Chapter 3 Quiz

1 CORRECT | |

Which of the following statements is (are) true? |

| | A) | Companies that produce many different products or services would use job-order costing systems. |

| | B) | Job-order costing systems cannot be used by service firms. |

| | C) | Costs are traced to departments and then allocated to units of product when job-order costing is used. |

| | D) | All of the above. |

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Feedback: The correct answer is A (Learning Objective 1):

A job-order costing system is typically used in situations where many different products are produced each period; thus, choice A is true. Job-order costing is used extensively in service industries; thus choice B is not true. In a job-order costing system, costs are traced and allocated to jobs (rather than being traced to departments and then allocated to units of product); thus, choice C is not true. |

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2 INCORRECT | |

Harrington Company uses predetermined overhead rates to apply manufacturing overhead to jobs. The predetermined overhead rate is based on machine hours in the Machining Department and direct labor cost in the Assembly Department. At the beginning of the year, the company made the following estimates: What predetermined overhead rates would be used in the Machining and Assembly Departments, respectively? |

| | A) | 110% and $15 |

| | B) | $5.00 and 50% |

| | C) | $8.00 and 50% |

| | D) | $5.00 and 200% |

| | | | |

Feedback: The correct answer is D (Learning Objective 1):

The predetermined overhead rates are determined as follows.

Machining Department:

Predetermined overhead rate = Estimated overhead cost ÷ Estimated machine hours Predetermined overhead rate = $25,000 ÷ 5,000 MHs = $5.00 per MH

Assembly Department:

Predetermined overhead rate = Estimated overhead cost ÷ Estimated direct labor cost

Predetermined overhead rate = $30,000 ÷ $15,000 = 200% |

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3 CORRECT | |

Tribute Company has the following estimated costs for next...