Survey of Accounting 6th Edition

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Chapter 10--Accounting Systems for Manufacturing
Businesses

Student: ___________________________________________________________________________

1. Managerial accounting reports information primarily for stakeholders that are external to the company.
True False

2. Reporting under managerial accounting is not restricted by specific rules such as generally accepted
accounting principles (GAAP).
True False

3. A manufacturing business converts materials into finished products through the use of machinery and labor.
True False

4. Inventories of finished products are reported as current assets on a manufacturer's balance sheet.
True False

5. The cost of a manufactured product generally consists of direct materials cost, direct labor cost, and factory
overhead cost.
True False

6. The cost of materials entering directly into the manufacturing process is classified as factory overhead cost.
True False

7. If the cost of employee wages is not a significant portion of the total product cost, the wages are classified as
factory overhead cost.
True False

8. For a construction contractor, the wages of carpenters would be classified as direct labor cost.
True False
9. For an automotive repair shop, the wages of mechanics would be classified as direct labor cost.
True False

10. Sales commission is an example of factory overhead cost.

True False

11. If the cost of materials is not a significant portion of the total product cost, the materials may be classified as
a part of factory overhead cost.
True False

12. A job order cost system provides for a separate record of the costs for each particular quantity of product
that is manufactured.
True False

13. Conversion cost is the combination of direct labor cost and factory overhead cost.
True False

14. Product cost consists of factory overhead.

True False

15. Direct materials costs are included in the conversion costs of a product.
True False

16. The costs of materials and labor that do not enter directly into the finished product are classified as cost of
goods sold.
True False

17. Indirect labor is included in factory overhead.

True False
18. A job order cost system accumulates costs for each of the departments or processes within the factory.
True False

19. In job order cost accounting system, perpetual inventory records are maintained in controlling accounts and
subsidiary ledgers for materials, work in process, and finished goods.
True False

20. If the actual overhead incurred is less than the applied factory overhead, it is called overapplied factory
overhead.
True False

21. After the goods are completed, their costs are transferred from Work in Process to Finished Goods.
True False

22. In response to materials requisition, materials are transferred from the storeroom to the factory.
True False

23. The summary of the time tickets at the end of each month is the basis for recording the direct and indirect
labor costs incurred in production.
True False

24. Materials inventory consists of the costs of direct and indirect materials that have not yet entered the
manufacturing process.
True False

25. A manufacturing business reports three types of inventory on its balance sheet: direct materials, products in
the process of being manufactured, and finished products.
True False

26. Depreciation expense on factory equipment is part of factory overhead cost.

True False
27. As product costs are incurred in the manufacturing process, they are accounted for as assets and reported on
the balance sheet as inventory.
True False

28. Factory overhead is applied to production using a predetermined overhead rate.

True False

29. The underapplied factory overhead amount may be transferred to cost of goods sold at the end of the fiscal
year.
True False

30. If factory overhead applied is less than the actual costs, the overhead is said to be underapplied.
True False

31. Activity-based costing is a method of accumulating and allocating costs by department.

True False

32. Non-manufacturing costs are generally classified into two categories: selling and administrative.
True False

33. The current year's advertising costs are normally considered as product costs.
True False

34. Direct labor cost is an example of a product cost.

True False

35. Period costs are costs that are incurred for the production requirements of a certain period.
True False
36. Job order cost systems can be used to compare unit costs of similar jobs to determine if costs are staying
within expected ranges.
True False

37. A company may use a job order cost system for some of its products and a process cost system for other
products.
True False

38. The direct labor and overhead costs of providing services to clients are accumulated in a Work-in-Process
account.
True False

39. Using the job order cost system, service business are able to bill clients on a weekly or monthly basis, even
when the job has not been completed.
True False

40. In a job order cost system, materials and supply costs for a service business are normally included as part of
overhead cost.
True False

41. Manufacturers implement the philosophy of just-in-time processing to produce products with high quality,
low cost, and instant availability.
True False

42. Service companies can effectively use activity-based costing to compute product (service) costs.
True False

43. Which of the following statements is true of managerial accounting?

A. Reporting under managerial accounting is constrained by rules such as generally accepted accounting
principles.
B. Managerial accounting is required to be reported annually, also may be reported monthly or quarterly.
C. Managerial accounting provides information to the external stakeholders of the company.
D. Managerial accounting is primarily concerned with generating information for use by managers.
44. Which of the following statements is true of financial accounting?
A. Under financial accounting, reports are prepared using generally accepted accounting principles.
B. Financial accounting focuses on providing information primarily for internal use.
C. Financial accounting includes more subjective data like possibility of competitors’ reactions to a company’s
new sales prices.
D. Information reported by financial accounting is not shared with those outside the company.

45. Which of the following costs are included in the cost of manufacturing a product?
A. Direct materials cost, factory overhead cost, and administrative cost
B. Direct labor cost and factory overhead cost
C. Direct labor cost, direct materials cost, and factory overhead cost
D. Direct materials cost and direct labor cost

46. The cost of materials entering directly into the manufacturing process is classified as:
A. direct labor cost.
B. factory overhead cost.
C. burden cost.
D. direct materials cost.

47. Which of the following is an example of direct materials cost for an automobile manufacturer?
A. Cost of oil lubricants for factory machinery
B. Cost of wages of assembly worker
C. Varnish for coating
D. Cost of interior upholstery

48. If the cost of direct materials is not a significant portion of the total product cost, it may be classified as:
A. direct labor costs.
B. selling and administrative costs.
C. miscellaneous costs.
D. factory overhead costs.

