Chapter 2
Systems Design: Job-Order Costing
True/False
1. Process costing is used in those situations where many different products or services are produced each
period to customer specifications.
Level: Easy LO: 1 Ans: F
2. The basic approach in job-order costing is to accumulate costs in a particular operation or department
for an entire period (month, quarter, year) and then to divide this total by the number of units produced
during the period.
Level: Easy LO: 1 Ans: F
3. 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
4. In a job-order cost system, indirect labor is assigned to a job by using the labor time ticket as a source
document.
Level: Medium LO: 2 Ans: F
5. The formula for computing the predetermined overhead rate is:
Estimated total units in base ÷ Estimated total manufacturing costs
Level: Easy LO: 3 Ans: F
6. The fact that one department may be labor intensive while another department is machine intensive
may explain in part the existence of multiple predetermined overhead rates in larger companies.
Level: Easy LO: 3 Ans: T
7. 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.
Level: Medium LO: 4,8 Ans: T
8. The following entry would be used to record the transfer of material from the storeroom to production
if 80% of the material was direct material and 20% was indirect material:
Level: Easy LO: 4 Ans: T
Brewer, Introduction to Managerial Accounting, 3/e 54
,9. If a job is not completed at the end of the year, then no manufacturing overhead cost should be applied
to that job.
Level: Medium LO: 5 Ans: F
10. When raw materials are purchased, they are recorded as an expense.
Level: Medium LO: 7 Ans: F
11. In a job-order cost system, depreciation on factory equipment should be charged directly to the Work
in Process account.
Level: Medium LO: 7 Ans: F
12. The entire difference between the actual manufacturing overhead cost for a period and the applied
manufacturing overhead cost is typically closed to the Work In Process account.
Level: Easy LO: 8 Ans: F
13. If the actual manufacturing overhead costs for a period exceed the manufacturing overhead costs
applied, then overhead would be considered to be overapplied.
Level: Medium LO: 8 Ans: F
14. The absorption cost approach is so named because it provides for the absorption of all manufacturing
costs, fixed and variable, into units of product.
Level: Easy LO: 10 Ans: T
Multiple Choice
15. Which of the following industries would be most likely to use a process costing system?
A) Ship builder
B) Movie studio
C) Oil refinery
D) Hospital
Level: Easy LO: 1 Ans: C
16. A process cost system is employed in those situations where:
A) many different products, jobs, or batches of production are being produced each period.
B) where manufacturing involves a single, homogeneous product that flows evenly through the
production process on a continuous basis.
C) a service is performed such as in a law firm or an accounting firm.
D) full or absorption cost approach is not employed.
Level: Easy LO: 1 Ans: B
55 Brewer, Introduction to Managerial Accounting, 3/e
,17. 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
18. Which of the following entries would record correctly the application of overhead cost?
A) A Above
B) B Above
C) C Above
D) D Above
Level: Easy LO: 4,5 Ans: D
19. The operations of Kalispell Company resulted in overapplied overhead for the month just completed.
Which of the following journal entries can be correct if Kalispell allocates underapplied or overapplied
overhead among accounts?
A) A Above
B) B Above
C) C Above
D) D Above
Level: Medium LO: 4,8 Ans: D
Brewer, Introduction to Managerial Accounting, 3/e 56
, 20. Which of the following entries would record correctly the monthly salaries earned by the top
management of a manufacturing company?
A) A Above
B) B Above
C) C Above
D) D Above
Level: Easy LO: 4 Ans: B
21. The journal entry to record applying overhead during the production process is:
A) A Above
B) B Above
C) C Above
D) D Above
Level: Easy LO: 4 Ans: D
22. When manufacturing overhead is applied to production, it is added to:
A) the Cost of Goods Sold account.
B) the Raw Materials account.
C) the Work in Process account.
D) the Finished Goods inventory account.
