Chapter 3
1. Job-order costing is more likely to be used than process costing in situations where many
different products or services are produced each period to customer specifications.
Ans: True Difficulty: Easy
2. Job-order costing is used in manufacturing companies and process costing is used in
service firms.
Ans: False Difficulty: Easy
3. In a job-order costing system, costs are traced to departments and then allocated to units
of product using an averaging process.
Ans: False Difficulty: Easy
4. Normally, a job cost sheet is NOT prepared for a job until after the job has been
completed.
Ans: False Difficulty: Medium
5. Job cost sheets supporting a normal job-order costing system contain entries for actual
direct material, actual direct labour, and actual manufacturing overhead cost incurred in
completing a job.
Ans: False Difficulty: Easy
6. In order to improve the accuracy of unit costs, most companies recalculate the
predetermined overhead rate each month.
Ans: False Difficulty: Medium
7. The following journal entry would be made to apply overhead cost to jobs in a job-order
costing system:
Work in Process XXX
Manufacturing Overhead XXX
Ans: True Difficulty: Medium
8. When the predetermined overhead rate is based on direct labour-hours, the amount of
overhead applied to a job is proportional to the amount of actual direct labour-hours
incurred on the job.
Ans: True Difficulty: Easy
9. When completed goods are sold, the transaction is recorded as a debit to Cost of Goods
Sold and a credit to Work in Process.
Ans: False Difficulty: Medium
Page 1
,10. The most common accounting treatment of underapplied manufacturing overhead is to
transfer it to the Manufacturing Overhead control account.
Ans: False Difficulty: Hard
11. In a normal job-order costing system, the Work in Process inventory account contains the
actual costs of direct labour, direct materials, and manufacturing overhead incurred on
partially completed jobs.
Ans: False Difficulty: Medium
12. Non-manufacturing costs are expensed as incurred, rather than going into the Work in
Process account.
Ans: True Difficulty: Easy
13. A credit balance in the Manufacturing Overhead account at the end of the year means that
overhead was underapplied.
Ans: False Difficulty: Medium
14. Indirect materials are NOT charged to a specific job but rather are included in
manufacturing overhead.
Ans: True Difficulty: Easy
15. The labour time ticket contains a detailed summary of the direct and the indirect labour
hours of an employee.
Ans: True Difficulty: Easy
16. (Appendix 3A) Basing predetermined overhead rate on capacity will almost certainly
result in overapplied overhead.
Ans: False Difficulty: Medium
17. Unlike the general model of product cost flows, backflush costing makes it possible to
avoid keeping records of work in process.
Ans: True Difficulty: Easy
18. Debiting the Manufacturing Overhead account with the cost of defective units increases
the average unit cost of all good units.
Ans: False Difficulty: Medium
19. Raw materials can be direct materials, but NOT all direct materials need to be raw
materials.
Ans: True Difficulty: Medium
20. (Appendix 3A) If the predetermined overhead rate is based on the estimated total amount
of the allocation base at capacity, it is more likely that overhead will be underapplied than
overapplied.
Ans: True Difficulty: Medium
, Chapter 3, Systems Design- Job-Order...
21. Which of the following companies is most likely to use a job-order costing system rather
than a process costing system?
A) Fast food restaurant C) Crude oil refinery
B) Shipbuilder D) Candy maker
Ans: B Difficulty: Easy
22. The computation of unit product costs involves an averaging process in which of the two
product costing systems?
Job-order Process
Costing costing
A) Yes No
B) Yes Yes
C) No Yes
D) No No
Ans: B
Difficulty: Easy
23. Which of the following contain(s) the detailed cost data that support the Work in Process
control account?
A) Job cost sheets.
B) The Manufacturing Overhead account.
C) The Finished Goods inventory account.
D) Purchase requisitions.
Ans: A Difficulty: Easy
24. Which of the following statements about labour time and cost in a job-order costing
system is NOT correct?
A) Time tickets are kept by employees showing the amount of work on specific jobs.
B) The job cost sheet for a job contains all direct labour charges to that particular job.
C) Labour cost that can be traced to a job only with a great deal of effort is treated as
part of manufacturing overhead.
D) A machine operator performing routine annual maintenance work on a piece of
equipment charges the maintenance time to a specific job.
Ans: D Difficulty: Medium
25. In a normal job-order costing system, the journal entry to record the application of
overhead cost to jobs includes which of the following?
