Units
8,000 4,000 1,000 13,000
produced
Direct
$100,000 $80,000 $30,000 $210,000
material costs
Direct labor
200,000 262,000 138,000 600,000
costs
Manufacturing
684,000
overhead costs
Required:
Compute the total cost for each model, assuming Pierce Carts uses:


6-48
128. The management of Marysville Corporation would like to investigate the possibility of basing its
predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the
year. The company's controller has provided an example to illustrate how this new system would work. In
this example, the allocation base is machine-hours and the estimated amount of the allocation base for the
upcoming year is 48,000 machine-hours. In addition, capacity is 53,000 machine-hours and the actual
activity for the year is 47,700 machine-hours. All of the manufacturing overhead is fixed and is $1,144,800
per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well
as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year.
Job J42O, which required 40 machine-hours, is one of the jobs worked on during the year.
Required:
a. Determine the predetermined overhead rate if the predetermined overhead rate is based on the estimated
amount of the allocation base.
b. Determine how much overhead would be applied to Job J42O if the predetermined overhead rate is
based on estimated amount of the allocation base.
c. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of
the allocation base at capacity.
d. Determine how much overhead would be applied to Job J42O if the predetermined overhead rate is
based on the amount of the allocation base at capacity.

6-49
129. The management of Norbert Corporation would like to investigate the possibility of basing its
predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for the
year. The company's controller has provided an example to illustrate how this new system would work. In
this example, the allocation base is machine-hours and the estimated amount of the allocation base for the
upcoming year is 70,000 machine-hours. In addition, capacity is 82,000 machine-hours and the actual
activity for the year is 72,900 machine-hours. All of the manufacturing overhead is fixed and is $4,132,800
per year. For simplicity, it is assumed that this is the estimated manufacturing overhead for the year as well
as the manufacturing overhead at capacity and the actual amount of manufacturing overhead for the year.
Job O65A, which required 300 machine-hours, is one of the jobs worked on during the year.
Required:
a. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount of
the allocation base at capacity.
b. Determine how much overhead would be applied to Job O65A if the predetermined overhead rate is

6-50
130. Linger Products uses a two-stage allocation method to assign costs to its products. The following
information has been provided for March:
Product Product
Total
1 2
Units 3,000 2,000 5,000
Machine hours 2,000 4,000 6,000
Direct materials $60,000 $60,000 $120,000
Direct labor 45,000 45,000 90,000
Utilities (machine
$3,000
related)
Supplies (labor related) 8,000
Training (labor related) 20,000
Supervision (labor
17,000
related)
Machine depreciation
24,000
(machine related)
Lease on factory
33,000
(machine related)
Miscellaneous (labor
5,000
related)
Total manufacturing
$110,000
overhead
Required:
(a) Allocate the manufacturing overhead to two cost pools: machine-related and labor-related.
(b) Compute the predetermined overhead rate for the two pools, using machine hours and direct labor
hours as the bases.
(c) Compute the total costs of production for each of the two products.

6-51
131. Airborne Industries uses a two-stage allocation method to assign costs to its products. The following
information has been provided for the month:
Product Product Product

Total
X Y Z
Units 3,000 2,000 1,000 6,000
Machine hours 4,000 8,000 8,000 20,000
Direct labor
2,000 3,000 5,000 10,000
hours
Direct materials $60,000 $60,000 $75,000 $195,000
Direct labor 45,000 80,000 175,000 300,000
Manufacturing

overhead
Utilities
$13,000
(machine related)
Supplies (labor
8,000
related)
Training (labor
20,000
related)
Supervision
37,000
(labor related)
Machine
depreciation 34,000
(machine related)
Lease on
factory (machine 66,000
related)
Miscellaneous
15,000
(labor related)
Total
manufacturing $193,000
overhead
Required:
hours as the bases.
(c) Compute the total costs of production for each of the three products.

6-52

6-53

Total
X Y Z
Units 6,000 4,000 2,000 12,000
Machine hours 8,000 16,000 16,000 40,000
Direct labor
4,000 6,000 10,000 20,000
hours
Direct labor 90,000 160,000 350,000 600,000
Manufacturing

overhead
Utilities
(machine $26,000
related)
Supplies
16,000
(labor related)
Training
40,000
(labor related)
Supervision
74,000
(labor related)
Machine
depreciation
68,000
(machine
related)
Lease on
factory
132,000
(machine
related)
Miscellaneous
30,000
(labor related)
Total
overhead
Required:
(b) Compute the predetermined overhead rate for the two pools, using machine hours and direct labor cost
as the bases.
(c) Compute the unit cost of production for each of the three products.

6-54

133. Adolphus Instruments manufactures two models of calculators. The research model is the RES-1 and the
student model is the AS-2. Both models are assembled in the same plant and require the same assembling
operations. The difference is in the cost of the internal components. The following data are available for
February.
RES-1 AS-2 Total

Number of units 20,000 80,000 100,000
Parts costs per unit $40 $50
Other costs:
Indirect materials 35,000
Other overhead 141,000
Total $300,000
Adolphus uses operations costing and assigns conversion costs on the number of units assembled.
Required:
Compute the cost of the RES-1 and AS-2 models for February.

6-55
134. Carter Furniture manufactures three models of tables: oak, cherry, and walnut. All models are assembled in
the same plant and require the same assembling operations. The difference is in the cost of the wood. The
following data are available for July.
Cherr Walnu
Oak Total
y t
Number of units 1,200 700 900 2,800
Wood costs per unit $80 $120 $105
Other costs:
Total $252,000
Carter uses operations costing and assigns conversion costs on the number of tables built.
Required:
Compute the cost of the each of the three models for July.

135. When designing a cost system, what points should you consider before starting the design?

6-56
136. If costs are allocated on a somewhat arbitrary base, what purpose does computing product costs have?

137. What is each component of the basic cost flow model? Describe each component.

138. Why might a company use direct labor cost as an overhead allocation base rather than using direct labor
hours?

6-57
139. Describe the two-stage allocation method. When is it important to use a two-stage approach rather than a
single-stage approach?

140. How does job costing differ from process costing?

141. Why is operations costing often called a "hybrid" system?

6-58
142. Thompson Metal Corporation (TMC) supplies various types of machine tools to manufacturing companies.
TMC has always paid a lot of attention to the quality of its products. Recently, an outside supplier has
approached TMC to supply an important and intricate component of one of its more advanced tools that
TMC has been manufacturing in-house. Sam Weiss, a junior accountant at TMC, has collected the
following information regarding this proposal.
The cost of manufacturing one unit of this component internally are as follows:
Direct materials: $29,60

Direct labor: 13.00
Variable overhead: 19.50 (@150% of direct labor cost)
Fixed overhead: 26.00 (@200% of direct labor cost)
Total cost: $88.10
The outside supplier has quoted a price of $90 per unit for supplying this component. The following is a
conversation that took place among the manufacturing manager (Dana Rice), the buyer (Emily Scanlon),
and Sam Weiss.
Weiss: I think that we should continue to manufacture internally because we can save $1.90 per unit on
this component.
Rice: According to your report, we would save $1.90 per unit, but I do not agree with those numbers.
Weiss: What do you mean? I have followed the same costing guidelines this company has used for years. I
have even cross-checked my numbers with historical data and know for sure that the overhead rates which
I have used are correct.
Rice: I am sure you have done your job thoroughly, but I think that our costing system is archaic. This
component is complex and difficult to manufacture. I believe that our overhead allocation method does not
accurately capture the production difficulties and the additional resources that are devoted to the
manufacture of this component. For example, a significant portion of our quality problems are due to this
component. We spend close to a third of our quality inspection time on just this component alone, but that
is not reflected. These quality problems cause delays in getting this component to the assembly
department, and that causes a delay in getting the final product to the customers. Many of our customers
are expecting just-in-time deliveries, and they get upset when we're late.
Scanlon: I know that the supplier that has approached us has a strong reputation for quality. Therefore, we
can rest assured that we will have negligible quality problems.
Rice: Sam, your report does not consider this additional benefit from buying outside. I would appreciate it
if you can rework your numbers to more accurately reflect the true costs associated with manufacturing this
component internally.
Required:
(a) Assume the role of Sam Weiss. What are the different elements of costs that are likely to be associated
with the manufacture of the component? Does the current costing system capture these costs?
(b) Recommend improvements in the costing system.
(c) How can Weiss quantify "qualitative" benefits such as quality and on-time delivery?

6-59

143. Overhead is normally applied to production using a predetermined overhead rate based on some underlying
cost driver. The amount of overhead allocated to jobs will normally not be the same as the actual amount
of overhead cost incurred. The difference is called the overhead variance.
Required:
Name two possible treatments for the overhead variance at the end of the accounting period. What are the
pros and cons of each treatment? When should each be used?

6-60
144. Silverton Manufacturing Company builds highly sophisticated engine parts for cars competing in stock
racing and drag racing. The company uses a normal costing system that applies factory overhead on the
basis of direct labor-hours. For 2016, the company estimated that it would incur $256,000 in factory
overhead costs and 16,000 direct labor-hours. The April 1, 2016, balance in inventory accounts follow:
Materials Inventory $54,000

Work-in-Process Inventory (Y12) $21,000
Finished Goods Inventory (Z11) $108,000
Job Y12 is the only job in process on April 1, 2016. The following transactions were recorded for the
month of April:
a. Purchased materials on account, $180,000.
b. Issued $182,000 of materials to production, $8,000 of which was for indirect materials.
Cost of direct materials issued:
Job Y12 $46,000

Job D20 84,000
Job E33 44,000
c. Incurred and paid payroll cost of $40,920; Direct labor cost ($20/hour; total 1,196 hours):
Job Y12 $12,220

Job D20 8,060
Job E33 3,640
Selling and administrative salaries 12,000
d. Recognized depreciation for the month:
Manufacturing asset $4,400

Selling and administrative asset 3,400
e. Paid advertising expenses $12,000.

f. Incurred factory utility costs 2,600.
g. Incurred other factory overhead costs 3,200.
h. Applied factory overhead to production on the basis of direct labor-hours.
i. Completed Job Y12 during the month and transferred it to the finished goods warehouse.
j. Sold Job Z11 on account for $118,000.
k. Received $50,000 of collections on account from customers during the month.
Required:
(1) Calculate the company's predetermined overhead rate.

(2) Prepare journal entries for the April transactions. Record job-specific items in individual Work-in-
Process accounts.
(3) What was the balance of the Materials Inventory account on April 30, 2016?
6-61
(4) What was the balance of the Work-in-Process Inventory control account on April 30?

6-62
145. Ryan & Marks, Design Consultants has the following budget for the year:
Direct labor (for professional hours charged to

$202,000
clients)
Overhead
Depreciation - Building 50,000
Depreciation - Furniture 5,000
Utilities 12,000
Insurance 4,800
Property taxes 5,200
Other expenses 3,380
Total $240,380
The firm uses direct labor as the cost driver to apply overhead to clients. During January, the firm worked
for many clients; data for two of them follow:
Henderson account
Direct materials $400
Direct labor $3,000
Fisher account
Required:
(1) Compute the Ryan & Marks budgeted overhead rate. Explain how this is used.
(2) Compute the amount of overhead to be charged to the Henderson and Fisher accounts using the
predetermined overhead rate calculated in requirement (1).
(3) Compute the separate job cost for the Henderson and Fisher accounts.

6-63

6-64
146. The following information is for Ogden Company for the month of November:
a. Factory overhead costs are applied to jobs at the predetermined rate of $80 per labor-hour. Job X-14
incurred 2,300 labor-hours; Job SM-4 used 1,850 labor-hours.
b. Job X-14 was shipped to customers during November. Job X-14 had a gross margin of 24 percent based
on manufacturing cost.
c. Job SM-4 was still in process at the end of November.
The company closed the overapplied or underapplied overhead to the Cost of Goods Sold account at the
end of November.
d. Factory utilities, factory depreciation, and factory insurance incurred is summarized by these factory
vouchers, invoices, and cost memos:
Utilities $44,500
Depreciation 53,500
Insurance 38,600
e. The Company purchased the following direct materials and indirect materials:
Material A $6,000
Material B 7,000
Total $17,250
f. Direct materials and indirect materials used are as follows:
Job X-14 Job SM-4 Total

Material A $5,450 $33,000 $38,450
Material B 1,650 25,500 27,150
Subtotal $7,100 $58,500 $65,600
Total $132,100
g. Factory labor incurred for the two jobs and indirect labor is as follows:
Job X-14 $32,200

Job SM-4 25,900
Total $180,000
Required:
1. Calculate the amount of overapplied or underapplied overhead and state whether the cost of goods sold
account will be increased or decreased by the adjustment.
2. Calculate the total manufacturing cost for Job X-14 and Job SM-4 for November.

6-65

147. Nash Company manufactured two products, A and B, during April. For purposes of product costing, an
overhead rate of $2.50 per direct-labor hour was used, based on budgeted annual factory overhead of
$500,000 and 200,000 budgeted annual direct-labor hours, as follows:
Budgeted Budgeted

Overhead Hours
Department 1 $300,000 100,000
Department 2 200,000 100,000
Total $500,000 200,000
The number of labor hours required to manufacture each of these products was:
Product A Product B
In Department 1 3 1
In Department 2 1 3
Total 4 4
During April, production units for products A and B were 1,000 and 3,000.
Required:
(1) Using a plant-wide overhead rate, what are total overhead costs assigned to products A and B,
respectively?
(2) Using departmental overhead rates, what are total overhead costs assigned to products A and B,
respectively?
(3) Assume that materials and labor costs per unit of Product A are $10 and that the selling price is
established by adding 40% of absorption costs to cover profit and selling and administrative expenses.
What difference in selling price would result from the use of departmental overhead rates?

