Accounting Online Program Cost Accounting 1 — Questions and Answers
Question 1: Which costing method is most appropriate for mass-production environments where identical units are manufactured continuously?
- Job-order costing
- Process costing (Correct answer)
- Activity-based costing
- Standard costing
Correct answer: Process costing
Process costing is used in mass-production industries (e.g., chemicals, oil refining) where homogeneous units are produced continuously and costs are averaged over all units.
Question 2: What are 'equivalent units of production' used for in process costing?
- Calculating overtime pay for factory workers
- Converting partially completed units into a whole-unit equivalent for cost averaging (Correct answer)
- Determining the standard cost per unit sold
- Reconciling inventory counts with the general ledger
Correct answer: Converting partially completed units into a whole-unit equivalent for cost averaging
Equivalent units convert partially completed work-in-process inventory into a whole-unit equivalent so that costs can be fairly averaged across all production activity.
Question 3: Which of the following is classified as a period cost?
- Direct materials
- Direct labor
- Manufacturing overhead
- Selling and administrative expenses (Correct answer)
Correct answer: Selling and administrative expenses
Period costs, such as selling and administrative expenses, are expensed in the period incurred and do not flow through inventory accounts.
Question 4: In job-order costing, which document accumulates all costs assigned to a specific job?
- Production budget
- Work-in-process ledger summary
- Job cost sheet (Correct answer)
- Standard cost card
Correct answer: Job cost sheet
A job cost sheet records direct materials, direct labor, and applied overhead for each unique job, serving as the subsidiary ledger for work-in-process inventory.
Question 5: Overapplied overhead occurs when:
- Actual overhead costs exceed applied overhead
- Applied overhead exceeds actual overhead costs incurred (Correct answer)
- No overhead is assigned to products
- Direct labor costs are higher than budgeted
Correct answer: Applied overhead exceeds actual overhead costs incurred
Overapplied overhead means more overhead was assigned to products (using the predetermined rate) than was actually incurred, requiring an adjustment.
Question 6: The predetermined overhead rate is calculated as:
- Actual overhead costs ÷ actual activity
- Estimated overhead costs ÷ estimated activity level (Correct answer)
- Total manufacturing costs ÷ units sold
- Direct labor costs ÷ machine hours
Correct answer: Estimated overhead costs ÷ estimated activity level
The predetermined overhead rate is calculated before the period begins using estimated overhead costs and an estimated activity base (e.g., direct labor hours or machine hours).
Accounting Online Program Cost Accounting 1
Which costing method is most appropriate for mass-production environments where identical units are manufactured continuously?