1. 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.
Level: Medium LO: 3 Ans: B

2. Which of the following costs is not charged to Work in Process in a normal cost system?
a. Actual overhead
b. Actual direct materials
c. Actual direct labor
d. Estimated indirect labor

3. Which of the following product costs would be charged to Work in Process assuming a standard
costing system?
a. Actual direct material costs
b. Actual overhead costs
c. Actual direct labor costs
d. Applied overhead costs

4. The journal entry to transfer production from the Finishing Department to Finished Goods would
include a:
a. credit to Finished Goods.
b. debit to Cost of Goods Manufactured.
c. credit to WIP – Finishing.
d. credit to Cost of Goods Manufactured.

5. Select the incorrect statement regarding the accounting for product losses.
a. Normal losses that are anticipated on all jobs are estimated and included in the development
of the predetermined OH rate.
b. Normal losses that are associated with a particular job are charged to a loss account in the
period they are incurred.
c. Abnormal losses are charged to a loss account in the period they are incurred.
d. The difference between normal and abnormal loss is one of degree and therefore must be
determined by management.

6. All of the following are reasons for using predetermined overhead rates in product costing
except:
a. to overcome the problem of fluctuations in activity levels that have no impact on fixed
overhead costs.
b. to overcome the problem caused by overhead containing both fixed and variable costs.
c. to adjust for variations in actual overhead costs that are unrelated to fluctuations in activity.
d. to allow management to determine whether a product, product line, or customer is
profitable.
7. Which of the following is a characteristic of a manufacturing environment that would use job order
costing?
A. Standardized production process
B. Continuous manufacturing
C. Homogenous products
D. Differentiated products

8. For a manufacturing company, direct material costs may be included in:

a. A) direct materials inventory only
b. B) merchandise inventory only
c. C) both work-in-process inventory and finished goods inventory
d. D) direct materials inventory, work-in-process inventory, and finished goods inventory
accounts

9. Finished goods inventory would normally include:

A) direct materials in stock and awaiting use in the manufacturing process
B) goods partially worked on but not yet fully completed
C) goods fully completed but not yet sold
D) products in their original form intended to be sold without changing their basic form

10) Which of the following formulas determine cost of goods sold in a manufacturing entity?
A) Beginning work-in-process inventory + Cost of goods manufactured - Ending work-in-process
inventory = Cost of goods sold
B) Beginning work-in-process inventory + Cost of goods manufactured + Ending work-in-process
inventory = Cost of goods sold
C) Cost of goods manufactured - Beginning finished goods inventory - Ending finished goods
inventory = Cost of goods sold
D) Cost of goods manufactured + Beginning finished goods inventory - Ending finished goods
inventory = Cost of goods sold

11) When using a normal costing system, manufacturing overhead is allocated using the ________
manufacturing overhead rate and the ________ quantity of the allocation base.
A) budgeted; actual
B) budgeted; budgeted
C) actual; budgeted
D) actual; actual

12) Which of the following statements about actual costing and normal costing is true?
A) Manufacturing costs of a job are available earlier under actual costing.
B) Corrective actions can be implemented sooner under normal costing.
C) Manufacturing costs are available earlier under normal costing.
D) Both B and C are correct.

13) The ending balance in the Work-in-Process Control account represents the costs of all jobs that:
A) have not been completed
B) have been completed but not sold
C) have been completed and sold to customers
D) are reported on the income statement

14) One reason indirect costs may be overapplied is because:

A) the actual allocation base quantity exceeds the budgeted quantity
B) budgeted indirect costs exceed actual indirect costs
C) requisitioned direct materials exceed budgeted material costs
D) Both A and B are correct.

16) The loss from abnormal spoilage account would appear:

A) on the balance sheet
B) as a detailed item in the retained earnings schedule of the balance sheet
C) as a detailed item on the income statement
D) Either A or B is correct.

15) Normal spoilage should be computed using as the base the:

A) total units completed
B) total good units completed
C) total actual units started into production
D) None of these answers is correct.

17. 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.
Level: Hard LO: 6 Ans: D

18. 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.
Level: Medium LO: 7 Ans: D

19. 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.
Level: Easy LO: 8 Ans: B

20. 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.
Source: CMA, adapted
Level: Easy LO: 10 Ans: A

21. Bretthauer Corporation has provided data concerning the company’s Manufacturing Overhead
account for the month of July. Prior to the closing of the overapplied or underapplied balance to Cost of
Goods Sold, the total of the debits to the Manufacturing Overhead account was $51,000 and the total of
the credits to the account was $64,000. Which of the following statements is true?
A) Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during the month
was $51,000.
B) Manufacturing overhead applied to Work in Process for the month was $64,000.
C) Manufacturing overhead for the month was underapplied by $13,000.
D) Actual manufacturing overhead incurred during the month was $64,000.
Level: Medium LO: 4,8 Ans: B

22. If a job is not completed at the end of the year, then no manufacturing overhead cost should be applied
to that job.
False

23. If a company closes any underapplied 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.
True

24. 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.
Level: Medium LO: 2 Ans: T

25. When raw materials are purchased, they are recorded as an expense.
Level: Medium LO: 7 Ans: F