6-66
148. Technical Measurement Company manufactures precision-measuring devices used by industrial companies
in various capacities. The devices are produced in two stages: Assembly and Testing. The company has no
beginning inventories because all units produced last year were sold by the end of the year. At the
beginning of the year, the company has an order of 8,000 units. The company's predetermined overhead
rate is based on materials used in assembly and direct labor hours in testing. Information concerning the
predetermined overhead rates appears below: Direct labor is paid $20 per hour.
Assembly Testing
Budgeted Overhead: $1,000,000 $500,000
Budgeted material use 2,000,000 50,000
Budgeted direct labor hours 200,000 100,000
Budgeted direct labor cost 3,000,000 1,500,000
Other information regarding the production process:
Assembly Testing
Materials requisitioned $2,200,000 $48,000
Direct labor cost 3,100,100 1,575,000
Actual overhead cost 1,200,000 475,000
Required:
(a) Compute the predetermined overhead rate for each department.

(b) Calculate the total and per unit cost of producing 8,000 units.

6-67
149. Tidy Furniture Company uses a job-order cost system. The following debits (credits) appeared in the
Work-in-Process account for February 2016:
Description Debits Credits

June 1 Balance $20,000
Entire
Direct Materials 80,000
month
Entire
Direct Labor 60,000
month
Entire Manufacturing
45,000
month overhead
Entire
$120,000
month
Tidy applies overhead to production at a predetermined rate of 75%, based on direct labor cost. Job 1000,
the only job still in process at the end of June, has been charged with direct labor of $30,000. Tidy's
Manufacturing Overhead account showed a credit balance of $10,000 at the end of February 2016.
Required:
(a) Calculate the amount of direct materials charged to Job 1000.

(b) Compute the actual overhead for February 2016.
(c) Assume that Tidy closes its Manufacturing Overhead account each month. Tidy does not prorate the
manufacturing overhead variance. Prepare the entry to close the overhead account at the end of February,
2016.

150. Briefly discuss the issue of the choice of an activity measure for setting overhead rates.

6-68
151. Distinguish between job order costing, process costing, and operation costing.
Give an example of a company that would use each.

6-69
Chapter 06 Fundamentals of Product and Service Costing Answer Key
True / False Questions

1. The term "product" often refers to an organization's output and includes both tangible items (e.g., chair,
desk, etc.) and intangible items (e.g., services provided).

TRUE
This is a definition of product.

AACSB: Analytical Thinking
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Gradable: automatic
Learning Objective: 06-01 Explain the fundamental themes underlying the design of cost systems.
Topic: Cost Management Systems

2. Individual product costs are relevant for managerial decision-making but irrelevant for preparing the

FALSE
The individual product costs are relevant for both financial statement purposes and the purpose of
decision-making.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic

6-70
3. One of the most common decisions facing managers is determining the price at which to sell one of
their products or to provide their services.

TRUE
Accountant needs to provide the individual product costs to the various product managers so they can
make decisions regarding pricing, production, promotion, and so on.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic

4. It is important that cost management systems are designed using the cost-benefit principle so that the
costs of gathering additional information are balanced against the benefits of that information.

TRUE
Cost-benefit analysis is a fundamental theme.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 06-02 Explain how cost allocation is used in a cost management system.
Topic: Fundamental Themes Underlying the Design of Cost Systems for Managerial Purposes

5. In general, indirect costs are allocated, while direct costs are assigned.

TRUE
This is a definition of allocated and assigned costs.

Blooms: Remember
Difficulty: 3 Hard
Gradable: automatic

6-71
6. Cost management systems should be designed to report the same costs to each decision-maker.

FALSE
The system should be designed to report the cost needed by each decision maker. This cost is not
necessarily the same for each.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic

7. The only purpose of cost information is to determine the individual product cost on a per unit basis in
order to value inventory.

FALSE
Product costing is one purpose of many for determining individual product cost on a per unit basis.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic

8. "Beginning Balance (BB) plus Transfers Out (TO) equals Ending Balance (EB) plus Transfers In (TI)".

FALSE
BB + TI = EB + TO

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 06-03 Explain how a basic product costing system works.
Topic: Costing in a Single Product, Continuous Process Industry

6-72
9. The Transfers In (TI) costs in the basic cost flow model of a manufacturing firm are direct materials,
direct labor, and manufacturing overhead.

TRUE
These are the three main categories of manufacturing inputs.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic

10. The basic cost flow model applies only to physical units and not to costs.

FALSE
This inventory equation applies to both physical units and the costs associated with the physical units.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Topic: Costing in a Multiple Product, Discrete Process Industry

11. If the Beginning Balance (BB) equals the Ending Balance (EB), then the Transfers In (TI) equal the
Transfers Out (TO).

TRUE
No change in the beginning and ending inventory balances, so the outputs (TO) will equal the inputs
(TI).

Blooms: Remember
Gradable: automatic

6-73
12. The predetermined overhead rate is calculated by dividing the prior period's overhead cost by the prior
period's allocation base (i.e., activity level).

FALSE
The formula uses the current period or a future period for both overhead and activity level. Absent this,
historic relationship can be used.

Blooms: Remember
Gradable: automatic
Learning Objective: 06-04 Understand how overhead cost is allocated to products.

13. Overestimating a period's allocation base will understate the predetermined overhead rate.

TRUE
The denominator of the rate will be too high, causing the rate to be too low.

Blooms: Apply
Gradable: automatic

14. Regression analysis can be used to estimate the strength of the relationship between a cost and potential
allocation bases for that cost.

TRUE
This is one possible method of estimating the strength of the relationship.

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-74
15. The two-stage cost allocation process allocates costs to multiple cost pools and then to individual cost
objects using different allocation bases.

TRUE
This is the definition of two-stage allocation.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 06-05 Explain the operation of a two-stage allocation system for product costing.
Topic: Multiple Allocation Bases and Two-Stage Systems

16. If a company has three cost pools, it should have three different cost allocation bases.

TRUE
This would be the case if there was a need for information on a departmental basis and if differences
exist in hours or rates, or whatever the allocation base is.

Blooms: Remember
Gradable: automatic

17. The selection of an appropriate cost allocation base is more important for single-stage cost allocation

FALSE
A correctly chosen allocation base is equally important for any allocation system.

Blooms: Remember
Difficulty: 3 Hard
Gradable: automatic

6-75
18. Hospitals are more likely to use a process costing system than a job order costing system.

FALSE
Each procedure/patient will use different resources.

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic
Learning Objective: 06-06 Describe the three basic types of product costing systems: job order, process, and operations.
Topic: Different Companies, Different Production and Costing Systems

19. Process costing systems do not separate and record direct material and direct labor costs for each
individual unit of product.

TRUE
Process costing does not separate and record costs for each unit.

Blooms: Remember
Gradable: automatic

20. Operation costing is a hybrid system used in manufacturing goods that have some common
characteristics and some individual characteristics.

TRUE
This is a definition of operations costing.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic

Multiple Choice Questions

6-76
21. Which of the following statements is (are) true regarding product costing?
(A) Individual product costs are relevant for managerial decision-making but irrelevant for preparing the
(B) A common decision facing managers is determining the price at which to sell their products or
provide their services.

A. Only A is true.

B. Only B is true.
C. Both A and B are true.
D. Neither A nor B is true.
Product or service cost is the basis for determining selling price.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic

22. A system that provides information about the costs of processes, products, and services used and
produced by an organization is a:


D. operations cost.
This is the definition of a cost management system.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic

6-77
23. Which of the following statements is (are) false regarding cost allocations and product costing?
(A) It is easier to determine the individual product cost for a manufacturer than it is for a wholesaler.
(B) In general, indirect costs are assigned, while direct costs are allocated.

A. Only A is false.

B. Only B is false.
Determining product cost is difficult for manufacturers. Direct costs are traced to products while
indirect costs are allocated.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic

24. The Cost Flow Diagram for product costing includes all of the following costs except:

A. selling expenses.

B. direct materials.
C. direct labor.
D. fixed manufacturing overhead.
Selling expense is not a product cost; it is a period cost.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic

6-78
25. Which of the following statements does not reflect one of the fundamental themes underlying the design
of cost systems for managerial purposes?

A. Cost systems should have a decision focus.

B. Different cost information is used for different purposes.
C. Cost information for managerial purposes must meet the cost-benefit principle.
D. The primary purpose of cost systems is to gather information to value inventory.
Managerial purposes implies decision making. Valuing inventory is financial reporting.

Blooms: Remember
Gradable: automatic


A. $52,000.
B. $82,000.
C. $67,000.
D. $97,600.
BB + 149,600 - 164,600 = 67,000; BB = $82,000

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-79
For Case (B) above, what is the amount Transferred Out (TO)?

A. $93,900.
B. $101,500.
C. $116,900.
D. $120,700.
$23,000 + 97,700 - TO = 19,200; TO = $101,500

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

For Case (C) above, what is the amount Transferred In (TI)?

A. $12,800.
B. $20,700.
C. $21,500.
D. $29,400.
$7,900 + TI - 21,100 = 8,300; TI = $21,500

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-80

A. BB + TO = TI + EB.
C. EB = BB + TI - TO.
Although the sides of the equation are reversed from the text narrative, the equivalency still exists
whether shown as EB = BB + TI - TO or BB + TI - TO = EB.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic


A. EB + TO = TI + BB.
C. EB = BB - TI + TO.
The terms are moved around, but the algebra makes EB + TO = TI + BB and BB + TI - TO = EB equal.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic


A. EB + BB = TI + TO.
B. BB + EB = TI + TO.
C. EB - BB = TI - TO.
The terms are moved around, but the algebra makes EB - BB = TI - TO and BB + TI - TO = EB equal.

6-81
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic


A. BB + TO - TI = EB.
B. BB + EB - TO = TI.
C. BB - TI - TO = EB.
D. BB + TI - TO = EB.
This is the basic cost flow model showing the flow of activity through an inventory account.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic

For Case (A) above, what is the Ending Balance (EB)?

A. $36,920.
B. $36,520.
C. $34,720.
D. $38,320.
$36,520 + 166,200 - 164,400 = $38,320

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-82
For Case (B) above, what is the Transferred-In (TI)?

A. $96,900.
B. $119,700.
C. $89,500.
D. $66,700.
$15,100 + TI - 93,200 = 11,400; TI = $89,500

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

For Case (C) above, what is the Transferred-Out (TO)?

A. $75,000.
B. $61,800.
C. $68,400.
D. $80,600.
$5,600 + 68,400 - TO = 12,200; TO = $61,800

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-83

A. $36,400.
B. $32,560.
C. $37,680.
D. $34,040.
BB + 194,600 - 192,800 = 34,360; BB = $32,560

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic


A. $4,730.
B. $12,530.
C. $46,500.
D. $8,630.
$8,630 + 42,600 - 46,500 = $4,730

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-84
For Case (C) above, what is the Transferred-In (TI)?

A. $146,700.
B. $178,400.
C. $190,790.
D. $185,400.
$71,600 + TI - 181,900 = $75,100; TI = $185,400

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

For Case (A) above, what is the Transferred-Out (TO)?

A. $185,600.
B. $192,600.
C. $126,100.
D. $178,890.
$64,800 + 189,100 - TO = 61,300; TO = $192,600

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-85

A. $139,300.
B. $136,260.
C. $62,950.
D. $56,730.
$59,840 + 79,530 - 76,420 = $62,950

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

For Case (C) above, what is the Beginning Balance (BB)?

A. $15,900.
B. $2,100.
C. $11,700.
D. $13,800.
BB + 65,200 - 67,300 = 13,800; BB = $15,900

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-86
42. Refresh produces soft drinks and sodas. Production of 100,000 liters was started in February, 85,000
liters were completed. Material costs were $38,220 for the month while conversion costs were $16,380.
cost of the product that was completed and transferred to finished goods?

A. $54,600.
B. $51,000.
C. $46,410.
D. $38,220.
Equivalent production = 85,000 + [40% × (100,000 - 85,000)] = 91,000 units. Cost per unit = ($38,220
+ 16,380)/91,000 = $0.60; costs transferred = 85,000 × $0.60 = $51,000

Blooms: Apply
Gradable: automatic

43. Refresh produces soft drinks and sodas. Production of 100,000 liters was started in February, 85,000
liters were completed. Material costs were $38,220 for the month while conversion costs were $16,380.
cost of the product that remains in work-in-process?

A. $16,380.
B. $51,000.
C. $3,600.
D. $9,000.
Equivalent production = 85,000 + [40% × (100,000 - 85,000)] = 91,000 units. Cost per unit = ($38,220
+ 16,380)/91,000 = $0.60; costs in ending WIP = [40% × (100,000 - 85,000)] × $0.60 = $3,600

Blooms: Apply
Gradable: automatic

6-87
44. MegaRock produces quick setting concrete mix. Production of 200,000 tons was started in April,
190,000 tons were completed. Material costs were $3,152,000 for the month while conversion costs
were $591,000. There was no beginning work-in-process; the ending work-in-process was 70%
complete. What is the cost of the product that was completed and transferred to finished goods?

A. $3,610,000.
B. $3,555,850.
C. $2,994,400.
D. $3,743,000.
Equivalent production = 190,000 + [70% × (200,000 - 190,000)] = 197,000 tons. Cost per unit =
($3,152,000 + 591,000)/197,000 = $19; costs transferred = 190,000 × $19 = $3,610,000

Blooms: Apply
Gradable: automatic

complete. What is the cost of the product that remains in work-in-process?

A. $591,000.
B. $131,005.
C. $187,150.
D. $133,000.
Equivalent production = 190,000 + [70% × (200,000 - 190,000)] = 197,000 tons. Cost per unit =
($3,152,000 + 591,000)/197,000 = $19; costs remaining in WIP = [70% × (200,000 - 190,000)] × $19 =
$133,000

Blooms: Apply
Gradable: automatic

6-88
complete. What is the material cost of the product that remains in work-in-process?

