Quiz Chapter 3 - Solutions 1.

. The manufacturing operation that would be most likely to use a job-order costing system is: A) B) C) D) toy manufacturing. candy manufacturing. crude oil refining. shipbuilding.

A is probably incorrect. Toys look like assembly line products (uniform) B is probably incorrect. Candy looks like assembly line products (uniform) C is incorrect. Barrels of oil are uniform, assembly line products D is the best answer. Large ships are likely to be unique products 2. A proper journal entry to close over-applied overhead to Cost of Goods Sold would be: A) D. Cost of Goods Sold Cr. Work In Progress B) D. Cost of Goods Sold Cr. Manufacturing Overhead C) D. Cost of Goods Sold Cr. Finished Goods D) D. Manufacturing Overhead Cr. Cost of Goods Sold XXX XXX XXX XXX XXX XXX XXX XXX

D is the best answer. If you are over-applied that means that you applied (credits) more than you actually spent (debits). You therefore have a credit balance in your Manufacturing Overhead account, and you need to debit it in order to zero out the account. Only D has a debit to Manufacturing Overhead. The credit would be to Cost of Goods Sold if the variance were immaterial.

Page 1

3. A proper journal entry to record issuing raw materials to be used on a job would be: A) D. Finished Goods Cr. Materials Inventory B) D. Materials Inventory Cr. Work In Process C) D. Work In Process Cr. Raw Materials D) D. Materials Inventory Cr. Finished Goods XXX XXX XXX XXX XXX XXX XXX XXX

C is correct. You are taking materials out of Materials Inventory. You need a credit to such an account in order to reduce it. A & C are the only journal entries that do that. The raw materials go into Work In Process. You need to increase Work In Process with a debit. Only C does this. 4. Nil Co. uses a Predetermined Overhead Rate based on Direct Labor Cost to apply Manufacturing Overhead to jobs. For the year ended December 31, Nil's estimated Manufacturing Overhead was $600,000, based on an estimated volume of 50,000 Direct Labor Hours, at a Direct Labor Rate of $6.00 per hour. Actual Manufacturing Overhead amounted to $620,000, with actual Direct Labor Cost of $325,000. For the year, Manufacturing Overhead was: A) B) C) D) over-applied by $20,000. under-applied by $22,000. over-applied by $30,000. under-applied by $30,000.

C is correct. The debit to Manufacturing Overhead is for actual overhead ($620,000). The credit to Manufacturing Overhead is for the amount applied. With normal costing, the amount applied is based on the predetermined application rate calculated at the beginning of the year. We are told that the Manufacturing Overhead is applied using direct labor cost as the driver. The predetermined application rate using direct labor cost is calculated as follows: Estimated Overhead/Estimated Driver $600,000/($6.00 x 50,000) $600,000/$300,000 $2 of overhead is applied for every $1 of direct labor cost Since the actual direct labor cost is $325,000, the company would have applied twice that amount as overhead ($650,000).
Page 2

Manufacturing Overhead is $30,000 over-applied. Manufacturing Overhead $620,000 $650,000

5. Johansen Company uses a Predetermined Overhead Rate based on Direct Labor Hours to apply Manufacturing Overhead to jobs. The company has provided the following estimated costs for the next year:
Direct materials ...................................... Direct labor ............................................ Rent on factory building ........................ Sales salaries .......................................... Depreciation on factory equipment........ Indirect labor .......................................... Production supervisor's salary................ $ 6,000 20,000 15,000 25,000 8,000 12,000 15,000

Johansen estimates that 20,000 Direct Labor Hours will be worked during the year. The Predetermined Overhead Rate per hour will be: A) B) C) D) $2.50. $3.50. $3.75. $5.05.

A is correct. Add up all of the Manufacturing Overhead and then divide by the estimated driver (20,000): Rent on Factory Buildings Depreciation on Factory Equipment Indirect Labor Production Supervisors Salary Total Cost Per Direct Labor Hour ($50,000/20,000) $15,000 8,000 12,000 15,000 $50,000 $2.50

Page 3

Use the following to answer questions 6-8: Munos Publishing Company uses a Job-Order Costing system to collect costs related to the manufacture of specialty publications for corporate training. 6. What journal entry would Munos make to record the application of $1,200 of Manufacturing Overhead to Job KN672? A) D. Work in Process Cr. Manufacturing Overhead B) D. Cost of Goods Manufactured Cr. Manufacturing Overhead C) D. Manufacturing Overhead Cr. Work in Process D) D. Cost of Goods Manufactured Cr. Work in Process $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200

A is correct. Applying overhead requires a debit to Work In Process. Only A has that. The credit would be to Manufacturing Overhead. 7. What journal entry would Munos make to record the completion of Job KN668 at a total cost of $7,600? A) D. Work in Process Cr. Finished Goods B) D. Cost of Goods Manufactured Cr. Work In Process C) D. Finished Goods Cr. Work In Process D) D. Cost of Goods Manufactured Cr. Finished Goods $7,600 $7,600 $7,600 $7,600 $7,600 $7,600 $7,600 $7,600

C is correct. When a job is completed, Finished Goods is debited. Only B has that. The credit would be to Work In Process.

Page 4

8. What journal entry would Munos make to record $9,500 of depreciation on its printing presses? A) D. Work in Process Cr. Manufacturing Overhead B) D. Depreciation Expense Cr. Accumulated Depreciation C) D. Manufacturing Overhead Cr. Accumulated Depreciation D) D. Manufacturing Overhead Cr. Depreciation Expense $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500

C is correct. Depreciation requires a credit to Accumulated Depreciation. Only B & C have that. The debit should be to Manufacturing Overhead. Only C has that. You would not expense a factory cost. Use the following to answer questions 9-10: Leija Manufacturing Company uses a Job-Order Costing system and started the month of March with one job in process (Job #359). This job had $500 of cost assigned to it at this time. During March, Leija assigned production costs as follows to the jobs worked on during the month:
Total cost assigned to jobs during March Job #359 Job #360 Job #361 $6,000 $8,100 $2,400

During March, Leija completed and sold Job #359. Job #360 was also completed but was not sold by month end. Job #361 was not completed by the end of March. 9. What is Leija's cost of goods manufactured for March? A) B) C) D) $ 6,500 $14,100 $14,600 $16,500

C is correct. Cost of Goods Manufactured is the cost of the jobs that you finished. You finished jobs 359 & 360. The cost of these jobs is $14,600 ($500 + 6,000 + 8,100)

Page 5

10. A) B) C) D)

What is Leija's work in process inventory balance at the end of March? $ 1,900 $ 2,400 $ 2,900 $10,000

B is correct. The ending balance of Work In Process would be cost (so far) of the incomplete job (job 361), which is $2,400.

Page 6

Answer Key Quiz Chapter 5 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. D D C C A A C C C B

Page 7