Job Order Costing [PDF]

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JOB ORDER COSTING: 1. The companies that produce many different products or services usually use: o



 process costing



o



 job order costing



o



 both process costing and job order costing



o  none of the above 2. Which of the following costs is recorded on the job cost sheet? o



 Direct materials cost



o



 Direct labor cost



o



 Manufacturing overhead cost



o  All of the above 3. Which of the following journal entries is correct for the issuance of direct materials to production? o



 Materials Dr. & Work in process Cr.



o



 Work in process Dr. & Materials Cr.



o



 Work in process Dr. & Accounts payable Cr.



o  Materials Dr. & Accounts payable Cr. 4. The GSM company uses job order costing system and provides you the following data for the current period: o Direct materials issued to production: $180,000 o Indirect materials issued to production: $16,000 o Direct labor cost: $214,000 o Manufacturing overhead cost – applied: $226,000 o Manufacturing overhead cost – actual: $250,000 There was no beginning and ending work in process and finished goods inventory. The company uses a predetermined overhead rate to apply manufacturing overhead to work in process (WIP) inventory. Based on the above information, what is the cost of goods manufactured of GSM Company? o



 $660,000



o



 $644,000



o



 $620,000



o



 $604,000



Computation:







The SK manufacturing company computes predetermined overhead rate on the basis of machine hours in the machining department and direct labor cost in the assembly department. The following estimates were made at the beginning of the year:



Based on the above information, what are the predetermined overhead rates for machining department and assembly department? o



 $5 and 100%



o



 $5 and 200%



o



 $6 and 200%



o



 $5 and 50%



Computation: Machining department: Estimated manufacturing overhead cost/Estimated machine hours = $15,000/3,000 hours = $5 per machine hour Assembly department: Estimated manufacturing overhead cost/Estimated direct labor cost = $20,000/$10,000 = 200% 







Which of the following is a correct journal entry to record direct labor cost? o



 Production Dr. & Direct labor Cr.



o



 Work in process Dr. & Direct labor Cr.



o



 Wages payable Dr. & Work in process Cr.



o o o o o o o o



 Work in process Dr. & Wages payable Cr. The ABC company has the following estimated costs for the next year: Direct materials: $15,000 Indirect materials: $5,000 Direct labor: $55,000 Salary of production supervisor: $35,000 Rent on factory equipment: $16,000 Sales commission: $75,000 Advertising expenses: $11,000



It is estimated that 53,000 machine hours and 8,000 direct labor hours will be worked during the next year. What will be the predetermined overhead rate if company applies manufacturing overhead cost to jobs on the basis of direct labor hours.



o



 $15



o



 $14



o



 $7



o



 $17



Computation: ($5,000 + $16,000 + $35,000)/8,000 hours = $7 per direct labor hour 











Under job order costing system, which of the following costs would be recorded as debit to manufacturing overhead account? o



 Direct materials cost



o



 Indirect materials cost



o



 Direct labor cost



 None of the above In a job order costing system, which of the following costs is not an example of manufacturing overhead cost? o



o



 Indirect labor cost



o



 Fuel used in factory



o



 Salary of production manager



 Sales commission Which of the following is a correct journal entry to apply manufacturing overhead cost to jobs? o



o



 Work in process Dr. & Manufacturing overhead Cr.



o



 Manufacturing overhead Dr. & Work in process Cr.



o



 Finished goods Dr. & Manufacturing overhead Cr.



o



 Work in process Dr. & Finished goods Cr.



 o Estimated manufacturing overhead cost at the beginning of the year: $100,000 o Estimated direct labor hours at the beginning of the year: 10,000 o Actual manufacturing overhead cost incurred during the year: $118,000 o Actual direct labor hours worked during the year: 11,000 Based on the above information, the cost record of the company will show: o



 overapplied overhead of $8,000



o



 underapplied overhead of $8,000



o



 overapplied overhead of $18,000



o



 underapplied overhead of $18,000



Computations: Predetermined overhead rate = Estimated manufacturing overhead/Estimated direct labor hours = $100,000/10,000 hours = $10 Overhead applied during the year = Actual direct labor hours × Predetermined overhead rate = 11,000 hours × $10 = $110,000 Underapplied overhead = Actual overhead – Applied overhead = $118,000 – $110,000 = $8,000 



The following information belongs to Delta Company which uses job order costing system: o Overapplied balance of manufacturing overhead account: $22,000 o Work in process inventory account – ending balance: $10,000 o Finished goods inventory account – ending balance: $15,000 o Cost of goods sold account – ending balance: $25,000



On the basis of ending balances, which of the following is a correct allocation of overapplied overhead balance among work in process, finished goods and cost of goods sold? o