A. $315,200.
B. $157,600.
C. $112,000.
D. $160,000.
Equivalent production = 190,000 + [70% × (200,000 - 190,000)] = 197,000 tons. Material cost per unit
= $3,152,000/197,000 = $16; costs remaining in WIP = [70% × (200,000 - 190,000)] × $16 = $112,000

Blooms: Apply
Gradable: automatic

47. QuikCard processes credit card receipts for local banks. QuikCard processed 1,400,000 receipts in
October. All receipts are processed the same day they are received. October costs were labor of $14,000
and overhead of $28,000. What is the cost to process 1,000 receipts?

A. $10.00.
B. $30.00.
C. $20.00.
D. $42.00.
($14,000 + 28,000)/1,400,000 = $0.03/receipt × 1,000 receipts = $30

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-89
48. Slider processes rebate requests for a large building supply firm. Slider processed 420,000 rebates in
March. All rebates are processed the same day they are received. March costs were labor of $28,000 and
overhead of $14,000. What is the cost to process 1,000 rebates?

A. $66.67.
B. $100.00.
C. $10.00.
D. $42.00.
($28,000 + 14,000)/420,000 = $0.10/rebate × 1,000 rebates = $100

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

49. When a manufacturing company has a highly automated manufacturing plant producing many different
products, what is probably the most appropriate basis of applying overhead costs to work-in-process?

A. Direct labor hours.

B. Direct labor dollars.
C. Machine hours.
D. Cost of materials used.
Machine hours would more closely reflect the usage of the automated equipment.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic

6-90
50. Magnum Company uses direct labor cost as a basis for computing its predetermined overhead rate. In
computing the predetermined overhead rate for 2016, the company misclassified a portion of direct
labor cost as indirect labor. The effect of this misclassification will be to:

A. understate the predetermined overhead rate.

B. overstate the predetermined overhead rate.
C. there will be no effect on the predetermined overhead rate.
D. Can't tell from the information provided.
Misclassifying the direct labor will cause the numerator to be larger and the denominator to be smaller,
thus overstating the rate.

Blooms: Apply
Difficulty: 3 Hard
Gradable: automatic

51. In a labor intensive company in which more overhead is used by the more highly skilled and paid
employees, which activity base would be most appropriate for applying overhead to production?

A. Direct labor cost.

B. Direct material cost.
D. Machine hours.
Higher labor cost would reflect the higher skill level.

Blooms: Apply
Gradable: automatic

6-91
ending December 31:

What is the predetermined manufacturing overhead rate per direct labor hour?

A. $3.87.
B. $3.79.
C. $3.83.
D. $3.75.
$210,000/56,000 = $3.75

Blooms: Apply
Gradable: automatic

6-92
ending December 31:

What is the predetermined manufacturing overhead rate, assuming direct labor cost is used as the
activity base?

A. 48.4%.
B. 47.2%.
C. 49.0%.
D. 47.8%.
$210,000/$434,000 = 0.484/DL$

Blooms: Apply
Gradable: automatic

54. The predetermined manufacturing overhead rate for 2016 was $4.00 per direct labor hour; employees
were paid $5.00 per hour. If the estimated direct labor cost was $75,000, what was the estimated

A. $15,000.
B. $60,000.
C. $75,000.
D. $93,750.
($75,000/$5) × 4 = $60,000

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic
6-93

55. The Bondi Company uses a predetermined overhead rate in applying overhead to production orders on a
direct labor cost basis in Department A and on a machine hours basis in Department B. At the beginning
of the year, the company made the following estimates:
Dept. A Dept. B
Direct labor hours 6,000 9,000
Machine hours 2,000 15,000

A. 150% and 300%.

B. 150% and $3.00.
C. $1.50 and 300%.
D. $1.50 and $3.00.
$90,000/$60,000 = 150%; $45,000/15,000 = $3.00

Blooms: Apply
Gradable: automatic

6-94
56. Fortify, Inc. uses a predetermined manufacturing overhead rate based on direct labor hours to apply its
indirect product costs to jobs. The following information has been collected for the previous year:

Direct labor 200,000
Sales commissions 100,000
Rent on office equipment 25,000
Depreciation - factory building 75,000
Utilities - factory 125,000
Fortify used 25,000 direct labor hours and 50,000 machine hours during the previous year. What is the
predetermined overhead rate per direct labor hour?

A. $24.00.
B. $15.00.
C. $14.00.
D. $10.00.
($50,000 + $75,000 + $125,000)/25,000 = $10.00

Blooms: Apply
Gradable: automatic

57. Rapid Enterprises applies manufacturing overhead to its cost objects on the basis of 75% of direct
material cost. If Job 17X had $72,000 of manufacturing overhead applied to it during May, the direct
materials assigned to Job 17X was:

A. $54,000.
B. $72,000.
C. $96,000.
D. $126,000.
$72,000/.75 = $96,000

Blooms: Apply
Gradable: automatic
6-95

58. The Titan Enterprises Company manufactures cleaning spray for public schools. During 2016, the
company spent $600,000 on prime costs and $800,000 on conversion costs. Overhead is applied at a rate
of 150% of direct labor costs. How much did the company allocate (apply) for manufacturing overhead
during 2016?

A. $480,000.
B. $360,000.
C. $320,000.
D. $300,000.
DL + 1.50DL = $800,000; DL = $320,000; OH = $480,000

Blooms: Apply
Difficulty: 3 Hard
Gradable: automatic

59. Flare Co. manufactures textiles. Among Flare's 2016 manufacturing costs were the following salaries
and wages:

What was the amount of Flare's 2016 direct labor? (CPA adapted)

A. $195,000.
B. $165,000.
C. $150,000.
D. $120,000.
Direct Labor = loom operators

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-96
60. Flare Co. manufactures textiles. Among Flare's 2016 manufacturing costs were the following salaries
and wages:

What was the amount of Flare's 2016 indirect labor? (CPA adapted)

A. $75,000
B. $165,000
C. $150,000
D. $120,000
Factory foremen + Machine Mechanics = indirect labor

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

61. The following direct labor information pertains to the manufacture of product Scour:
2 direct labor
hours
40
per worker
Workers’ benefits treated as direct
20% of wages
labor costs
What is the standard direct labor cost per unit of product Scour? (CPA adapted)

A. $30.
B. $24.
C. $15.
D. $12.
DL/unit = [$500 + ($500 * .20)]/(40/2) = $30

6-97
Blooms: Apply
Gradable: automatic

62. The following direct labor information pertains to the manufacture of product Glaze:
3 direct labor
hours
36
per worker
Workers’ benefits treated as direct
30% of wages
labor costs
What is the standard direct labor cost per unit of product Glaze? (CPA adapted)

A. $19.44.
B. $25.28.
C. $58.33.
D. $75.83.
DL/unit = [$700 + ($700 * .30)]/(36/3) = $75.83

Blooms: Apply
Gradable: automatic

63. The cost per unit of the allocation base used to charge overhead to products is the:

A. job cost.

B. predetermined overhead rate.
C. operational cost.
D. process cost.
This is a definition of predetermined overhead rate.

6-98
Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic

64. Arbor, Inc. has estimated overhead to be $300,000 and labor hours to be 30,000. Actual overhead turned
out to be $310,000 when 30,500 labor hours were worked. The predetermined overhead rate would be:

A. 101.67%.
B. $10.00.
C. $10.16.
D. $10.33.
$300,000/30,000 hrs = $10.00/hr

Blooms: Apply
Gradable: automatic

65. Arbor, Inc. had overhead of $310,000 during the year when $260,000 in labor costs were incurred.
Estimates at the start of the year for overhead and labor costs were $300,000 for overhead and $250,000
for labor costs. The predetermined overhead rate would be:

A. 101.67%.
B. 104.00%.
C. 120.00%.
D. 83.33%.
$300,000/$250,000 = 120%

Blooms: Apply
Gradable: automatic

6-99
December 31:

What is the predetermined office overhead rate per billable labor hour?

A. $28.60.
B. $26.57.
C. $22.50.
D. $24.22.
$1,080,000/48,000 = $22.50

Blooms: Apply
Gradable: automatic

6-100
December 31:

What is the predetermined office overhead rate per billable labor dollar?

A. 118.10%.
B. 25.00%.
C. 32.21%.
D. 400.00%.
$1,080,000/$4,320,000 = 25%

Blooms: Apply
Gradable: automatic

6-101
68. The following information has been gathered for Foxmoor Industries for its fiscal year ending
December 31:

What is the predetermined factory overhead rate per labor dollar?

A. 178.54%.
B. 211.44%.
C. 118.43%.
D. 198.41%.
$1,500,000/$756,000 = 198.41%

Blooms: Apply
Gradable: automatic

6-102
December 31:

What is the predetermined factory overhead rate per labor hour?

A. $29.01.
B. $31.25.
C. $37.01.
D. $34.36.
$1,500,000/48,000 = $31.25

Blooms: Apply
Gradable: automatic

6-103
December 31:

What is the predetermined factory overhead rate per machine hour?

A. $15.625.
B. $14.620.
C. $18.504.
D. $17.314.
$1,500,000/96,000 = $15.625

Blooms: Apply
Gradable: automatic

71. Savor Flavor Supplies applies manufacturing overhead to its products on the basis of 50% of direct
material cost. If a job had $35,000 of manufacturing overhead applied to it during May, the direct
materials assigned to the job was:

A. $17,500.
B. $35,000.
C. $70,000.
D. $140,000.
$35,000/.5 = $70,000

Blooms: Apply
Gradable: automatic
6-104

72. Trippett Industries manufactures cleaning products. During the year, the company spent $600,000 on
chemicals and $728,000 on conversion costs. Overhead is applied at a rate of 180% of direct labor costs.
How much did the company spend on manufacturing overhead during the year?

A. $260,000.
B. $468,000.
C. $128,000.
D. $404,444.
DL + 1.80DL = $728,000; DL = $260,000; OH = $468,000

Blooms: Apply
Difficulty: 3 Hard
Gradable: automatic

73. The predetermined manufacturing overhead rate for the year was $14.00 per direct labor hour;
employees were paid $17.50 per hour. If the estimated direct labor cost was $315,000, what was the
estimated manufacturing overhead?

A. $22,500.
B. $90,000.
C. $252,000.
D. $393,750.
($315,000/$17.50) × $14 = $252,000

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-105
74. The predetermined manufacturing overhead rate for the year was 140% of direct labor cost; employees
were paid $17.50 per hour. If the estimated direct labor hours were 15,000, what was the estimated

A. $210,000.
B. $187,500.
C. $262,500.
D. $367,500.
(15,000 × $17.50) × 140% = $367,500

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

75. In computing its predetermined overhead rate, Stiles Company inadvertently left its indirect labor costs
out of the computation. This oversight will cause:

A. Manufacturing Overhead to be overapplied.

B. the Cost of Goods Manufactured to be understated.
C. the debits to the Manufacturing Overhead account to be understated.
D. the ending balance in Work-in-Process to be overstated.
The omission of an overhead item will cause the application to be less than it should be and Cost of
Goods Manufactured will be less than it should be.

AACSB: Reflective Thinking
Blooms: Remember
Difficulty: 3 Hard
Gradable: automatic

6-106
76. Which of the following is the correct formula to compute the predetermined overhead rate?

A. Estimated total units in the allocation base divided by estimated total manufacturing overhead costs.
B. Estimated total manufacturing overhead costs divided by estimated total units in the allocation base.
C. Actual total manufacturing overhead costs divided by estimated total units in the allocation base.
D. Estimated total manufacturing overhead costs divided by actual total units in the allocation base.
This statement is the formula for calculating the predetermined overhead rate.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic

77. Which of the following would probably be the least appropriate allocation base for allocating overhead
in a highly automated manufacturer of specialty valves?

A. Machine-hours.
B. Power consumption.
C. Direct labor-hours.
D. Machine setups.
Direct labor hours should not be used in an automated environment to allocate manufacturing overhead.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic

6-107
78. At the beginning of the year, manufacturing overhead for the year was estimated to be $267,500. At the
end of the year, actual direct labor-hours for the year were 22,100 hours, the actual manufacturing
overhead for the year was $262,500, and manufacturing overhead for the year was overapplied by
$13,750. If the predetermined overhead rate is based on direct labor-hours, then the estimated direct
labor-hours at the beginning of the year used in the predetermined overhead rate must have been:

A. 22,100 direct labor-hours.

B. 19,900 direct labor-hours.
C. 21,000 direct labor-hours.
D. 21,400 direct labor-hours.
See calculation below.
Manufacturing overhead applied = Actual overhead - Underapplied overhead

= $262,500 + $13,750
= $276,250 manufacturing overhead applied
Predetermined overhead rate = Manufacturing overhead applied ÷ Actual direct labor-hours

= $276,250 ÷ 22,100 direct labor-hours
= $12.50 per direct labor-hour
Estimated direct labor-hours = Estimated manufacturing overhead ÷ Predetermined overhead rate

= $267,500 ÷ $12.50 per direct labor-hour
= 21,400 direct labor-hours

Blooms: Apply
Difficulty: 3 Hard
Gradable: automatic

6-108
79. The Work in Process inventory account of a manufacturing firm shows a balance of $3,000 at the end of
an accounting period. The job cost sheets of two uncompleted jobs show charges of $500 and $300 for
materials, and charges of $400 and $600 for direct labor. From this information, it appears that the
company is using a predetermined overhead rate, as a percentage of direct labor costs, of:

A. 83%.
B. 120%.
C. 40%.
D. 300%.
Work-in-Process = Materials + Direct labor + Manufacturing overhead

$3,000 = ($500 + $300) + ($400 + $600) + Manufacturing overhead
$1,200 = Manufacturing overhead
Predetermined overhead rate = Manufacturing overhead ÷ Direct labor cost

= $1,200 ÷ $1,000 direct labor cost
= 120% predetermined overhead rate

Blooms: Apply
Gradable: automatic

6-109
80. Markham Corporation uses a job-order costing system. The following data are for last year:
Estimated direct labor-hours 12,000

Actual direct labor-hours 11,000
Markham applies overhead using a predetermined rate based on direct labor-hours. What
predetermined overhead rate was used last year?

