Testbank

to accompany

Accounting
8th Edition

by
John Hoggett, Lew Edwards,
John Medlin, Matthew Tilling
& Evelyn Hogg

Prepared by
Barbara Burns

John Wiley & Sons Australia, Ltd 2012

Testbank to accompany Accounting 8e

Chapter 9: Cost accounting systems

Multiple Choice

1. The costing system used when entities provide goods or services in response to customer
orders and specifications is known as:
a. Process costing
b. Job costing
c. Equivalent unit costing
d. Conversion costing

ANSWER B
Section 9.1

2. Match the business with the most likely type of costing system.
1. Oil refinery
2. Automotive brake repairer
3. Bathroom renovator
4. Commercial printer
5. Management consultant

I. Job costing
II. Process costing

a. 1 and I, 2 and II, 3 and I, 4 and II, 5 and I

b. 1 and II, 2 and I, 3 and I, 4 and I, 5 and I
c. 1 and I, 2 and I, 3 and I, 4 and II, 5 and II
d. 1 and II, 2 and II, 3 and I, 4 and I, 5 and I

ANSWER B
Section 9.1

3. The statement concerning the job cost order that is incorrect is:
a. It provides an itemised list of all costs charged to a particular job
b. Orders for incomplete jobs serve as a subsidiary ledger for the work in process account
c. It traces all costs to jobs
d. The control number assigned to each job is recorded on the job order

ANSWER C
Section 9.2

4. Which best describes the set of costs that are debited directly to work in process inventory?
a. Actual direct materials, actual direct labour, actual overhead
b. Actual indirect materials, actual direct labour, applied overhead
c. Actual indirect materials, actual indirect labour, actual overhead
d. Actual direct materials, actual direct labour, applied overhead

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ANSWER D
Section 9.3

5. For 2011 The Iron Works planned the following:

Factory overhead costs $180 000
Direct labour cost ($8.00 an hour) x (15 000 hrs) $120 000
Machine hours 48 000
Direct material cost $108 000
The predetermined overhead rate is based on direct labour hours and planned production
during 2011 is 12 000 units. The estimated cost per unit produced is:
a. $34
b. $28.60
c. $25
d. $19

ANSWER A
(Direct materials $9 + Direct labour $10 + O/H $15*)*1.25 hrs $12.
Section 9.3

6. The Work in Process account of Village Manufacturing shows a balance of $42 000 at the
end of an accounting period. The job cost orders of the two uncompleted jobs show charges
of $15 000 and $7000 for materials used and charges of $10 000 and $5000 for direct labour
used. From this information it appears that the company is using a predetermined overhead
rate as a percentage of direct labour costs, of:
a. 13.5%
b. 50.0%
c. 33.3%
d. 300%

ANSWER C
$42 000 ($15 000+$7000+$10,000+$5000)/(10 000 + 5000) = $5000/$15 000 = 33.3%.
Section 9.3

7. Manufacturing costs assigned to inventory should appear on the income statement in the
period in which:
a. The goods are completed
b. Cash is collected for the goods sold
c. The sale of goods is recorded
d. The purchase order to manufacture the goods is received

ANSWER C
Section 9.3

8. G Repair Services uses job order costing. At the end of the month the following information
was available:
Job X-1 Job X-2 Job X-3
Direct materials $50 $60 $30
Direct labour $20 $30 $10

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Testbank to accompany Accounting 8e

Actual overhead costs are $100. Overhead is applied on the basis of 200% of direct labour
costs. Jobs X-1 and X-2 have been completed and sold. Job X-3 is not yet complete. At
month-end the work in process inventory balance is:
a. $320
b. $260
c. $60
d. $40

ANSWER C
($30 + $10 + OH (200% $10)
Section 9.3

9. Which most accurately describes the flow of costs through the accounting system?
a. Purchases, to Finished Goods, to Work in Process
b. Work in Process, to Cost of sales
c. Factory overhead applied, to Work in Process, to Finished Goods
d. Purchases, to Factory overhead, to Cost of sales

ANSWER C
Section 9.3

10. Predetermined overhead rates are necessary for how many of the following reasons?
Actual overheads are not incurred evenly over the period
Product costs need to be calculated promptly for decision- making
Overhead cannot be traced directly to products because of its indirect nature
a. 0
b. 1
c. 2
d. 3

ANSWER D
Section 9.3

11. The Pike Supply Company distributes overhead based on direct labour dollars. The
estimated manufacturing overhead for the year was $484,000 and the estimated direct
labour dollars for the year were $110,000. Indicate the amount of underapplied or
overapplied overhead if actual direct labour was $118,000 and actual manufacturing
overhead was $497,400:
a. $21,800 underapplied
b. $21,800 overapplied
c. $15,000 overapplied
d. $15,000 underapplied

ANSWER B
Rate is $484,000 / $110,000 = $4.40 per labour dollar.
$4.40 x $118,000 = $519,200 applied - actual $497,400 overhead = $21,800 overapplied
Section 9.3

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 Chapter 9: Cost accounting systems

12. Petlyn Pty Ltd applies overhead to completed jobs using a predetermined rate of 60% of
direct labour costs. If Job No 22 shows $9,000 of factory overhead applied, how much
was the direct labour cost of the job?
a. $5,400
b. $12,000
c. $15,000

d. $14,400

ANSWER C
$9,000/60% = $15,000.
Section 9.3

13. In 2011, Brunswick Plumbing Supplies planned the following:

Factory overhead costs $180,000
Direct labour costs (15,000 hours at $8.00 per hour) $120,000
Machine Hours 48,000
Direct material costs $108,000
The predetermined overhead rate is based on direct labour hours and planned production
during 2011 is 12,000 units. The estimated cost per unit produced is:
a. $24.00
b. $44.00
c. $34.00
d. $26.00

ANSWER C
Costs of $180,000 + $120,000 + $108,000 = $408,000/12,000 units = $34.00
Section 9.3

14. Which of these is not a source document for job costing?

a. Materials requisition record
b. Labour hours/time sheets record
c. Invoice for factory expense
d. The marketing managers expense sheet

ANSWER D
Section 9.3

15. Small Budget Production uses a predetermined overhead rate based upon direct labour hours.
The firm has the following budgeted and actual data for the current year:
Budgeted factory overhead cost $5,000
Actual factory overhead cost $6,000
Budgeted direct labour hours 1,000
Actual direct labour hours 1,100
What was the amount of under-or over-applied overhead for the year?
a. $500 overapplied
b. $500 underapplied
c. $1,000 underapplied
d. $1,000 overapplied

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Testbank to accompany Accounting 8e

ANSWER B
Actual overhead - applied overhead = $6,000 ($5 1,100 DLH) = $500 underapplied.
Section 9.3

16. Magenta Ltd uses a job order costing system and applies factory overhead, based on direct
labour hours, at a rate of $2 per direct labour hour. The data relating to production for last
period is:
Direct materials $13 000
Indirect materials 2 300
Direct labour (18 000 hours) 54 000
Production supervisor salaries 13 700
Maintenance costs 7 000
Factory rent 8 100
Factory utilities 1 800
Depreciation on machinery 2 200
The overhead under or over-applied after overhead has been charged to production is:
a. $900 over-applied
b. $900 under-applied
c. $2700 over-applied
d. $2700 under-applied

ANSWER A
(Actual overhead applied overhead = $35 100 - $36 000)
Section 9.3

17. Black Cat Limited supplies the following information. Manufacturing overhead is applied
on the basis of direct labour hours.
Estimated manufacturing overhead costs $2,295,000
Estimated direct labour hours 340,000
Actual direct labour hours 348,000
Actual manufacturing overhead costs $2,357,000
Compute the amount of overapplied or underapplied overhead.
a. $8,800 underapplied
b. $8,000 overapplied
c. $8,000 underapplied
d. $8 800 overapplied

ANSWER C
Rate is $2,295,000 / 340,000hours = $6.75 per hour.
$6.75 x 348,000 hours = $2,349,000 applied - $2,357,000 actual = $8,000 underapplied
Section 9.3

