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Exam 11: Product Costing in Service and Manufacturing Entities

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Question 31

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Lexington Company's predetermined overhead rate is $4.00 per direct labor hour.Which of the following equations correctly computes the amount of overhead cost that should be applied to work in process assuming a job required 100 hours but was estimated to require 90 hours?

A) 100 hours × $4 = $400
B) 90 hours × $4 = $360
C) 1 job × $4 = $4
D) None of these answers are correct.

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Question 32

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Companies need service and product cost information for both financial reporting and managerial accounting.

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Question 33

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Jones Manufacturing Company experienced an accounting event that affected its financial statements as indicated below: Which of the following accounting events could have caused the indicated effects on the firm's accounting equation?

Generally accepted accounting principles require that a company use variable costing for financial reporting.

Service companies do not transform raw materials into finished goods.

Herald Company paid $2,800 cash for production supplies.The recognition of this event will:

Indicate whether each of the following statements is true or false. Under variable costing,the cost of inventory includes variable product costs and variable selling and administrative expenses.______ Under absorption costing,the income statement is prepared using a contribution margin approach.______ Variable costing is not allowed for external financial reporting,but many companies find it useful for internal managerial reports.______ Under absorption costing,fixed manufacturing costs are expensed in the period incurred.______ Under variable costing,fluctuations in sales influence net income,but fluctuations in production do not.______

Which of the following costs would not increase the work in process inventory account?

Guest Corporation estimated that total overhead cost would be $23,000 for the current year,but actual overhead costs were $25,500; as a result,Guest spent $2,500 more than expected for overhead cost.This type of variance is known as a(n) :

Ting Company started the accounting period with the following beginning balances: Raw Materials Inventory,$21,000; Work in Process Inventory,$45,000; and Finished Goods Inventory,$10,000.During the accounting period,the company purchased $30,000 of raw materials and ended the period with $8,000 in raw material inventory.Direct labor costs for the period were $60,000,and $63,000 of manufacturing overhead costs were allocated to work in process.There was no over- or underapplied overhead.Ending work in process was $41,000 and ending finished goods was $17,500.Goods were sold during the period for $162,500.The amount of cost of goods manufactured (i.e.,amount transferred from work in process to finished goods) would be:

Indicate whether each of the following statements is true or false. Calculation of a predetermined overhead rate is based on estimates and can be done at the beginning of a period.______ A spending variance is the difference between applied overhead costs and estimated overhead costs.______ A difference between the actual and estimated volume of activity causes a volume variance.______ A volume variance is unfavorable if actual volume is greater than expected.______ For an accounting period,the volume variance is the amount by which overhead was over- or underapplied.______

Selected accounts from Harper Company are provided below: Required: In the space provided,briefly describe each indicated transaction.Transaction (a)has been completed as an example. $\begin{array} { |l | l| } \hline \text { Transaction } & \text { Description of Transaction } \\\hline \text { (a) } & \text { Common stock issued for cash } \\\hline \text { (b) } & \\\hline \text { (c) } & \\\hline \text { (d) } & \\\hline \text { (e) } & \\\hline \text { (f) } & \\\hline\text { (p) } & \\\hline\text { (h) } & \\\hline\text { (i) } & \\\hline \text { (j) } & \\\hline \end{array}$

In a manufacturing business,the cost of direct materials being used is recorded in the:

Blair Company transferred the cost of units completed during the month to Finished Goods.The total cost was $1,100.How does this event affect the financial statements?

Most companies initially record the cost of materials acquired in the Raw Materials Inventory account.

For a manufacturing business,cost of indirect materials is first recorded in the:

Bates Company recognized $16,000 of estimated manufacturing overhead costs at the end of the month.As a result of this transaction the:

In which account is the actual amount of costs such as factory utilities and maintenance initially recorded?

If actual volume is smaller than the budgeted or expected volume,then a favorable volume variance will occur.

The accounting records for Moss Manufacturing Company included the following cost information relating to its first year of operations: $\begin{array}{lrr} \text { Direct materials} &\$60,000\\ \text { Direct labor } &\$80,000\\ \text { Fixed manufacturing overhead} &\$100,000\\ \text {Variable manufacturing overhead } &\$20,000\\\end{array}$ Assume the company produced 10,000 units of inventory and sold 6,000 of these units for $196,000.What amount of finished goods will be reported on the balance sheet at the end of the year under variable costing?