26.03.

2017 IntroductiontoManagerialAccounting|

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Chapter4FIFO
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IntroductiontoManagerialAccounting
How'sYourMath?
NetTutor JeannieM.Folk
TextUpdates RayH.Garrison
ExhibitsFromtheText EricNoreen
SampleSupplements
LinkstoRealWorld
Companies SystemsDesign:JobOrderCosting
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Thecorrectanswerforeachquestionisindicatedbya .

1 CORRECT Whichofthefollowingstatementsis(are)true?

A)Companiesthatproductmanydifferentproductsorservices
aremorelikelytousejobordercostingsystemsthanprocess
costingsystems.
B)Jobordercostingsystemsareusedbyservicefirmsand
processcostingsystemsareusedbymanufacturers.
C)Costsaretracedtodepartmentsandthenallocatedtounitsof
productwhenjobordercostingisused.
D)Alloftheabove.

TheLinkageCompanyusespredeterminedoverheadratestoapply
manufacturingoverheadtojobs.Thepredeterminedoverheadrateis
basedonlaborcostinDept.AandonmachinehoursinDept.B.At
thebeginningoftheyear,thecompanymadethefollowing
estimates:
DeptA DeptB

Directlaborcost $15,000 $20,000

2 INCORRECT
Manufacturingoverhead 30,000 25,000

Directlaborhours 12,000 16,000

Machinehours 1,000 5,000

WhatpredeterminedoverheadrateswouldbeusedinDeptAand
DeptB,respectively?
A)$15and110%
B)50%and$5.00
C)50%and$8.00
D)200%and$5.00
Feedback:Dept.A:$30,000($15,000=200%)Dept.B:
$25,000(5,000machinehours=$5.00permachinehour)

3 CORRECT HoytCompanyhasthefollowingestimatedcostsfornextyear:
Directmaterials $30,000

Directlabor 110,000

Salescommissions 150,000
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26.03.2017 IntroductiontoManagerialAccounting|

Salaryofproductionsupervisor 70,000

Indirectmaterials 10,000

Advertisingexpense 22,000

Rentonfactoryequipment 32,000
Hoytestimatesthat20,000directlaborand32,000machinehours
willbeworkedduringtheyear.Ifoverheadisappliedonthebasisof
machinehours,theoverheadrateperhourwillbe:
A)$3.50.
B)$6.94.
C)$7.63.
D)$8.56.
Feedback:
Salaryofproductionsupervisor $70,000

Indirectmaterials 10,000

Rentonfactoryequipment 32,000

Estimatedmanufacturingoverheadcosts 112,000

Estimatedmachinehours 32,000

Predeterminedoverheadrate $3.50perMH

Inajobordercostsystem,indirectlaborcostswouldberecordedasa
4 INCORRECT
debitto:
A)RawMaterials.
B)WorkinProcess.
C)ManufacturingOverhead.
D)FinishedGoods.

Inajobordercostsystem,theuseofdirectmaterialswouldbe
5 CORRECT
recordedasadebitto:
A)WorkinProcessinventory.
B)FinishedGoodsinventory.
C)ManufacturingOverhead.
D)RawMaterialsinventory.

GlennCompany'spredeterminedoverheadrateisbasedondirect
laborcosts.Thecompany'sWorkinProcessinventoryaccounthasa
balanceof$1,200,whichrelatestotheonejobthatwasnot
6 INCORRECT completeattheendofanaccountingperiod.Therelatedjobcost
sheetincludestotalchargesof$200fordirectmaterialsand$500for
directlabor.Thecompany'spredeterminedoverheadrate,asa
percentageofdirectlaborcosts,mustbe:
A)17%.
B)40%.
C)50%.
D)100%.
Feedback:

First,determinetheamountofmanufacturingoverhead
appliedtotheuncompletedjob(s):
Directmaterials+Directlabor+Manufacturingoverhead=
WorkinProcessbalance
$200+$500+Manufacturingoverhead=$1,200
Manufacturingoverhead=$500

Then,solveforthepredeterminedoverheadrate(basedon
directlaborcosthere):

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26.03.2017 IntroductiontoManagerialAccounting|

PredeterminedoverheadratexDirectlaborcost=
Manufacturingoverheadapplied
Predeterminedoverheadratex$500=$500(fromabove)
Predeterminedoverheadrate=$500($500=100%
PennCompanyusesapredeterminedoverheadratebasedondirect
laborhourstoapplymanufacturingoverheadtojobs.Atthebeginning
oftheyear,thecompanyestimatedmanufacturingoverheadwould
7 INCORRECT
be$100,000anddirectlaborhourswouldbe10,000.Theactual
figuresfortheyearwere$110,000formanufacturingoverheadand
10,500directlaborhours.Thecostrecordsfortheyearwillshow:
A)overappliedoverheadof$10,000.
B)underappliedoverheadof$10,000.
C)underappliedoverheadof$5,000.
D)overappliedoverheadof$5,000.
Feedback:

