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Exam 11: Product Costing in Service and Manufacturing Entities

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Question 71

True/False

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Service companies do not transform raw materials into finished goods.

A) True
B) False

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Question 72

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Which of the following costs would not increase the Work in Process Inventory account?

A) Cost of direct labor
B) Cost of allocated overhead
C) Cost of direct materials
D) Cost of selling supplies

E) B) and D)
F) C) and D)

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Question 73

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Ting Company started the accounting period with the following beginning balances: Raw Materials Inventory,$21,000;Work in Process Inventory,$45,000;and Finished Goods Inventory,$10,000.During the accounting period,the company purchased $30,000 of raw materials and ended the period with $8,000 in raw material inventory.Direct labor costs for the period were $60,000 and $63,000 of manufacturing overhead costs was allocated to work in process.There was no over- or underapplied overhead.Ending work in process was $41,000 and ending finished goods was $17,500.Goods were sold during the period for $162,500.The amount of cost of goods manufactured (i.e. ,amount transferred from work in process to finished goods) would be:

Jackson Company estimated that its manufacturing employees would work 88,000 direct labor hours during the current year.During the year,its manufacturing employees actually worked 80,000 direct labor hours.Actual manufacturing overhead costs amounted to $344,000.Jackson applies overhead cost on the basis of direct labor hours.The manufacturing overhead account was overapplied by $16,000 during the current year.Based on this information the predetermined overhead rate was:

Use of absorption costing allows a company to increase its profits by increasing the level of production of its products.

Which of the following statements regarding the schedule of cost of goods manufactured and sold is correct?

Coleridge Company estimates that its production workers will work 125,000 direct labor hours during the upcoming period and that overhead costs will amount to $750,000.Assume Overhead to be allocated on the basis of direct labor hours.What predetermined overhead rate would be used to apply overhead to production during the period?

Winken,Blinken,and Nod is a law firm specializing in real estate litigation.In addition to the three partners,the firm employs nine associates who work directly with clients.The average budgeted compensation for the twelve professionals is $240,000.Each lawyer is budgeted at 1,500 billable hours per year.All professional labor costs are included in a single direct cost pool and are traced to jobs on a per-hour basis.All non-professional labor costs are included in a single overhead cost pool and are allocated to jobs using professional labor hours as the allocation base.Budgeted overhead costs total $1,800,000.The firm is considering bidding on some work with a local university.The job is expected to require 100 hours of professional labor. Required: 1)Compute the budgeted direct cost rate per hour of professional labor. 2)Compute the budgeted (that is,predetermined)overhead cost rate per hour of professional labor. 3)Compute the budgeted cost for the university job.

Which of the following statements is

Selected accounts from Madison Company are provided below: Required: Determine the following: $\begin{array}{|l|l|l|}\hline & \text {Item} &\text {Amount} \\\hline 1 & \text { Actual overhead costs } \\\hline 2 & \text { Cost of goods manufactured } \\\hline 3 . & \text { Cost of goods sold } \\\hline 4 & \text { Direct labor cost incurred } \\\hline 5 & \text { Direct materials used } \\\hline 6 & \text { Estimated overhead charged to production } \\\hline 7 & \text { Finished goods ending inventory } \\\hline 8 & \text { Gross margin } \\\hline 9 & \text { Income } \\\hline 10 & \text { Indirect materials used in production } \\\hline 11 & \begin{array}{l}\text { Over- or under-applied overhead (show } \\\text { dollar amount and whether over- or under- } \\\text { applied) }\end{array} \\\hline 12 & \text { Raw materials purchased } \\\hline 13 & \text { Raw materials ending inventory } \\\hline 14 & \text { Work in process ending inventory } \\\hline\end{array}$

Many companies use variable costing for internal reporting and evaluation of managers.

Service companies accumulate information about the cost of services provided,and they report those costs in an inventory account.

For the month of January,Year 1,Ghent Corporation had a beginning balance of $103,200 in work in process.During the month,the company added the following costs to work in process: direct materials,$90,900;direct labor,$54,000;and manufacturing overhead,$81,000.The ending amount of work in process was $37,400.What was the cost of goods manufactured for the period? Prepare a schedule that shows the calculation of the cost of goods manufactured.

A credit to the Finished Goods Inventory account represents the:

The cost of direct materials purchased on account is expensed at the time the:

Orlando Company paid $700 cash for production workers' wages.How does this transaction affect the financial statements? $\begin{array}{|c|c|c|c|c|c|c|c|c|c|}\hline {\text { Assets }} & = & \text { Liab. } & + & \text { Equity } & \text { Rev. } & - & \text { Exp. } & = & \text { Net Inc. } \\\hline \begin{array}{l|c|l}\text { Cash } & + & \text { WIP Inv. } \\\end{array} & & & & & & & & & \\\hline\end{array}$

Washington Company made the following estimates for the current accounting period: Overhead costs: $250,000 Direct labor hours: 50,000 If 7,000 hours of labor are actually used in February,how much overhead cost would be allocated to work in process during the month? Assume Overhead to be allocated on the basis of direct labor hours.

Describe the flow of costs in a manufacturing company,starting with raw materials inventory.What accounts do the costs flow through?

The predetermined overhead rate is found by dividing total estimated overhead costs by the total estimated volume of the overhead allocation base.