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Exam 11: Product Costing in Service and Manufacturing Entities

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Question 51

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Select the incorrect statement regarding service companies.

A) Service companies do not maintain a Finished Goods Inventory account.
B) Service companies accumulate their service costs in a Work in Process Inventory account similar to manufacturers.
C) Service companies may have raw material costs.
D) Understanding the cost of providing a service is just as important as knowing the cost of making a product.

E) A) and B)
F) A) and D)

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Question 52

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Johnson Company estimates that its production workers will work 88,000 direct labor hours to produce 8,800 units during the upcoming period and that overhead costs will amount to $880,000.During the year,its manufacturing employees actually worked 100,000 direct labor hours to produce 10,000 units and incurred $1,100,000 of overhead costs.Because the goods made by Johnson are homogeneous (that is,they are identical) ,the company has decided it makes sense to use number of units as the allocation base for overhead.Based on this information the predetermined overhead rate is:

A) $110.00 per unit.
B) $10.00 per direct labor hour.
C) $100.00 per unit.
D) $11.00 per direct labor hour.

E) A) and C)
F) C) and D)

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Question 53

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Purchasing production supplies for cash is a(n) :

Describe the basic differences between absorption and variable costing.Why are managers sometimes motivated to produce too much inventory when income is computed under an absorption costing system?

Estimated overhead costs are applied to work in process at the time the goods are sold.

Lewes Company produced 8,000 units of inventory and sold 6,000.The company incurred the following production costs: Variable manufacturing cost: $12.00 per unit Fixed manufacturing overhead cost: $60,000 Assuming the company sells its product at a price of $25 per unit,and incurred $10,000 in selling and administrative cost,what is the amount of net income under variable costing?

Indicate whether each of the following statements is true or false. Estimated overhead costs are applied to work in process at the time the goods are produced.______ Overhead is applied to work in process by debiting Manufacturing Overhead and crediting Finished Goods Inventory.______ Recognizing estimated overhead is an asset exchange transaction.______ Actual overhead costs are recorded with a credit to Manufacturing Overhead.______ During a company's accounting period,manufacturing overhead is likely to be either overapplied or underapplied.______

A credit to the Raw Materials Inventory account represents:

At the beginning of the year,Hilliard Company estimated that its total overhead cost would be $250,000 and its production volume would be 80,000 units.Total actual overhead cost for the year was $246,000.The actual number of units produced during the year was 78,000. Required: 1)What amount of overhead was applied to the products Hilliard completed during the year? 2)Calculate the volume variance for the year.Indicate whether it is favorable or unfavorable.Do not round intermediate calculations. 3)Calculate the spending variance for the year.

Cost of goods sold must be determined prior to computing cost of goods manufactured.

Redmond Manufacturing Company began operations on January 1.The company was affected by the following events during its first year of operation: a)Company issued stock to owners for $100,000 cash. b)Purchased materials,$8,000 cash. c)Transferred $4,000 of direct materials to production (Job #1: $3,000; Job #2: $1,000). d)Paid direct labor costs,$5,000 (Job #1: $2,500; Job #2: $2,500). e)Paid $3,000 cash for various actual overhead costs. f)Allocated overhead to work in process at 60% of direct labor cost. g)Completed Job #1 and transferred it to finished goods. h)Sold Job #1 for $8,400 cash. i)Paid $200 cash for selling and administrative expenses. Required: 1)Record the above events in the T-accounts provided.Label your transactions (a)- (i). 2)Determine the ending balance in the Work in Process account. 3)Prepare a schedule of cost of goods manufactured and sold. 4)Compute the amount of gross profit earned on Job #1.

All of the following costs are accumulated in the Work in Process Inventory account except:

The work in process inventory account increases when raw materials are placed into production.

The Juarez Corporation incurred the following transactions during its first year of operations.(Assume all transactions involve cash) . 1) Acquired $1,000 of capital from the owners. 2) Purchased $400 of direct raw materials. 3) Used $300 of these direct raw materials in the production process. 4) Paid production workers $400 cash. 5) Paid $200 for manufacturing overhead (applied and actual overhead are the same) . 6) Started and completed 200 units of inventory. 7) Sold 50 units at a price of $6 each. 8) Paid $40 for selling and administrative expenses. The amount of cost of goods manufactured would be:

Product costs flow through the manufacturer's inventory accounts in the following order: raw materials,finished goods,and cost of goods sold.

Describe how firms use service and product cost information.

The accounting records for Eisner 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 during the year for $192,000.The cost per unit under variable and absorption costing would be,respectively:

Coleridge Company estimates that its production workers will work 125,000 direct labor hours during the upcoming period and that overhead costs will amount to $750,000.Assume overhead to be allocated on the basis of direct labor hours.What predetermined overhead rate would be used to apply overhead to production during the period?

Orlando Company paid $100 cash to purchase production supplies.How does this transaction affect the financial statements?

Recognizing estimated manufacturing overhead costs at the end of a month is a(n) :