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1.

Ch 02 Practice Test Question 01


In a job-order costing system, the basic document for accumulating costs for
a specific job is:
the job cost sheet.
2. Ch 02 Practice Test Question 02
Which of the following statements is FALSE?
Process costing prepares a production report for each major product.
3. Ch 02 Practice Test Question 03
Which of the following statements is TRUE?
Which of the following statements is TRUE?
4. Ch 02 Practice Test Question 06
Which of the following source documents is used to summarize all of the
costs incurred for a specific job?
Job cost sheet.
5. Ch 02 Practice Test Question 09
Unit product cost information is used for:
valuing unsold units in ending inventory and for determining cost of goods
sold.
6. Ch 02 Practice Test Question 11
Suppose $20,000 of raw materials is withdrawn from the storeroom to be
used in production. Of this amount, $15,000 consists of direct materials and
$5,000 consists of indirect materials. What account or accounts will be
debited?
Work in Process $15,000 and Manufacturing Overhead $5,000.
7. Ch 02 Practice Test Question 12
The entry to record the application of manufacturing overhead to the jobs of
the period will increase which account balance?
Work in Process Inventory
8. Ch 02 Practice Test Question 13
The entry to record cost of goods sold will decrease which of the following
accounts?
Finished Goods Inventory
9. Ch 02 Practice Test Question 14

The ending Finished Goods account balance is determined by adding the


beginning balance to the:
cost of goods manufactured and then subtracting the cost of goods sold.
10.Exercise 2-1 Compute the Predetermined Overhead Rate [LO2-1]
Harris Fabrics computes its predetermined overhead rate annually on the
basis of direct labor-hours. At the beginning of the year, it estimated that
20,000 direct labor-hours would be required for the periods estimated level
of production. The company also estimated $94,000 of fixed manufacturing
overhead expenses for the coming period and variable manufacturing
overhead of $2.00 per direct labor-hour. Harris's actual manufacturing
overhead for the year was $123,900 and its actual total direct labor was
21,000 hours.

Required:
Compute the company's predetermined overhead rate for the year. (Round
your answer to 2 decimal places.)

Y = a + bX
Y = $94,000 + ( $2*20,000) = 134,000
134,000/20,000=6.70 per DLH

11.Exercise 2-2 Apply Overhead [LO2-2]

Luthan Company uses a predetermined overhead rate of $23.40 per direct


labor-hour. This predetermined rate was based on a cost formula that
estimated $257,400 of total manufacturing overhead for an estimated activity
level of 11,000 direct labor-hours.
The company incurred actual total manufacturing overhead costs of
$249,000 and 10,800 total direct labor-hours during the period.

Required:
Determine the amount of manufacturing overhead that would have been
applied to all jobs during the period.

10,800*$23.40=252,720

12.Exercise 2-4 Prepare Journal Entries [LO2-4]


Larned Corporation recorded the following transactions for the just completed
month.

a.$80,000 in raw materials were purchased on account.


b.
$71,000 in raw materials were requisitioned for use in production. Of this
amount, $62,000 was for direct materials and the remainder was for
indirect materials.
c.
Total labor wages of $112,000 were incurred. Of this amount, $101,000
was for direct labor and the remainder was for indirect labor.
d.Additional manufacturing overhead costs of $175,000 were incurred.
Required:
Record the above transactions in journal entries. (If no entry is required for
a transaction/event, select "No journal entry required" in the first
account field.)

b. 71,000 62,000= 9,000


c. 112,000 101,000 = 11,000

13.Exercise 2-5 Prepare T-Accounts [LO2-5, LO2-7]


Jurvin Enterprises recorded the following transactions for the just completed
month. The company had no beginning inventories.

a.$94,000 in raw materials were purchased for cash.


b.
$89,000 in raw materials were requisitioned for use in production. Of this
amount, $78,000 was for direct materials and the remainder was for
indirect materials.
c.
Total labor wages of $132,000 were incurred and paid. Of this amount,
$112,000 was for direct labor and the remainder was for indirect labor.
Additional manufacturing overhead costs of $143,000 were incurred and
paid.

d.

e.
Manufacturing overhead costs of $152,000 were applied to jobs using the
companys predetermined overhead rate.
All of the jobs in progress at the end of the month were completed and
shipped to customers.
Any underapplied or overapplied overhead for the period was closed out to
g.
Cost of Goods Sold.
f.