A. $3.55 per direct labor-hour.

B. $3.25 per direct labor-hour.
C. $3.08 per direct labor-hour.
D. $3.36 per direct labor-hour.
Predetermined overhead rate = Estimated manufacturing overhead ÷ Estimated direct labor

= $39,000 ÷ 12,000 direct labor-hours
= $3.25 per direct labor-hour

Blooms: Apply
Gradable: automatic

6-110
81. Hyu Corporation bases its predetermined overhead rate on the estimated labor-hours for the upcoming
year. At the beginning of the most recently completed year, the company estimated the labor-hours for
the upcoming year at 52,000 labor-hours. The estimated variable manufacturing overhead was $2.78 per
labor-hour and the estimated total fixed manufacturing overhead was $1,192,360. The actual labor-
hours for the year turned out to be 52,600 labor-hours. The predetermined overhead rate for the recently
completed year was closest to:

A. $2.78.
B. $25.45.
C. $25.71.
D. $22.93.
Estimated total manufacturing overhead = $1,192,360 + ($2.78 per labor-hour × 52,000 labor-hours) =
$1,336,920
Predetermined overhead rate = $1,336,920 ÷ 52,000 labor-hours = $25.71 per labor-hour

Blooms: Apply
Gradable: automatic

6-111
82. Marvel Company uses a predetermined overhead rate in applying overhead to production orders on a
labor cost basis in Department A and on a machine-hours basis in Department B. At the beginning of
the most recently completed year, the company made the following estimates:
Dept. A Dept. B

A. 83% and $5.

B. 83% and $3.
C. 120% and $3.
D. 120% and $5.
Department A

= $67,200 ÷ $56,000
= 120% per direct labor cost
Department B
Predetermined overhead rate = Manufacturing overhead ÷ Machine-hours

= $45,000 ÷ 15,000
= $3 per machine-hour

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-112
83. Moore Corporation bases its predetermined overhead rate on the estimated machine-hours for the
upcoming year. Data for the most recently completed year appear below:
Estimates made at the

beginning of the year:
$7.89
$465,880
Actual machine-hours for the
20,200
year

A. $7.89.
B. $30.95.
C. $24.52.
D. $32.41.
Estimated total manufacturing overhead = $465,880 + ($7.89 per machine-hour × 19,000 machine-
hours) = $615,790
Predetermined overhead rate = $615,790 ÷ 19,000 machine-hours = $32.41 per machine-hour

Blooms: Apply
Gradable: automatic

6-113
84. Ashland Corporation estimates its manufacturing overhead costs to be $160,000 and its direct labor
costs to be $320,000 for 2016. The actual manufacturing labor costs were $80,000 for job 1, $120,000
for job 2 and $160,000 for job 3 during 2016. Manufacturing overhead is applied to jobs on the basis of
direct labor costs using a predetermined overhead rate. The actual manufacturing overhead cost for the
year was $172,000.
The amount of overhead assigned to Job 3 during 2016 was:

A. $80,000.
B. $320,000.
C. $160,000.
D. $71,110.
Predetermined rate = $160,000/$320,000 = 50% of DL cost; $160,000 × .50 = $80,000

Blooms: Apply
Gradable: automatic

85. The predetermined overhead rate for manufacturing overhead for Ashland Corporation was $8.00 per
direct labor hour. The estimated labor rate was $10.00 per hour. If the estimated direct labor cost was
$150,000, what was the estimated manufacturing overhead?

A. $93,750.
B. $75,000.
C. $120,000.
D. $15,000.
$150,000 ÷ $10 = 15,000 hours × $8 = $120,000

Blooms: Apply
Difficulty: 3 Hard
Gradable: automatic

6-114
86. The Crater Company uses predetermined overhead rates to apply manufacturing overhead to jobs. The
predetermined overhead rate is based on labor cost in Dept. A and machine-hours in Dept. B. At the
beginning of the year, the company made the following estimates:
Dept A Dept B
Manufacturing overhead $91,000 $48,000
What predetermined overhead rates would be used in Dept A and Dept B, respectively?

A. 71% and $4.00.

B. 140% and $4.00.
C. 140% and $4.80.
D. 71% and $4.80.
Department A

= $91,000 ÷ $65,000
= 140% per direct labor cost
Department B

= $48,000 ÷ 12,000 machine-hours
= $4 per machine-hour

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-115
87. Flambe Corporation bases its predetermined overhead rate on the estimated machine-hours for the
upcoming year. At the beginning of the most recently completed year, the company estimated the
machine-hours for the upcoming year at 22,000 machine-hours. The estimated variable manufacturing
overhead was $8.65 per machine-hour and the estimated total fixed manufacturing overhead was
$609,400. The predetermined overhead rate for the recently completed year was closest to:

A. $36.35 per machine-hour.

B. $27.70 per machine-hour.
C. $33.32 per machine-hour.
D. $8.65 per machine-hour.
Estimated total manufacturing overhead = $609,400 + ($8.65 per machine-hour × 22,000 machine-
hours) = $799,700
Predetermined overhead rate = $799,700 ÷ 22,000 machine-hours = $36.35 per machine-hour

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-116
88. Horton Industries Company uses a predetermined overhead rate based on machine-hours to apply
manufacturing overhead to jobs. The company has provided the following estimated costs for next year:

Sales commissions $40,000
Salary of production supervisor $20,000
Indirect materials $4,000
Advertising expense $8,000
Rent on factory equipment $10,000
Horton estimates that 5,000 direct labor-hours and 10,000 machine-hours will be worked during the
year. The predetermined overhead rate per hour will be:

A. $6.80.
B. $6.40.
C. $3.40.
D. $8.20.
Estimated manufacturing overhead = Estimated salary of production supervisor + Estimated indirect

materials + Estimated rent on factory equipment
= $20,000 + $4,000 + $10,000
= $34,000 estimated manufacturing overhead

= $34,000 ÷ 10,000 machine-hours
= $3.40 per machine-hour

Blooms: Apply
Gradable: automatic

6-117
89. Spring Corporation bases its predetermined overhead rate on the estimated machine-hours for the
upcoming year. Data for the upcoming year appear below:

$6.68
$1,283,800

A. $6.68.
B. $25.02.
C. $25.59.
D. $18.34.
Estimated total manufacturing overhead = $1,283,800 + ($6.68 per machine-hour × 70,000 machine-
hours) = $1,751,400
Predetermined overhead rate = $1,751,400 ÷ 70,000 machine-hours = $25.02 per machine-hour

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-118
90. The following data have been recorded for recently completed Job 674 on its job cost sheet. Direct
materials cost was $2,039. A total of 32 direct labor-hours and 175 machine-hours were worked on the
job. The direct labor wage rate is $14 per labor-hour. The company applies manufacturing overhead on
the basis of machine-hours. The predetermined overhead rate is $15 per machine-hour. The total cost for
the job on its job cost sheet would be:

A. $2,967.
B. $2,487.
C. $2,068.
D. $5,112.

Direct labor (32 direct labor-hours × $14.00 per
448
direct-labor hour)
Overhead (175 machine-hours × $15.00 per
2,625
machine-hour)
Total manufacturing cost for Job 674 $5,112

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-119

The company applies manufacturing overhead on the basis of machine-hours. The predetermined
overhead rate is $14 per machine-hour. The total cost that would be recorded on the job cost sheet for
Job 731 would be:

A. $3,288.
B. $5,094.
C. $4,254.
D. $2,418.

Direct labor (69 direct labor-hours × $13.00 per
897
direct-labor hour)
Overhead (129 machine-hours × $14.00 per
1,806
machine-hour)
Total manufacturing cost for Job 731 $5,094

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic

6-120
92. Under Pierre Company's job-order costing system, manufacturing overhead is applied to Work in
Process inventory using a predetermined overhead rate. During January, Pierre's transactions included
the following:
Direct materials issued to

$90,000
production
Indirect materials issued to
$8,000
production
$125,000
cost incurred
$113,000
cost applied
Direct labor cost incurred $107,000
Pierre Company had no beginning or ending inventories. What was the cost of goods manufactured for
January? (CMA adapted)

A. $302,000.
B. $310,000.
C. $322,000.
D. $330,000.
Cost of goods manufactured = Beginning Work in Process inventory + Direct materials + Direct labor
+ Applied manufacturing overhead - Ending Work in Process inventory
= $0 + $90,000 + $107,000 + $113,000 - $0
= $310,000 cost of goods manufactured

Blooms: Apply
Gradable: automatic

6-121
93. Buster Corporation, a manufacturing company, has provided data concerning its operations for
September. The beginning balance in the raw materials account was $37,000 and the ending balance
was $29,000. Raw materials purchases during the month totaled $57,000. Manufacturing overhead cost
incurred during the month was $102,000, of which $2,000 consisted of raw materials classified as
indirect materials. The direct materials cost for September was:

A. $63,000.
B. $57,000.
C. $65,000.
D. $49,000.
Direct materials cost = Beginning raw materials inventory + Raw materials purchases - Indirect
materials - Ending raw materials
= $37,000 + 57,000 - $2,000 - $29,000
= $63,000 direct materials cost

Blooms: Apply
Gradable: automatic

94. Morton Inc. has provided the following data for the month of November. The balance in the Finished
Goods inventory account at the beginning of the month was $49,000 and at the end of the month was
$45,000. The cost of goods manufactured for the month was $226,000. The actual manufacturing
overhead cost incurred was $74,000 and the manufacturing overhead cost applied to Work in Process
was $70,000. The adjusted cost of goods sold that would appear on the income statement for November
is:

A. $226,000.
B. $230,000.
C. $222,000.
D. $234,000.
Adjusted cost of goods sold = Beginning finished goods inventory + Cost of goods manufactured +
Actual manufacturing overhead - Applied manufacturing overhead - Ending finished goods inventory
= $49,000 + $226,000 +$74,000 - $70,000 - $45,000
= $234,000 adjusted cost of goods sold

6-122
Blooms: Apply
Gradable: automatic

95. A company is considering the use of a single-stage cost allocation process. Under what conditions
would this choice be justified?

A. The company has many service departments but only one production department.
B. The company produces a few products with similar characteristics in a few departments.
C. The company has no service departments but many production departments.
D. The company produces a wide selection of differing products.
Single stage is best when there are few products with similar characteristics.

Blooms: Apply
Gradable: automatic

96. Which of the following statements regarding the two-stage cost allocation process is (are) false?
(A) If a company has three cost pools, then it should also have three different cost allocation bases.
(B) The selection of an appropriate cost allocation base is more important for single-stage cost
allocation systems than for two-stage cost allocation systems.

A. Only A is false.

B. Only B is false.
Selection of the appropriate costing base is important in both situations.

Blooms: Remember
Gradable: automatic

6-123
97. Cost pools are:

A. costs that are accumulated before being allocated to cost objects on some common basis.
B. costs that are relevant to decision-making but irrelevant to financial reporting.
C. product costs that are assigned to cost objects using direct labor or machine hours.
D. accounts in the product life cycle from research and development to customer service.
This is a definition of a cost pool, which is one step in the costing process.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic

98. The process of first allocating costs to intermediate cost pools and then to the individual cost objects
using different allocation bases is a(n):


D. operations cost.
This is the definition of the two-stage allocation process.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic

6-124
99. Which of the following would be the least appropriate allocation base for allocating overhead in a
highly automated (i.e., capital-intensive) manufacturing company?

A. Electricity used.

B. Machine hours.
D. Material consumed.
Direct labor hours would be the least related allocation base to use in an automated environment
between the alternatives provided.

Blooms: Remember
Gradable: automatic

100. A system that mass-produces a single, homogenous output in a continuous process is a(n):


D. operation costing.
This is the definition of a continuous flow process.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic

6-125
101. A hybrid costing system that is often used when manufacturing goods that have some common
characteristics plus some individual characteristics is called:


D. operations cost.
This is the definition of operation costing.

Blooms: Understand
Difficulty: 1 Easy
Gradable: automatic

102. Which of the following statements is true?

A. Job costing can only be used when a single unit is produced rather than a batch.
B. Process costing is used when products are customized.
C. Job costing must be used in a continuous flow processing environment.
D. Process costing does not separately record the costs for each unit.
Job costing can be used for batches; process costing is used for homogenous units, is more appropriate
in a continuous flow process, and does not separately record the costs for each unit.

Blooms: Apply
Gradable: automatic

6-126
103. For which of the following businesses would the job order cost system be appropriate?

A. Law office.

B. Crude oil refinery.
C. Baby formula manufacturer.
D. Soft drink producer.
Law office would have many different types of jobs. The refinery, baby formula, and soft drinks would
all be uniform and could use process costing.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic

104. The loan department of a financial corporation makes loans to businesses. The costs of processing these
loans are often several thousand dollars. All loans are initially evaluated using the same financial
analysis software, but some require outside services such as appraisals and legal services. Which is the
most appropriate costing system for the loan department?


B. Process costing.
D. Batch costing.
Operation costing is appropriate because outside services would vary but the evaluation costs and other
elements of the process would be standardized.

Blooms: Apply
Gradable: automatic

6-127
105. The Paris Manufacturing Company produces a single uniform product throughout the year. Which of
the following product costing systems should be used by Paris?


