Chapter 1 Managerial Accounting and the Business Environment
Garrison, Managerial Accounting, 12th Edition 3
True/False Questions
1. Although financial and managerial accounting differ in many ways, they are similar in
that both rely on the same underlying financial data.
Answer: True Level: Medium LO: 1
2. Managerial accounting is a branch of financial accounting and serves essentially the
same purposes as financial accounting.
Answer: False Level: Medium LO: 1
3. Managerial accounting places greater emphasis on the future than financial
accounting, which is primarily concerned with the past.
Answer: True Level: Easy LO: 1
4. Managerial accounting is not needed in a non-profit or governmental organization.
Answer: False Level: Easy LO: 1
5. When carrying out their planning activities, managers select a course of action and
specify how the action will be implemented.
Answer: True Level: Easy LO: 2
6. When carrying out their planning activities, managers obtain feedback to ensure that
the plan is actually carried out and is appropriately modified as circumstances change.
Answer: False Level: Medium LO: 2
7. The controller occupies a line position in an organization.
Answer: False Level: Easy LO: 2
8. Decentralization means the delegation of decision-making authority throughout an
organization by allowing managers at various operating levels to make key decisions
relating to their own area of responsibility.
Answer: True Level: Easy LO: 2
Chapter 1 Managerial Accounting and the Business Environment
4 Garrison, Managerial Accounting, 12th Edition
9. A firm's organization chart will normally show both the formal and informal lines of
reporting and communication.
Answer: False Level: Easy LO: 2
10. The Chief Financial Officer of an organization is responsible for ensuring that line
operations run smoothly.
Answer: False Level: Medium LO: 2
11. Traditionally, companies have maintained large amounts of raw materials, work in
process, and finished goods inventories to act as buffers so that operations can proceed
smoothly even if there are unanticipated disruptions.
Answer: True Level: Medium LO: 3
12. Process Reengineering is generally considered to be a more radical approach to
improvement than Total Quality Management.
Answer: True Level: Easy LO: 3
13. Process Reengineering emphasizes a team approach involving front-line workers,
whereas Total Quality Management is usually implemented using outside specialists
and is imposed from above.
Answer: False Level: Medium LO: 3
14. If ethical standards were not generally followed, one of the results would probably be
fewer goods and services available in the marketplace.
Answer: True Level: Medium LO: 4
15. The Standards of Ethical Conduct for Management Accountants promulgated by the
Institute of Management Accountants specifically state that management accountants'
sole ethical responsibility is to not break any laws.
Answer: False Level: Easy LO: 4
Chapter 1 Managerial Accounting and the Business Environment
Garrison, Managerial Accounting, 12th Edition 5
Multiple Choice Questions
16. Management accounting focuses primarily on providing data for:
A) internal uses by managers.
B) external uses by stockholders and creditors.
C) external uses by the Internal Revenue Service.
D) external uses by the Securities and Exchange Commission.
Answer: A Level: Easy LO: 1
17. Managerial accounting:
A) is more future oriented than financial accounting.
B) tends to summarize information more than financial accounting
C) is primarily concerned with providing information to external users.
D) is more concerned with precision than timeliness.
Answer: A Level: Easy LO: 1
18. Compared to financial accounting, managerial accounting places more emphasis on:
A) the flexibility of information.
B) the precision of information.
C) the timeliness of information.
D) both A and C above.
Answer: D Level: Easy LO: 1
19. The function of management that compares planned results to actual results is known
as:
A) planning.
B) directing and motivating.
C) controlling.
D) decision making.
Answer: C Level: Easy LO: 2
20. Which of the functions of management involves overseeing day-to-day activities?
A) Planning
B) Directing and motivating
C) Controlling
D) Decision making
Answer: B Level: Easy LO: 2
Chapter 1 Managerial Accounting and the Business Environment
6 Garrison, Managerial Accounting, 12th Edition
21. Which of the following is not one of the three basic activities of a manager?
A) Planning
B) Controlling
C) Directing and motivating
D) Compiling management accounting reports
Answer: D Level: Easy LO: 2
22. The delegation of decision making to lower levels in an organization is known as:
A) the planning and control cycle.
B) controlling.
C) decentralization.
D) none of these.
Answer: C Level: Easy LO: 2
23. Which of the following statements are false concerning line and staff functions?
I. Persons occupying staff functions have authority over persons occupying line
functions.
II. Both line and staff functions are depicted on the organization chart.
III. Line functions are directly related to the basic objectives of an organization.
A) Only I
B) Only II
C) Only I and II
D) I, II, and III
Answer: A Level: Medium LO: 2
24. Which of following would normally be found on a manufacturing company's
organization chart?
A) the layout of the factory assembly lines
B) a list of the materials needed to produce each of the company's products
C) the informal lines of reporting and communication
D) none of the above
Answer: D Level: Easy LO: 2
Chapter 1 Managerial Accounting and the Business Environment
Garrison, Managerial Accounting, 12th Edition 7
25. For a hospital, what type of position (line or staff) is each of the following?
Emergency Room Manager Human Resources (Personnel) Manager
A) Staff Staff
B) Staff Line
C) Line Staff
D) Line Line
Answer: C Level: Easy LO: 2
26. A detailed financial plan for the future is known as a:
A) budget.
B) performance report.
C) organization chart.
D) segment.
Answer: A Level: Easy LO: 2
27. A performance report is:
A) a detailed report comparing budgeted data to actual data for a specific time period.
B) a formal statement of plans for the upcoming period.
C) required to be filed monthly by the Securities and Exchange Commission.
D) not used in decentralized organizations.
Answer: A Level: Easy LO: 2
28. A clustering of two or more machines at a single workstation is referred to as:
A) a manufacturing cell.
B) an activity center.
C) a functional layout.
D) a setup.
Answer: A Level: Medium LO: 3
29. A focused factory is:
A) a factory that makes only a single product.
B) a factory that performs a single step in the production process and subcontracts the
other steps.
C) a plant layout in which all machines needed to make a particular product are
brought together in one location.
D) required to bid for defense contracts.
Answer: C Level: Easy LO: 3
Chapter 1 Managerial Accounting and the Business Environment
8 Garrison, Managerial Accounting, 12th Edition
30. Large work in process inventories:
A) are essential for efficient operations.
B) reduce defect rates.
C) increase throughput time.
D) are a key part of Just-In-Time systems.
Answer: C Level: Medium LO: 3
31. Ideally, how many units should be produced in a just-in-time manufacturing system?
A) budgeted customer demand for the current week.
B) budgeted customer demand for the following week.
C) actual customer demand for the current week.
D) maximum production capacity for the current week.
Answer: C Level: Medium LO: 3
32. After careful planning, Jammu Manufacturing Corporation has decided to switch to a
just-in-time inventory system. At the beginning of this switch, Jammu has 30 units of
product in inventory. Jammu has 2,000 labor hours available in the first month of this
switch. These hours could produce 500 units of product. Customer demand for this
first month is 400 units. If just-in-time principles are correctly followed, how many
units should Jammu plan to produce in the first month of the switch?
A) 370
B) 400
C) 430
D) 470
Answer: A Level: Medium LO: 3
33. Process Reengineering includes all of the following steps except:
A) constructing a diagram flowcharting the current process.
B) redesigning the process.
C) elimination of non-value-added activities.
D) elimination of all constraints.
Answer: D Level: Hard LO: 3
Chapter 1 Managerial Accounting and the Business Environment
Garrison, Managerial Accounting, 12th Edition 9
34. According to the Theory of Constraints, improvement efforts should usually be
focused on:
A) work centers that are not constraints.
B) the work center that is the constraint.
C) the work center with the highest total cost.
D) the work center with the most obsolete equipment.
Answer: B Level: Medium LO: 3
35. Which of the following is true regarding the theory of constraints?
A) The theory of constraints does not apply to companies with multiple products
because of capacity measurement difficulties.
B) In any profit-seeking company, there must be at least one constraint.
C) Constraints or bottlenecks stop organizations from selling an infinite number of
units or services.
D) both B and C above.
Answer: D Level: Medium LO: 3
36. Pizza World makes forty-three kinds of pizza for takeout and delivery. Which of the
following could be the constraint at Pizza World?
A) the person who makes the pizza crust.
B) the person who puts toppings on the pizzas.
C) the pizza oven.
D) any of the above could be the constraint.
Answer: D Level: Medium LO: 3
37. The Standards of Ethical Conduct for Management Accountants developed by the
Institute of Management Accountants contain a policy regarding confidentiality that
requires management accountants to refrain from disclosing confidential information
acquired in the course of their work:
A) except when authorized by management.
B) in all situations.
C) except when authorized by management, unless legally obligated to do so.
D) in all cases not prohibited by law.
Answer: C Level: Hard LO: 4
Chapter 1 Managerial Accounting and the Business Environment
10 Garrison, Managerial Accounting, 12th Edition
38. Wide-spread adherence to ethical standards in an advanced market economy tends to
result in all of the following except:
A) higher prices.
B) higher quality goods and services.
C) greater variety of goods and services available for sale.
D) safer products.
Answer: A Level: Medium LO: 4
39. The Institute of Management Accountants (IMA) has developed ethical standards for
management accountants. What four categories has the IMA classified these standards
into?
A) Reliability, Objectivity, Commitment, and Competence
B) Objectivity, Integrity, Commitment, and Confidentiality
C) Observation, Integrity, Closure, and Competence
D) Competence, Objectivity, Integrity, and Confidentiality
E) Reliability, Understandability, Flexibility, and Integrity
Answer: D Level: Medium LO: 4
40. Samantha Galloway is a managerial accountant in the accounting department of
Mustang Industries, Inc. Samantha has just discovered evidence that some of the
corporation's marketing managers have been wrongfully inflating their expense reports
in order to obtain higher reimbursements from the firm. According to the Institute of
Management Accountants' Standards of Ethical Conduct, what should Samantha do
upon discovering this evidence?
A) notify the controller.
B) notify the marketing managers involved.
C) notify the president of the corporation.
D) ignore the evidence because she is not part of the Marketing Department.
Answer: A Level: Hard LO: 4
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 15
True/False Questions
1. Manufacturing overhead is an indirect cost with respect to units of product.
Answer: True Level: Medium LO: 1
2. Depreciation on office equipment would not be included in the cost of goods
manufactured.
Answer: True Level: Easy LO: 2,4
3. Rent on a factory building used in the production process would be classified as a
period cost and as a fixed cost.
Answer: False Level: Medium LO: 2,5
4. Period costs are found only in manufacturing companies, not in merchandising
companies.
Answer: False Level: Medium LO: 2
5. Depreciation on equipment a company uses in its selling and administrative activities
would be classified as a product cost.
Answer: False Level: Medium LO: 2
6. If the finished goods inventory increases between the beginning and the end of a
period, then the cost of goods manufactured is smaller than the cost of goods sold.
Answer: False Level: Hard LO: 3,4
7. The cost of goods manufactured is calculated by adding the amount of work in process
at the end of the year to the cost of raw materials used, direct labor worked, and
manufacturing overhead incurred for the year and then subtracting work in process at
the beginning of the year.
Answer: False Level: Medium LO: 4
8. A publisher that sells its books through agents who are paid a constant percentage
commission on each book sold would classify the commissions as a fixed cost.
Answer: False Level: Medium LO: 5
Chapter 2 Cost Terms, Concepts, and Classifications
16 Garrison, Managerial Accounting, 12th Edition
9. Variable costs per unit are affected by changes in activity.
Answer: False Level: Easy LO: 5
10. A cost is either direct or indirect. The classification will not change if the cost object
changes.
Answer: False Level: Medium LO: 6
11. The amount that a manufacturing company could earn by renting unused portions of
its warehouse is an example of an opportunity cost.
Answer: True Level: Easy LO: 7
12. Labor fringe benefits may be charged to direct labor or manufacturing overhead while
overtime premiums paid usually are considered a part of manufacturing overhead.
Answer: True Level: Easy LO: 8 Appendix: 2A
13. The cost of idle time should be charged as direct labor of the job that is in process
when the breakdown occurs.
Answer: False Level: Medium LO: 8 Appendix: 2A
14. Internal failure costs result from identification of defects during the appraisal process.
Such costs may include scrap, rejected products, rework, and downtime.
Answer: True Level: Easy LO: 9 Appendix: 2B
15. ISO 9000 certification is relatively easy to achieve because little documentation on
quality control procedures is needed.
Answer: False Level: Easy LO: 11 Appendix: 2B
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 17
Multiple Choice Questions
16. Indirect labor is a part of:
A) Prime cost.
B) Conversion cost.
C) Period cost.
D) Nonmanufacturing cost.
Answer: B Level: Medium LO: 1,2 Source: CPA, adapted
17. The cost of lubricants used to grease a production machine in a manufacturing
company is an example of a(n):
A) period cost.
B) direct material cost.
C) indirect material cost.
D) none of the above.
Answer: C Level: Easy LO: 1,2
18. The salary paid to the president of King Company would be classified on the income
statement as a(n):
A) administrative expense.
B) direct labor cost.
C) manufacturing overhead cost.
D) selling expense.
Answer: A Level: Easy LO: 1
19. Direct labor cost is a part of:
Conversion cost Prime cost
A) No No
B) No Yes
C) Yes Yes
D) Yes No
Answer: C Level: Easy LO: 1 Source: CPA, adapted
Chapter 2 Cost Terms, Concepts, and Classifications
18 Garrison, Managerial Accounting, 12th Edition
20. Direct material cost is a:
Conversion cost Prime cost
A) No No
B) No Yes
C) Yes Yes
D) Yes No
Answer: B Level: Medium LO: 1 Source: CPA, adapted
21. Prime cost and conversion cost share what common element of total cost?
A) Direct materials.
B) Direct labor.
C) Variable overhead.
D) Fixed overhead.
Answer: B Level: Easy LO: 1 Source: CPA, adapted
22. Prime cost consists of:
A) direct labor and manufacturing overhead.
B) direct materials and manufacturing overhead.
C) direct materials and direct labor.
D) direct materials, direct labor and manufacturing overhead.
Answer: C Level: Easy LO: 1
23. Wages paid to a timekeeper in a factory are a:
Prime cost Conversion cost
A) Yes No
B) Yes Yes
C) No No
D) No Yes
Answer: D Level: Medium LO: 1 Source: CPA, adapted
24. Property taxes on a company's factory building would be classified as a(n):
A) product cost.
B) opportunity cost.
C) period cost.
D) variable cost.
Answer: A Level: Easy LO: 2,5,7
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 19
25. Depreciation on a personal computer used in the marketing department of a
manufacturing firm would be classified as:
A) a product cost that is fixed with respect to the company's output.
B) a period cost that is fixed with respect to the company's output.
C) a product cost that is variable with respect to the company's output.
D) a period cost that is fixed with respect to the company's output.
Answer: B Level: Medium LO: 2,5
26. The nursing station on the fourth floor of Central Hospital is responsible for the care
of patients who have undergone orthopedic surgery. The costs of drugs administered
by the nursing station to patients would be classified as:
A) direct costs of the patients.
