Cost Accounting and Control Handout 2205 Cost Accounting Cycle

SOUTHERN LUZON STATE UNIVERSITY
College of Administration, Business, Hospitality and Accountancy Bachelor of Science in Accountancy
COST ACCOUNTING AND CONTROL
Handout No. 2205

Topic: Cost Accounting Cycle with Job Order Costing and Process Costing
True/False Questions
1. Process costing is used in those situations where many different products or servicesare
produced each period to customer specifications.
Answer: False
2. The basic approach in job-order costing is to accumulate costs in a particular operationor

department for an entire period (month, quarter, year) and then to divide this total by the
number of units produced during the period.
Answer: False
3. If a company uses predetermined overhead rates, actual manufacturing overhead costsof a

period will be recorded in the Manufacturing Overhead account, but they will not be
recorded on the job cost sheets for the period.
Answer: True
4. In a job-order cost system, indirect labor is assigned to a job by using the labor time
ticket as a source document.
Answer: False
5. The formula for computing the predetermined overhead rate is:

Estimated total units in base ÷ Estimated total manufacturing costs
Answer: False
6. The fact that one department may be labor intensive while another department is
machine intensive may explain in part the existence of multiple predetermined
overhead rates in larger companies.
Answer: True
7. If a company closes any under- or overapplied overhead to the Cost of Goods Sold
account, then Cost of Goods Sold will be credited if manufacturing overhead is
overapplied for the period.
Answer: True
8. The following entry would be used to record the transfer of material from the
storeroom to production if 80% of the material was direct material and 20% was
indirect material:
Work in Process................................ 40,000
Manufacturing Overhead .................. 10,000
Raw Material........................ 50,000
Answer: True
9. If a job is not completed at the end of the year, then no manufacturing overhead cost
should be applied to that job.
Answer: False
10. When raw materials are purchased, they are recorded as an expense.
Answer: False
11. In a job-order cost system, depreciation on factory equipment should be charged

directly to the Work in Process account.
Answer: False
12. The entire difference between the actual manufacturing overhead cost for a period andthe
applied manufacturing overhead cost is typically closed to the Work In Process account.
Answer: False
13. If the actual manufacturing overhead costs for a period exceed the manufacturing
overhead costs applied, then overhead would be considered to be overapplied.
Answer: False
14. When the predetermined overhead rate is based on the level of activity at capacity, the
overhead underapplied may be called the Cost of Unused Capacity and treated as a period
expense.
Answer: True
15. The absorption cost approach is so named because it provides for the absorption of all
manufacturing costs, fixed and variable, into units of product.
Answer: True
Multiple Choice Questions
16. Which of the following industries would be most likely to use a process costing
system?
A) Ship builder
B) Movie studio
C) Oil refinery
D) Hospital
Answer: C Level: Easy LO: 1
17. A process cost system is employed in those situations where:

A) many different products, jobs, or batches of production are being produced each
period.
B) where manufacturing involves a single, homogeneous product that flows evenly
through the production process on a continuous basis.
C) a service is performed such as in a law firm or an accounting firm.
D) full or absorption cost approach is not employed.
Answer: B Level: Easy LO: 1
18. Emco Company uses direct labor cost as a basis for computing its predetermined
overhead rate. In computing the predetermined overhead rate for last year, the
company misclassified a portion of direct labor cost as indirect labor. The effect of this
misclassification will be to:
A) understate the predetermined overhead rate.
B) overstate the predetermined overhead rate.
C) have no effect on the predetermined overhead rate.
D) cannot be determined from the information given.
Answer: B Level: Medium LO: 3

19. Which of the following entries would record correctly the application of overhead
cost?
A) Work in Process .................................. XXX

Accounts Payable ...................... XXX
B) Manufacturing Overhead .................... XXX
Accounts Payable ...................... XXX
C) Manufacturing Overhead .................... XXX
Work in Process ......................... XXX
D) Work in Process .................................. XXX
Manufacturing Overhead ........... XXX
Answer: D Level: Easy LO: 4,5
20. The operations of Kalispell Company resulted in overapplied overhead for the month
just completed. Which of the following journal entries can be correct if Kalispell
allocates under- or overapplied overhead among accounts?
A) Cost of Goods Sold ................................. XXX

