Cost Accounting 2 SECTION NO 1 CHAPTER 1

Cost Accounting (2) SECTION NO. 1 CHAPTER (1): JOB ORDER COSTING

Solution of MCQ Page 28 1) Assume that 50, 000 units are put into production for job 33 and the total cost of production was $1, 500, 000. Normal spoilage for general production is estimated to be 2. 5%. At the completion of production only 47, 000 units were good. (The remaining units were spoiled and a salvage value of $7 each). Management considers spoilage to be inherent in nature to the general production process and includes normal spoilage in the predetermine factory overhead application rate. When accounting for the spoilage of job 33, what is the total amount of costs to be removed from work-in-process inventory? 1 - $37, 500 2 - $50, 000 3 - $61, 250 4 - $90, 000

Questions 2 and 3 relate to Howard's Graphite-Boron Tennis Racquet Manufacturing Plant. Assume that 15, 000 tennis racquets are placed into production for job 22. Normal defective units were expected to be 7% of job 22's production. Actual defective units were 1, 100. The costs to rework the 1, 100 defective units were as follows: Direct materials $ 5, 500 Direct labor 19, 800 Factory overhead applied (75% of direct labor 14, 850 dollars) Total $40, 150

2) Assuming that the rework costs were ignored in the computation of the factory overhead application rate, what is the amount of rework costs to be charged to work-inprocess inventory for job 22? A. $ 0 B. $ 32, 675 C. $ 38, 325 D. $ 40, 150

3) What is the amount of payroll liability incurred by Howard's Graphite -Boron Tennis Racquet Manufacturing Plant in servicing job 22's abnormal defective units? A. $ 0 B. $ 900 C. $ 1, 250 D. $ 1, 825 Answer: Abnormal Defective Units = Total Defective Units – Normal Defective Units Abnormal Defective Units = 1, 100 – 1, 050 = 50 Units. DL Costs Per Defective Units = Total DL Rework Costs ÷ Total Units Reworked DL Costs Per Defective Units = $19, 800 ÷ 1, 100 = $18 The amount of payroll liability incurred in servicing job 22's abnormal defective units = Abnormal Defective Units × DL Costs per Defective Unit = 50 × $ 18 = $ 900

4) Scrap accumulating from job 511 was sold for $450. Job 511 also resulted in waste disposal costs of $150. If estimated scrap had been taken into consideration when computing the factory overhead application rate, and if waste material costs are allocated to specific jobs, proper accounting treatment would include a: A. Total debit of $150 to factory overhead control. B. Total debit of $699 to factory overhead control. C. Total credit of $300 to factory overhead control. D. Total credit of $450 to factory overhead control. Explanation Cash Factory overhead control Dr 450 Cr 450

5) Using a perpetual inventory system, the entry to record the purchase of indirect materials would include a debit to ……. . , and the entry to record subsequently the placement of indirect materials into production would include a debit to ……. . . A. Materials inventory, work-in-process inventory. B. Materials inventory, factory costs. C. Materials inventory, factory overhead control. D. Work-in-process inventory, factory overhead control. 6) Which of the following companies is most likely to use a process costing system. A. a manufacturer of breakfast cereal B. a manufacturer of large commercial aircraft C. a custom jewelry manufacturer D. a law firm

7) Stewart Company's actual manufacturing overhead is $2, 800, 000. Overhead is allocated on the basis of direct labor hours. The direct labor hours were 50, 000 for the period. What is the factory overhead rate? A. $47. 00 B. $56. 00 C. $75. 00 D. None of the above are correct.

8) O'Reilly Enterprises manufactures digital video equipment. For each unit $2, 950 of direct material is used and there is $2, 000 of direct labor at $20 per hour. Factory overhead is applied at $35 per direct labor hour. Calculate the cost of each unit. A. $4, 950 B. $9, 950 C. $8, 450 D. $11, 950 9) Payment of the factory rent increases the: A. Work-in-process control account B. Factory overhead control account C. Both A and B are correct D. None of these answers are correct

10) When direct materials are requisitioned the …… account is increased. A. Factory overhead control B. Work-in-process inventory C. Materials inventory D. Accounts payable 11) Which statement is correct? A. The accounting for abnormal spoilage will not affect the unit cost of goods units in a production process. B. Management's goal should be to operate a production process that will yield a perfect product almost 100% of the time. C. Abnormal spoilage is usually considered a part of the cost of production D. Spoilage is the result of inefficient production methods.

12) Units which do not meet production standards and which are sold for their salvage value (if any) are called: A. Spoiled units B. Defective units C. Scrap materials D. Waste materials

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