49. The cost of wages paid to employees directly involved in the manufacturing process of converting materials
into finished product is classified as:
A. factory overhead cost.
B. direct labor cost.
C. wages expense.
D. direct materials cost.
50. Which of the following would not be classified as direct materials for an auto manufacturer?
A. Steel
B. Upholstery fabric
C. Cost of the engine of the car.
D. Material used for door panels

51. Which of the following is an example of direct labor cost for an airplane manufacturer?
A. Cost of wages of janitors
B. Cost of wages of assembly worker
C. Salary of plant supervisor
D. Salary of the chairman

52. Which of the following is considered a part of factory overhead cost?

A. Sales commissions
B. Depreciation of factory buildings
C. Depreciation of office equipment
D. Direct materials used

53. Which of the following is not a product cost?

A. direct materials.
B. sales and administrative expenses.
C. direct labor.
D. factory overhead.

54. Which of the following is an example of a factory overhead cost?

A. Repair and maintenance cost on the administrative building
B. Factory heating and lighting cost
C. Insurance premiums on salespersons' automobiles
D. President's salary

55. Which of the following items would not be classified as a part of factory overhead?
A. Machine operators’ wages
B. Amortization of manufacturing patents
C. Production supervisors' salaries
D. Factory supplies used
56. Compute factory overhead cost from the following costs:

Depreciation on factory buildings $ 20,000

Depreciation on office equipment 25,000
Direct materials used 70,000
Indirect labor 3,000

A. $23,000
B. $43,000
C. $70,000
D. $113,000

57. Which of the following manufacturing costs is an indirect cost of producing a product?
A. Oil lubricants used for factory machinery
B. Commissions for sales personnel
C. Hourly wages of an assembly worker
D. Memory chips for a microcomputer manufacturer

58. Which of the following are the two main types of cost accounting systems for manufacturing operations?
A. Process cost and general accounting systems
B. Job order cost and process cost systems
C. Job order cost and general accounting systems
D. Process cost and replacement cost systems

59. For which of the following businesses would the job order cost system be most appropriate?
A. Custom cabinet manufacturer
B. Automobile manufacturer
C. Lumber mill
D. Meat processor

60. Which of the following businesses is most likely to use a job order costing system?
A. A paper mill
B. A swimming pool installer
C. A company that manufactures chlorine for swimming pools
D. An oil refinery
61. Which of the following businesses is most likely to use process cost accounting system?
A. Custom cabinet manufacturer
B. Dress designer
C. Lumber mill
D. Printing firm

62. Which of the following costs is not included in the finished goods inventory?
A. Hourly wages of an assembly worker
B. Depreciation on factory plant and equipment
C. Company president's salary
D. Electronic components of a computer

63. The document authorizing the issuance of materials from the storeroom for use in manufacturing is called:
A. materials requisition.
B. purchase requisition.
C. receiving report.
D. purchase order.

64. Which of the following products would most likely be manufactured using a job order costing system?
A. Number 2 pencils
B. Computer monitors
C. Wedding invitations
D. Paper

65. In a job order cost accounting system, the effect of the flow of direct materials into production will be:
A. increase in Work-in-Process and decrease in Materials Inventory.
B. increase in Materials Inventory and decrease in Work-in-Process.
C. increase in Factory Overhead and decrease in Materials Inventory.
D. increase in Work-in-Process and decrease in Supplies.

66. A summary of the materials requisitions completed during a period serves as the basis for transferring the
cost of the materials from the Materials account to:
A. Work-in-Process and Cost of Goods Sold.
B. Work-in-Process and Factory Overhead.
C. Finished Goods and Cost of Goods Sold.
D. Work-in-Process and Finished Goods.
67. Job order costing and process costing are:
A. pricing systems.
B. cost accounting systems.
C. cost flow systems.
D. inventory tracking systems.

68. In a job order cost accounting system, when goods that have been ordered are received, the receiving
department personnel inspects the goods and completes the:
A. purchase order.
B. sales invoice.
C. receiving report.
D. purchase requisition.

69. The amount of time spent by each employee and the labor costs incurred for each individual job or for
factory overhead are recorded on the:
A. employees’ earnings records.
B. in-and-out board.
C. time tickets.
D. receiving order

70. Which of the following is not true about why a service firm will use the job order costing system?
A. To help control cost.
B. To determine client billing.
C. To determine department costs within the firm.
D. To determine profit.

71. The basis for recording direct and indirect labor costs incurred is a summary of the period's:
A. job order cost sheets.
B. time tickets.
C. employees' earnings records.
D. clock cards.

72. Recording direct labor costs in a job order cost accounting system:
A. increases Factory Overhead and decreases Work-in-Process.
B. increases Finished Goods and increases Wages Payable.
C. increases Work-in-Process and increases Wages Payable.
D. increases Factory Overhead and increases Wages Payable.
73. Increase in the Work-in-Process account occur when:
A. materials are received into the storeroom.
B. factory overhead costs are incurred.
C. direct labor is recorded from the time sheets.
D. materials are ordered.

74. At the end of the fiscal year, if the balance in Factory Overhead is small, it would normally be:
A. transferred to Work-in-Process.
B. transferred to Cost of Goods Sold.
C. transferred to Finished Goods.
D. allocated between Work-in-Process and Finished Goods.

75. Each account in the subsidiary ledger for work in process is called a:
A. finished goods sheet.
B. stock record.
C. materials requisition.
D. job cost sheet.

76. The recording of the factory labor costs incurred for general factory use would include a debit to:
A. Factory Overhead.
B. Wages Payable.
C. Wages Expense.
D. Cost of Goods Sold.

77. Applying of factory overhead costs to jobs would decrease:

A. Factory Overhead.
B. Wages Payable.
C. Work-in-Process.
D. Cost of Goods Sold.

78. The recording of the jobs completed would increase:

A. Factory Overhead.
B. Finished Goods.
C. Work-in-Process.
D. Cost of Goods Sold.
79. The recording of the jobs completed would decrease:
A. Factory Overhead.
B. Finished Goods.
C. Work-in-Process.
D. Cost of Goods Sold.

80. The recording of the jobs shipped and customers billed would increase:
A. Accounts Payable.
B. Cash.
C. Finished Goods.
D. Cost of Goods Sold.

81. The finished goods account is a controlling account for the subsidiary:
A. sales ledger.
B. materials ledger.
C. work-in-process ledger.
D. stock ledger.