B) indirect costs of the patients.
C) overhead costs of the nursing station.
D) period costs of the hospital.
Answer: A Level: Hard LO: 2,6
27. All of the following would be classified as product costs except:
A) property taxes on production equipment.
B) insurance on factory machinery.
C) salaries of the advertising staff.
D) wages of machine operators.
Answer: C Level: Easy LO: 2
28. Product costs appear on the balance sheet:
A) only if goods are partially completed at the end of the period.
B) only if goods are unsold at the end of a period.
C) only if goods are partially completed or are unsold at the end of a period.
D) only in merchandising firms.
Answer: C Level: Medium LO: 2
Chapter 2 Cost Terms, Concepts, and Classifications
20 Garrison, Managerial Accounting, 12th Edition
29. Ross Corporation shipped finished goods to a customer on credit, but the sale was not
recorded and the costs of the finished goods were incorrectly included on the period's
balance sheet as part of the finished goods inventory. Which one of the following
statements is correct concerning the effects of this error?
A) Accounts receivable was not affected, inventory was overstated, sales were
understated, and cost of goods sold was understated.
B) Accounts receivable was understated, inventory was not affected, sales were
understated, and cost of goods sold was understated.
C) Accounts receivable was understated, inventory was overstated, sales were
understated, and cost of goods sold was overstated.
D) Accounts receivable was understated, inventory was overstated, sales were
understated, and cost of goods sold was understated.
Answer: D Level: Easy LO: 3 Source: CMA, adapted
30. Data for Cost A and Cost B are as follows:
Number of
Units
Produced Unit Cost Total Cost
Cost A
1 ? $10
10 ? $100
100 ? $1,000
1,000 ? $10,000
Cost B
1 $5,000 ?
10 $500 ?
100 $50 ?
1,000 $5 ?
Which of the above best describes the behavior of Costs A and B?
A) Cost A is fixed, Cost B is variable.
B) Cost A is variable, Cost B is fixed.
C) Both Cost A and Cost B are variable.
D) Both Cost A and Cost B are fixed.
Answer: B Level: Medium LO: 5
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 21
31. Fixed costs expressed on a per unit basis:
A) will increase with increases in activity.
B) will decrease with increases in activity.
C) are not affected by activity.
D) should be ignored in making decisions since they cannot change.
Answer: B Level: Medium LO: 5
32. The costs of staffing and operating the accounting department at Central Hospital
would be considered by the Department of Surgery to be:
A) direct costs.
B) indirect costs.
C) incremental costs.
D) opportunity costs.
Answer: B Level: Hard LO: 6,7
33. A cost incurred in the past that is not relevant to any current decision is classified as
a(n):
A) period cost.
B) opportunity cost.
C) sunk cost.
D) differential cost.
Answer: C Level: Easy LO: 7
34. Differential costs can:
A) only be fixed costs.
B) only be variable costs.
C) be either fixed or variable.
D) be incremental but not decremental.
Answer: C Level: Easy LO: 7
35. John Johnson decided to leave his former job where he earned $12 per hour to go to a
new job where he will earn $13 per hour. In the decision process, the former wage of
$12 per hour would be classified as a(n):
A) sunk cost.
B) direct cost.
C) fixed cost.
D) opportunity cost.
Answer: D Level: Easy LO: 7
Chapter 2 Cost Terms, Concepts, and Classifications
22 Garrison, Managerial Accounting, 12th Edition
36. The term that refers to costs incurred in the past that are not relevant to a decision is:
A) marginal cost.
B) indirect cost.
C) period cost.
D) sunk cost.
Answer: D Level: Easy LO: 7
37. Lathe operators at KF Manufacturing are hourly employees who are paid time and a
half for hours worked in excess of 40 hours per week. Lester is a lathe operator who
worked 45 hours during the current week and had no idle time. The correct accounting
for the amounts paid to Lester would be:
A) charge only the overtime premium earned to the overhead account.
B) charge the hourly wage earned plus the overtime premium earned to the overhead
account.
C) charge only the overtime premium earned to the direct labor cost for the project
Lester was working on when the overtime was incurred.
D) charge the hourly wage earned plus the overtime premium earned to the direct
labor cost for the project Lester was working on when the overtime was incurred.
Answer: A Level: Medium LO: 8 Appendix: 2A
38. The controller of the recently organized Crandall Company is considering the two
methods listed below for accounting for labor fringe benefits. Which of the two
methods is considered acceptable?
Method A: Treat all labor fringe benefits as indirect labor by adding them in
total to manufacturing overhead.
Method B: Treat labor fringe benefits that relate to direct labor as additional
direct labor cost and fringe benefits relating to indirect labor as
part of manufacturing overhead.
A) Only Method A is acceptable.
B) Only Method B is acceptable.
C) Both Method A and Method B are acceptable.
D) Neither Method A nor Method B is acceptable; labor fringe benefits should be
treated as period expenses and should be charged off as incurred.
Answer: C Level: Medium LO: 8 Appendix: 2A
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 23
39. Which of the following would be classified as a prevention cost on a quality cost
report?
A) Disposal of defective products.
B) Net cost of spoilage.
C) Depreciation of test equipment.
D) Technical support provided to suppliers.
Answer: D Level: Medium LO: 9,10 Appendix: 2B
40. Which of the following would be classified as a prevention cost on a quality cost
report?
A) Debugging software errors.
B) Quality training.
C) Test and inspection of incoming materials.
D) Cost of field servicing and handling complaints.
Answer: B Level: Medium LO: 9,10 Appendix: 2B
41. Which of the following would be classified as a prevention cost on a quality cost
report?
A) Supplies used in testing and inspection.
B) Debugging software errors.
C) Quality improvement projects.
D) Lost sales arising from a reputation for poor quality.
Answer: C Level: Medium LO: 9,10 Appendix: 2B
42. Which of the following would be classified as an appraisal cost on a quality cost
report?
A) Final product testing and inspection.
B) Net cost of spoilage.
C) Repairs and replacements beyond the warranty period.
D) Rework labor and overhead.
Answer: A Level: Medium LO: 9,10 Appendix: 2B
Chapter 2 Cost Terms, Concepts, and Classifications
24 Garrison, Managerial Accounting, 12th Edition
43. Which of the following would be classified as an appraisal cost on a quality cost
report?
A) Quality improvement projects.
B) Supplies used in testing and inspection.
C) Audits of the effectiveness of the quality system.
D) Quality data gathering, analysis, and reporting.
Answer: B Level: Medium LO: 9,10 Appendix: 2B
44. Which of the following would be classified as an appraisal cost on a quality cost
report?
A) Maintenance of test equipment.
B) Re-entering data because of keying errors.
C) Debugging software errors.
D) Warranty repairs and replacements.
Answer: A Level: Medium LO: 9,10 Appendix: 2B
45. Which of the following would be classified as an internal failure cost on a quality cost
report?
A) Quality improvement projects.
B) Supervision of testing and inspection activities.
C) Debugging software errors.
D) Warranty repairs and replacements.
Answer: C Level: Medium LO: 9,10 Appendix: 2B
46. Which of the following would be classified as an internal failure cost on a quality cost
report?
A) Final product testing and inspection.
B) Warranty repairs and replacements.
C) Depreciation of test equipment.
D) Debugging software errors.
Answer: D Level: Medium LO: 9,10 Appendix: 2B
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 25
47. Which of the following would be classified as an internal failure cost on a quality cost
report?
A) Rework labor and overhead.
B) Cost of field servicing and handling complaints.
C) Technical support provided to suppliers.
D) Lost sales arising from a reputation for poor quality.
Answer: A Level: Medium LO: 9,10 Appendix: 2B
48. Which of the following would be classified as an external failure cost on a quality cost
report?
A) Reentering data because of keying errors.
B) Customer returns arising from quality problems.
C) Test and inspection of in-process goods.
D) Rework labor and overhead.
Answer: B Level: Medium LO: 9,10 Appendix: 2B
49. Which of the following would be classified as an external failure cost on a quality cost
report?
A) Repairs and replacements beyond the warranty period.
B) Technical support provided to suppliers.
C) Quality improvement projects.
D) Rework labor and overhead.
Answer: A Level: Medium LO: 9,10 Appendix: 2B
50. Which of the following would be classified as an external failure cost on a quality cost
report?
A) Final product testing and inspection.
B) Disposal of defective products.
C) Supervision of testing and inspection activities.
D) Cost of field servicing and handling complaints.
Answer: D Level: Medium LO: 9,10 Appendix: 2B
51. Inspection of products would be classified as a(n):
A) prevention cost.
B) appraisal cost.
C) internal failure cost.
D) external failure cost.
Answer: B Level: Medium LO: 9 Appendix: 2B
Chapter 2 Cost Terms, Concepts, and Classifications
26 Garrison, Managerial Accounting, 12th Edition
52. The cost of warranty repairs would be classified as a(n):
A) prevention cost.
B) appraisal cost.
C) internal failure cost.
D) external failure cost.
Answer: D Level: Easy LO: 9 Appendix: 2B
53. The cost of quality training would be classified as a(n):
A) prevention cost.
B) appraisal cost.
C) internal failure cost.
D) external failure cost.
Answer: A Level: Easy LO: 9 Appendix: 2B
54. The cost of labor time required to rework defective units would be classified as a(n):
A) prevention cost.
B) appraisal cost.
C) internal failure cost.
D) external failure cost.
Answer: C Level: Easy LO: 9 Appendix: 2B
55. Which of the following is (are) categorized as internal failure cost(s)?
I. Rework.
II. Responding to customer complaints.
III. Statistical quality control procedures.
A) I only.
B) II only.
C) III only.
D) I, II, and III.
Answer: A Level: Medium LO: 9 Source: CPA, adapted Appendix: 2B
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 27
56. Adolphson Corporation has provided the following summary of its quality cost report
for the last two years:
Summary of Quality Cost Report
(in thousands)
This Year Last Year % Change
Prevention costs .......................... $ 300 $ 200 +50
Appraisal costs ........................... 315 210 +50
Internal failure costs ................... 114 190 -40
External failure costs .................. 621 1,200 -48
Total quality costs ...................... $1,350 $1,800 -25
On the basis of this report, which one of the following statements is most likely
correct?
A) An increase in prevention and appraisal costs resulted in fewer defects, and
therefore, resulted in a decrease in internal and external failure costs.
B) A decrease in internal and external failure costs resulted in less need for
prevention and appraisal costs.
C) Quality costs such as scrap and rework decreased by 48%.
D) Quality costs such as returns and repairs under warranty decreased by 40%.
Answer: A Level: Medium LO: 10 Source: CMA, adapted Appendix: 2B
57. The following costs were incurred in January:
Direct materials ............................. $33,000
Direct labor .................................... $28,000
Manufacturing overhead ................ $69,000
Selling expenses ............................ $16,000
Administrative expenses ................ $21,000
Conversion costs during the month totaled:
A) $97,000
B) $167,000
C) $102,000
D) $61,000
Answer: A Level: Medium LO: 1,2
Chapter 2 Cost Terms, Concepts, and Classifications
28 Garrison, Managerial Accounting, 12th Edition
58. The following costs were incurred in February:
Direct materials ......................... $43,000
Direct labor ............................... $16,000
Manufacturing overhead ........... $37,000
Selling expenses ........................ $17,000
Administrative expenses ........... $26,000
Conversion costs during the month totaled:
A) $59,000
B) $80,000
C) $53,000
D) $139,000
Answer: C Level: Medium LO: 1,2
59. The following costs were incurred in March:
Direct materials ............................. $21,000
Direct labor .................................... $17,000
Manufacturing overhead ................ $67,000
Selling expenses ............................ $16,000
Administrative expenses ................ $15,000
Conversion costs during the month totaled:
A) $88,000
B) $38,000
C) $136,000
D) $84,000
Answer: D Level: Medium LO: 1,2
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 29
60. The following costs were incurred in January:
Direct materials ............................. $39,000
Direct labor .................................... $26,000
Manufacturing overhead ................ $21,000
Selling expenses ............................ $14,000
Administrative expenses ................ $27,000
Prime costs during the month totaled:
A) $86,000
B) $65,000
C) $47,000
D) $127,000
Answer: B Level: Medium LO: 1,2
61. The following costs were incurred in February:
Direct materials ............................. $39,000
Direct labor .................................... $18,000
Manufacturing overhead ................ $14,000
Selling expenses ............................ $13,000
Administrative expenses ................ $29,000
Prime costs during the month totaled:
A) $71,000
B) $32,000
C) $113,000
D) $57,000
Answer: D Level: Medium LO: 1,2
Chapter 2 Cost Terms, Concepts, and Classifications
30 Garrison, Managerial Accounting, 12th Edition
62. The following costs were incurred in March:
Direct materials ............................. $39,000
Direct labor .................................... $24,000
Manufacturing overhead ................ $14,000
Selling expenses ............................ $11,000
Administrative expenses ................ $19,000
Prime costs during the month totaled:
A) $63,000
B) $107,000
C) $38,000
D) $77,000
Answer: A Level: Medium LO: 1,2
63. Aable Company's manufacturing overhead is 20% of its total conversion costs. If
direct labor is $45,000 and if direct materials are $53,000, the manufacturing overhead
is:
A) $11,250
B) $13,250
C) $180,000
D) $24,500
Answer: A Level: Hard LO: 1
64. Abair Company's manufacturing overhead is 20% of its total conversion costs. If
direct labor is $38,000 and if direct materials are $35,000, the manufacturing overhead
is:
A) $18,250
B) $9,500
C) $8,750
D) $152,000
Answer: B Level: Hard LO: 1
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 31
65. Abbey Company's manufacturing overhead is 60% of its total conversion costs. If
direct labor is $35,000 and if direct materials are $55,000, the manufacturing overhead
is:
A) $135,000
B) $23,333
C) $82,500
D) $52,500
Answer: D Level: Hard LO: 1
66. During the month of January, direct labor cost totaled $17,000 and direct labor cost
was 60% of prime cost. If total manufacturing costs during January were $82,000, the
manufacturing overhead was:
A) $11,333
B) $53,667
C) $28,333
D) $65,000
Answer: B Level: Hard LO: 1
67. During the month of February, direct labor cost totaled $13,000 and direct labor cost
was 40% of prime cost. If total manufacturing costs during February were $80,000,
the manufacturing overhead was:
A) $32,500
B) $19,500
C) $67,000
D) $47,500
Answer: D Level: Hard LO: 1
68. During the month of March, direct labor cost totaled $17,000 and direct labor cost was
70% of prime cost. If total manufacturing costs during March were $88,000, the
manufacturing overhead was:
A) $24,286
B) $71,000
C) $63,714
D) $7,286
Answer: C Level: Hard LO: 1
Chapter 2 Cost Terms, Concepts, and Classifications
32 Garrison, Managerial Accounting, 12th Edition
69. Knowel Company's direct labor is 40 percent of its conversion cost. If the
manufacturing overhead cost for the last period was $60,000 and the direct materials
cost was $30,000, the direct labor cost was:
A) $90,000
B) $20,000
C) $60,000
D) $40,000
Answer: D Level: Hard LO: 1
70. In January direct labor was 40% percent of conversion cost. If the manufacturing
overhead cost for the month was $78,000 and the direct materials cost was $22,000,
the direct labor cost was:
A) $14,667
B) $52,000
C) $33,000
D) $117,000
Answer: B Level: Hard LO: 1
71. In February direct labor was 60% percent of conversion cost. If the manufacturing
overhead cost for the month was $78,000 and the direct materials cost was $22,000,
the direct labor cost was:
A) $52,000
B) $14,667
C) $117,000
D) $33,000
Answer: C Level: Hard LO: 1
72. In March direct labor was 60% percent of conversion cost. If the manufacturing
overhead cost for the month was $38,000 and the direct materials cost was $32,000,
the direct labor cost was:
A) $21,333
B) $48,000
C) $25,333
D) $57,000
Answer: D Level: Hard LO: 1
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 33
73. Crossland Company's direct labor cost is 30% of its conversion cost. If the
manufacturing overhead cost for the last period was $49,000 and the direct materials
cost was $20,000, the direct labor cost was:
A) $ 6,000
B) $14,700
C) $21,000
D) $34,000
Answer: C Level: Hard LO: 1
74. CF Company manufactures wooden rocking chairs. CF identified the following three
material costs in its production process for July: $100,000 for springs for the rocking
mechanism; two springs at a cost of $10 each are used in each chair; $1,700 for glue
used as needed from one gallon containers; and $500 for stain used to touch up spots
on the chairs. The total cost that should have been assigned to indirect material for
July was:
A) $102,200
B) $500
C) $2,200
D) $1,700
Answer: C Level: Medium LO: 1
75. Fab Co. manufactures textiles. Fab's manufacturing costs last year included the
following salaries and wages:
Loom operators .......................... $120,000
Factory foremen ........................ $45,000
Machinery repairmen ................ $30,000
What is the amount of direct labor included in this list?
