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web.groovymark@gmail.com
- December 8, 2024
Question 01
What is a key characteristic of job order costing?
a) Costs are assigned to batches of identical products
b) Costs are averaged over large production runs
c) Costs are accumulated by individual jobs or orders
d) Costs are divided evenly among all products
Answer: c) Costs are accumulated by individual jobs or orders
Explanation: In job order costing, costs are tracked for each job individually because each job may differ in materials, labor, and overhead.
Question 02
Which cost is not typically included in manufacturing overhead?
a) Depreciation on factory equipment
b) Supervisor’s salary
c) Direct materials used in production
d) Factory rent
Answer: c) Direct materials used in production
Explanation: Direct materials are separately classified and not part of overhead. Manufacturing overhead includes indirect costs like factory rent, equipment depreciation, and supervisor salaries.
Question 03
Which costing method would be used by a company that produces large quantities of similar products?
a) Job order costing
b) Variable costing
c) Process costing
d) Absorption costing
Answer: c) Process costing
Explanation: Process costing is used when a company produces large quantities of homogeneous products, where the costs are averaged over all units produced.
Question 04
When is manufacturing overhead overapplied?
a) When applied overhead exceeds actual overhead
b) When actual overhead exceeds applied overhead
c) When direct materials costs exceed applied overhead
d) When actual overhead is lower than estimated overhead
Answer: a) When applied overhead exceeds actual overhead
Explanation: Overapplied overhead occurs when the overhead allocated to production (applied overhead) is higher than the actual overhead incurred during the period.
Question 05
What is the first step in calculating a predetermined overhead rate?
a) Estimating the total overhead costs for the upcoming period
b) Dividing actual overhead costs by the activity base
c) Calculating total labor costs for the period
d) Estimating total material costs for the period
Answer: a) Estimating the total overhead costs for the upcoming period
Explanation: To calculate the predetermined overhead rate, the company first estimates the total overhead costs for the upcoming period based on expected production levels.
Question 06
Which company would most likely use process costing?
a) A custom furniture manufacturer
b) A legal consulting firm
c) A soft drink bottling company
d) A jewelry maker
Answer: c) A soft drink bottling company
Explanation: Process costing is ideal for companies that produce homogeneous products like soft drinks, where production costs are accumulated for continuous processes.
Question 07
Which of the following is a period cost?
a) Direct materials
b) Manufacturing overhead
c) Administrative expenses
d) Direct labor
Answer: c) Administrative expenses
Explanation: Period costs are not directly tied to the production of goods and are expensed in the period they are incurred. Administrative expenses are classified as period costs.
Question 08
In job order costing, what happens when a job is completed?
a) Costs are transferred from work-in-process to finished goods inventory
b) Costs are transferred from finished goods to cost of goods sold
c) Costs are transferred from raw materials to work-in-process
d) Costs remain in work-in-process until sold
Answer: a) Costs are transferred from work-in-process to finished goods inventory
Explanation: Once a job is completed, its costs are transferred to finished goods inventory, where they remain until the goods are sold.
Question 09
What is an advantage of using job order costing?
a) It simplifies accounting for large production runs
b) It allows for tracking individual job costs
c) It reduces the need for direct labor tracking
d) It minimizes administrative overhead
Answer: b) It allows for tracking individual job costs
Explanation: Job order costing allows companies to track the costs of individual jobs or orders, making it easier to assess the profitability of each job.
Question 10
Which of the following would not be classified as a conversion cost?
a) Direct materials
b) Direct labor
c) Manufacturing overhead
d) Indirect labor
Answer: a) Direct materials
Explanation: Conversion costs include direct labor and manufacturing overhead, which are the costs incurred to convert raw materials into finished goods.
Question 11
What does the term ‘applied overhead’ refer to in job order costing?
a) The actual overhead incurred during production
b) The overhead assigned to jobs based on the predetermined overhead rate
c) The difference between actual and estimated overhead
d) The total overhead costs for the period
Answer: b) The overhead assigned to jobs based on the predetermined overhead rate
Explanation: Applied overhead is the amount of overhead that is allocated to jobs using the predetermined overhead rate, typically based on a measure like labor hours or machine hours.
