Cost Accounting Chapter 2

predetermined plantwide overhead rate to allocate all manufacturing overhead costs to jobs based on their usage of direct labor hours

many companies use a single..

making journal entries in accounting records and controlling the flow of materials into production

materials requisition forms are used for

DRIVE the overhead cost to improve job cost accuracy

the allocation base in the POOH must...

differ from the amount of overhead costs incurred during the period

the amount of overhead applied to all jobs during a period will

bill of materials

the direct materials required to manufacture each unit of product are listed on a

BEFORE the period begins..

the predetermined overhead rate used to apply overhead to jobs is determined

the total job cost divided by number of units, and average product cost per unit

the unit product cost is the same as..

they provide a more accurate accounting of the costs caused by jobs, which in turn, should enhance management planning and decision making.

using a departmental approach to overhead application results in a different selling price for job 407 than would have been derived using a plantwide overhead rate based on EITHER direct or machine hours. what the appeal?

fully absorb manufacturing costs.

In absorption costing, all manufacturing costs, both fixed and variable, are assigned to units of product - units are said to BLANK. Conversely, all nonmanufacturing costs are treated as period costs and they are not assigned to units of product.

PDOH rate (DL hours or whatever is used maybe MH)

Manufacturing overhead applied to the job =

when job order costing systems are used

Many different products are produced each period Products are manufactured to order The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. Making a vehicle. Know direct material, radios, etc. Know direct labor. It gets fuzzy on manufacturing overhead. Like glue, etc. We have to have a way to identify the overhead that goes to these products. Predetermined overhead rate is we don't have time to figure everything out. Have to come up with an estimation.

the type and quantity of materials to be drawn from the storeroom and identifies the job that will be charged for the cost of the materials

The materials requisition form is a document that specifies

difference between overhead applied to work in process and actual overhead

Underapplied or overapplied overhead is the

activity based costing

When a company creates overhead rates based on the actions it performs, it is employing an approach called

Each production department may have its own predetermined overhead rate

Which of the following is only true in a multiple predetermined overhead rate system?

rent, depreciation, indirect, production

Which of these is manufacturing overhead? direct materials direct labor rent on factory building sales salaries depreciation on equipment indirect labor production supervisor salary

The cost to produce another unit is the incremental or marginal cost

Why is the unit product cost different from the cost that would be incurred if another (additional) unit were produced?

machine hours, direct labor hours, direct labor cost, units of product

Widely used allocation bases in manufacturing are

Y = estimated total manufacturing overhead cost a = estimated total fixed manufacturing overhead cost b = estimated variable manufacturing overhead cost per unit of the allocation base X = estimated total amount of the allocation base

Y = a + bX what does each variable stand for

type of each direct material needed to complete a unit of product and the quantity of each direct material needed to complete a unit of product

a bill of materials contains: (2)

a factor that causes overhead costs

a cost driver is..

by multiplying a predetermined overhead rate by the estimated amount of the allocation base incurred by the job

a job costing system applies overhead to jobs...

person making airplane seats might be making for 3 different airplanes. as the work is done, you charge direct material and direct labor to each job

example of flow of job order costing

typical cost drivers include

flight-hours, machine-hours, computer time

direct materials and direct labor are distributed to each job and you charge direct material and direct labor costs to each job as work is performed

flow of job order costing (1)

indirect costs such as manufacturing overhead are applied to each job. Manufacturing overhead, including indirect materials and indirect labor, are allocated to all jobs rather than directly traced to each job

flow of job order costing (2)

1. estimate total amount of the allocation base (denominator) that will be required for the next period's estimated level of production 2. estimate the total fixed manufacturing overhead cost for the coming period and the variable manufacturing overhead cost per unit of the allocation base 3. use the following equation to estimate the total amount of manufacturing overhead: Y = a + bX 4. compute predetermined overhead rate

4 step process to computing predetermined overhead rate is...

the quantity of each type of direct material needed to complete a unit of product.

A bill of materials is a document that lists

materials costs charged to the job, manufacturing overhead costs charged to the job, labor costs charged to the job

A job sheet contains

a cost driver or allocation base

A measure such as direct labor hours or machine hours used to assign overhead costs to products and services is called

multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job.

A normal costing system applies overhead by job by

DECREASES COGS AND INCREASES NET OEPRATING INCOME.

ADJUSTMENT FOR OVERAPPLIED OVERHEAD

INCREASE COGS, DECREASE NET OPERATING INCOME.

ADJUSTMENT FOR UNDERAPPLIED OVERHEAD

TRUE! Estimated overhead costs are assigned.

Actual overhead costs are not assigned to jobs in a job costing system T/F?

timesheet

An hour-by-hour summary of an employee's activities throughout the day is found on the

simplistic so some companies break it out by departments. Paint department, wood department, etc.