A) A credit to the Manufacturing Overhead account.
B) A credit to the Work in Process inventory account.
C) A debit to Cost of Goods Sold.
D) A debit to the Manufacturing Overhead account.
Ans: A Difficulty: Medium
Page 3
, 26. In a normal job-order costing system, the use of indirect materials would usually be
recorded as a debit to which account?
A) Raw Materials. C) Manufacturing Overhead.
B) Work in Process. D) Finished Goods.
Ans: C Difficulty: Medium
27. In a normal job-order costing system, the salary of the factory supervisor would usually
be recorded as a debit to which of the following accounts?
A) Manufacturing Overhead. C) Work in Process.
B) Salary Expense. D) Finished Goods.
Ans: A Difficulty: Easy
28. In a job-order costing system, direct labour costs usually are recorded initially with a
debit to which of the following accounts?
A) Manufacturing Overhead. C) Direct Labour Expense.
B) Finished Goods inventory. D) Work in Process.
Ans: D Difficulty: Easy
29. Which of the following statements is true if a company applies overhead to jobs on the
basis of a predetermined overhead rate and reports a credit balance in the Manufacturing
Overhead account at the end of any period?
A) More overhead cost has been charged to jobs than has been incurred during the
period.
B) More overhead cost has been incurred during the period than has been charged to
jobs.
C) The amount of overhead cost charged to jobs is greater than the estimated cost for
the period.
D) The amount of overhead cost charged to jobs is less than the estimated overhead
cost for the period.
Ans: A Difficulty: Medium
30. In a job-order costing system, when a job remains incomplete at the end of a period, how
is the amount of overhead cost that has been applied to that job treated?
A) It is deducted on the Income Statement as overapplied overhead.
B) It is closed out to Cost of Goods Sold.
C) It is transferred to Finished Goods.
D) It is part of the ending balance of the Work in Process inventory account
Ans: D Difficulty: Medium
31. (Appendix 3A) Which level of activity, if used to set a predetermined overhead rate, may
encourage managers to increase selling prices as demand falls?
A) Budgeted level of activity. C) Capacity (maximum) level of activity.
B) Actual level of activity. D) Normal level of activity.
Ans: C Difficulty: Medium
1. Job-order costing is more likely to be used than process costing in situations where many
different products or services are produced each period to customer specifications.
Ans: True Difficulty: Easy
2. Job-order costing is used in manufacturing companies and process costing is used in
service firms.
Ans: False Difficulty: Easy
3. In a job-order costing system, costs are traced to departments and then allocated to units
of product using an averaging process.
Ans: False Difficulty: Easy
4. Normally, a job cost sheet is NOT prepared for a job until after the job has been
completed.
Ans: False Difficulty: Medium
5. Job cost sheets supporting a normal job-order costing system contain entries for actual
direct material, actual direct labour, and actual manufacturing overhead cost incurred in
completing a job.
Ans: False Difficulty: Easy
6. In order to improve the accuracy of unit costs, most companies recalculate the
predetermined overhead rate each month.
Ans: False Difficulty: Medium
7. The following journal entry would be made to apply overhead cost to jobs in a job-order
costing system:
Work in Process XXX
Manufacturing Overhead XXX
Ans: True Difficulty: Medium
8. When the predetermined overhead rate is based on direct labour-hours, the amount of
overhead applied to a job is proportional to the amount of actual direct labour-hours
incurred on the job.
Ans: True Difficulty: Easy
9. When completed goods are sold, the transaction is recorded as a debit to Cost of Goods
Sold and a credit to Work in Process.
Ans: False Difficulty: Medium
Page 1
,10. The most common accounting treatment of underapplied manufacturing overhead is to
transfer it to the Manufacturing Overhead control account.
Ans: False Difficulty: Hard
11. In a normal job-order costing system, the Work in Process inventory account contains the
actual costs of direct labour, direct materials, and manufacturing overhead incurred on
partially completed jobs.
Ans: False Difficulty: Medium
12. Non-manufacturing costs are expensed as incurred, rather than going into the Work in
Process account.
Ans: True Difficulty: Easy
13. A credit balance in the Manufacturing Overhead account at the end of the year means that
overhead was underapplied.
Ans: False Difficulty: Medium
14. Indirect materials are NOT charged to a specific job but rather are included in
manufacturing overhead.