B. Process costing.
D. Batch costing.
A single uniform product would use a process costing system.

Blooms: Apply
Gradable: automatic

Essay Questions

6-128
106. Logansville Manufacturing produces lamps for large department stores. For 2016, the two production
departments had budgeted allocation bases of 100,000 machine hours in Department 1 and 50,000 direct
manufacturing labor hours in Department 2. The budgeted manufacturing overheads for 2016 were
$1,200,000 for Department 1 and $1,000,000 for Department 2. For Job 100, the actual costs incurred in
the two departments were as follows:
Department Department

1 2
Direct materials
$44,000 $71,000
purchased
Direct materials used 34,000 7,600
Direct manufacturing
21,000 21,400
labor
Indirect manufacturing
4,400 3,600
labor
Indirect materials used 3,000 1,900
Lease on equipment 6,500 1,500
Utilities 1,000 1,200
Job 100 incurred 700 machine hours in Department 1 and 75 in Department 2 and 200 manufacturing
labor hours in Department 1 and 250 in Department 2. The company uses a budgeted departmental
overhead rate for applying overhead to production. Job 100 consisted of 3,000 lamps.
Required:
Calculate the total cost and per unit cost of Job 100.

Predetermined
Dept 1 Dept 2
overhead rates:
Budgeted
$1,200,000 $1,000,000
cost
100,000 50,000
Budgeted
Machine Direct labor
Activity
hours hours
$12 per $20 per
Rate machine direct labor
hour hour
Dept 1 Dept 2 Total

Direct Labor 21,000 21,400 42,400
Overhead applied
700 × $12 per Machine 8,400 8,400
6-129
Hour
250 × $20 per Direct
5,000 5,000
Labor Hour
Total $63,400 $34,000 $97,400
Units Produced 3,000
Cost per unit $32.47

Blooms: Apply
Difficulty: 1 Easy
Gradable: manual


The company applies manufacturing overhead on the basis of machine-hours. The predetermined
overhead rate is $12 per machine-hour.
Required:

Cost Summary

Direct labor $13 per DLH × 630 DLHs 8,190
Manufacturing overhead $12 per MH × 390
4,680
MHs
Total cost $57,870
Unit product cost $19.29

Blooms: Apply
Difficulty: 1 Easy
Gradable: manual
6-130


Direct labor-hours 1,147 DLHs
Direct labor wage rate $11 per DLH
The company applies manufacturing overhead on the basis of direct labor-hours. The predetermined
overhead rate is $20 per direct labor-hour.
Required:

Cost Summary

Direct labor $11 per DLH × 1,147 DLHs 12,617
Manufacturing overhead $20 per DLH × 1,147
22,940
DLHs
Total cost $76,167
Unit product cost $24.57

Blooms: Apply
Difficulty: 1 Easy
Gradable: manual

6-131
109. Assume that the following events occurred at a division of Sawyer Enterprises for the current year.

(6) The inventory accounts have no beginning balances. All costs incurred were debited to the
appropriate account and credited to Accounts Payable.
Required:


(a) $2,015,000
(b) $1,209,000
(c) $806,000
(a) $520,000 + $820,000 + (.75 × $900,000) = $2,015,000

(b) .60 × $2,015,000 = $1,209,000
(c) BB + TI - TO = EB; 0 + $2,015,000 - $1,209,000 = $806,000

Blooms: Apply
Difficulty: 1 Easy
Gradable: manual

6-132
110. Assume that the following events occurred at a division of Advanced Enterprises for the current year.

(6) The inventory accounts have no beginning balances.
Required:


(a) $985,000
(b) $640,250
(c) $344,750
(a) $260,000 + $410,000 + (.70 × $450,000) = $985,000

(b) .65 × $985,000 = $640,250
(c) BB + TI - TO = EB; 0 + $985,000 - $640,250 = $344,750

Blooms: Apply
Difficulty: 1 Easy
Gradable: manual

6-133
Case
Case (A) Case (B) Case (D)
(C)
Beginning
$41,520 $24,100 $5,450 ?
Balance (BB)
Ending Balance
? 22,400 11,370 $38,910
(EB)
Transferred In
224,870 ? 84,400 189,460
(TI)
Transferred Out
217,400 106,200 ? 193,610
(TO)

Case A: $48,990
Case B: $104,500
Case C: $78,480
Case D: $43,060
Case A: $41,520 + 224,870 - 217,400; EB = $48,990

Case B: $24,100 + TI - 106,200 = $22,400; TI = $104,500
Case C: $5,450 + 84,400 - TO = $11,370; TO = $78,480
Case D: BB + 189,460 - 193,610 = $38,910; BB = $43,060

Blooms: Apply
Difficulty: 1 Easy
Gradable: manual

6-134
Case (A) Case (B) Case (C) Case (D)

Beginning
? $25,760 $12,050 $11,450
Balance (BB)
Ending Balance
$19,455 ? 21,200 5,370
(EB)
Transferred In
199,460 214,870 ? 87,300
(TI)
Transferred Out
193,610 217,400 131,200 ?
(TO)

Case A: BB + 199,460 - 193,610 = $19,455; BB = $13,605

Case B: $25,760 + 214,870 - 217,400; EB = $23,230
Case C: $12,050 + TI - 131,200 = $21,200; TI = $140,350
Case D: $11,450 + 87,300 - TO = $5,370; TO = $93,380

Blooms: Apply
Difficulty: 1 Easy
Gradable: manual

6-135
113. Flynn and Morgan Refiners began business on July 1. The following operations data are available for
July and the one product the company produces:
Gallons
Started in July 310,000
(80% complete) 30,000
Cost incurred in July were:
Materials $250,000
Labor 52,000
All production at Flynn and Morgan is sold as it is produced (i.e., there are no finished goods
inventories).
Required:
(a) Compute cost of goods sold for July.

(b) What is the value of the work-in-process inventory on July 31?

(a) $420,000
(b) $36,000
(a) Equivalent units: (310,000 - 30,000) + (80% × 30,000) = 304,000 gallons

Cost per gallon: ($250,000 + 52,000 + 154,000)/304,000 = $1.50/gallon
Cost of Goods Sold: 280,000 gallons × $1.50 = $420,000
(b) Ending WIP = (30,000 × 80%) × $1.50 = $36,000

Blooms: Apply
Gradable: manual

6-136
114. Mason Industries restarted operations on September 1 after a 3 month shutdown. There were no
beginning inventories. The following operations data are available for September and the one product
the company refines:
Gallons
Completed in September 450,000
(70% complete) 15,000
Cost incurred in September were:
Materials $560,400
Labor 164,300
All production at Mason is sold immediately.
Required:
(a) Compute cost of goods sold for September.

(b) What is the value of the work-in-process inventory on September 30?

(a) $945,000
(b) $22,050
(a) Equivalent units: 450,000 + (70% × 15,000) = 460,500 gallons

Cost per gallon: ($560,400 + 164,300 + 242,350)/460,500 = $2.10/gallon
Cost of Goods Sold: 450,000 gallons × $2.10 = $945,000
(b) Ending WIP = (15,000 × 70%) × $2.10 = $22,050

Blooms: Apply
Gradable: manual

6-137
115. Hindsville produces a cleaning solvent. Production of 200,000 gallons was started in February, 170,000
gallons were completed. Material costs were $138,220 for the month while conversion costs were
Required:

(a) $230,231
(b) $24,377
Equivalent production = 170,000 + [60% × (200,000 - 170,000)] = 188,000 gallons

Cost per unit = ($138,220 + 116,380)/188,000 = $1.3543
(a) Costs transferred = 170,000 × $1.3543 = $230,231

(b) Ending WIP: [60% × (200,000 - 170,000)] × $1.3543 = $24,377

Blooms: Apply
Gradable: manual

116. Fender Magic produces a paint solvent. Production of 400,000 pounds was started in February, 350,000
pounds were completed. Material costs were $260,130 for the month while conversion costs were
Required:

(a) $507,500
(b) $65,250
Equivalent production = 350,000 + [90% × (400,000 - 350,000)] = 395,000 pounds

Cost per unit = ($260,130 + 312,620)/395,000 = $1.45
(a) Costs transferred = 350,000 × $1.45 = $507,500
(b) Ending WIP: [90% × (400,000 - 350,000)] × $1.45 = $65,250

6-138
Blooms: Apply
Gradable: manual

117. EZ Set produces a quick setting concrete powder. Production of 15,000 tons was started in September,
14,000 tons were completed. Material costs were $394,670 for the month while conversion costs were
Required:

(a) $588,000
(b) $8,400
Equivalent production = 14,000 + [20% × (15,000 - 14,000)] = 14,200 tons

Cost per unit = ($394,670 + 201,730)/14,200 = $42
(a) Costs transferred = 14,000 × $42 = $588,000

(b) Ending WIP: [20% × (15,000 - 14,000)] × $42 = $8,400

Blooms: Apply
Gradable: manual

6-139
(A) (B) (C) (D) (E)

Beginning
$68,000 $7,100 $100,000 ? $85,200
Bal.
Ending
? 6,200 110,000 134,400 74,400
Balance
Transferred
64,000 ? 75,000 153,600 ?
in
Transferred
76,000 22,000 ? 182,400 264,000
out

(A) (B) (C) (D) (E)

Beginning $68,00 $7,10 $100,00 $163,20 $85,20
Bal. 0 0 0 0 0
Ending $56,00 $134,40
6,200 110,000 74,400
Balance 0 0
Transferre 21,10 253,20
64,000 75,000 153,600
d in 0 0
Transferre 22,00 264,00
76,000 65,000 182,400
d out 0 0

Blooms: Apply
Difficulty: 1 Easy
Gradable: manual

6-140
(A) (B) (C) (D) (E)

Beginning
$85,000 $3,550 $780,000 $36,000 ?
Bal.
Ending
? 3,210 640,000 $36,000 32,000
Balance
Transferred
80,000 10,550 ? 75,000 64,000
in
Transferred
76,000 ? 1,400,000 ? 42,000
out

(A) (B) (C) (D) (E)

Beginning $85,00 $3,55 $36,00 $10,00
$780,000
Bal. 0 0 0 0
Ending $89,00 $36,00
3,210 640,000 32,000
Balance 0 0
Transferre 10,55 1,260,00
80,000 75,000 64,000
d in 0 0
Transferre 10,89 1,400,00
76,000 75,000 42,000
d out 0 0

Blooms: Apply
Difficulty: 1 Easy
Gradable: manual

6-141
120. Assume that the following T-accounts represent data from the Morgensen Corporation's accounting
records.
Required:
(a) Find the missing amounts represented by the letters a, b, c, d and e.

(b) Determine the company's predetermined overhead rate, based on labor cost.
BB = Beginning Balance; EB = Ending Balance TO = Transferred Out
Raw-Material Finished
Cost of Goods Sold
Inventory Goods
BB
39,750 BB (a)
6,750
(1) TO
(c) (d)
22,500 15,750
EB EB

7,125 10,950
Work-in-Process Manufacturing

Inventory Overhead
BB 4,500 17,400 12,000
Mat’s (b)
Labor

24,000
Overhead (e) 43,950
EB 12,300
(1) Denotes materials purchased

(a) 375 (b) 15,750 (c) 43,950 (d) 39,750 (e) 12,000
(b) Overhead applied is $12,000; Direct labor is $24,000.
Predetermined rate: $12,000/24,000 = 50% of direct labor cost.

Blooms: Apply
Difficulty: 1 Easy
Gradable: manual

6-142
121. Smooth Sailing Company, experienced the following events during 2016:
Purchased $1,800,000 of lumber and other materials for building boats.
Incurred $200,000 for advertising.
Paid $60,000 to have lumber transported to its factory.
Had sales revenue of $6,000,000 during the year.
Incurred $400,000 of general and administrative expenses.
Took a periodic inventory at year-end and determined that material costing $400,000 was on hand. The
inventory at the beginning of the year was $200,000.
All costs incurred were added to the appropriate accounts. All sales were on credit.
Required:
Solve for the following items in Smooth Sailing Company's Raw-Material inventory account:
a) Transfers in (TI).
b) Beginning balance (BB).
c) Transfers out (TO).
d) Ending balance (EB).

Transfers in = $1,860,000 ($1,800,000 of purchases plus $60,000 of transportation).

Beginning balance equals $200,000.
Transfers out = $1,660,000 ($200,000 + 1,860,000 - 400,000).
Ending balance = $400,000.