Required:
1.
Post the above transactions to T-accounts.

2. Determine the cost of goods sold for the period.

14.Exercise 2-9 Journal Entries and T-accounts [LO2-2, LO2-4, LO2-5]

The Polaris Company uses a job-order costing system. The following data
relate to October, the first month of the companys fiscal year.

a.Raw materials purchased on account, $210,000.


Raw materials issued to production, $190,000 ($178,000 direct materials
b.
and $12,000 indirect materials).
c.Direct labor cost incurred, $90,000; indirect labor cost incurred, $110,000.
d.Depreciation recorded on factory equipment, $40,000.
Other manufacturing overhead costs incurred during October, $70,000
e.
(credit Accounts Payable).
f.
The company applies manufacturing overhead cost to production on the
basis of $8 per machine-hour. A total of 30,000 machine-hours were
recorded for October.
g.
Production orders costing $520,000 according to their job cost sheets were
completed during October and transferred to Finished Goods.
h.
Production orders that had cost $480,000 to complete according to their job
cost sheets were shipped to customers during the month. These goods were
sold on account at 25% above cost.

Required:
1.
Prepare journal entries to record the information given above. (If no entry
is required for a transaction/event, select "No journal entry required"
in the first account field.)

2.
Prepare T-accounts for Manufacturing Overhead and Work in Process. Post
the relevant information above to each account. Compute the ending
balance in each account, assuming that Work in Process has a beginning
balance of $42,000.

15.Exercise 2-11 Schedules of Cost of Goods Manufactured and Cost of Goods


Sold; Income Statement [LO2-6]
The following data from the just completed year are taken from the
accounting records of Mason Company:

1.
Prepare a schedule of cost of goods manufactured. Assume all raw
materials used in production were direct materials.

2.
Prepare a schedule of cost of goods sold.

3.
Prepare an income statement.

16.Exercise 2-14 Computing Predetermined Overhead Rates and Job Costs [LO21, LO2-2, LO2-3, LO2-7]
Moody Corporation uses a job-order costing system with a plantwide
overhead rate based on machine-hours. At the beginning of the year, the
company made the following estimates:

Required:
1.
Compute the predetermined overhead rate. (Round your answer to 2

decimal places.)

2.
During the year, Job 400 was started and completed. The following
information was available with respect to this job:

Compute the total manufacturing cost assigned to Job 400. (Round your
intermediate calculations to 2 decimal places.)

3a. During the year, the company worked a total of 146,000 machine-hours
on all jobs and incurred actual manufacturing overhead costs of
$1,350,000. What is the amount of underapplied or overapplied overhead
for the year? (Round your intermediate calculations to 2 decimal
places.)

3b. If this amount were closed out entirely to Cost of Goods Sold, would net
operating income increase or decrease?

Increase

17.Exercise 2-18 Applying Overhead; T-Accounts; Journal Entries [ LO2-1, LO2-2,


LO2-4, LO2-5, LO2-7]
Harwood Company uses a job-order costing system. Overhead costs are
applied to jobs on the basis of machine-hours. At the beginning of the year,
management estimated that 80,000 machine-hours would be required for the
periods estimated level of production. The company also estimated $128,000
of fixed manufacturing overhead expenses for the coming period and variable
manufacturing overhead of $0.80 per machine-hour.

Required:
1.
Compute the companys predetermined overhead rate. (Round your
answer to 2 decimal places.)

2.
Assume that during the year the company works only 75,000 machinehours and incurs the following costs in the manufacturing overhead and

work in process accounts. Compute the amount of overhead cost that


would be applied to work in process for the year, and make the entry in
your t-accounts given below: (Round your intermediate calculations to
2 decimal places.)