Question 12
Which of the following describes the difference between job order costing and process costing?
a) Process costing assigns costs to individual jobs, while job order costing averages costs
b) Job order costing assigns costs to individual jobs, while process costing averages costs
c) Process costing tracks costs for custom jobs, while job order costing is used for continuous production
d) Job order costing is used for identical products, while process costing is used for unique products
Answer: b) Job order costing assigns costs to individual jobs, while process costing averages costs
Explanation: Job order costing is used for custom jobs where costs are tracked individually, while process costing averages costs over large quantities of identical products.
Question 13
How are actual manufacturing overhead costs journalized?
a) As a debit to the manufacturing overhead account
b) As a debit to the work-in-process account
c) As a credit to cost of goods sold
d) As a credit to manufacturing overhead
Answer: a) As a debit to the manufacturing overhead account
Explanation: Actual overhead costs incurred during the production process are recorded as a debit to the manufacturing overhead account.
Question 14
What is a cost driver?
a) A factor that causes changes in manufacturing overhead costs
b) A component of direct labor costs
c) A measure of profitability for each product
d) A type of direct material cost
Answer: a) A factor that causes changes in manufacturing overhead costs
Explanation: A cost driver is an activity or factor that triggers the incurrence of overhead costs, such as machine hours or labor hours.
Question 15
When using activity-based costing (ABC), what is the primary benefit?
a) It reduces administrative costs
b) It allocates overhead costs more accurately to products
c) It simplifies the cost allocation process
d) It eliminates the need for direct labor tracking
Answer: b) It allocates overhead costs more accurately to products
Explanation: Activity-based costing (ABC) allocates overhead costs based on multiple cost drivers, providing a more accurate reflection of the resources consumed by different products.
Question 16
What is the formula for calculating the predetermined overhead rate?
a) Estimated direct materials / total direct labor
b) Estimated overhead / total direct materials
c) Estimated overhead / estimated activity base
d) Actual overhead / actual labor hours
Answer: c) Estimated overhead / estimated activity base
Explanation: The predetermined overhead rate is calculated by dividing estimated total overhead costs by the estimated activity base (e.g., labor hours or machine hours).
Question 17
In job order costing, what is a job cost sheet used for?
a) To summarize the direct materials used for the job
b) To record all costs associated with a specific job
c) To track the cost of indirect materials used
d) To report the total overhead incurred during a period
Answer: b) To record all costs associated with a specific job
Explanation: A job cost sheet is used to track the direct materials, direct labor, and applied overhead for each specific job.
Question 18
What is the purpose of allocating overhead costs in job order costing?
a) To reduce the cost of production
b) To assign indirect costs to jobs based on a cost driver
c) To ensure materials costs are accurately recorded
d) To calculate the total cost of direct labor used in production
Answer: b) To assign indirect costs to jobs based on a cost driver
Explanation: Overhead costs are allocated to jobs in job order costing to assign indirect costs (like rent and utilities) to the products being made, based on the activity that drives those costs.
Question 19
What is the difference between actual overhead and applied overhead?
a) Actual overhead is based on estimates, while applied overhead is based on actual costs
b) Actual overhead is the overhead incurred, while applied overhead is the overhead assigned using a predetermined rate
c) Applied overhead is always higher than actual overhead
d) Actual overhead includes direct labor, while applied overhead does not
Answer: b) Actual overhead is the overhead incurred, while applied overhead is the overhead assigned using a predetermined rate
Explanation: Actual overhead refers to the actual costs incurred, while applied overhead is the estimate of those costs allocated to jobs based on a predetermined rate.
Question 20
In which account are indirect materials charged during production?
a) Finished goods inventory
b) Raw materials inventory
c) Work-in-process inventory
d) Manufacturing overhead
Answer: d) Manufacturing overhead
Explanation: Indirect materials, such as supplies used in production but not directly traceable to a specific product, are charged to manufacturing overhead.