82. The Anderson Company forecasts that total overhead for the current year will be $15,000,000 and total
machine hours will be 200,000 hours. However, the actual overhead is $8,000,000 and the actual machine hours
are 100,000 hours. If the company uses a predetermined overhead rate based on machine hours for applying
overhead, what is predetermined overhead rate?
A. $80 per machine hour
B. $150 per machine hour
C. $75 per machine hour
D. $40 per machine hour

83. Bell Manufacturers Inc. has estimated total factory overhead costs of $60,000, and 10,000 direct labor hours
for the current fiscal year. If job number 117 incurred 2,000 direct labor hours, the work-in-process account will
be increased and factory overhead will be decreased by:
A. $10,000.
B. $0.
C. $12,000.
D. $2,000.
84. Upon completing a job, direct materials totaled $3,000; direct labor, $3,500; and factory overhead, $1,500.
Units produced totaled 1,000. What is the per unit cost?
A. $8,000
B. $6,500
C. $6.50
D. $8

85. During the year, Cambridge Corporation applied factory overhead costs of $205,000 to production. At the
end of the year, total overapplied factory overhead is $17,000. What was the amount of actual factory overhead
cost incurred during the year?
A. $222,000
B. $200,000
C. $205,000
D. $188,000

86. Hudson, Inc. has estimated total factory overhead costs of $400,000, and 20,000 direct labor hours for the
current fiscal year. If the direct labor hours for Job N41 is 1,500, calculate the total factory overhead applied to
this job.
A. $40,000
B. $20,000
C. $3,000
D. $30,000

87. Hudson, Inc. has estimated total factory overhead costs of $400,000 and 20,000 direct labor hours for the
current fiscal year. If direct labor hours for the year totals 18,000 and actual factory overhead totals $350,000,
what is the amount of overapplied or underapplied overhead for the year?
A. $10,000 overapplied
B. $10,000 underapplied
C. $50,000 underapplied
D. $50,000 overapplied

88. The sale of a finished good on account would:

A. decrease Cost of Goods Sold and increase Finished Goods.
B. increase Cost of Goods Sold and decrease Finished Goods; increase Accounts Receivable and increase Sales.
C. increase Sales Expense and decrease Finished Goods; decrease Cash and decrease Accounts Receivable.
D. increase Work-in-Process and decrease Finished Goods; increase Accounts Receivable and increase Sales.
89. Which of the following is not a product cost?
A. CEO salary
B. Depreciation on factory equipment
C. Wages of an assembly worker
D. Silicon wafers for microcomputer chips

90. Which of the following is most likely be a period cost?

A. Depreciation on factory lunchroom furniture
B. Salary of telephone receptionist in the sales office
C. Salary of a security guard for the factory parking lot
D. Computer chips used by a computer manufacturer

91. Which of the following is not a period cost?

A. CEO salary
B. Depreciation on office equipment
C. Sales commissions
D. Wages of an assembly worker

92. Which of the following would be a period costs for a textbooks printing company?
A. Wages of a press operator
B. Utility costs of the factory
C. Advertising expenses
D. Paper costs

93. Direct materials, work-in-process, and finished goods inventory are most likely to be reported on the
balance sheet of a(n):
A. financial consultant.
B. apparel boutique.
C. automobile company.
D. insurance company.

94. Costs that are treated as assets until the product is sold are called:
A. product costs.
B. period costs.
C. conversion costs.
D. selling expenses.
95. The Harold Company forecasts that total overhead for the current year will be $12,000,000 and total
machine hours will be 200,000 hours. However, the actual overhead is $4,000,000 and the actual machine hours
are 100,000 hours. If the company uses a predetermined overhead rate based on machine hours for applying
overhead, the overhead will be:
A. overapplied by $2,000,000.
B. underapplied by $2,000,000.
C. overapplied by $4,000,000.
D. underapplied by $4,000,000.

96. For Peterson Company, total overhead applied was $35,000,000 at the end of the year. Actual overhead was
$35,800,000. Closing over/under applied overhead into cost of goods sold would cause net income to:
A. increase by $800,000.
B. decrease by $800,000.
C. stay the same.
D. decrease by $200,000.

97. Which of the following is most likely to be a product cost?

A. Salary of the vice president of sales
B. Advertising for a particular product
C. Drill bits for a drill press used in the plant assembly area
D. Salary of the company receptionist

98. For a manufacturing business, inventory that is still in the process of being manufactured is referred to as:
A. supplies inventory.
B. work-in-process inventory.
C. finished goods inventory.
D. direct materials inventory.

99. The following information is available for the first month of operations for Crawford, Inc.:

Sales $570,000
Gross profit 210,000
Indirect labor 20,000
Indirect materials 9,000
Other factory overhead 7,500
Materials purchased 250,000
Total manufacturing costs 420,000
Materials inventory, end of period 10,000
Refer to the information provided for Crawford Inc. What is the cost of goods sold?
A. $420,000
B. $370,000
C. $360,000
D. $276,500

100. The following information is available for the first month of operations for Crawford, Inc.:

Sales $570,000
Gross profit 210,000
Indirect labor 20,000
Indirect materials 9,000
Other factory overhead 7,500
Materials purchased 250,000
Total manufacturing costs 420,000
Materials inventory, end of period 10,000

Refer to the information provided for Crawford Inc. Calculate direct materials cost used in production.
A. $231,000
B. $240,000
C. $250,000
D. $249,000

101. The following information is available for the first month of operations for Brandt, Inc.:

Sales $570,000
Gross profit 210,000
Indirect labor 20,000
Indirect materials 5,000
Other factory overhead 37,000
Direct materials cost 390,000
Total manufacturing costs 658,000

Calculate direct labor cost for Brandt, Inc.

A. $226,000
B. $206,000
C. $231,000
D. $218,000
102. Which of the following information is not provided by job cost sheets?
A. Cost impact of materials changes
B. Cost impact of continuous improvement in the manufacturing process
C. Change in materials price or direct labor rate over time
D. Utilities, managerial salaries, and depreciation of computers in the corporate office

103. A difference in quantity of materials used on two comparable jobs may be caused by:
A. inadequately trained employees.
B. poor quality materials.
C. employee carelessness.
D. all of these.

104. Which of the following would probably not be found in the accounting system of a service provider?
A. Cost ledger
B. Finished goods ledger
C. Cost of services account
D. Job cost sheets

105. In job order cost accounting system used by a service business, which of the following items would
normally not be included as part of overhead?
A. Materials
B. Direct labor
C. Rent
D. Supplies

106. The direct labor and overhead costs of providing services to clients are accumulated in:
A. finished services expense.
B. work in process.
C. administrative salaries expense.
D. overhead.

