Study Probes - Chapters 30, 31, 32, 33 Solution

Problem 1 Alex Company’s Work in Process Inventory account has a beginning

balance of $60,000 and an ending balance of $50,000. Current manufacturing costs
total $200,000. How much is cost of goods manufactured?

$60,000 + $200,000 - $50,000 = $210,000

Problem 2 Hernandez, Inc. manufactures calculators. During May, Hernandez’s

transactions included the following:

Direct labor cost incurred $5,400

Total manufacturing overhead cost 6,650
Direct materials purchased 11,500
Raw materials inventory, 160
beginning
Raw materials inventory, ending 280
Sales 23,000
Selling expenses 2,100
Work in process inventory, 220
beginning
Work in process inventory, ending 250

A. Briefly list any additional information you need to calculate cost of goods sold for
this company. (Be specific.)

Beginning finished goods inventory and ending finished goods inventory (You have
enough information to calculate cost of goods manufactured so you don't need to be
told that amount.)

B. How much is the cost of direct materials issued to production during May?

Raw materials inventory, beginning $ 160

Direct materials purchased 11,500
Less Raw materials inventory, ending (280)
Cost of direct materials issued to production $11,380
C. How much is cost of goods manufactured for May?
Materials issued to production $11,380
Direct labor cost incurred 5,400
Manufacturing overhead cost 6,650
Total manufacturing costs 22,430
Add: Work in process inventory, beginning 220
Less: Work in process inventory, ending (250)

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 Cost of goods manufactured $23,400

Problem 3 Culvyhouse Company reported the following amounts for 2018:

Raw materials purchased
Direct materials used
Indirect materials used
Direct labor used
Indirect direct labor used
$72,000 Beginning work-in-process inventory
70,000 Ending work-in-process inventory
4,000 Selling and administrative expenses incurred
66,000 Other manufacturing overhead costs incurred
7,000 Beginning finished goods inventory
Ending finished goods inventory

A. Calculate the cost of goods manufactured.

Cost of direct materials used $70,000
Cost of direct labor used 66,000
Cost of MOH: $18,000 + $4,000 + $7,000 29,000
Total manufacturing costs $165,000
Add beginning WIP 21,000
Less ending WIP (16,000)
Cost of goods manufactured $170,000
B. Calculate cost of goods sold.
Beginning FG inventory $6,000
Add CGM (part A) 170,000
Less ending FG inventory (9,000)
= Cost of goods sold $167,000

Problem 4 - Listed below are selected changes due to various transactions in the
manufacturing process. Identify which account is changed as a result of each action
listed in items 1 through 10 below by printing the code of the account(s) in the space
provided. Some changes may have more than one answer.

Accounts
RM - Raw Materials Inventory
FG - Finished Goods Inventory
WIP - Work-in-Process Inventory
MOH - Manufacturing Overhead
CGS - Cost of Goods Sold

Answers Changes
MOH 1. Increases when manufacturing overhead is incurred
MOH 2. Increases when indirect materials are transferred to production
RM 3. Increases when raw materials are purchased on account.
RM 4. Decreases when direct materials are used in production
WIP 5. Increases when direct labor costs are incurred
FG 6. Increases when goods are finished.
WIP 7. Decreases when goods are finished.
WIP 8. Increases when indirect labor costs are incurred

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 FG 9. Decreases when goods are sold.
CGS 10. Increases when goods are sold.

Problem 5 - Norris, Inc. manufactures calculators. During June, Norris’s transactions

and accounts included the following:
Work in process inventory, beginning $8,800
Work in process inventory, ending 7,500
Indirect materials issued from Supplies 3,600
Raw materials inventory, beginning 4,600
Raw materials inventory, ending 5,800
Total manufacturing overhead 49,600
Sales 42,000
Direct labor cost (3,100 hours) 55,000
Raw materials purchased 143,500
Finished goods inventory, beginning 12,300
Finished goods inventory, ending 11,600
.
A. How much is the cost of direct materials issued to production during June?

Beginning inventory $ 4,600

+ Raw material purchases 143,500
= Available 148,100
Less ending raw materials (5,800)
= Cost of materials used $142,300

B. Calculate the cost of goods manufactured.

MATERIALS:
Beginning inventory $ 4,600
+ Raw material purchases 143,500
=Available 148,100
Less ending raw materials (5,800)
= Cost of materials used $142,300
LABOR 55,000
OVERHEAD 49,600
MANUFACTURING COSTS 246,900
Add beginning WIP 8,800
Less ending work in process (7,500)
Cost of goods manufactured $248,200

C. How much is the cost of inventory on the May 31 balance sheet?

Raw materials $ 4,600

Work in process 8,800
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Finished goods 12,300
Total inventory at May 31 $25,700

Problem 6 - Heath Company reported the following amounts for 2018:

Raw materials purchased $120,000 Direct labor used $44,000

Beginning raw materials
16,000 Manufacturing overhead costs 36,000
inventory
Selling and administrative
Ending raw materials inventory 5,000 21,000
expenses
Beginning finished goods Beginning work-in-process
11,000 17,000
inventory inventory
Ending finished goods
8,000 Ending work-in-process inventory 16,000
inventory

A. Calculate the cost of materials used in production.

Beginning raw materials inventory $ 16,000
Raw materials purchased 120,000
= Materials available for use $136,000
Less ending raw materials inventory 5,000
Materials used in production $131,000

B. Calculate the cost of goods manufactured.

Materials used in production (part A) $131,000

Direct labor used 44,000
Manufacturing overhead costs 36,000
Total manufacturing costs $211,000
Add beginning work in process 17,000
Less ending work in process (16,000)
Cost of goods manufactured $212,000

Problem 7 - Peters, Inc. manufactures homework machines. Peter's keeps a

'Supplies' account for it's indirect materials. During June, Peter’s transactions and
accounts included the following:

Finished goods inventory, ending $11,600

Finished goods inventory, beginning 12,300
Indirect materials issued to production 3,200
General administrative expenses 9,400
Raw materials inventory, ending 7,700
Raw materials inventory, beginning 5,100
Sales 324,000
Direct labor cost 72,400

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 Direct materials purchased 178,000
Work in process inventory, ending 12,800
Work in process inventory, beginning 10,500
Total manufacturing overhead 56,100

A. How much is cost of goods manufactured?

Beginning raw materials inventory $5,100

Raw materials purchased 178,000
= Materials available for use $183,100
Less ending raw materials inventory (7,700)
= Materials used in production $175,400
Direct labor used 72,400
Manufacturing overhead costs incurred 56,100
Total manufacturing costs $303,900
Add beginning work in process 10,500
Less ending work in process (12,800)
Cost of goods manufactured $301,600

B. Calculate the cost of goods sold

Beginning finished goods $12,300

Cost of goods manufactured 301,600
Less ending finished goods inventory (11.600)
= Cost of goods sold $302,300

C. How much will the company report as product costs on the June 30 balance
sheet?

Work in process $11,600

Raw materials 12,800
Finished goods 7,700
= Total inventory at 6-30 $32,100

Problem 8 - The manufacturing operations of Honcho, Inc. had the following balances
for the month of March:

Inventories 3/1/18 3/31/18

Raw Materials 10,000 12,000
Work in process 6,000 7,000
Finished goods 30,000 22,000

If Honcho transferred $38,000 of completed goods out of work in process during

March, how much was the amount of the cost of goods sold?

