Fundamentals of Cost Accounting 5th Edition Lanen Test Bank 1

Fundamentals of Cost Accounting 5th Edition Lanen
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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
6-1
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McGraw-Hill Education.
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
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
6-2
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
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
6-3
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 financial statements.
(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.
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.
6-4
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 Case Case

(A) (B) (C)
Beginning Balance
? $23,000 $7,900
(BB)
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.
27. Case Case Case

(A) (B) (C)
Beginning Balance
? $23,000 $7,900
(BB)
For Case (B) above, what is the amount Transferred Out (TO)?
A. $93,900.
B. $101,500.
C. $116,900.
D. $120,700.
6-5
28. Case Case Case
(A) (B) (C)
Beginning Balance
? $23,000 $7,900
(BB)
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.
6-6
A. BB + TO - TI = EB.
B. BB + EB - TO = TI.
C. BB - TI - TO = EB.
D. BB + TI - TO = EB.
33. Case Case Case

(A) (B) (C)
Beginning Balance
$36,520 $15,100 $5,600
(BB)
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.
34. Case Case Case

(A) (B) (C)
Beginning Balance
$36,520 $15,100 $5,600
(BB)
For Case (B) above, what is the Transferred-In (TI)?
A. $96,900.
B. $119,700.
C. $89,500.
D. $66,700.
6-7
35. Case Case Case
(A) (B) (C)
Beginning Balance
$36,520 $15,100 $5,600
(BB)
For Case (C) above, what is the Transferred-Out (TO)?
A. $75,000.
B. $61,800.
C. $68,400.
D. $80,600.
36. Case Case Case

(A) (B) (C)
Beginning Balance
? $8,630 $71,600
(BB)
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.
6-8
37. Case Case Case
(A) (B) (C)
Beginning Balance
? $8,630 $71,600
(BB)
For Case (B) above, what is the Ending Balance (EB)?
A. $4,730.
B. $12,530.
C. $46,500.
D. $8,630.
38. Case Case Case

(A) (B) (C)
Beginning Balance
? $8,630 $71,600
(BB)
For Case (C) above, what is the Transferred-In (TI)?
A. $146,700.
B. $178,400.
C. $190,790.
D. $185,400.
6-9
39. Case Case Case
(A) (B) (C)
Beginning Balance
64,800 $59,840 ?
(BB)
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.
40. Case Case Case

(A) (B) (C)
Beginning Balance
64,800 $59,840 ?
(BB)
A. $139,300.
B. $136,260.
C. $62,950.
D. $56,730.
6-10
41. Case Case Case
(A) (B) (C)
Beginning Balance
64,800 $59,840 ?
(BB)
For Case (C) above, what is the Beginning Balance (BB)?
A. $15,900.
B. $2,100.
C. $11,700.
D. $13,800.
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.
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.
6-11
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.
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.
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.
6-12
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.
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.
6-13
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.
53. The following information has been gathered for the Harrell Manufacturing Company for its fiscal
year 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%.
6-14
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.
6-15
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.
6-16
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.
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
6-17
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
40
week, per worker
Weekly wages per worker $500
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.
62. The following direct labor information pertains to the manufacture of product Glaze:
3 direct labor
hours
36
week, per worker
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.
6-18
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.
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.
6-19
67. The following information has been gathered for Catalyst Legal Services for its fiscal year ending
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%.
6-20
December 31:

What is the predetermined factory overhead rate per labor hour?
A. $29.01.
B. $31.25.
C. $37.01.
D. $34.36.
December 31:

What is the predetermined factory overhead rate per machine hour?
A. $15.625.
B. $14.620.
C. $18.504.
D. $17.314.
6-21
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;
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
A. $210,000.
B. $187,500.
C. $262,500.
D. $367,500.
6-22
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.
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.
6-23
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%.
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.
6-24
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

respectively?
A. 83% and $5.