Ans: True Difficulty: Easy
15. The labour time ticket contains a detailed summary of the direct and the indirect labour
hours of an employee.
Ans: True Difficulty: Easy
16. (Appendix 3A) Basing predetermined overhead rate on capacity will almost certainly
result in overapplied overhead.
Ans: False Difficulty: Medium
17. Unlike the general model of product cost flows, backflush costing makes it possible to
avoid keeping records of work in process.
Ans: True Difficulty: Easy
18. Debiting the Manufacturing Overhead account with the cost of defective units increases
the average unit cost of all good units.
Ans: False Difficulty: Medium
19. Raw materials can be direct materials, but NOT all direct materials need to be raw
materials.
Ans: True Difficulty: Medium
20. (Appendix 3A) If the predetermined overhead rate is based on the estimated total amount
of the allocation base at capacity, it is more likely that overhead will be underapplied than
overapplied.
Ans: True Difficulty: Medium
, Chapter 3, Systems Design- Job-Order...
21. Which of the following companies is most likely to use a job-order costing system rather
than a process costing system?
A) Fast food restaurant C) Crude oil refinery
B) Shipbuilder D) Candy maker
Ans: B Difficulty: Easy
22. The computation of unit product costs involves an averaging process in which of the two
product costing systems?
Job-order Process
Costing costing
A) Yes No
B) Yes Yes
C) No Yes
D) No No
Ans: B
Difficulty: Easy
23. Which of the following contain(s) the detailed cost data that support the Work in Process
control account?
A) Job cost sheets.
B) The Manufacturing Overhead account.
C) The Finished Goods inventory account.
D) Purchase requisitions.
Ans: A Difficulty: Easy
24. Which of the following statements about labour time and cost in a job-order costing
system is NOT correct?
A) Time tickets are kept by employees showing the amount of work on specific jobs.
B) The job cost sheet for a job contains all direct labour charges to that particular job.
C) Labour cost that can be traced to a job only with a great deal of effort is treated as
part of manufacturing overhead.
D) A machine operator performing routine annual maintenance work on a piece of
equipment charges the maintenance time to a specific job.
Ans: D Difficulty: Medium
25. In a normal job-order costing system, the journal entry to record the application of
overhead cost to jobs includes which of the following?
A) A credit to the Manufacturing Overhead account.
B) A credit to the Work in Process inventory account.
C) A debit to Cost of Goods Sold.
D) A debit to the Manufacturing Overhead account.
Ans: A Difficulty: Medium
Page 3
, 26. In a normal job-order costing system, the use of indirect materials would usually be
recorded as a debit to which account?
A) Raw Materials. C) Manufacturing Overhead.
B) Work in Process. D) Finished Goods.
Ans: C Difficulty: Medium
27. In a normal job-order costing system, the salary of the factory supervisor would usually
be recorded as a debit to which of the following accounts?
A) Manufacturing Overhead. C) Work in Process.
B) Salary Expense. D) Finished Goods.
Ans: A Difficulty: Easy
28. In a job-order costing system, direct labour costs usually are recorded initially with a
debit to which of the following accounts?
A) Manufacturing Overhead. C) Direct Labour Expense.
B) Finished Goods inventory. D) Work in Process.
Ans: D Difficulty: Easy
29. Which of the following statements is true if a company applies overhead to jobs on the
basis of a predetermined overhead rate and reports a credit balance in the Manufacturing
Overhead account at the end of any period?
A) More overhead cost has been charged to jobs than has been incurred during the
period.
B) More overhead cost has been incurred during the period than has been charged to
jobs.
C) The amount of overhead cost charged to jobs is greater than the estimated cost for
the period.
D) The amount of overhead cost charged to jobs is less than the estimated overhead
cost for the period.
Ans: A Difficulty: Medium
30. In a job-order costing system, when a job remains incomplete at the end of a period, how
is the amount of overhead cost that has been applied to that job treated?
A) It is deducted on the Income Statement as overapplied overhead.
B) It is closed out to Cost of Goods Sold.
C) It is transferred to Finished Goods.
D) It is part of the ending balance of the Work in Process inventory account
Ans: D Difficulty: Medium
31. (Appendix 3A) Which level of activity, if used to set a predetermined overhead rate, may
encourage managers to increase selling prices as demand falls?
A) Budgeted level of activity. C) Capacity (maximum) level of activity.
B) Actual level of activity. D) Normal level of activity.
Ans: C Difficulty: Medium