Manufacturing Overhead ............... XXX
B) Manufacturing Overhead ........................ XXX
Cost of Goods Sold ........................ XXX
C) Work in Process ...................................... XXX
Finished Goods ....................................... XXX
Manufacturing Overhead ............... XXX
D) Manufacturing Overhead ........................ XXX
Work in Process ............................. XXX
Finished Goods .............................. XXX
Answer: D Level: Medium LO: 4,8

21. Which of the following entries would record correctly the monthly salaries earned by
the top management of a manufacturing company?
A) Manufacturing Overhead ........................... XXX

Salaries and Wages Payable ............. XXX
B) Salaries Expense ........................................ XXX
C) Work in Process ......................................... XXX
D) Salaries and Wages Payable....................... XXX
Salaries Expense ............................... XXX

22. The journal entry to record applying overhead during the production process is:
A) Manufacturing Overhead ......................................XXX
Work In Process......................................... XXX
B) Finished Goods......................................................XXX
Manufacturing Overhead ........................... XXX
C) Manufacturing Overhead ......................................XXX
Finished Goods .......................................... XXX
D) Work In Process ....................................................XXX
Manufacturing Overhead ........................... XXX
Answer: D Level: Easy LO: 4
23. When manufacturing overhead is applied to production, it is added to:

A) the Cost of Goods Sold account.
B) the Raw Materials account.
C) the Work in Process account.
D) the Finished Goods inventory account.
Answer: C Level: Easy LO: 5,7

24. Which of the following statements is true?
I. Overhead application may be made slowly as a job is worked on.

II. Overhead application may be made in a single application at the time of
completion of the job.
III. Overhead application should be made to any job not completed at year-end in
order to properly value the work in process inventory.
A) Only statement I is true.

B) Only statement II is true.
C) Both statements I and II are true.
D) Statements I, II, and III are all true.
25. On the Schedule of Cost of Goods Manufactured, the final Cost of Goods
Manufactured figure represents:
A) the amount of cost charged to Work in Process during the period.
B) the amount of cost transferred from Finished Goods to Cost of Goods Sold during
the period.
C) the amount of cost placed into production during the period.
D) the amount of cost of goods completed during the current year whether they were
started before or during the current year.
Answer: D Level: Hard LO: 6
26. Under a job-order costing system, the peso amount transferred from Work in Process
to Finished Goods is the sum of the costs charged to all jobs:
A) started in process during the period.
B) in process during the period.
C) completed and sold during the period.
D) completed during the period.
Answer: D Level: Medium LO: 7

27. If a company applies overhead to production on the basis of a predetermined rate, a
debit balance in the Manufacturing Overhead account at the end of the period means
that:
A) actual overhead cost was greater than the amount charged to production.
B) actual overhead cost was less than the amount of direct labor cost.
C) more overhead cost has been charged to production than has been charged to
finished goods during the period.
D) actual overhead cost was less than the amount charged to production.
Answer: A Level: Medium LO: 8
28. Overapplied overhead means that:

A) the applied overhead cost was less than the actual overhead cost.
B) the applied overhead cost was greater than the actual overhead cost.
C) the estimated overhead cost was less than the actual overhead cost.
D) the estimated overhead cost was less than the applied overhead cost.
29. A job order cost system uses a predetermined overhead rate based on estimated
activity and estimated manufacturing overhead cost. At the end of the year,
underapplied overhead might be explained by which of the following situations?
Actual activity Actual manufacturing overhead costs

A) Greater than estimated Greater than estimated
B) Greater than estimated Less than estimated
C) Less than estimated Greater than estimated
D) Less than estimated Less than estimated
Answer: C Level: Medium LO: 8 Source: CPA, adapted
30. Departmental overhead rates are generally preferred to plant-wide overhead rates
when:
A) the activities of the various departments in the plant are not homogeneous.
B) the activities of the various departments in the plant are homogeneous.
C) most of the overhead costs are fixed.
D) all departments in the plant are heavily automated.
Answer: A Level: Easy LO: 10 Source: CMA, adapted