Blooms: Apply
Difficulty: 1 Easy
Gradable: manual

6-143
122. Gentry Cabinetry produces two models of home shelving, the Basic and the Mega. Data on operations
and costs for November are:
Basic Mega Total

Machine hours 8,000 4,000 12,000
348,200
costs
Required:
Compute the predetermined overhead rate, assuming Gentry Cabinetry uses:


(a) $34.82/hr
(b) 174.1%
(c) $29.0167/MHr
(d) Basic: $373.589; Mega: $808.444
(a) $348,200/10,000 hrs = $34.82/hr

(b) $348,200/$200,000 = 174.10%
(c) $348,200/12,000 Machine hrs = $29.0167/MHr
(d) Basic: $20,000 + 129,000 + 174.1% × 129,000 = $373,589/1,000 units = $373.589
Mega: $7,500 + 71,000 + 174.1% × 71,000 = $202,111/250 units = $808.444

Blooms: Apply
Gradable: manual

6-144
123. Gentry Cabinetry produces two models of home shelving, the Basic and the Mega. Data on operations
and costs for November are:
Basic Mega Total
Machine hours 8,000 4,000 12,000
348,200
costs
Required:
Compute the unit cost for each model, assuming Gentry Cabinetry uses:


(a) Basic: $357.92; Mega: $871.12

(b) Basic: $373.589; Mega: $808.444
(c) Basic: $381.134; Mega: $778.268
(a) Overhead rate: $348,200/10,000 hrs = $34.82/hr

Basic: $20,000 + 129,000 + $34.82 × 6,000 = $357,920/1,000 units = $357.92
Mega: $7,500 + 71,000 + $34.82 × 4,000 = $217,780/250 units = $871.12
(b) Overhead rate: $348,200/$200,000 = 174.10%
Basic: $20,000 + 129,000 + 174.1% × 129,000 = $373,589/1,000 units = $373.589
Mega: $7,500 + 71,000 + 174.1% × 71,000 = $202,111/250 units = $808.444
(c) Overhead rate: $348,200/12,000 Machine hrs = $29.0167/MHr
Basic: $20,000 + 129,000 + $29.0167 × 8,000 = $381,134/1,000 units = $381.134
Mega: $7,500 + 71,000 + $29.0167 × 4,000 = $194,567/250 units = $778.268

Blooms: Apply
Gradable: manual

6-145
124. Barton Carts produces two models of push carts, the Standard and the Deluxe. Data on operations and
costs for the month are:
Standard Deluxe Total

Machine hours 16,000 8,000 24,000
Units produced 4,000 1,000 5,000
Manufacturing
557,400
overhead costs
Required:
Compute the total cost for each model, assuming Barton Carts uses:


(a) Standard: $676,440; Deluxe: $390,960

(b) Standard: $707,097; Deluxe: $360,303
(c) Standard: $713,600; Deluxe: $353,800

Standard: $80,000 + 262,000 + $27.87 × 12,000 = $676,440
Deluxe: $30,000 + 138,000 + $27.87 × 8,000 = $390,960
(b) Overhead rate: $557,400/400,000 = 139.35%
Standard: $80,000 + 262,000 + 139.35% × $262,000 = $707,097
Deluxe: $30,000 + 138,000 + 139.35% × $138,000 = $360,303
Standard: $80,000 + 262,000 + $23.225 × 16,000 = $713,600
Deluxe: $30,000 + 138,000 + $23.225 × 8,000 = $353,800

Blooms: Apply
Gradable: manual

6-146
Advance Superio
Basic Total
d r
Machine hours 8,000 6,000 4,000 18,000
Direct labor
6,000 6,000 4,000 16,000
hours
Units
1,000 500 250 1,750
produced
Direct material
$20,000 $12,500 $7,500 $40,000
costs
Direct labor
129,000 100,000 71,000 300,000
costs
Manufacturing
540,800
overhead costs
Required:
Compute the predetermined overhead rate, assuming Misner Office Products uses:

(a) $33.80/hr
(b) 180.267%
(c) $30.0444/MHr
(d) Basic: $381.544; Advanced: $585.534; Superior: $825.96
(a) $540,800/16,000 hrs = $33.80/hr

(b) $540,800/$300,000 = 180.267%
(c) $540,800/18,000 Machine hrs = $30.0444/MHr
(d) Basic: $20,000 + 129,000 + 180.267% × 129,000 = $381,544/1,000 units = $381.544
Advanced: $12,500 + 100,000 + 180.267% × 100,000 = $292,767/500 units = $585.534
Superior: $7,500 + 71,000 + 180.267% × 71,000 = $206,490/250 units = $825.96

Blooms: Apply
Gradable: manual

6-147
6-148
Advance Superio
Basic Total
d r
Machine hours 8,000 6,000 4,000 18,000
Direct labor
6,000 6,000 4,000 16,000
hours
Units
1,000 500 250 1,750
produced
Direct
$20,000 $12,500 $7,500 $40,000
material costs
Direct labor
129,000 100,000 71,000 300,000
costs
Manufacturing
540,800
overhead costs
Required:
Compute the unit cost for each model, assuming Misner Office Products uses:


(a) Basic: $351.80; Advanced: $630.60; Superior: $854.80

(b) Basic: $381.54; Advanced: $585.53; Superior: $825.96
(c) Basic: $389.36; Advanced: $585.53; Superior: $794.71
Basic: $20,000 + 129,000 + $33.80 × 6,000 = $351,800/1,000 units = $351.80

Advanced: $12,500 + 100,000 + $33.80 × 6,000 = $315,300/500 units = $630.60
Superior: $7,500 + 71,000 + $33.80 × 4,000 = $213,700/250 units = $854.80
(b) Overhead rate: $540,800/$300,000 = 180.267%
Basic: $20,000 + 129,000 + 180.267% × 129,000 = $381,544/1,000 units = $381.544

Advanced: $12,500 + 100,000 + 180.267% × 100,000 = $292,767/500 units = $585.534
Superior: $7,500 + 71,000 + 180.267% × 71,000 = $206,490/250 units = $825.96
Basic: $20,000 + 129,000 + $30.0444 × 8,000 = $389,355/1,000 units = $389.355

Advanced: $12,500 + 100,000 + $30.0444 × 6,000 = $292,766/500 units = $585.532
6-149
Superior: $7,500 + 71,000 + $30.0444 × 4,000 = $198,678/250 units = $794.712

Blooms: Apply
Gradable: manual

6-150
6-151
127. Pierce Carts produces three models of push carts, the Economy, the Standard, and the Deluxe. Data on
operations and costs for the month are:
Econom Standar
Deluxe Total
y d
Machine
8,000 16,000 8,000 32,000
hours
Direct labor
4,000 12,000 8,000 24,000
hours
Units
8,000 4,000 1,000 13,000
produced
Direct
$100,000 $80,000 $30,000 $210,000
material costs
Direct labor
200,000 262,000 138,000 600,000
costs
Manufacturin
g overhead 684,000
costs
Required:
Compute the total cost for each model, assuming Pierce Carts uses:


(a) Economy: $414,000; Standard: $684,000; Deluxe: $396,000

(b) Economy: $528,000; Standard: $640,680; Deluxe: $325,320
(c) Economy: $471,000; Standard: $684,000; Deluxe: $339,000
Economy: $100,000 + 200,000 + $28.50 × 4,000 = $414,000

Standard: $80,000 + 262,000 + $28.50 × 12,000 = $684,000
Deluxe: $30,000 + 138,000 + $28.50 × 8,000 = $396,000
(b) Overhead rate: $684,000/$600,000 = 114%
Economy: $100,000 + 200,000 + 114% × $200,000 = $528,000

Standard: $80,000 + 262,000 + 114% × $262,000 = $640,680
Deluxe: $30,000 + 138,000 + 114% × $138,000 = $325,320
6-152
Economy: $100,000 + 200,000 + $21.375 × 8,000 = $471,000
Standard: $80,000 + 262,000 + $21.375 × 16,000 = $684,000
Deluxe: $30,000 + 138,000 + $21.375 × 8,000 = $339,000

Blooms: Apply
Gradable: manual

6-153
6-154
128. The management of Marysville Corporation would like to investigate the possibility of basing its
predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for
the year. The company's controller has provided an example to illustrate how this new system would
work. In this example, the allocation base is machine-hours and the estimated amount of the allocation
base for the upcoming year is 48,000 machine-hours. In addition, capacity is 53,000 machine-hours and
the actual activity for the year is 47,700 machine-hours. All of the manufacturing overhead is fixed and
is $1,144,800 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead
for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing
overhead for the year. Job J42O, which required 40 machine-hours, is one of the jobs worked on during
the year.
Required:
a. Determine the predetermined overhead rate if the predetermined overhead rate is based on the
estimated amount of the allocation base.
b. Determine how much overhead would be applied to Job J42O if the predetermined overhead rate is
based on estimated amount of the allocation base.
c. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount
of the allocation base at capacity.
d. Determine how much overhead would be applied to Job J42O if the predetermined overhead rate is

Calculation of the predetermined

a.
overhead rate:
Estimated total manufacturing
$1,144,800
overhead
Estimated total amount of the
48,000 MHs
allocation base
per
Predetermined overhead rate $23.85
MH
Manufacturing overhead applied
b.
to Job J42O:
Number of hours for the job 40 MHs
per
MH
$954.00
to the job
c.
overhead rate:
$1,144,800
overhead at capacity
Total amount of the allocation
53,000 MHs
base at capacity
Predetermined overhead rate $21.60 per
6-155
MH
d.
to Job J42O:
per
MH
$864.00
to the job

Blooms: Apply
Gradable: manual

6-156
129. The management of Norbert Corporation would like to investigate the possibility of basing its
predetermined overhead rate on activity at capacity rather than on the estimated amount of activity for
the year. The company's controller has provided an example to illustrate how this new system would
work. In this example, the allocation base is machine-hours and the estimated amount of the allocation
base for the upcoming year is 70,000 machine-hours. In addition, capacity is 82,000 machine-hours and
the actual activity for the year is 72,900 machine-hours. All of the manufacturing overhead is fixed and
is $4,132,800 per year. For simplicity, it is assumed that this is the estimated manufacturing overhead
for the year as well as the manufacturing overhead at capacity and the actual amount of manufacturing
overhead for the year. Job O65A, which required 300 machine-hours, is one of the jobs worked on
during the year.
Required:
a. Determine the predetermined overhead rate if the predetermined overhead rate is based on the amount
of the allocation base at capacity.
b. Determine how much overhead would be applied to Job O65A if the predetermined overhead rate is


a.
overhead rate:
$4,132,800
overhead at capacity
Total amount of the allocation
82,000 MHs
base at capacity
per
MH
b.
to Job O65A:
per
MH
$15,120.00
to the job

Blooms: Apply
Gradable: manual

6-157
6-158
130. Linger Products uses a two-stage allocation method to assign costs to its products. The following
information has been provided for March:
Product Product
Total
1 2
Units 3,000 2,000 5,000
Machine hours 2,000 4,000 6,000
Direct labor 45,000 45,000 90,000
Utilities (machine
$3,000
related)
Supplies (labor
8,000
related)
Training (labor
20,000
related)
Supervision (labor
17,000
related)
24,000
(machine related)
Lease on factory
33,000
(machine related)
5,000
related)
Total manufacturing
$110,000
overhead
Required:
hours as the bases.
(c) Compute the total costs of production for each of the two products.

(a) Machine: $60,000; Labor: $50,000

(b) Machine: $10/MHr; Labor: $12.50/DLHr
(c) Product 1: $150,000; Product 2: $170,000
(a)
Manufacturing over head Machine Labor Total

Utilities (machine $3,000 $3,000
6-159
related)
Supplies (labor related) $8,000 8,000
Training (labor related) 20,000 20,000
Supervision (labor
17,000 17,000
related)
24,000 24,000
(machine related)
Lease on factory
33,000 33,000
(machine related)
5,000 5,000
related)
Total $60,000 $50,000 $110,000
(b) Machine: $60,000/6,000 MHr = $10/MHr; Labor: $50,000/4,000 DLHr = $12.50/DLHr

(c) Product 1: $60,000 + 45,000 + $10 × 2,000 MH + $12.50 × 2,000 DLHr = $150,000
Product 2: $60,000 + 45,000 + $10 × 4,000 MH + $12.50 × 2,000 DLHr = $170,000

Blooms: Apply
Gradable: manual

6-160
6-161

Total
X Y Z
Units 3,000 2,000 1,000 6,000
Machine hours 4,000 8,000 8,000 20,000
Direct labor
2,000 3,000 5,000 10,000
hours
Direct labor 45,000 80,000 175,000 300,000
Manufacturing

overhead
Utilities
(machine $13,000
related)
Supplies (labor
8,000
related)
Training (labor
20,000
related)
Supervision
37,000
(labor related)
Machine
depreciation
34,000
(machine
related)
Lease on
factory (machine 66,000
related)
Miscellaneous
15,000
(labor related)
Total
overhead
Required:
hours as the bases.
(c) Compute the total costs of production for each of the three products.

(a) Machine: $113,000; Labor: $80,000

(b) Machine: $5.65/MHr; Labor: $8.00/DLHr
(c) Product X: $143,600; Product Y: $209,200; Product Z: $335,200
6-162
(a)
Manufacturing
Machine Labor Total
overhead
Utilities (machine
$13,000 $13,000
related)
Supplies (labor related) $8,000 8,000
Training (labor related) 20,000 20,000
Supervision (labor
37,000 37,000
related)
34,000 34,000
(machine related)
Lease on factory
66,000 66,000
(machine related)
15,000 15,000
related)
Total $113,000 $80,000 $193,000
(b) Machine: $113,000/20,000 MHr = $5.65/MHr; Labor: $80,000/10,000 DLHr = $8.00/DLHr

(c) Product X: $60,000 + 45,000 + $5.65 × 4,000 MH + $8 × 2,000 DLHr = $143,600
Product Y: $60,000 + 80,000 + $5.65 × 8,000 MH + $8 × 3,000 DLHr = $209,200
Product Z: $75,000 + 175,000 + $5.65 × 8,000 + $8 × 5,000 = $335,200

Blooms: Apply
Gradable: manual

6-163
6-164

Total
X Y Z
Units 6,000 4,000 2,000 12,000
Machine hours 8,000 16,000 16,000 40,000
Direct labor
4,000 6,000 10,000 20,000
hours
$120,00 $120,00 $150,00 $390,00
Direct materials
0 0 0 0
Direct labor 90,000 160,000 350,000 600,000
Manufacturing

overhead
Utilities
(machine $26,000
related)
Supplies
16,000
(labor related)
Training
40,000
(labor related)
Supervision
74,000
(labor related)
Machine
depreciation
68,000
(machine
related)
Lease on
factory
132,000
(machine
related)
Miscellaneou
30,000
s (labor related)
Total
$386,00
manufacturing
0
overhead
Required:
cost as the bases.
(c) Compute the unit cost of production for each of the three products.