 $7,333, $7,333, $7,333



o



 $4,400, $6,600, $11,000



o



 $10,000, $15,000, $25,000



o



 None of the above



Computation: Total ending balances: $10,000 + $15,000 + $25,000 = $50,000 The proportion of ending balances to total ending balance: o Work in process: $10,000/$50,000 = 20% o Finished goods: $15,000/$50,000 = 30% o Cost of goods sold: $25,000/$50,000 = 50%







The allocation of overapplied balance of manufacturing overhead account: o Work in process: $22,000 × 0.2 = $4,400 o Finished goods: $22,000 × 0.3 = $6,600 o Cost of goods sold: $22,000 × 0.5 = $11,000 The Robert Company uses a job order costing system and computes its predetermined overhead rate at the beginning of each period on the basis of direct labor cost. At the end of current period, the only job in process is the job number



555B. The cost sheet related to job number 555B shows that the following direct materials and direct labor costs were incurred during the period: o Direct materials cost: $800 o Direct labor cost: $1,200 The work in process inventory account shows a balance of $2,600 at the end of current period. One the basis of above information, what is the predetermined overhead rate as a percentage of direct labor cost? o



 100%



o



 200%



o



 50%



o



 75%



Computations: Manufacturing overhead applied to job number 555B: Work in process account balance – (Direct materials cost + Direct labor cost) = $2,600 – ($800 + $1,200) = $600 Predetermined overhead rate as a percentage of direct labor cost: Manufacturing overhead applied/Direct labor cost = $600/$1,200 = 50% 



Manufacturing overhead would be overapplied if: o



 actual overhead < applied overhead







o



 actual overhead > applied overhead



o



 actual overhead = applied overhead



 applied overhead > direct materials cost + direct labor cost The Fine Company uses a job order costing system. The following information belongs to current period: o Estimated manufacturing overhead at the beginning of the period: $440,000 o Actual manufacturing overhead incurred during the period: $400,000 o Manufacturing overhead underapplied: $16,000 o Predetermined overhead rate: $20 per direct labor hour o



On the basis of above information, how many direct labor hours were worked during the current period? o



 20,800 hours



o



 20,000 hours



o



 19,200 hours



o



 22,000 hours



Computations: Manufacturing overhead applied: Actual manufacturing overhead – Underapplied manufacturing overhead = $400,000 – $16,000 = $384,000 Direct labor hours worked during the period:



Manufacturing overhead applied/Predetermined overhead rate = $384,000/$20 = 19,200 hours  o o o o



The following cost data relates to job 355C: Direct materials: $27,400 Direct labor cost: $9,600 Manufacturing overhead cost – applied: $4,000 (160 machine hours @ $25/machine hour) Selling and shipping cost: $14,000



The job 355C consists of 2,000 units and has been completed. What is the cost of goods sold per unit of job 355C? o



 $20.5



o



 $27.5



o



 $26



o



 $25.5



Computations: Cost of goods sold per unit ($27,400 + $9,600 + $4,000)/2,000 units = 20.5 per unit Selling and shipping cost is an operating cost. It is not a component of cost of goods sold (COGS) and has therefore been ignored.







The total cost assigned to job 777C is $24,000 which includes direct materials cost of $6,000. The factory overhead is applied to work in process @ 150% of direct labor cost. What is the amount of direct labor cost charged and factory overhead applied to job 777C? o



 $9,600 and $14,400, respectively



o



 $6,000 and $12,000, respectively



o



 $7,200 and $10,800, respectively



o



 $4,800 and $72,200, respectively



Computations: Total of direct labor cost and manufacturing overhead cost = Total cost – Direct materials cost = $24,000 – $6,000 = $18,000 Suppose, direct labor cost = Y Manufacturing overhead is applied @ 150% of direct labor cost. Therefore, it must be 1.5Y. Direct labor cost + Manufacturing overhead cost applied = $18,000 or Y + 1.5 Y = $18,000 2.5Y = $18,000 Y = $18,000/2.5 Y = $7,200 Direct labor cost is $7,200 & manufacturing overhead cost applied is $10,800 ($7,200 × 1.5). 







Which of the following is a correct journal entry to record the transfer of finished goods from production department to finished goods store room? o



 Work in process Dr. & Finished goods Cr.



o



 Finished goods Dr. & Work in process Cr.



o



 Finished goods Dr. & Cost of goods sold Cr.



o



 Finished goods Dr. & Store room Cr.



Which of the following is a correct journal entry to record the shipment of a completed job to to customer?















o



 Accounts receivable Dr. & Sales Cr.



o



 Accounts receivable Dr. & Finished goods Cr.



o



 Accounts receivable Dr. & Cost of goods sold Cr.