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Amounts transferred out of work in process are moved into finished goods as 'cost of
goods manufactured'.
Beginning finished goods plus cost of goods manufactured less ending finished goods
= cost of goods sold
$30,000 + $38,000 - $22,000 = $46,000

Problem 9 - Saman, Inc. manufactures coasters . During August, Saman’s

accounts included the following balances and transactions:

Work in process, beginning $25,200

Work in process, ending 27,600
Finished goods beginning 7,300
Finished goods, ending 6,800
Administrative expenses 12,000
Direct labor cost incurred 20,400
Materials purchased 78,000
Raw materials, beginning 3,300
Direct materials used 76,400
Manufacturing overhead cost 20,100
Sales 167,000
Marketing expenses 11,000

A. How much is ending raw materials at August 31

Beginning inventory $ 3,300

+ Material purchases 78,000
- Direct materials used (76,400)
= Ending raw materials $4,900

B. How much is cost of goods manufactured?

Direct materials $76,400

Direct labor 20,400
Manufacturing overhead 20,100
Total manufacturing costs 116,900
Add beginning WIP 25,200
Less ending WIP (27,600)
Cost of goods manufactured $114,500

C. How much is cost of goods sold?

Beginning FG inventory $7,300

Add CGM (part B) 114,500
Less ending FG inventory (6,800)
= Cost of goods sold $115,000

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Problem 10 - Earl, Inc. manufactures baseballs uses a normal costing system and
allocates overhead based on direct labor cost. During June, Earl’s accounts included
the following balances and transactions:

Manufacturing overhead cost $ Raw materials, beginning $

33,300 11,500
Marketing expenses 27,000 Finished goods beginning 8,400
Administrative expenses 24,000 Finished goods, ending 9,600
Direct labor cost incurred 32,000 Work in process, beginning 21,500
Cost of materials purchased 138,600 Work in process, ending 18,900
Direct materials used in production 143,000 Sales 285,000

A. How much is ending raw materials at June 30 $7,100

Raw materials inventory, beginning $ 1

Direct materials purchased 13
Goods available 15
Less cost of direct materials issued to production (143
Raw materials inventory, ending $

B. How much is cost of goods manufactured for June? $210,900

Direct materials used in production $143,000

Direct labor cost incurred 32,000
Manufacturing overhead cost 33,300
Total manufacturing costs 208,300
Add: Work in process inventory, beginning 21,500
Less: Work in process inventory, ending (18,900)
Cost of Goods Manufactured $210,900

C. How much is cost of good sold?

Beginning finished goods $8,400

Cost of goods manufactured (part B) 210,900
Less ending finished goods inventory (9,600)
Cost of goods sold $209,700

Problem 11 - The manufacturing operations of Darden, Inc. had the following

balances for the month of March:

Inventories 3/1/18 3/31/18

Raw Materials $10,000 $12,000
Work in process 6,000 7,000
Finished goods 30,000 22,000

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If Darden reported cost of goods sold totaling $46,000 in March, how much did it
transfer out of work in process as completed goods?

Amounts transferred out of work in process are moved into finished goods as 'cost of
goods manufactured'. Beginning finished goods plus cost of goods manufactured less
ending finished goods = cost of goods sold
$30,000 + ? - $22,000 = $46,000 so CGM = $38,000

Problem 12 - Alderson Bucket Company incurred the following costs: $100 of plastic,
25 hours at $10 per hour, $50 of indirect materials, $50 of indirect labor, $200 for
advertising, and $75 to ship the buckets to the customers. How much are total product
costs?

$100 + (25 x $10) + $50 + $50 = $450; Advertising and shipping to customers (delivery
costs) are period costs since they do not relate to the production of the products.

Problem 13 - Top of the Head Comb Company incurred the costs listed below during
May to manufacture combs. The company uses a JIT inventory system.

Plastic resin $3,500

Factory machine blades (replaced daily) 500
Cost to ship to customers 600
Production supervisor’s salary 2,100
Product advertising costs 1,200
Production labor - 42 hours at $20 per hour

Calculate total product costs assuming 10,000 combs are produced.

Plastic resin $3,500

Factory machine blades (replaced daily) 500
Production supervisor’s salary 2,100
Production labor -42 hours at $20 per hour 840
Total product costs $6,940

Cost to ship to customers is delivery expense, a product cost. Product advertising

costs are period costs as well. Note that these costs are no part of the cost of getting
the products ready to sell.

How much is the cost per comb?

$6,940/10,000 = $0.694 each

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Problem 14 – Mitchell, Inc. manufactures calculators. During March, Mitchell’s
transactions and accounts included the following:

Sales $320,000 Raw materials inventory, $6,500

beginning
Raw materials acquired (cash 135,000 Raw materials inventory, ending 5,800
paid)
Raw materials received on 30,000 Finished goods inventory, 11,200
account beginning
Direct labor cost incurred 42,000 Finished goods inventory, 12,400
ending
Cost to deliver products to 800 Work in process inventory, beg. 18,700
customers
Total manufacturing overhead 72,000 Work in process inventory, 19,700
incurred ending

A. How much is the cost of direct materials transferred to production during June?

Raw materials inventory, beginning $ 6

Raw materials purchased ($135,000 + $30,000) 165
Goods available 171
Less raw materials inventory, ending (5,8
Cost of direct materials issued to production $165

B. Calculate the cost of goods manufactured.

Direct materials used in production (from part A) $165,

Direct labor cost incurred 42,
Manufacturing overhead cost 72,
Total manufacturing costs 279,
Add: Work in process inventory, beginning 18,
Less: Work in process inventory, ending (19,7
Cost of Goods Manufactured $278,

Problem 15 - CT, Inc. reported $22,000 in work in process at June 1 and $21,300 at
June 30. Finished goods was $4,500 on June 1 and $5,100 on June 30. Direct material
used in June totaled $88,000. CT incurred $46,000 for June’s manufacturing overhead.
Cost of goods manufactured totaled $199,000. How much are total manufacturing
costs for June?