31. The Work in Process inventory account of a manufacturing company shows a balance
of P18,000 at the end of an accounting period. The job cost sheets of the two
uncompleted jobs show charges of P6,000 and P3,000 for materials, and charges of
P4,000 and P2,000 for direct labor. From this information, it appears that the
companyis using a predetermined overhead rate, as a percentage of direct labor costs,
of:
A) 50%
B) 200%
C) 300%
D) 20%
Answer: A Level: Medium LO: 2,3,5
32. Blackwood Co. uses a predetermined overhead rate based on direct labor cost to apply
manufacturing overhead to jobs. The predetermined overhead rates for the year are
200% for Department A and 50% for Department B. Job 123, started and completed
during the year, was charged with the following costs:
Dept. A Dept. B
Direct materials ............................. P25,000 P5,000
Direct labor.................................... ? P30,000
Manufacturing overhead................ P40,000 ?
The total manufacturing costs associated with Job 123 should be:
A) P135,000
B) P180,000
C) P195,000
D) P240,000
Source: CPA, adapted
Answer: A Level: Medium LO: 2,5

33. Fisher Company uses a predetermined overhead rate based on direct labor cost to
apply manufacturing overhead to jobs. The following information about Fisher
Company's Work in Process inventory account has been provided for the month of
May:
May 1 balance .............................................. P26,000

Debits during May:
Direct Materials ......................................... P40,000
Direct Labor .............................................. P50,000
Manufacturing Overhead........................... P37,500
During the month, Fisher Company's Work in Process inventory account was credited
for P120,500, which represented the Cost of Goods Manufactured for the month. Only
one job remained in process on May 31; this job had been charged with P9,600 of
applied overhead cost. The amount of direct materials cost in the unfinished job would
be:
A) P10,600
B) P16,700
C) P12,800
D) P23,400
Answer: A Level: Hard LO: 3,5,6,7
34. At the beginning of the year, manufacturing overhead for the year was estimated to be
P477,590. At the end of the year, actual direct labor-hours for the year were 29,000
hours, the actual manufacturing overhead for the year was P472,590, and
manufacturing overhead for the year was overapplied by P110. If the predetermined
overhead rate is based on direct labor-hours, then the estimated direct labor-hours at
the beginning of the year used in the predetermined overhead rate must have been:
A) 29,300 direct labor-hours
B) 28,987 direct labor-hours
C) 28,993 direct labor-hours
D) 29,000 direct labor-hours
Answer: A Level: Hard LO: 3,5,8
manufacturing overhead for the year was overapplied by P22,100. If the predetermined
overhead rate is based on direct labor-hours, then the estimated direct labor-hours at
the beginning of the year used in the predetermined overhead rate must have been:
Answer: B Level: Hard LO: 3,5,8
manufacturing overhead for the year was underapplied by P27,550. If the
predetermined overhead rate is based on direct labor-hours, then the estimated direct
labor-hours at the beginning of the year used in the predetermined overhead rate must
have been:
Answer: A Level: Hard LO: 3,5,8
37. Bradbeer Corporation uses direct labor-hours in its predetermined overhead rate. At
the beginning of the year, the estimated direct labor-hours were 17,500 hours. At the
end of the year, actual direct labor-hours for the year were 16,000 hours, the actual
manufacturing overhead for the year was P233,000, and manufacturing overhead for
the year was underapplied by P15,400. The estimated manufacturing overhead at
thebeginning of the year used in the predetermined overhead rate must have been:
A) P249,375
B) P217,600
C) P228,000
D) P238,000
Answer: D Level: Hard LO: 3,5,8

38. Braam Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the estimated direct labor-hours were 11,500 hours. At the end
of the year, actual direct labor-hours for the year were 9,700 hours, the actual
the year was underapplied by P18,220. The estimated manufacturing overhead at the
beginning of the year used in the predetermined overhead rate must have been:
A) P164,023
B) P125,130
C) P148,350
D) P138,350
Answer: C Level: Hard LO: 3,5,8
39. Braaten Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the estimated direct labor-hours were 14,100 hours. At the end
of the year, actual direct labor-hours for the year were 13,500 hours, the actual
the year was underapplied by P7,600. The estimated manufacturing overhead at the
beginning of the year used in the predetermined overhead rate must have been:
A) P286,100
B) P296,100
C) P298,816
D) P283,500
40. Cribb Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the estimated direct labor-hours were 17,900 hours and the total
estimated manufacturing overhead was P341,890. At the end of the year, actual direct
labor-hours for the year were 16,700 hours and the actual manufacturing overhead for
the year was P336,890. Overhead at the end of the year was:
A) P22,920 underapplied
B) P17,920 overapplied
C) P17,920 underapplied
D) P22,920 overapplied
Answer: C Level: Medium LO: 3,5,8

