Process vs. Job Order Costing

Hybrid Costing Systems

A costing system that combines features of both process and job order operations is called a hybrid costing system.

Process Costing

True or False: Process costing systems use separate Work in Process Inventory accounts for each process.

True

Materials Requisition

True or False: A materials requisition is a document that production managers use to request materials for production and shows the job number, the types of materials, and the quantities needed.

True

Calculating Predetermined Overhead Rate

The Work in Process Inventory account of a manufacturing company has a $4,809 debit balance. The company applies overhead using direct labor cost. The cost sheet of the only job still in process shows a direct material cost of $2,100 and a direct labor cost of $900. Therefore, the company's predetermined overhead rate is:

Calculation:

• WIP = DM + DL + OH
• $4,809 = $2,100 + $900 + OH
• OH = $1,809
• OH rate = $1,809/$900 = 201%

Equivalent Units of Conversion

True or False: If a department that uses process costing starts the reporting period with 100,000 physical units that were 20% complete with respect to conversion, the equivalent units of conversion in beginning Work in Process are 20,000.

True

Indirect Materials and Job Cost Sheets

True or False: Requisitions of indirect materials are not recorded on job cost sheets.

True

Process vs. Job Order Manufacturing

True or False: Process and job order manufacturing operations both combine materials, labor, and overhead items in producing products.

True

Identifying Process or Job Order Operations

For each of the following products and services, indicate whether it is more likely produced in a process operation (PO) or a job order operation (JO):

• Beach toys - PO
• Wrapping Paper - PO
• Organic Juice - PO
• Ice cream - PO
• Auto Repair - JO
• Wedding reception - JO
• Tennis Courts - JO
• Audit of financial statements - JO
• Luxury Yachts - JO

Process Operations and Mass Production

True or False: Process operations involve the mass production of similar products in a continuous flow of sequential processes.

True

Direct Materials and Work in Process Inventory

True or False: The cost of all direct materials issued to production is debited to Work in Process Inventory.

True

Journal Entry for Direct Materials

True or False: If Department R uses $60,000 of direct materials and Department S uses $15,000 of direct materials, the following journal entry would be recorded by the process costing system:

True

Calculating Overhead Cost

Lowden Company uses job order costing and applies overhead to each job at the rate of 155% of direct materials cost. During the current period, direct labor cost is $60,000 and direct materials cost is $90,000. How much overhead cost should Lowden Company apply in the current period?

Answer: $90,000 (direct materials) × 1.55 = $139,500

Cost of Goods Manufactured

True or False: The cost of units transferred from the final production process to Finished Goods Inventory is called the cost of goods manufactured.

True

Job vs. Job Lot

Indicate which of the following are most likely to be considered a job and which as a job lot:

• 200 hats printed with a logo - Job Lot
• 90-foot custom yacht - Job

Overhead Allocation

A company has an overhead application rate of 120% of direct labor costs. How much overhead would be allocated to a job if it required direct labor costing $28,000?

$28,000 × 1.20 = $33,600