107. One of the ways in which just-in-time processing is accomplished in manufacturing and nonmanufacturing
processes is by:
A. moving a product from process to process as each function is completed.
B. combining processing functions into work centers and cross-training workers to perform more than one
function.
C. having production supervisors attempt to enter enough materials into manufacturing to keep all
manufacturing departments operating.
D. having workers typically perform one function on a continuous basis.
108. Which of the following is a characteristic of the just-in-time philosophy?
A. Increases inventory to protect against process problems
B. Tolerates defects
C. Emphasizes push manufacturing
D. Emphasizes product-oriented layout

109. Which of the following statements is true of lead time?

A. Total lead time can be divided into acceptable and non-acceptable lead time.
B. Lead time is a measure of time that elapses between the sale of a product and delivery to the customer.
C. Reducing nonvalue-added lead time reduces costs and improves the speed of production.
D. Reducing nonacceptable lead time improves the speed of production, but will not affect product cost.

110. Which of the following techniques is used by just-in-time manufacturing?

A. It provides specialized training so that employees only do one task and work individually to improve
efficiencies in the department.
B. It organizes the plant in such a way as to reduce product movement from station to station.
C. It encourages management to make all operating decisions regarding the manufacturing process rather than
the line employees in order to streamline the process.
D. It emphasizes push manufacturing.

111. Pull manufacturing is driven by:

A. customer demand.
B. forecasting customers’ requirements.
C. a production schedule rather than line status.
D. pushing inventory ahead to the next station.

112. Just-in-time manufacturing practices include all of the following except:

A. eliminating defective or poor-quality products.
B. partnering with suppliers to provide high-quality, low-cost, and on-time materials.
C. emphasizing push manufacturing to ensure inventory levels that will provide a buffer against production
problems.
D. employee involvement using teams organized in product cells.

113. An activity-based costing system allocates factory overhead rates to products or services using:
A. a single plantwide overhead rate.
B. the cost of activities based on an activity rate times the number of activity-based usage quantities.
C. an allocation of budgeted revenues produced by a product or service.
D. an end-of-year allocation of costs to products or services.
114. Heedy Winery accumulates the costs incurred in the labeling process in an activity cost pool. Costs for the
labeling process are estimated to be $320,000, and the winery expects to generate 640,000 labels for the coming
year. Production for its top-selling wine is estimated at 160,000 bottles. How much overhead from the labeling
process will be allocated to this particular variety of wine?
A. $40,000
B. $80,000
C. $160,000
D. $320,000

115. Indicate whether each of the following costs of a cabinet manufacturer would be classified as direct
materials cost, direct labor cost, factory overhead cost, or period cost.

a. Plant manager’s salary

b. Office administrative assistant’s salary
c. Depreciation on factory equipment
d. Rent on office building
e. Varieties of wood
f. Varnish for coating cabinets
g. Utilities cost on the factory
h. Cabinet assembly worker’s salary
i. Advertising costs
j. Screws and glue used in assembly process

116. KCT Printing Company uses a job order cost system.

(a) Indicate the source of the data for increasing Work in Process for each of the following:
(1) Direct materials requisitioned
(2) Direct labor used
(b) Indicate the source of the data for decreasing Work in Process for jobs completed.
(c) Present a list of the three controlling accounts used in the general ledger to record the inventories and, in each case,
indicate the related subsidiary ledger.
117. Use the correct number to designate each item below:
1) direct materials
2) selling and administrative expenses
3) factory overhead
4) direct labor

a) rent expense on factory building

b) sales supplies used
c) factory supplies used
d) indirect materials used
e) wages of assembly line personnel
f) depreciation on office equipment
g) rent on office facilities
h) insurance expired on factory equipment
i) cost of primary material used to assemble product

118. The following information is available for the first month of operations of Deer Inc., a manufacturer of
sports apparel:

Sales $1,500,000
Gross profit 410,000
Indirect labor 125,000
Indirect materials 30,000
Other factory overhead 415,000
Materials purchased 700,000
Total manufacturing costs for the period 1,600,000
Materials inventory, end of period 35,000

Using the given information, determine the following:

a. Cost of goods sold
b. Direct materials cost
c. Direct labor cost
119. Illustrate the effects on the accounts and financial statements of each of the following transactions for a
company using a job order cost system:

(a) Mat $186,000

erial
s
purc
hase
d on
acco
unt
(b) Mat
erial
s
requ
isiti
oned
:
For 161,500
prod
ucti
on
orde
rs
For 8,700
gene
ral
fact
ory
use
(c) Fact
ory
labo
r
used
:
On 139,800
prod
ucti
on
orde
rs
For 9,000
gene
ral
fact
ory
purp
oses
(d) Dep 40,000
recia
tion
on
fact
ory
equi
pme
nt
(e) Fact 97,650
ory
over
head
appl
ied,
base
d on
mac
hine
hour
s
(f) Jobs 406,000
finis
hed
(g) Jobs 580,000
ship
ped
to
cust
ome
rs:
cost,
$39
4,00
0;
selli
ng
pric
e

120. Matt, Inc., a toy manufacturing company uses job order cost system. The time tickets from September
jobs are summarized below.

Job 100 $3,500

Job 101 1,800
Job 102 1,200
Job 103 2,800
Factory supervision 1,700
Factory overhead is applied to jobs on the basis of a predetermined overhead rate of $25 per direct labor hour. The direct labor rate is $30 per hour.

a. Determine the total factory labor costs transferred to Work in Process and Factory Overhead for September.
b. Determine the amount of factory overhead applied to production for September.
Chapter 10--Accounting Systems for Manufacturing Businesses
Key

1. Managerial accounting reports information primarily for stakeholders that are external to the company.
FALSE

2. Reporting under managerial accounting is not restricted by specific rules such as generally accepted
accounting principles (GAAP).
TRUE

3. A manufacturing business converts materials into finished products through the use of machinery and labor.
TRUE

4. Inventories of finished products are reported as current assets on a manufacturer's balance sheet.
TRUE

5. The cost of a manufactured product generally consists of direct materials cost, direct labor cost, and factory
overhead cost.
TRUE

6. The cost of materials entering directly into the manufacturing process is classified as factory overhead cost.
FALSE

7. If the cost of employee wages is not a significant portion of the total product cost, the wages are classified as
factory overhead cost.
TRUE

8. For a construction contractor, the wages of carpenters would be classified as direct labor cost.
TRUE
9. For an automotive repair shop, the wages of mechanics would be classified as direct labor cost.
TRUE