B. 83% and $3.
C. 120% and $3.
D. 120% and $5.
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
20,200
the 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.
6-25
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.
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.
6-26
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.
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.
6-27
89. Spring Corporation bases its predetermined overhead rate on the estimated machine-hours for
the upcoming year. Data for the upcoming year appear below:

per
Estimated variable
$6.68 machine-
hour
$1,283,800
A. $6.68.
B. $25.02.
C. $25.59.
D. $18.34.
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.
6-28
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.
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
$8,000
to 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.
6-29
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.
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
A. Only A is false.
B. Only B is false.
6-30
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.
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.
6-31
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.
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
6-32
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.
6-33
107.Job 434 was recently completed. The following data have been recorded on its job cost sheet:

Number of units completed 3,000 units

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.
6-34
108.Job 599 was recently completed. The following data have been recorded on its job cost sheet:

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:
6-35
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).
6-36
110.Assume that the following events occurred at a division of Advanced Enterprises for the current
year.

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

6-37
111.Determine the missing values from the table below:
Case Case Case Case

(A) (B) (C) (D)
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)
6-38
112.Determine the missing values from the table below:
Case Case Case Case

(A) (B) (C) (D)
Beginning
? $25,760 $12,050 $11,450
Balance (BB)
Ending
$19,455 ? 21,200 5,370
Balance (EB)
Transferred In
199,460 214,870 ? 87,300
(TI)
Transferred
193,610 217,400 131,200 ?
Out (TO)
6-39
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?
6-40
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?
6-41
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
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
90% complete.
Required:
6-42
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 $201,730. There was no beginning work-in-process; the ending work-in-
process was 20% complete.
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
6-43
119.Fill in the missing items for the following inventories:
(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
6-44
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
Cost of Goods Raw-Material Finished

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
43,950
(e)
EB 12,300
(1) Denotes materials purchased
6-45
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).
6-46
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.
6-47
123.Gentry Cabinetry produces two models of home shelving, the Basic and the Mega. Data on
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:

6-48
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:

6-49
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:
Basic Advanced Superior Total

Machine
8,000 6,000 4,000 18,000
hours
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
overhead 540,800
costs
Required:
Compute the predetermined overhead rate, assuming Misner Office Products uses:
6-50
126.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:

Machine
8,000 6,000 4,000 18,000
hours
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
overhead 540,800
costs
Required:
Compute the unit cost for each model, assuming Misner Office Products uses:

6-51
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:
Economy Standard Deluxe Total

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
Manufacturing
overhead 684,000
costs
Required:
Compute the total cost for each model, assuming Pierce Carts uses:

6-52
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.
6-53
129.The management of Norbert Corporation would like to investigate the possibility of basing its
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:
b. Determine how much overhead would be applied to Job O65A if the predetermined overhead
rate is based on the amount of the allocation base at capacity.
6-54
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
Manufacturing
overhead
Utilities (machine
$3,000
related)
Supplies (labor
8,000
related)
Training (labor
20,000
related)
Supervision (labor
17,000
related)
Machine
depreciation (machine 24,000
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.
6-55
6-56
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
(machine $13,000
related)
Supplies
8,000
(labor related)
Training
20,000
(labor related)
Supervision
37,000
(labor related)
Machine
depreciation
34,000
(machine
related)
Lease on
factory
66,000
(machine
related)
Miscellaneous
15,000
(labor related)
Total
manufacturing $193,000
overhead
Required:
labor hours as the bases.
(c) Compute the total costs of production for each of the three products.
6-57
6-58
132.Airborne Industries uses a two-stage allocation method to assign costs to its products. The

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:
labor cost as the bases.
(c) Compute the unit cost of production for each of the three products.
6-59
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.
6-60
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.
Oak Cherry Walnut Total