 Cost of goods sold Dr. & Accounts receivable Cr. Which of the following journal entries correctly records the cost of the job shipped to a customer? o



o



 Accounts receivable Dr. & Work in process Cr.



o



 Finished goods Dr. & Cost of goods sold Cr.



o



 Cost of goods sold Dr. & Finished goods Cr.



 Accounts receivable Dr. & Finished goods Cr. The correct journal entry to dispose off an underapplied manufacturing overhead balance to cost of goods sold account is: o



o



 Manufacturing overhead Dr. & Cost of goods sold Cr.



o



 Cost of goods sold Dr. & Manufacturing overhead Cr.



o



 Manufacturing overhead Dr. & Work in process Cr.



 Cost of goods sold Dr. & Work in process Cr. Which of the following source documents is used to record the amount of direct materials on the job cost sheet? o



o



 Production order



o



 Bill of materials



o



 Materials requisition form



o



 Materials purchase order



ACTIVITY BASED COSTING: 1.



Activity based costing is considered to be a traditional costing method. True  False



2.



Under ABC, indirect manufacturing costs are predominantly assigned on the basis of direct machine hours. True False



3.



Which of the following would not be included in a product's cost for inventory valuation for the financial statements? Factory Supplies



Quality Control Interest Expense 4. Which would be the least favorable basis for allocating manufacturing overhead for a factory with automated equipment and a significant variation of services by its indirect labor? ABC Direct Labor Hours Machine Hours 5. Which would be the most favorable basis for allocating manufacturing overhead for a factory with automated equipment and a significant variation of services by its indirect labor? ABC Direct Labor Hours Machine Hours 6. Activity-based costing will provide greater accuracy when allocating costs than a manufacturer's machine hours when its products and customers are __________ diverse. Less More 7.



When using machine hours for allocating manufacturing overhead (instead of activity-based costing), a low-volume item requiring a significant amount of special handling will be assigned too __________ manufacturing overhead. Little  Much



8.



The cost to set up production equipment is best allocated directly to products via machine hours. True  False



9.



Setup cost is an example of a batch-level cost. True  False



10.



Manufacturing costs are often organized in the general ledger by function and department. When applying activity-based costing, these manufacturing costs will be sorted by activities. True  False



11.



In activity-based costing, the manufacturing overhead cost per unit will depend partially on the number of units in a batch. True  False



12.



13.



In ABC the assumption is that __________ use resources or cause costs. Activities  Products If products are uniform and customers are similar in their demands, activity-based costing may not offer a significant advantage over machine hours when assigning overhead. True False



14.



A product with a high gross profit could be an unprofitable product. True  False



15.



Activity-based costing can be used to allocate SG&A expenses in order to assist management with pricing and other marketing decisions. True  False



PROCESS COSTING: 1. The process costing system is best suited for: o o o



 industries where different types of products are manufactured  industries where homogeneous products are manufactured on continuous basis  service industries only



o  all of the above 2. Which of the following businesses is likely to adopt a process costing system? o



 Plan manufacturers



o



 Construction companies



o



 Sugar refining units



o



 Printing presses



3. Materials, labor and overhead costs are traced to processing departments rather than individual products or jobs. This statement is true for: o



 a job order costing system



o



 an activity based costing system



o



 a process costing system



o



 a variable costing system



4. In process costing system, the materials can be added in o



 first department only



o



 last department only



o



 first and last department only



o  any department 5. Which of the following is not relevant to a process costing system? o



 Heterogeneous products



o



 Repetitive production



o



 High production volume



o  Low production flexibility 6. Which of the following is not correct about process costing and job order costing? o



 Both the systems classify materials as direct materials and/or indirect materials



o



 Both the systems classify labor as direct labor and/or indirect labor



o



 Direct materials under job order costing might be indirect under process costing and vice versa



o  Both the systems assign costs by process 7. On June 1, Department A had 3,000 units 50% complete with respect to direct labor and factory overhead; materials are added at the beginning of the process. During June, 15,000 units were started into process in Department A. At the end of June, the ending goods in process of 4,000 units were 80% complete with respect to direct labor and factory overhead. There was no normal and/or abnormal loss of units in Department A during the month of June. The number of units transferred to Department B were:



o



 16,700 units



o



 13,300 units



o



 14,000 units



o  15,500 units 8. The following data belongs to Department Y of Abraham Company: o WIP beginning inventory: 6,000 units – 40% complete as to labor and overhead o Completed and transferred to finished goods store room: 30,000 units o WIP ending inventory: 1,000 units – 60% compete as to labor and overhead



The number of units started in department Y during the period were:











o



 24,000 units



o



 37,000 units



o



 25,000 units



 31,000 units In process costing system, when partially completed units are expressed in terms of fully completed units they are known as: o



o



 completed units



o



 equivalent units



o



 unfinished units



 transferred units Consider the following data of Department Z: o Work in process on January 1, 2020: 800 units – all materials, 40% converted o Processed and transferred out: 20,000 units o Work in process on January 31, 2020: 1,000 units – all materials, 60% converted o



