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Accounting Chapter 17 – Job Order Costing

A cost accounting system that accumulates costs for each manufacturing department or process is called a
job order cost system.
client cost system.
department cost system.
process cost system
process cost system.

Feedback: Process cost systems provide product costs for each manufacturing department or process.

The purpose of a cost accounting system is to
determine the accuracy of the financial statements.
measure, record, and report product costs.
determine how much each customer will be billed for shipping on purchases.
determine taxes to be paid.
measure, record, and report product costs.

Feedback: The purpose of a cost accounting system is to measure, record, and report product costs.

A process cost system will be used by all of the following manufacturing companies except
a custom sailboat factory.
an oil refinery.
a pencil factory.
an ice cream factory
a custom sailboat factory.

Feedback: A sailboat is unique or customized in nature for the customer and therefore would most likely be accounted for under a job costing system. Process cost systems are often used by companies that manufacture units of a product that are indistinguishable from each other and are manufactured using a continuous production process.

Neon Lighting is comparing actual and applied overhead amounts at the end of the year and finds the factory overhead account has a credit balance. What does this mean?
The entire balance is charged back to work in process inventory.
Applied costs are higher than actual costs.
Actual costs are higher than applied costs.
The balance should be carried over from year to year.
Applied costs are higher than actual costs.

Feedback: When the factory overhead account ends with a credit balance, the applied amounts charged to individual jobs were higher than actual expenses. The overapplied amount will be credited to cost of goods sold.

The estimated budget for factory overhead is $90,000 and the estimated direct labor hours is 9,000. Actual factory overhead is $99,000. What is the predetermined overhead rate?
$0.11
$10
$11
$0.10
$10

Feedback: $90,000/9,000 = $10. The formula for the predetermined factory overhead rate is:

Estimated total factory overhead costs
Estimated activity base

Icy Mocha Company estimates its factory overhead costs to be $35,000 and machine hours to be 5,000 for the year. If the actual hours worked on Jobs 333 and Jobs 334 total 4,980 and actual factory overhead costs are $34,700, what is the amount of either over- or underapplied factory overhead?
underapplied $300
overapplied $300
underapplied $160
overapplied $160
overapplied $160

Feedback: The predetermined overhead rate = $35,000/5,000 = $7. Multiply the predetermined overhead rate by actual hours: $7 × 4,980 = $34,860. Compare actual to applied: $34,700 – $34,860 = $160 overapplied.

In a job order costing system, ____________ make up the work in process ledger.
None of these choices are correct.
job cost sheets
receiving reports
materials requisitions
job cost sheets

Feedback: For direct materials, the quantities and amounts from the materials requisitions are posted to the job cost sheets. In a job order costing system, job cost sheets make up the work in process ledger.

A job order costing system can be used to
estimate factory overhead costs.
control costs.
determine period costs.
reconcile bank records with book records.
control costs.

Feedback: The job order cost system can be used to evaluate an organization’s cost performance.

A job order cost system can be used by a hospital to
establish security policies.
charge patients with services provided.
evaluate quality care.
evaluate a patient’s progress.
charge patients with services provided.

Feedback: A job order cost system can be used for a professional service business. In such cases, the customer, client, or patient can be viewed as a job for which costs are accumulated and reported. A job order cost accounting system may be useful for decision making about hospital services that require accumulating and recording service costs by patient.

A baking company has determined that direct material costs are increasing. All of the following are reasons why this may be true except
the fruits used in baking are out of season.
the oven is malfunctioning.
a new baker has been hired who is not familiar with the ingredients.
cakes are being sold at a special rate during the month.
cakes are being sold at a special rate during the month.

Feedback: Job cost sheets can be used to help investigate comparisons to expected costs, leading to the development of possible reasons for increased costs and further evaluation by management. Management might then look at selling prices (special rates).

The job order cost system for a service business includes all of the following except
overhead.
work in process.
cost of services.
materials inventory.
materials inventory.

Feedback: Materials and supplies are normally very low and are included in overhead costs

A service organization using a job order cost system will typically charge supplies and materials to
cost of services provided account.
the client.
nothing at all and write them off as uncollectible.
the department using the supplies and include them in overhead costs
the department using the supplies and include them in overhead costs.

Feedback: The cost of any materials or supplies used in rendering services for a client is normally small and included as part of the overhead.

A law firm, Morris & Morris, accumulates costs associated with individual cases using a job order cost system. On August 5, the firm charged 200 hours of professional (lawyer) time to the Micro Systems Co. breech of contract suit to prepare for the trial, at a rate of $340 per hour. What is the journal entry for this transaction?
Debit Salaries Payable and credit Work in Process for $68,000.
Debit Work in Process and credit Salaries Payable for $68,000.
Debit Work in Process and credit Firm Overhead for $68,000.
Debit Salaries Expense and credit Cost of Services for $68,000
Debit Work in Process and credit Salaries Payable for $68,000.

Feedback: Correct. 200 hrs × $340 per hour = $68,000

Work in Process 68,000
Salaries Payable 68,000

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