BASICALLY, whatever we use from a company perspective should make the most sense and should drive manufacturing overhead. Some companies use predetermined overhead rate, but sometimes this is too...

examples of companies that would use job order costing

Boeing (aircraft manufacturing) - when they get airplane order this is how they process it. They have an order and they make it. They don't just sell them, they have to be ordered to be done. Bechtel International (large scale construction) Walt Disney Studios (movie production)

expense

COGS is like an

many different products

Companies that use job-order costing make

Helps them fulfill their planning, controlling, and decision making responsibilities. Helps them determine the value of ending inventories and cost of goods sold for external reporting purposes.

Companies usually assign costs to their products for 2 main reasons:

overhead applied to the job

Predetermined overhead rate is multiplied by the actual allocation base incurred by a job to find

by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job

a normal cost system applies overhead to jobs...

a plantwide overhead rate

a single predetermined overhead rate is called

a subsidiary ledger

all of a company's job cost sheets collectively form

activity based costing

an alternative approach to developing multiple predetermined overhead rates. managers use this to more accurately measure demands that jobs, products, customers, and other cost objects make on overhead resources

work in process and finished goods

balance sheet reporting include what

do total M O/H divided by total direct labor hours then multiply by the direct labor hours provided for the certain job, then add that to the direct materials and direct labor.

calculating total cost with plantwide predetermined overhead rate. Look at example in notebook but how?

1. add DM, DL, and do 120%*DL costs 2. do the total manufacturing cost/#units

check in notebook but when given the % DL cost, and the totals for each, how do you find 1. total manufacturing cost and 2. unit product cost?

the direct costs of producing the goods sold by a company

cogs refers to

Understand product profitability Value ending inventory Establish selling prices

companies assign costs to products and services to

both variable and fixed costs

costs assigned to units of product in absorption costing include

estimated total manufacturing overhead cost for the coming period / estimated total units in the allocation base for the coming period

equation for predetermined overhead rate

total cost/# units

how to calculate unit product cost

DIVIDE total cost/# units

if given 10 units on a job, what is the unit product cost?

multiple predetermined overhead rates.

if more than one overhead cost driver can be identified, job cost accuracy is improved by using

divide.

if on a cost sheet it says per 2 units completed, and the question is asking for 1, what do you do?

in each department as jobs proceed through the department

in a system that uses multiple predetermined overhead rates, overhead is applied

COGS

income statement reporting include what

assume that direct labor hours is a company's only manufacturing overhead cost driver.

it is often overly-simplistic and incorrect to..

service industries like law firms, accounting firms, medical treatment.

job order costing isn't only used in manufacturing applications, it is also used in

adversely influences planning and decisions made by managers. Job-order costing systems can accurately trace direct materials and direct labor costs to jobs. Job-order costing systems often fail to accurately allocate the manufacturing overhead costs used during the production process to their respective jobs. (Do the best we can with predetermined overhead rate.)

managerial perspective of job order costing pt 1: inaccurately assigning manufacturing costs to jobs does what

often use allocation bases that do not reflect how jobs actually use overhead resources. the allocation base in the PDOH must DRIVE the overhead cost to improve job cost accuracy

managerial perspective to job order costing pt 2: choosing an allocation base

contains fixed costs, consists of many different types of costs, is an indirect cost

manufacturing overhead contains: (3)

overhead application

process used to assign overhead costs to products is called

1. calculate predetermined overhead cost for each department 2. calculate predetermined overhead rate for each department 3. calculate amount of overhead applied from both departments to a job 4. calculate the total cost for job 407 5. calculate the selling price for job 407

steps for calculating multiple predetermined overhead rates (5)

direct labor hours, direct labor dollars, machine hours

what are 3 main types of allocation bases

we would have to make an adjustment. we would have to decrease COGS, which would increase net income.

what do we do with overapplied overhead

if we charge less overhead than we had, we would have to make an adjustment. we would have to charge more overhead which would lead to an increase in COGS. it would overall decrease net income because you are adding expense.

what do we do with underapplied overhead?

underapplied overhead

when a company applies less overhead to production than it actually incurs, it creates what is known as

activity based costing

when a company creates overhead rates based on the activities that it performs, it is employing an approach called

PDOH(machine hours) to get manufacturing overhead, and THEN ADD direct materials and direct labor because that is what consists of manufacturing cost

when calculating total manufacturing cost, you have to multiply

do overhead/direct labor

when in doubt for overhead cost..

overapplied overhead

when we apply more overhead to production than it actually incurs, it results in

we don't have time to figure everything out. Have to come up with an estimation.

why do we used predetermined overhead rate

Actual overhead for the period is not known until the end of the period, thus inhibiting the ability to estimate jobs costs during the period. Actual overhead costs can fluctuate seasonally, thus misleading decision makers. (AC over different seasons, etc.)

why do you need a predetermined overhead rate that relys on estimated data?

It is impossible or difficult to trace overhead costs to particular jobs Manufacturing overhead consists of many different items ranging from the grease used in machines to the production manager's salary Many types of manufacturing overhead costs are fixed even though output fluctuates during the period.

why do you need a predetermined overhead rate?

An allocation base, such as direct labor hours, direct labor dollars, or machine hours, is used to assign manufacturing overhead to individual jobs.

why use an allocation base?