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Exam 3: Product Costing and Cost Accumulation

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Question 1

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Odds and Sodds Company, a local furniture manufacturer applies its manufacturing overhead to products based on direct labour hours. The Company estimates that fixed overhead will be $100,000 per year, variable overhead will be $1.00 per direct labour hour and the estimated total direct labour hours will be 40,000 per year. On the basis of this information, the Company's predetermined overhead rate will be.

A) $0.29 per direct labour hour.
B) $0.40 per direct labour hour.
C) $2.50 per direct labour hour.
D) $3.50 per direct labour hour.
E) $4.50 per direct labour hour.

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Question 2

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Electricity costs incurred by a company's production processes should be debited to:

A) Utilities Expense.
B) Accounts Payable.
C) Cash.
D) Manufacturing Overhead.
E) Work-in-Process Inventory.

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Question 3

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Armand Incorporated applies manufacturing overhead by using a predetermined rate of 300% of direct labour cost. For Job No. 800, the direct material costs and the direct labour costs were $72,000 and $38,000, respectively. If Armand adds a 50% markup on total cost to generate a profit, which of the following choices is the best depiction of a portion of the accounting needed to record the sale of Job No. 800?

Rockville, Inc., which uses a job-costing system, began business on January 1, 2012 and applies manufacturing overhead on the basis of direct-labour cost. The following information relates to 2012. ▪ Budgeted direct labour and manufacturing overhead were anticipated to be $200,000 and $250,000, respectively. ▪ Job nos. 1, 2, and 3 began during the year and had the following charges for direct material and direct labour: $\begin{array} { c r c } \text { Job No. } & \text { Direct Materials } & \text { Direct Labour } \\1 & \$ 145,000 & \$ 35,000 \\2 & 320,000 & 65,000 \\3 & 55,000 & 80,000\end{array}$ Job nos. 1 and 2 were completed and sold on account to customers at a profit of 60% of cost. Job no. 3 remained in production. Actual manufacturing overhead by year-end totaled $233,000. Rockville adjusts all under- and overapplied overhead to cost of goods sold. Required: A. Compute the company's predetermined overhead application rate. B. Compute Rockville's ending work-in-process inventory. C. Determine Rockville's sales revenue. D. Was manufacturing overhead under- or overapplied during 2012? By how much? E. Present the necessary journal entry to handle under- or overapplied manufacturing overhead at year-end. F. Does the presence of under- or overapplied overhead at year-end indicate that Rockville's accountants made a serious error? Briefly explain.

A custom-home builder would likely utilize:

The primary difference between normalized and actual costing methods lies in the determination of a job's:

Simon Manufacturing Company uses a predetermined overhead application rate of $10 per direct labour hour. A review of Simon's accounting records for the year just ended discovered the following: Underapplied manufacturing overhead: $9,000 Actual manufacturing overhead: $400,000 Budgeted labour hours: 50,000 Simon's actual labour hours worked totaled:

Media Inc., an advertising agency, applies overhead to jobs on the basis of direct professional labour hours. Overhead costs were estimated to be $150,000, direct professional labour hours were estimated to be 15,000, and direct professional labour cost was projected to be $225,000. During the year, Media incurred actual overhead costs of $146,000, actual direct professional labour hours of 14,500, and actual direct labour cost of $222,000. By year-end, the firm's overhead was:

Boswell and Associates designs relatively small sports stadiums and arenas at various sites throughout the country. The firm's accountant prepared the following budget for the upcoming year: $\begin{array}{l}\begin{array}{l}\text { Professional staff salaries } \\\text { Administrative support staff } \\\text { Other operating costs }\end{array}\begin{array}{l}\$ 3,000,000 \\800,000 \\200,000\end{array}\end{array}$ Eighty percent of professional staff salaries are directly traceable to client projects, a figure that falls to 60% for the administrative support staff and other operating costs. Traceable costs are charged directly to client projects; non-traceable costs, on the other hand, are treated as firm overhead and charged to projects by using a predetermined overhead application rate. Boswell had one project in process at year-end: an arena that was being designed for Addington County. Costs directly chargeable to this project were: $\begin{array}{lccc} \text { Professional staff salaries } & \$ 90,000 \\ \text { Administrative support staff } & 17,300 \\ \text { Other operating costs} & 6,700\end{array}$ Required: A. Calculate Boswell's overhead for the year and the firm's predetermined overhead application rate. The rate is based on costs directly chargeable to firm projects. B. Compute the cost of the Addington County arena project as of year-end. C. Present three examples of "other operating costs" that might be directly traceable to the Addington County project.

The WIP inventory account of Oliver Manufacturing Inc shows a debit balance of $3,300 at the end of an accounting period. The job cost sheets of two uncompleted jobs show charges of $100 and $400 for direct materials and $600 and $200 for direct labour. What predetermined overhead rate, as a percentage of direct labour costs, is the company using?

Product costing in a manufacturing firm is the process of:

The total production cost of a job is composed of:

Manufacturing overhead is applied to production. A. Describe several situations that may give rise to underapplied overhead. B. Assume that underapplied manufacturing overhead is treated as an adjustment to Cost of Goods Sold. Explain why an underapplication of overhead increases Cost of Goods Sold.

Nigella Incorporated, which began operations on January 1, 2012, reported the following information: $\begin{array} { l r } \text { Estimated manufacturing overhead } & \$ 800,000 \\\text { Actual manufacturing overhead } & 760,000 \\\text { Estimated direct labour cost } & 500,000 \\\text { Actual direct labour cost } & 600,000 \\\text { Total debits in the work-in-process account } & 2,000,000 \\\text { Total credits in the work-in-process account } & 1,881,400\end{array}$ Nigella applies manufacturing overhead to jobs on the basis of direct labour cost and adds a 30% markup to the cost of completed production when finished goods are sold. On December 31, job no. 20 was the only job that remained in production. That job had direct-labour charges of $36,000. Required: A. Determine the company's predetermined overhead rate. B. Determine the amount of under- or overapplied overhead. Be sure to label your answer. C. Compute the amount of direct materials used in production. D. Calculate the amount of direct materials used in production for Job #20. E. Assuming that all finished goods are sold during the period, prepare the journal entry or entries needed to record Nigella's sales, which are all made on account.

The journal entry needed to record $5,000 of advertising for Westwood Manufacturing would include:

Which of the following would not likely be used by service providers to accumulate job costs?

Describe the types of manufacturing environments that would best be suited for (1) job-order costing and (2) process costing. Include two examples of manufacturers that would likely use job-cost systems.

The estimates used to calculate the predetermined overhead rate will virtually always:

Fine & Associates is an interior decorating firm located in Brampton, Ontario. The following costs were incurred in a project to redecorate the mayor's offices: $\begin{array}{lccc} \text { Direct material } & \$ 29,000 \\ \text { Direct professional labour } & 42,000\end{array}$ The firm's budget for the year included the following estimates: $\begin{array}{lccc} \text { Budgeted overhead} & \$ 800,000 \\ \text { Budgeted direct professional labour} & 640,000\end{array}$ Overhead is applied to contracts by using a predetermined overhead rate that is based on direct professional labour cost. Actual professional labour during the year was $655,000 and actual overhead was $793,000. Required: A. Determine the total cost to redecorate the mayor's offices. B. Calculate the under - or overapplied overhead for the year. Be sure to label your answer

Bartholomew Company incurred $40,000 of depreciation for the year. Seventy percent relates to the firm's production facilities, and 30% relates to sales and administrative offices. If all items are handled in the proper manner, a review of Bartholomew's accounting records should reveal a: