Which of the following Organisation would most likely use a process costing system?

Job costing involves the detailed accumulation of production costs attributable to specific units or groups of units. For example, the construction of a custom-designed piece of furniture would be accounted for with a job costing system. The costs of all labor worked on that specific item of furniture would be recorded on a time sheet and then compiled on a cost sheet for that job. Similarly, any wood or other parts used in the construction of the furniture would be charged to the production job linked to that piece of furniture. This information may then be used to bill the customer for work performed and materials used, or to track the extent of the company's profits on the production job associated with that specific item of furniture.

Process costing involves the accumulation of costs for lengthy production runs involving products that are indistinguishable from each other. For example, the production of 100,000 gallons of gasoline would require that all oil used in the process, as well as all labor in the refinery facility be accumulated into a cost account, and then divided by the number of units produced to arrive at the cost per unit. Costs are likely to be accumulated at the department level, and no lower within the organization.

Job costing and process costing can be used in both manual and computerized accounting environments.

Given these descriptions of job costing and process costing, we can arrive at the following differences between the two costing methodologies:

Uniqueness of Product

Job costing is used for unique products, and process costing is used for standardized products.

Size of Job

Job costing is used for very small production runs, and process costing is used for large production runs.

Record Keeping

Much more record keeping is required for job costing, since time and materials must be charged to specific jobs. Process costing aggregates costs, and so requires less record keeping.

Customer Billing

Job costing is more likely to be used for billings to customers, since it details the exact costs consumed by projects commissioned by customers.

Hybrid Systems

In situations where a company has a mixed production system that produces in large quantities but then customizes the finished product prior to shipment, it is possible to use elements of both the job costing and process costing systems, which is known as a hybrid system.

MULTIPLE CHOICE

1. Which of the following organizations would be most likely to use a job-order costing system?

a. the loan department of a bank b. the check clearing department of a bank c. A manufacturer of processed cheese food d. A manufacturer of video cassette tapes

ANS: A

1. When job-order costing is used, the primary focal point of cost accumulation is the

a. department. b. supervisor. c. item. d. job.

ANS: D

1. In a job-order costing system, a. standards cannot be used. b. an average cost per unit within a job cannot be computed. c. costs are accumulated by departments and averaged among all jobs. d. overhead is typically assigned to jobs on the basis of some cost driver.

ANS: D 4. What is the best cost accumulation procedure to use when many batches, each differing as to product specifications, are produced?

a. job-order b. process c. actual d. standard

ANS: A

1. Which of the following could not be used in job-order costing? a. Standards b. an average cost per unit for all jobs c. normal costing d. overhead allocation based on the job's direct labor hours

ANS: B 6. Which of the following costing systems allows management to quickly recognize materials, labor, and overhead variances and take measures to correct them?

Actual Cost System Normal Cost System a. yes yes b. yes no c. no yes d. no no

ANS: D

1. Which of the following costing methods of valuation are acceptable in a job-order costing system?

Actual Material Cost

Standard Material Cost

Actual Labor Cost

Predetermined Overhead Cost a. yes yes no yes b. yes no yes no c. no yes yes yes d. yes yes yes yes

ANS: D

1. In a normal cost system, a debit to Work in Process Inventory would not be made for

a. actual overhead. b. applied overhead. c. actual direct material. d. actual direct labor.

ANS: A

1. After the completion of production, standard and actual costs are compared to determine the ______ of the production process.

a. Effectiveness b. Complexity c. Homogeneity d. Efficiency

ANS: D

1. A company producing which of the following would be most likely to use a price standard for material?

a. Furniture b. NFL-logo jackets

a. job-order cost sheet. b. bill of lading. c. interoffice memo. d. material requisition.

ANS: D PTS: 1 DIF: Easy OBJ: 5- 16. A material requisition form should show all of the following information except

a. job number. b. quantity required. c. unit cost. d. purchase order number.

ANS: D

1. Which of the following statements about job-order cost sheets is true? a. All job-order cost sheets serve as the general ledger control account for Work in Process Inventory. b. Job-order cost sheets can serve as subsidiary ledger information for both Work in Process Inventory and Finished Goods Inventory. c. If material requisition forms are used, job-order cost sheets do not need to be maintained. d. Job-order cost sheets show costs for direct material and direct labor, but not for manufacturing overhead since it is an applied amount.