10. Sales commission is an example of factory overhead cost.

FALSE

11. If the cost of materials is not a significant portion of the total product cost, the materials may be classified as
a part of factory overhead cost.
TRUE

12. A job order cost system provides for a separate record of the costs for each particular quantity of product
that is manufactured.
TRUE

13. Conversion cost is the combination of direct labor cost and factory overhead cost.
TRUE

14. Product cost consists of factory overhead.

TRUE

15. Direct materials costs are included in the conversion costs of a product.
FALSE

16. The costs of materials and labor that do not enter directly into the finished product are classified as cost of
goods sold.
FALSE

17. Indirect labor is included in factory overhead.

TRUE
18. A job order cost system accumulates costs for each of the departments or processes within the factory.
FALSE

19. In job order cost accounting system, perpetual inventory records are maintained in controlling accounts and
subsidiary ledgers for materials, work in process, and finished goods.
TRUE

20. If the actual overhead incurred is less than the applied factory overhead, it is called overapplied factory
overhead.
TRUE

21. After the goods are completed, their costs are transferred from Work in Process to Finished Goods.
TRUE

22. In response to materials requisition, materials are transferred from the storeroom to the factory.
TRUE

23. The summary of the time tickets at the end of each month is the basis for recording the direct and indirect
labor costs incurred in production.
TRUE

24. Materials inventory consists of the costs of direct and indirect materials that have not yet entered the
manufacturing process.
TRUE

25. A manufacturing business reports three types of inventory on its balance sheet: direct materials, products in
the process of being manufactured, and finished products.
TRUE

26. Depreciation expense on factory equipment is part of factory overhead cost.

TRUE
27. As product costs are incurred in the manufacturing process, they are accounted for as assets and reported on
the balance sheet as inventory.
TRUE

28. Factory overhead is applied to production using a predetermined overhead rate.

TRUE

29. The underapplied factory overhead amount may be transferred to cost of goods sold at the end of the fiscal
year.
TRUE

30. If factory overhead applied is less than the actual costs, the overhead is said to be underapplied.
TRUE

31. Activity-based costing is a method of accumulating and allocating costs by department.

FALSE

32. Non-manufacturing costs are generally classified into two categories: selling and administrative.
TRUE

33. The current year's advertising costs are normally considered as product costs.
FALSE

34. Direct labor cost is an example of a product cost.

TRUE

35. Period costs are costs that are incurred for the production requirements of a certain period.
FALSE
36. Job order cost systems can be used to compare unit costs of similar jobs to determine if costs are staying
within expected ranges.
TRUE

37. A company may use a job order cost system for some of its products and a process cost system for other
products.
TRUE

38. The direct labor and overhead costs of providing services to clients are accumulated in a Work-in-Process
account.
TRUE

39. Using the job order cost system, service business are able to bill clients on a weekly or monthly basis, even
when the job has not been completed.
TRUE

40. In a job order cost system, materials and supply costs for a service business are normally included as part of
overhead cost.
TRUE

41. Manufacturers implement the philosophy of just-in-time processing to produce products with high quality,
low cost, and instant availability.
TRUE

42. Service companies can effectively use activity-based costing to compute product (service) costs.
TRUE

43. Which of the following statements is true of managerial accounting?

A. Reporting under managerial accounting is constrained by rules such as generally accepted accounting
principles.
B. Managerial accounting is required to be reported annually, also may be reported monthly or quarterly.
C. Managerial accounting provides information to the external stakeholders of the company.
D. Managerial accounting is primarily concerned with generating information for use by managers.
44. Which of the following statements is true of financial accounting?
A. Under financial accounting, reports are prepared using generally accepted accounting principles.
B. Financial accounting focuses on providing information primarily for internal use.
C. Financial accounting includes more subjective data like possibility of competitors’ reactions to a company’s
new sales prices.
D. Information reported by financial accounting is not shared with those outside the company.

45. Which of the following costs are included in the cost of manufacturing a product?
A. Direct materials cost, factory overhead cost, and administrative cost
B. Direct labor cost and factory overhead cost
C. Direct labor cost, direct materials cost, and factory overhead cost
D. Direct materials cost and direct labor cost

46. The cost of materials entering directly into the manufacturing process is classified as:
A. direct labor cost.
B. factory overhead cost.
C. burden cost.
D. direct materials cost.

47. Which of the following is an example of direct materials cost for an automobile manufacturer?
A. Cost of oil lubricants for factory machinery
B. Cost of wages of assembly worker
C. Varnish for coating
D. Cost of interior upholstery

48. If the cost of direct materials is not a significant portion of the total product cost, it may be classified as:
A. direct labor costs.
B. selling and administrative costs.
C. miscellaneous costs.
D. factory overhead costs.

49. The cost of wages paid to employees directly involved in the manufacturing process of converting materials
into finished product is classified as:
A. factory overhead cost.
B. direct labor cost.
C. wages expense.
D. direct materials cost.
50. Which of the following would not be classified as direct materials for an auto manufacturer?
A. Steel
B. Upholstery fabric
C. Cost of the engine of the car.
D. Material used for door panels

51. Which of the following is an example of direct labor cost for an airplane manufacturer?
A. Cost of wages of janitors
B. Cost of wages of assembly worker
C. Salary of plant supervisor
D. Salary of the chairman

52. Which of the following is considered a part of factory overhead cost?

A. Sales commissions
B. Depreciation of factory buildings
C. Depreciation of office equipment
D. Direct materials used

53. Which of the following is not a product cost?

A. direct materials.
B. sales and administrative expenses.
C. direct labor.
D. factory overhead.

54. Which of the following is an example of a factory overhead cost?

A. Repair and maintenance cost on the administrative building
B. Factory heating and lighting cost
C. Insurance premiums on salespersons' automobiles
D. President's salary

55. Which of the following items would not be classified as a part of factory overhead?
A. Machine operators’ wages
B. Amortization of manufacturing patents
C. Production supervisors' salaries
D. Factory supplies used
56. Compute factory overhead cost from the following costs:

Depreciation on factory buildings $ 20,000

Depreciation on office equipment 25,000
Direct materials used 70,000
Indirect labor 3,000