41. Crich Corporation uses direct labor-hours in its predetermined overhead rate. At the
A) P6,840 overapplied
B) P6,840 underapplied
Answer: C Level: Medium LO: 3,5,8
42. Crick Corporation uses direct labor-hours in its predetermined overhead rate. At the
Answer: B Level: Medium LO: 3,5,8
43. Dagger Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the total estimated manufacturing overhead was P423,870. At
the end of the year, actual direct labor-hours for the year were 19,400 hours,
manufacturing overhead for the year was underapplied by P5,650, and the actual
manufacturing overhead was P418,870. The predetermined overhead rate for the year
must have been closest to:
A) P21.59
B) P20.76
C) P21.30
D) P21.85
Answer: C Level: Hard LO: 3,5,8

44. Daget Corporation uses direct labor-hours in its predetermined overhead rate. At the
manufacturing overhead for the year was overapplied by P8,060, and the actual
manufacturing overhead was P359,140. The predetermined overhead rate for the
yearmust have been closest to:
A) P15.43
B) P15.30
C) P15.17
D) P14.96
45. Dafoe Corporation uses direct labor-hours in its predetermined overhead rate. At the
manufacturing overhead for the year was overapplied by P21,500, and the actual
manufacturing overhead was P216,100. The predetermined overhead rate for the
yearmust have been closest to:
A) P15.01
B) P17.73
C) P15.35
D) P16.50
Answer: D Level: Hard LO: 3,5,8
46. Juanita Corporation uses a job-order cost system and applies overhead on the basis of
direct labor cost. At the end of October, Juanita had one job still in process. The job
cost sheet for this job contained the following information:
Direct materials .............................................. P480

Direct labor ..................................................... P150
Manufacturing overhead applied .................... P600
An additional P100 of labor was needed in November to complete this job. For this
job, how much should Juanita have transferred to finished goods inventory in
November when it was completed?
A) P1,330
B) P500
C) P1,230
D) P1,730

47. Wall Company uses a predetermined overhead rate based on direct labor hours to
apply manufacturing overhead to jobs. The company's estimated costs for the next
year are:
Direct materials ......................................................... P3,000

Direct labor .............................................................. P20,000
Depreciation on factory equipment ........................... P6,000
Rent on factory ........................................................ P12,000
Sales salaries............................................................ P29,000
Factory utilities ........................................................ P15,000
Indirect labor ............................................................. P6,000
It is estimated that 10,000 direct labor hours will be worked during the year. The
predetermined overhead rate will be:
A) P3.90
B) P5.90
C) P6.80
D) P9.10
48. The following information relates to Spock Manufacturing Company:
Total estimated manufacturing overhead at beginning of year ..... P620,000

Total manufacturing overhead applied to production during
the year ....................................................................................... P625,000
Total manufacturing overhead incurred during the year ............... P618,000
The company closes out the balance in the Manufacturing Overhead to Cost of Goods
Sold at the end of the year. In the journal entry to close out the balance, the company
would:
A) debit cost of goods sold for P2,000
B) credit cost of goods sold for P2,000
C) credit cost of goods sold for P7,000
D) debit cost of goods sold for
P7,000Answer: C Level: Hard LO:
4,5,8
49. Rio Manufacturing Company uses a job order cost system. At the beginning of
February, Rio only had one job in process, Job #594. The direct costs assigned to this
job at that time were P800 of materials and P650 of labor. Job #594 was finished
during February incurring additional direct costs of P120 for materials and P370 for
labor. Job #595 was started and finished during February. The direct costs assigned to
this job were P310 for materials and P190 for labor. Job #596 was started during
February but was not finished by the end of the month. The direct costs assigned to
this job were P740 for materials and P300 for labor. Rio applies manufacturing
overhead to its products at a rate of 200% of direct labor cost. What is Rio's cost of
goods manufactured for February?
A) P2,440
B) P3,750
C) P4,860
D) P6,500
Answer: C Level: Hard LO: 5,6
50. Serenje Manufacturing Company produces nameplates and uses a job-order cost
system. The following amounts relate to nameplate production for the month of June:
Work in process inventory, June 1 ........................................................... P620

