Chapter 2-Job Order Costing


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Chapter 2—Job Order Costing
TRUE/FALSE
1. Cost accounting systems are used to supply cost data information on costs incurred by a manufacturing process or department.

ANS: T PTS: 1 DIF: Easy OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
2. A manufacturer may employ a job order cost system for some of its products and a process cost system for others.

ANS: T PTS: 1 DIF: Easy OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
3. A job order cost accounting system provides for a separate record of the cost of each particular quantity of product that passes through the factory.

ANS: T PTS: 1 DIF: Easy OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
4. A process cost accounting system provides for a separate record of the cost of each particular quantity of product that passes through the factory.

ANS: F PTS: 1 DIF: Easy OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-35-Process Costing
5. A process cost accounting system accumulates costs for each of the departments or processes within the factory.

ANS: T PTS: 1 DIF: Easy OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-35-Process Costing
6. A process cost accounting system is best used by manufacturers of like units of product that are not distinguishable from each other during a continuous production process.

ANS: T PTS: 1 DIF: Easy OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-35-Process Costing
7. The process cost system is appropriate where few products are manufactured and each product is made to customers' specifications.

ANS: F PTS: 1 DIF: Easy OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-35-Process Costing
8. A job order cost system would be appropriate for a crude oil refining business.

ANS: F PTS: 1 DIF: Moderate OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
9. A law firm would use a job order cost system to accumulate all of the costs associated with a particular client engagement, such as lawyer time, copying charges, filing fees, and overhead.

ANS: T PTS: 1 DIF: Easy OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
10. The job order costing system is not used by service organizations.

ANS: F PTS: 1 DIF: Easy OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
11. The job order costing system is used by service firms to determine revenues, expenses, and ultimately profit.

ANS: T PTS: 1 DIF: Moderate OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
12. Perpetual inventory controlling accounts and subsidiary ledgers are maintained for materials, work in process, and finished goods in cost accounting systems.

ANS: T PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
13. When the goods are sold, their costs are transferred from Work in Process to Finished Goods.

ANS: F PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
14. The materials requisition serves as the source document for debiting the accounts in the materials ledger.

ANS: F PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
15. Materials are transferred from the storeroom to the factory in response to materials requisitions.

ANS: T PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
16. The document that serves as the basis for recording direct labor on a job cost sheet is the time card.

ANS: F PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
17. The document that serves as the basis for recording direct labor on a job cost sheet is the time ticket.

ANS: T PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
18. Depreciation expense on factory equipment is part of factory overhead cost.

ANS: T PTS: 1 DIF: Moderate OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
19. Factory overhead is applied to production using a predetermined overhead rate.

ANS: T PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
20. If factory overhead applied exceeds the actual costs, the factory overhead account will have a credit balance.

ANS: T PTS: 1 DIF: Difficult OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
21. If factory overhead applied exceeds the actual costs, overhead is said to be underapplied.

ANS: F PTS: 1 DIF: Moderate OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
22. If the underapplied factory overhead amount is material, it is transferred to Cost of Goods Sold at the end of the fiscal year.

ANS: F PTS: 1 DIF: Moderate OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
23. If the underapplied factory overhead amount is immaterial, it is transferred to Cost of Goods Sold at the end of the fiscal year.

ANS: T PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
24. Each account in the cost ledger in a job order system is called a job cost sheet.

ANS: T PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
25. In the job order system, the finished goods account is the controlling account for the factory overhead ledger.

ANS: F PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
26. The inventory accounts generally maintained by a manufacturing firm are only finished goods and materials.

ANS: F PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
27. Generally accepted accounting principles require companies to use only one factory overhead rate for product costing.

ANS: F PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
28. Interim financial statements for a manufacturing business would report overapplied factory overhead as a deferred item on the balance sheet.

ANS: T PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
29. The debit to factory overhead for the cost of indirect materials is obtained from the summary of the materials requisitions.

ANS: T PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
30. In a factory with several processing departments, a single factory overhead rate may not provide accurate product costs and effective cost control.

ANS: T PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
31. Nonmanufacturing costs are generally classified into two categories: selling and administrative.

ANS: T PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
32. The current year's advertising costs are normally considered period costs.

ANS: T PTS: 1 DIF: Moderate OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
33. Direct labor cost is an example of a period cost.

ANS: F PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
34. A manufacturing business reports just two types of inventory on its balance sheet: work in process inventory and finished goods inventory.

ANS: F PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
35. On the balance sheet for a manufacturing business, the cost of direct materials, direct labor, and factory overhead, which have entered into the manufacturing process but are associated with products that have not been finished, is reported as direct materials inventory.

ANS: F PTS: 1 DIF: Moderate OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
36. As product costs are incurred in the manufacturing process, they are accounted for as assets and reported on the balance sheet as inventory.

ANS: T PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
37. A receiving report is prepared when purchased materials are first received by the manufacturing department.

ANS: F PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
38. Period costs are costs that are incurred for the production requirements of a certain period.