ANS: B 18. The primary accounting document in a job-order costing system is a(n)

a. bill of materials. b. job-order cost sheet. c. employee time sheet. d. materials requisition.

ANS: B

1. The cost sheets for incomplete jobs at the end of the period comprise the subsidiary ledger for

a. Finished Goods Inventory. b. Raw Material Inventory. c. Work in Process Inventory. d. Supplies Inventory.

ANS: C

1. The __________ provides management with a historical summation of total costs for a given product.

a. job-order cost sheet b. employee time sheet c. material requisition form d. bill of lading

ANS: A

1. The source document that records the amount of time an employee worked on a job and his/her pay rate is the

a. job-order cost sheet. b. employee time sheet. c. interoffice memo. d. labor requisition form.

ANS: B

1. A credit to Work in Process Inventory represents a. work still in process. b. raw material put into production. c. the application of overhead to production. d. the transfer of completed items to Finished Goods Inventory.

ANS: D 23. In a job-order costing system, the peso amount of the entry that debits Finished Goods Inventory and credits Work in Process Inventory 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.

ANS: D

1. Total manufacturing costs for the year plus beginning Work in Process Inventory cost equals

a. cost of goods manufactured in the year. b. ending Work in Process Inventory. c. total manufacturing costs to account for. d. cost of goods available for sale.

ANS: C

1. Which of the following would be least likely to be supported by subsidiary accounts or ledgers in a company that employs a job-order costing system?

ANS: B

1. In a job-order costing system, the use of indirect material would usually be reflected in the general ledger as an increase in

a. stores control. b. work in process control. c. manufacturing overhead applied. d. manufacturing overhead control.

ANS: D

1. A credit to the Manufacturing Overhead control account represents the a. actual cost of overhead incurred. b. actual cost of overhead paid this period. c. amount of overhead applied to production. d. amount of indirect material and labor used during the period.

ANS: C

1. The journal entry to record the incurrence and payment of overhead costs for factory insurance requires a debit to a. Cash and a credit to Manufacturing Overhead. b. Manufacturing Overhead and a credit to Accounts Payable. c. Manufacturing Overhead and a credit to Cash. d. Work in Process Inventory and a credit to Cash.

ANS: C 33. Overhead is applied to jobs in a job-order costing system a. at the end of a period. b. as jobs are completed. c. at the end of a period or as jobs are completed, whichever is earlier. d. at the end of a period or as jobs are completed, whichever is later.

ANS: C 34. In a job-order costing system, the subsidiary ledger for Finished Goods Inventory is comprised of a. all job-order cost sheets. b. job-order cost sheets for all uncompleted jobs. c. job-order cost sheets for all completed jobs not yet sold. d. job-order cost sheets for all ordered, uncompleted, and completed jobs.

ANS: C

1. Underapplied overhead resulting from unanticipated and immaterial price increases for overhead items should be written off by a. decreasing Cost of Goods Sold.

b. increasing Cost of Goods Sold. c. decreasing Cost of Goods Sold, Work in Process Inventory, and Finished Goods Inventory. d. increasing Cost of Goods Sold, Work in Process Inventory, and Finished Goods Inventory.

ANS: B

1. Overapplied overhead would result if a. the plant were operated at less than normal capacity. b. overhead costs incurred were less than costs charged to production. c. overhead costs incurred were unreasonably large in relation to units produced. d. overhead costs incurred were greater than costs charged to production.

ANS: B

1. Debits to Cost of Goods Sold typically represent the a. transfer of completed items to Finished Goods Inventory. b. costs of items sold. c. selling price of items sold. d. the cost of goods manufactured.

ANS: B

1. In a perpetual inventory system, a transaction that requires two journal entries (or one compound entry) is needed when a. raw materials are purchased on account. b. goods are sold for either cash or on account. c. goods are finished and transferred out of Work in Process Inventory. d. overhead is applied to Work in Process Inventory.

ANS: B

1. Which of the following are drawbacks to applying actual overhead to production? a. A delay occurs in assigning costs to jobs or products. b. Fluctuations in quantities produced during a period could cause varying per-unit charges for fixed overhead. c. Seasonality of overhead costs may cause distortions in job or product costs. d. all answers are correct.