A) $195,000
B) $165,000
C) $150,000
D) $120,000
Answer: D Level: Medium LO: 1 Source: CPA, adapted
Chapter 2 Cost Terms, Concepts, and Classifications
34 Garrison, Managerial Accounting, 12th Edition
76. A manufacturing company has provided the following cost data for a recent period:
Direct materials ............................................... $8,000
Manufacturing overhead .................................. $12,000
Direct labor ...................................................... $10,000
Increase in work-in-process ............................. $4,000
Prime cost for the period was:
A) $18,000
B) $26,000
C) $30,000
D) $34,000
Answer: A Level: Medium LO: 1 Source: CIMA, adapted
77. A manufacturing company prepays its insurance coverage for a three-year period. The
premium for the three years is $3,000 and is paid at the beginning of the first year.
Three-fourths of the premium applies to factory operations and one-fourth applies to
selling and administrative activities. What amounts should be considered product and
period costs respectively for the first year of coverage?
Product Period
A) $1,000 $0
B) $250 $750
C) $2,250 $750
D) $750 $250
Answer: D Level: Hard LO: 2
78. Last month a manufacturing company had the following operating results:
Beginning finished goods inventory ................ $72,000
Ending finished goods inventory ..................... $66,000
Sales ................................................................. $465,000
Gross margin ................................................... $88,000
What was the cost of goods manufactured for the month?
A) $371,000
B) $459,000
C) $383,000
D) $377,000
Answer: A Level: Hard LO: 3,4
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 35
79. Last month a manufacturing company had the following operating results:
Beginning finished goods inventory ............ $74,000
Ending finished goods inventory ................. $50,000
Sales ............................................................. $438,000
Gross margin ................................................ $63,000
What was the cost of goods manufactured for the month?
A) $375,000
B) $414,000
C) $399,000
D) $351,000
Answer: D Level: Hard LO: 3,4
80. Gabert Inc. is a merchandising company. Last month the company's merchandise
purchases totaled $68,000. The company's beginning merchandise inventory was
$17,000 and its ending merchandise inventory was $13,000. What was the company's
cost of goods sold for the month?
A) $72,000
B) $68,000
C) $98,000
D) $64,000
Answer: A Level: Easy LO: 3
81. Haag Inc. is a merchandising company. Last month the company's cost of goods sold
was $86,000. The company's beginning merchandise inventory was $20,000 and its
ending merchandise inventory was $21,000. What was the total amount of the
company's merchandise purchases for the month?
A) $86,000
B) $127,000
C) $87,000
D) $85,000
Answer: C Level: Medium LO: 3
Chapter 2 Cost Terms, Concepts, and Classifications
36 Garrison, Managerial Accounting, 12th Edition
82. During February, the cost of goods manufactured was $83,000. The beginning
finished goods inventory was $14,000 and the ending finished goods inventory was
$13,000. What was the cost of goods sold for the month?
A) $83,000
B) $110,000
C) $82,000
D) $84,000
Answer: D Level: Easy LO: 3
83. During March, the cost of goods manufactured was $62,000. The beginning finished
goods inventory was $11,000 and the ending finished goods inventory was $19,000.
What was the cost of goods sold for the month?
A) $70,000
B) $92,000
C) $54,000
D) $62,000
Answer: C Level: Easy LO: 3
84. The following information is taken from the records of CL Company for last year:
Direct materials ..................................................... $5,000
Manufacturing overhead ........................................ $6,000
Total manufacturing costs ..................................... $17,000
Beginning work in process inventory .................... $1,000
Cost of goods manufactured .................................. $15,000
What are the correct amounts for direct labor and ending work in process inventory?
Direct
Labor
Ending Work
in Process
A) $12,000 $2,000
B) $11,000 $2,000
C) $6,000 $1,000
D) $6,000 $3,000
Answer: D Level: Hard LO: 4
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 37
85. The following information is taken from the records of DW Company for last year:
Direct materials ............................................. $8,000
Direct labor ................................................... $3,000
Manufacturing overhead ............................... $11,000
Ending work in process inventory ................ $5,000
Cost of goods manufactured ......................... $19,000
The amount of beginning work in process inventory is:
A) $24,000
B) $2,000
C) $22,000
D) $3,000
Answer: B Level: Hard LO: 4
86. Using the following data for February, calculate the cost of goods manufactured:
Direct materials ...................................................... $36,000
Direct labor ............................................................ $20,000
Manufacturing overhead ........................................ $19,000
Beginning work in process inventory .................... $10,000
Ending work in process inventory ......................... $13,000
The cost of goods manufactured was:
A) $78,000
B) $85,000
C) $72,000
D) $75,000
Answer: C Level: Medium LO: 4
Chapter 2 Cost Terms, Concepts, and Classifications
38 Garrison, Managerial Accounting, 12th Edition
87. Using the following data for March, calculate the cost of goods manufactured:
Direct materials ...................................................... $29,000
Direct labor ............................................................ $19,000
Manufacturing overhead ........................................ $27,000
Beginning work in process inventory .................... $11,000
Ending work in process inventory ......................... $12,000
The cost of goods manufactured was:
A) $74,000
B) $86,000
C) $76,000
D) $75,000
Answer: A Level: Medium LO: 4
88. Jacobs is employed as a machinist for an aircraft manufacturer. She is paid $15 per
hour for regular time and time and a half for all work in excess of 40 hours per week.
During the past week, Jacobs was idle for two hours due to machine breakdowns and
was idle four hours due to materials shortages. Jacobs worked 40 hours last week with
no overtime. The allocation of Jacobs' wages for the past week between direct labor
cost and manufacturing overhead cost would be:
Direct
Labor
Manufacturing
Overhead
A) $600 $0
B) $570 $30
C) $540 $60
D) $510 $90
Answer: D Level: Medium LO: 8 Appendix: 2A
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 39
89. Johnson is employed on the assembly line of a manufacturing company where he
assembles a component part for one of the company's products. He is paid $14 per
hour for regular time and time and a half for all work in excess of 40 hours per week.
During the past week, Johnson worked a total of 50 hours and had no idle time. The
allocation of Johnson's wages for the past week between direct labor cost and
manufacturing overhead cost would be:
Direct Labor
Manufacturing
Overhead
A) $770 $0
B) $700 $70
C) $560 $210
D) $560 $0
Answer: B Level: Medium LO: 8 Appendix: 2A
Use the following to answer questions 90-91:
Clyde Company has provided the following data for the month of November:
Inventories November 1 November 30
Raw materials ...................... $17,000 ?
Work in process ................... $14,000 $12,000
Finished goods .................... ? $9,000
Additional Data:
Sales revenue ............................................. $102,000
Direct labor costs ....................................... $10,000
Manufacturing overhead costs .................. $12,000
Selling expenses ........................................ $14,000
Administrative expenses ........................... $16,000
Cost of goods manufactured ...................... $40,000
Raw materials purchases ........................... $10,000
90. The ending raw materials inventory was:
A) $11,000
B) $23,000
C) $10,000
D) $12,000
Answer: A Level: Hard LO: 2,4
Chapter 2 Cost Terms, Concepts, and Classifications
40 Garrison, Managerial Accounting, 12th Edition
91. If the net operating income was $40,000, then the beginning finished goods inventory
was:
A) $22,000
B) $9,000
C) $42,000
D) $1,000
Answer: D Level: Hard LO: 2,3,4
Use the following to answer questions 92-95:
The following data (in thousands of dollars) have been taken from the accounting records of
Karsen Corporation for the just completed year.
Sales ...................................................................... $930
Raw materials inventory, beginning ..................... $70
Raw materials inventory, ending ........................... $40
Purchases of raw materials .................................... $190
Direct labor ............................................................ $150
Manufacturing overhead ....................................... $210
Administrative expenses ....................................... $90
Selling expenses .................................................... $120
Work in process inventory, beginning .................. $80
Work in process inventory, ending ....................... $70
Finished goods inventory, beginning .................... $90
Finished goods inventory, ending ......................... $140
Use these data to answer the following series of questions.
92. The cost of the raw materials used in production during the year (in thousands of
dollars) was:
A) $230
B) $220
C) $160
D) $260
Answer: B Level: Medium LO: 2,3,4
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 41
93. The cost of goods manufactured (finished) for the year (in thousands of dollars) was:
A) $590
B) $650
C) $660
D) $570
Answer: A Level: Medium LO: 2,3,4
94. The cost of goods sold for the year (in thousands of dollars) was:
A) $680
B) $540
C) $640
D) $730
Answer: B Level: Medium LO: 2,3,4
95. The net operating income for the year (in thousands of dollars) was:
A) $180
B) $170
C) $390
D) $190
Answer: A Level: Medium LO: 2,3,4
Use the following to answer questions 96-99:
The following data (in thousands of dollars) have been taken from the accounting records of
Karsten Corporation for the just completed year.
Sales ...................................................................... $990
Raw materials inventory, beginning ..................... $70
Raw materials inventory, ending ........................... $30
Purchases of raw materials .................................... $100
Direct labor ............................................................ $200
Manufacturing overhead ....................................... $160
Administrative expenses ....................................... $180
Selling expenses .................................................... $150
Work in process inventory, beginning .................. $40
Work in process inventory, ending ....................... $70
Finished goods inventory, beginning .................... $150
Finished goods inventory, ending ......................... $130
Use these data to answer the following series of questions.
Chapter 2 Cost Terms, Concepts, and Classifications
42 Garrison, Managerial Accounting, 12th Edition
96. The cost of the raw materials used in production during the year (in thousands of
dollars) was:
A) $130
B) $170
C) $140
D) $60
Answer: C Level: Medium LO: 2,3,4
97. The cost of goods manufactured (finished) for the year (in thousands of dollars) was:
A) $530
B) $540
C) $470
D) $570
Answer: C Level: Medium LO: 2,3,4
98. The cost of goods sold for the year (in thousands of dollars) was:
A) $490
B) $450
C) $620
D) $600
Answer: A Level: Medium LO: 2,3,4
99. The net operating income for the year (in thousands of dollars) was:
A) $170
B) $140
C) $500
D) $200
Answer: A Level: Medium LO: 2,3,4
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 43
Use the following to answer questions 100-103:
The following data (in thousands of dollars) have been taken from the accounting records of
Karstone Corporation for the just completed year.
Sales ......................................................................... $880
Raw materials inventory, beginning ........................ $20
Raw materials inventory, ending .............................. $30
Purchases of raw materials ....................................... $150
Direct labor ............................................................... $180
Manufacturing overhead .......................................... $230
Administrative expenses .......................................... $100
Selling expenses ....................................................... $130
Work in process inventory, beginning ..................... $80
Work in process inventory, ending .......................... $30
Finished goods inventory, beginning ....................... $120
Finished goods inventory, ending ............................ $100
Use these data to answer the following series of questions.
100. The cost of the raw materials used in production during the year (in thousands of
dollars) was:
A) $180
B) $140
C) $160
D) $170
Answer: B Level: Medium LO: 2,3,4
101. The cost of goods manufactured (finished) for the year (in thousands of dollars) was:
A) $580
B) $600
C) $500
D) $630
Answer: B Level: Medium LO: 2,3,4
102. The cost of goods sold for the year (in thousands of dollars) was:
A) $620
B) $580
C) $720
D) $700
Answer: A Level: Medium LO: 2,3,4
Chapter 2 Cost Terms, Concepts, and Classifications
44 Garrison, Managerial Accounting, 12th Edition
103. The net operating income for the year (in thousands of dollars) was:
A) $260
B) $30
C) $90
D) ($30)
Answer: B Level: Medium LO: 2,3,4
Use the following to answer questions 104-105:
The manufacturing operations of QC Company had the following inventory balances for the
month of March:
Inventories March 1 March 31
Raw materials .................... $10,000 $12,000
Work in process ................. $6,000 $7,000
Finished goods .................. $30,000 $22,000
104. If the company purchased $18,000 of raw materials during March, what was the cost
of raw materials used in production?
A) $16,000
B) $20,000
C) $41,000
D) $19,000
Answer: A Level: Medium LO: 4
105. If the company transferred $38,000 of completed goods from work in process to
finished goods during March, what was the amount of the cost of goods sold?
A) $38,000
B) $43,000
C) $30,000
D) $46,000
Answer: D Level: Medium LO: 3
Use the following to answer questions 106-107:
Servix, Inc., produces water pumps. Each water pump contains a small valve that costs $5.
During May, 600 valves were drawn from the supply room and installed in water pumps in
the production process. Eighty percent of these units were completed and transferred into
finished goods warehouses. Of the units completed, thirty percent were still unsold at the end
of the month. There were no beginning inventories.
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 45
106. The cost of valves in work in process at the end of May would be:
A) $2,400
B) $3,000
C) $600
D) $720
Answer: C Level: Easy LO: 4
107. The cost of valves in cost of goods sold for May would be:
A) $1,680
B) $2,100
C) $900
D) $720
Answer: A Level: Easy LO: 3
Use the following to answer questions 108-109:
The manufacturing operations of Jones Company had the following inventory balances for the
month of March:
Inventories March 1 March 31
Raw materials .................... $12,000 $14,000
Work in process ................. $8,000 $9,000
Finished goods .................. $32,000 $25,000
108. If the company purchased $20,000 of raw materials during March, what was the cost
of raw materials used in production?
