THEORIES.

1. How should idle time be accounted for?

a. It should be recorded along with the reason for it, and charged to Factory Overhead.
b. It should be charged to the job from which the employee took a break.
c. It should be documented and the employee should not be paid for that time.
d. It should be allocated to the various manufacturing departments and the supervisors
should decide how to handle it.
Answer: A
2. When recording payroll:
a. The debit to Work in Process must equal the total direct labor charged to jobs in the
subsidiary job cost ledger.
b. The debit to Factory Overhead must equal the total indirect labor cost charged to
jobs in the subsidiary job cost ledger.
c. The payroll record summarizes the direct labor and indirect charges to the
department for the period.
d. The labor cost summary is prepared from the employees’ earnings records.
Answer: A
3. For a factory worker, all of the following are charged to Factory Overhead except:
a. The shift premium paid because the worker works the “graveyard” shift.
b. The payroll taxes related to direct labor time.
c. The overtime premium paid as a result of a “rush” job stipulated by the customer
contract.
d. The make-up guarantee paid because the employee did not reach the quota set forth
in a modified wage plan.
Answer: C
4. Jay Vato works at Batwing Industries from midnight until 8:00 AM. His normal wage rate
is $17 per hour, while Ben Phillips, who does the same job from 8:00 AM until 4:00 PM
makes $15 per hour. Since Ben and Jay have the same seniority within the plant, the
difference in pay is due to a(n):
a. Overtime Premium
b. Production Bonus
c. Make-Up Guarantee
d. Shift Premium
Answer: D
5. Flexible budgeting is a reporting system in which the:
a. Budget shows estimated costs at different levels of production volume.
b. Budget standards may be adjusted at will.
c. Reporting dates vary according to the levels of activity reported upon.
d. Statements included in the budget report vary from period to period.
Answer: A
6. The payroll summary for EVB Inc. for the period August 3 - 10 is as follows:
Factory Employees Sales and Admin. Employees Total
Gross
Earnings 80,000 25,000 105,000
Withholding
and deductions:
FICA 6,400 2,000 8,400
Income Tax 10,600 5,000 15,600
Union Dues 400 - 400
Total 17,400 7,000 24,400
Net Earnings 62,600 18,000 80,600
The entry to record payroll would be:
a. Payroll 105,000
FICA Payable 8,400
Employees Income Tax Payable 15,600
Union Dues Payable 400
Wages Payable 80,600
b. Work in Process 80,000
Factory Overhead 25,000
Payroll 105,000
c. Factory Overhead 80,000
d. Selling and Administrative Expense 25,000
FICA Payable 8,400
Employees Income Tax Payable 15,600
Union Dues Payable 400
Wages Payable 80,600
e. Payroll 105,000
Wages Payable 105,000
Answer: A
7. If a company uses a factory overhead ledger, at the end of the month, an accountant
should:
a. Close the accounts in the factory overhead ledger to Work in Process.
b. Total the accounts in the factory overhead ledger and compare the total to the
balance in the Factory Overhead control account.
c. Prepare a schedule of fixed costs.
d. All of the above are true.
Answer: B.
8. Which of the following costs would be included in factory overhead in the manufacture of
a student’s desk?
a. The wages of the operator of the machine that bends the metal legs of the desk into
shape.
b. The wages of the forklift operator who moves desks from one manufacturing station
to the next.
c. The cost of the plastic used to form the writing surface.
d. The wages of the worker who assembles the components.
Answer: B
9. The number of workers in the departments served would most likely be the basis for
distributing the cost of which service department?
a. Human Resources
b. Tool Room
c. Building Maintenance
d. Machine Shop
Answer: A
10. When a manufacturing company has a highly automated manufacturing plant, what is
