Managerial Accounting Chapter 2

What is a the materials requisition form?

- a form that lists the quantity and cost of direct materials - it must be filled out before materials can be used on a job - This form is used to control the physical flow of materials out of inventory and into production. It also provides the information needed to record the cost of raw materials in the accounting system.

What are the three inventory accounts that are used to record manufacturing costs?

- raw materials inventory - work in process inventory - finished goods inventory

define process costing

- used by companies that make standardized/homogeneous products or services - the basic process costing formula is average unit cost = total cost/ total units produced

define job order costing

- used in companies that offer customized or unique products or services

What are the three steps to assigning MOH costs using the predetermine OH rate?

1) determine the allocation base (cost driver) 2) calculate the predetermined OH rate 3) Assign MOH using the predetermined OH rate

Give the predetermine OH rate formula

(estimated total MOH cost)/ (estimated total cost driver)

What are some terms that can be used interchangeably?

- Indirect costs → Overhead - Assign → Allocate → Apply - Allocation Base → Cost Driver

How do we dispose of the over applied or undersupplied MOH?

- The most common method for disposing of the balance in Manufacturing Overhead is to make a direct adjustment to Cost of Goods Sold. Doing so makes sense as long as most of the jobs worked on during the period were completed and sold. - Overapplied Manufacturing Overhead(credit balance) → Decrease Cost of Goods Sold - Underapplied Manufacturing Overhead(debit balance)→ Increase Cost of Goods Sold

What are direct labor time tickets?

A direct labor time ticket is a source document that shows how much time a worker spent on various jobs each week

define operations costing

a blend of process costing (for the common processes) and job order costing (for the unique components)

define allocation base

assigns indirect cost to products or services. Ideally, it should be a cost driver, or a measure that causes or influences the amount of manufacturing overhead cost incurred

define predetermined overhead rate

rate estimated before the accounting period begins and used throughout the period to assign overhead costs to products or services

What is finished goods inventory

represents the cost of jobs that have been completed but not yet sold. The cost of a completed job remains in Finished Goods Inventory until it is sold.

What is raw materials inventory

represents the cost of materials purchased from suppliers but not yet used in production. This account includes both direct materials that will be traced to specific jobs (lumber, piping) and the indirect materials that cannot be traced to specific jobs (screws, nails, and so on).

Define cost of goods manufactured

represents the total cost of all jobs completed during the period. In terms of the cost flows previously presented, it is the total cost transferred out of Work in Process Inventory and into Finished Goods Inventory

How are the costs reported in the inventory accounts reported on the balance sheet?

All costs recorded in these inventory accounts are reported as assets on the balance sheet until the job is sold. When a job is sold, its total cost is transferred out of Finished Goods Inventory and into Cost of Goods Sold, where it will be matched up against sales revenue on the income statement.

What is the applied MOH formula?

Applied MOH = Predetermined OH rate x actual cost driver

define billable hours

Because service firms tend to be labor intensive, the primary driver used to assign cost is billable hours. A billable hour is time that can be traced to a specific client, similar to direct labor hours in a manufacturing setting

What does it mean for MOH to under applied?

If the actual amount (debit) is more than the applied amount (credit), it means we didn't apply enough manufacturing overhead costs to jobs. Thus, a debit balance in the Manufacturing Overhead account means that overhead was underapplied, or that actual overhead was greater than the amount applied.

What does it mean for MOH to be over applied

If the applied amount (credit) is more than the actual amount (debit), it means that we applied more overhead cost to jobs than we actually incurred during the period. In that case, a credit balance (in the MOH account) would indicate that overhead was overapplied, or that applied overhead was greater than actual

What is a job order cost sheet?

It provides a detailed record of the costs incurred to complete a specific job (the manufacturing costs)

A large portion of these notes refer to how costs are transferred in and out of different accounts... reread and practice

Reread and rework problems that apply to section III parts F-K

What time period is the predetermined overhead rate calculated over?

This overhead rate is usually calculated for an entire year in order to avoid the fluctuations in costs and activity that result from seasonal variation and peaks in demand. It is predetermined because it is based on estimated values

How do service firms cover indirect costs

indirect costs are treated just like manufacturing overhead in a factory.In other words, there will be an additional charge applied to each client's account to cover the indirect costs of providing the service

What is work in process inventory

represents the total cost of jobs that are in process at any given point in time. Any cost that is added to the Work in Process Inventory account must also be recorded on an individual job cost sheet. The job cost sheet serves as a subsidiary ledger to the Work in Process Inventory account. Thus, the total cost of all jobs in process should equal the balance in Work in Process Inventory.