Under weighted average method, the equivalent units of production of Department Z for January are:



o



 20,200 units for materials and 20,280 units for conversion costs



o



 20,000 units for materials and 20,000 units for conversion costs



o



 21,000 units for materials and 20,600 units for conversion costs



o



 21,800 units for materials and 20,920 units for conversion costs



Computations: Materials: 20,000 units + 1,000 units = 21,000 units Conversion costs: 20,000 units + (1,000 units × 0.6) = 20,600 units 



Consider the following data of Department Z: o Work in process on January 1, 2020: 800 units – all materials, 40% converted o Processed and transferred out: 20,000 units o Work in process on January 31, 2020: 1,000 units – all materials, 60% converted



Under FIFO method, the equivalent units of production of Department Z for January are: o



 21,800 units for materials and 20,920 units for conversion costs



o



 21,000 units for materials and 20,600 units for conversion costs



o



 20,000 units for materials and 20,000 units for conversion costs



o



 20,200 units for materials and 20,280 units for conversion costs



Computations: Materials: (20,000 – 800) + (800 × 0%) + (1,000 × 100%) = 20,200 units Conversion costs: (20,000 – 800) + (800 × 60%) + (1,000 × 60%) = 20,280 units 



The direct materials costing $4,000 has been used in Mixing Department. The correct journal entry would be:











o



 Direct materials Dr. & Work in process - Mixing Department Cr.



o



 Work in process - Mixing Department Dr. & Direct materials Cr.



o



 Finished goods Dr. & Direct materials Cr.



 Mixing Department Dr. & Direct materials Cr. In a process costing system, the manufacturing overhead (or factory overhead) is usually applied using: o



o



 a predetermined overhead rate



o



 an actual overhead rate



o



 a conversion overhead rate



o o



 only once and used for all the processing departments



o



 separately for each processing department



o



 only for the first processing department where units are started



o







 only for the last department where units are completed and transferred to finished goods area



Where the normal loss in a department is identified at the end of process, its cost is: o



 ignored



o



 charged to work in process ending inventory only



o



 charged to units completed and transferred out only



 charged to work in process ending inventory as well as to units completed and transferred out While preparing the cost of production report (CPR) of a processing department, the per unit cost from preceding department needs to be adjusted when the: o







 an indirect labor rate In process costing system, the predetermined overhead rate is computed







o



 normal loss is identified during the process



o



 normal loss is identified at the end of process



o



 abnormal loss is identified during the process



 abnormal loss is identified at the end of process The following data has been taken from the 2nd department of Albari Company: o Cost from proceeding department: $9,675 o Cost added by the department (Materials + Conversion): $6,500 o Units received from preceding department: 5,625 o Units transferred to finished goods store room: 5,000 o Units still in process (1/3 complete as to conversion costs): 375 o Units lost in process: 250 o



Based on the above data, the adjustment for lost units in second department should be: o



 $0.215



o



 $0.42



o



 0.12



o



 $0.08



Computations: [Cost from preceding department/Good units] – Unit cost from preceding department before adjustment = [9,675/(5,625 – 250)] – $1.72 = $1.80 – $1.72 = $0.08







The normal or standard loss in processing departments is generally considered: o



 an avoidable loss























o



 an unavoidable loss



o



 an additional loss



 a basic loss A loss in processing departments which can be avoided under normal and efficient working conditions is generally known as: o



o



 normal loss



o



 extra loss



o



 abnormal loss



o



 department loss In process costing, the abnormal loss occurred in a production department is:



o



 charged to finished goods



o



 charged to unfinished work



o



 charged to factory over head



 ignored Which of the following characteristics is relevant to process costing but not to job order costing? o



o



 Averaging process



o



 Identifiable batches of production



o



 Equivalent units



 Use of standard cost Which of the following types of spoilage should not affect the recorded cost of inventories? o



o



 Normal spoilage



o



 Standard spoilage



o



 Abnormal spoilage



 Seasonal spoilage The work in process inventory at the beginning of the period is 25% complete as to conversion cost. Materials are added at the beginning of the process. If FIFO method is used, the equivalent units for materials are equal to the: o



o



 beginning inventory



o



 units started during the period plus 75% of the beginning inventory



o















 units started during the period



 units started during the period plus beginning inventory The completed units are transferred from Department 3 (the last department) to the finished goods store room. The journal entry for this transfer would be: o



o



 Work in process - Department 3 Dr. and Finished goods Cr.



o



 Cost of goods manufactured Dr. and Work in process - Department 3 Cr.



o



 Work in process - Department 3 Dr. and Production Cr.



