CHAPTER 2

I. ESSAY QUESTIONS
1. What is the difference between manufacturing and nonmanufacturing costs?
2. What is the difference between product and period costs?
3. Identify the two most common types of product costing systems and discuss the
manufacturing environments associated with each system.
4. What is a job cost sheet? What information does it contain?
5. Why do companies apply overhead to jobs using a predetermined (budgeted) overhead
rate instead of applying actual overhead to jobs? Or why use of a predetermined overhead
rate would be preferred to assigning actual overhead to repair jobs.
6. Discuss an important characteristic of a good overhead allocation base.
7. At Precision Custom Molds company, manufacturing overhead was estimated to be
$20,000,000 at the start of the year and direct labor hours were estimated to be 200,000.
Overhead is applied to jobs using a predetermined overhead rate with direct labor hours as
the allocation base. During the current year, Job 525 was assigned 25 labor hours. How
much overhead was applied to this job?
8. Recording actual overhead and overhead applied to jobs. During the month of
August, Star Plastics applied overhead to jobs using an overhead rate of $3 per dollar of
direct labor. Direct labor in August was $100,000. Actual overhead in August was
$260,000. Assume that actual overhead was composed of the following items.
Indirect materials $ 40,000
Indirect labor 80,000
Utilities 25,000
Depreciation 60,000
Repair expense 55,000
Total $260,000
a. Prepare a journal entry to record overhead applied to jobs.
b. Prepare a journal entry to record actual overhead.

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9. During the month of August, Star Plastics had material requisitions for $200,000 of
materials related to specific jobs and $10,000 of miscellaneous materials classified as
overhead. Require: Prepare journal entries to record the issuance of materials during
August.
10. During the month of August, Star Plastics had $70,000 of labor costs that were traced
to specific jobs. The company also had $50,000 of indirect labor related to supervisory pay.
Required: Prepare journal entries to record labor cost during August. (Hint: There should
be separate journal entries for direct and indirect labor.)
11. Cost of jobs. Milton Company is a steel fabricator, and job 325 consists of producing
500 steel supports for Wendell Construction Company. Overhead is applied on the basis
of direct labor hours, using a predetermined overhead rate of $25 per hour. Direct costs
associated with Job 325 are: direct materials, $10,000; direct labor, 250 hours at $16 per
hour. Required: Calculate the cost of Job 325.
12. Cost of goods Manufactured, Cost of goods sold, and income statement. The
following information is available for Satterfield’s Custom Glass for the fiscal year ending
December 31, 2017:
Beginning balance in Work in Process Inventory $ 210,000
Ending balance in Work in Process Inventory 300,000
Beginning balance in Finished Goods Inventory 500,000
Ending balance in Finished Goods Inventory 400,000
Direct material cost 2,500,000
Direct labor cost 3,000,000
Manufacturing overhead 1,700,000
Selling and administrative expenses 1,350,000
Sales 8,500,000
Required:
a. Prepare a schedule of cost of goods manufactured.
b. Prepare an income statement for fiscal 2017. Ignore income taxes.

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13. Cost of goods Manufactured and Cost of goods sold. Terra Cotta Designs
manufactures custom tiles. The following information relates to the fiscal year ending
December 31, 2017:
Beginning balance in Raw Material Inventory 1 $ 450,000
Purchases of raw material 2 1,500,000
Ending balance in Raw Material Inventory3 200,000
Beginning balance in Work in Process Inventory 650,000
Ending balance in Work in Process Inventory 350,000
Direct labor cost 2,500,000
Manufacturing overhead applied 650,000
Beginning balance in Finished Goods Inventory 750,000
Ending balance in Finished Goods Inventory 350,000
Sales 7,000,000
Selling expenses 500,000
General and administrative expenses 850,000
Required:
a. Prepare a schedule of cost of goods manufactured. Assume that there are no indirect
material costs.
b. Prepare an income statement for fiscal 2017. Ignore income taxes.
14. The following cost data relate to the office overhead costs of the Charles Wright Tax
Preparation Company during the just-completed year: Overhead costs incurred:
Office rent $ 25,000
Office supplies 6,000
Utilities, office 15,000
Salary, office manager 55,000
Salary, receptionist 35,000
Depreciation—office equipment 10,000
Software licensing fees 24,000