WIP
Beginning 22,000
199,000 CGM
Mfg. costs X
Ending 21,300

Beginning WIP + Total manufacturing costs - CGM = Ending WIP

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$22,000 + X - $199,000 = $21,300; so Total Mfg. Costs = $198,300

Problem 16 - Zimmerman, Inc. manufactures calculators. During June, Zimmerman’s

transactions and accounts included the following:

Raw materials acquired (cash paid) $117,000

Raw materials received on account 12,000
Direct labor cost incurred 52,000
Total manufacturing overhead applied 72,800
Raw materials inventory, beginning $6,500
Raw materials inventory, ending 5,800
Finished goods inventory, beginning 11,200
Finished goods inventory, ending 12,400
Work in process inventory, beginning 26,000
Work in process inventory, ending 22,000

A. How much is the cost of direct materials transferred to production during June?

Raw materials inventory, beginning $ 6,500

Direct materials purchased ($117K + $12K) 129,000
Less Raw materials inventory, ending (5,800)
Cost of direct materials issued to production $129,700

B. Calculate the cost of goods manufactured.

Materials issued to production (part A) $129,700

Direct labor cost incurred 52,000
Manufacturing overhead cost 72,800
Total manufacturing costs 254,500
Add: Work in process inventory, beginning 26,000
Less: Work in process inventory, ending (22,000)
Cost of Goods Manufacturing $258,500

Problem 17 -The following information has been collected from Green Company’s
accounting records for the month of April:
$
Direct materials added to Work in Process Inventory
160,000
Indirect materials added to Manufacturing Overhead 40,000
Direct labor added to Work in Process Inventory 150,000
Indirect labor added to Manufacturing Overhead 65,000
Manufacturing overhead added to Work in Process Inventory 100,000
Depreciation Expense included in Manufacturing Overhead 50,000
Beginning work in process inventory 22,000
Cost of goods manufactured 415,000

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How much is the balance of Work in Process inventory at April 30?

$
Direct materials added to Work in Process Inventory
160,000
Direct labor added to Work in Process Inventory 150,000
Manufacturing overhead added to Work in Process Inventory 100,000
Total manufacturing costs added $410,000
Add beginning work in process 22,000
Less CGM (415,000
Ending work in process $17,000

Problem 1 8 Hernandez, Inc. manufactures calculators. During May, Hernandez’s

transactions included the following:

Direct labor cost incurred $5,400

Total manufacturing overhead cost applied 6,650
Total manufacturing overhead cost incurred 6,300
Direct materials purchased 11,500
Indirect materials issued to production 1,100
Raw materials inventory, beginning 160
Raw materials inventory, ending 280
Sales 23,000
Selling expenses 2,100
Work in process inventory, beginning 220
Work in process inventory, ending 250

A. How much is the cost of direct materials issued to production during May?

Raw materials inventory, beginning $ 160

Direct materials purchased 11,500
Indirect materials issued (1,100)
Less raw materials inventory, ending (280)
Cost of direct materials issued to production $10,280
B. How much is cost of goods manufactured for May?

Materials issued to production $10,280

Direct labor cost incurred 5,400
Manufacturing overhead cost applied 6,650
Total manufacturing costs 21,330
Add: Work in process inventory, beginning 220
Less: Work in process inventory, ending (250)
Cost of Goods Manufacturing $22,300

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Problem 19- Alderson Bucket Company incurred the following costs: $100 of plastic,
25 hours at $10 per hour, $50 of indirect materials, $50 of indirect labor, $200 for
advertising, and $75 to ship the buckets to the customers. How much are total product
costs?

$100 + (25 x $10) + $50 + $50 = $450

Advertising and shipping to customers (delivery costs) are period costs since they do
not relate to the production of the products.

Problem 20 - CT, Inc. reported $22,000 in work in process at June 1 and $21,300 at
June 30. Finished goods was $4,500 on June 1 and $5,100 on June 30. Direct material
used in June totaled $88,000. CT incurred $46,000 for June’s manufacturing overhead.
Cost of goods manufactured totaled $199,000. How much are total manufacturing
costs for June?

WIP
Beginning 22,000
199,000 CGM
Mfg. costs X
Ending 21,300

Beginning WIP + Total manufacturing costs - CGM = Ending WIP

$22,000 + X - $199,000 = $21,300; so Total Mfg. Costs = $198,300

Problem 21 - Listed below are selected changes due to various transactions in

the manufacturing process. Identify which account is changed as a result of each
action listed in items 1 through 12 below by printing the code of the account(s) in the
space provided. Some changes may have more than one answer.

Accounts
RM - Raw Materials Inventory
FG - Finished Goods Inventory
WIP - Work-in-Process Inventory
MOH - Manufacturing Overhead
CGS - Cost of Goods Sold

Answers Changes
MOH 1. Increases when manufacturing overhead is incurred
MOH 2. Increases when indirect materials are transferred to production
RM 3. Increases when raw materials are purchased on account.
RM 4. Decreases when direct materials are used in production
WIP 5. Increases when direct labor costs are incurred
FG 6. Increases when goods are finished.
WIP 7. Decreases when goods are finished.

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 MOH 8. Increases when indirect labor costs are incurred
FG 9. Decreases when goods are sold.
CGS 10. Increases when goods are sold.
WIP 11. Increases when manufacturing overhead is applied
MOH 12. Decreases when manufacturing overhead is applied

Problem 22 Hernandez, Inc. manufactures calculators. The company allocates

overhead at $25 per direct labor hour. Over or underapplied overhead is not material.
During May, Hernandez’s transactions included the following:

Direct labor cost incurred @ $20 an hour $5,400

Manufacturing overhead cost incurred 6,800
Direct materials purchased 11,500
Indirect materials issued to production 1,100
Raw materials inventory, beginning 160
Raw materials inventory, ending 280
Sales 23,000
Selling expenses 2,100
Work in process inventory, beginning 220
Work in process inventory, ending 250

A. Briefly list any additional information you need to calculate cost of goods sold for
this company. (Be specific.)

Beginning finished goods inventory and ending finished goods inventory (You have
enough information to calculate cost of goods manufactured so you don't need that
amount.)

B. How much is the cost of direct materials issued to production during May?

Raw materials inventory, beginning $ 160

Direct materials purchased 11,500
Indirect materials issued (1,100)
Less Raw materials inventory, ending (280)
Cost of direct materials issued to production $10,280
C. How much overhead would be applied during May?
Direct labor cost/Cost per hour = number of direct labor hours incurred
$5,400/$20 = 270 hours
Applied = 270 hours x $25 = $6,750

D. How much is over or underapplied overhead for May?

$6,750 - $6,800 = $50 underapplied

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Problem 23 - At the end of the year, Deary Company had the following balances in
selected accounts related to its job cost system:
Raw Materials Inventory $40,000 Work in Process Inventory
Finished Goods 60,000 Cost of Goods Sold

Information concerning manufacturing overhead and labor for the year follows:

Actual manufacturing overhead $290,000

Estimated manufacturing overhead $300,000
MOH applied based on Direct labor hours
Direct labor hours incurred 15,600
Direct labor hours estimated 15,000
Actual direct labor cost per hour $17

A. Calculate the predetermined manufacturing overhead rate.

Estimated MOH/ Est. DL hours =
$300,000/15,000 = $20 per DL hour

Note: This is the number we use to apply MOH to jobs as the company produces
products. In this case, for each direct labor hour our people work, we add $20 for MOH
costs.