First,calculatethepredeterminedoverheadrate(basedon
directlaborhourshere):
Estimatedoverheadcosts(Estimateddirectlaborhours=
Predeterminedrate
$100,000(10,000directlaborhours=$10.00/directlabor
hour

Then,determinetheamountofmanufacturingoverhead
assignedduringtheperiod:
PredeterminedoverheadratexActualdirectlaborhours=
Overheadassigned
$10.00/directlaborhourx10,500directlaborhours=
$105,000

Finally,comparetheactualmanufacturingoverheadcoststo
theamountassigned,anddecidewhetheritisoveror
underapplied:

Actual $110,000

Assigned 105,000

Balance(underapplied) $5,000

SeritCompany'spredeterminedoverheadrateisbasedondirectlabor
hours.Atthebeginningofthecurrentyear,thecompanyestimated
thatitsmanufacturingoverheadwouldtotal$220,000duringthe
year.Duringtheyear,thecompanyincurred$200,000inactual
8 CORRECT
manufacturingoverheadcosts.TheManufacturingOverheadaccount
showedthatoverheadwasoverappliedby$8,000duringtheyear.If
thepredeterminedoverheadratewas$20.00perdirectlaborhour,
howmanyhourswereworkedduringtheyear?
A)9,600hours
B)10,000hours
C)10,400hours
D)11,000hours
Feedback:

First,determinetheamountofoverheadappliedtoproduction
byreferencetotheinformationabouttheManufacturing
Overheadaccount:
ActualoverheadAmountappliedtoproduction=Amount
over(under)applied
$200,000Amountappliedtoproduction=$8,000
Amountassignedtoproduction=$192,000

Then,solveforthedirectlaborhourshere(theactivitybase
fortheoverheadrate):
PredeterminedoverheadratexDirectlaborhours=
Manufacturingoverheadapplied
$20.00/directlaborhourxActualdirectlaborhours=
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26.03.2017 IntroductiontoManagerialAccounting|

$192,000(fromabove)
Actualdirectlaborhours=9,600
ArtsySportswearmanufacturesaspecialtylineofsilkscreenedT
shirts.Thecompanyusesajobordercostingsystem.DuringMay,the
followingcostswereincurredonJobPS4:directmaterials$27,400
anddirectlabor$9,600.Inaddition,sellingandshippingcostsof
9 INCORRECT
$14,000wereincurredonthejob.Manufacturingoverheadwas
appliedattherateof$25permachinehourandJobPS4required160
machinehours.IfJobPS4consistedof5,000shirts,thecostofgoods
soldpershirtwas:
A)$7.40
B)$8.20
C)$11.00
D)$25.00
Feedback:

First,determinetheamountofmanufacturingoverhead
assignedtoJobPS4:
PredeterminedoverheadratexActualmachinehours=
Overheadassigned
$25.00/machinehourx160machinehours=$4,000

Then,accumulatethetotalmanufacturingcostsforJobPS4,
anddividebythenumberofunitsinthejobtogetthecost(or
costofgoodssolD)perunit:

Directmaterials $27,400

Directlabor 9,600

Manufacturingoverhead 4,000

TotalmanufacturingcostsofjobPS4 41,000

Numberofunits(shirts)injobPS4 5,000

Costofgoodssoldpershirt $8.20

Notethatthesellingandshippingcostswereignoredthese
costsareoperatingcostsand,assuch,arenotacomponentof
costofgoodssold.
UnderEasternCompany'sjobordercostingsystem,manufacturing
overheadisappliedtoWorkinProcessinventoryusinga
predeterminedoverheadrate.DuringMay,Eastern'stransactions
includedthefollowing:
Directlaborcostincurred $214,000

Directmaterialsissuedtoproduction 180,000
10 INCORRECT
Indirectmaterialsissuedtoproduction 16,000

Manufacturingoverheadcostapplied 226,000

Manufacturingoverheadcostincurred 250,000

EasternCompanyhadnobeginningorendinginventoriesinMay.
WhatwasthecostofgoodsmanufacturedforMay?
A)$604,000
B)$620,000
C)$644,000
D)$660,000
Feedback:
Workinprocess,beginningofperiod $0

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26.03.2017 IntroductiontoManagerialAccounting|

Directmaterialsissuedtoproduction 180,000

Directlaborcostincurred 214,000

Manufacturingoverheadcostapplied 226,000

Totalmanufacturingcosts 620,000

Less:workinprocess,endofperiod (0)

Costofgoodsmanufactured $620,000

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