Number of units 1,200 700 900 2,800
Wood costs per
$80 $120 $105
unit
Other costs:
Indirect
26,000
materials
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?
6-61
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?
6-62
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?
6-63
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 (@150% of direct labor
19.50
overhead: 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?
6-64
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?
6-65
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.
6-66
(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?
(4) What was the balance of the Work-in-Process Inventory control account on April 30?
6-67
145.Ryan & Marks, Design Consultants has the following budget for the year:
Direct labor (for professional hours

$202,000
charged 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.
6-68
6-69
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.
6-70
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?
6-71
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.
6-72
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.
6-73
150.Briefly discuss the issue of the choice of an activity measure for setting overhead rates.
151.Distinguish between job order costing, process costing, and operation costing.
Give an example of a company that would use each.
6-74
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
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
6-75
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
6-76
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
6-77
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
6-78
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
6-79
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
FALSE
A correctly chosen allocation base is equally important for any allocation system.

Blooms: Remember
Difficulty: 3 Hard
Gradable: automatic
6-80
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
6-81
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
(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
6-82
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
6-83
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
26. Case Case Case

(A) (B) (C)
Beginning Balance
? $23,000 $7,900
(BB)
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
6-84
27. Case Case Case
(A) (B) (C)
Beginning Balance
? $23,000 $7,900
(BB)
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
28. Case Case Case

(A) (B) (C)
Beginning Balance
? $23,000 $7,900
(BB)
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
6-85
Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic
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
6-86
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.

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
6-87
33. Case Case Case
(A) (B) (C)
Beginning Balance
$36,520 $15,100 $5,600
(BB)
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
34. Case Case Case

(A) (B) (C)
Beginning Balance
$36,520 $15,100 $5,600
(BB)
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
6-88
Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic
35. Case Case Case

(A) (B) (C)
Beginning Balance
$36,520 $15,100 $5,600
(BB)
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
6-89
36. Case Case Case
(A) (B) (C)
Beginning Balance
? $8,630 $71,600
(BB)
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
37. Case Case Case

(A) (B) (C)
Beginning Balance
? $8,630 $71,600
(BB)
A. $4,730.
B. $12,530.
C. $46,500.
D. $8,630.
$8,630 + 42,600 - 46,500 = $4,730
6-90
Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic
38. Case Case Case

(A) (B) (C)
Beginning Balance
? $8,630 $71,600
(BB)
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
6-91
39. Case Case Case
(A) (B) (C)
Beginning Balance
64,800 $59,840 ?
(BB)
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
40. Case Case Case

(A) (B) (C)
Beginning Balance
64,800 $59,840 ?
(BB)
A. $139,300.
B. $136,260.
C. $62,950.
D. $56,730.
$59,840 + 79,530 - 76,420 = $62,950
6-92
Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic
41. Case Case Case

(A) (B) (C)
Beginning Balance
64,800 $59,840 ?
(BB)
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
6-93
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.
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
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.
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
6-94
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
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.
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
6-95
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.
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
6-96
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
6-97
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
6-98
52. The following information has been gathered for the Harrell Manufacturing Company for its
fiscal year 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
6-99
53. The following information has been gathered for the Harrell Manufacturing Company for its
fiscal year 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;
A. $15,000.
B. $60,000.
C. $75,000.
D. $93,750.
($75,000/$5) × 4 = $60,000

Blooms: Apply
Difficulty: 1 Easy
6-100
Gradable: automatic
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

respectively?
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
6-101
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

6-102
Blooms: Apply
Gradable: automatic
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
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

6-103
Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic
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
6-104
61. The following direct labor information pertains to the manufacture of product Scour:
2 direct labor
hours
40
week, per worker
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

Blooms: Apply
Gradable: automatic
6-105
62. The following direct labor information pertains to the manufacture of product Glaze:
3 direct labor
hours
36
week, per worker
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.