B. How much overhead did Deary apply to jobs during the year?

Must be applied based on the estimated cost per DL hour calculated in part A since we
don’t know how much the actual cost will be until the end of the period.
$20 x 15,600 hours = $312,000

C. How much is CGS after Deary properly allocates any ‘under or over-applied
manufacturing overhead’?

Actual amount in the MOH expense account $290,000

Applied (from part B)
(This is amount removed from the MOH
expense account) 312,000
Overapplied (a negative balance left in the ($22,000)
MOH expense account)

NOTE: The overapplied amount must be disposed of

(removed) and transferred to CGS prior to preparing
financial statements.
CGS = $800,000 - $22,000 = $778,000

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Problem 24 - Saman, Inc. manufactures coasters and allocates overhead based on
direct labor cost. Saman uses a normal cost system. During August, Saman’s
accounts included the following balances and transactions:

Work in process, beginning $25,

Work in process, ending 27,
Finished goods beginning 7,
Finished goods, ending 6,
Administrative expenses 12,
Direct labor cost incurred 20,
Materials purchased 78,
Raw materials, beginning 3,300
Direct materials used 76,400
Manufacturing overhead cost applied 20,100
Indirect materials issued to production 2,200
Sales 167,000
Marketing expenses 11,000
Manufacturing overhead cost incurred 21,,000

A. How much is ending raw materials at August 31

Beginning inventory $ 3,300

+ Material purchases 78,000
- Indirect materials issued (2,200)
- Direct materials used (76,400)
= Ending raw materials $2,700

B. How much is cost of goods manufactured?

Direct materials $76,400

Direct labor 20,400
Manufacturing
20,100
overhead
Total
116,900
manufacturing costs
Add beginning WIP 25,200
Less ending WIP (27,600)
Cost of goods
$114,500
manufactured

C. How much is cost of goods sold? (Be sure to consider the under or overapplied
overhead.)

Beginning FG inventory $7,300

Add CGM (part B) 114,500
Less ending FG inventory (6,800)

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 = Cost of goods sold $115,000
Underappplied ($21,000 - $20,100) 900
Adjusted cost of goods sold $115.900

Problem 25 - Hager Inc. applies overhead based on direct labor cost using a normal
costing system. The company estimated the following annual amounts:
Estimated manufacturing $42,000
overhead
Estimated direct labor 1,600 hours at $15 per hour
Actual amounts for the year were:
Actual manufacturing overhead $44,000
Actual direct labor 1,550 hours at $16 per hour

A. How much is the predetermined overhead rate?

Estimated manufacturing overhead/Estimated direct labor cost =

$42,000/(1,600*$15) = $1.75 per direct labor dollar

B. How much overhead was applied during the year?

Overhead rate x DL$ incurred =

$1.75 x [1,550*$16] = $43,400

C. Determine the amount of over or underapplied overhead.

Applied - Actual = $43,400 - $44,000 = $600 underapplied

Problem 26 - Jiffy Fabricators applies overhead based on direct labor cost. The
company provided the following annual amounts:
Estimated direct labor 2,000 hours at $12.50 per hour
Actual direct labor 1,900 hours at $13 per hour
Estimated manufacturing overhead $30,000
Actual manufacturing overhead $31,000

A. How much overhead was applied during the year? $29,640

Overhead application rate = Estimated MOH cost/Estimated DL$

= $30,000/[2,000*$12.50] = $1.20 per DL$
Overhead applied = $1.20 x [1,900*$13] = $29,640

B. Determine the amount of over or underapplied overhead. $1,360 Under applied

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Applied MOH − Actual MOH = $29,640 − $31,000 = $1,360 underapplied
Remember me saying that some of you would forget that 'estimated MOH' does not
appear anywhere in the accounting records?

Problem 27. Deegan, Inc. manufactures bliggles and allocates overhead based on
direct labor cost. During June, Deegan’s accounts included the following balances and
transactions:
Raw materials inventory, beginning $ 700 Direct materials purchased
Raw materials inventory, ending 850 Direct labor cost incurred
Manufacturing overhead cost applied 9,500 Indirect materials issued to production
Marketing expenses 11,000 Work in process inventory, beginning
Manufacturing overhead cost incurred 9,000 Work in process inventory, ending
Sales 98,000 Administrative expenses

Under and overapplied overhead amounts are considered immaterial.

A. How much is the cost of direct materials issued to production during June? $40,850

Raw materials inventory, beginning $ 700

Direct materials purchased 45,000
Goods available 45,700
Less raw materials inventory, ending (850)
Less indirect materials to production (4,000)
Cost of direct materials issued to production $40,850

B. How much is cost of goods manufactured? $67,950

Direct materials used in production (from part A) $40,850

Direct labor cost incurred 16,400
Manufacturing overhead cost applied 9,500
Total manufacturing costs 66,750
Add: Work in process inventory, beginning 7,800
Less: Work in process inventory, ending (6,600)
Cost of Goods Manufactured $67,950

Note: Indirect materials issued to production are considered manufacturing overhead

costs and as such, are already included in actual manufacturing overhead.

Problem 28. The accounting records of Cinotti Manufacturing Company include the
following information:

Dec. 31, 2018 Dec. 31, 2017

Work in process inventory $ 15,000 $ 12,000
Finished goods inventory 45,000 51,000
Materials purchased 331,000
Raw materials inventory ? 24,000

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 Direct materials used 325,000
Manufacturing overhead incurred 124,000
Direct labor 120,000
Selling expenses 70,000

Manufacturing overhead is applied at a rate of 110% of direct labor cost. Ignore over/
underapplied elimination in parts 3,4, and 5. Calculate the following:

1. Raw materials inventory at 12-31-18

Beginning raw materials inventory $ 24,000

Raw materials purchased 331,000
= Materials available for use $355,000
Less materials used in production (325,000)
Less ending raw materials inventory $30,000

2. Total manufacturing costs added to Work in Process Inventory during 2018

Materials used in production $325,000

Direct labor used 120,000
Manufacturing overhead costs applied (110%*$120,000 132,000
Total manufacturing costs added to WIP $577,000

3. Cost of goods manufactured during 2018

Total manufacturing costs added (From part 2) $577,000

Add beginning work in process 12,000
Less ending work in process (15,000)
Cost of goods manufactured $574,000

4. Total inventories on Cinotti’s December 31, 2018 balance sheet

Raw materials (from part 1) $30,000

Work in process 15,000
Finished goods 45,000
Total inventory $90,000

5. Assume CGM is $500,000. How much is cost of goods sold for 2018?

Beginning finished goods $51,000

Cost of goods manufactured 500,000
Less ending finished goods inventory (45,000)
Cost of goods sold $506,000

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Problem 29 - Earl, Inc. manufactures baseballs and allocates overhead based on
direct labor cost. During June, Earl’s accounts included the following balances and
transactions:

Manufacturing overhead cost $33,300

applied
Indirect materials issued to 1,400
production
Administrative expenses 24,000
Direct labor cost incurred 32,000
Cost of materials purchased 140,000
Direct materials used in 143,000
production
Manufacturing overhead cost 35,000
incurred
Raw materials, beginning $ 11,500
Finished goods beginning 8,400
Finished goods, ending 9,600
Work in process, beginning 21,500
Work in process, ending 18,900
Marketing expenses 27,000
Sales 285,000

Under and overapplied overhead amounts are considered immaterial. Ignore over/
underapplied elimination in parts B and C.

