The architecture firm of Dream Design Company uses a job order cost system in pricing the home blueprints it designs for its clients.

 When a customized product is manufactured separately, it is referred to as ____ production:

multiple choice

    a process
    a job order Correct
    a job lot
    mass

Explanation

Knowledge Check 01
 
A customized product manufactured separately is referred to as a job order production or job order manufacturing.

The three manufacturing costs include:
 
multiple choice

    indirect materials, indirect labor and overhead
    direct materials, direct labor and overhead Correct
    indirect materials, direct labor and overhead
    direct materials, indirect labor and overhead

Explanation

Knowledge Check 01

The three manufacturing costs include direct materials, direct labor and factory overhead.

Manufacturing costs flow in which order?
 
multiple choice

    raw materials inventory, work in process inventory, finished goods inventory Correct
    raw materials inventory, finished goods inventory, work in process inventory
    finished goods inventory, raw materials inventory, work in process inventory
    work in process inventory, raw materials inventory, finished goods inventory

Explanation

Knowledge Check 01

Manufacturing costs flow through inventory accounts in the following order: raw materials inventory, work in process inventory, and finally into finished goods inventory.

All of the following are included on a job cost sheet except?
 
multiple choice

    Customer’s name and address
    Customer’s signature when job is complete Correct
    Direct materials cost
    Direct labor cost
    Overhead costs

Explanation

Knowledge Check 01

The customer’s name and address, direct materials, direct labor, and overhead costs are all included on a Job Cost Sheet. The customer’s signature is not included. When the job is completed, the supervisor will sign the sheet.

The architecture firm of Dream Design Company uses a job order cost system in pricing the home blueprints it designs for its clients. The company‘s predetermined overhead rate is 130% of direct labor cost (which, in this situation, is the amount paid to the company‘s designers). Dream Design Company estimates that it will take 32 labor hours (paying the designers $3,200) to complete the home designs for its client Joan Smitte. What is the total cost to Dream Design Company to complete this project?
 
multiple choice

    $940
    $1,300
    $7,360 Correct
    $3,200
    $4,160

Explanation

Knowledge Check 01
 
The total cost to complete the project is $7,360, which is made up of the $3,200 to be paid to the designers and the $4,160 of overhead costs (or $3,200 × 130%).

What is the chronological order of the material cost flows through the subsidiary records?
 
multiple choice

    Materials Ledger Card, Receiving Reports, Requisitions, Job Cost Sheets
    Requisitions, Job Cost Sheets, Receiving Reports, Materials Ledger Card
    Receiving Reports, Materials Ledger Card, Requisitions, Job Cost Sheets Correct
    Job Cost Sheets, Receiving Reports, Materials Ledger Card, Requisitions
    Receiving Reports, Requisitions, Materials Ledger Card, Job Cost Sheets

Explanation

Knowledge Check 01

When materials are first received, employees count and inspect them and record them on a receiving report. The receiving report is used as the source document for recording materials received in the materials ledger and the general ledger. A materials requisition is used to request materials to be used in production and this information is entered on the job cost sheet.

What account is debited when materials are purchased on credit for later use in production?
 
multiple choice

    Accounts Payable
    Work in Process Inventory
    Requisitions
    Raw Materials Inventory Correct

Explanation

Knowledge Check 01
 
When materials are purchased for later use in production, the Raw Materials Inventory account is debited and Accounts Payable is credited.

A _____ _____ is used to track each employee’s direct labor time.
 
multiple choice

    cost sheet
    time ticket Correct
    labor contract
    ledger account

Explanation

Knowledge Check 01
 
A time ticket is used to assign direct labor costs to individual jobs.

What account is debited when direct labor is recorded for the month?
 
multiple choice

    Time Tickets
    Work in Process Inventory Correct
    Cash
    Direct Costs

Explanation

Knowledge Check 01
 
When direct labor is recorded for the month, Work in Process Inventory is debited and Factory Wages Payable is credited.