Blooms: Remember
Difficulty: 1 Easy
Gradable: automatic
6-106
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
6-107
66. The following information has been gathered for Catalyst Legal Services for its fiscal year
ending 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
6-108
67. The following information has been gathered for Catalyst Legal Services for its fiscal year
ending 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
6-109
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
6-110
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
6-111
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

6-112
Blooms: Apply
Gradable: automatic
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
6-113
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 manufacturing overhead?
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
6-114
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
6-115
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
6-116
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
6-117
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
6-118
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
6-119
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

respectively?
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
6-120
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:
per
Estimated variable
$7.89 machine-
hour
$465,880
Actual machine-hours for
20,200
the 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
6-121
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
6-122
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
6-123
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
6-124
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
6-125
89. Spring Corporation bases its predetermined overhead rate on the estimated machine-hours for
the upcoming year. Data for the upcoming year appear below:

per
Estimated variable
$6.68 machine-
hour
$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
6-126
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
448
per direct-labor hour)
Overhead (175 machine-hours × $15.00
2,625
per machine-hour)
Total manufacturing cost for Job 674 $5,112

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic
6-127


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

Blooms: Apply
Difficulty: 1 Easy
Gradable: automatic
6-128
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

$90,000
to production
Indirect materials issued
$8,000
to 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
6-129
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
6-130
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

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
6-131
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
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
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
6-132
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
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
6-133
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
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
6-134
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
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
6-135
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
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
6-136
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
3,000 1,900
used
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
overhead Dept 1 Dept 2
rates:
Budgeted
$1,200,000 $1,000,000
cost
100,000 50,000
Budgeted
Machine Direct
Activity
hours labor hours
$12 per $20 per
Rate machine direct labor
hour hour
Dept 1 Dept 2 Total
6-137
Direct Labor 21,000 21,400 42,400
Overhead applied
700 × $12 per Machine
8,400 8,400
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
6-138


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 ×
4,680
390 MHs
Total cost $57,870
Unit product cost $19.29

Blooms: Apply
Difficulty: 1 Easy
Gradable: manual
6-139

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 ×
22,940
1,147 DLHs
Total cost $76,167
Unit product cost $24.57

Blooms: Apply
Difficulty: 1 Easy
Gradable: manual
6-140
109. Assume that the following events occurred at a division of Sawyer Enterprises for the current
year.

process.
(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
6-141
110. Assume that the following events occurred at a division of Advanced Enterprises for the
current year.

process.
(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
6-142
111. Determine the missing values from the table below:
Case Case Case Case

(A) (B) (C) (D)
Beginning
$41,520 $24,100 $5,450 ?
Balance (BB)
Ending
? 22,400 11,370 $38,910
Balance (EB)
Transferred In
224,870 ? 84,400 189,460
(TI)
Transferred
217,400 106,200 ? 193,610
Out (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
6-143
112. Determine the missing values from the table below:
Case Case Case Case

(A) (B) (C) (D)
Beginning
? $25,760 $12,050 $11,450
Balance (BB)
Ending
$19,455 ? 21,200 5,370
Balance (EB)
Transferred In
199,460 214,870 ? 87,300
(TI)
Transferred
193,610 217,400 131,200 ?
Out (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
6-144
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
6-145
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
6-146
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
in-process was 60% complete.
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
6-147
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
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

Blooms: Apply
Gradable: manual
6-148
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
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
6-149
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
(A) (B) (C) (D) (E)

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

Blooms: Apply
Difficulty: 1 Easy
Gradable: manual
6-150
119. Fill in the missing items for the following inventories:
(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
$85,000 $3,550 $780,000 $36,000 $10,000
Bal.
Ending
$89,000 3,210 640,000 $36,000 32,000
Balance
Transferred
80,000 10,550 1,260,000 75,000 64,000
in
Transferred
76,000 10,890 1,400,000 75,000 42,000
out

Blooms: Apply
Difficulty: 1 Easy
Gradable: manual
6-151
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
Cost of Goods Raw-Material Finished