A. How much is ending raw materials at June 30?

Raw materials inventory, beginning

Direct materials purchased
Goods available
Less cost of direct materials issued to production
Less indirect materials to production
Raw materials inventory, ending

B. How much is cost of goods manufactured for June?

Direct materials used in production

Direct labor cost incurred
Manufacturing overhead cost applied
Total manufacturing costs
Add: Work in process inventory, beginning
Less: Work in process inventory, ending
Cost of Goods Manufactured

C. How much is cost of goods sold ?

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 Beginning finished goods
Cost of goods manufactured (part B)
Less ending finished goods inventory
Cost of goods sold

Problem 30 - Walker Company applies manufacturing overhead based on direct labor

hours. Information concerning manufacturing overhead and labor for May of 2015 as
follows:

Actual manufacturing overhead $163,800

Estimated manufacturing overhead $158,600
Direct labor incurred 2,500 hours @ $22 = $55,000
Direct labor estimated 2,600 hours @ $21 = $54,600

A. How much is the manufacturing overhead rate?

Estimated manufacturing overhead/estimated direct labor hours =

$158,600 / 2,600 hours = $61.00 per DL hour

B. How much overhead did Walker apply during the year?

Overhead rate times actual DL hours =

$61 x 2,500 = $152,500

C. How much is over or underapplied overhead at May 31?

Actual overhead - applied overhead =

$163,800 - $152,500 = $11,300 underapplied

Problem 31 - The underapplied balance of the Manufacturing Overhead account is

$30,000. The amount is considered material. The ending balances of Raw materials,
Work in Process, Finished Goods, and Cost of Goods Sold are $10,000, $25,000,
$50,000, and $425,000, respectively. What amount of the underapplied balance should
be allocated to Cost of Goods Sold?

Since the amount is considered material, the underapplied amount must be allocated
to the three accounts with overhead in them: Work in Process, Finished Goods, and
Cost of Goods Sold, based on their balances:
Work in Process $25,000
Finished Goods 50,000
Cost of Goods Sold 425,000
Total $500,000

20
Allocated to CGS: $425,000/$500,000 x $30,000 = $25,500

Problem 32- Sat Company’s factory overhead account showed a $8,000 underapplied
overhead balance on December 31. Other accounts showed the following balances at
year end:
Raw materials $100,000
Work in Process 40,000
Finished Goods 60,000
Cost of Goods 700,000
Sold
Which will be the balances of each account listed below after disposing the $8,000?
Cost of Goods Sold

$700,000 + $8,000 = $708,000

Work in Process

$40,000 no change

Finished Goods

$60,000 no change

Underapplied overhead is moved to cost of goods sold since most of the overhead
cost would likely be in that account by year end.

Problem 33 - Duckworth Company uses a predetermined overhead rate based on

direct labor hours to apply manufacturing overhead to jobs. At the beginning of the
year, the company estimated manufacturing overhead would be $100,000 and direct
labor hours would be 10,000. The actual figures for the year were $110,000 for
manufacturing overhead and 10,500 direct labor hours. How much is over or
underapplied overhead for the year?

Actual manufacturing overhead $110,000

Applied overhead:
Rate x DL hours incurred =
[$100,000/10,000] x 10,500 = 105,000
Underapplied overhead $5,000

Problem 34. Carr Company has the following estimated costs for next year:

Direct materials $30,000 Salary of production supervisor

Direct labor 110,000 Indirect materials
Factory operating costs 144,000 Advertising expense

21
Carr applies manufacturing overhead on the basis of machine hours. Carr estimates
that 20,000 direct labor and 32,000 machine hours will be worked during the year.
Actual direct labor and machine hours for the year were 19,600 and 33,000,
respectively. Actual overhead was $226,000 for the year. How much overhead is over
or underapplied at year end?

Overhead rate = Estimated Overhead/Estimated Activity

= [$144,000 + $70,000 + $10,000]/32,000 = $7.00 per machine hour
Applied = $7.00 x 33,000 machine hours = $231,000
Overapplied overhead = Actual overhead - applied overhead = $226,000 - $231,000 =
$5,000

Problem 35 - Martin Company applies manufacturing overhead based on direct labor

hours. Information concerning manufacturing overhead and labor for the year follows:

Actual manufacturing overhead $150,000 Direct labor hours incurred

Estimated manufacturing overhead $140,000 Direct labor hours estimated

How should the manufacturing overhead allocation rate be calculated?

$140,000 � 5,000 = $28

Problem 36 - During 2018 Lawson Manufacturing expected to produce 100,000 units

with $300,000 of overhead, $500,000 of material, and $200,000 in labor. Actual
production was 110,000 units with an overhead cost of $280,000, $550,000 in
materials used; and $220,000 in labor. All of the goods were completed and
transferred to Finished Goods.

A. What amount was transferred to Finished Goods?

Overhead is applied based on the estimates of overhead and activity:

$300,000/100,000 = $3 per unit produced;
As activity occurs (i.e., units are produced) the company applies overhead. In this
case, the company adds $3 to WIP each time one unit is produced. Total applied:
110,000 units x $3 = $330,000 applied. Total cost transferred: DM + DL + OH applied
= $550,000 + $220,000 + $330,000 = $1,100,000

B. How much is the amount of over/under applied overhead?

Applied = $330,000 less actual $280,000 = $50,000 overapplied

22
 Problem 37 - Timber Company uses a predetermined overhead rate of $7.00 per
machine hour. If estimated overhead costs were $350,000, overhead costs incurred
were $360,000, estimated machine hours were 50,000, and machine hours worked
were 51,000 this year, how much is applied overhead?

Overhead is applied based on the actual activity. The activity for the $7 rate is
'machine hour.' Every time one machine hour is incurred, $7 is added as MOH to WIP.
The rate was calculated by taking total estimated MOH costs divided by estimated
machine hours:
$350,000/50,000 = $7. Applied = $7 x 51,000 = $357,000

Problem 38 - Fibbe Company estimated it would incur $65,000 of manufacturing

overhead during 2018. An analysis indicates that overhead applied totaled $68,000.
The actual manufacturing overhead cost during the year was $66,000. How much is
over or under applied overhead?

Actual manufacturing overhead costs increase the MOH expense account. Applied
MOH costs decrease it. The difference is over or under applied. Note that the
estimated MOH amount does not get recorded into the accounting records.
Actual MOH costs ($66,000)
Applied MOH 68,000
Overapplied overhead $2,000

Problem 42 Salonga Company applies manufacturing overhead based on direct labor

dollars. Information for June follows:
Direct labor incurred 5,100 hours @ $20 = $102,000
Direct labor estimated 5,240 hours @ $20 = $104,800
Actual manufacturing overhead $172,920
Estimated manufacturing overhead $178,160
Direct materials incurred $234,000

A. How much is the manufacturing overhead rate?

Estimated MOH / Estimated DL$ = $178.160 / $104,800 = $1.70 per DL$

Note that both amounts are estimated because this rate is created at the beginning of
the accounting period and actual amounts are not know.

B. How much overhead did Salonga apply during June?

MOH rate * Actual DL$ = $1.70*$102,000 = $173,400

Manufacturing Overhead

23
 C. 1. Post all necessary amounts to the t- 172,920 173,400
account in which you would find the
amount of over or underapplied overhead
at June 30. 480 Overapplied
2. Label the account with the correct
name.
3. Calculate the balance and label if over
or underapplied.