3a. Compute the amount of underapplied or overapplied overhead for the


year. (Round your intermediate calculations to 2 decimal places.)

-b.
Prepare a journal entry to close out the balance in the manufacturing
overhead account to cost of goods sold. (If no entry is required for a
transaction/event, select "No journal entry required" in the first
account field. Round your intermediate calculations to 2 decimal
places.)

18.Exercise 2-19 Applying Overhead in a Service Company [LO2-1, LO2-2, LO2-3]


Leeds Architectural Consultants began operations on January 2. The following
activity was recorded in the companys Work in Process account for the first
month of operations:

Leeds Architectural Consultants is a service firm, so the names of the


accounts it uses are different from the names used in manufacturing
companies. Costs of Subcontracted Work is comparable to Direct Materials;
Direct Staff Costs is the same as Direct Labor; Studio Overhead is the same
as Manufacturing Overhead; and Completed Projects is the same as Finished
Goods. Apart from the difference in terms, the accounting methods used by
the company are identical to the methods used by manufacturing companies.

Leeds Architectural Consultants uses a job-order costing system and applies


studio overhead to Work in Process on the basis of direct staff costs. At the
end of January, only one job was still in process. This job (Lexington Gardens
Project) had been charged with $6,500 in direct staff costs.

Required:

1. Compute the predetermined overhead rate that was in use during


January.

2.
Complete the following job cost sheet for the partially completed
Lexington Gardens Project.

Exercise 3-4 (30 minutes)

1. Since $120,000 of studio overhead was applied to Work in


Process on the basis of $75,000 of direct staff costs, the
apparent predetermined overhead rate is 160%:
Studio overhead applied
$120,000
=
= 160% rate.
Direct staff costs incurred
$75,000
2. The Lexington Gardens Project is the only job remaining in Work
in Process at the end of the month; therefore, the entire
$35,000 balance in the Work in Process account at that point
must apply to it. Recognizing that the predetermined overhead
rate is 160% of direct staff costs, the following computation can
be made:
Total cost in the Lexington Gardens
Project.....................................................
$35,000
Less Direct staff costs........................................
:
$ 6,500
Studio overhead cost ($6,500
160%)......................................................
10,400 16,900
Costs of subcontracted work......................
$18,100
With this information, we can now complete the job cost sheet
for the Lexington Gardens Project:
Costs of subcontracted work.. . $18,100
Direct staff costs.....................
6,500
Studio overhead...................... 10,400
Total cost to January 31........... $35,000

19.Problem 2-27A Comprehensive Problem [LO2-1, LO2-2, LO2-4, LO2-5, LO2-7]


Gold Nest Company of Guandong, China, is a family-owned enterprise that
makes birdcages for the South China market. The company sells its birdcages
through an extensive network of street vendors who receive commissions on
their sales. All of the companys transactions with customers, employees, and
suppliers are conducted in cash; there is no credit.

The company uses a job-order costing system in which overhead is applied to


jobs on the basis of direct labor cost. Its predetermined overhead rate is
based on a cost formula that estimated $330,000 of manufacturing overhead
for an estimated activity level of $200,000 direct labor dollars. At the
beginning of the year, the inventory balances were as follows:

During the year, the following transactions were completed:

a. Raw materials purchased for cash, $275,000.


b.
Raw materials requisitioned for use in production, $280,000 (materials
costing $220,000 were charged directly to jobs; the remaining materials
were indirect).
c. Costs for employee services were incurred as follows:

d.
Rent for the year was $18,000 ($13,000 of this amount related to factory
operations, and the remainder related to selling and administrative
activities).
e.Utility costs incurred in the factory, $57,000.
f. Advertising costs incurred, $140,000.
g.
Depreciation recorded on equipment, $100,000. ($88,000 of this amount
was on equipment used in factory operations; the remaining $12,000 was
on equipment used in selling and administrative activities.)

h.
Manufacturing overhead cost was applied to jobs, $?
Goods that had cost $675,000 to manufacture according to their job cost
sheets were completed.

i.
j.