18. Equivalent units are:

a. The number of whole units represented by the finished units plus the partly completed
units
b. The number of whole units represented by the finished units
c. The units represented by the total manufacturing costs for the period
d. The units that would have been produced under optimum circumstances

ANSWER A

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 Chapter 9: Cost accounting systems

Section 9.4

19. Which of these is not a section of a cost of production report?

a. Physical flow schedule
b. Costs to be accounted for
c. Costs accounted for
d. GST summary

ANSWER D
Section 9.4

20. Beginning balance Job No 58 $18,800

Direct Materials issued to job in the current period $30,600
Direct Labour charged to job in the current period $24,500
Manufacturing overhead applied in the current period $ 40,100
Total number of units produced by Job 58 30,000
What is the unit cost for Job 58?
a. $3.85
b. $3.80
c. $4.00
d. $3.91

ANSWER B
Costs of $18,800 + $30,600 + $24,500 + $40,100 = $114,000 /30,000 units = $3.80
Section 9.4

21. Smith Co started 40 000 units into production during the current period and completed
28 000. The other 12 000 units were 30% complete as to conversion costs at the end of
the period. Total costs were $60 000 for material and $36 000 for conversion costs.
Material is added at the beginning of the production process. Unit raw material and
conversion costs for the period were:
Raw materials cost Conversion cost
a. $5.00 $10.00
b. $1.50 $10.00
c. $5.00 $ .90
d. $1.50 $ 1.14

ANSWER D
(Raw materials $60 000/40 000 EU = $1.50; Conversion $36 000/31 600 EU = $1.14)
Section 9.5

22. Port Manufacturing uses the weighted-average method of computing equivalent units of
production. For beginning work in process there were 9000 units 30% complete as to
materials and conversion costs. For ending work in process there were 5000 units 60%
complete as to materials and conversion costs. 13 000 units were completed during the year.
Determine the equivalent units of production.
a. 16 000
b. 19 300
c. 20 000
d. 22 300

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Testbank to accompany Accounting 8e

ANSWER A
Completed units + (60% ending WIP (5000 units) +13 000 units = 16,000 EU.
Section 9.5

23. Which of these differs between job order and process costing?
a. Basic purpose
b. Focal point for cost accumulation
c. Tracing of direct costs and allocation of indirect costs
d. Cost flows

ANSWER B
Section 9.6

24. The correct statement concerning process costing is:

a. The type of production is heterogeneous
b. The flow of products is separated by jobs
c. The control document is a cost of production report
d. Record keeping is more detailed than for job costing

ANSWER C
Section 9.6

25. The correct statement concerning cost accounting for service type businesses is:
a. Cost information is needed for different reasons in a service business than in a
manufacturing business
b. The cost object is normally activities
c. Actual costs rather than budgeted costs are used to determine overhead application rates
d. To determine the rate at which direct labour costs are applied to a particular job a labour
cost per hour is developed for each employee.

ANSWER D
Section 9.7

26. In an ideal just-in-time processing plant, the inventories held are:

a. Direct materials
b. Work in process
c. Finished goods
d. Supplies of packaging

ANSWER B
Section 9.8

27. Something that is not a feature of just-in-time processing is:

a. Strict quality control
b. A steady, reliable supply of raw materials and labour
c. A variable demand from customers
d. Efficiency in the production process

ANSWER C

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 Chapter 9: Cost accounting systems

Section 9.8

28. It is incorrect concerning Activity-Based Costing [ABC] that:

a. Production processes are broken down into activities
b. Cost drivers are used to assign costs between activities
c. The use of cost drivers allows management to apply overhead more accurately to
products with different production requirements
d. It is now used by firms much more commonly than traditional costing

ANSWER D
Section 9.9

29. The statement concerning cost drivers that is incorrect is:

a. As direct labour shrinks as a proportion of manufacturing costs it becomes a more
accurate factor by which to apply overhead to products
b. A cost driver is a measure of the activity that causes overhead costs
c. In modern day manufacturing there has been a decline in labour costs and an increase in
factory overheads as a percentage of product costs
d. Inaccurate application of overhead to products can lead to wrong conclusions about
which products are profitable