 Finished goods Dr. and Work in process - Department 3 Cr. When completed units are sold to a customer, the cost of units sold is transferred from Finished Goods Inventory Account to Cost of Goods Sold Account. Which one of the following is a correct journal to record this transfer of cost? o



o



 Finished goods Dr. and Cost of goods sold Cr.



o



 Sales Dr. and Finished Goods Cr.



o



 Cost of goods sold Dr. and Finished goods Cr.



 Cost of goods sold Dr. and Sales Cr. A section of the cost of production report (CPR) which shows the physical flow of units through various producing departments is usually labeled as: o



o



 schedule of physical flow



o



 quantity schedule



o



 equivalent units of production



o



 cost to be accounted for



STANDARD COSTING: 1. The term standard cost refers to the: o



 average unit cost of product produced in the previous period



o



 budgeted unit cost of product produced in a particular period



o



 average unit cost of product produced by other companies



o  average unit cost of product produced in the current period 2. The term budgeted cost refers to the: o



 estimated expenses of budgeted production



o



 actual expenses of budgeted production



o



 estimated expenses of actual production



o  actual expenses of actual production 3. A document that records the standard cost of a single unit of product is known as: o



 bill of materials



o



 bill of product



o



 standard cost card



o  product expense card 4. The standards that require peak efficiency and do not allow any work interruptions are known as: o



 normal standards



o



 practical standards



o



 ideal standards



o  budgeted standards 5. The Three Star Company produces a product known as product X. The company uses a standard costing system and provides you the following information: o Direct materials required to produce one unit of product X: 6 pounds o Standard cost of direct materials: $10 per pound o Normal wastage while producing one unit of product X: 0.5 pounds Based on the above information, what is the standard direct materials cost per unit of product X? o



 $60



o



 $65



o



 $50



o



 $55



Computations: (6 pounds + 0.5 pounds) × $10 = $65 



The following information belongs to John Manufacturing Company that uses a standard costing system: o Basic wage rate: $12 per hour o Fringe benefits: $2 per hour o Basic time: 2 hours per unit o Allowance for down time: 0.3 hours per unit o Allowance for brakes: 0.2 hours per unit Based on the above information, what is the standard direct labor cost per unit? o



 $35



o



 $28



o



 $30



o



 $32.2



Computations:



($12 + $2)* × (2 hours + 0.3 hours + 0.2 hours)** = $14 × 2.5 hours = $35 *Standard cost includes basic wage rate and other costs associated with direct labor such as fringe benefits and employment taxes etc. **Standard time includes basic time required to produce a unit of product and allowances for brakes, down time and rejected materials etc.  







Which of the following is a correct formula for computing direct materials price variance? o



 Standard quantity purchased × (Actual rate - Standard rate)



o



 Actual quantity purchased × (Actual rate - Standard rate)



o



 Standard quantity purchased × (Actual rate + Standard rate)



o



 Actual quantity purchased × (Actual rate + Standard rate) A favorable direct materials price variance occurs when:



o



 actual rate of direct materials is higher than standard rate of direct materials



o



 actual rate of direct materials is equal to standard rate of direct materials



o



 actual rate of direct materials is less than standard rate of direct materials



o







 actual rate of direct materials is less than previous year's rate of direct materials



The Ali BaBa Company uses a standard costing system. The company established the following direct materials cost standards for one unit of product K:



During the month of January, Ali BaBa purchased 25,000 ponds of materials at a cost of $128,750 and used 10,250 ponds of materials to produce 2,500 units of product K. The direct materials price variance for January was: o



 $3,750 favorable



o



 $3,750 unfavorable



o



 $3,700 favorable



o



 $3,700 unfavorable



Computations: Direct materials price variance = (Actual quantity purchased × Actual rate) – (Actual quantity purchased × Standard rate) = $128,750 – (25,000 pounds × $5) = $128,750 – $125,000 = $3,750 Unfavorable Or direct materials price variance can be computed as follows: Direct materials price variance = Actual quantity × (Actual rate – Standard rate) = 25,000 ponds × ($5.15* – $5.00) = 25,000 ponds × $0.15 = $3,750 Unfavorable *Actual rate of direct materials: $128,750/25,000 ponds = $5.15 



The Crescent Manufacturing company established the following direct materials cost standards for one unit of product X:



During the month of June, the company purchased 40,000 pounds of direct materials at a cost of $199,200 and produced 5,000 units of product X using 19,750 pounds of direct materials. The direct materials quantity variance for June was: o



 800 favorable



o



 800 unfavorable



o



 1,250 unfavorable



o



 1,250 favorable



Computations: Direct materials quantity variance = (Actual quantity used × Standard rate) – (Standard quantity allowed × Standard rate) = (19,750 pounds × $5) – (*20,000 pounds × $5)