Cost of materials directly assigned to production during June .............. P1,800
Cost of labor directly assigned to production during June .................... P1,200
Cost of nameplates completed during June ........................................... P4,300
Serenje applies overhead at a predetermined overhead rate of 60% of direct material

cost. At the end of June, only one job was in Work in Process inventory. This job had
been charged with P150 of direct material cost. What is the direct labor cost assigned
to this job?
A) P100
B) P160
C) P225
D) P530
Answer: B Level: Hard LO: 5,7

51. Dukes Company used a predetermined overhead rate this year of P2 per direct labor
hour, based on an estimate of 20,000 direct labor hours to be worked during the year.
Actual costs and activity during the year were:
Actual manufacturing overhead cost incurred.................... P38,000

Actual direct labor hours worked ......................................... 18,500
The under- or overapplied overhead for the year was:

Answer: A Level: Easy LO: 5,8
52. Sargent Company applies overhead cost to jobs on the basis of 80 percent of direct
labor cost. If Job 210 shows P10,000 of manufacturing overhead cost applied, how
much was the direct labor cost on the job?
A) P12,500
B) P11,000
C) P8,000
D) P10,000
53. In the Vasquez Company, any over- or underapplied overhead is closed out to Cost of
Goods Sold. Last year, the company incurred P27,000 in actual manufacturing
overhead cost, and applied P29,000 of overhead cost to jobs. The beginning and
ending balances of Finished Goods were equal, and the Company's Cost of Goods
Manufactured for the year totaled P71,000. Given this information, Cost of Goods
Sold, after adjustment for any over- or underapplied overhead, for the year must have
been:
A) P98,000
B) P73,000
C) P71,000
D) P69,000
Answer: D Level: Hard LO: 6,8

54. In reviewing the accounting records at year-end, Garff Company's accountant has
determined that the following items and amounts were debited to the Manufacturing
Overhead account during the year:
Factory supervisor’s salary................................................. P8,000

Sales commissions .............................................................. P7,000
Vacation pay for the materials storeroom clerk ................. P2,000
Including the items listed above, the debits to the Manufacturing Overhead account
totaled P245,000 for the year. Credits to the account totaled P240,000 for the year.
Based on this information, if all entries had been made correctly during the year the
Manufacturing Overhead account would have been:
A) overapplied by P4,000
B) overapplied by P12,000
C) underapplied by P5,000
D) overapplied by P2,000
Answer: D Level: Hard LO: 7,8
55. Compute the October cost of direct materials used if raw material purchases for the
month were P30,000 and the inventories were as follows:
Beginning Ending
Direct materials ............................. P7,000 P4,000
Work in Process............................. P6,000 P7,500
Finished goods............................... P10,000 P12,000
The cost of direct materials used would be:

A) P31,500
B) P29,500
C) P27,000
D) P33,000

56. Hardin Company's manufacturing overhead account showed a P20,000
underappliedoverhead balance on December 31. Other data as of December 31
appear below:
Cost of Goods Sold........................................................................ P800,000

Overhead applied during the year included in Cost of Goods
Sold ............................................................................................ P200,000
Overhead applied during the year in the ending balances of:
Work in Process inventory ..................................................... P80,000
Finished Goods inventory .......................................................... P120,000
If the company allocates the underapplied overhead among Cost of Goods Sold and
the appropriate inventory accounts based on the amount of overhead applied during
the year in the accounts, Cost of Goods Sold after allocation will be:
A) P790,000
B) P820,000
C) P810,000
D) P780,000
Answer: C Level: Medium LO: 8