A) $24,000
B) $22,000
C) $32,000
D) $18,000
Answer: D Level: Medium LO: 4
109. If the company transferred $40,000 of completed goods from work in process to
finished goods during March, what was the amount of the cost of goods sold?
A) $47,000
B) $40,000
C) $33,000
D) $44,000
Answer: A Level: Medium LO: 4
Chapter 2 Cost Terms, Concepts, and Classifications
46 Garrison, Managerial Accounting, 12th Edition
Use the following to answer questions 110-111:
At a sales volume of 30,000 units, Carne Company's total fixed costs are $30,000 and total
variable costs are $45,000. The relevant range is 20,000 to 40,000 units.
110. If Carne Company were to sell 32,000 units, the total expected cost would be:
A) $75,000
B) $78,000
C) $80,000
D) $77,000
Answer: B Level: Easy LO: 5
111. If Carne Company were to sell 40,000 units, the total expected cost per unit would be:
A) $2.50
B) $2.25
C) $2.13
D) $1.88
Answer: B Level: Easy LO: 5
Use the following to answer questions 112-115:
Marrell is employed on the assembly line of a manufacturing company where she assembles a
component part for one of the company's products. She is paid $16 per hour for regular time
and time and a half for all work in excess of 40 hours per week.
112. Marrell works 45 hours during a week in which there was no idle time. The allocation
of Marrell's wages for the week as between direct labor cost and manufacturing
overhead cost would be:
Direct Labor
Manufacturing
Overhead
A) $760 $0
B) $720 $40
C) $640 $80
D) $610 $40
Answer: B Level: Medium LO: 8 Appendix: 2A
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 47
113. Marrell works 50 hours in a given week but is idle for 4 hours during the week due to
equipment breakdowns. The allocation of Marrell's wages for the week as between
direct labor cost and manufacturing overhead cost would be:
Direct Labor
Manufacturing
Overhead
A) $816 $64
B) $800 $80
C) $736 $144
D) $640 $160
Answer: C Level: Medium LO: 8 Appendix: 2A
114. Marrell's employer offers fringe benefits that cost the company $4 for each hour of
employee time (either regular or overtime). During a given week, Marrell works 48
hours but is idle for 3 hours due to material shortages. The company treats all fringe
benefits as part of manufacturing overhead. The allocation of Marrell's wages for the
week between the direct labor cost and manufacturing overhead would be:
Direct Labor
Manufacturing
Overhead
A) $960 $64
B) $768 $256
C) $720 $304
D) $640 $320
Answer: C Level: Medium LO: 8 Appendix: 2A
115. Marrell's employer offers fringe benefits that cost the company $4 for each hour of
employee time (either regular or overtime). During a given week, Marrell works 48
hours but is idle for 3 hours due to material shortages. The company treats all fringe
benefits relating to direct labor as added direct labor cost. The allocation of Marrell's
wages for the week between direct labor cost and manufacturing overhead would be:
Direct Labor
Manufacturing
Overhead
A) $832 $128
B) $900 $124
C) $912 $112
D) $960 $64
Answer: B Level: Medium LO: 8 Appendix: 2A
Chapter 2 Cost Terms, Concepts, and Classifications
48 Garrison, Managerial Accounting, 12th Edition
Use the following to answer questions 116-119:
Eakle Company's quality cost report is to be based on the following data:
Supervision of testing and inspection activities ............. $29,000
Warranty repairs and replacements ................................ $12,000
Net cost of scrap ............................................................. $53,000
Test and inspection of incoming materials ..................... $23,000
Technical support provided to suppliers ........................ $71,000
Disposal of defective products ....................................... $94,000
Quality data gathering, analysis, and reporting .............. $47,000
Liability arising from defective products ....................... $75,000
Depreciation of test equipment ...................................... $22,000
116. What would be the total prevention cost appearing on the quality cost report?
A) $118,000
B) $93,000
C) $76,000
D) $59,000
Answer: A Level: Medium LO: 9,10 Appendix: 2B
117. What would be the total appraisal cost appearing on the quality cost report?
A) $45,000
B) $52,000
C) $74,000
D) $76,000
Answer: C Level: Medium LO: 9,10 Appendix: 2B
118. What would be the total internal failure cost appearing on the quality cost report?
A) $106,000
B) $147,000
C) $75,000
D) $128,000
Answer: B Level: Medium LO: 9,10 Appendix: 2B
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 49
119. What would be the total external failure cost appearing on the quality cost report?
A) $426,000
B) $234,000
C) $106,000
D) $87,000
Answer: D Level: Medium LO: 9,10 Appendix: 2B
Use the following to answer questions 120-123:
Ealsy Company's quality cost report is to be based on the following data:
Maintenance of test equipment ...................................... $95,000
Cost of field servicing and handling complaints ............ $17,000
Statistical process control activities ............................... $77,000
Net cost of scrap ............................................................. $62,000
Downtime caused by quality problems .......................... $23,000
Technical support provided to suppliers ........................ $93,000
Depreciation of test equipment ...................................... $81,000
Supplies used in testing and inspection .......................... $33,000
Warranty repairs and replacements ................................ $24,000
120. What would be the total prevention cost appearing on the quality cost report?
A) $172,000
B) $170,000
C) $174,000
D) $94,000
Answer: B Level: Medium LO: 9,10 Appendix: 2B
121. What would be the total appraisal cost appearing on the quality cost report?
A) $114,000
B) $95,000
C) $128,000
D) $209,000
Answer: D Level: Medium LO: 9,10 Appendix: 2B
Chapter 2 Cost Terms, Concepts, and Classifications
50 Garrison, Managerial Accounting, 12th Edition
122. What would be the total internal failure cost appearing on the quality cost report?
A) $85,000
B) $143,000
C) $40,000
D) $86,000
Answer: A Level: Medium LO: 9,10 Appendix: 2B
123. What would be the total external failure cost appearing on the quality cost report?
A) $41,000
B) $505,000
C) $126,000
D) $40,000
Answer: A Level: Medium LO: 9,10 Appendix: 2B
Use the following to answer questions 124-127:
Eames Company's quality cost report is to be based on the following data:
Technical support provided to suppliers ......................... $20,000
Test and inspection of in-process goods ......................... $67,000
Depreciation of test equipment ....................................... $68,000
Quality data gathering, analysis, and reporting ............... $46,000
Warranty repairs and replacements ................................. $97,000
Debugging software errors .............................................. $22,000
Downtime caused by quality problems ........................... $95,000
Returns arising from quality problems ............................ $12,000
Supervision of testing and inspection activities. ............. $24,000
124. What would be the total prevention cost appearing on the quality cost report?
A) $44,000
B) $66,000
C) $32,000
D) $113,000
Answer: B Level: Medium LO: 9,10 Appendix: 2B
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 51
125. What would be the total appraisal cost appearing on the quality cost report?
A) $163,000
B) $135,000
C) $159,000
D) $92,000
Answer: C Level: Medium LO: 9,10 Appendix: 2B
126. What would be the total internal failure cost appearing on the quality cost report?
A) $162,000
B) $34,000
C) $117,000
D) $192,000
Answer: C Level: Medium LO: 9,10 Appendix: 2B
127. What would be the total external failure cost appearing on the quality cost report?
A) $226,000
B) $451,000
C) $109,000
D) $34,000
Answer: C Level: Medium LO: 9,10 Appendix: 2B
Use the following to answer questions 128-131:
Factoria Company's quality cost report is to be based on the following data:
Disposal of defective products ........................................ $41,000
Statistical process control activities ................................ $29,000
Test and inspection of in-process goods ......................... $65,000
Net cost of spoilage ......................................................... $23,000
Test and inspection of incoming materials ...................... $22,000
Warranty repairs and replacements ................................. $14,000
Downtime caused by quality problems ........................... $56,000
Quality training ............................................................... $42,000
Product recalls ................................................................. $32,000
Chapter 2 Cost Terms, Concepts, and Classifications
52 Garrison, Managerial Accounting, 12th Edition
128. What would be the total prevention cost appearing on the quality cost report?
A) $71,000
B) $51,000
C) $107,000
D) $43,000
Answer: A Level: Medium LO: 9,10 Appendix: 2B
129. What would be the total appraisal cost appearing on the quality cost report?
A) $63,000
B) $87,000
C) $88,000
D) $158,000
Answer: B Level: Medium LO: 9,10 Appendix: 2B
130. What would be the total internal failure cost appearing on the quality cost report?
A) $120,000
B) $88,000
C) $70,000
D) $55,000
Answer: A Level: Medium LO: 9,10 Appendix: 2B
131. What would be the total external failure cost appearing on the quality cost report?
A) $88,000
B) $166,000
C) $324,000
D) $46,000
Answer: D Level: Medium LO: 9,10 Appendix: 2B
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 53
Use the following to answer questions 132-135:
Fadden Company's quality cost report is to be based on the following data:
Statistical process control activities ................................ $97,000
Depreciation of test equipment ....................................... $87,000
Supplies used in testing and inspection ........................... $48,000
Re-entering data because of keying errors ...................... $12,000
Debugging software errors .............................................. $73,000
Quality circles ................................................................. $84,000
Net cost of spoilage ......................................................... $85,000
Returns arising from quality problems ............................ $28,000
Cost of field servicing and handling complaints ............. $65,000
132. What would be the total prevention cost appearing on the quality cost report?
A) $184,000
B) $125,000
C) $132,000
D) $181,000
Answer: D Level: Medium LO: 9,10 Appendix: 2B
133. What would be the total appraisal cost appearing on the quality cost report?
A) $133,000
B) $135,000
C) $99,000
D) $316,000
Answer: B Level: Medium LO: 9,10 Appendix: 2B
134. What would be the total internal failure cost appearing on the quality cost report?
A) $150,000
B) $170,000
C) $101,000
D) $133,000
Answer: B Level: Medium LO: 9,10 Appendix: 2B
Chapter 2 Cost Terms, Concepts, and Classifications
54 Garrison, Managerial Accounting, 12th Edition
135. What would be the total external failure cost appearing on the quality cost report?
A) $138,000
B) $93,000
C) $263,000
D) $579,000
Answer: B Level: Medium LO: 9,10 Appendix: 2B
Use the following to answer questions 136-139:
Fado Company's quality cost report is to be based on the following data:
Net cost of scrap ............................................................. $18,000
Quality circles ................................................................ $84,000
Depreciation of test equipment ...................................... $32,000
Returns arising from quality problems ........................... $59,000
Systems development ..................................................... $45,000
Supplies used in testing and inspection .......................... $68,000
Product recalls ................................................................ $34,000
Disposal of defective products ....................................... $62,000
Debugging software errors ............................................. $56,000
136. What would be the total prevention cost appearing on the quality cost report?
A) $129,000
B) $116,000
C) $143,000
D) $113,000
Answer: A Level: Medium LO: 9,10 Appendix: 2B
137. What would be the total appraisal cost appearing on the quality cost report?
A) $100,000
B) $124,000
C) $229,000
D) $50,000
Answer: A Level: Medium LO: 9,10 Appendix: 2B
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 55
138. What would be the total internal failure cost appearing on the quality cost report?
A) $121,000
B) $90,000
C) $124,000
D) $136,000
Answer: D Level: Medium LO: 9,10 Appendix: 2B
139. What would be the total external failure cost appearing on the quality cost report?
A) $458,000
B) $96,000
C) $93,000
D) $229,000
Answer: C Level: Medium LO: 9,10 Appendix: 2B
Essay Questions
140. The Plastechnics Company began operations several years ago. The company
purchased a building and, since only half of the space was needed for operations, the
remaining space was rented to another firm for rental revenue of $20,000 per year.
The success of Plastechnics Company's product has resulted in the company needing
more space. The renter's lease will expire next month and Plastechnics will not renew
the lease in order to use the space to expand operations and meet demand.
The company's product requires materials that cost $25 per unit. The company
employs a production supervisor whose salary is $2,000 per month. Production line
workers are paid $15 per hour to manufacture and assemble the product. The company
rents the equipment needed to produce the product at a rental cost of $1,500 per
month. Additional equipment will be needed as production is expanded and the
monthly rental charge for this equipment will be $900 per month. The building is
depreciated on the straight-line basis at $9,000 per year.
The company spends $40,000 per year to market the product. Shipping costs for each
unit are $20 per unit.
The company plans to liquidate several investments in order to expand production.
These investments currently earn a return of $8,000 per year.
Chapter 2 Cost Terms, Concepts, and Classifications
56 Garrison, Managerial Accounting, 12th Edition
Required:
Complete the answer sheet above by placing an "X" under each heading that identifies
the cost involved. The "Xs" can be placed under more than one heading for a single
cost, e.g., a cost might be a sunk cost, an overhead cost, and a product cost. An "X"
can thus be placed under each of these headings opposite the cost.
Variable
Cost
Fixed
Cost
Direct
Materials
Direct
Labor
Manufacturing
Overhead
Period
Cost
Opportunity
Cost
Sunk
Cost
Rental
revenue
Materials
costs
Production
supervisor
salary
Production
line workers
wages
Equipment
rental
Building
depreciation
Marketing
costs
Shipping
costs
Return on
present
investments
Level: Medium LO: 1,2,5,7
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 57
Answer:
Variable
Cost
Fixed
Cost
Direct
Materials
Direct
Labor
Manufacturing
Overhead
Period
Cost
Opportunity
Cost
Sunk
Cost
Rental
revenue X
Materials
costs X X
Production
supervisor
salary
X X
Production
line workers
wages
X X
Equipment
rental X X
Building
depreciation X X
Marketing
costs X X
Shipping
costs X X
Return on
present
investments
X
Chapter 2 Cost Terms, Concepts, and Classifications
58 Garrison, Managerial Accounting, 12th Edition
141. The following data (in thousands of dollars) have been taken from the accounting
records of Larder Corporation for the just completed year.