A. $23,000
B. $43,000
C. $70,000
D. $113,000

57. Which of the following manufacturing costs is an indirect cost of producing a product?
A. Oil lubricants used for factory machinery
B. Commissions for sales personnel
C. Hourly wages of an assembly worker
D. Memory chips for a microcomputer manufacturer

58. Which of the following are the two main types of cost accounting systems for manufacturing operations?
A. Process cost and general accounting systems
B. Job order cost and process cost systems
C. Job order cost and general accounting systems
D. Process cost and replacement cost systems

59. For which of the following businesses would the job order cost system be most appropriate?
A. Custom cabinet manufacturer
B. Automobile manufacturer
C. Lumber mill
D. Meat processor

60. Which of the following businesses is most likely to use a job order costing system?
A. A paper mill
B. A swimming pool installer
C. A company that manufactures chlorine for swimming pools
D. An oil refinery
61. Which of the following businesses is most likely to use process cost accounting system?
A. Custom cabinet manufacturer
B. Dress designer
C. Lumber mill
D. Printing firm

62. Which of the following costs is not included in the finished goods inventory?
A. Hourly wages of an assembly worker
B. Depreciation on factory plant and equipment
C. Company president's salary
D. Electronic components of a computer

63. The document authorizing the issuance of materials from the storeroom for use in manufacturing is called:
A. materials requisition.
B. purchase requisition.
C. receiving report.
D. purchase order.

64. Which of the following products would most likely be manufactured using a job order costing system?
A. Number 2 pencils
B. Computer monitors
C. Wedding invitations
D. Paper

65. In a job order cost accounting system, the effect of the flow of direct materials into production will be:
A. increase in Work-in-Process and decrease in Materials Inventory.
B. increase in Materials Inventory and decrease in Work-in-Process.
C. increase in Factory Overhead and decrease in Materials Inventory.
D. increase in Work-in-Process and decrease in Supplies.

66. A summary of the materials requisitions completed during a period serves as the basis for transferring the
cost of the materials from the Materials account to:
A. Work-in-Process and Cost of Goods Sold.
B. Work-in-Process and Factory Overhead.
C. Finished Goods and Cost of Goods Sold.
D. Work-in-Process and Finished Goods.
67. Job order costing and process costing are:
A. pricing systems.
B. cost accounting systems.
C. cost flow systems.
D. inventory tracking systems.

68. In a job order cost accounting system, when goods that have been ordered are received, the receiving
department personnel inspects the goods and completes the:
A. purchase order.
B. sales invoice.
C. receiving report.
D. purchase requisition.

69. The amount of time spent by each employee and the labor costs incurred for each individual job or for
factory overhead are recorded on the:
A. employees’ earnings records.
B. in-and-out board.
C. time tickets.
D. receiving order

70. Which of the following is not true about why a service firm will use the job order costing system?
A. To help control cost.
B. To determine client billing.
C. To determine department costs within the firm.
D. To determine profit.

71. The basis for recording direct and indirect labor costs incurred is a summary of the period's:
A. job order cost sheets.
B. time tickets.
C. employees' earnings records.
D. clock cards.

72. Recording direct labor costs in a job order cost accounting system:
A. increases Factory Overhead and decreases Work-in-Process.
B. increases Finished Goods and increases Wages Payable.
C. increases Work-in-Process and increases Wages Payable.
D. increases Factory Overhead and increases Wages Payable.
73. Increase in the Work-in-Process account occur when:
A. materials are received into the storeroom.
B. factory overhead costs are incurred.
C. direct labor is recorded from the time sheets.
D. materials are ordered.

74. At the end of the fiscal year, if the balance in Factory Overhead is small, it would normally be:
A. transferred to Work-in-Process.
B. transferred to Cost of Goods Sold.
C. transferred to Finished Goods.
D. allocated between Work-in-Process and Finished Goods.

75. Each account in the subsidiary ledger for work in process is called a:
A. finished goods sheet.
B. stock record.
C. materials requisition.
D. job cost sheet.

76. The recording of the factory labor costs incurred for general factory use would include a debit to:
A. Factory Overhead.
B. Wages Payable.
C. Wages Expense.
D. Cost of Goods Sold.

77. Applying of factory overhead costs to jobs would decrease:

A. Factory Overhead.
B. Wages Payable.
C. Work-in-Process.
D. Cost of Goods Sold.

78. The recording of the jobs completed would increase:

A. Factory Overhead.
B. Finished Goods.
C. Work-in-Process.
D. Cost of Goods Sold.
79. The recording of the jobs completed would decrease:
A. Factory Overhead.
B. Finished Goods.
C. Work-in-Process.
D. Cost of Goods Sold.

80. The recording of the jobs shipped and customers billed would increase:
A. Accounts Payable.
B. Cash.
C. Finished Goods.
D. Cost of Goods Sold.

81. The finished goods account is a controlling account for the subsidiary:
A. sales ledger.
B. materials ledger.
C. work-in-process ledger.
D. stock ledger.

82. The Anderson Company forecasts that total overhead for the current year will be $15,000,000 and total
machine hours will be 200,000 hours. However, the actual overhead is $8,000,000 and the actual machine hours
are 100,000 hours. If the company uses a predetermined overhead rate based on machine hours for applying
overhead, what is predetermined overhead rate?
A. $80 per machine hour
B. $150 per machine hour
C. $75 per machine hour
D. $40 per machine hour

83. Bell Manufacturers Inc. has estimated total factory overhead costs of $60,000, and 10,000 direct labor hours
for the current fiscal year. If job number 117 incurred 2,000 direct labor hours, the work-in-process account will
be increased and factory overhead will be decreased by:
A. $10,000.
B. $0.
C. $12,000.
D. $2,000.
84. Upon completing a job, direct materials totaled $3,000; direct labor, $3,500; and factory overhead, $1,500.
Units produced totaled 1,000. What is the per unit cost?
A. $8,000
B. $6,500
C. $6.50
D. $8

85. During the year, Cambridge Corporation applied factory overhead costs of $205,000 to production. At the
end of the year, total overapplied factory overhead is $17,000. What was the amount of actual factory overhead
cost incurred during the year?
A. $222,000
B. $200,000
C. $205,000
D. $188,000

