ACC CH 3-4
To calculate total manufacturing costs, add direct materials, direct labor and ______.
applied manufacturing overhead
What side of the Manufacturing overhead account is actual manufacturing overhead entered on?
Always the debit side
Indicate which account should be debited and which account should be credited. Lubricating oil, waste cotton, and solder are used in the factory.
Debit: Manufacturing overhead Credit: Raw materials
Indicate which account should be debited and which account should be credited. Salary of the Production Supervisor is payable.
Debit: Manufacturing overhead Credit: Salaries and wages payable
Indicate which account should be debited and which account should be credited. Manufacturing overhead is applied to jobs using a predetermined overhead rate.
Debit: Work in process Credit: Manufacturing overhead
True or false: Traditional cost systems tend to undercost standard products and overcost specialty products.
False
The journal entry to record depreciation on factory equipment debits ______.
Manufacturing overhead and credits Accumulated depreciation
The Manufacturing Overhead account is debited when
actual overhead costs are incurred
A journal entry that debits Finished goods and credits Work in process records the ______.
completion of job
Applied manufacturing overhead will most likely ______ actual manufacturing overhead.
not equal
When labor costs are incurred, _________ are added directly to the Work in Process account.
only direct labor costs
Net operating income is calculated by subtracting
selling and administrative expenses; gross margin
Gross margin minus selling and administrative expenses equals ______.
net operating income
Usually, traditional costing ______ high-volume products and ______ low-volume products. (Overcosts or undercosts)
overcosts; undercosts
A journal entry that debits Advertising expense and credits Cash would record the incurrence of a
selling cost
Batch-level activities
Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in a batch. The amount of resources consumed depends on the number of batches run rather than on the number of units in the batch
Unit-level activities
Activities that arise as a result of the total volume of goods and services that are produced, and that are performed each time a unit is produced
Product-level activities
Activities that relate to specific products that must be carried out regardless of how many units are produced and sold or batches run
Work in process consists of:
Actual direct materials cost, actual direct labor cost, applied manufacturing overhead
The amount transferred from Work in Process to Finished Goods is
Cost of goods manufactured
A journal entry that debits Manufacturing overhead and credits Prepaid insurance records the:
expiration of prepaid factory insurance
True or false: Period costs flow from Finished Goods to Cost of Goods Sold.
false
Which of the following is a product-level activity? A.Processing units by hand B. General factory administration C. Processing purchase orders D. Administering parts inventories
D. Administering parts inventories
Costs of partially completed units are accounted for in ______.
work in process
Activity Cost pool
a "cost bucket" in which costs related to a particular activity measure are accumulated
Activity-based management
A management approach that focuses on managing activities as a way of eliminating waste and reducing delays and defects
A journal entry that debits Manufacturing overhead and credits Prepaid insurance records the
expiration of prepaid factory insurance
The journal entry to record issuing both direct and indirect materials into production debits
Work in process and Manufacturing overhead
The value of work in process is equal to ______.
the cost of all unfinished jobs
Benchmarking
A systematic approach to identifying the activities with the greatest room for improvement. It is based on comparing the performance in an organization with the performance of other, similar organizations known for their outstanding performance
Indicate which account should be debited and which account should be credited. Direct materials are issue into production for a specific job.
Debit: Work in process Credit: Raw materials
Indicate which account should be debited and which account should be credited. The wages of direct of laborers who worked on a particular job are payable.
Debit: Work in process Credit: Salaries and wages payable
When a job is completed, which account is debited?
Finished goods
When goods are sold on account, what accounts are credited?
Finished goods and Sales
The journal entry to record expired prepaid factory insurance debits
Manufacturing Overhead and credits Prepaid Insurance
True or false: The transfer of costs from one inventory account to the next parallels the physical transfer of goods from one inventory to the next.
True
Overhead is underapplied if ______.
actual overhead is more than applied overhead
The journal entry to record selling and administrative salaries debits ______.
an expense account and credits Cash or a liability
A journal entry that debits Work in process and credits Manufacturing overhead is recording the
application of manufacturing overhead costs
Schedule of cost of goods manufactured
contains three elements of product costs—direct materials, direct labor, and manufacturing overhead—and it summarizes the portions of those costs that remain in ending Work in Process inventory and that are transferred out of Work in Process into Finished Goods
The amount transferred from Work in Process to Finished Goods is ______.
cost of goods manufacturing
Activity measure
expresses how much of the activity is carried out and it is used as the allocation base for assigning overhead costs to products and services
When evaluating ABC product costs, managers should be particularly alert to costs that contain allocations of product____ product
facility or organization
The cost of goods is the sum of all amounts transferred from Work in process to Finished goods during a period
manufactured
All the cost appearing on the job cost sheets of the jobs that are being worked on are found in the ______ account.
work in process
A significant limitation of the ABC model is that the product costs computed will most likely be ______. A. less accurate than those computed using a conventional system B. understated for purposes of decision making C. overstated for purposes of decision making
C. overstated for purposes of decision making
Units of product that are only partially completed are put in which inventory?
