Chapter 2 Study Guide

Yancey Productions is a film studio that uses a job-order costing system. The company's direct materials consist of items such as costumes and props. Its direct labor includes each film's actors, directors, and extras. The company's overhead costs include items such as utilities, depreciation of equipment, senior management salaries, and wages of maintenance workers. Yancey applies its overhead cost to films based on direct labor-dollars. At the beginning of the year, Yancey made the following estimates: Direct labor-dollars to support all productions $8,370,000 Fixed overhead cost $5,022,000 Variable overhead cost per direct labor-dollar $0.07 1. Compute the predetermined overhead rate.

1. Predetermined overhead rate = Variable overhead cost per direct labor-dollar + (Fixed overhead cost/Direct labor-dollars to support all productions) = 0.67 per DL

Taveras Corporation is currently operating at 50% of its available manufacturing capacity. It uses a job-order costing system with a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates: 2. During the year, Job P90 was started, completed, and sold to the customer for $2,800. The following information was available with respect to this job:

2. Overhead Applied = (75*16)=1,200

Yancey Productions is a film studio that uses a job-order costing system. The company's direct materials consist of items such as costumes and props. Its direct labor includes each film's actors, directors, and extras. The company's overhead costs include items such as utilities, depreciation of equipment, senior management salaries, and wages of maintenance workers. Yancey applies its overhead cost to films based on direct labor-dollars. At the beginning of the year, Yancey made the following estimates: Direct materials $1,420,000 Direct labor cost $2,511,000 2. During the year, Yancey produced a film titled You Can Say That Again that incurred the following costs:

2. Overhead Applied = Direct Labor * Per DL = 1,682,370

Absorption Costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs.

Normal Cost system

A costing system in which overhead costs are applied to a job by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job.

Multiple predetermined overhead rates

A costing system with multiple overhead cost pools and a different predetermined overhead rate for each cost pool, rather than a single predetermined overhead rate for the entire company. Each production department may be treated as a separate overhead cost pool.

Materials requisition form

A document that specifies the type and quantity of materials to be drawn from the storeroom and that identifies the job that will be charged for the cost of those materials.

Cost driver

A factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs.

Allocation base

A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects. ***Commonly used bases include: 1. Direct Labor Hours 2. Direct Labor Cost 3. Machine Hours 4. Direct Material Cost Total estimated overhead cost/Total Estimated base = Predetermined Overhead Rate (POHR)

Predetermined Overhead Rate (POHR)

A rate used to charge manufacturing overhead costs to jobs that are established in advance for each period. It is computed by dividing the estimated total manufacturing overhead cost for the period by the estimated total amount of the allocation base for the period. ***POHR= Estimated MOH/Estimated base units

Process Costing

Best used by a company that makes a lot of units of a single product that is almost the same as all of their other products. ***Heinz, HP

Overhead Application Rate PearCo estimates that it will require 160,000 direct-labor hours (DLH) to meet the coming period's estimated production level. In addition, the company estimates the total manufacturing overhead at $640,000

Est MOH/Est. Units = $640,000/160,000 DLH = $4.00 per direct labor hour *See photo for further data

Taveras Corporation is currently operating at 50% of its available manufacturing capacity. It uses a job-order costing system with a plantwide predetermined overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates: 1. Compute the plantwide predetermined overhead rate Machine-hours required to support estimated production 180,000 Fixed manufacturing overhead cost $2,520,000 Variable manufacturing overhead cost per machine-hour $2.00

Plantwide overhead rate = total overhead cost/machine hours Total overhead cost = variable manufacturing cost +fixed manufacturing cost total overhead cost = (180,000 *2) + 2,520,000= 2,880,000 Plantwide overhead rate = 2,880,000/180,000= 16 per MH

Overhead application

The process of assigning overhead cost to specific jobs.

Job Order Costing

a costing system used in situations where many different products, jobs, or services are produced each period ***Is used in situations where many different products, each with individual and unique features, are produced each period. ***Types of companies that would use: Boeing (Aircraft Manufacturing), Betchel International (Large scale construction, Disney Studios ( Movie production)

Time ticket

a document that is used to record the amount of time an employee spends on various activities

Job cost sheet

a form that records the materials, labor, and manufacturing overhead costs charged to a job

Plantwide overhead rate

a single predetermined overhead rate that is used throughout a plant

Bill of Materials (BOM)

document that shows the quantity of each type of direct material required to make a product.