86. Hudson, Inc. has estimated total factory overhead costs of $400,000, and 20,000 direct labor hours for the
current fiscal year. If the direct labor hours for Job N41 is 1,500, calculate the total factory overhead applied to
this job.
A. $40,000
B. $20,000
C. $3,000
D. $30,000

87. Hudson, Inc. has estimated total factory overhead costs of $400,000 and 20,000 direct labor hours for the
current fiscal year. If direct labor hours for the year totals 18,000 and actual factory overhead totals $350,000,
what is the amount of overapplied or underapplied overhead for the year?
A. $10,000 overapplied
B. $10,000 underapplied
C. $50,000 underapplied
D. $50,000 overapplied

88. The sale of a finished good on account would:

A. decrease Cost of Goods Sold and increase Finished Goods.
B. increase Cost of Goods Sold and decrease Finished Goods; increase Accounts Receivable and increase Sales.
C. increase Sales Expense and decrease Finished Goods; decrease Cash and decrease Accounts Receivable.
D. increase Work-in-Process and decrease Finished Goods; increase Accounts Receivable and increase Sales.
89. Which of the following is not a product cost?
A. CEO salary
B. Depreciation on factory equipment
C. Wages of an assembly worker
D. Silicon wafers for microcomputer chips

90. Which of the following is most likely be a period cost?

A. Depreciation on factory lunchroom furniture
B. Salary of telephone receptionist in the sales office
C. Salary of a security guard for the factory parking lot
D. Computer chips used by a computer manufacturer

91. Which of the following is not a period cost?

A. CEO salary
B. Depreciation on office equipment
C. Sales commissions
D. Wages of an assembly worker

92. Which of the following would be a period costs for a textbooks printing company?
A. Wages of a press operator
B. Utility costs of the factory
C. Advertising expenses
D. Paper costs

93. Direct materials, work-in-process, and finished goods inventory are most likely to be reported on the
balance sheet of a(n):
A. financial consultant.
B. apparel boutique.
C. automobile company.
D. insurance company.

94. Costs that are treated as assets until the product is sold are called:
A. product costs.
B. period costs.
C. conversion costs.
D. selling expenses.
95. The Harold Company forecasts that total overhead for the current year will be $12,000,000 and total
machine hours will be 200,000 hours. However, the actual overhead is $4,000,000 and the actual machine hours
are 100,000 hours. If the company uses a predetermined overhead rate based on machine hours for applying
overhead, the overhead will be:
A. overapplied by $2,000,000.
B. underapplied by $2,000,000.
C. overapplied by $4,000,000.
D. underapplied by $4,000,000.

96. For Peterson Company, total overhead applied was $35,000,000 at the end of the year. Actual overhead was
$35,800,000. Closing over/under applied overhead into cost of goods sold would cause net income to:
A. increase by $800,000.
B. decrease by $800,000.
C. stay the same.
D. decrease by $200,000.

97. Which of the following is most likely to be a product cost?

A. Salary of the vice president of sales
B. Advertising for a particular product
C. Drill bits for a drill press used in the plant assembly area
D. Salary of the company receptionist

98. For a manufacturing business, inventory that is still in the process of being manufactured is referred to as:
A. supplies inventory.
B. work-in-process inventory.
C. finished goods inventory.
D. direct materials inventory.

99. The following information is available for the first month of operations for Crawford, Inc.:

Sales $570,000
Gross profit 210,000
Indirect labor 20,000
Indirect materials 9,000
Other factory overhead 7,500
Materials purchased 250,000
Total manufacturing costs 420,000
Materials inventory, end of period 10,000
Refer to the information provided for Crawford Inc. What is the cost of goods sold?
A. $420,000
B. $370,000
C. $360,000
D. $276,500

100. The following information is available for the first month of operations for Crawford, Inc.:

Sales $570,000
Gross profit 210,000
Indirect labor 20,000
Indirect materials 9,000
Other factory overhead 7,500
Materials purchased 250,000
Total manufacturing costs 420,000
Materials inventory, end of period 10,000

Refer to the information provided for Crawford Inc. Calculate direct materials cost used in production.
A. $231,000
B. $240,000
C. $250,000
D. $249,000

101. The following information is available for the first month of operations for Brandt, Inc.:

Sales $570,000
Gross profit 210,000
Indirect labor 20,000
Indirect materials 5,000
Other factory overhead 37,000
Direct materials cost 390,000
Total manufacturing costs 658,000

Calculate direct labor cost for Brandt, Inc.

A. $226,000
B. $206,000
C. $231,000
D. $218,000
102. Which of the following information is not provided by job cost sheets?
A. Cost impact of materials changes
B. Cost impact of continuous improvement in the manufacturing process
C. Change in materials price or direct labor rate over time
D. Utilities, managerial salaries, and depreciation of computers in the corporate office

103. A difference in quantity of materials used on two comparable jobs may be caused by:
A. inadequately trained employees.
B. poor quality materials.
C. employee carelessness.
D. all of these.

104. Which of the following would probably not be found in the accounting system of a service provider?
A. Cost ledger
B. Finished goods ledger
C. Cost of services account
D. Job cost sheets

105. In job order cost accounting system used by a service business, which of the following items would
normally not be included as part of overhead?
A. Materials
B. Direct labor
C. Rent
D. Supplies

106. The direct labor and overhead costs of providing services to clients are accumulated in:
A. finished services expense.
B. work in process.
C. administrative salaries expense.
D. overhead.

107. One of the ways in which just-in-time processing is accomplished in manufacturing and nonmanufacturing
processes is by:
A. moving a product from process to process as each function is completed.
B. combining processing functions into work centers and cross-training workers to perform more than one
function.
C. having production supervisors attempt to enter enough materials into manufacturing to keep all
manufacturing departments operating.
D. having workers typically perform one function on a continuous basis.
108. Which of the following is a characteristic of the just-in-time philosophy?
A. Increases inventory to protect against process problems
B. Tolerates defects
C. Emphasizes push manufacturing
D. Emphasizes product-oriented layout

109. Which of the following statements is true of lead time?

A. Total lead time can be divided into acceptable and non-acceptable lead time.
B. Lead time is a measure of time that elapses between the sale of a product and delivery to the customer.
C. Reducing nonvalue-added lead time reduces costs and improves the speed of production.
D. Reducing nonacceptable lead time improves the speed of production, but will not affect product cost.