Sales ........................................................................... $950
Purchases of raw materials ........................................ $170
Direct labor ................................................................ $210
Manufacturing overhead ............................................ $200
Administrative expenses ............................................ $180
Selling expenses ......................................................... $140
Raw materials inventory, beginning .......................... $70
Raw materials inventory, ending ............................... $80
Work in process inventory, beginning ....................... $30
Work in process inventory, ending ............................ $20
Finished goods inventory, beginning ......................... $100
Finished goods inventory, ending .............................. $70
Required:
a. Prepare a Schedule of Cost of Goods Manufactured in good form.
b. Compute the Cost of Goods Sold.
c. Using data from your answers above as needed, prepare an Income Statement in
good form
Level: Medium LO: 1,3,4
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 59
Answer:
a. Schedule of cost of goods manufactured
Direct materials:
Raw materials inventory, beginning ........................... $ 70
Add: Purchases of raw materials ................................ 170
Raw materials available for use ................................. 240
Deduct: Raw materials inventory, ending .................. 80
Raw materials used in production ................................. 160
Direct labor .................................................................... 210
Manufacturing overhead ................................................ 200
Total manufacturing cost ............................................... 570
Add: Work in process inventory, beginning. ................ 30
600
Deduct: Work in process inventory, ending .................. 20
Cost of goods manufactured .......................................... $580
b. Computation of cost of goods sold
Finished goods inventory, beginning .............................. $100
Add: Cost of goods manufactured ................................... 580
Goods available for sale .................................................. 680
Deduct: Finished goods inventory, ending ...................... 70
Cost of goods sold ........................................................... $610
c. Income statement
Sales ................................................................................. $950
Less: Cost of goods sold .................................................. 610
Gross margin ................................................................... 340
Less: Administrative expenses ........................................ 180
Less: Selling expenses ..................................................... 140
Net operating income ...................................................... $ 20
Chapter 2 Cost Terms, Concepts, and Classifications
60 Garrison, Managerial Accounting, 12th Edition
142. The following data (in thousands of dollars) have been taken from the accounting
records of Larop Corporation for the just completed year.
Sales ................................................................................ $870
Purchases of raw materials ............................................. $190
Direct labor ..................................................................... $200
Manufacturing overhead ................................................. $230
Administrative expenses ................................................. $150
Selling expenses .............................................................. $140
Raw materials inventory, beginning ............................... $10
Raw materials inventory, ending .................................... $40
Work in process inventory, beginning ............................ $20
Work in process inventory, ending ................................. $50
Finished goods inventory, beginning .............................. $90
Finished goods inventory, ending ................................... $130
Required:
a. Prepare a Schedule of Cost of Goods Manufactured in good form.
b. Compute the Cost of Goods Sold.
c. Using data from your answers above as needed, prepare an Income Statement in
good form
Level: Medium LO: 1,3,4
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 61
Answer:
a. Schedule of cost of goods manufactured
Direct materials:
Raw materials inventory, beginning ............................ $ 10
Add: Purchases of raw materials .................................. 190
Raw materials available for use ................................... 200
Deduct: Raw materials inventory, ending .................... 40
Raw materials used in production ................................... 160
Direct labor ...................................................................... 200
Manufacturing overhead ................................................. 230
Total manufacturing cost ................................................. 590
Add: Work in process inventory, beginning. .................. 20
610
Deduct: Work in process inventory, ending .................... 50
Cost of goods manufactured ............................................ $560
b. Computation of cost of goods sold
Finished goods inventory, beginning .............................. $ 90
Add: Cost of goods manufactured ................................... 560
Goods available for sale .................................................. 650
Deduct: Finished goods inventory, ending ...................... 130
Cost of goods sold ........................................................... $520
c. Income statement
Sales ................................................................................ $870
Less: Cost of goods sold ................................................. 520
Gross margin ................................................................... 350
Less: Administrative expenses ........................................ 150
Less: Selling expenses ..................................................... 140
Net operating income ...................................................... $ 60
Chapter 2 Cost Terms, Concepts, and Classifications
62 Garrison, Managerial Accounting, 12th Edition
143. Gagnon Company's quality cost report is to be based on the following data:
Maintenance of test equipment ....................................... $18,000
Test and inspection of incoming materials ..................... $73,000
Systems development ..................................................... $29,000
Product recalls ................................................................. $91,000
Quality training ............................................................... $25,000
Disposal of defective products ........................................ $55,000
Supervision of testing and inspection activities .............. $24,000
Warranty repairs and replacements ................................. $58,000
Net cost of scrap ............................................................. $23,000
Required:
Prepare a Quality Cost Report in good form with separate sections for prevention
costs, appraisal costs, internal failure costs, and external failure costs.
Level: Medium LO: 9,10 Appendix: 2B
Answer:
Prevention costs
Systems development ................................................... $ 29,000
Quality training ............................................................ 25,000
Total ................................................................................. 54,000
Appraisal costs
Test and inspection of incoming materials ................... 73,000
Supervision of testing and inspection activities ........... 24,000
Maintenance of test equipment .................................... 18,000
Total ................................................................................. 115,000
Internal failure costs
Disposal of defective products ..................................... 55,000
Net cost of scrap ........................................................... 23,000
Total ................................................................................. 78,000
External failure costs
Warranty repairs and replacements .............................. 58,000
Product recalls .............................................................. 91,000
Total ................................................................................. 149,000
Total quality cost ............................................................. $396,000
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 63
144. Gagnet Company's quality cost report is to be based on the following data:
Liability arising from defective products ........................ $82,000
Final product testing and inspection ................................ $40,000
Returns arising from quality problems ............................ $24,000
Technical support provided to suppliers ......................... $52,000
Disposal of defective products ........................................ $98,000
Maintenance of test equipment ........................................ $53,000
Systems development ...................................................... $67,000
Depreciation of test equipment ........................................ $11,000
Debugging software errors .............................................. $87,000
Required:
Prepare a Quality Cost Report in good form with separate sections for prevention
costs, appraisal costs, internal failure costs, and external failure costs.
Level: Medium LO: 9,10 Appendix: 2B
Answer:
Prevention costs
Technical support provided to suppliers ..... $ 52,000
Systems development .................................. 67,000
Total ............................................................... 119,000
Appraisal costs
Depreciation of test equipment ................... 11,000
Maintenance of test equipment ................... 53,000
Final product testing and inspection ........... 40,000
Total ............................................................... 104,000
Internal failure costs
Debugging software errors .......................... 87,000
Disposal of defective products .................... 98,000
Total ............................................................... 185,000
External failure costs
Liability arising from defective products .... 82,000
Returns arising from quality problems ........ 24,000
Total ............................................................... 106,000
Total quality cost ............................................ $514,000
Chapter 2 Cost Terms, Concepts, and Classifications
64 Garrison, Managerial Accounting, 12th Edition
145. Gaffney Company's quality cost report is to be based on the following data:
Final product testing and inspection ................................ $60,000
Rework labor and overhead ............................................. $60,000
Statistical process control activities ................................ $78,000
Quality data gathering, analysis, and reporting ............... $24,000
Returns arising from quality problems ............................ $77,000
Liability arising from defective products ........................ $89,000
Depreciation of test equipment ........................................ $62,000
Downtime caused by quality problems ........................... $80,000
Supervision of testing and inspection activities .............. $11,000
Required:
Prepare a Quality Cost Report in good form with separate sections for prevention
costs, appraisal costs, internal failure costs, and external failure costs.
Level: Medium LO: 9,10 Appendix: 2B
Answer:
Prevention costs
Statistical process control activities ................................ $ 78,000
Quality data gathering, analysis, and reporting ............... 24,000
Total ................................................................................... 102,000
Appraisal costs
Supervision of testing and inspection activities .............. 11,000
Final product testing and inspection ............................... 60,000
Depreciation of test equipment ....................................... 62,000
Total ................................................................................... 133,000
Internal failure costs
Downtime caused by quality problems ........................... 80,000
Rework labor and overhead ............................................ 60,000
Total ................................................................................... 140,000
External failure costs
Returns arising from quality problems ............................ 77,000
Liability arising from defective products ........................ 89,000
Total ................................................................................... 166,000
Total quality cost ................................................................ $541,000
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 65
146. Harvold Company's quality cost report is to be based on the following data:
Test and inspection of incoming materials ...................... $71,000
Supplies used in testing and inspection ........................... $51,000
Re-entering data because of keying errors ...................... $60,000
Statistical process control activities ................................ $82,000
Technical support provided to suppliers ......................... $91,000
Disposal of defective products ........................................ $60,000
Lost sales due to poor quality .......................................... $87,000
Net cost of scrap .............................................................. $85,000
Warranty repairs and replacements ................................. $70,000
Required:
Prepare a Quality Cost Report in good form with separate sections for prevention
costs, appraisal costs, internal failure costs, and external failure costs.
Level: Medium LO: 9,10 Appendix: 2B
Answer:
Prevention costs
Technical support provided to suppliers ........... $ 91,000
Statistical process control activities .................. 82,000
Total ..................................................................... 173,000
Appraisal costs
Supplies used in testing and inspection ............. 51,000
Test and inspection of incoming materials ........ 71,000
Total ..................................................................... 122,000
Internal failure costs
Net cost of scrap ................................................ 85,000
Re-entering data because of keying errors ........ 60,000
Disposal of defective products .......................... 60,000
Total ..................................................................... 205,000
External failure costs
Lost sales due to poor quality ............................ 87,000
Warranty repairs and replacements ................... 70,000
Total ..................................................................... 157,000
Total quality cost .................................................. $657,000
Chapter 2 Cost Terms, Concepts, and Classifications
66 Garrison, Managerial Accounting, 12th Edition
147. Hartlie Company's quality cost report is to be based on the following data:
Lost sales due to poor quality ......................................... $11,000
Rework labor and overhead ............................................ $75,000
Statistical process control activities ............................... $26,000
Depreciation of test equipment ....................................... $16,000
Re-entering data because of keying errors ..................... $86,000
Debugging software errors ............................................. $55,000
Quality data gathering, analysis, and reporting .............. $48,000
Supervision of testing and inspection activities ............. $12,000
Warranty repairs and replacements ................................ $75,000
Required:
Prepare a Quality Cost Report in good form with separate sections for prevention
costs, appraisal costs, internal failure costs, and external failure costs.
Level: Medium LO: 9,10 Appendix: 2B
Answer:
Prevention costs
Statistical process control activities ....................... $ 26,000
Quality data gathering, analysis, and reporting ...... 48,000
Total .......................................................................... 74,000
Appraisal costs
Supervision of testing and inspection activities ..... 12,000
Depreciation of test equipment .............................. 16,000
Total .......................................................................... 28,000
Internal failure costs
Re-entering data because of keying errors ............. 86,000
Rework labor and overhead ................................... 75,000
Debugging software errors ..................................... 55,000
Total .......................................................................... 216,000
External failure costs
Lost sales due to poor quality ................................. 11,000
Warranty repairs and replacements ........................ 75,000
Total .......................................................................... 86,000
Total quality cost ....................................................... $404,000
Chapter 2 Cost Terms, Concepts, and Classifications
Garrison, Managerial Accounting, 12th Edition 67
148. Hartness Company's quality cost report is to be based on the following data:
Depreciation of test equipment ........................................ $75,000
Rework labor and overhead ............................................. $11,000
Quality circles .................................................................. $46,000
Quality training................................................................ $94,000
Test and inspection of incoming materials ...................... $64,000
Product recalls ................................................................. $71,000
Net cost of scrap .............................................................. $12,000
Re-entering data because of keying errors ...................... $52,000
Cost of field servicing and handling complaints ............. $25,000
Required:
Prepare a Quality Cost Report in good form with separate sections for prevention
costs, appraisal costs, internal failure costs, and external failure costs.
Level: Medium LO: 9,10 Appendix: 2B
Answer:
Prevention costs
Quality training ............................................................ $ 94,000
Quality circles .............................................................. 46,000
Total ................................................................................ 140,000
Appraisal costs
Depreciation of test equipment .................................... 75,000
Test and inspection of incoming materials ................... 64,000
Total ................................................................................ 139,000
Internal failure costs
Rework labor and overhead ......................................... 11,000
Net cost of scrap ........................................................... 12,000
Re-entering data because of keying errors ................... 52,000
Total ................................................................................ 75,000
External failure costs
Product recalls .............................................................. 71,000
Cost of field servicing and handling complaints .......... 25,000
Total ................................................................................ 96,000
Total quality cost ............................................................. $450,000
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 71
True/False Questions
1. Process costing is used in those situations where many different products or services
are produced each period to customer specifications.
Answer: False Level: Easy LO: 1
2. The basic approach in job-order costing is to accumulate costs in a particular operation
or 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 Level: Easy LO: 1
3. If a company uses predetermined overhead rates, actual manufacturing overhead costs
of 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 Level: Medium LO: 2
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 Level: Medium LO: 2
5. The formula for computing the predetermined overhead rate is:
Estimated total units in base ÷ Estimated total manufacturing costs
Answer: False Level: Easy LO: 3
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 Level: Easy LO: 3
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 Level: Medium LO: 4,8
Chapter 3 Systems Design: Job-Order Costing
72 Garrison, Managerial Accounting, 12th Edition
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 Level: Easy LO: 4
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 Level: Medium LO: 5
10. When raw materials are purchased, they are recorded as an expense.
Answer: False Level: Medium LO: 7
11. In a job-order cost system, depreciation on factory equipment should be charged
directly to the Work in Process account.
Answer: False Level: Medium LO: 7
12. The entire difference between the actual manufacturing overhead cost for a period and
the applied manufacturing overhead cost is typically closed to the Work In Process
account.
Answer: False Level: Easy LO: 8
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 Level: Medium LO: 8
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 Level: Easy LO: 9 Appendix: 3A
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 73
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 Level: Easy LO: 10
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
Chapter 3 Systems Design: Job-Order Costing
74 Garrison, Managerial Accounting, 12th Edition
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
Cost of Goods Sold ........................ XXX
Manufacturing Overhead ............... XXX
D) Manufacturing Overhead ........................ XXX
Work in Process ............................. XXX
Finished Goods .............................. XXX
Cost of Goods Sold ........................ XXX
Answer: D Level: Medium LO: 4,8
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 75
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
Salaries and Wages Payable ............. XXX
C) Work in Process ......................................... XXX
Salaries and Wages Payable ............. XXX
D) Salaries and Wages Payable ....................... XXX
Salaries Expense ............................... XXX
Answer: B Level: Easy LO: 4
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
Chapter 3 Systems Design: Job-Order Costing
76 Garrison, Managerial Accounting, 12th Edition
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.
Answer: D Level: Easy LO: 5
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 dollar 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
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 77
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.
Answer: B Level: Easy LO: 8
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
Chapter 3 Systems Design: Job-Order Costing
78 Garrison, Managerial Accounting, 12th Edition
31. The Work in Process inventory account of a manufacturing company shows a balance
of $18,000 at the end of an accounting period. The job cost sheets of the two
uncompleted jobs show charges of $6,000 and $3,000 for materials, and charges of
$4,000 and $2,000 for direct labor. From this information, it appears that the company
is 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 ............................. $25,000 $5,000
Direct labor .................................... ? $30,000
Manufacturing overhead ................ $40,000 ?
