COST ACCOUNTING - JOB COSTING & ABC

NAME:__________________________________________________________DATE:_______________
1. Which of the following is not typical of traditional costing systems?
a. Use of a single predetermined overhead rate.
b. Use of direct labor hours or direct labor cost to assign overhead.
c. Assumption of correlation between direct labor and incurrence of overhead cost.
d. Use of multiple cost drivers to allocate overhead.
2. In traditional costing systems, overhead is generally applied based on
a. direct labor.
b. machine hours.
c. direct material dollars.
d. units of production.
3. An activity that has a direct cause-effect relationship with the resources consumed is a(n)
a. cost driver.
b. overhead rate.
c. cost pool.
d. product activity.
4. Which best describes the flow of overhead costs in an activity-based costing system?
a. Overhead costs direct labor cost or hours products
b. Overhead costs products
c. Overhead costs activity cost pools cost drivers products
d. Overhead costs machine hours products
5. The first step in activity-based costing is to
a. assign manufacturing overhead costs for each activity cost pool to products.
b. compute the activity-based overhead rate per cost driver.
c. identify and classify the major activities involved in the manufacture of specific products.
d. identify the cost driver that has a strong correlation to the activity cost pool.
6. A well-designed activity-based costing system starts with
a. identifying the activity-cost pools.
b. computing the activity-based overhead rate.
c. assigning manufacturing overhead costs for each activity cost pool to products.
d. analyzing the activities performed to manufacture a product.
7. One of Lara Dole Company's activity cost pools is machine setups, with estimated overhead of
$300,000. Dole produces flares (400 setups) and health packs (600 setups). How much of the
machine setup cost pool should be assigned to flares?
a. $0.
b. $120,000.
c. $150,000.
d. $180,000.
8. Which would be an appropriate cost driver for the ordering and receiving activity cost pool?
a. Machine setups
b. Purchase orders
c. Machine hours
d. Inspections
9. As compared to a high-volume product, a low-volume product
a. usually requires less special handling.
b. is usually responsible for more overhead costs per unit.
c. requires relatively fewer machine setups.
d. requires use of direct labor hours as the primary cost driver to ensure proper allocation of
overhead.
10. In Japan,
a. activity-based costing is used more than in the U.S.
b. companies prefer volume measures such as direct labor hours to assign overhead costs.
c. labor cost reduction is less of a priority.
d. developing more accurate product costs is more of a priority.
Use the following information to answer questions 4144.

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Robot Toy Company manufactures two products, X-O-Tron and Mechoman. Robot's overhead costs
consist of setting up machines, $400,000; machining, $900,000; and inspecting, $300,000.
Information on the two products is:
a. X-O-Tron Mechoman
Direct labor hours
15,000
25,000
Machine setups
600
400
Machine hours
24,000
26,000
Inspections
800
700
11. Overhead applied to X-O-Tron using traditional costing is
a. $600,000.
b. $768,000.
c. $832,000.
d. $960,000.
12. Overhead applied to Mechoman using traditional costing is
a. $640,000.
b. $768,000.
c. $832,000.
d. $1,000,000.
13. Overhead applied to X-O-Tron using activity-based costing is
a. $600,000.
b. $768,000.
c. $832,000.
d. $960,000.
14. Overhead applied to Mechoman using activity-based costing is
a. $640,000.
b. $768,000.
c. $832,000.
d. $1,000,000.
15. Which of the following is a limitation of activity-based costing?
a. More cost pools
b. Less control over overhead costs
c. Poorer management decisions
d. Some arbitrary allocations continue
16. A major purpose of cost accounting is to
a. classify all costs as operating or nonoperating.
b. measure, record, and report period costs.
c. provide information to stockholders for investment decisions.
d. measure, record, and report product costs.
17. The two basic types of cost accounting systems are
a. job order and job accumulation systems.
b. job order and process cost systems.
c. process cost and batch systems.
d. job order and batch systems.
18. A process cost system would most likely be used by a company that makes
a. motion pictures.
b. repairs to automobiles.
c. breakfast cereal.
d. college graduation announcements.
19. Which of the following would be accounted for using a job order cost system?
a. The production of personal computers
b. The production of automobiles
c. The refining of petroleum
d. The construction of a new campus building
20. Process costing is used when
a. the production process is continuous.
b. production is aimed at filling a specific customer order.
c. heterogeneous products are involved.

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d. costs are to be assigned to specific jobs.