probably the most appropriate basis of applying factory overhead costs to work in
process?
a. Machine hours
b. Cost of materials used
c. Direct labor hours
d. Direct labor dollars
Answer: A
11. Which of the following is not true about production departments?
a. They perform the actual manufacturing operations that physically change the units
being produced.
b. Since they receive the benefit of work performed by service departments, service
department costs should be distributed to them.
c. The cost of production departments should be distributed to other production
departments that benefit from their operations.
d. Machining and painting would be examples of production departments.
Answer: C
12. To successfully employ an ABC system, a company must first identify:
a. Non-volume related activities in the factory that create costs
b. Cost drivers
c. Cost pools
d. Overhead allocation rates
Answer: A
13. Cooper Company had overapplied factory overhead of $2,000 last year. Assuming the
amount was considered small enough not to materially distort net income, the entries
needed to close factory overhead are:
a. Factory Overhead 2,000
Applied Factory Overhead 2,000
Applied Factory Overhead 2,000
Cost of Goods Sold 2,000
b. Factory Overhead 2,000
Under- and Overapplied Factory Overhead 2,000
Cost of Goods Sold 2,000
Under- and Overapplied Factory Overhead 2,000
c. Factory Overhead 2,000
Under- and Overapplied Factory Overhead 2,000
Under- and Overapplied Factory Overhead 2,000
Cost of Goods Sold 2,000
d. Factory Overhead 2,000
Applied Factory Overhead 2,000
 Applied Factory Overhead 2,000
Cost of Goods Sold 2,000
14. The method of distributing service department costs to production departments which
makes no attempt to determine the extent to which one service department renders its
services to another department is the:
a. Direct distribution method
b. Sequential distribution method
c. Service department distribution method
d. Reciprocal method
Answer: A
15. In a factory, all of the following would be considered service departments except:
a. Inspection and Packing
b. Assembly
c. Power
d. Human Resources
Answer: B
16. Underapplied overhead resulting from unanticipated and immaterial price increases for
overhead items should be written off by:
a. Increasing Cost of Goods Sold
b. Decreasing Cost of Goods Sold
c. Increasing Cost of Goods Sold, Work in Process and Finished Goods Inventory
d. Decreasing Cost of Goods Sold, Work in Process and Finished Goods Inventory
Answer: A
17. All of the following are examples of factory overhead costs that benefit the entire factory
would therefore be difficult to identify with a specific department except:
a. Machine Depreciation
b. Factory Security
c. The Plant Manager’s Salary
d. Heating Costs
Answer: A
18. The report that is prepared after the posting is completed at the end of the accounting
period that shows the items of expense by department and in total, and is used to prove
the balance of the Factory Overhead Control account is the:
a. Schedule of Fixed Cost
b. Summary of Factory Overhead
c. Flexible Budget
d. Subsidiary Ledger
Answer: B
19. Overapplied overhead will always result when a predetermined factory overhead rate is
employed and:
a. Overhead incurred is more than overhead applied.
b. Overhead incurred is less than overhead applied.
c. Production is greater than sales.
d. Actual overhead costs are more than expected.
Answer: B
20. Which of the following describes a part of the step method of allocation?
 a. Once an allocation is made from one service department, no further allocation is
made to this department.
b. Linear algebra is required for the allocation.
c. It ignores services between immediate cost centers.
d. All services between intermediate cost centers are simultaneously allocated to final
cost centers.
Answer: D

