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Cost Accounting and Overhead on Direct Labor Costs

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The following calendar year information about the Tahoma Corporation is available on December 31:

The company applies overhead on the basis of 125% of direct labor costs. Calculate the amount of over- or underapplied overhead.

Problem # 2
A company uses a process cost accounting system. The following information is available regarding direct labor for the current year:

(a) Calculate the equivalent units of production for direct labor for the year.
(b) Calculate the average cost per equivalent unit for direct labor (round to the nearest cent).

Problem # 3
A retail store has three departments, A, B, and C, each of which has four full-time employees. The store does general advertising that benefits all departments. Advertising expense totaled \$90,000 for the current year, and departmental sales were:

How much advertising expense should be allocated to each department?

Solution Preview

Problem # 1
The following calendar year information about the Tahoma Corporation is available on December 31:

The company applies overhead on the basis of 125% of direct labor costs. Calculate the amount of over- or underapplied overhead.

Overapplied or under applied is the difference between applied overhead and actual overhead

Direct Labor cost = 142,600
Overhead applied = 142,600X1.25 = \$178,250

Depreciation on factory equipment 42,320
Factory ...

Solution Summary

The solution explains three problems - 1. Calculation of over-applied or under-applied overhead 2. Computation of equivalent units 3. Allocation of advertising costs.

\$2.19

Cost Accounting Multiple Choice

1) The basic types of cost accounting system are:
A)Job order cost systems, activity based cost systems and process cost systems. (B) Direct cost system and indirect cost systems (C) Complete job cost systems and work in process cost system. (D) Fixed cost systems and variable cost systems

2) In ABC, only one cost driver should be used in applying overhead.
A) True (B) False

3) Elston's Metal Shop uses a job order cost system. It applies overhead to jobs at a rate of 150% of direct labor costs. Job No.2617 required \$500bin direct labor costs. The job was initially budgeted to require \$550 in direct labor costs. Overhead applied to No.2617 during the period amounted to:
A) \$550 (B) \$750 (C) \$825 (D) some other amount.

4) If the manufacturing overhead account at month end has a remaining debit balance, this indicates that overhead is under applied.
A) True (B) False

A) Is used in a job order cost system but cannot be used in a process cost system (B) Can be determined by dividing budgeted direct labor cost by the budgeted factory overhead costs. (C) Is not generally accepted for financial reporting purpose. (D) Tends to avoid wide variation in per-unit overhead cost because of short -run changes in volume.

6) Parkway Auto Body uses a job order cost system. Overhead is applied to jobs on the basis of direct labor hours. During the current period, jobs on the basis of direct labor hours. During the current period, Job No.337was charged \$400 in direct material , \$450 in direct labor, and \$180 in overhead. If direct labor cost an average f \$15 per hour, the company's overhead application rate is:
A) \$9 per direct labor hour B) \$6 per direct labor hour ( C ) \$17 per direct labor hour (D) \$20 per direct labor hour

7) The type of cost accounting system best suited to a particular company depends on:
A) The nature of the company's manufacturing operations (B) The requirement set forth by the FASB (C) Government regulation (D) The type of cost drivers available

8) If manufacturing overhead is materially over applied, its best to close it to:
A) Work in process inventory (B) Finished goods inventory (C) Cost of goods sold (D) All three in an apportioned manner

9) All of the following are advantages of developing a predetermined overhead application rate except:
A) Short run fluctuations in volume of output are normalized (B) In a job system, unit costs can be determined as soon as jobs are completed (C) The overhead application rate facilitates assigning overhead cost to the ending inventory of work in process. (D) Actual overhead will always be less than applied overhead.

10) PAK Co. uses a job order cost accounting system. At year -end the work in process Inventory controlling account showed a debit balance of \$57,500. For the two job in process at year-end, one showed \$8,000 in direct materials and \$6,000 in direct labor. The job cost sheet for the second job showed \$12,000 in direct material and \$9,000 in direct labor. If the company is using a predetermined overhead application rate based on direct labor cost, the rate is:
A) 50% (B) 100% (C) 150% (D) 200%

11) In a job cost system, the work in process inventory controlling account may be reconciled to the total of the:
A) Employee time cards (B) Materials requisitions (C) Work in process Inventory records for each department or process(D) Job cost sheets

Use the following to answer question 12-14

Swift Boat Company Corporation uses a job order cost system and applies overhead based on percentage of direct labor cost. Cost flow through the work in Process Inventory account during March are given below

Work in Process
Beginning Balance 0 Transferred out 240,000
Direct Materials 45,000
Direct Labor 75,000

Ending Balance 105,000

Only Job # 007 was still in process at the end of March and this job had been charged with \$15,000 in direct material cost.

12)Refer to the information above . The amount of direct materials cost charged to completed jobs during March was:
A) \$15,000 (B) \$45,000 (C) \$30,000 (D) some other amount

13) Refer to the above information . The predetermined overhead application rate at Swift Boat is what percentage of direct labor cost.
A) 33% (B) 67% (C) 300% (D) 400%

14 Refer to the information above. The journal entry which accounts for the \$240,000 transferred out of work in process includes a debit of \$240,000 to
A) Finished Goods (B) Cost of Goods Sold (C) Accounts Receivable (D) Sales

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