= $98,750 – $100,000 = $1,250 favorable Or direct materials quantity variance can be computed as follows: Direct materials quantity variance = Standard rate × (Actual quantity used – Standard quantity allowed) = $5 × (19,750 pounds – 20,000 pounds) = $5 × 250 pounds = $1,250 favorable *5,000 units × 4 pounds per unit = 20,000 pounds 



The Carl Care Company established the following direct labor cost standards for one unit of product Z: o Standard hours: 1.5 hours o Standard rate: $20 per hour o Standard cost: $30 (1.5 hours @ $20 per hour) During the month of July, 20,000 direct labor hours were worked and 12,500 units of product Z were manufactured. The total wages related to direct labor in July were $405,000. The direct labor rate variance for July was: o



 $5,000 unfavorable



o



 $5,000 favorable



o



 $30,000 favorable



o



 $30,000 unfavorable



Computations: Direct labor rate variance = Actual hours worked × (Actual rate – Standard rate) = 20,000 hours × ($20.25* – $20) = 20,000 hours × $0.25 = $5,000 unfavorable *$405,000/20,000 hours = $20.25 per hour 



The “standard hours allowed” or “standard quantity allowed” is equal to: o



 actual output in units × standard input allowed



o



 actual output in units × standard output allowed



o



 standard output in units × standard input allowed







 actual input in units × standard output allowed The Carl Care Company established the following direct labor cost standards for one unit of product Z: o Standard hours: 1.5 hours o Standard rate: $20 per hour o Standard cost: $30 (1.5 hours @ $20 per hour) o



During the month of July, 20,000 direct labor hours were worked and 12,500 units of product Z were manufactured. The total wages related to direct labor in July were $405,000. The direct labor efficiency variance for July was: o



 $25,000 favorable



o



 $25,000 unfavorable



o



 $30,000 favorable



o



 $30,000 unfavorable



Computations: Direct labor efficiency variance = Standard rate × (Actual hours worked – Standard hours allowed) = $20 × (20,000 hours – *18,750 hours) = $20 × 1,250 hours = $25,000 unfavorable *Standard hours allowed are computed by multiplying the actual units produced by the standard hours per unit: 12,500 units × 1.5 hours







Which of the following cannot be a reason of unfavorable direct materials price variance? o



 Sudden rise in price of materials



o



 Quality of materials purchased



o



 Appointment of inexperienced workers



o



 Inefficient standard setting



















Which of the following cannot be a reason of unfavorable direct materials quantity variance? o



 Unmotivated workers



o



 Lack of supervision



o



 Frequent power failures



 Uneconomical order size Which of the following is not likely to be a reason of unfavorable direct labor rate variance? o



o



 Poor estimates while setting direct labor standards



o



 An increase in labor rates and overtime premium



o



 Frequent break downs



 Assignment of easy tasks to highly skilled workers Which of the following is not likely to be a reason of unfavorable direct labor efficiency variance? o



o



 Increase in direct materials prices



o



 Frequent break downs during production process



o



 Lack of proper supervision



 Use of old, outdated or faulty equipment During the month of December actual direct labor cost amounted to $39,550, the standard direct labor rate was $10 per hour and the direct labor rate variance amounted to $450 favorable. The actual direct labor hours worked were: o



o



 3,955 hours



o



 4,000 hours



o



 3,910 hours



o



 4,500 hours



Direct labor rate variance = (AH × AR) – (AH × SR) -$450* = $39,550 – (AH × $10) -$450 – $39,550 = -$10AH -$40,000 = -$10AH AH = $40,000/$10 AH = 4,000 hours



AH = Actual hours AR = Actual rate SR = Standard rate *The negative sign (-) indicates a favorable variance because a favorable variance means less production cost than expected. 



During the month of January, the standard cost of actual hours worked amounted to $25,000, the standard direct labor rate was $10 per hour and the direct labor efficiency variance amounted to $1,000 favorable. The standard hours allowed for actual production were: o



 2,500 hours



o



 2,400 hours



o



 10,000 hours



o



 2,600 hours



Computations: Direct labor efficiency variance = (AH × SR) – (SH × SR) -$1,000* = $25,000 – (SH × $10) -$1,000 – $25,000 = -$10SH -$26,000 = -$10SH SH = $26,000/$10 SH = 2,600 hours AH = Actual hours SR = Standard rate SH = Standard hours *The negative sign (-) indicates a favorable variance because a favorable variance means less production cost than expected. 