ANSWER A
Section 9.9

30. The statement concerning Activity-based costing (ABC) that is not true is:
a. It has been introduced to overcome distortions in costing multiple products which occur
when a single base is used to apply overhead to products
b. ABC is cheaper and less time consuming to implement than traditional costing systems
c. Overhead costs are accumulated by activities and then assigned to cost objects using a
different cost driver for each activity.
d. ABC can be applied in service businesses as well as in manufacturing businesses

ANSWER B
Section 9.9

31. It is true that Just-in-time (JIT) processing:

a. Is most suitable for small businesses
b. Reflects a push approach to manufacturing
c. Runs the risk of interruptions in supply
d. Applies to inputs of materials rather than outputs of products

ANSWER C
Section 9.8

32. Equivalent units of production measures:

a. The number of partial jobs completed in the period
b. The production level which could have been achieved under optimum circumstances
c. The number of full units that could have been completely produced with the effort
expended
d. The number of jobs started but not completed in the period

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Testbank to accompany Accounting 8e

ANSWER C
Section 9.5

33. The flow of goods in a firm that uses process costing is, work in process at the start 5000
units complete, units started 54,000, units finished 50,000, work in process end of period
9000 units 1/3 complete. Raw materials are issued at the end of the production process.
Using the weighted average method, the equivalent units as to conversion cost for the period
are:
a. 53,000 units
b. 50,000 units
c. 54,000 units
d. 57,000 units

ANSWER A
50,000 completed units for materials and conversion costs and 3,000 partly completed units
(9000 x 1/3) for conversion costs. = 53,000 equivalent units for conversion costs.
Section 9.6

34. Which of these inputs are debited to a work in-process account with a process costing
system?
a. Direct materials and direct labour
b. Direct labour and factory overhead applied
c. Direct materials, direct labour and factory overhead applied
d. Direct materials and factory overhead applied

ANSWER C
Section 9.4

35. The method of calculating equivalent units where the costs assigned to the beginning
inventory of work-in-process are combined with the current periods costs of production and
the degree of completion of the beginning units is ignored is the:
a. first-in-first-out method
b. last-in-last-out method
c. last-in-first-out method
d. weighted average method

ANSWER D
Section 9.4

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 Chapter 9: Cost accounting systems

Fill-in the blanks

1. The two types of cost accounting systems are j______ costing and p________ costing.

ANSWER job; process

Section 9.1

2. The control document used in job order costing is the j_____ c_______ order.

ANSWER job cost

Section 9.2

3. When a job is completed, the costs recorded on its job cost order are totalled and the
amount (debited/credited) __________ to finished goods inventory.

ANSWER debited
Section 9.2

4. Direct materials are issued to work in process upon receipt of a properly prepared and
authorised m___________ r______________.

ANSWER materials requisition

Section 9.3

5. Factory overhead is charged to jobs by means of a predetermined o______________ rate.

ANSWER overhead
Section 9.3

6. The combined cost of direct labour and factory overhead incurred in converting raw
materials into finished goods is known as c________________ cost.

ANSWER conversion
Section 9.4

7. The applied factory overhead is (debited/credited) ____________________ to the factory

overhead account.

ANSWER credited
Section 9.3

8. The usual treatment for under-applied overhead at year-end is to add it to ___________

__ ________ sold.

ANSWER cost of goods

Section 9.3

9. P___________ costing is used by firms with continuous production flows which are
usually found in industries which mass produce.

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Testbank to accompany Accounting 8e

ANSWER Process
Section 9.4

10. E____________ u___________ are a measure of how many whole units of production
are represented by the units finished, plus the units partially finished, in a process costing
operation.

ANSWER Equivalent units

Section 9.4

11. A________-________ costing is a system in which overhead costs are accumulated by

activities and the cost pools for each activity are assigned to the cost object by means of
individual cost drivers.