The total manufacturing costs associated with Job 123 should be:
A) $135,000
B) $180,000
C) $195,000
D) $240,000
Source: CPA, adapted
Answer: A Level: Medium LO: 2,5
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 79
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 ........................................... $26,000
Debits during May:
Direct Materials ...................................... $40,000
Direct Labor ........................................... $50,000
Manufacturing Overhead ........................ $37,500
During the month, Fisher Company's Work in Process inventory account was credited
for $120,500, 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 $9,600 of
applied overhead cost. The amount of direct materials cost in the unfinished job would
be:
A) $10,600
B) $16,700
C) $12,800
D) $23,400
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
$477,590. 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 $472,590, and
manufacturing overhead for the year was overapplied by $110. 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
Chapter 3 Systems Design: Job-Order Costing
80 Garrison, Managerial Accounting, 12th Edition
35. At the beginning of the year, manufacturing overhead for the year was estimated to be
$670,700. At the end of the year, actual direct labor-hours for the year were 36,200
hours, the actual manufacturing overhead for the year was $665,700, and
manufacturing overhead for the year was overapplied by $22,100. 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:
A) 35,037 direct labor-hours
B) 35,300 direct labor-hours
C) 36,200 direct labor-hours
D) 33,874 direct labor-hours
Answer: B Level: Hard LO: 3,5,8
36. At the beginning of the year, manufacturing overhead for the year was estimated to be
$670,530. At the end of the year, actual direct labor-hours for the year were 29,400
hours, the actual manufacturing overhead for the year was $665,530, and
manufacturing overhead for the year was underapplied by $27,550. 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:
A) 30,900 direct labor-hours
B) 29,400 direct labor-hours
C) 30,670 direct labor-hours
D) 31,939 direct labor-hours
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 $233,000, and manufacturing overhead for
the year was underapplied by $15,400. The estimated manufacturing overhead at the
beginning of the year used in the predetermined overhead rate must have been:
A) $249,375
B) $217,600
C) $228,000
D) $238,000
Answer: D Level: Hard LO: 3,5,8
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 81
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
manufacturing overhead for the year was $143,350, and manufacturing overhead for
the year was underapplied by $18,220. The estimated manufacturing overhead at the
beginning of the year used in the predetermined overhead rate must have been:
A) $164,023
B) $125,130
C) $148,350
D) $138,350
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
manufacturing overhead for the year was $291,100, and manufacturing overhead for
the year was underapplied by $7,600. The estimated manufacturing overhead at the
beginning of the year used in the predetermined overhead rate must have been:
A) $286,100
B) $296,100
C) $298,816
D) $283,500
Answer: B Level: Hard LO: 3,5,8
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 $341,890. 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 $336,890. Overhead at the end of the year was:
A) $22,920 underapplied
B) $17,920 overapplied
C) $17,920 underapplied
D) $22,920 overapplied
Answer: C Level: Medium LO: 3,5,8
Chapter 3 Systems Design: Job-Order Costing
82 Garrison, Managerial Accounting, 12th Edition
41. Crich Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the estimated direct labor-hours were 21,800 hours and the total
estimated manufacturing overhead was $497,040. At the end of the year, actual direct
labor-hours for the year were 21,500 hours and the actual manufacturing overhead for
the year was $492,040. Overhead at the end of the year was:
A) $6,840 overapplied
B) $6,840 underapplied
C) $1,840 underapplied
D) $1,840 overapplied
Answer: C Level: Medium LO: 3,5,8
42. Crick Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the estimated direct labor-hours were 14,400 hours and the total
estimated manufacturing overhead was $355,680. At the end of the year, actual direct
labor-hours for the year were 15,200 hours and the actual manufacturing overhead for
the year was $350,680. Overhead at the end of the year was:
A) $24,760 underapplied
B) $24,760 overapplied
C) $19,760 underapplied
D) $19,760 overapplied
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 $423,870. 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 $5,650, and the actual
manufacturing overhead was $418,870. The predetermined overhead rate for the year
must have been closest to:
A) $21.59
B) $20.76
C) $21.30
D) $21.85
Answer: C Level: Hard LO: 3,5,8
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 83
44. Daget Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the total estimated manufacturing overhead was $364,140. At
the end of the year, actual direct labor-hours for the year were 24,000 hours,
manufacturing overhead for the year was overapplied by $8,060, and the actual
manufacturing overhead was $359,140. The predetermined overhead rate for the year
must have been closest to:
A) $15.43
B) $15.30
C) $15.17
D) $14.96
Answer: B Level: Hard LO: 3,5,8
45. Dafoe Corporation uses direct labor-hours in its predetermined overhead rate. At the
beginning of the year, the total estimated manufacturing overhead was $221,100. At
the end of the year, actual direct labor-hours for the year were 14,400 hours,
manufacturing overhead for the year was overapplied by $21,500, and the actual
manufacturing overhead was $216,100. The predetermined overhead rate for the year
must have been closest to:
A) $15.01
B) $17.73
C) $15.35
D) $16.50
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 ........................................... $480
Direct labor .................................................. $150
Manufacturing overhead applied ................. $600
An additional $100 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) $1,330
B) $500
C) $1,230
D) $1,730
Answer: D Level: Medium LO: 3,5
Chapter 3 Systems Design: Job-Order Costing
84 Garrison, Managerial Accounting, 12th Edition
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 ..................................................... $3,000
Direct labor ............................................................ $20,000
Depreciation on factory equipment ....................... $6,000
Rent on factory ...................................................... $12,000
Sales salaries .......................................................... $29,000
Factory utilities ...................................................... $15,000
Indirect labor ......................................................... $6,000
It is estimated that 10,000 direct labor hours will be worked during the year. The
predetermined overhead rate will be:
A) $3.90
B) $5.90
C) $6.80
D) $9.10
Answer: A Level: Medium LO: 3
48. The following information relates to Spock Manufacturing Company:
Total estimated manufacturing overhead at beginning of year .. $620,000
Total manufacturing overhead applied to production during
the year .................................................................................... $625,000
Total manufacturing overhead incurred during the year ............ $618,000
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 $2,000
B) credit cost of goods sold for $2,000
C) credit cost of goods sold for $7,000
D) debit cost of goods sold for $7,000
Answer: C Level: Hard LO: 4,5,8
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 85
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 $800 of materials and $650 of labor. Job #594 was finished
during February incurring additional direct costs of $120 for materials and $370 for
labor. Job #595 was started and finished during February. The direct costs assigned to
this job were $310 for materials and $190 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 $740 for materials and $300 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) $2,440
B) $3,750
C) $4,860
D) $6,500
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 ...................................................... $620
Cost of materials directly assigned to production during June ........... $1,800
Cost of labor directly assigned to production during June .................. $1,200
Cost of nameplates completed during June ......................................... $4,300
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 $150 of direct material cost. What is the direct labor cost assigned
to this job?
A) $100
B) $160
C) $225
D) $530
Answer: B Level: Hard LO: 5,7
Chapter 3 Systems Design: Job-Order Costing
86 Garrison, Managerial Accounting, 12th Edition
51. Dukes Company used a predetermined overhead rate this year of $2 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 ................. $38,000
Actual direct labor hours worked .................................... 18,500
The under- or overapplied overhead for the year was:
A) $1,000 underapplied
B) $1,000 overapplied
C) $3,000 underapplied
D) $3,000 overapplied
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 $10,000 of manufacturing overhead cost applied, how
much was the direct labor cost on the job?
A) $12,500
B) $11,000
C) $8,000
D) $10,000
Answer: A Level: Medium LO: 5
53. In the Vasquez Company, any over- or underapplied overhead is closed out to Cost of
Goods Sold. Last year, the company incurred $27,000 in actual manufacturing
overhead cost, and applied $29,000 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 $71,000. Given this information, Cost of Goods
Sold, after adjustment for any over- or underapplied overhead, for the year must have
been:
A) $98,000
B) $73,000
C) $71,000
D) $69,000
Answer: D Level: Hard LO: 6,8
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 87
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 ............................................. $8,000
Sales commissions .......................................................... $7,000
Vacation pay for the materials storeroom clerk ............. $2,000
Including the items listed above, the debits to the Manufacturing Overhead account
totaled $245,000 for the year. Credits to the account totaled $240,000 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 $4,000
B) overapplied by $12,000
C) underapplied by $5,000
D) overapplied by $2,000
Answer: D Level: Hard LO: 7,8
55. Compute the October cost of direct materials used if raw material purchases for the
month were $30,000 and the inventories were as follows:
Beginning Ending
Direct materials ............................. $7,000 $4,000
Work in Process ............................. $6,000 $7,500
Finished goods ............................... $10,000 $12,000
The cost of direct materials used would be:
A) $31,500
B) $29,500
C) $27,000
D) $33,000
Answer: D Level: Easy LO: 7
Chapter 3 Systems Design: Job-Order Costing
88 Garrison, Managerial Accounting, 12th Edition
56. Hardin Company's manufacturing overhead account showed a $20,000 underapplied
overhead balance on December 31. Other data as of December 31 appear below:
Cost of Goods Sold.................................................................... $800,000
Overhead applied during the year included in Cost of Goods
Sold ........................................................................................ $200,000
Overhead applied during the year in the ending balances of:
Work in Process inventory ..................................................... $80,000
Finished Goods inventory ...................................................... $120,000
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) $790,000
B) $820,000
C) $810,000
D) $780,000
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 ......................... $9,000 $7,000
Work in process inventory ........................ $17,000 $31,000
Finished goods inventory .......................... $10,000 $15,000
Manufacturing costs incurred
Direct materials used ................................. $72,000
Overhead applied ...................................... $24,000
Direct labor cost (10,000 hours) ................ $80,000
Depreciation .............................................. $10,000
Rent ........................................................... $12,000
Taxes ......................................................... $8,000
Cost of goods sold ..................................... $157,000*
*
Selling and administrative costs incurred
Advertising ................................................ $35,000
Rent ........................................................... $20,000
Clerical ...................................................... $25,000
*Does not include over- or underapplied overhead.
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 89
57. The amount of direct material purchased during the year was:
A) $66,000
B) $70,000
C) $65,000
D) $74,000
Answer: B Level: Medium LO: 6
58. The total costs added to Work in Process during the year were:
A) $206,000
B) $162,000
C) $176,000
D) $182,000
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) $960
B) $360
C) $528
D) $288
Answer: D Level: Medium LO: 3,5
60. The cost of goods manufactured for the year was:
A) $190,000
B) $162,000
C) $168,000
D) $135,000
Answer: B Level: Medium LO: 6
Use the following to answer questions 61-64:
At the beginning of the current year, Garber Corporation estimated that its manufacturing
overhead would be $70,000 and the activity level would be 10,000 machine-hours. The level
of activity at capacity is 14,000 machine-hours. The actual manufacturing overhead for the
year was $63,300 and the actual level of activity was 10,100 machine-hours.
Chapter 3 Systems Design: Job-Order Costing
90 Garrison, Managerial Accounting, 12th Edition
61. If the company bases its predetermined overhead rate on estimated machine-hours,
then its predetermined overhead rate would have been:
A) $6.27
B) $7.00
C) $5.00
D) $6.33
Answer: B Level: Medium LO: 3 Appendix: 3A
62. If the company bases its predetermined overhead rate on estimated machine-hours,
then its overhead for the year would have been:
A) $12,800 overapplied
B) $12,800 underapplied
C) $7,400 overapplied
D) $7,400 underapplied
Answer: C Level: Medium LO: 8 Appendix: 3A
63. If the company bases its predetermined overhead rate on machine-hours at capacity,
then its predetermined overhead rate would have been:
A) $6.33
B) $6.27
C) $5.00
D) $7.00
Answer: C Level: Medium LO: 3,9 Appendix: 3A
64. If the company bases its predetermined overhead rate on machine-hours at capacity,
then the cost of unused capacity reported on the income statement would have been:
A) $700
B) $7,400
C) $6,700
D) $12,800
Answer: D Level: Medium LO: 5,9 Appendix: 3A
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 91
Use the following to answer questions 65-67:
Acton Corporation, which applies manufacturing overhead on the basis of machine-hours, has
provided the following data for its most recent year of operations.
Estimated manufacturing overhead ....................... $139,080
Estimated machine-hours ...................................... 3,800
Actual manufacturing overhead ............................ $137,000
Actual machine-hours ........................................... 3,780
The estimates of the manufacturing overhead and of machine-hours were made at the
beginning of the year for the purpose of computing the company's predetermined overhead
rate for the year.
65. The predetermined overhead rate is closest to:
A) $36.60
B) $36.41
C) $36.24
D) $36.05
Answer: A Level: Easy LO: 3
66. The applied manufacturing overhead for the year is closest to:
A) $136,269
B) $138,348
C) $136,987
D) $137,630
Answer: B Level: Easy LO: 5
67. The overhead for the year was:
A) $732 underapplied
B) $1,348 underapplied
C) $732 overapplied
D) $1,348 overapplied
Answer: D Level: Easy LO: 8
Chapter 3 Systems Design: Job-Order Costing
92 Garrison, Managerial Accounting, 12th Edition
Use the following to answer questions 68-70:
Baker Corporation applies manufacturing overhead on the basis of direct labor-hours. At the
beginning of the most recent year, the company based its predetermined overhead rate on total
estimated overhead of $210,600 and 6,000 estimated direct labor-hours. Actual manufacturing
overhead for the year amounted to $209,000 and actual direct labor-hours were 5,980.
68. The predetermined overhead rate for the year was closest to:
A) $34.95
B) $34.83
C) $34.98
D) $35.10
Answer: D Level: Easy LO: 3
69. The applied manufacturing overhead for the year was closest to:
A) $208,283
B) $209,001
C) $209,898
D) $209,180
Answer: C Level: Easy LO: 5
70. The overhead for the year was:
A) $702 underapplied
B) $898 underapplied
C) $702 overapplied
D) $898 overapplied
Answer: D Level: Easy LO: 8
Use the following to answer questions 71-73:
Caber Corporation applies manufacturing overhead on the basis of machine-hours. At the
beginning of the most recent year, the company based its predetermined overhead rate on total
estimated overhead of $60,600. Actual manufacturing overhead for the year amounted to
$59,000 and actual machine-hours were 5,900. The company's predetermined overhead rate
for the year was $10.10 per machine-hour.
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 93
71. The predetermined overhead rate was based on how many estimated machine-hours?
A) 5,783
B) 6,000
C) 5,900
D) 5,842
Answer: B Level: Medium LO: 3
72. The applied manufacturing overhead for the year was closest to:
A) $58,017
B) $59,590
C) $60,600
D) $58,597
Answer: B Level: Easy LO: 5
73. The overhead for the year was:
A) $1,010 underapplied
B) $590 overapplied
C) $590 underapplied
D) $1,010 overapplied
Answer: B Level: Easy LO: 8
Chapter 3 Systems Design: Job-Order Costing
94 Garrison, Managerial Accounting, 12th Edition
Use the following to answer questions 74-76:
Dapper Company had only one job in process on May 1. The job had been charged with
$3,400 of direct materials, $4,640 of direct labor, and $9,200 of manufacturing overhead cost.
The company assigns overhead cost to jobs using the predetermined overhead rate of $23.00
per direct labor-hour.
During May, the activity was recorded:
Raw materials (all direct materials):
Beginning balance ....................................................... $8,500
Purchased during the month ........................................ $42,000
Used in production ...................................................... $48,500
Labor:
Direct labor-hours worked during the month .............. 2,200
Direct labor cost incurred ............................................ $25,520
Actual manufacturing overhead costs incurred .............. $52,800
Inventories:
Raw materials, May 30 ............................................... ?