D. Briefly state the two reasons that manufacturing overhead is applied.

1-Timely information is needed for decision making and the actual OH cost is not know
until the end of the period.
2- It is not feasible nor in other cases possible to trace indirect costs to products or
services.

Multiple Choice Questions

1. Compsit manufactures specialty household cleaning tools. The company completed

products during the month. Which account balance will decrease as a result?
A. Only work-in-process inventory.
B. Only finished goods inventory.
C. Both work-in-process and finished goods ending balances will decrease.
D. Neither account ending balance would increase; both would increase.
Finished goods increases and work in process decreases.

2. When products are completed, the cost of the product is removed from
A. work-in-process, and including in cost of goods sold.
B. finished goods, and including in cost of goods sold.
C. materials inventory and included in work-in-process.
D. work-in-process, and included in finished goods.
Product costs are not moved to cost of goods sold until they are sold.

3. What is the nature of ‘costs of goods manufactured’?

A. It is the total manufacturing cost of materials, labor, and overhead incurred during
the period.
B. It is the total manufacturing cost of materials, labor, and overhead completed
during the period.
C. It is the total manufacturing cost of materials, labor, and overhead completed and
sold during the period.
D. It is the total manufacturing cost of materials, labor, and overhead accumulated in
work in process inventories at the end of a period.

24
Answer A describes total manufacturing costs (excluding the effects of beginning and
ending work in process.

4. If ending Work-in-Process Inventory is understated,

A. Finished Goods Inventory will be understated.
B. Cost of Goods Sold will be overstated.
C. Manufacturing Overhead will be overapplied.
D. Cost of Goods Manufactured will be overstated.
When work in process inventories are understated, too much costs was transferred out
into finished goods as CGM. With too much cost in CGM, this amount is overstated.

5. When a janitor in the production facility incurs indirect labor costs, what occurs?
A. direct labor is added to work-in-process.
B. Actual manufacturing overhead increases.
C. The work in process account increases.
D. Additional manufacturing overhead costs are applied.
MOH increases when overhead is incurred .

6.Which one of the following is a correct description?

A. Cost of goods manufactured is equal to the total manufacturing costs incurred during
the period.
B. The cost of all inventory completed is found in the cost of goods sold account.
C. The difference between cost of goods manufactured and sales revenue is gross
profit.
D. Work in process consists of items in production.
Answer A is wrong because the two differ in that cost of goods manufactured includes
the total manufacturing costs plus beginning WIP less ending WIP. Answer B is wrong
because all products completed may not be sold, some may sit in FG. Answer C is
wrong because Sales revenue less CGS equals gross profit (this concept is the same
as financial accounting.)

7. Which one of the following occurs when employees assemble products?

A. Cost of goods manufactured decreases
B. Work in process inventory increases
C. Work in process inventory decreases
D. Manufacturing overhead decreases
Cash is reduced and WIP is increased This is direct labor.
Assets Liab. CC Rev. (Expenses)
Cash RM WIP FG AP Sales (CGS)
(xxxx) +xxxx
CR DR

8. Which of the following are considered the three inventory accounts for a
manufacturer?
A. Raw materials, work in process, finished goods
B. Work in process, finished goods, and cost of goods sold

25
C. Direct materials, direct labor, and manufacturing overhead
D. Raw materials, direct and indirect labor, and factory overhead costs
Answer C lists the three costs of products for manufacturers.

9. Which one of following describes one difference that appears on an income

statement for a manufacturing company as compared to an income statement for a
merchandising company?
A. Work in process, raw materials, and finished goods are used in the cost of goods
section to calculate cost of goods sold.
B. The work in process account replaces the Inventory account.
C. Cost of goods manufactured replaces purchases.
D. Cost of good manufactured is subtracted from sales to get gross profit on a
manufacturing income statement.
Only finished goods is used to calculate CGS. WIP and RM are used to calculate CGM
which is shown on the CGM statement. Answer B is wrong because Finished goods
replaces the 'Inventory' account used in merchandising companies. Answer D is wrong
because sales revenue less CGS equals gross profit (this concept is the same as
financial accounting.

10. Woehle Corporation’s production department used $64,000 of materials to

manufacture widgets during May. Which one of the following is one effect of recording
this transaction?
A. Raw materials increases by $64,000
B. Manufacturing overhead increases by $64,000
C. Cost of goods sold increases by $64,000
D. Work in process increases by $64,000
Answer A is wrong b/c RM decreases, not increases. Answer C is wrong because the
cost of goods must go through WIP, then FG, before arriving in CGS. Answer B is
wrong because this is a direct materials cost and does not impact overhead.
Assets Liab. CC Rev. (Expenses)
Cash RM WIP FG AP Sales CGS
(64,000) +64,000
CR DR

11. Into which one of the following accounts would the work of factory employees that
can be physically and directly associated with converting raw materials into finished
goods be recognized?
A. Manufacturing overhead
B. Work in process
C. Indirect labor
D. Direct labor
Direct labor is added directly to jobs by increasing WIP. Direct labor is a manufacturing
cost, not an account. This occurs in both an actual and a normal costing system.

12. What must occur for product costs to become expenses under the matching
principle?

26
 A. All of the costs associated with manufacturing a product must be incurred.
B. The product must have incurred labor.
C. The product must be sold.
D. The product must be completed and ready to sell.
The fact that all costs relating to a product have been incurred tells us the product is
finished goods. Completed and ready to sell items stay in finished goods until sold.

13. Which one of the following is the same amount as cost of goods manufactured on
the cost of goods manufactured schedule?
A. The amount transferred out of Finished Goods Inventory during the year
B. The amount transferred out of Raw Materials and the total manufacturing
overhead accounts into Work in Process Inventory during the year
C. The amount transferred from Work in Process Inventory to Finished Goods during
the period
D. The total of direct material, direct labor, and manufacturing overhead which are
added to Work in Process during the year
Answer D describes total manufacturing costs for the year. Answer A is cost of goods
sold. Answer B is a portion the total manufacturing costs for the year (DL is missing.)

14. Where would you expect to find depreciation on factory equipment in a

manufacturing company's records?
a. Included with Depreciation Expense on the income statement
b. In the manufacturing overhead section of the costs of goods manufactured
schedule
c. Only on the income statement as part of cost of goods sold
d. As a period cost in the operating expense section of the income statement
Depreciation on factory equipment is a MOH cost since it relates to 'factory' production.
Its cost is considered part of product cost. Answers A and D are locations to report
period costs....those not related to production. Answer C is wrong because product
costs that include MOH are reported in WIP, FG and CGS.

15. Which one of the following does not appear on the balance sheet of a manufacturing
company?
a. Finished goods inventory
b. Raw materials inventory
c. Cost of goods manufactured
d. Work in process inventory
Cost of goods manufactured is added to beginning finished goods inventory as part of
arriving at cost of goods sold. Answers A, B, and D are inventory accounts which all
appear on the balance sheet.

16. The Finished Goods account contains the cost of all units
A. Unfinished at a given point in time
B. Completed at a given point in time
C. Produced during a particular period

27
 D. Produced and sold during a particular period
Since it is a balance sheet account, it is measured at a particular point in time.