During the month of January, the standard cost of actual hours worked amounted to $42,000, the standard hours allowed for actual production were 2,000 and the direct labor efficiency variance amounted to $2,000 unfavorable. The standard direct labor rate per hour was: o



 $22 per hour



o



 $20 per hour



o



 $21 per hour



Computations:



Direct labor efficiency variance = (AH × SR) – (SH × SR) $2,000 = $42,000 – (2,000 × SR) $2,000 – $42,000 = -2,000SR -$40,000 = -2,000SR SR = $40,000/2,000 SR = $20 per hour AH = Actual hours SR = Standard rate SH = Standard hours  o o o o



You are provided the following information for December 2017: Actual direct labor hours used: 3,000 Standard direct labor hours allowed: 2,950 Actual variable manufacturing overhead rate: $12.20/direct labor hour Standard variable manufacturing overhead rate: $12.30/direct labor hour



Based on the above information, the variable manufacturing overhead rate variance is: o



 295 favorable



o



 295 unfavorable



o



 $300 unfavorable



o



 $300 favorable



Computations: Variable manufacturing overhead rate variance = (Actual hours × Actual rate) – (Actual hours × Standard rate) = (3,000 hours × $12.2) – (3,000 hours × $12.3) = $36,600 – $36,900 = $300 favorable Or we can compute the above variance by using factored formula as follows: Variable manufacturing overhead rate variance = Actual hours × (Actual rate – Standard rate) = 3,000 hours × ($12.2 – $12.3) = 3,000 hours × $0.1 = $300 favorable 



Variable manufacturing overhead rate variance is also known as: o



 variable manufacturing overhead efficiency variance







o



 variable manufacturing overhead spending variance



o



 variable manufacturing overhead usage variance



 none of the above overhead rate was $20 per hour calculated on the basis of machine hours. According to standards, the company took 1 hour to complete three units (i.e., 20 minutes per unit). During the month of June, the company operated for 4,100 hours and manufactured 12,000 units of product. The actual variable manufacturing overhead for June was $85,000. o



On the basis of above data, the variable manufacturing overhead efficiency variance for June was: o



 $3,000 favorable



o



 $3,000 unfavorable



o



 $2,000 unfavorable



o



 $2,000 favorable



Computations: Variable manufacturing overhead efficiency variance = (Actual hours × Standard overhead rate) – (Standard hours × Standard overhead rate) = (4,100 hours × $20) – (*4,000 hours × $20) = $82,000 – $80,000 = 2,000 unfavorable Or we can compute above variance using factored formula as follows: Variable manufacturing overhead efficiency variance = Standard overhead rate × (Actual hours – Standard hours) = $20 × (4,100 hours – *4,000 hours) = $20 × 100 hours = $2,000 hours *Standard hours allowed for actual production: The standard time to complete one unit is 20 minutes. Therefore, the standard time to complete 12,000 units would be 240,000 minutes or 4,000 hours as computed below: 12,000 units × 20 minutes = 240,000 minutes 240,000 minutes/60 = 4,000 hours



JUST IN TIME: 1-Just-in-Time was successfully implemented by (A) Toyota (B) Honda (C) Suzuki (D) Volkswagen  2-In Just-In-Time system (A) There is no delay (B) Conveyance times are balanced (C) Both (A) and (B) (D) There is unequal production at different places  3-Such setups which have single digit (in minutes) setup times are called (A) Single setups (B) One touch setups (C) Minute setups (D) None of the above  4-POK stands for (A) Product ordering Kanban (B) Process Ordering Kanban (C) Production Ordering Kanban



(D) Plan Ordering Kanban  5-In Just-In-Time the vendor is to be viewed by the company as a (A) Manager (B) Worker



(C) Partner (D) None of the above  6-Just-In-Time is (A) Single unit production (B) Big lot size production (C) Both (A) and (B) (D) None of the above  7-MRP is different from JIT in terms of (A) Inventory (B) Quality (C) Human orientation (D) All of the above  8-The following is (are) the prerequisite(s) for JIT. (A) Multi skilled workers (B) Vendor should produce defect free (C) Worker should be empowered his own decision (D) All of the above  9-Just-In-Time aimed at (A) Zero inventories (B) Reduced manpower



(C) Over production (D) All of the above  



10-Which of the following means ‘Ready-Set-Go’ (A) Yo-i-don (B) Ikko Nagare (C) Taiichi ohno (D) None of the above  11-Just-In-Time (JIT) combines the benefits of (A) Job order production and Line production (B) Batch production and Line production (C) Job order production and Batch production (D) None of the above  12-JIT does not believe in (A) Quality (B) Over production (C) Human relations (D) All of the above  1. In a JIT production system, a production operation is authorized



a. when an authorization is obtained from a downstream operation. 2. Which of the following is least likely to be part of a changeover from a traditional manufacturing system to a cellular manufacturing system? d. Increasing the number of cost allocations.