Sales for the year totaled $1,250,000. The total cost to manufacture these
goods according to their job cost sheets was $700,000.

Required:
1.
Prepare journal entries to record the transactions for the year. (If no entry
is required for a transaction/event, select "No journal entry required"
in the first account field. Round your intermediate calculations to 2
decimal places.)

2.
Prepare T-accounts for inventories, Manufacturing Overhead, and Cost of
Goods Sold. Post relevant data from your journal entries to these Taccounts (dont forget to enter the beginning balances in your inventory
accounts). (Round your intermediate calculations to 2 decimal places.)

3Is Manufacturing Overhead underapplied or overapplied for the year?


a.

Overapplied

3b. Prepare a journal entry to close any balance in the Manufacturing


Overhead account to Cost of Goods Sold. (If no entry is required for a
transaction/event, select "No journal entry required" in the first
account field. Round your intermediate calculations to 2 decimal
places.)

4.
Prepare an income statement for the year. (Round your intermediate
calculations to 2 decimal places.)

20.

Exercise 2-1 Compute the Predetermined Overhead Rate [LO2-1]

Harris Fabrics computes its predetermined overhead rate annually on the


basis of direct labor-hours. At the beginning of the year, it estimated that
36,000 direct labor-hours would be required for the periods estimated level
of production. The company also estimated $549,000 of fixed manufacturing
overhead expenses for the coming period and variable manufacturing
overhead of $3.00 per direct labor-hour. Harris's actual manufacturing
overhead for the year was $730,000 and its actual total direct labor was
36,500 hours.

Required:
Compute the company's predetermined overhead rate for the year. (Round
your answer to 2 decimal places.)

549,000+($3.00*36,000)=657,000
657,000/36,000=18.25

21.

Exercise 2-2 Apply Overhead [LO2-2]

Luthan Company uses a predetermined overhead rate of $23.10 per direct


labor-hour. This predetermined rate was based on a cost formula that
estimated $277,200 of total manufacturing overhead for an estimated activity
level of 12,000 direct labor-hours.
The company incurred actual total manufacturing overhead costs of
$268,000 and 11,000 total direct labor-hours during the period.

Required:
Determine the amount of manufacturing overhead that would have been
applied to all jobs during the period.

11,000*$23.10 = 254,100
22.

Exercise 2-4 Prepare Journal Entries [LO2-4]

Larned Corporation recorded the following transactions for the just completed
month.

a.$85,000 in raw materials were purchased on account.


b.
$83,000 in raw materials were requisitioned for use in production. Of this
amount, $70,000 was for direct materials and the remainder was for
indirect materials.
c.
Total labor wages of $118,500 were incurred. Of this amount, $100,300
was for direct labor and the remainder was for indirect labor.
d.Additional manufacturing overhead costs of $195,000 were incurred.
Required:
Record the above transactions in journal entries. (If no entry is required for
a transaction/event, select "No journal entry required" in the first
account field.)

23.

Exercise 2-5 Prepare T-Accounts [LO2-5, LO2-7]

Jurvin Enterprises recorded the following transactions for the just completed
month. The company had no beginning inventories.

a.$75,800 in raw materials were purchased for cash.


b.
$72,600 in raw materials were requisitioned for use in production. Of this
amount, $65,900 was for direct materials and the remainder was for
indirect materials.
c.
Total labor wages of $150,800 were incurred and paid. Of this amount,
$134,400 was for direct labor and the remainder was for indirect labor.
Additional manufacturing overhead costs of $126,400 were incurred and
paid.

d.
e.

Manufacturing overhead costs of $122,500 were applied to jobs using the


companys predetermined overhead rate.
f.

All of the jobs in progress at the end of the month were completed and
shipped to customers.

Any underapplied or overapplied overhead for the period was closed out to
Cost of Goods Sold.

g.

2. Determine the cost of goods sold for the period.

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