17. Which of following describes one difference that appears on an income statement
for a manufacturing company as compared to an income statement for a merchandising
company?
A. Only one inventory account is reported in a merchandising company’s income
statement, while three inventory accounts are reported in a manufacturing company’s
income statement.
B. Manufacturing companies report manufacturing overhead on their income
statements, while merchandising companies do not.
C. Cost of goods manufactured is subtracted from sales to get gross profit on a
manufacturing income statement, while cost of goods sold is subtracted from sales to
get gross profit for a merchandising company.
D. Cost of goods manufactured is part of the calculation of cost of goods sold for a
manufacturing company, while purchases is part of the calculation of cost of goods sold
for a merchandising company.
Answer A is wrong because inventory accounts are reported on the balance sheet, not
the income statement. The only inventory account used in a calculation on the income
statement is finished goods. Answer B is wrong because manufacturing overhead is
reported on the cost of goods manufactured statement, not the income statement (for
manufacturing companies.) Answer C is wrong because regardless of the type of
company, gross profit is calculated by subtracting cost of goods sold from sales. Cost of
goods manufactured is added to beginning finished goods inventory to determine the
calculation of cost of goods sold.

18. What event causes a company to move costs out of the work in process account?
A. Production of product is completed
B. Products are sold to customers
C. Completed goods are shipped to buyers
D. Costs of production are incurred
A credit is made to work in process when costs are transferred out. Only costs of
completed goods are transferred out. These are also known as cost of goods
manufactured. Goods are transferred to finished goods. Once they are sold, the are
removed from finished goods and transferred to cost of goods sold.

19. Manufacturing overhead costs are not allocated to individual products because
A. Manufacturing overhead is a period cost, not a job cost.
B. It is more accurate to estimate costs.
C. There is no reasonable way to trace the manufacturing overhead costs to the
specific products.
D. The exam
overhead costs are not determinable.

28
Answer A is wrong because manufacturing overhead is a product cost, and only product
costs are added to products. Answer B is wrong because estimates are less accurate
than actual amounts. Answer D is wrong because actual overhead costs 'are'
determinable, but not until the end of the accounting period. This causes a timing delay
in recording costs if OH is not added until the period end.

20. Which of the following is not considered to be a classification of product costs?

A. Cost of wood used in making a table top
B. Cost of labor to assemble a table
C. Cost of the controller’s salary
D. Cost of electricity to operate machine used to sand wood
This is considered a period cost since it is not related to manufacturing.

21. Which one of the following items is most likely to be an indirect material cost for a
cookie bakery?
A. Depreciation on the pans on which the cookies are baked
B. Baker’s salary
C. Non-stick spray for pans prior to cooking
D Walnuts added to each batch
Answer D is direct materials; Answer B is direct labor; Answer A is manufacturing
overhead, but not indirect materials.

22. Compsit manufactures specialty household cleaning tools. Which account balances
will decrease as a result of completing products during the month?
A. Only work-in-process inventory.
B. Only finished goods inventory.
C. Both work-in-process and finished goods ending balances will decrease.
D. Neither account ending balance would increase; both would increase.
Finished goods increases and work in process decreases.

23. Documents used in manufacturing include

A. a materials requisition to purchase raw materials from suppliers.
B. a purchase order to request materials from the company warehouse.
C. a receiving report that indicates the type and quantity of each item received in an
order from a supplier.
D. a labor time ticket to verify an employee's wage rate.
Materials requisition forms request materials to be transferred into production. A
purchase order is used to order materials from a supplier.

24. Direct materials are traced to specific products using

A. a purchase invoice.
B. a purchase order.
C. a materials requisition form.
D. a production slip.
Materials requisition forms request materials to be transferred into production. A
purchase order is used to order materials from a supplier.

29
25. When products are completed, the cost of the product is removed from
A. work-in-process, and including in cost of goods sold.
B. finished goods, and including in cost of goods sold.
C. materials inventory and included in work-in-process.
D. work-in-process, and included in finished goods.
Product costs are not moved to cost of goods sold until they are sold.

26. What is the nature of ‘costs of goods manufactured’?

A. It is the total manufacturing cost of materials, labor, and overhead incurred during
the period.
B. It is the total manufacturing cost of materials, labor, and overhead completed
during the period.
C. It is the total manufacturing cost of materials, labor, and overhead completed and
sold during the period.
D. It is the total manufacturing cost of materials, labor, and overhead accumulated in
work in process inventories at the end of a period.
Answer A describes total manufacturing costs (excluding the effects of beginning and
ending work in process.

27. Why is factory overhead applied to products and jobs by manufacturing companies?
A. It is easier to isolate variable and fixed costs than other methods.
B. Because indirect costs are easy to trace to products and jobs.
C. It allows managers to identify product and job costs as jobs are being
manufactured.
D. It provides a more accurate cost of the job or products being processed.
Actual costs will not be know until year end so waiting until that time would not enable
managers to know the entire cost which is needed for decision making.

28. During 2018, Soll Company reported estimated overhead, $100,000; actual
overhead, $90,000; and applied overhead, $92,000. For 2018, Soll’s overhead would be
A. underapplied, $10,000
B. underapplied, $8,000
C. overapplied, $2,000
D. overapplied, $10,000
E. underapplied, $2,000
Actual - Applied = $90,000 - $92,000 = $2,000 overapplied

29. If actual manufacturing overhead is greater than applied overhead and the amount
is considered to be material, which accounts should the excess be allocated to?
A. Cost of Goods Sold
B. Work-In-Process, Cost of Goods Sold
C. Work-In-Process, Finished Goods, Cost of Goods Sold

30
 D. Raw Materials, Work-In-Process, Finished Goods
Because these are the accounts in which manufacturing overhead costs would be in.

31. Peters Company requisitioned $3,000 of raw materials from the storeroom to be
used in production as indirect materials. Which one of the following is one effect that
occurs?
A. Work in Process increases
B. Raw Materials increases
C. Manufacturing Overhead increases
D. Direct Materials decreases
In addition, Raw Materials decreases. Indirect materials are part of manufacturing
overhead and must be moved to the MOH expense account. The cost of MOH is
applied to the WIP account.
32. Toro Company completed two jobs whose costs total to $120,000. Which one of the following is one
effect of this transaction?
A. Manufacturing Overhead increases by $120,000
B. Cost of Goods Sold increases by $120,000
C. Work in Process decreases by $120,000
D. Finished Goods decreases by $120,000
In addition, finished goods increases by $120,000.

33. Factory overhead is applied to products based on the

A. actual overhead used in manufacturing the product.
B. relative sales value of the manufactured products; products that sell for a higher
price should absorb more of the factory overhead.
C. factory overhead estimated at a particular amount of direct labor hours.
D. manufacturing overhead based on the best allocation base for the particular
product.

34. An predetermined overhead rate is

A. used to spread the overhead costs among the various jobs.
B. the total amount of overhead assigned to a particular job.
C. based on direct labor hours in all cases in which a company incurs labor costs for
manufacturing purposes.
D. used to allocate material, labor and manufacturing overhead in job costing systems.
Note that only indirect costs (manufacturing overhead) is allocated. Direct costs such as
direct materials and direct labor are traced to jobs.