Use the following to answer questions 57-60:
The accounting records of Omar Company contained the following information for last year:
Beginning Ending
Direct materials inventory ......................... P9,000 P7,000
Work in process inventory ........................ P17,000 P31,000
Finished goods inventory .......................... P10,000 P15,000
Manufacturing costs incurred

Direct materials used ................................. P72,000
Overhead applied ...................................... P24,000
Direct labor cost (10,000 hours)................ P80,000
Depreciation .............................................. P10,000
Rent ........................................................... P12,000
Taxes ......................................................... P8,000
Cost of goods sold ..................................... P157,000*
*
Selling and administrative costs incurred
Advertising ................................................ P35,000
Rent ........................................................... P20,000
Clerical ...................................................... P25,000
*Does not include over- or underapplied overhead.
57. The amount of direct material purchased during the year was:
A) P66,000
B) P70,000
C) P65,000
D) P74,000
Answer: B Level: Medium LO: 6
58. The total costs added to Work in Process during the year were:
A) P206,000
B) P162,000
C) P176,000
D) P182,000
Answer: C Level: Medium LO: 6
59. If Omar Company applies overhead to jobs on the basis of direct labor hours and Job 3
took 120 hours, how much overhead should be applied to that job?
A) P960
B) P360
C) P528
D) P288
60. The cost of goods manufactured for the year was:

A) P190,000
B) P162,000
C) P168,000
D) P135,000
Answer: B
71
72

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SOUTHERN LUZON STATE UNIVERSITY

College of Administration, Business, Hospitality and Accountancy Bachelor of Science in Accountancy

COST ACCOUNTING AND CONTROL

Handout No. 2205

2. The basic approach in job-order costing is to accumulate costs in a particular operationor

3. If a company uses predetermined overhead rates, actual manufacturing overhead costsof a

5. The formula for computing the predetermined overhead rate is:

11. In a job-order cost system, depreciation on factory equipment should be charged

Multiple Choice Questions

Answer: C Level: Easy LO: 1

17. A process cost system is employed in those situations where:

Answer: B Level: Easy LO: 1

Answer: B Level: Medium LO: 3

A) Work in Process .................................. XXX

Answer: D Level: Easy LO: 4,5

A) Cost of Goods Sold ................................. XXX

Answer: D Level: Medium LO: 4,8

A) Manufacturing Overhead ........................... XXX

Answer: B Level: Easy LO: 4

Answer: D Level: Easy LO: 4

23. When manufacturing overhead is applied to production, it is added to:

Answer: C Level: Easy LO: 5,7

I. Overhead application may be made slowly as a job is worked on.

A) Only statement I is true.

Answer: D Level: Easy LO: 5

Answer: D Level: Hard LO: 6

Answer: D Level: Medium LO: 7

Answer: A Level: Medium LO: 8

28. Overapplied overhead means that:

Answer: B Level: Easy LO: 8

Actual activity Actual manufacturing overhead costs

Answer: A Level: Easy LO: 10 Source: CMA, adapted

Answer: A Level: Medium LO: 2,3,5

Answer: A Level: Medium LO: 2,5

May 1 balance .............................................. P26,000

Answer: A Level: Hard LO: 3,5,6,7

Answer: D Level: Hard LO: 3,5,8

Answer: C Level: Hard LO: 3,5,8

Answer: B Level: Hard LO: 3,5,8

Answer: C Level: Medium LO: 3,5,8

Answer: C Level: Medium LO: 3,5,8

Answer: B Level: Medium LO: 3,5,8

Answer: C Level: Hard LO: 3,5,8

Answer: B Level: Hard LO: 3,5,8

Answer: D Level: Hard LO: 3,5,8

Direct materials .............................................. P480

Answer: D Level: Medium LO: 3,5

Direct materials ......................................................... P3,000

Answer: A Level: Medium LO: 3

48. The following information relates to Spock Manufacturing Company:

Total estimated manufacturing overhead at beginning of year ..... P620,000

Answer: C Level: Hard LO: 5,6

Work in process inventory, June 1 ........................................................... P620

Serenje applies overhead at a predetermined overhead rate of 60% of direct material

Answer: B Level: Hard LO: 5,7

Actual manufacturing overhead cost incurred.................... P38,000

The under- or overapplied overhead for the year was:

Answer: A Level: Easy LO: 5,8