SHORT PROBLEMS.
1. Martin Printing pays employees on a weekly basis on Friday for the week ended the
previous Friday. Employees’ compensation is earned evenly each day over a 5-day work
week. This year, March 31 fell on Tuesday. Payroll costs for the week ended April 3
follow:

Non-factory:
Sales $ 28,200
Administrative 34,500
$ 62,700
Factory:
Direct labor $ 77,200
Overtime Premium 5,300
Indirect Labor 45,700
$ 128,400
$ 191,100

Excluding payroll taxes, what amount should be accrued to the payroll account for the
period ended April 30?
a. $51,360
b. $76,440
c. $191,100
d. $114,660
Answer: 76,440
2. Under a modified wage plan, an employee working an eight-hour day earns $.50 for
each finished unit and is guaranteed $20 per hour as a minimum wage. At what level
should the daily quota be set?
a. 320 units
b. 640 units
c. 302 units
d. 160 units
Answer: 320 units
3. B&B Company pays time and a half for hours in excess of 40 hours per week. An
individual is paid $56.25 per hour and worked 45 hours a week. The weekly earnings of
the employee will amount to:
a. $2.25
b. $2,671.88
 c. $2,531.25
d. $2,812.50
Answer: $2,671.88
4. Under a modified wage plan, Jim Phillips works an eight-hour day and earns $.50 for
each finished unit he produces in excess of 200 units. However, he is guaranteed
$12.50 per hour as a minimum wage. His production this week was as follows:

Monday 220 units

Tuesday 180 units
Wednesday 200 units
Thursday 200 units
Friday 190 units

How much was the make-up guarantee paid to Jim this week?
a. $10
b. $5
c. $15
d. $12.50
Answer: C
5. Western Industries pays employees on a weekly basis on Tuesday for the week ended
the previous Friday. Employees’ compensation is earned evenly each day over a 5-day
work week. This year, April 30 fell on Thursday. Payroll costs for the week ended May 1
follow:

Non-factory:
Sales $ 5,000
Administrative 10,000
$15,000
Factory:
Direct Labor $25,000
Overtime Premium 2,500
Indirect Labor 15,000
$42,500
$57,500

Excluding payroll taxes, how much of the accrued payroll at April 30 should be charged
to Work in Process assuming that the overtime premium should be charged to specific
job?
a. $17,500
b. $26,000
c. $14,000
d. $34,000
Answer: B
6. Job 607 was recently completed. The following data have been recorded on its job cost
sheet:

Direct Materials $3,405

 Direct Labor-hours $54 labor-hours
Direct Labor Wage Rate $13 per labor-hour
Machine-hours 158 machine-hours

The company applies manufacturing overhead on the basis of machine-hours. The

predetermined overhead rate is $14 per machine-hour. The total cost that would be
recorded on the job cost sheet for Job 607 would be:

a. $4,107
b. $6,319
c. $3,432
d. $4,863
Answer: $6,319
7. At the end of the year, Jenkins Corporation had $120,000 in the Factory Overhead
account and applied factory overhead of $100,000. Mark Gibbs, the controller, has
decided that the difference is to large to close to Cost of Goods Sold. Work in process
inventories were $30,000, finished goods inventories were $60,000 and cost of goods
sold during the year was $210,000. How should the entry to dispose of the difference in
overhead incurred and overhead applied affect Cost of Goods Sold?
a. $14,000 credit
b. $14,000 debit
c. $6,000 credit
d. 20,000 debit
Answer: 14,000 debit
8. The Gerald Company budgeted overhead at $480,000 for the period for Department A
based on a budgeted volume of 60,000 direct labor hours. At the end of the period, the
factory overhead control account for Department A had a debit balance of $475,000;
actual direct labor hours were 58,000. What was the under- or over applied factory
overhead for the period?
a. $8,000 overapplied
b. $11,000 overapplied
c. $11,000 underapplied
d. $8,000 underapplied
Answer: $11,000 underapplied
9. The Work in Process inventory account of a manufacturing company shows a balance of
$2,400 at the end of an accounting period. The job cost sheets of the two uncompleted
job shows charges of $400 and $200 for direct materials and charges $300 and $500 for
direct labor. From this information, it appears that the company is using a predetermined
overhead rate, as a percentage of direct labor costs of:
a. 125%
b. 80%
c. 300%
d. 240%
Answer: 125%
10. Simon uses a predetermined overhead application rate of $8 per direct labor hour. A
review of the company’s accounting record for the year just ended discovered the
following:
 Underapplied Manufacturing Overhead $ 7,200
Actual Manufacturing Overhead $392,000
Budget Labor Hours $ 50,000

Simon’s actual labor hours worked totaled:

a. 49,100
b. Cannot be determined.
c. 48,100
d. 49,900
Answer: 48,100
11. The Lorenzo Printing Company has two production departments (printing and binding)
and three service departments (power generation, factory maintenance, and human
resources). A summary of costs and other data for each department, prior to allocation
of service department costs for the year ended April 30, appears below.