3. A JIT production system would not include an emphasis on a. the quantity of individual output.



4. Which of the following concepts or practices is (are) incompatible with JIT? a. local (e.g., department) optimization. b. the economic order quantity model. c. inspect once at the end of the process d. a and b. e. all of the above. 5. Which of the following statements is true? Both ABC and JIT b. provide more accurate product costs than traditional systems. 6. Which of the following is not considered to be a tool useful in supporting continuous improvement by advocates of JIT? e. Accounting variance analysis. 7. The value chain concept refers to the linked set of value adding activities performed e. from suppliers through an organization's customer service activities. 8. Which of the following represent characteristics of a JIT accounting system? a. Batching vendor deliveries before recording in the accounting records. b. Increasing the traceability of costs with fewer cost pools. c. Using backflush cost systems.



d. a and c. e. all of the above. 9. Which of the following concepts or techniques is (are) inconsistent with the JIT philosophy? c. Using overhead variance analysis at the process level. 10. Which of the actions stated below is not consistent with JIT purchasing? e. Increased number of vendors to obtain competitive prices.



11. Departmental overhead rates are likely to be a. more accurate in a just-in-time production system than in a traditional production system. 12. A JIT production system would probably include an emphasis on a. maximizing the quantity of output at each operation. b. decentralizing support services. c. production authorizations that pull products through the factory. d. a and b. e. b and c. 13. Which of the following represent manual systems designed to support continuous flow manufacturing? a. JIT’s kanban system. 14. Which of the following concepts or philosophies place more emphasis on financial measurements than on non financial measurements of performance? a. TOC b. ABC c. JIT d. a and b



e. a and c. 15. Which of the following concepts or philosophies explicitly recognize the concept of variability? a. TOC b. ABC c. JIT d. a and b e. a and c.



16. When production volume increases in a cellular manufacturing system where costs are assigned using cycle time, b. idle capacity cost decreases. 17. Which of the following concepts or philosophies do not place emphasis on demand pull production systems? b. ABC 18. Which of the following include a mechanism to enforce the pace of production line operations? a. TOC b. ABC c. JIT d. a and b e. a and c. 19. Which of the terms below is the closest in meaning to the term Kaizen? b. PDCA.



20. The kanban concept performs the same function as the a. rope concept. 21. If the cells in a JIT system are considered departments, then departmental overhead rates are likely to be a. more accurate in a just-in-time production system than in a traditional production system.



22. The language of JIT includes many terms. Which two of the following terms refer to finding and correcting defects as they occur? e. jidoka and autonomation. 23. The value added concept includes the value added b. by the company’s production activities. 24. The value chain concept includes the value added e. by the company’s vendors, production, distribution and customer service activities. 25. Which of the charts or diagrams below is the most applicable to the 80/20 rule? a. pareto diagram. 26. Which of the following concepts or techniques is (or are) consistent with a JIT production system? b. Empowering production line workers to stop production to fix problems. 27. Which of the following concepts or techniques is not (are not) consistent with a JIT production system? a. Using a computerized production scheduling and control system. 28. Overhead allocations are likely to be



b. more accurate in a cellular production system than in a traditional production system. 29. Which of the following statements is false? Both ABC and JIT a. place emphasis on simplification. b. provide more accurate product costs than traditional systems. c. emphasize quality improvements. d. a and c. e. all of the above.



30. Which of the following represent pull systems as opposed to push systems? a. JIT kanban systems. b. TOC OPT systems. c. ABC systems. d. a and b. e. b and c. 31. The term kaizen is more closely related to which of the following terms? c. plan-do-check-action. 32. Which of the charts or diagrams below shows relationships to reveal problem causes? d. fishbone diagram. 33. Which of the following terms is more closely related to identifying and correcting problems as they occur? e. jidoka. 34. Which of the terms below is more closely related to traditional manufacturing concepts, as opposed to the lean enterprise concepts? a. value added.



35. Which of the following terms is more closely related to the lean enterprise manufacturing concepts, as opposed to the traditional concepts? e. demand pull system.



36. Just-in-time techniques are applicable to a. Purchasing. b. Production. c. Distribution. d. all of the above. e. none of the above.



37. Applying the concepts of just-in-time tends to reduce a. the cost of handling incoming materials. b. the cost of materials storage. c. the cost of materials movement inside the plant. d. a. and b. e. all of the above. 38. Which of the following is not a tool applicable to just-in-time. b. Overhead variances. 39. Rearranging a factory from a traditional plant layout to a cellular plant layout tends to c. increase the proportion of direct product costs to total product costs.



40. Which of the statements below is or are consistent with a JIT accounting system? a. Batching vendor deliveries before recording in the accounting records. b. Increasing the traceability of costs with fewer cost pools. c. Increasing the number of inventory accounts in the general ledger. d. a and b. e. All of the above.



Overapplied Overhead occurs when the applied overhead exceeds the actual overhead incurred, Underapplied overhead occurs when the the actual overhead incurred exceeds the applied overhead costs.