Work In Process
Completed units that have not yet been sold are found in _____ _____ inventory.
Finished goods
When jobs are sold their costs are transferred out of
Finished goods
The journal entry to record the purchase of materials credits ______.
accounts payable
The schedule of cost of goods _____ summarizes costs that remain in Work in process inventory and that have been transferred from Work in process to Finished goods inventory.
manufactured
A journal entry that debits Manufacturing overhead and credits Property taxes payable records the
recognition of accrued property taxes
The schedule of cost of goods _______ summarizes costs that remain in Finished goods inventory and that have been transferred to Cost of goods sold.
sold
Cost of goods manufactured is the ______.
sum of all jobs transferred from Work in process to Finished goods
The activity rate is computed by dividing the ______ by the ______.
total cost in the activity cost pool; activity level in the activity cost pool
Units of product that are only partially complete are contained in the _________ inventory
work in process
What methods can be used to dispose of underapplied or overapplied manufacturing overhead?
Allocating it among Work in process, Finished goods, and Cost of goods sold OR Closing it out to Cost of Goods sold
The journal entry to record a completed job debits
Finished goods
A journal entry debiting Cost of goods sold and crediting Finished goods is made when ______.
goods are sold
Sales minus cost of goods sold equals ______
gross margin
Selling and administrative costs first appear on the
income statement
Labor costs charged to Manufacturing Overhead represent
indirect labor costs
A journal entry that debits Work in process and Manufacturing overhead and credits Raw materials records the ______.
issuance of materials
Finished goods ______.
consists of completed, unsold goods
Which of the following statements are true? A. When materials are purchased they are recorded in the Raw materials inventory account. B. Raw materials inventory represents the cost of materials not yet used in production. C. Raw materials inventory only includes the cost of direct materials. D. Direct labor costs flow through the Raw materials inventory account.
A. When materials are purchased they are recorded in the Raw materials inventory account. B. Raw materials inventory represents the cost of materials not yet used in production.
Which of the following costs are found on the balance sheet?
Raw Materials Manufacturing Overhead Direct Labor
A journal entry that debits Manufacturing overhead and credits Accounts payable would not be used to record
direct labor costs
Gross margin minus selling and administrative expenses equals ______. Multiple choice question. cost of goods sold
net operating income
A journal entry that debits Raw Materials and credits Accounts Payable is recording the ______.
purchase of materials
Implementing an activity-based costing system often results in a shift of overhead costs from: A. overpriced to underpriced products. B. unit-level to batch-level activities. C. high-volume to low-volume products. D. low-volume to high-volume products.
C. high-volume to low-volume products.
Which of the following best describes the journal entry to record the withdrawal of raw materials from the storeroom for use as direct and indirect materials in production? A. Debit Work in Process and credit Raw Materials. B. Debit Work in Process, debit Manufacturing Overhead, and credit Direct Materials. C. Debit Work in Process, debit Manufacturing Overhead, and credit Raw Materials. D. Debit Manufacturing Overhead and credit Raw Materials.
C. Debit Work in Process, debit Manufacturing Overhead, and credit Raw Materials.
Raw materials inventory represents the ________ not yet used in production.
cost of materials
The journal entry to record depreciation on office equipment debits ______.
Depreciation expense and credits accumlated depreciation.
Actual manufacturing overhead costs are recorded in the Manufacturing Overhead account
As they are incurred
All actual manufacturing overhead costs are debited or credited?
are debited to the Manufacturing Overhead account as they are incurred
The difference between the entries to record depreciation on office equipment and depreciation on factory equipment is that one ______.
debits Depreciation expense, while the other debits Manufacturing overhead
Benefits of activity-based costing include ______. A. more accurate product costs B. reducing the total overhead costs of a company C. helping target areas for process improvement D. helping managers understand the nature of overhead costs
A. more accurate product costs C. helping target areas for process improvement D. helping managers understand the nature of overhead costs
Activity-based costing improves accuracy of product costs by: A. using multiple-activity pools to accumulate overhead costs. B. relying on a single measure that causes overhead costs. C. implementing absorption costing approach for decision-making purposes. D. using departmental overhead rates that vary by process.