(a) Machine: $226,000; Labor: $160,000

(b) Machine: $5.65/MHr; Labor: 26.667%
(c) Product X: $46.53; Product Y: $103.27; Product Z: $341.87
6-165
(a)
Manufacturing
Machine Labor Total
overhead
Utilities (machine
$26,000 $26,000
related)
Supplies (labor
$16,000 16,000
related)
Training (labor
40,000 40,000
related)
Supervision (labor
74,000 74,000
related)
68,000 68,000
(machine related)
Lease on factory
132,000 132,000
(machine related)
30,000 30,000
related)
Total $226,000 $160,000 $386,000
(b) Machine: $226,000/40,000 MHr = $5.65/MHr; Labor: $160,000/$600,000 = 26.667%

(c) Product X: $120,000 + 90,000 + $5.65 × 8,000 MH + 26.667% × $90,000 = $279,200/6,000 units =
$46.53
Product Y: $120,000 + 160,000 + $5.65 × 16,000 MH + 26.667% × $160,000 = $413,067/4,000 units =
$103.27
Product Z: $150,000 + 350,000 + $5.65 × 16,000 + 26.667% × $350,000 = $683,735/2,000 units =
$341.87

Blooms: Apply
Gradable: manual

6-166
133. Adolphus Instruments manufactures two models of calculators. The research model is the RES-1 and
the student model is the AS-2. Both models are assembled in the same plant and require the same
assembling operations. The difference is in the cost of the internal components. The following data are
available for February.
RES-1 AS-2 Total

Number of units 20,000 80,000 100,000
Parts costs per unit $40 $50
Other costs:
Total $300,000
Adolphus uses operations costing and assigns conversion costs on the number of units assembled.
Required:
Compute the cost of the RES-1 and AS-2 models for February.

RES-1: $43; AS-2: $53
Conversion costs: $300,000/100,000 units = $3/unit

RES-1: $40 parts + $3 conversion = $43; AS-2: $50 parts + $3 conversion = $53.

Blooms: Apply
Gradable: manual

6-167
134. Carter Furniture manufactures three models of tables: oak, cherry, and walnut. All models are
assembled in the same plant and require the same assembling operations. The difference is in the cost of
the wood. The following data are available for July.
Cherr Walnu
Oak Total
y t
Number of units 1,200 700 900 2,800
Wood costs per
$80 $120 $105
unit
Other costs:
Total $252,000
Carter uses operations costing and assigns conversion costs on the number of tables built.
Required:
Compute the cost of the each of the three models for July.

Oak: $170; Cherry: $210; Walnut: $195
Conversion costs: $252,000/2,800 units = $90/unit

Oak: $80 wood + $90 conversion = $170/unit; Cherry: $120 wood + $90 conversion = $210/unit;
Walnut: $105 wood + $90 conversion = $195/unit

Blooms: Apply
Gradable: manual

6-168
135. When designing a cost system, what points should you consider before starting the design?

There are three important points to consider:
1. The cost system should meet the needs of the users (the decision makers).
2. The cost system must provide the appropriate data for its intended purpose. Different cost information
is used for different purposes.
3. Cost information for managerial purposes must meet the cost-benefit test. The costs of implementing
the system should be less than the benefits derived from the system (i.e. better decisions).

Blooms: Remember
Gradable: manual

136. If costs are allocated on a somewhat arbitrary base, what purpose does computing product costs have?

The cost of conducting a special study every time we need to know the cost of an item is very
expensive. Although the product costs determined using allocations may not be "right," they are often
"good enough." There needs to be a balance between the potential distortion in costs and the cost of
determining the product cost through special studies.

Blooms: Remember
Gradable: manual

137. What is each component of the basic cost flow model? Describe each component.

The basic cost flow model appears as follows:

Beginning balance + Transfers in - Transfers out = Ending balance
Beginning balance is the balance of inventory at the beginning of the period. Transfers in represent
inventory purchased or transferred in from another department (for example, raw materials would be
goods transferred in to work in process) for the period. Transfers out are goods transferred from one
department to another (for example, work in process would be transferred out to finished goods).
Ending balance represents the amount of inventory in a department at the end of the accounting period.

6-169
Blooms: Apply
Gradable: manual

138. Why might a company use direct labor cost as an overhead allocation base rather than using direct labor
hours?

Direct labor cost would be a better choice as an allocation base if a large portion of the overhead is
employee related and is affected by either the wage rate or the seniority of the employees. If the
overhead costs are determined by labor activity regardless of seniority or skill, then direct labor hours
would be a better choice.

Blooms: Apply
Gradable: manual

139. Describe the two-stage allocation method. When is it important to use a two-stage approach rather than
a single-stage approach?

The two-stage allocation method splits the overhead allocation into two steps. The first stage allocates
costs to an intermediate cost pool. This intermediate cost pool is then allocated to the individual cost
objects. The two-stage approach is used when the overhead is caused by multiple drivers and the cost
objects use the drivers at different rates.

Blooms: Remember
Gradable: manual

6-170
140. How does job costing differ from process costing?

Job costing is used when the units being produced are unique and use the production process/resources
in varying amounts. Process costing is used when the product is homogenous and is produced in
uniform production steps.

Blooms: Remember
Gradable: manual

141. Why is operations costing often called a "hybrid" system?

Operations costing is a hybrid system because it contains characteristics of both job costing and process
costing. The different materials for each unit can be traced using job costing principles while the labor
and overhead reflects the standardized production process and uses process costing principles.

Blooms: Apply
Gradable: manual

6-171
6-172
142. Thompson Metal Corporation (TMC) supplies various types of machine tools to manufacturing
companies. TMC has always paid a lot of attention to the quality of its products. Recently, an outside
supplier has approached TMC to supply an important and intricate component of one of its more
advanced tools that TMC has been manufacturing in-house. Sam Weiss, a junior accountant at TMC,
has collected the following information regarding this proposal.
The cost of manufacturing one unit of this component internally are as follows:
Direct materials: $29,60

Direct labor: 13.00
(@150% of direct labor
Variable overhead: 19.50
cost)
(@200% of direct labor
Fixed overhead: 26.00
cost)
Total cost: $88.10
The outside supplier has quoted a price of $90 per unit for supplying this component. The following is
a conversation that took place among the manufacturing manager (Dana Rice), the buyer (Emily
Scanlon), and Sam Weiss.
Weiss: I think that we should continue to manufacture internally because we can save $1.90 per unit on
this component.
Rice: According to your report, we would save $1.90 per unit, but I do not agree with those numbers.
Weiss: What do you mean? I have followed the same costing guidelines this company has used for
years. I have even cross-checked my numbers with historical data and know for sure that the overhead
rates which I have used are correct.
Rice: I am sure you have done your job thoroughly, but I think that our costing system is archaic. This
component is complex and difficult to manufacture. I believe that our overhead allocation method does
not accurately capture the production difficulties and the additional resources that are devoted to the
manufacture of this component. For example, a significant portion of our quality problems are due to
this component. We spend close to a third of our quality inspection time on just this component alone,
but that is not reflected. These quality problems cause delays in getting this component to the assembly
department, and that causes a delay in getting the final product to the customers. Many of our customers
are expecting just-in-time deliveries, and they get upset when we're late.
Scanlon: I know that the supplier that has approached us has a strong reputation for quality. Therefore,
we can rest assured that we will have negligible quality problems.
Rice: Sam, your report does not consider this additional benefit from buying outside. I would
appreciate it if you can rework your numbers to more accurately reflect the true costs associated with
manufacturing this component internally.
Required:
(a) Assume the role of Sam Weiss. What are the different elements of costs that are likely to be
associated with the manufacture of the component? Does the current costing system capture these costs?
(b) Recommend improvements in the costing system.
(c) How can Weiss quantify "qualitative" benefits such as quality and on-time delivery?

6-173
(a) Several costs are likely to be incurred to manufacture the component. Examples include:
• direct and indirect materials

• direct and indirect labor
• machining
• inspecting
• reworking
• packaging
• procurement of materials
• design and engineering
The current costing system appears to capture direct materials and direct labor costs separately, and
lump all other costs into overhead. It is also not clear as to what items are included as part of overhead.
Moreover, the current costing system seems to assume that all products consume overhead resources in
a fixed ratio, thereby ignoring that the manufacture of complex components would likely consume more
resources than the level of resources consumed by simple components. Moreover, the current costing
system fails to identify the additional costs due to the quality problems associated with this component.
(b) The most important change to the costing system is better tracing of costs and identification of cost
drivers. By separating the costs of machining, inspection, reworking, packaging, procurement, design,
and engineering costs, TMC will be able to attach costs to products (or components) based on their
consumption of the different resources. Such a system will allow managers to more clearly identify all
costs and benefits associated with buying the component from an outside supplier versus continuing to
manufacture it internally.
(c) Factors such as quality and on-time delivery are becoming important sources of competitive
advantage. Unfortunately, very few organizations are attempting to "quantify" these benefits. The costs
associated with poor quality can be tracked by recording the costs of additional inspection, reworking,
scrap and warranty. The notion of Cost of Quality (COQ) has been adopted by several companies and is
providing valuable information for managers to make process improvements. Similarly, costs associated
with late delivery because of poor processes can be tracked. These would include expediting costs in
order to meet delivery schedules and potential lost sales due to poor on-time delivery performance.

AICPA: FN Decision Making
Blooms: Evaluate
Difficulty: 3 Hard
Gradable: manual

6-174
143. Overhead is normally applied to production using a predetermined overhead rate based on some
underlying cost driver. The amount of overhead allocated to jobs will normally not be the same as the
actual amount of overhead cost incurred. The difference is called the overhead variance.
Required:
Name two possible treatments for the overhead variance at the end of the accounting period. What are
the pros and cons of each treatment? When should each be used?

The two treatments for the overhead variance are: 1) assign the variance to cost of goods sold or 2)
prorate the variance to Work in Process, Finished Goods, and Cost of Goods Sold. Assigning the
variance to cost of goods sold is simpler. It should be used when the amount of the variance is
immaterial, that is, that the difference between the two treatments will not affect a decision-maker's
analysis of the company's results. Theoretically, this method is deficient, because the variance should be
charged to any account where there is overhead. However, it is the most common treatment because
most companies have a relatively high percentage of costs in cost of goods sold at year-end and the
difference between that treatment and prorating will not result in a material difference in income.
However, if the amount of the variance is material, the only appropriate method is to prorate the
variance to all inventories that contain overhead costs: Work in Process, Finished Goods and Cost of
Goods Sold. It is more accurate to prorate the variance based on the amount of overhead in each of the
accounts, although sometimes total cost is used.

Blooms: Apply
Gradable: manual

6-175
6-176
144. Silverton Manufacturing Company builds highly sophisticated engine parts for cars competing in stock
racing and drag racing. The company uses a normal costing system that applies factory overhead on the
basis of direct labor-hours. For 2016, the company estimated that it would incur $256,000 in factory
overhead costs and 16,000 direct labor-hours. The April 1, 2016, balance in inventory accounts follow:
Materials Inventory $54,000

Work-in-Process Inventory (Y12) $21,000
Finished Goods Inventory (Z11) $108,000
Job Y12 is the only job in process on April 1, 2016. The following transactions were recorded for the
month of April:
a. Purchased materials on account, $180,000.
b. Issued $182,000 of materials to production, $8,000 of which was for indirect materials.
Cost of direct materials issued:
Job Y12 $46,000

Job D20 84,000
Job E33 44,000
c. Incurred and paid payroll cost of $40,920; Direct labor cost ($20/hour; total 1,196 hours):
Job Y12 $12,220

Job D20 8,060
Job E33 3,640
Selling and administrative salaries 12,000
d. Recognized depreciation for the month:
Manufacturing asset $4,400

Selling and administrative asset 3,400
e. Paid advertising expenses $12,000.

f. Incurred factory utility costs 2,600.
g. Incurred other factory overhead costs 3,200.
h. Applied factory overhead to production on the basis of direct labor-hours.
i. Completed Job Y12 during the month and transferred it to the finished goods warehouse.
j. Sold Job Z11 on account for $118,000.
k. Received $50,000 of collections on account from customers during the month.
Required:
(1) Calculate the company's predetermined overhead rate.

(2) Prepare journal entries for the April transactions. Record job-specific items in individual Work-in-
Process accounts.
(3) What was the balance of the Materials Inventory account on April 30, 2016?
6-177
(4) What was the balance of the Work-in-Process Inventory control account on April 30?

1. Predetermined overhead rate: $16.00 per DL hour ($256,000/16,000).

2. Journal entries for the April transactions follow:
a. Materials Inventory 180,000

Accounts Payable 180,000
Work-in-Process Inventory - Job
b. 46,000
Y12
84,000
D20
44,000
E33
Factory Overhead 8,000
Materials Inventory 182,000
c. 12,220
Y12
8,060
D20
3,640
E33
Factory Overhead 5,000
Salary Expense 12,000
Accrued Payroll 40,920
d. Factory Overhead 4,400
Depreciation Expense 3,400
Accumulated Depreciation 7,800
e. Advertising Expense 12,000
Cash 12,000
f. Factory Overhead 2,600
Accounts Payable (or Cash) 2,600
g. Factory Overhead 3,200
Accounts Payable (or Cash) 3,200
h 9,776
YI2
6,448
D20
2,912
E33
Factory Overhead Applied

($16 × 1,196 hours) 19,136
Finished Goods Inventory - Job
i. 88,996
Y12
6-178
Work-in-Process - Job Y12 88,996
j. Accounts Receivable 118,000
Sales 118,000
Cost of Goods Sold 108,000
Finished Goods Inventory -
108,000
Job Z11
k. Cash 50,000
Accounts Receivable 50,000
3. Ending Balance of Materials Inventory:
Beginning Materials Inventory $54,000

+Purchases 180,000
Available 234,000
-Materials Used 182,000
Ending Materials Inventory $52,000
4. Ending Balance in Work-in-Process Inventory:
Beginning WIP
$21,000
Inventory
(46,000 + 84,000
+Direct Materials 174,000
+ 44,000)
(12,220 + 8,060 +
+Direct Labor 23,920
3,640)
+Applied (9,776 + 6,448 +
19,136
Overhead 2,912)
-Transferred to
(88,996)
FGI
Ending WIP
$149,060
Inventory

Blooms: Remember
Difficulty: 3 Hard
Gradable: manual

6-179
6-180
145. Ryan & Marks, Design Consultants has the following budget for the year:
Direct labor (for professional hours charged

$202,000
to clients)
Overhead
Depreciation - Building 50,000
Depreciation - Furniture 5,000
Utilities 12,000
Insurance 4,800
Property taxes 5,200
Other expenses 3,380
Total $240,380
The firm uses direct labor as the cost driver to apply overhead to clients. During January, the firm
worked for many clients; data for two of them follow:
Henderson account
Direct materials $400
Direct labor $3,000
Fisher account
Required:
(1) Compute the Ryan & Marks budgeted overhead rate. Explain how this is used.
(2) Compute the amount of overhead to be charged to the Henderson and Fisher accounts using the
predetermined overhead rate calculated in requirement (1).
(3) Compute the separate job cost for the Henderson and Fisher accounts.

