CACC1

Job Order Costing
Multiple Choice
1. LO 4.1 Which of the following product situations is better suited to job order costing than to
process costing?
A. Each product batch is exactly the same as the prior batch.
B. The costs are easily traced to a specific product.
C. Costs are accumulated by department.
D. The value of work in process is based on assigning standard costs.
Solution
B
2. LO 4.1 A job order costing system is most likely used by which of the following?
A. a pet food manufacturer
B. a paper manufacturing company
C. an accounting firm specializing in tax returns
D. a stereo manufacturing company
Solution
C
3. LO 4.1 Which of the following is a prime cost?
A. indirect materials
B. direct labor
C. administrative expenses
D. factory depreciation expenses
Solution
B
4. LO 4.1 Which of the following is a conversion cost?
A. raw materials
B. direct materials
C. administrative expenses
D. factory depreciation expenses
Solution
D
5. LO 4.1 During production, to what are the costs in job order costing applied?
A. manufacturing overhead
B. cost of goods sold
C. each individual product
D. each individual department
Solution
C
6. LO 4.2 Which document lists the inventory that will be removed from the raw materials
inventory?
A. job cost sheet
B. purchase order
C. materials requisition form
D. receiving document
Solution
C
7. LO 4.2 Which document shows the cost of direct materials, direct labor, and overhead applied
for each specific job?
A. job cost sheet
B. purchase order
Solution
A
8. LO 4.2 Which document lists the total direct materials used in a specific job?
A. job cost sheet
B. purchase order
Solution
A
9. LO 4.2 Which document lists the total direct labor used in a specific job?
A. job cost sheet
B. purchase order
C. employee time ticket
Solution
A
10. LO 4.4 Assigning indirect costs to specific jobs is completed by which of the following?
A. applying the costs to manufacturing overhead
B. using the predetermined overhead rate
C. using the manufacturing costs incurred
D. applying the indirect labor to the work in process inventory
Solution
B
11. LO 4.4 In a job order costing system, which account shows the overhead used by the
company?
A. work in process inventory
B. finished goods inventory
C. cost of goods sold
D. manufacturing overhead
Solution
D
12. LO 4.7 In a job order cost system, raw materials purchased are debited to which account?
A. raw materials inventory
B. work in process inventory
C. finished goods inventory
D. cost of goods sold
Solution
A
13. LO 4.7 In a job order cost system, overhead applied is debited to which account?
C. manufacturing overhead
Solution
A
14. LO 4.7 In a job order cost system, factory wage expense is debited to which account?
A. raw materials inventory
B. work in process inventory
Solution
B
15. LO 4.7 In a job order cost system, utility expense incurred is debited to which account?
Solution
C
16. LO 4.7 In a job order cost system, indirect labor incurred is debited to which account?
Solution
C
17. LO 4.8 The activity base for service industries is most likely to be ________.
A. machine hours
B. administrative salaries
C. direct labor cost
D. direct labor hours
Solution
D
Questions
1. LO 4.1 A printing company manufactures notebooks of various sizes. The company

manufactures 3,000 notebooks each day. Should the company use process costing or job order
costing?
Solution
The company should use process costing. Since there are many similar items, process costing is a
better fit than job order costing.
2. LO 4.1 Burnham Industries incurs these costs for the month:
What is the prime cost?
Solution
The prime cost is $5,000: the sum of direct materials plus direct labor.
3. LO 4.1 Choco’s Chocolates incurs these costs for the month:
What is the conversion cost?

Solution
The conversion cost is $72,000: the sum of direct labor, factory depreciation expense, and utility
expense.
4. LO 4.1 How do job order costing and process costing differ with respect to recording direct
materials and direct labor?
Solution
Job order costing assigns direct materials and direct labor directly to the product, whereas
process costing assigns direct materials and direct labor to the process or department in which it
is incurred.
5. LO 4.1 Why are product costs assigned to the product and period costs immediately
expensed?
Solution
The expense recognition principle requires that expenses follow the revenue. Product costs are
assigned to the product because they are associated with the revenue from the sale of the product.
The cost is transferred from inventory to cost of goods sold when the item is sold. This matches
the revenue from the sale with the cost of the item being sold. Period costs are expensed when
incurred because they are not related to a specific product but are instead related to the time
period in which revenue is earned.
6. LO 4.3 Is the cost of goods manufactured the same as the cost of goods sold?
Solution
No, the cost of goods manufactured is the cost of the goods transferred to the finished goods
department. When those items are sold, the cost is transferred to the cost of goods sold. If the
inventory does not sell, the cost does not become a cost of goods sold.
7. LO 4.3 From beginning to end, place these items in the order of the flow of goods.
A. cost of goods sold
B. raw materials inventory
D. work in process inventory
Solution
B, D, C, A.
8. LO 4.4 How is the predetermined overhead rate determined?
Solution
Management estimates the amount of manufacturing overhead and divides that amount by the
activity base, which is considered to be the cost driver. The result is a rate per dollar or hour,
depending on the base.
9. LO 4.4 How is the predetermined overhead rate applied?
Solution
Management uses the activity considered to be the cost driver and multiplies that rate by the
activity for each specific job. The result is the amount of overhead applied to that specific job.
10. LO 4.5 Why are the overhead costs first accumulated in the manufacturing overhead account
instead of in the work in process inventory account?
Solution
The costs of work in process include all the costs directly associated with the jobs currently in
production. Job order cost sheets are effectively subsidiary ledgers to the work in process
inventory account, and the total of the jobs on the cost sheet equals the total work in process. As
overhead is assigned to the jobs, it is removed from the manufacturing overhead account and
placed in the work in process inventory. If the overhead were accumulated in work in process
inventory, the costs would not be assigned to jobs in a systematic and rational manner, but
assigned to the jobs in process when the overhead expenses were incurred. This does not agree
with the expense recognition principle.
11. LO 4.6 Why is the manufacturing overhead account debited as expenses are recognized and
then credited when overhead is applied?
Solution
Expenses normally have a debit balance, and the manufacturing overhead account is debited
when expenses are incurred to recognize the incurrence. When the expenses are allocated to the
asset, the work in process inventory, the expense account manufacturing overhead is credited.
This is in accordance with the expense recognition principle. The timing of the expense follows
the revenue, and when the costs are allocated to inventory, they become a part of the product’s
cost and are recognized when the asset is sold.
12. LO 4.7 Match the concept on the left to its correct description.
A. job order costing i. computes the overhead applied to each job
B. materials requisition sheet ii. source document indicating the number of hours an
employee worked on specific jobs
C. overapplied overhead iii. source document indicating the raw materials
assigned to a specific production job
D. predetermined overhead rate iv. the cost accounting system used by pet food
manufacturers
E. process costing v. the cost accounting system used by law firms
F. time ticket vi. the result when the actual overhead is less than the
amount assigned to each specific job
G. underapplied overhead vii. the result when the actual overhead is more than the
amount assigned to each specific job
Solution
A. v. B. iii. C. vi. D. i. E. iv. F. ii. G. vii.
13. LO 4.8 When compared to manufacturing companies, service industries do not generally use
________ as a component of product cost.
Solution
Direct materials.

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Job Order Costing

1. LO 4.1 A printing company manufactures notebooks of various sizes. The company

What is the conversion cost?

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