35. 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.
Overhead is applied by reducing the manufacturing overhead expense account. Overapplied
means too much (more than actually incurred) was taken out and added to the products. Applied

31
and estimated are not the same. To get the rate at which overhead is applied, we divide estimated
manufacturing overhead by the estimated activity. It is then applied based on the actual activity.

36. Nguyen Corporation had time tickets showing that $8,000 was indirect labor and
$42,000 was direct labor. Which one of the following is one effect of recording this
transaction?
A. Indirect labor increases by $8,000
B. Work in process increases by $50,000
C. Manufacturing costs increase by $42,000
D. Manufacturing overhead increases by $8,000
Answer A is wrong b/c there is no account specifically for indirect labor. Indirect labor is a
manufacturing overhead cost. Answer C is wrong b/c there is no separate account for
manufacturing costs, and the amount of manufacturing costs consists of only direct materials,
direct labor and applied manufacturing overhead. Since both indirect and direct labor are
manufacturing costs, they increase in total by $50,000. Answer B is wrong because only direct
labor go directly into jobs/WIP. Indirect must be applied.
Assets Liab. CC Rev. (Expenses)
Cash RM WIP FG AP Sales CGS MOH
(50,000) +42,000
(8,000) DR
CR DR

37. Which situation describes underapplied overhead?

A. The predetermined overhead rate is less than the actual rate
B. Applied overhead is less than actual overhead.
C. Estimated overhead is less than actual overhead.
D. Applied overhead exceed estimated overhead.
Estimated overhead is used only to calculate the overhead rate. It does not appear in the accounts
and as such, is not used to determine over or underapplied.

38. Why is factory overhead ‘applied’ to products by manufacturing companies?

A. Actual overhead costs can never be accurately determined for jobs.
B. Because indirect costs are easy to trace to products and jobs.
C. It allows managers more timely determination of product costs during the
manufacturing process.
D. It provides a more accurate cost of the job or products being processed.
The most accurate job costs are always determined by using actual costs instead of estimated
costs applied. However, because managers need more timely information on job costs, it is better
to allocate an estimate during the interim, rather than wait until the end of the year when actual
amounts are known, so that managers have a relatively close idea of what the costs will be.

39. Which one of the following is an effect of applying manufacturing overhead in a

manufacturing company?
A. Cost of goods manufactured decreases
B. Indirect costs increase

32
 C. Work in process inventory decreases
D. Manufacturing overhead decreases
MOH is reduced and WIP is increased
Assets Liab. CC Rev. (Expenses)
Cash AD RM WIP FG AP Sales (CGS) (MOH)
+xxxx
+xxxx CR
DR

40. Estimated overhead is

A. budgeted manufacturing costs for the upcoming accounting period.
B. budgeted indirect costs for the upcoming accounting period.
C. budgeted direct costs for the upcoming accounting period.
D. the amount of overhead that will be applied during the upcoming accounting
period.
Answer A is wrong because manufacturing costs include DM, DL, and indirect costs. Answer C
is wrong because only indirect costs are included in overhead. Answer D is wrong because
although the amount of applied is based on the estimated overhead, it is rarely the same amount.

41. Which of the following include manufacturing overhead as a component?

A. Work in process, cost of goods sold, finished goods
B. Cost of goods sold, raw materials, finished goods
C. Finished goods, work in process, raw materials
D. Only work in process
MOH is added to WIP. The total costs of completed jobs (DM, DL, and MOH) is then moved to
FG. When sold, the cost is moved to CGS. Raw materials has no MOH.

42. What does the transfer of direct materials to the production area cause?
A. The generation of a purchase order
B. An increase in the raw materials account
C. An increase to work in process
D. A sales invoice to be sent to the customer
WIP increases and RM decreases. Purchase orders are created to order goods from a supplier so
they can be placed in the storeroom. When the goods are received, RM is increased. Sales
invoices are sent when the goods are sold.

43. When a company transfers $1,100 of indirect materials to the production area,
which one of the following is one effect that occurs?
A. Work in Process increases
B. Raw Materials inventory increases
C. Cost of Goods Sold increases
D. Manufacturing Overhead increases
E. Accounts Payable decreases

33
Indirect materials are included with manufacturing overhead. The very nature of being
'indirect' means these costs cannot be traced 'directly' to specific products or jobs. As a
result, costs that are indirect are dumped into the MOH expense account, then allocated
to jobs/products using a predetermined overhead rate. The transaction causes a
decrease in raw materials and an increase in MOH.

44. Venters Corporation had time tickets indicating that $63,000 was direct labor and
$2,000 was indirect. Which one of the following is one effect of recording this
transaction?
a. Labor expense increases by $63,000
b. Manufacturing overhead increases by $2,000
c. Indirect labor increases by $2,000
d. Work in process increases by $65,000
This transaction causes WIP to be increased by the amount of labor that can be directly traced to
jobs ($63,000). The indirect labor cannot be directly traced so it becomes an increase to MOH
(and is later applied using a predetermined rate.) The other side of the transaction is a decrease to
cash (assuming it is paid.)

45. Barnhardt, Inc's employees incurred $4,000 of indirect labor and $56,000 of direct
labor during May. Under a normal costing system, which one of the following is one
effect of recording this transaction?
A. Indirect labor increases by $4,000
B. Work in process increases by $56,000
C. Total manufacturing costs for the period increase by $60,000
D. Manufacturing overhead decreases by $4,000
Normal costing use a MOH rate to apply MOH. When DL is used, it is debited to WIP.
Indirect labor is debited to MOH (then applied later.) Answer C is wrong because total
manufacturing costs in a normal costing system consist of DM, DL, and MOH applied.
The indirect labor is not 'applied'; it is actual.

46. Which one of the following is a correct description?

A. Cost of goods manufactured is equal to the total manufacturing costs incurred
during the period adjusted for the change in the work in process inventory.
B. The cost of all inventory completed is found on the income statement.
C. The difference between cost of goods manufactured and cost of goods sold
results from the change in the work in process account balances.
D. Work in process consists of all costs incurred to produce products during the
period
Answer B is wrong because some inventory costs that are completed are not sold, so
they sit in FG.

47. What must occur for product costs to become expenses?

A. The product must be completed
B. The costs must be transferred out of work in process during the period
34
 C. Materials, labor, and overhead costs must have been incurred
D. A product must have been sold
E. Overhead must have been applied during the period
The concept here is matching (the same as for a merchandising situation.) The earnings
process must be complete which means that the goods must be sold.

48. Which statement is correct?

A. Activity in the materials storeroom is a basis for determining total product costs.
B. Activity in the factory production area is a basis for determining the cost of goods
completed during the period.
C. Activity in the retail store/completed products area is a basis for determining cost of
goods sold.
D. B and C
Recall the diagrams of the storeroom, factory, sales room, that I drew on the board.
The materials storeroom activity is a basis for RM inventory. WIP helps us determine
total product costs and costs of goods completed. The cost of goods sold is based on
the FG activity.

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