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 Other miscellaneous expenses 30,000
Total overhead costs $200,000
The company uses a predetermined overhead rate to apply overhead cost to each tax job.
The rate for the year was $6 per tax-preparer hour. A total of 35,000 tax preparer hours was
recorded for the year.
Required: Compute the amount of under- or overapplied overhead cost for the year.
15. Multiple overhead rates. Vulcan Molding company has three production departments:
A, B, and C. At the start of the year, the company estimated that it would incur $3,080,000
of direct labor cost and $10,000,000 of manufacturing overhead as follows:
Dept. A Dept. B Dept. C Total
Estimated Overhead
$4,000,000 $3,000,000 $3,000,000 $10,000,000
Estimated Direct
$1,200,000 $ 630,000 $1,250,000 $3,080,000
Labor
$3.33 $4.76 $2.40 $3.25
Overhead Rate
Along with many others, Vulcan Molding worked on the following three jobs during the
year:
Direct Labor cost
Dept. A Dept. B Dept. C Total
Job 201 $9,500 $3,000 $4,500 $17,000
Job 202 $5,000 $6,500 $9,000 $20,500
Job 203 $2,000 $5,000 $2,000 $ 9,000
Required:
a. Calculate the overhead that would be assigned to each job assuming the company uses
one plant-wide overhead allocation rate based on expected labor cost.
b. Calculate the overhead that would be assigned to each job assuming the company uses
a separate overhead allocation rate for each production department based on direct labor
cost.
c. Which is preferable: a single overhead rate or separate rates by production department?
Explain.
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II. MUTIPLE-CHOICE QUESTIONS
1. Product Costing systems. For the list of product manufacturers below, indicate whether
a job-cost system (J) or a process-cost system (P) would be most appropriate.
______ a. Chemicals processor
______ b. Paint manufacturer
______ c. Law firm
______ d. Producer of molds used by other manufacturing firms to shape their products
______ e. Dog food producer
______ f. Custom home builder
2. Inventory-related accounts. Place Y (yes) beside the general ledger accounts related
to inventory in a job-order cost system and N (no) by those that are not.
______ a. Raw Materials Inventory
______ b. Administrative Expense
______ c. Work in Process Inventory
______ d. Finished Goods Inventory
______ e. President’s salary
______ f. Cost of Goods Sold
______ g. Manufacturing overhead
______ h. Advertising expense
3. Job Cost sheets and inventory accounts. Renton Custom Windows produces custom
windows for business and residential customers who supply Renton with architectural
specifications. At the start of 2017, three jobs were in process:
Cost incurred as of 1/1/2017
Job 258 $5,000
Job 259 6,000
Job 260 3,500
Also at the start of 2017, one job was completed and awaiting shipment:
Cost incurred as of 1/1/2017

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 Job 257 $9,000
During 2017, the company incurred the following costs:
Direct material
$ 750,000
Direct labor
1,650,000
Manufacturing overhead
2,150,000
At the end of 2017, two jobs were in process:
Cost incurred as of 12/31/2017
Job 345 $2,500
Job 346 5,900
In addition, four jobs were completed and awaiting shipment:
Cost incurred as of 12/31/2017
Job 341 $1,500
Job 342 3,300
Job 343 2,400
Job 344 4,500
Required:
3.1. What are the beginning and ending balances in Work in Process Intenvory?
a. 11,000 – 8,200
b. 9,500 – 5,900
c. 14,500 – 8,400
d. 13,000 – 8,500
3.2. What are the beginning and ending balances in Finished Goods Intenvory?
a. 9,000 – 11,700
b. 14,500 – 8,400
c. 8,000 – 6,900
d. 9,000 – 8,400
3.3. What is Cost of Goods Sold?
a. 4,200,400

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b. 4,553,400
c. 4,553,000
d. 4,550,000
4. The below table shows the Schedule of Cost of Goods Manufactured and Income Statement
at the end of 2017:
Schedule of Cost of Goods Manufactured
For the Year Ended December 31, 2017
Beginning balance in Work in
Process Inventory ….
Plus current manufacturing costs:
Direct material 600,000
Direct labor 480,000
Manufacturing overhead
Heat, light, and power 15,000
45,000
Rent for production facility

Depreciation of equipment 50,000

Supervisor Salary 150,000

Other 460,000 720,000
Total 1,880,000
Less ending balance in Work in
Process Inventory 70,000

Cost of goods manufactured 1,810,000

Income Statement
For the Year Ended December 31, 2017
Sales 2,260,000
Less cost of goods sold:
Beginning finished goods inventory 80,000
Add cost of goods manufactured 1,810,000
Cost of goods available for sale 1,890,000
Less ending finished goods
inventory 80,000 …
Gross profit 450,000
Less nonmanufacturing expenses:
Selling and administrative expenses 250,000
Net Income 200,000

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4.1. The value of Beginning balance in Work in Process Inventory is:
a. 80,000
b. 70,000
c. 60,000
d. 90,000
4.2. The value of the cost of goods sold is:
a. 1,820,000
b. 1,830,000
c. 1,810,000
d.1,900,000