Level: Easy LO: 5,7 Ans: C
57 Brewer, Introduction to Managerial Accounting, 3/e
Systems Design: Job-Order Costing
True/False
1. Process costing is used in those situations where many different products or services are produced each
period to customer specifications.
Level: Easy LO: 1 Ans: F
2. The basic approach in job-order costing is to accumulate costs in a particular operation or department
for an entire period (month, quarter, year) and then to divide this total by the number of units produced
during the period.
Level: Easy LO: 1 Ans: F
3. 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
4. In a job-order cost system, indirect labor is assigned to a job by using the labor time ticket as a source
document.
Level: Medium LO: 2 Ans: F
5. The formula for computing the predetermined overhead rate is:
Estimated total units in base ÷ Estimated total manufacturing costs
Level: Easy LO: 3 Ans: F
6. The fact that one department may be labor intensive while another department is machine intensive
may explain in part the existence of multiple predetermined overhead rates in larger companies.
Level: Easy LO: 3 Ans: T
7. 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.
Level: Medium LO: 4,8 Ans: T
8. The following entry would be used to record the transfer of material from the storeroom to production
if 80% of the material was direct material and 20% was indirect material:
Level: Easy LO: 4 Ans: T
Brewer, Introduction to Managerial Accounting, 3/e 54
,9. If a job is not completed at the end of the year, then no manufacturing overhead cost should be applied
to that job.
Level: Medium LO: 5 Ans: F
10. When raw materials are purchased, they are recorded as an expense.
Level: Medium LO: 7 Ans: F
11. In a job-order cost system, depreciation on factory equipment should be charged directly to the Work
in Process account.
Level: Medium LO: 7 Ans: F
12. The entire difference between the actual manufacturing overhead cost for a period and the applied
manufacturing overhead cost is typically closed to the Work In Process account.
Level: Easy LO: 8 Ans: F
13. If the actual manufacturing overhead costs for a period exceed the manufacturing overhead costs
applied, then overhead would be considered to be overapplied.
Level: Medium LO: 8 Ans: F
14. The absorption cost approach is so named because it provides for the absorption of all manufacturing
costs, fixed and variable, into units of product.
Level: Easy LO: 10 Ans: T
Multiple Choice
15. Which of the following industries would be most likely to use a process costing system?
A) Ship builder
B) Movie studio
C) Oil refinery
D) Hospital
Level: Easy LO: 1 Ans: C
16. A process cost system is employed in those situations where:
A) many different products, jobs, or batches of production are being produced each period.
B) where manufacturing involves a single, homogeneous product that flows evenly through the
production process on a continuous basis.
C) a service is performed such as in a law firm or an accounting firm.
D) full or absorption cost approach is not employed.
Level: Easy LO: 1 Ans: B
55 Brewer, Introduction to Managerial Accounting, 3/e
,17. 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
18. Which of the following entries would record correctly the application of overhead cost?
A) A Above
B) B Above
C) C Above
D) D Above
Level: Easy LO: 4,5 Ans: D
19. The operations of Kalispell Company resulted in overapplied overhead for the month just completed.
Which of the following journal entries can be correct if Kalispell allocates underapplied or overapplied
overhead among accounts?
A) A Above
B) B Above
C) C Above
D) D Above
Level: Medium LO: 4,8 Ans: D
Brewer, Introduction to Managerial Accounting, 3/e 56
, 20. Which of the following entries would record correctly the monthly salaries earned by the top
management of a manufacturing company?
A) A Above
B) B Above
C) C Above
D) D Above
Level: Easy LO: 4 Ans: B
21. The journal entry to record applying overhead during the production process is:
A) A Above
B) B Above
C) C Above
D) D Above
Level: Easy LO: 4 Ans: D
22. When manufacturing overhead is applied to production, it is added to:
A) the Cost of Goods Sold account.
B) the Raw Materials account.
C) the Work in Process account.
D) the Finished Goods inventory account.
Level: Easy LO: 5,7 Ans: C
57 Brewer, Introduction to Managerial Accounting, 3/e