Work in process, May 30 ............................................ $32,190
Work in process inventory on May 30 contains $7,540 of direct labor cost. Raw materials
consist solely of items that are classified as direct materials.
74. The balance in the raw materials inventory account on May 30 was:
A) $33,500
B) $2,000
C) $40,000
D) $6,500
Answer: B Level: Medium LO: 6
75. The cost of goods manufactured for May was:
A) $109,670
B) $124,620
C) $143,300
D) $126,820
Answer: A Level: Hard LO: 6
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 95
76. The entry to dispose of the under- or overapplied overhead cost for the month would
include a:
A) debit of $2,200 to Manufacturing Overhead
B) debit of $14,950 to Manufacturing Overhead
C) credit of $14,950 to Manufacturing Overhead
D) credit of $2,200 to Manufacturing Overhead
Answer: D Level: Hard LO: 5,8
Use the following to answer questions 77-80:
The direct labor rate in Brent Company is $9.00 per hour, and manufacturing overhead is
applied to products using a predetermined overhead rate of $6.00 per direct labor hour.
During May, the company purchased $60,000 in raw materials (all direct materials) and
worked 3,200 direct labor hours. The Raw Materials inventory (all direct materials) decreased
by $3,000 between the beginning and end of May. The Work in Process inventory on May 1
consisted of one job which had been charged with $4,000 in direct materials and on which
300 hours of direct labor time had been worked. There was no Work in Process inventory on
May 31.
77. The balance in the Work in Process inventory account on May 1 was:
A) $0
B) $6,700
C) $4,500
D) $8,500
Answer: D Level: Medium LO: 4
78. The debit to Work in Process for the cost of direct materials used during May was:
A) $63,000
B) $61,000
C) $57,000
D) $67,000
Answer: A Level: Medium LO: 4
79. The debit to Work in Process for direct labor cost during May was:
A) $21,000
B) $26,100
C) $28,800
D) $31,500
Answer: C Level: Medium LO: 4
Chapter 3 Systems Design: Job-Order Costing
96 Garrison, Managerial Accounting, 12th Edition
80. If overhead was underapplied by $2,500 during May, the actual overhead cost for the
month must have been:
A) $16,700
B) $21,700
C) $18,500
D) $23,500
Answer: B Level: Hard LO: 5,8
Use the following to answer questions 81-84:
Chelm Music Company manufactures violins, violas, cellos, and fiddles and uses a job-order
cost system.
81. What account should Chelm debit when the workers who carve the wood for the
instruments are paid?
A) Direct Labor
B) Work in Process
C) Manufacturing Overhead
D) Salaries and Wages Receivable
E) Salaries and Wages Expense
Answer: B Level: Easy LO: 4
82. What account should Chelm debit when the production manager is paid?
A) Direct Labor
B) Work in Process
C) Manufacturing Overhead
D) Salaries and Wages Receivable
E) Salaries and Wages Expense
Answer: C Level: Medium LO: 4
83. What account should Chelm debit when the president of the company is paid?
A) Direct Labor
B) Work in Process
C) Manufacturing Overhead
D) Salaries and Wages Receivable
E) Salaries and Wages Expense
Answer: E Level: Easy LO: 4
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 97
84. What is one of the accounts that Chelm should credit when goods are sold?
A) Finished Goods
B) Work in Process
C) Cost of Goods Sold
D) Manufacturing Overhead
E) Cost of Goods Manufactured
Answer: A Level: Easy LO: 4
Use the following to answer questions 85-89:
The following partially completed T-accounts summarize transactions for Western Company
during the year:
Raw Material
Beg Bal 3,000 8,000
5,000
7,000
Finished Goods
Beg Bal 9,000 20,000
25,000
Work in Process
Beg Bal 6,000 25,000
6,500
9,000
7,000
Wages & Salaries Payable
10,000 2,000 Beg Bal
12,000
Manufacturing Overhead
1,500 7,000
2,000
750
3,000
Cost of Goods Sold
20,000
Chapter 3 Systems Design: Job-Order Costing
98 Garrison, Managerial Accounting, 12th Edition
85. The Cost of Goods Manufactured is:
A) $20,000
B) $34,000
C) $22,500
D) $25,000
Answer: D Level: Medium LO: 6,7
86. The direct labor cost was:
A) $9,000
B) $12,000
C) $10,000
D) $14,000
Answer: A Level: Hard LO: 7
87. The direct materials cost was:
A) $8,000
B) $6,500
C) $9,000
D) $6,000
Answer: B Level: Hard LO: 7
88. The manufacturing overhead applied was:
A) $9,000
B) $3,000
C) $500
D) $7,000
Answer: D Level: Hard LO: 5,7
89. The manufacturing overhead was:
A) $250 overapplied
B) $750 underapplied
C) $250 underapplied
D) $750 overapplied
Answer: C Level: Medium LO: 7,8
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 99
Use the following to answer questions 90-91:
Kapanga Manufacturing Company uses a job-order costing system and started the month of
October with a zero balance in its work in process and finished goods inventory accounts.
During October, Kapanga worked on three jobs and incurred the following direct costs on
those jobs:
Job B18 Job B19 Job C11
Direct materials ............................. $12,000 $25,000 $18,000
Direct labor .................................... $8,000 $10,000 $5,000
Kapanga applies manufacturing overhead at a rate of 150% of direct labor cost. During
October, Kapanga completed Jobs B18 and B19 and sold Job B19.
90. What is Kapanga's cost of goods manufactured for October?
A) $ 50,000
B) $ 55,000
C) $ 78,000
D) $ 82,000
Answer: D Level: Medium LO: 5,6
91. What is Kapanga's work in process inventory balance at the end of October?
A) $23,000
B) $30,500
C) $32,000
D) $43,000
Answer: B Level: Medium LO: 5,6
Chapter 3 Systems Design: Job-Order Costing
100 Garrison, Managerial Accounting, 12th Edition
Use the following to answer questions 92-95:
Dillon Company applies manufacturing overhead to jobs using a predetermined overhead rate
of 75% of direct labor cost. Any under or overapplied overhead cost is closed out to Cost of
Goods Sold at the end of the month. During May, the following transactions were recorded by
the company:
Raw materials (all direct materials):
Purchased during the month ........................................ $38,000
Used in production ...................................................... $35,000
Labor:
Direct labor hours worked during the month .............. 3,150
Direct labor cost incurred ............................................ $30,000
Manufacturing overhead cost incurred (total) ................ $24,500
Inventories:
Raw materials (all direct), May 31 .............................. $8,000
Work in process, May 1 .............................................. $9,000
Work in process, May 31 ............................................ $12,000*
*Contains $4,400 in direct labor cost.
92. The balance on May 1 in the Raw Materials inventory account was:
A) $11,000
B) $5,000
C) $7,000
D) $9,000
Answer: B Level: Medium LO: 6
93. The amount of direct materials cost in the May 31 Work in Process inventory account
was:
A) $7,600
B) $2,000
C) $6,300
D) $4,300
Answer: D Level: Hard LO: 6
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 101
94. The entry to dispose of the under or overapplied overhead cost for the month would
include:
A) a debit of $2,000 to the Manufacturing Overhead account
B) a credit of $2,500 to the Manufacturing Overhead account
C) a debit of $2,000 to Cost of Goods Sold
D) a credit of $2,500 to Cost of Goods Sold
Answer: C Level: Hard LO: 8
95. The Cost of Goods Manufactured for May was:
A) $84,500
B) $95,000
C) $75,500
D) $81,500
Answer: A Level: Medium LO: 6
Use the following to answer questions 96-98:
Farber Corporation uses a job-order cost system. The information below is from the financial
records of the company for last year:
Total manufacturing costs ......................... $2,500,000
Cost of goods manufactured ...................... $2,425,000
Predetermined overhead rate ..................... 80% of direct labor cost
Applied overhead was 30% of total manufacturing costs. The Work in Process inventory at
January 1 was 75% of the Work in Process inventory at December 31.
96. Farber Company's total direct labor cost was:
A) $750,000
B) $600,000
C) $900,000
D) $937,500
Answer: D Level: Hard LO: 6 Source: CMA, adapted
Chapter 3 Systems Design: Job-Order Costing
102 Garrison, Managerial Accounting, 12th Edition
97. Total cost of direct material used by Farber Company was:
A) $750,000
B) $812,500
C) $850,000
D) $1,150,000
Answer: B Level: Hard LO: 6 Source: CMA, adapted
98. The Work in Process inventory at December 31 was:
A) $300,000
B) $225,000
C) $100,000
D) $75,000
Answer: A Level: Hard LO: 6 Source: CMA, adapted
Use the following to answer questions 99-101:
Killian Company began operations on January 1. The predetermined overhead rate was set at
$6.00 per direct labor-hour. Debits to Work in Process for the year totaled $550,000. Credits
to Work in Process totaled $480,000. Analysis of the Company's records indicates that direct
labor cost totaled $250,000 for the year, which represents 20,000 direct labor-hours.
99. The direct materials used in production during the year totaled:
A) $180,000
B) $240,000
C) $130,000
D) $120,000
Answer: A Level: Hard LO: 7
100. If the actual manufacturing overhead cost for the year totaled $145,000, then overhead
was:
A) overapplied by $25,000
B) overapplied by $10,000
C) underapplied by $25,000
D) underapplied by $10,000
Answer: C Level: Medium LO: 7,8
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 103
101. The Company's ending work in process inventory consisted of one job, Job 42. The
job had been charged with $28,000 of direct labor cost, which consisted of 2,000
actual labor-hours. The direct materials cost in Job 42 totaled:
A) $33,000
B) $42,000
C) $17,000
D) $30,000
Answer: D Level: Hard LO: 7
Use the following to answer questions 102-103:
Echo Corporation uses a job-order costing system and applies overhead to jobs using a
predetermined overhead rate. During the year the company's Finished Goods inventory
account was debited for $360,000 and credited for $338,800. The ending balance in the
Finished Goods inventory account was $36,600. At the end of the year, manufacturing
overhead was overapplied by $15,900.
102. The balance in the Finished Goods inventory account at the beginning of the year was:
A) $15,900
B) $15,400
C) $21,200
D) $36,600
Answer: B Level: Medium LO: 7
103. If the applied manufacturing overhead was $169,300, the actual manufacturing
overhead cost for the year was:
A) $168,800
B) $153,400
C) $190,000
D) $185,200
Answer: B Level: Medium LO: 7
Chapter 3 Systems Design: Job-Order Costing
104 Garrison, Managerial Accounting, 12th Edition
Use the following to answer questions 104-108:
The following partially completed T-accounts summarize transactions for Farwest Company
during the year:
Raw Materials
Beg Bal 4,700 10,000
6,900
Finished Goods
Beg Bal 1,900 22,900
26,300
Work in Process
Beg Bal 4,600 26,300
7,400
8,000
6,800
Manufacturing Overhead
2,600 6,800
3,000
1,900
Wages & Salaries Payable
12,300 1,400 Beg Bal
11,000
Cost of Goods Sold
22,900
104. The Cost of Goods Manufactured was:
A) $22,900
B) $26,300
C) $6,400
D) $49,200
Answer: B Level: Medium LO: 7
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 105
105. The direct labor cost was:
A) $8,000
B) $12,300
C) $12,600
D) $11,000
Answer: A Level: Hard LO: 7
106. The direct materials cost was:
A) $8,000
B) $10,000
C) $7,400
D) $4,600
Answer: C Level: Hard LO: 7
107. The manufacturing overhead applied was:
A) $1,900
B) $6,800
C) $12,900
D) $3,000
Answer: B Level: Medium LO: 7
108. The manufacturing overhead was:
A) $1,900 underapplied
B) $700 underapplied
C) $400 overapplied
D) $3,200 overapplied
Answer: B Level: Medium LO: 7
Chapter 3 Systems Design: Job-Order Costing
106 Garrison, Managerial Accounting, 12th Edition
Essay Questions
109. Aladili Company is a manufacturing firm that uses job-order costing. At the beginning
of the year, the company's inventory balances were as follows:
Raw materials ................................ $36,000
Work in process ............................. $41,000
Finished goods ............................... $104,000
The company applies overhead to jobs using a predetermined overhead rate based on
machine-hours. At the beginning of the year, the company estimated that it would
work 21,000 machine-hours and incur $210,000 in manufacturing overhead cost. The
following transactions were recorded for the year:
a. Raw materials were purchased, $346,000.
b. Raw materials were requisitioned for use in production, $338,000 ($302,000 direct
and $36,000 indirect).
c. The following employee costs were incurred: direct labor, $360,000; indirect
labor, $68,000; and administrative salaries, $111,000.
d. Selling costs, $153,000.
e. Factory utility costs, $29,000.
f. Depreciation for the year was $102,000 of which $93,000 is related to factory
operations and $9,000 is related to selling and administrative activities.
g. Manufacturing overhead was applied to jobs. The actual level of activity for the
year was 19,000 machine-hours.
h. The cost of goods manufactured for the year was $870,000.
i. Sales for the year totaled $1,221,000 and the costs on the job cost sheets of the
goods that were sold totaled $855,000.
j. The balance in the Manufacturing Overhead account was closed out to Cost of
Goods Sold.
Required:
Prepare the appropriate journal entry for each of the items above (a. through j.). You
can assume that all transactions with employees, customers, and suppliers were
conducted in cash.
Level: Medium LO: 3,4,5,8
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 107
Answer:
a. Raw Materials Inventory .................................... 346,000
Cash ........................................................... 346,000
b. Work in Process Inventory ................................. 302,000
Manufacturing Overhead .................................... 36,000
Raw Materials Inventory ........................... 338,000
c. Work in Process Inventory ................................. 360,000
Manufacturing Overhead .................................... 68,000
Administrative Salary Expense ........................... 111,000
Cash ........................................................... 539,000
d. Selling Expenses ................................................. 153,000
Cash ........................................................... 153,000
e. Manufacturing Overhead .................................... 29,000
Cash ........................................................... 29,000
f. Manufacturing Overhead .................................... 93,000
Depreciation Expense ......................................... 9,000
Accumulated Depreciation ........................ 102,000
g. Work in Process .................................................. 190,000
Manufacturing Overhead ........................... 190,000
h. Finished Goods ................................................... 870,000
Work in Process......................................... 870,000
i. Cash .................................................................... 1,221,000
Sales........................................................... 1,221,000
Cost of Goods Sold ............................................. 855,000
Finished Goods .......................................... 855,000
j. Cost of Goods Sold ............................................. 36,000
Manufacturing Overhead ........................... 36,000
Chapter 3 Systems Design: Job-Order Costing
108 Garrison, Managerial Accounting, 12th Edition
110. Quark Spy Equipment manufactures espionage equipment. Quark uses a job-order cost
system and applies overhead to jobs the basis of direct labor-hours. For the current
year, Quark estimated that it would work 100,000 direct labor-hours and incur
$20,000,000 of manufacturing overhead cost. The following summarized information
relates to January of the current year. The raw materials purchased include both direct
and indirect materials.
