Cost Accounting (2)

SECTION NO. 1

CHAPTER (1): JOB ORDER COSTING

 Solution of MCQ Page 28

1) Assume that 50,000 units are put into production for job 33 and the total cost of
production was $1,500,000. Normal spoilage for general production is estimated to be
2.5%. At the completion of production only 47,000 units were good. (The remaining units
were spoiled and a salvage value of $7 each). Management considers spoilage to be
inherent in nature to the general production process and includes normal spoilage in the
predetermine factory overhead application rate. When accounting for the spoilage of job
33, what is the total amount of costs to be removed from work-in-process inventory?

1- $37,500
2- $50,000
3- $61,250
4- $90,000
Questions 2 and 3 relate to Howard's Graphite-Boron Tennis Racquet Manufacturing Plant. Assume
that 15,000 tennis racquets are placed into production for job 22. Normal defective units were
expected to be 7% of job 22's production.
 Actual defective units were 1,100. The costs to rework the 1,100 defective units were as
follows:

Direct materials $ 5,500

Direct labor 19,800
Factory overhead applied (75% of direct labor 14,850

dollars)
Total $40,150
2) Assuming that the rework costs were ignored in the computation of the factory
overhead application rate, what is the amount of rework costs to be charged to work-in-
process inventory for job 22?
A. $ 0
B. $ 32,675
C. $ 38,325
D. $ 40,150  Answer
 Rework Costs per Defective unit = = = $36.5
 WIP Inventory is only charged for the Rework Costs of Normal Defective Units.
 Normal Defective Units = (15,000 × 7%) = 1,050 units

 The amount of rework costs to be charged to work-in-process inventory for job 22 is as follow:
Normal Defective Units × Rework Costs per Defective Unit
= 1,050 × $36.5 = $38,325
3) What is the amount of payroll liability incurred by Howard's Graphite -Boron Tennis
Racquet Manufacturing Plant in servicing job 22's abnormal defective units?
A. $ 0
B. $ 900
C. $ 1,250
D. $ 1,825

Answer:
 Abnormal Defective Units = Total Defective Units – Normal Defective Units
 Abnormal Defective Units = 1,100 – 1,050 = 50 Units.
 DL Costs Per Defective Units = Total DL Rework Costs ÷ Total Units Reworked
 DL Costs Per Defective Units = $19,800 ÷ 1,100 = $18
 The amount of payroll liability incurred in servicing job 22's abnormal defective units =
Abnormal Defective Units × DL Costs per Defective Unit
 = 50 × $ 18 = $ 900
4) Scrap accumulating from job 511 was sold for $450. Job 511 also resulted
in waste disposal costs of $150. If estimated scrap had been taken into
consideration when computing the factory overhead application rate, and if
waste material costs are allocated to specific jobs, proper accounting
treatment would include a:
A. Total debit of $150 to factory overhead control.
B. Total debit of $699 to factory overhead control.
C. Total credit of $300 to factory overhead control.
D. Total credit of $450 to factory overhead control.

Explanation Dr Cr

Cash 450
Factory overhead control 450
5) Using a perpetual inventory system, the entry to record the purchase of
indirect materials would include a debit to …….., and the entry to record
subsequently the placement of indirect materials into production would
include a debit to …….. .
A. Materials inventory, work-in-process inventory.
B. Materials inventory, factory costs.
C. Materials inventory, factory overhead control.
D. Work-in-process inventory, factory overhead control.

6) Which of the following companies is most likely to use a process costing

system.
A. a manufacturer of breakfast cereal
B. a manufacturer of large commercial aircraft
C. a custom jewelry manufacturer
D. a law firm
7) Stewart Company's actual manufacturing overhead is $2,800,000.
Overhead is allocated on the basis of direct labor hours. The direct labor
hours were 50,000 for the period. What is the factory overhead rate?
A. $47.00
B. $56.00
C. $75.00
D. None of the above are correct.
8) O'Reilly Enterprises manufactures digital video equipment. For each unit
$2,950 of direct material is used and there is $2,000 of direct labor at $20
per hour. Factory overhead is applied at $35 per direct labor hour. Calculate
the cost of each unit.
A. $4,950
B. $9,950
C. $8,450
D. $11,950

9) Payment of the factory rent increases the:

A. Work-in-process control account
B. Factory overhead control account
C. Both A and B are correct
D. None of these answers are correct
10) When direct materials are requisitioned the …… account is increased.
A. Factory overhead control
B. Work-in-process inventory
C. Materials inventory
D. Accounts payable

11) Which statement is correct?

A. The accounting for abnormal spoilage will not affect the unit cost of goods units in
a production process.
B. Management's goal should be to operate a production process that will yield a
perfect product almost 100% of the time.
C. Abnormal spoilage is usually considered a part of the cost of production
D. Spoilage is the result of inefficient production methods.
12) Units which do not meet production standards and which are sold for
their salvage value (if any) are called:
A. Spoiled units
B. Defective units
C. Scrap materials
D. Waste materials
Thanks, With my best wishes