1. Budgeted overhead rate = 119% direct labor cost ($240,380/$202,000)

This is used to allocate an estimated overhead amount to each specific account based on the direct
professional labor that has occurred for each account during the period.
2. Amount of overhead charged to:
Henderson Account: $3,570 (119% × $3,000)

Fisher Account: $14,994 (119% × $12,600)
3. Computation of total contract cost:
6-181
Cost Henderson Fisher
Direct materials $400 $5,380
Direct labor 3,000 12,600
Overhead 3,570 14,994
Total $6,970 $32,974

Blooms: Remember
Difficulty: 3 Hard
Gradable: manual

6-182
6-183
146. The following information is for Ogden Company for the month of November:
a. Factory overhead costs are applied to jobs at the predetermined rate of $80 per labor-hour. Job X-14
incurred 2,300 labor-hours; Job SM-4 used 1,850 labor-hours.
b. Job X-14 was shipped to customers during November. Job X-14 had a gross margin of 24 percent
based on manufacturing cost.
c. Job SM-4 was still in process at the end of November.
The company closed the overapplied or underapplied overhead to the Cost of Goods Sold account at the
end of November.
d. Factory utilities, factory depreciation, and factory insurance incurred is summarized by these factory
vouchers, invoices, and cost memos:
Utilities $44,500
Depreciation 53,500
Insurance 38,600
e. The Company purchased the following direct materials and indirect materials:
Material A $6,000
Material B 7,000
Total $17,250
f. Direct materials and indirect materials used are as follows:

Material A $5,450 $33,000 $38,450
Material B 1,650 25,500 27,150
Subtotal $7,100 $58,500 $65,600
Total $132,100
g. Factory labor incurred for the two jobs and indirect labor is as follows:
Job X-14 $32,200

Job SM-4 25,900
Total $180,000
Required:
1. Calculate the amount of overapplied or underapplied overhead and state whether the cost of goods
sold account will be increased or decreased by the adjustment.
2. Calculate the total manufacturing cost for Job X-14 and Job SM-4 for November.

6-184
Lab
Direct
Direct or
Data Section Mater
Labor Hou
ials
rs
2,30 Summary of
Job X-14 $32,200
0 Overhead Costs
Indirect $66,5
Material A $5,450
Materials 00
Indirect 122,0
Material B 1,650
Labor 00
$44,5
$7,100 Utilities
00
1,85 Depreciat 53,50
Job SM-4 $25,900
0 ion 0
$33,00 38,60
Material A Insurance
0 0
25,50
Material B
0
$58,50 4,15

0 0
Factory
Overhead
Applied
per
$80,000 labor
hour
Solution
Factory
Overhead
Analysis
Actual

Factory OH
Indirect $66,50

Materials 0
122,00
Indirect Labor
0
Utilities 44,500
Depreciation 53,500
38,6
Insurance
00
Total Actual $325,1

Factory OH 00
Less: Applied 332,0 = (2,300 +

Factory OH 00 1,850) × $80
Under/overa - Overapp
pplied $6,900 lied
6-185
Factory OH
Adjust
Difference to (6,900) Decrease Cost of Goods Sold
COGS
Breakdown of Job Costs

Total Direct
Materials $7,100 $58,500
Cost
Total Direct
32,200 25,900
Labor Cost
Applied

Overhead
Machine
2,300 1,850
Hours
Applicati $80.0 $80.0

on rate 0 0
Total
Applied $332,00
184,000 148,000
Overhead 0
Cost
Total
$223,30 $232,40
Manufactur
0 0
ing Costs

Blooms: Remember
Gradable: manual

6-186
6-187
147. Nash Company manufactured two products, A and B, during April. For purposes of product costing, an
overhead rate of $2.50 per direct-labor hour was used, based on budgeted annual factory overhead of
$500,000 and 200,000 budgeted annual direct-labor hours, as follows:
Budgeted Budgeted

Overhead Hours
Department 1 $300,000 100,000
Department 2 200,000 100,000
Total $500,000 200,000
The number of labor hours required to manufacture each of these products was:
Product A Product B
In Department 1 3 1
In Department 2 1 3
Total 4 4
During April, production units for products A and B were 1,000 and 3,000.
Required:
(1) Using a plant-wide overhead rate, what are total overhead costs assigned to products A and B,
respectively?
(2) Using departmental overhead rates, what are total overhead costs assigned to products A and B,
respectively?
(3) Assume that materials and labor costs per unit of Product A are $10 and that the selling price is
established by adding 40% of absorption costs to cover profit and selling and administrative expenses.
What difference in selling price would result from the use of departmental overhead rates?

(1) Using Plant-wide Overhead Rate

Product A: $2.50 × 4 hours × 1,000 units = $10,000
Product B: $2.50 × 4 hours × 3,000 units = $30,000
(2) Using Departmental Rates
Department 1 Rate: $300,000/100,000 = $3 per direct labor hour
Department 2 Rate: $200,000/100,000 = $2 per direct labor hour
Product A: [($3 × 3) + ($2 × 1)] × 1,000 = $11,000
Product B: [($3 × 1) + ($2 × 3)] × 3,000 = $27,000
(3) Product

A
Using Plantwide Using Department

Rate Rates
Prime cost $10.00 $10.00
6-188
Overhead* 10.00 11.00
Total cost 20.00 21.00
40% markup 8.00 8.40
Selling price 28.00 29.40
Increase in selling price $29.40 - $28.00 = $1.40

* Overhead calculations:
Using plant-wide rate $2.50 × 4 = $10 per unit
Using departmental rates ($3 × 3) + ($2 × 1) = $11 per unit

Blooms: Remember
Gradable: manual

6-189
6-190
148. Technical Measurement Company manufactures precision-measuring devices used by industrial
companies in various capacities. The devices are produced in two stages: Assembly and Testing. The
company has no beginning inventories because all units produced last year were sold by the end of the
year. At the beginning of the year, the company has an order of 8,000 units. The company's
predetermined overhead rate is based on materials used in assembly and direct labor hours in testing.
Information concerning the predetermined overhead rates appears below: Direct labor is paid $20 per
hour.
Assembly Testing
Budgeted Overhead: $1,000,000 $500,000
Budgeted material use 2,000,000 50,000
Budgeted direct labor hours 200,000 100,000
Budgeted direct labor cost 3,000,000 1,500,000
Other information regarding the production process:
Assembly Testing
Materials requisitioned $2,200,000 $48,000
Direct labor cost 3,100,100 1,575,000
Actual overhead cost 1,200,000 475,000
Required:
(a) Compute the predetermined overhead rate for each department.

(b) Calculate the total and per unit cost of producing 8,000 units.

(a)
Assembly Testing
Budgeted overhead $1,000,000 $500,000
Budgeted activity 2,000,000 100,000
Predetermined rate: 50.00% of materials cost $5.00 per direct labor-hour.
(b) Overhead applied in each department:
Testing:
Direct labor $ $1,575,000
Per hour $20
Hours 78,750
Rate per hour $5
Overhead
$393,750
applied
Assembly Testing Total
6-191
Cost of 8,000

units
Materials
$2,200,000 $48,000 $2,248,000
requisitioned
Direct Labor 3,100,000 1,575,000 4,675,000
Overhead
1,100,000 393,750 1,493,750
applied
Total cost $6,400,000 $2,016,750 $8,416,750
Number of units 8,000
Cost per unit $1,052.09

Blooms: Remember
Gradable: manual

6-192
149. Tidy Furniture Company uses a job-order cost system. The following debits (credits) appeared in the
Work-in-Process account for February 2016:
Description Debits Credits

June 1 Balance $20,000
Entire
Direct Materials 80,000
month
Entire
Direct Labor 60,000
month
Entire Manufacturing
45,000
month overhead
Entire
$120,000
month
Tidy applies overhead to production at a predetermined rate of 75%, based on direct labor cost. Job
1000, the only job still in process at the end of June, has been charged with direct labor of $30,000.
Tidy's Manufacturing Overhead account showed a credit balance of $10,000 at the end of February
2016.
Required:
(a) Calculate the amount of direct materials charged to Job 1000.

(b) Compute the actual overhead for February 2016.
(c) Assume that Tidy closes its Manufacturing Overhead account each month. Tidy does not prorate the
manufacturing overhead variance. Prepare the entry to close the overhead account at the end of
February, 2016.

(a) $32,500
Balance in WIP = $85,000 is the balance in job 1000
Labor = $30,000, Overhead = $30,000 * .75 = $22,500.
Materials = $85,000 - 30,000 - 22,500 = $32,500
(b) Actual overhead is $35,000. Since the Manufacturing Overhead account has a credit balance of
$10,000, applied overhead exceeds actual overhead by $10,000. The overhead applied to Work-in-
Process during the month was $45,000.
(c)

Cost of Goods Sold 10,000

Blooms: Apply
Gradable: manual
6-193

150. Briefly discuss the issue of the choice of an activity measure for setting overhead rates.

The activity measure chosen should be one that moves proportionately with variable overhead. The
most traditional measures have been direct labor hours and direct labor cost.
Labor hours are becoming less relevant as an activity measure because of the impact of technology and
are being replaced by machine hours, robotic hours, or process time which tie into the more automated
manufacturing processes of today. Labor cost, or any dollar based measures have a different set of
problems; in particular, they are impacted by changes in the price level and, thus, subject to more
fluctuation.

AICPA: FN Decision Making
AICPA: FN Reporting
Blooms: Understand
Difficulty: 1 Easy
Gradable: manual

151. Distinguish between job order costing, process costing, and operation costing.
Give an example of a company that would use each.

Job order costing treats each individual job as a unit of output and assigns costs to each job as the
resources are used. Each job has a separate accounting record. Construction, movies, and airplanes
would be examples of products that would use job order costing. Job order costing should be used
whenever it is important to distinguish the cost of specific units from one another because there are
differences in materials, labor, or other costs.
Process costing treats all the units processed during a time period as the output and does not separate
and record costs for each unit produced. There is no expected cost variation in the individual units, so
trying to separate them is of little value. Process costing would be used by food manufacturers, soft
drinks, oil companies, and paint companies. Operation costing is a hybrid of job and process costing. It
is used where companies produce large batches of similar products where significantly different kinds
of materials are used. A car manufacturer or a computer manufacturer who custom fits each computer to
order may use operation costing.

Blooms: Remember
Gradable: manual
6-194

6-195

Fundamentals of Product and Service Costing: True / False Questions

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Fundamentals of Product and Service Costing: True / False Questions

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Chapter 06

Fundamentals of Product and Service Costing

True / False Questions

Multiple Choice Questions

A. continuous flow process.

A. Cost systems should have a decision focus.

For Case (A) above, what is the Beginning Balance (BB)?

For Case (C) above, what is the amount Transferred In (TI)?

For Case (A) above, what is the Ending Balance (EB)?

For Case (B) above, what is the Transferred-In (TI)?

For Case (C) above, what is the Transferred-Out (TO)?

For Case (A) above, what is the Beginning Balance (BB)?

For Case (B) above, what is the Ending Balance (EB)?

For Case (C) above, what is the Transferred-In (TI)?

For Case (A) above, what is the Transferred-Out (TO)?

For Case (B) above, what is the Ending Balance (EB)?

For Case (C) above, what is the Beginning Balance (BB)?

A. Direct labor hours.

A. understate the predetermined overhead rate.

A. Direct labor cost.

Actual manufacturing overhead costs $212,500

Actual manufacturing overhead costs $212,500

A. 150% and 300%.

Direct materials $150,000

Loom operators $120,000

Loom operators $120,000

Actual office overhead costs $1,275,500

Actual office overhead costs $1,275,500

Estimated factory overhead costs $1,500,000

What is the predetermined factory overhead rate per labor dollar?

Estimated factory overhead costs $1,500,000

What is the predetermined factory overhead rate per labor hour?

Estimated factory overhead costs $1,500,000

What is the predetermined factory overhead rate per machine hour?

A. Manufacturing Overhead to be overapplied.

A. 22,100 direct labor-hours.

Estimated direct labor-hours 12,000

A. $3.55 per direct labor-hour.

A. 83% and $5.

Estimates made at the

A. 71% and $4.00.

A. $36.35 per machine-hour.

Direct materials $10,000

Estimated machine-hours 70,000

Direct materials $2,391

Direct materials issued to

A. continuous flow process.

A. continuous flow process.

A. continuous flow process.

Direct materials $45,000

Direct materials $40,610

(1) Purchased $900,000 in direct materials.

Compute the following amounts in the Work-in-Process Inventory account:

(a) Transfers-in (TI).

(1) Purchased $450,000 in direct materials.

Compute the following amounts in the Work-in-Process Inventory account:

(a) Transfers-in (TI).

Case (A) Case (B) Case (C) Case (D)

(a) Compute cost of goods sold for July.

All production at Mason is sold immediately.

(a) Compute cost of goods sold for September.

(A) (B) (C) (D) (E)

(A) (B) (C) (D) (E)