A. using multiple-activity pools to accumulate overhead costs.
If a company incurs $2,000 of factory rent, $1,000 of factory utilities, and $5,000 of miscellaneous factory costs, the journal entry to record these transactions would be to debit
Manufacturing overhead $8,000 and credit Accounts payable $8,000
Manufacturing overhead costs include ______..
- the factory supervisor's salary - factory insurance
Which of the following occurs when finished jobs are shipped to customers? A. Debit to Cost of Goods Sold. B. Debit to Finished Goods. C. Debit to Work in Process. D. Credit to Raw Materials.
A. Debit to Cost of Goods Sold.
Using direct-labor hours or another volume based cost driver to assign overhead ______. A. may result in selling products at a loss B. may result in overcharging customers for products C. can badly distort labor and material costs D. Ignores other significant causes of overhead
A. may result in selling products at a loss B. may result in overcharging customers for products D. Ignores other significant causes of overhead
Facility-level activities
Activities that are carried out regardless of which products are produced, how many batches are run, or how many units are made
Under an ABC system, overhead costs are allocated to the products using a two-stage process. What happens during the second stage of that process? A. We allocate the overhead costs to individual activity pools. B. We allocate the costs in the activity pools to the products using activity rates and activity measures. C. We identify the activity pools. D. We calculate the activity rate for each activity pool.
B. We allocate the costs in the activity pools to the products using activity rates and activity measures.
When a company applies overhead to production for the month of May, how will the company's account balances be affected on that spreadsheet? A. Accounts Payable will increase. B. Work in Process will increase. C. Manufacturing Overhead will increase. D. Retained Earnings will decrease.
B. Work in Process will increase.
When companies incur selling and administrative costs, those costs A. should be treated as product costs B. do not flow through the three inventory accounts C. should flow through the Manufacturing Overhead account D. should flow through the Work in Process account
B. do not flow through the three inventory accounts
Which of the following occurs when manufacturing overhead is applied to Work in Process? A. Debit to Cost of Goods Sold. B.Debit to Manufacturing Overhead. C. Credit to Work in Process. D. Credit to Manufacturing Overhead.
D. Credit to Manufacturing Overhead.
Which of the following occurs when a job has been completed and transferred to the finished goods warehouse? A. Debit to Cost of Goods Manufactured. B. Debit to Cost of Goods Sold. C. Credit to Finished Goods. D. Credit to Work in Process.
D. Credit to Work in Process.
Activity-based management involves focusing on activities to: A. avoid cost shifts due to the use of activity-based costing. B. identify a single allocation base that causes overhead costs. C. decrease the cost of implementing an activity-based costing system. D. eliminate waste, decrease processing time, and reduce defects.
D. eliminate waste, decrease processing time, and reduce defects.
Any purchased materials that will go into the finished products are first recorded in the _____ _____ inventory account.
Raw materials
The Manufacturing Overhead account is debited when ______.
actual overhead costs are incurred
Overhead is overapplied if
actual overhead is less than applied overhead
A journal entry debiting Salaries expense and crediting Salaries and wages payable could record
administrative salaries
Schedule of cost of goods sold
contains three elements of product costs—direct materials, direct labor, and manufacturing overhead—and it summarizes the portions of those costs that remain in ending Finished Goods inventory and that are transferred out of Finished Goods into Cost of Goods Sold
The journal entry that debits Work in Process and Manufacturing overhead and credits Salaries and Wages Payable is recording``
direct and indirect labor costs
A journal entry that involves Manufacturing overhead, Work in process, Finished goods, and Cost of goods sold is recorded to ______.
dispose of underapplied or overapplied overhead
A journal entry that debits Manufacturing overhead and credits Accounts payable could be made to record
factory utilities expense rent expense on factory equipment
When a job is completed, its costs are transferred into
finished goods
When cost systems were developed in the 1800's, most companies ______.
focused on simplicity produced a small number of similar products
Which of the following would not be charged to the Manufacturing overhead account?
nonmanufacturing
If there is a credit balance in the Manufacturing Overhead account of Y dollars, then the overhead is _____ by Y dollars
overapplied
True or false: Underapplied or overapplied overhead occurs because overhead is applied to jobs using a predetermined rate based on estimates of costs and activity levels.
true
If there is a debit balance in the Manufacturing Overhead account of X dollars, then the overhead is _____ by X dollars
underapplied
When a job is completed, the job costs are transferred OUT OF ______.
work in process