21. Process costing is not used when
a. homogeneous goods are being produced.
b. large volumes are produced.
c. jobs have distinguishing characteristics.
d. a series of connected manufacturing processes is necessary.
22. An important feature of a job order cost system is that each job
a. must be similar to previous jobs completed.
b. has its own distinguishing characteristics.
c. must be completed before a new job is accepted.
d. consists of one unit of output.
23. The flow of costs in a job order cost system
a. involves accumulating manufacturing costs incurred and assigning the accumulated costs
to work done.
b. cannot be measured until all jobs are complete.
c. measures product costs for a set time period.
d. generally follows a LIFO cost flow assumption.
24. In a job order cost accounting system, the Raw Materials Inventory account is
a. an expense.
b. a control account.
c. not used.
d. a period cost.
25. When a job is completed and all costs have been accumulated on a job cost sheet, the journal
entry that should be made is
a. Finished Goods Inventory
i. Direct Materials
ii. Direct Labor
iii. Manufacturing Overhead
b. Work In Process Inventory
iv. Direct Materials
v. Direct Labor
vi. Manufacturing Overhead
c. Raw Materials Inventory
vii. Work In Process Inventory
d. Finished Goods Inventory
viii. Work In Process Inventory
26. The two major steps in the flow of costs are
a. allocating and assigning.
b. acquiring and accumulating.
c. accumulating and assigning.
d. accumulating and amortizing.
27. The Raw Materials Inventory account is
a. a subsidiary account.
b. debited for invoice costs and freight costs chargeable to the purchaser.
c. debited for purchase discounts taken.
d. debited for purchase returns and allowances.
28. Records of individual items of raw materials would not be maintained
a. electronically.
b. manually.
c. on stores ledger cards.
d. in the Raw Materials Inventory account.
29. Cost of raw materials are debited to Raw Materials Inventory when the
a. materials are ordered.
b. materials are received.
c. materials are put into production.
d. the bill for the materials is paid.
30. Raw Materials Inventory records are also referred to as
a. the Raw Materials control account.

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b. the stores ledger cards.

c. the purchases journal.
d. periodic inventory records.
PROBLEMS:
1. Butler Manufacturing uses a job order cost accounting system. On April 1, the company has Work
in Process Inventory of $7,600 and two jobs in process: Job No. 221, $3,600, and Job No. 222,
$4,000. During April, a summary of source documents reveals the following:
For
Job No.

221
222
223
224
General use
Totals

Materials Requisition Slips

$1,200
1,700
2,400
2,100
600
$8,000

Labor Time Tickets

$2,600
1,200
2,900
2,800
400
$9,900

Butler applies manufacturing overhead to jobs at an overhead rate of 60% of direct labor cost. Job No.
221 is completed during the month.
Instructions
(a) Prepare summary journal entries to record the raw materials requisitioned, factory labor used, the
assignment of manufacturing overhead to jobs, and the completion of Job No.221
(b) Calculate the balance of the Work in Process Inventory account at April 30.

2. Landis Company uses a job order cost system in each of its two manufacturing departments.
Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department A and
machine hours in Department B.
In establishing the predetermined overhead rates for 2002, the following estimates were made for the
year:
Department
A
B
Manufacturing overhead
$2,100,000
$1,600,000
Direct labor cost
1,200,000
1,200,000
Direct labor hours
100,000
100,000
Machine hours
200,000
400,000
During January, the job cost sheet showed the following costs and production data:
Department
A
B
Direct materials used
$195,000
$128,000
Direct labor cost
100,000
110,000
Manufacturing overhead incurred
180,000
135,000
Direct labor hours
8,000
8,400
Machine hours
16,000
34,000
Instructions
(a) Compute the predetermined overhead rate for each department.
(b)

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Compute the total manufacturing cost assigned to jobs in January in each department.

(c)

Compute the balance in the Manufacturing Overhead account at the end of January and indicate

whether overhead is over- or underapplied.

3. Landis Company uses a job order cost system in each of its two manufacturing departments.
Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department A and
machine hours in Department B.
In establishing the predetermined overhead rates for 2002, the following estimates were made for the
year:
Department
A
B
Manufacturing overhead
$2,100,000
$1,600,000
Direct labor cost
1,200,000
1,200,000
Direct labor hours
100,000
100,000
Machine hours
200,000
400,000
During January, the job cost sheet showed the following costs and production data:
Department
A
B
Direct materials used
$195,000
$128,000
Direct labor cost
100,000
110,000
Manufacturing overhead incurred
180,000
135,000
Direct labor hours
8,000
8,400
Machine hours
16,000
34,000
Instructions
(a) Compute the predetermined overhead rate for each department.
(b) Compute the total manufacturing cost assigned to jobs in January in each department.
(c) Compute the balance in the Manufacturing Overhead account at the end of January and
whether overhead is over- or underapplied.

indicate

4. Brewer & Carr, PSC is an architectural firm that uses activity-based costing. The three activity
cost pools used by Brewer & Carr are: Salaries and Wages, Travel Expense, and Plan
Reproduction Expense. The firm has provided the following information concerning activity and
costs:

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Salaries and wages

Travel expense
Plan reproduction expense
Total

$360,000
80,000
120,000
$560,000
Activity Cost Pools
Project
Business
Assignment
Development
60%
30%
40%
40%
30%
40%

Salaries and wages

Travel expense
Plan reproduction expense
Instructions
Calculate the total cost to be allocated to the (a) Project Assignment, (b) Business
Other activity cost pools.

Other
10%
20%
30%
Development, and (c)

5. Vid-saver, Inc. has five activity cost pools and two products (a budget tape rewinder and a deluxe
tape rewinder). Information is presented below:
Activity Cost Pool
Ordering and Receiving
Machine Setup
Machining
Assembly
Inspection

Cost Driver
Orders
Setups
Machine hours
Parts
Inspections

Est. Overhead
$ 120,000
297,000
1,500,000
1,200,000
300,000

Cost Drivers by Product

Budget
Deluxe
600
400
500
400
150,000
100,000
1,200,000
800,000
550
450

Instructions
Compute the overhead cost per unit for each product. Production is 700,000 units of Budget and 200,000
units of Deluxe.

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