ANS: D PTS: 1 DIF: Easy OBJ: 5-

1. In job-order costing, payroll taxes paid by the employer for factory employees are commonly accounted for as

a. direct labor cost. b. manufacturing overhead cost. c. indirect labor cost. d. administrative cost.

b. It is normally more time-consuming for a company to use standard costs in a job-order costing system. c. Standards can be used in a job-order costing system, if the company usually produces items that are similar in nature. d. Standard costs may be used for material, labor, or both material and labor in a job-order costing environment.

ANS: B

1. A service organization would be most likely to use a predetermined overhead rate based on

a. machine hours. b. standard material cost. c. direct labor. d. number of complaints.

ANS: C

1. In a production environment that manufactures goods to customer specifications, a job-order costing system a. can be used only if standard costs are used for materials and labor. b. will provide reasonable product cost information only when all jobs utilize approximately the same quantities of material and labor. c. may be maintained using either actual or predetermined overhead rates. d. emphasizes that large customers create the most costs even though they also provide the most revenues.

ANS: C

1. A unit that is rejected at a quality control inspection point, but that can be reworked and sold, is referred to as a

a. spoiled unit. b. scrap unit. c. abnormal unit. d. defective unit.

ANS: D

1. The cost of abnormal losses (net of disposal costs) should be written off as

Product cost Period cost

a. yes no

b. yes yes c. no yes d. no no

ANS: C

1. In a job-order costing system, the net cost of normal spoilage is equal to a. estimated disposal value plus the cost of spoiled work. b. the cost of spoiled work minus estimated spoilage cost. c. the units of spoiled work times the predetermined overhead rate. d. the cost of spoiled work minus the estimated disposal value.

ANS: D

1. If abnormal spoilage occurs in a job-order costing system, has a material peso value, and is related to a specific job, the recovery value of the spoiled goods should be

debited to credited to

a. a scrap inventory account the specific job in process b. the specific job in process overhead c. a loss account the specific job in process d. factory overhead sales

ANS: A

1. In a job-order costing system, the net cost of normal spoilage is equal to a. estimated disposal value plus the cost of spoiled work. b. the cost of spoiled work minus estimated spoilage cost. c. the units of spoiled work times the predetermined overhead rate. d. the cost of spoiled work minus the estimated disposal value.

ANS: D

1. Shrinkage should be treated as

a. defective units. b. spoiled units. c. miscellaneous expense. d. a reduction of overhead.

ANS: B

1. Spoiled units are a. units that cannot be economically reworked to bring them up to standard.

Direct labor incurred 60, Applied overhead 48, Cost of goods manufactured 185,

Bobcat Company applies overhead on the basis of direct labor cost. There was only one job left in Work in Process at the end of April which contained P5,600 of overhead. What amount of direct material was included in this job?

a. P4, b. P4,480 to get the c. P6, d. P8,

ANS: A

Total Costs Incurred 202, Less: Cost of Goods Manufactured (185,000) Costs remaining in WIP 17, Overhead 5, Direct Labor (5,600/) 7,000 (12,600) Direct Materials 4,

PTS: 1

1. West Company is a print shop that produces jobs to customer specifications. During January, Job #3051 was worked on and the following information is available:

Direct material used P2, Direct labor hours worked 15 Machine time used 6 Direct labor rate per hour P Overhead application rate per hour of machine time P

What was the total cost of Job #3051 for January?

a. P2, b. P2, c. P2, d. P3,

ANS: A

1.

Direct Materials P 2, Direct Labor (15 hours * P7/hour) 105 Factory Overhead (6 hrs machine time *

• P18/mach hr) 108 P 2,

Gamma Company

Gamma Co. uses a job-order costing system. At the beginning of January, the company had two jobs in process with the following costs:

Direct Material Direct Labor Overhead Job #456 P3,400 P510 P Job #461 1,100 289?

Gamma pays its workers P8 per hour and applies overhead on a direct labor hour basis.

1. Refer to Gamma Company. What is the overhead application rate per direct labor hour?

a. P 0. b. P 2. c. P 4. d. P30.