The costs of the power generation department, factory maintenance department, and
human resources are allocated on the basis of kilowatt hours, square footage occupied,
and number of employees, respectively.
Power Factory Human
Printing Binding Gen. Maint. Res.
Direct labor costs: $475,000 $438,000
Direct material costs: $632,000 $527,000
Factory overhead costs: $750,000 $832,000 $75,000 $50,000 $30,000
Direct labor hours: 262,000 254,000
Number of employees: 40 35 5 20 5
Sq. footage occupied: 36,000 24,000 5,000 3,000 1,000

Assuming that Lucas elects to distribute service department costs to production

departments using the direct distribution method, the amount of human resources
department costs that would be allocated to the printing department would be (round all
final calculations to the nearest dollar):
a. $15,000
b. $12,000
c. $16,000
d. $18,000
e. Answer: $16,000
12. The fixed costs per unit are $10 when a company produces 10,000 units of product.
What are the fixed costs per unit when 12,500 units are produced?
a. $6
b. $10
c. $8
d. $4
Answer: $8
13. Wiggins Company’s flexible budget for 25,000 units shows $75,000 and $25,000 in
variable and fixed costs, respectively. At 35,000 units, the flexible budget would show:
a. Variable costs of $100,000 and fixed costs of $25,000.
b. Variable costs of $90,000 and fixed costs of $30,000.
 c. Variable costs of $75,000 and fixed costs of $30,000.
d. Variable costs of $105,000 and fixed costs of $25,000.
Answer: Variable costs of $105,000 and fixed costs of $25,000.
14. Dale Company, which applies overhead at the rate of 190% of direct labor cost, began
work on job no. 101 during June. The job was completed in July and sold during August,
having accumulated direct material and labor charges of $27,000 and $15,000,
respectively. On the basis of this information, the total overhead applied to job no. 101
amounted to:
a. $0
b. $28,500
c. $51,300
d. $79,800
Answer: $28,500
15. Meger Manufacturing uses the direct labor cost method for applying factory overhead to
production. The budgeted direct labor cost and factory overhead for the previous fiscal
year were $1,000,000 and $700,000, respectively. Actual direct labor cost and factory
overhead were $1,100,000 and $825,000, respectively. What was Meger’s
predetermined factory overhead rate?
a. 70.0%
b. 82.5%
c. 63.6%
d. 133.0%
Answer: 70.0%
16. Joel Williams works at Allentown Company where he assembles components for small
appliances and earns $16 per hour with “time-an-a-half” for overtime. During the week
ended July 25, Joel worked 43 hours as follows:

Job XBRL 20.5 hours

Job FASB 14.5 hours
Idle time due to power outage 2.0 hours
Machine maintenance 6.0 hours

The amount of Joel’s wages that will be charged to Factory Overhead assuming the
overtime is due to client’s request to specific job:
a. $128
b. $152
c. $120
d. $40
Answer: $152
17. The Lucas Manufacturing Company has two production departments (fabrication and
assembly) and three service departments (general factory administration, factory
maintenance, and factory cafeteria). A summary of costs and other data for each
department, prior to allocation of service department costs for the year ended June 30,
appears below:
 The costs of the general factory administration department, factory maintenance
department, and factory cafeteria are allocated on the basis of direct labor hours, square
footage occupied, and number of employees, respectively.
General
Factory Factory Factory
Fabrication Assembly Admin. Maint. Cafeteria
Direct labor costs: $1,950,000 $2,050,000
Direct material costs: $3,130,000 $ 950,000
Factory overhead costs: $1,650,000 $1,850,000 $80,000 $67,500 $58,000
Direct labor hours: 237,690 387,810
Number of employees: 160 128 20 42 25
Sq. footage occupied: 20,000 30,000 2,400 2,000 4,800

Assuming that Lucas elects to distribute service department costs to production

departments using the direct distribution method, the amount of general factory
administration department costs that would be allocated to the assembly department
would be (round all final calculations to the nearest dollar):
a. $30,400
b. $25,650
c. $0
d. $49,600
Answer: $49,600