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Lecture 3

ADMS 2510 Lecture 3: ch03.pdf


Department
Administrative Studies
Course Code
ADMS 2510
Professor
Alison Beavis
Lecture
3

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ch03
Student: ___________________________________________________________________________
1. Which of the following companies is most likely to use a job-order costing system rather than a process
costing system?
A. Fast food restaurant
B. Shipbuilder
C. Crude oil refinery
D. Candy maker
2. Kelly Sportswear manufactures a specialty line of T-shirts. The company uses a job-order costing system.
During March, the following costs were incurred on Job 1052:
Manufacturing overhead was applied at the rate of $25 per machine hour, and Job 1052 required 800
machine hours. In addition, selling and shipping costs of $7,000 were incurred. Job 1052 consisted of
7,000 shirts and was completed on March 24. The total cost of job 1052 transferred from Work in Process
to Finished Goods on March 24 is:
A. $33,700
B. $38,500
C. $18,500
D. $20,000
3. Which of the following contain(s) the detailed cost data that support the Work in Process control
account?
A. Job cost sheets.
B. The Manufacturing Overhead account.
C. The Finished Goods inventory account.
D. Purchase requisitions.
4. In a normal job-order costing system, the journal entry to record the application of overhead cost to jobs
includes which of the following?
A. A credit to the Work in Process inventory account.
B. A credit to the Manufacturing Overhead account.
C. A debit to Cost of Goods Sold.
D. A debit to the Manufacturing Overhead account.
5. In a normal job-order costing system, the use of indirect materials would usually be recorded as a debit to
which account?
A. Raw Materials.
B. Work in Process.
C. Manufacturing Overhead.
D. Finished Goods.
6. In a normal job-order costing system, the salary of the factory supervisor would usually be recorded as a
debit to which of the following accounts?
A. Manufacturing Overhead.
B. Salary Expense.
C. Work in Process.
D. Finished Goods.

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7. In a job-order costing system, direct labour costs usually are recorded initially with a debit to which of the
following accounts?
A. Manufacturing Overhead.
B. Finished Goods inventory.
C. Direct Labour Expense.
D. Work in Process.
8. Which of the following statements is true if a company applies overhead to jobs on the basis of a
predetermined overhead rate and reports a credit balance in the Manufacturing Overhead account at the
end of any period?
A. More overhead cost has been charged to jobs than has been incurred during the period.
B. More overhead cost has been incurred during the period than has been charged to jobs.
C. The amount of overhead cost charged to jobs is greater than the estimated cost for the period.
D. The amount of overhead cost charged to jobs is less than the estimated overhead cost for the period.
9. In a job-order costing system, when a job remains incomplete at the end of a period, how is the amount of
overhead cost that has been applied to that job treated?
A. It is deducted on the Income Statement as overapplied overhead.
B. It is closed out to Cost of Goods Sold.
C. It is transferred to Finished Goods.
D. It is part of the ending balance of the Work in Process inventory account
10. (Appendix 3A) Which level of activity, if used to set a predetermined overhead rate, may encourage
managers to increase selling prices as demand falls?
A. Budgeted level of activity.
B. Actual level of activity.
C. Capacity (maximum) level of activity.
D. Normal level of activity.
11. Which of the following aspects of designing a costing system is a higher-level and more subjective
activity?
A. Accumulating costs by departments.
B. Applying costs to cost objects.
C. Assessing cost/benefit trade-offs of different systems.
D. Assigning cost to jobs and/or process.
12. The Work in Process inventory account of a manufacturing company shows a balance of $2,400 at the
end of an accounting period. The job cost sheets of two uncompleted jobs show charges of $400 and
$200 for direct materials and charges of $300 and $500 for direct labour. From this information, what
predetermined overhead rate, as a percentage of direct labour costs, does the company appear to be using?
A. 80%.
B. 125%.
C. 240%.
D. 300%.
13. Freeman Company uses a predetermined overhead rate based on direct labour hours to apply
manufacturing overhead to jobs. At the beginning of the year, the company estimated manufacturing
overhead would be $150,000 and direct labour hours would be 10,000. The actual figures for the year
were $186,000 for manufacturing overhead and 12,000 direct labour hours. The cost records for the year
will show which of the following?
A. Overapplied overhead of $30,000.
B. Underapplied overhead of $30,000.
C. Underapplied overhead of $6,000.
D. Overapplied overhead of $6,000.

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14. Harrell Company uses a predetermined overhead rate based on direct labour hours to apply
manufacturing overhead to jobs. At the beginning of the year, the company estimated its total
manufacturing overhead cost at $400,000 and its direct labour hours at 100,000 hours. The actual
overhead cost incurred during the year was $350,000 and the actual direct labour hours incurred on jobs
during the year was 90,000 hours. What would be the manufacturing overhead for the year?
A. $10,000 under applied.
B. $10,000 over applied.
C. $50,000 under applied.
D. $50,000 over applied.
15. For the current year, Paxman Company incurred $150,000 in actual manufacturing overhead cost. The
Manufacturing Overhead account showed that overhead was overapplied in the amount of $6,000 for the
year. If the predetermined overhead rate was $8.00 per direct labour hour, how many hours were worked
during the year?
A. 17,750 hours.
B. 18,000 hours.
C. 18,750 hours.
D. 19,500 hours.
16. Carlo Company uses a predetermined overhead rate based on direct labour hours to apply manufacturing
overhead to jobs. The company estimated manufacturing overhead at $255,000 for the year and direct
labour hours at 100,000 hours. Actual manufacturing overhead costs incurred during the year totalled
$270,000; actual direct labour hours were 105,000. What was the overapplied or underapplied overhead
for the year?
A. $2,250 overapplied.
B. $2,250 underapplied.
C. $15,000 overapplied.
D. $15,000 underapplied.
17. Sawyer Manufacturing Company uses a predetermined overhead rate based on direct labour hours to
apply manufacturing overhead to jobs. Last year, the company worked 57,000 actual direct labour hours
and used 40,000 machine hours. The company had estimated that it would work 55,000 direct labour
hours using 44,000 machine hours during the year and incur $330,000 of manufacturing overhead cost.
What was the company's manufacturing overhead applied for the year?
A. $345,000.
B. $342,000.
C. $330,000.
D. $300,000.
18. The Watts Company uses predetermined overhead rates to apply manufacturing overhead to jobs.
The predetermined overhead rate is based on labour cost in Department A and on machine hours in
Department B. At the beginning of the year, the company made the following estimates:
What predetermined overhead rates would be used in Departments A and B, respectively?
A. 50% and $8.00.
B. 50% and $5.00.
C. 110% and $15.00.
D. 200% and $5.00.
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