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
43,950
(e)
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
6-152
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
6-153
122. Gentry Cabinetry produces two models of home shelving, the Basic and the Mega. Data on
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
6-154
123. Gentry Cabinetry produces two models of home shelving, the Basic and the Mega. Data on
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
6-155
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
Direct material
$80,000 $30,000 $110,000
costs
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
6-156
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:

Machine
8,000 6,000 4,000 18,000
hours
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
overhead 540,800
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
6-157
6-158
126. 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:

Machine
8,000 6,000 4,000 18,000
hours
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
overhead 540,800
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
6-159
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
Superior: $7,500 + 71,000 + $30.0444 × 4,000 = $198,678/250 units = $794.712

Blooms: Apply
Gradable: manual
6-160
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:
Economy Standard Deluxe Total

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
Manufacturing
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
6-161
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
6-162
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:
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
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.
Calculation of the
a.
predetermined 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
b.
applied to Job J42O:
Number of hours for the job 40 MHs
per
MH
$954.00
applied to the job
Calculation of the
c.
$1,144,800
overhead at capacity
Total amount of the allocation 53,000 MHs
6-163
base at capacity
per
MH
d.
applied to Job J42O:
per
MH
$864.00
applied to the job

Blooms: Apply
Gradable: manual
6-164
129. The management of Norbert Corporation would like to investigate the possibility of basing its
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:
b. Determine how much overhead would be applied to Job O65A if the predetermined
overhead rate is based on the amount of the allocation base at capacity.
Calculation of the
a.
$4,132,800
overhead at capacity
Total amount of the allocation
82,000 MHs
base at capacity
per
MH
b.
applied to Job O65A:
per
MH
$15,120.00
applied to the job

Blooms: Apply
Gradable: manual
6-165
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
Manufacturing
overhead
Utilities (machine
$3,000
related)
Supplies (labor
8,000
related)
Training (labor
20,000
related)
Supervision (labor
17,000
related)
Machine
depreciation 24,000
(machine related)
Lease on factory
33,000
(machine related)
Miscellaneous
5,000
(labor related)
Total
overhead
Required:
(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.
(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)
6-166
Manufacturing over
Machine Labor Total
head
Utilities (machine
$3,000 $3,000
related)
Supplies (labor
$8,000 8,000
related)
Training (labor
20,000 20,000
related)
Supervision (labor
17,000 17,000
related)
Machine depreciation
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
6-167
131. Airborne Industries uses a two-stage allocation method to assign costs to its products. The

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
8,000
(labor related)
Training
20,000
(labor related)
Supervision
37,000
(labor related)
Machine
depreciation
34,000
(machine
related)
Lease on
factory
66,000
(machine
related)
Miscellaneous
15,000
(labor related)
Total
overhead
Required:
direct labor hours as the bases.
(c) Compute the total costs of production for each of the three products.
(a) Machine: $113,000; Labor: $80,000
6-168
(b) Machine: $5.65/MHr; Labor: $8.00/DLHr
(c) Product X: $143,600; Product Y: $209,200; Product Z: $335,200
(a)
Manufacturing
Machine Labor Total
overhead
Utilities (machine
$13,000 $13,000
related)
Supplies (labor
$8,000 8,000
related)
Training (labor
20,000 20,000
related)
Supervision (labor
37,000 37,000
related)
Machine depreciation
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
6-169
132. Airborne Industries uses a two-stage allocation method to assign costs to its products. The

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:
direct labor cost as the bases.
(c) Compute the unit cost of production for each of the three products.
(a) Machine: $226,000; Labor: $160,000
6-170
(b) Machine: $5.65/MHr; Labor: 26.667%
(c) Product X: $46.53; Product Y: $103.27; Product Z: $341.87
(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)
Machine
depreciation 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
6-171
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
6-172
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.
Oak Cherry Walnut Total

Number of units 1,200 700 900 2,800
Wood costs per
$80 $120 $105
unit
Other costs:
Indirect
26,000
materials
Other
61,000
overhead
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
6-173
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
6-174
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.

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
6-175
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
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
6-176
6-177
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 (@150% of direct labor
19.50
overhead: 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?
6-178
(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
6-179
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
6-180
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
6-181
Work-in-Process accounts.
(3) What was the balance of the Materials Inventory account on April 30, 2016?
(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 -
b. 46,000
Job Y12
84,000
Job D20
44,000
Job E33
Factory Overhead 8,000
Materials Inventory 182,000
c. 12,220
Job Y12
8,060
Job D20
3,640
Job 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
Job YI2
6,448
Job D20
Work-in-Process Inventory - 2,912
6-182
Job E33
Factory Overhead Applied
($16 × 1,196 hours) 19,136
Finished Goods Inventory -
i. 88,996
Job Y12
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 +
+Direct
174,000 84,000 +
Materials
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
6-183
6-184
145. Ryan & Marks, Design Consultants has the following budget for the year:
Direct labor (for professional hours

$202,000
charged 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)
6-185
3. Computation of total contract cost:
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
6-186
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.
6-187
Direct Direct Labor
Data Section
Materials Labor Hours
Summary of
Job X-14 $32,200 2,300
Overhead Costs
Indirect
Material A $5,450 $66,500
Materials
Indirect
Material B 1,650 122,000
Labor
$7,100 Utilities $44,500
Job SM-4 $25,900 1,850 Depreciation 53,500
Material A $33,000 Insurance 38,600
Material B 25,500
$58,500 4,150
Factory Overhead
Applied
per labor
$80,000
hour
Solution
Factory Overhead
Analysis
Actual Factory OH
Indirect Materials $66,500
Indirect Labor 122,000
Utilities 44,500
Depreciation 53,500
Insurance 38,600
Total Actual
$325,100
Factory OH
Less: Applied = (2,300 + 1,850) ×
332,000
Factory OH $80
Under/overapplied
-$6,900 Overapplied
Factory OH
Adjust Difference
(6,900) Decrease Cost of Goods Sold
to COGS
Breakdown of Job Costs

Total Direct
$7,100 $58,500
Materials Cost
6-188
Total Direct
32,200 25,900
Labor Cost
Applied
Overhead
Machine
2,300 1,850
Hours
Application
$80.00 $80.00
rate
Total Applied
Overhead 184,000 148,000 $332,000
Cost
Total
Manufacturing $223,300 $232,400
Costs

Blooms: Remember
Gradable: manual
6-189
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
(2) Using departmental overhead rates, what are total overhead costs assigned to products A
(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 Using Department
6-190
Plantwide Rate Rates
Prime cost $10.00 $10.00
Overhead* 10.00 11.00
Total cost 20.00 21.00
40%
8.00 8.40
markup
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
6-191
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
6-192
Overhead
$393,750
applied
Assembly Testing Total
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
8,000
units
Cost per unit $1,052.09

Blooms: Remember
Gradable: manual
6-193
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
6-194
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
6-195
6-196

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Fundamentals of Cost Accounting 5th Edition Lanen

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Fundamentals of Product and Service Costing

True / False Questions

Multiple Choice Questions

A. continuous flow process.

A. Cost systems should have a decision focus.

26. Case Case Case

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

27. Case Case Case

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

29. The basic cost flow model is:

30. The basic cost flow model is:

31. The basic cost flow model is:

33. Case Case Case

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

34. Case Case Case

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

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

36. Case Case Case

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

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

38. Case Case Case

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

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

40. Case Case Case

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

What predetermined overhead rate would be used in Department A and Department B,

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.

What predetermined overhead rate would be used in Department A and Department B,

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

The company applies manufacturing overhead on the basis of machine-hours. The

Direct materials issued to

A. continuous flow process.

A. continuous flow process.

A. continuous flow process.

Direct materials $45,000