Raw materials purchased on account .............................. $1,412,000
Direct materials requisitioned into production ................ $1,299,500
Indirect materials requisitioned into production ............. $98,000
Direct labor cost (7,900 hours @ $40 per hour) .............. $316,000
Indirect labor cost (10,200 hours @ $16 per hour) ......... $163,200
Depreciation on the factory building ............................... $190,500
Depreciation on the factory equipment ........................... $890,700
Utilities for the factory .................................................... $79,600
Cost of jobs finished ........................................................ $2,494,200
Cost of jobs sold .............................................................. $2,380,000
Sales (all on account) ...................................................... $3,570,000
Required:
Prepare journal entries to record Quark's transactions for the month of January. Do not
close out the manufacturing overhead account.
Level: Medium LO: 3,4,5
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 109
Answer:
Raw Materials ........................................................ 1,412,000
Accounts Payable ......................................... 1,412,000
Work in Process ..................................................... 1,299,500
Manufacturing Overhead ....................................... 98,000
Raw Materials .............................................. 1,397,500
Work in Process ..................................................... 316,000
Manufacturing Overhead ....................................... 163,200
Salaries and Wages Payable (or Cash) ......... 479,200
Work in Process ..................................................... 1,580,000
Manufacturing Overhead ............................. 1,580,000
($20,000,000/100,000) × 7,900
Manufacturing Overhead ....................................... 1,160,800
Accumulated Depreciation, Building ........... 190,500
Accumulated Depreciation, Equipment ....... 890,700
Utilities Payable (or Cash) ........................... 79,600
Finished Goods ...................................................... 2,494,200
Work in Process ........................................... 2,494,200
Cost of Goods Sold................................................ 2,380,000
Finished Goods ............................................ 2,380,000
Accounts Receivable ............................................. 3,570,000
Sales ............................................................. 3,570,000
Chapter 3 Systems Design: Job-Order Costing
110 Garrison, Managerial Accounting, 12th Edition
111. Baar Company is a manufacturing firm that uses job-order costing. The company's
inventory balances were as follows at the beginning and end of the year:
Beginning Balance Ending Balance
Raw materials ................................ $26,000 $20,000
Work in process ............................. $71,000 $53,000
Finished goods ............................... $66,000 $81,000
The company applies overhead to jobs using a predetermined overhead rate based on
machine-hours. At the beginning of the year, the company estimated that it would
work 44,000 machine-hours and incur $176,000 in manufacturing overhead cost. The
following transactions were recorded for the year:
• Raw materials were purchased, $459,000.
• Raw materials were requisitioned for use in production, $465,000 ($431,000 direct
and $34,000 indirect).
• The following employee costs were incurred: direct labor, $296,000; indirect
labor, $63,000; and administrative salaries, $157,000.
• Selling costs, $134,000.
• Factory utility costs, $14,000.
• Depreciation for the year was $119,000 of which $114,000 is related to factory
operations and $5,000 is related to selling and administrative activities.
• Manufacturing overhead was applied to jobs. The actual level of activity for the
year was 47,000 machine-hours.
• Sales for the year totaled $1,287,000
Required:
a. Prepare a schedule of cost of goods manufactured in good form.
b. Was the overhead under- or overapplied? By how much?
c. Prepare an income statement for the year in good form. The company closes any
under- or overapplied overhead to Cost of Goods Sold.
Level: Medium LO: 3,5,6,8
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 111
Answer:
a. Schedule of cost of goods manufactured
Estimated total manufacturing overhead (a) ................... $176,000
Estimated total machine-hours (b) .................................. 44,000
Predetermined overhead rate (a) ÷ (b)............................. $ 4.00
Actual total machine-hours (a) ........................................ 47,000
Predetermined overhead rate (b) ..................................... $4.00
Overhead applied (a) × (b) .............................................. $188,000
Direct materials:
Raw materials inventory, beginning ............................ $ 26,000
Add: purchases of raw materials .................................. 459,000
Total raw materials available ....................................... 485,000
Deduct: raw materials inventory, ending ..................... 20,000
Raw materials used in production ................................... 465,000
Less: indirect materials ................................................... 34,000
Direct materials ............................................................... 431,000
Direct labor ...................................................................... 296,000
Manufacturing overhead applied ..................................... 188,000
Total manufacturing costs ............................................... 915,000
Add: Beginning work in process inventory .................... 71,000
986,000
Deduct: Ending work in process inventory ..................... 53,000
Cost of goods manufactured ............................................ $933,000
b. Overhead under- or overapplied
Actual manufacturing overhead cost incurred:
Indirect materials .......................................................... $ 34,000
Indirect labor ................................................................ 63,000
Factory utilities ............................................................ 14,000
Factory depreciation ..................................................... 114,000
Manufacturing overhead cost incurred ............................ 225,000
Manufacturing overhead applied ..................................... 188,000
Underapplied overhead ................................................... $ 37,000
Chapter 3 Systems Design: Job-Order Costing
112 Garrison, Managerial Accounting, 12th Edition
c. Income Statement
Beginning finished goods inventory ............................... $ 66,000
Cost of goods manufactured ............................................ 933,000
Goods available for sale .................................................. 999,000
Ending finished goods inventory .................................... 81,000
Unadjusted cost of goods sold ......................................... 918,000
Add: underapplied overhead ........................................... 37,000
Adjusted cost of goods sold ............................................ $955,000
Sales ................................................................................ $1,287,000
Cost of goods sold (adjusted) .......................................... 955,000
Gross margin ................................................................... 332,000
Less selling and administrative expenses:
Administrative salaries .................................................... $157,000
Selling costs .................................................................... 134,000
Depreciation .................................................................... 5,000 296,000
Net operating income ...................................................... $ 36,000
112. Gonzalez, Inc. manufactures stereo speakers in two factories; one in Vandalia, Illinois
and another in Modesto, California. The Vandalia factory uses DL$ for its overhead
rate and the Modesto factory uses machine-hours (MHs) for its overhead rate.
Information related to both plants for last year is presented below:
Vandalia factory Modesto factory
Estimated manufacturing overhead ........... $1,000,000 $1,600,000
Estimated amount of allocation base ......... (a)______________ 200,000 MHs
Predetermined overhead rate ..................... $10 per DL$ (d)______________
Actual amount of allocation base ............... (b)______________ 190,000 MHs
Actual manufacturing overhead ................. $1,092,500 $1,472,500
Applied manufacturing overhead ............... $1,010,000 (e)_______________
Under or overapplied overhead .................. (c)______________ (f)_______________
Required:
Fill in the lettered blanks above. SHOW YOUR CALCULATIONS.
Level: Medium LO: 3,5,8
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 113
Answer:
(a) = $100,000; $1,000,000/$10
(b) = $101,000; $1,010,000/$10
(c) = $82,500 underapplied; $1,092,500 - $1,010,000
(d) = $8 per MH; $1,600,000/200,000
(e) = $1,520,000; 190,000 × $8
(f) = ($47,500) overapplied; $1,472,500 - $1,520,000
113. Hacken Company has a job-order costing system. The company applies manufacturing
overhead to jobs using a predetermined overhead rate based on direct labor cost. The
information below has been taken from the cost records of Hacken Company for the
past year:
Direct materials used in production ..................................................... $1,250
Total manufacturing costs charged to production during the year
(includes direct materials, direct labor, and applied factory
overhead) ......................................................................................... $6,050
Manufacturing overhead applied ......................................................... $2,800
Selling and administrative expenses.................................................... $1,000
Inventories:
Direct materials, January 1 ............................................................... $130
Direct materials, December 31 ......................................................... $80
Work in process, January 1 .............................................................. $250
Work in process, December 31 ........................................................ $400
Finished goods, January 1 ................................................................ $300
Finished goods, December 31 .......................................................... $200
Required:
a. Compute the cost of direct materials purchased during the year.
b. Compute the predetermined overhead rate that was used during the past year.
c. Compute the Cost of Goods Manufactured for the past year.
d. Compute the Cost of Goods Sold for the past year.
Level: Hard LO: 3,6
Chapter 3 Systems Design: Job-Order Costing
114 Garrison, Managerial Accounting, 12th Edition
Answer:
a. Cost of raw materials used in production ........................................ $1,250
Less decrease in the raw materials inventory during the year
($130 - $80 = $50) ....................................................................... 50
Cost of raw materials purchased during the year ............................ $1,200
b. Total manufacturing costs ............................................................... $6,050
Less: Direct materials used in production ....................................... 1,250
Less: Manufacturing overhead applied ........................................... 2,800
Direct labor cost incurred ................................................................ $2,000
Predetermined overhead rate = Manufacturing overhead cost ÷ Direct labor
cost = $2,800 ÷ $2,000 =140% of direct labor cost
c. Total manufacturing costs ............................................................... $6,050
Add: Work in process inventory, January 1 .................................... 250
6,300
Deduct: Work in process inventory, December 31 ......................... 400
Cost of goods manufactured ............................................................ $5,900
d. Finished goods inventory, January 1 ............................................... $ 300
Add: Cost of goods manufactured ................................................... 5,900
Cost of goods available for sale ...................................................... 6,200
Deduct: Finished goods inventory, December 31 ........................... 200
Cost of goods sold ........................................................................... $6,000
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 115
114. The Simkins Company uses a job order costing system. The following activities took
place during the month of May:
a. Raw materials purchased, $40,000.
b. Raw materials (all direct) used in production, $35,000.
c. Salaries and wages cost incurred:
Direct labor cost, $60,000.
Indirect labor cost, $30,000.
Sales salaries $25,000.
d. Factory utility costs incurred, $15,000.
e. Depreciation on factory equipment, $50,000.
f. Advertising expense incurred, $80,000.
g. Manufacturing overhead is applied at the predetermined rate of 150% of direct labor cost.
h. Cost of Goods Manufactured for the month, $180,000.
i. Cost of Goods Sold for the month, $150,000.
Required:
Prepare journal entries to record the information given above. Key your entries by the
letters a through i.
Level: Medium LO: 4,5,6
Chapter 3 Systems Design: Job-Order Costing
116 Garrison, Managerial Accounting, 12th Edition
Answer:
a. Raw materials inventory .......................... 40,000
Accounts payable ............................... 40,000
b. Work in process ........................................ 35,000
Raw materials inventory .................... 35,000
c. Work in process ........................................ 60,000
Manufacturing overhead .......................... 30,000
Sales salaries expense .............................. 25,000
Wages and salaries payable ............... 115,000
d. Manufacturing overhead .......................... 15,000
Accounts payable ............................... 15,000
e. Manufacturing overhead .......................... 50,000
Accumulated depreciation ................. 50,000
f. Advertising expense ................................. 80,000
Accounts payable ............................... 80,000
g. Work in process ........................................ 90,000
Manufacturing overhead .................... 90,000
$60,000 × 150% = $90,000
h. Finished goods ......................................... 180,000
Work in process ................................. 180,000
i. Cost of goods sold .................................... 150,000
Finished goods ................................... 150,000
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 117
115. The Commonwealth Company uses a job-order cost system and applies manufacturing
overhead cost to jobs using a predetermined overhead rate based on the cost of
materials used in production. At the beginning of the year, the following estimates
were made as a basis for computing the predetermined overhead rate: manufacturing
overhead cost, $186,000; direct materials cost, $155,000. The following transactions
took place during the year (all purchases and services were acquired on account):
a. Raw materials purchased, $96,000.
b. Raw materials requisitioned for use in production (all direct materials),
$88,000.
c. Utility bills incurred in the factory, $17,000.
d. Costs for salaries and wages incurred as follows:
Direct labor, $174,000
Indirect labor, $70,000
Selling and administrative salaries, $124,000
e. Maintenance costs incurred in the factory, $12,000.
f. Advertising costs incurred, $98,000.
g. Depreciation recorded for the year, $75,000 (75% relates to factory assets and
the remainder relates to selling and administrative assets).
h. Rental cost incurred on buildings, $80,000 (80% of the space is occupied by
the factory, and 20% is occupied by sales and administration).
i. Miscellaneous selling and administrative costs incurred, $12,000.
j. Manufacturing overhead cost was applied to jobs.
k. Cost of goods manufactured for the year, $480,000.
l. Sales for the year (all on account) totaled $900,000. These goods cost
$550,000 to manufacture
Required:
Prepare journal entries to record the information above. Key your entries to the letters
a through l.
Level: Medium LO: 4,5,6
Chapter 3 Systems Design: Job-Order Costing
118 Garrison, Managerial Accounting, 12th Edition
Answer:
a. Raw Materials ................................... 96,000
Accounts Payable ........................ 96,000
b. Work in Process ................................ 88,000
Raw Materials ............................. 88,000
c. Manufacturing Overhead .................. 17,000
Accounts Payable ........................ 17,000
d. Work in Process ................................ 174,000
Manufacturing Overhead .................. 70,000
Salaries Expense ................................ 124,000
Salaries and Wages Payable ........ 368,000
e. Manufacturing Overhead .................. 12,000
Accounts Payable ........................ 12,000
f. Advertising Expense ......................... 98,000
Accounts Payable ........................ 98,000
g. Manufacturing Overhead .................. 56,250
Depreciation Expense ........................ 18,750
Accumulated Depreciation .......... 75,000
h. Manufacturing Overhead .................. 64,000
Rent Expense ..................................... 16,000
Accounts Payable ........................ 80,000
i. Miscellaneous Expense ..................... 12,000
Accounts Payable ........................ 12,000
j. Work in Process ................................ 105,600
Manufacturing Overhead ............ 105,600
((186,000/155,000) × 88,000)
k. Finished Goods .................................. 480,000
Work in Process .......................... 480,000
l. Accounts Receivable ......................... 900,000
Sales ............................................ 900,000
Cost of Goods Sold ........................... 550,000
Finished Goods ........................... 550,000
Chapter 3 Systems Design: Job-Order Costing
Garrison, Managerial Accounting, 12th Edition 119
116. The following cost data relate to the manufacturing activities of the Kanaba Company
last year:
Manufacturing overhead costs:
Property taxes ........................................................ $ 1,500
Utilities, factory ..................................................... 2,500
Indirect labor .......................................................... 5,000
Depreciation, factory ............................................. 12,000
Insurance, factory ................................................... 3,000
Total ....................................................................... $24,000
Other costs incurred:
Purchases of direct materials ................................. $16,000
Direct labor cost ..................................................... $20,000
Inventories:
Direct materials, January 1 .................................... $4,000
Direct materials, December 31 .............................. $3,500
Work in process, January 1 .................................... $3,000
Work in process, December 31 .............................. $3,750
The company uses a predetermined overhead rate to apply manufacturing overhead
cost to production. The rate last year was $5.00 per machine-hour; a total of 5,000
machine-hours were recorded for the year.
Required:
a. Compute the amount of under- or overapplied overhead cost for the year.
b. Prepare a schedule of Cost of Goods Manufactured for the year.
Level: Medium LO: 5,6,8
Chapter 3 Systems Design: Job-Order Costing
120 Garrison, Managerial Accounting, 12th Edition
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