Bridge Building Company estimates that it will incur $1,200,000 in overhead costs for the year. Additionally, the company estimates 50,000 direct labor hours will be spent building custom walking bridges for the year at a total direct labor cost of $600,000. What is the predetermined overhead rate for Bridge Building Company if direct labor costs are to be used as an allocation base?
 
multiple choice

    50% of direct labor cost
    2400% of direct labor cost
    8.33% of direct labor cost
    200% of direct labor cost Correct

Explanation

Knowledge Check 01
 
Predetermined overhead rate = Estimated overhead cost of $1,200,000 ÷ Estimated direct labor cost of $600,000 = 200% of direct labor cost.

Dream House Builders, Incorporated applies overhead by linking it to direct labor. At the start of the current period, management predicts total direct labor costs of $100,000 and total overhead costs of $20,000. On January 31, the direct labor for this job equals $2,700.
 
Complete the following journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.
 

 During January, Dream House Builders, Incorporated incurred $550 of actual indirect materials costs, as supported by materials requisitions.
 
Complete the following journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

 

Finished goods inventory is reported on the:
 
multiple choice

    Income Statement
    Balance Sheet Correct
    Schedule of Cost of Goods Manufactured
    Cost of Goods Sold

Explanation

Knowledge Check 01

Finished goods inventory is an asset and is, therefore, reported on the Balance Sheet.

The costs assigned to a job that has been sold is reported on the:
 
multiple choice

    Income Statement Correct
    Balance Sheet
    Schedule of Cost of Goods Manufactured
    Cost of Goods Sold

Explanation

Knowledge Check 01

When jobs are sold, their costs are transferred to Cost of Goods Sold which is reported on the Income Statement.

Total manufacturing costs include direct materials, direct labor, plus:
 
multiple choice

    Factory overhead applied Correct
    Actual factory overhead
    Work in process beginning inventory
    Work in process ending inventory

Explanation

Knowledge Check 01

Total manufacturing costs include direct material used, direct labor plus factory overhead applied. The beginning work in process inventory is added to total manufacturing costs and the ending work in process inventory is subtracted from total cost of work in process to compute cost of goods manufactured.
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The beginning and ending work in process inventory account balances are reported on the balance sheet as shown in the:
 
multiple choice

    Cost of Goods
    Income Statement
    Schedule of Cost of Goods Manufactured Correct
    General ledger accounts

Explanation

Knowledge Check 01

The beginning and ending work in process inventory account balances are reported on the balance sheet as shown in the Schedule of Cost of Goods Manufactured.


Bridge Builders Company examined its Factory Overhead account at the end of the year and discovered a debit balance. What does this indicate?
 
multiple choice

    Overhead has been underapplied. Correct
    Overhead has been overapplied.
    Overhead has been applied in error.
    Overhead has been ignored.
    Overhead has been double-counted.

Explanation

Knowledge Check 01
 
A debit balance in the Factory Overhead account results when the credits (for the amount applied) are less than (or under) the debits (actual amount of overhead) in the Factory Overhead account. As such, overhead has been underapplied (since the amount applied is under the actual amount). In other words, not enough overhead was applied to jobs.

Bridge Builders Company examined its Factory Overhead account at the end of the year and discovered a credit balance of $2,000. The journal entry to close this account includes which of the following?
 
multiple choice

    Debit to Cost of Goods Sold
    Credit to Factory Overhead
    Credit to Factory Payroll
    Credit to Cost of Goods Sold Correct
    Debit to Factory Payroll

Explanation

Knowledge Check 01
 
Factory Overhead has a credit balance of $2,000, so a debit of $2,000 must be posted to that account to zero it out. The related entry would include a credit to the Cost of Goods Sold account.

One of the main differences between service companies and manufacturers is that:
 
multiple choice

    Service firms have raw materials, but manufacturers do not.
    Service firms do not have raw materials, but manufacturers do. Correct
    Service firms normally use direct materials to apply overhead.
    Service firms normally use the same account titles as a manufacturer.

Explanation

Knowledge Check 01

Service firms do not raw materials or finished goods inventory. Service firms usually use direct labor to apply overhead because they do not have direct materials and service firms normally use different account titles than those used by a manufacturer.
 

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