Chapter 5 - Job order costing

Question 1

What are decisions that rely on unit cost information examples of?

Answer 1

Decisions to introduce a new product, to continue a current product, and to establish long-run prices are examples of important internal decisions that rely on unit cost information.

Question 2

What are the characteristics of the job-order environment?

Answer 2

Companies can be divided into two major types, depending on whether or not their products or services are unique.

Firms producing unique products or providing services require a job-order accounting system.

Firms producing identical products or services can use a process-costing accounting system.

Question 3

What are the three major costs that manufacturing categorize costs?

Answer 3

Overhead, Direct Labour, Direct Material.

Question 4

What are the components of manufacturing overhead?

Answer 4

All manufacturing costs other than direct materials and direct labour

Question 5

What formula is used to calculate the predetermined overhead rate?

Answer 5

Predetermined overhead rate = Estimated annual overhead / estimated annual activity level

Question 6

Whitney Company uses a predetermined rate to apply overhead. At the beginning of the year, Whitney estimated its overhead costs at $280,000, direct labour hours at 40,000, and machine hours at 10,000. Actual overhead costs incurred were $289,000, actual direct labour hours were 41,000, and actual machine hours were 11,000.

Suppose the predetermined overhead rate is based on machine hours. What would be the total amount credited to the factory overhead account for the year for Whitney?

Answer 6

$308,000

Question 7

Which of the following costs are easy to trace to individual jobs?

1) direct materials and overhead

2) direct materials and direct labour

3) overhead and indirect labour

4) direct labour and overhead