ANS: F PTS: 1 DIF: Easy OBJ: 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
39. Job order cost systems can be used to compare unit costs of similar jobs to determine if costs are staying within expected ranges.

ANS: T PTS: 1 DIF: Moderate OBJ: 03

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
40. Job cost sheets can provide information to managers on unit cost trends, the cost impact of continuous improvement in the manufacturing process, the cost impact of materials changes, and the cost impact of direct materials price or direct labor rate changes over time.

ANS: T PTS: 1 DIF: Easy OBJ: 03

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
41. Job order cost accounting systems may be used to evaluate a company's efficiency.

ANS: T PTS: 1 DIF: Easy OBJ: 03

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
42. Information about costs developed through a job order cost system can not be used to evaluate an organization’s cost performance.

ANS: F PTS: 1 DIF: Easy OBJ: 03

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
43. A staff department or unit is one directly involved in the basic objective of the organization.

ANS: F PTS: 1 DIF: Moderate OBJ: 03

NAT: AACSB Analytic | IMA-Cost Management
44. Job order cost accounting systems may be used for planning and controlling a service business.

ANS: T PTS: 1 DIF: Easy OBJ: 04

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
45. Job order cost accounting systems can be used only for companies that manufacture a product.

ANS: F PTS: 1 DIF: Easy OBJ: 04

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
46. The direct labor and overhead costs of providing services to clients are accumulated in a work-in-process account.

ANS: T PTS: 1 DIF: Easy OBJ: 04

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
47. In a job order cost accounting system for a service business, materials costs are normally included as part of overhead.

ANS: T PTS: 1 DIF: Easy OBJ: 04

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
48. A service organization will not use the job order costing method because it has no direct materials.

ANS: F PTS: 1 DIF: Easy OBJ: 04

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
49. Using the job order cost system, service organizations are able to bill customers on a weekly or monthly basis, even when the job has not been completed.

ANS: T PTS: 1 DIF: Moderate OBJ: 04

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
MATCHING
Identify the costs as one of the following:

a.

Direct labor

b.

Direct materials

c.

Factory overhead

d.

Not a product cost



1. Factory depreciation
2. President’s salary
3. Salesmen commissions
4. Wood
5. Factory supervisor’s salary
6. Assembler’s wages
7. Plastic parts
8. Finished goods warehouse rent
9. Machine operator
10. Maintenance Supplies
1. ANS: C PTS: 1 DIF: Moderate OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
2. ANS: D PTS: 1 DIF: Moderate OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
3. ANS: D PTS: 1 DIF: Moderate OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
4. ANS: B PTS: 1 DIF: Moderate OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
5. ANS: C PTS: 1 DIF: Moderate OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
6. ANS: A PTS: 1 DIF: Moderate OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
7. ANS: B PTS: 1 DIF: Moderate OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
8. ANS: D PTS: 1 DIF: Moderate OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
9. ANS: A PTS: 1 DIF: Moderate OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
10. ANS: C PTS: 1 DIF: Moderate OBJ: 01

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
Match each of the following terms with the phrase that most closely describes it. Each answer may be used only once.


a.

Job order cost system

b.

Process cost system

c.

Period costs

d.

Underapplied overhead

e.

Overapplied overhead

f.

Finished goods ledger



11. Applied overhead is less than actual overhead incurred.
12. Expenses of the current period.
13. Applied overhead is more than actual overhead incurred.
14. Typically used by companies that make custom products.
15. Typically used by companies whose products are indistinguishable from each other.
16. The stock ledger.
11. ANS: D PTS: 1 DIF: Moderate OBJ: 01 | 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
12. ANS: C PTS: 1 DIF: Moderate OBJ: 01 | 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
13. ANS: E PTS: 1 DIF: Moderate OBJ: 01 | 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-27-Managerial Accounting Features/Costs
14. ANS: A PTS: 1 DIF: Moderate OBJ: 01 | 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
15. ANS: B PTS: 1 DIF: Moderate OBJ: 01 | 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-35-Process Costing
16. ANS: F PTS: 1 DIF: Moderate OBJ: 01 | 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
Match each of the following terms with the phrase that most closely describes it. Each answer may be used only once.

a.

Job cost sheets

b.

Material requisition

c.

Receiving report

d.

Time tickets

e.

Cost of Services



17. Service providers use this account similarly to the cost of merchandise sold account used by merchandisers.
18. Subsidiary ledger for Work in Process.
19. Serves as the basis for recording direct labor on a job cost sheet.
20. Prepared when materials that have been ordered are received and inspected.
21. Serves as the basis for recording materials used.
17. ANS: E PTS: 1 DIF: Moderate OBJ: 04

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
18. ANS: A PTS: 1 DIF: Moderate OBJ: 01 | 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
19. ANS: D PTS: 1 DIF: Moderate OBJ: 01 | 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
20. ANS: C PTS: 1 DIF: Moderate OBJ: 01 | 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
21. ANS: B PTS: 1 DIF: Moderate OBJ: 01 | 02

NAT: AACSB Analytic | IMA-Cost Management | ACBSP-APC-34-Job Order Costing
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