ANS: C

2 Direct Labor Hours: P510/P8 60 hrs Overhead Application Rate: P255 / 60 hrs P 4.

1. Refer to Gamma Company. How much overhead was included in the cost of Job #461 at the beginning of January?

a. P 144. b. P 153. c. P2,200.

a. P5, b. P5, c. P6, d. P8,

ANS: C

5

Direct Materials P 5, Direct Labor (15 hours * P7/hour) 725 Factory Overhead (26 hrs machine time *

• P40/mach hr) 1, P 6,

1. Products at Forrest Manufacturing are sent through two production departments: Fabricating and Finishing. Overhead is applied to products in the Fabricating Department based on 150 percent of direct labor cost and P18 per machine hour in Finishing. The following information is available about Job #297:

Fabricating Finishing Direct material P1,590 P Direct labor cost? 48 Direct labor hours 22 6 Machine hours 5 15 Overhead applied 429?

What is the total cost of Job #297?

a. P2, b. P3, c. P3, d. P3,

ANS: D

Direct Labor Fabricating P429/1 = P Applied Overhead Finishing 15 hrs * P18 = P Fabricating Finishing Direct material P 1,590 P 580

Direct labor cost 286 48 Overhead applied 429 270 Total Costs 2,305 898 P 3,

1. Carolina Company applies overhead to jobs at the rate of 40 percent of direct labor cost. Direct material of P1,250 and direct labor of P1,400 were expended on Job #145 during June. On May 31, the balance of Job #145 was P2,800. The balance on June 30 is:

a. P3,210. b. P4,760. c. P5,450. d. P6,010.

ANS:

D

6 Beginning WIP P 2, Direct Materials 1, Direct Labor 1, Factory Overhead (P1,400 * 40%) 560 Ending WIP P 6,

Williams Company.

Williams Company uses a job-order costing system and the following information is available from its records. The company has three jobs in process: #6, #9, and #13.

Raw material used P120, Direct labor per hour P8. Overhead applied based on direct labor cost 120%

Direct material was requisitioned as follows for each job respectively: 30 percent, 25 percent, and 25 percent; the balance of the requisitions was considered indirect. Direct labor hours per job are 2,500; 3,100; and 4,200; respectively. Indirect labor is P33,000. Other actual overhead costs totaled P36,000.

1. Refer to Williams Company. What is the prime cost of Job #6?

a. P42, b. P57, c. P73, d. P82,

ANS: B

Direct Labor Hours 6 2500 9 3100 13 4200 9, Direct Labor Rate P 8. Overhead Application Rate 120% Total Overhead Applied P 99,

1. Refer to Williams Company. If Job #13 is completed and transferred, what is the balance in Work in Process Inventory at the end of the period if overhead is applied at the end of the period?

a. P 96, b. P 99, c. P139, d. P170,

ANS: D

Step 1: Compute Total Cost of Job # DM: P120,000 * .30 P 36, DL: 2,500 * 8 21, FOH: 21,250 * 120% 25,500 82, Step 2: Compute Total Cost of Job # DM: P120,000 * .25 P 30, DL: 3,100 * 8 26, FOH: 26,350 * 120% 31, 87, Total Costs of Jobs 6 and 9 170,

1. Refer to Williams Company. Assume the balance in Work in Process Inventory was P18,500 on June 1 and P25,297 on June 30. The balance on June 30 represents one job that contains direct material of P11,250. How many direct labor hours have been worked on this job (rounded to the nearest hour)? a. 751 b. 1, c. 1, d. 2,

ANS: A

Step 1: Determine DL and FOH WIP at June 30: P 25, Less DM in WIP 11,250 14,

Step 2: Separate DL and FOH Let x = DL; 1 = FOH x + 1 = 14, 2 = 14, x = P6,

Step 3: Compute DL Hours P6,385 ÷ 8 751 hours

Sigma Company The following information pertains to Sigma Company for September:

Direct Material Direct Labor Overhead Job #323 P3,200 P4,500? Job #325? 5,000? Job #401 5,670? P5,

Sigma Company applies overhead for Job #323 at 140 percent of direct labor cost and at 150 percent of direct labor cost for Jobs #325 and #401. The total cost of Jobs #323 and #325 is identical.

1. Refer to Sigma Co. What amount of overhead is applied to Job #323?

a. P4, b. P5, c. P6, d. P7,

ANS: C

7 Direct Labor Application Rate Total Overhead P4,500 140% P6,

1. Refer to Sigma Co. What amount of overhead is applied to Job #325?

Which companies is most likely to use a process costing system?

Which of the following organizations would most likely use a process costing system quizlet?

Which of the following businesses uses a process costing system?

Which of the following is most likely to use a process costing accounting system?