ANSWER activity-based
Section 9.9

Exam type questions

QUESTION 9.1

The Hutton Manufacturing Company distributes manufacturing overhead based on direct

labour hours. The estimated manufacturing overhead for the year was $484,000 and the
estimated direct labour hours for the year were $110,000.

REQUIRED:

a) Calculate the charge out rate for overhead.

b) Indicate the underapplied or overapplied overhead under each of the following

independent situations:
i. Actual direct labour hours 98,000, actual manufacturing overhead $418,800
ii. Actual direct labour hours 118,000, actual manufacturing overhead $497,400
iii. Actual direct labour hours 114,000, actual manufacturing overhead $510,000

QUESTION 9.2

Consider the following data prepared for the Assembly Division of Stanley Aerospace for the
month of May. The company uses the weighted-average method of process costing.

Physical units Direct materials Conversion

(jet engines) costs
Beginning work-in-progress May 1# 8 $4,933,600 $910,400
Started in May 2011 50
Completed during May 2011 46
Ending work-in-progress May 31* 12
Costs added during May 2011 $32,200,000 $13,920,000

# Degree of completion: direct materials 90%; conversion cost 40%

* Degree of completion: direct materials 60%; conversion cost 30%

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 Chapter 9: Cost accounting systems

REQUIRED:

a) Compute equivalent units for direct materials and conversion costs. (Use the weighted
average method)

b) Calculate cost per equivalent unit for direct materials and conversion costs.

c) Prepare a cost of production report.

Solutions exam type questions

SOLUTION QUESTION 9.1

a)
Charge out rate = Estimated manufacturing overhead costs / estimated direct labour hour
= $484,000 / 110,000
= $4.40 per direct labour hour.

b) i.
Applied overhead: $4.40 x 98,000 direct labour hours = $431,200 applied

$431,200 applied manufacturing overhead

$418,800 less actual manufacturing overhead
$ 12,400 overapplied manufacturing overhead

b) ii.
Applied overhead: $4.40 x 118,000 direct labour hours = $519,200 applied

$519,200 applied manufacturing overhead

$497,400 less actual manufacturing overhead
$ 21,800 overapplied manufacturing overhead
b) iii.
Applied overhead: $4.40 x $114,000 direct labour hours = $501,600 applied

$501,600 applied manufacturing overhead

$510,000 less actual manufacturing overhead
$ 8,400 underapplied manufacturing overhead

SOLUTION 9.2

(a)
Equivalent units (direct materials) = 53.2 units

Equivalent units (conversion cost) = 49.6 units

Stanley Aerospace Assembly Division

Flow of production Physical units (given) Equivalent units Equivalent units
(Direct materials) (Conversion costs)

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Testbank to accompany Accounting 8e

Work in progress 8
beginning
Started during 50
current period
To account for 58
Completed and 46 46 46
transferred out
Work in progress end 12 # 7.2 # 3.6
(12 x 60%) (12 x 30%)
Accounted for 58
Work done to date # 53.2 # 49.6
# units to be used in the cost of production report.

b)
Cost per equivalent unit- direct materials $698,000
Cost per equivalent unit- conversion cost $299,000

c)
Stanley Aerospace, Assembly Division,
Cost of Production Report For the month ended 31 May 2011
Total production
costs Direct materials Conversion costs
$ $ $
Work in progress - beginning 5,844,000 4,933,600 910,400
Costs added - current period 46,120,000 32,200,000 13,920,000
Costs incurred to date 37,133,600 14,830,400
Divide by equivalent units 53.2 units 49.6 units
Cost per equivalent units to date 698,000 299,000
Total costs to account for 51,964,000
Assignment of costs:
Completed and transferred (46) 45,862,000 (46 units x (46 units x
698,000) 299,000)
Work in progress - ending - 5,025,600 7.2 units x 698,000
direct materials
Work in progress - ending - 1,076,400 3.6 units x
conversion costs 299,000
Total work in progress 6,102,000
Total costs accounted for 51,964,000

John Wiley and Sons Australia, Ltd 2012 9.14