110. Which of the following techniques is used by just-in-time manufacturing?

A. It provides specialized training so that employees only do one task and work individually to improve
efficiencies in the department.
B. It organizes the plant in such a way as to reduce product movement from station to station.
C. It encourages management to make all operating decisions regarding the manufacturing process rather than
the line employees in order to streamline the process.
D. It emphasizes push manufacturing.

111. Pull manufacturing is driven by:

A. customer demand.
B. forecasting customers’ requirements.
C. a production schedule rather than line status.
D. pushing inventory ahead to the next station.

112. Just-in-time manufacturing practices include all of the following except:

A. eliminating defective or poor-quality products.
B. partnering with suppliers to provide high-quality, low-cost, and on-time materials.
C. emphasizing push manufacturing to ensure inventory levels that will provide a buffer against production
problems.
D. employee involvement using teams organized in product cells.

113. An activity-based costing system allocates factory overhead rates to products or services using:
A. a single plantwide overhead rate.
B. the cost of activities based on an activity rate times the number of activity-based usage quantities.
C. an allocation of budgeted revenues produced by a product or service.
D. an end-of-year allocation of costs to products or services.
114. Heedy Winery accumulates the costs incurred in the labeling process in an activity cost pool. Costs for the
labeling process are estimated to be $320,000, and the winery expects to generate 640,000 labels for the coming
year. Production for its top-selling wine is estimated at 160,000 bottles. How much overhead from the labeling
process will be allocated to this particular variety of wine?
A. $40,000
B. $80,000
C. $160,000
D. $320,000

115. Indicate whether each of the following costs of a cabinet manufacturer would be classified as direct
materials cost, direct labor cost, factory overhead cost, or period cost.

a. Plant manager’s salary

b. Office administrative assistant’s salary
c. Depreciation on factory equipment
d. Rent on office building
e. Varieties of wood
f. Varnish for coating cabinets
g. Utilities cost on the factory
h. Cabinet assembly worker’s salary
i. Advertising costs
j. Screws and glue used in assembly process

a. Factory overhead
b. Period
c. Factory overhead
d. Period
e. Direct materials
f. Factory overhead
g. Factory overhead
h. Direct labor
i. Period
j. Factory overhead

116. KCT Printing Company uses a job order cost system.

(a) Indicate the source of the data for increasing Work in Process for each of the following:
(1) Direct materials requisitioned
(2) Direct labor used
(b) Indicate the source of the data for decreasing Work in Process for jobs completed.
(c) Present a list of the three controlling accounts used in the general ledger to record the inventories and, in each case,
indicate the related subsidiary ledger.
(a) (1) Summary of materials requisitions
(2) Summary of time tickets
Summary of job cost sheets for jobs
completed

(b)
(c) Controlling Account Subsidiary Ledger
Materials Materials ledger
Work in Process Cost ledger
Finished Goods Finished goods ledger (or stock ledger)

117. Use the correct number to designate each item below:

1) direct materials
2) selling and administrative expenses
3) factory overhead
4) direct labor

a) rent expense on factory building

b) sales supplies used
c) factory supplies used
d) indirect materials used
e) wages of assembly line personnel
f) depreciation on office equipment
g) rent on office facilities
h) insurance expired on factory equipment
i) cost of primary material used to assemble product

a) 3
b) 2
c) 3
d) 3
e) 4
f) 2
g) 2
h) 3
i) 1

118. The following information is available for the first month of operations of Deer Inc., a manufacturer of
sports apparel:

Sales $1,500,000
Gross profit 410,000
Indirect labor 125,000
Indirect materials 30,000
Other factory overhead 415,000
Materials purchased 700,000
Total manufacturing costs for the period 1,600,000
Materials inventory, end of period 35,000
Using the given information, determine the following:
a. Cost of goods sold
b. Direct materials cost
c. Direct labor cost

a. $1,090,000 ($1,500,000 - $410,000)

b. $635,000 ($700,000 - $30,000 - $35,000)
c. $395,000 ($1,600,000 - $635,000 - $125,000 - $30,000 - $415,000)
119. Illustrate the effects on the accounts and financial statements of each of the following transactions for a
company using a job order cost system:

(a) Mat $186,000

erial
s
purc
hase
d on
acco
unt
(b) Mat
erial
s
requ
isiti
oned
:
For 161,500
prod
ucti
on
orde
rs
For 8,700
gene
ral
fact
ory
use
(c) Fact
ory
labo
r
used
:
On 139,800
prod
ucti
on
orde
rs
For 9,000
gene
ral
fact
ory
purp
oses
(d) Dep 40,000
recia
tion
on
fact
ory
equi
pme
nt
(e) Fact 97,650
ory
over
head
appl
ied,
base
d on
mac
hine
hour
s
(f) Jobs 406,000
finis
hed
(g) Jobs 580,000
ship
ped
to
cust
ome
rs:
cost,
$39
4,00
0;
selli
ng
pric
e

Assets = Liabilities + Stockholders’

Equity
Accounts Rec. Factory Mater- Work in Finished Accum Depr. Accts Wages
Over- ials Inven- Process Goods Payable Payable
head tory
a. 186,000 186,000
b. 8,700 -170,200 161,500
c. 9,000 139,800 148,800
d. 40,000 -40,000
e. -97,650 97,650
f. -406,000 406,000
g. 580,000 -394,000 186,000

Statement of Cash Flows Income Statement

g. Sales 580,000
No effect Cost of Goods Sold -394,000
120. Matt, Inc., a toy manufacturing company uses job order cost system. The time tickets from September
jobs are summarized below.

Job 100 $3,500

Job 101 1,800
Job 102 1,200
Job 103 2,800
Factory supervision 1,700

Factory overhead is applied to jobs on the basis of a predetermined overhead rate of $25 per direct labor hour. The direct labor rate is $30 per hour.

a. Determine the total factory labor costs transferred to Work in Process and Factory Overhead for September.
b. Determine the amount of factory overhead applied to production for September.

a. Costs transferred to Work in Process = $9,300 ($3,500 + $1,800 + $1,200 + $2,800)

Costs transferred to Factory Overhead = $1,700
b. Factory Overhead applied = $7,750 {($3,500 + $1,800 + $1,200 + $2,800)/$30} X $25