Accounting exam 2

Marty's Metal Shop uses a job order cost system. It applies overhead to jobs at a rate of 175% of direct labor costs. Job No. 2617 required $800 in direct labor costs. The job was initially budgeted to require $850 in direct labor costs. Overhead applied to Job No. 2617 during the period amounted to:

$1,400. ($800 × 175% = $1,400)

[The following information applies to the questions displayed below.] Riverview Company's budget for the coming year includes $6,000,000 for manufacturing overhead, 50,000 hours of direct labor, and 250,000 hours of machine time. If Riverview applies overhead using a predetermined rate based on machine-hours, what amount of overhead will be assigned to a unit of output which requires 0.5 machine hours and 0.25 labor hours to complete?

$12.00 ($6,000,000 ÷ 250,000 = $24 × 0.5 = $12)

Edwards Auto Body uses a job order cost system. Overhead is applied to jobs on the basis of direct labor hours. During the current period, Job No. 337 was charged $425 in direct materials, $475 in direct labor, and $190 in overhead. If direct labor costs an average of $16 per hour, the company's overhead application rate is:

$6.40 per direct labor hour.

Determine the amount of manufacturing overhead given the following information: Depreciation on a factory building$2,600 Telephone expense in factory office$950 Telephone expense in sales showroom$1,050 Factory foreman's salary$5,200 Maintenance costs for the factory$1,000 Maintenance costs for the sales showroom$880

$9,750 ($2,600 + $950 + $5,200 + $1,000 = $9,750)

Prepare a schedule of the cost of finished goods manufactured.

* Need Help *

Identify the processes for creating goods and services that are suited to job order costing.

* Need Help * Custom Jobs ( construction)

Account for the flow of costs when using job order costing.

* Need Help * Not a flow but phases all on the cost sheet

Describe the purpose and the content of a job cost sheet.

* Need Help * exhibit 17.1 powerpoint

Explain the purpose and computation of overhead application rates for job order costing.

* Need Help* Formula pg763

Describe how manufacturing costs flow through perpetual inventory accounts.

* Need help * exhibit 16.3 and 16.5

Demonstrate how activity bases are used to assign activity cost pools to units produced.

*Need Help* BE 17.9

Process costing Product characteristics

- Are high volume -Are Identical -Use identical amounts of direct materials -Use identical amounts of direct labor -Are created with repetitive operations

Job Order costing Product characteristics

- Uses different amounts of direct materials -Use different amounts of direct labor - Tend to be unique -Are typically low volume -Are often custom ordered

What are some examples of Manufacturing Overhead ?

- depreciation, rent and property taxes on the manufacturing facilities - depreciation on the manufacturing equipment - managers and supervisors in the manufacturing facilities - repairs and maintenance employees in the manufacturing facilities - electricity and gas used in the manufacturing facilities indirect factory supplies, and much more

What are some examples of Direct Materials ?

1. Wood to a baseball bat 2. Flour , sugar, and vegetable oil in dessert products

Describe the three basic types of manufacturing costs.

1.Cost of raw materials 2.Wages earned by production workers 3.Variety of other costs related to the production facility

Explain the three principles guiding the design of management accounting systems.

1.Management accounting systems help to decide who has decision-making authority over company assets. 2.Accounting information produced by or created from a management accounting system supports planning and decision making. 3.Management accounting reports provide a means by which to monitor, evaluate, and reward performance.

What is the Manufacturing Overhead account is used to do?

1.Record all costs classified as "overhead." 2.Assign these costs to products being manufactured.

If beginning inventory in Work in Process is zero, 2,000 units are started during the period, and 1,700 units were completed and transferred out, how many units remain in ending inventory?

300 units(0 beginning inventory + 2,000 units started - 1,700 completed and transferred out = 300 ending inventory)

A job order cost system would be suitable for which of the following: A sugar refinery. A sailboat builder. A manufacturer of laundry detergent. A manufacturer of candy bars.

A sailboat builder.

In the year-end financial statements, the Manufacturing Overhead account should have:

A zero balance, since all overhead costs incurred during the period should have been assigned to the production of the period.

In which of the three elements of manufacturing cost would each of the following be classified A. Tubing used in manufacturing bicycles B. Wages paid by an automobile manufacturer to employees and test drive completed automobiles C. Property taxes on a manufacturing facility D. Gold bullion used by a jewelry manufacturer E. Wages of assembly line workers who package frozen food F. Salary of plant superintendent G. Electricity used in factory operations H. Salary of a nurse in a factory first aid station

A. Direct materials B. Manufacturing overhead C. Manufacturing overhead D. Direct material E. Direct labor F. Manufacturing overhead G. Manufacturing overhead H. Manufacturing overhead

Indicate whether each of the following should be considered a product cost or a Period cost. If you identify the item as a product cost, also indicate whether it is direct or indirect cost. A. Cost of disposal of hazardous waste materials to a chemical plant B. Amount paid by a mobile home manufacturer to a subcontractor who installs plumbing in each mobile home C. Depreciation on sale showroom fixtures D. Salaries of security guards in an administrative office building E. Salaries of factory security guards F. Salaries of office workers in the credit department G. Depreciation on the raw materials warehouse H. Income taxes on a profitable manufacturing company

A. Disposal of waste material is an indirect product cost as Waste is related to factory but not directly related to a product produced as it is a waste B. A mobile home manufacturer is a person who makes a home on wheels. Any kind of work inside it will be related to direct product cost. As the work is directly related to product manufactured it is direct product cost C. Depreciation on a showroom fixture is fixed in nature. Depreciation can be claimed once in a year and is with a fixed amount that has no relation with product produced either directly or indirectly. And it is Period Cost D. Salary of a security guard in admin office is a period cost. The salary is fixed in nature and also related to office work, not factory work hence is a period cost E. Salary of factory security guards though fixed in nature but because it is related to a factory and will be a product cost. The salary is not directly related to product production no direct work is performed by security guards in making those products hence it will be an indirect product cost F. Salary of office workers and credit department is not at all related to product manufacture. Being fixed in nature and not caring any relation to manufacturing part is a period cost G. Depreciation on the raw material of warehouse is related to factory as a raw material is about to undergo a manufacturing process. So it will be a product cost. But as depreciation is not directly related to the production of goods is an indirect cost. Hence Indirect Product Cost H. Income tax is a fixed percentage of profit and is also not related to a product produced and it will be a period cost

Listed as follows or eight technical accounting terms introduced or emphasize in this chapter -work in process inventory -conversion cost -period cost -product cost -cost of finish goods manufactured -cost of good sold -Manufacturing accounting -Manufacturing overhead each of the following statements may or may not describe one of the technical terms. For each statement, indicate the accounting term described, or answer "none" if the statement is not correctly describe any of the terms. A. The preparation and use of accounting information designed to assist managers in planning and control the operations of the business B.All manufacturing cost other than direct materials used and direct labor C. Direct materials and direct labor used in manufacturing a product D. A manufacturing cost that can be traced conveniently and directly to manufactured units of a product E. The account debited at the time that the manufacturing account is credited F. The amount transferred from the work in process inventory account to the finished goods inventory account G. Costs that are debited directly to expense accounts when the costs are incurred

A. Management accounting B. Manufacturing overhead C. None (Direct Materials and direct labor used in manufacturing a product is a prime cost D. None E. Work in process inventory F. Cost of finished goods manufactured G. Period cost

In an activity-based costing system, manufacturing overhead costs are divided into separate:

Activity cost pools.

Which of the following is a period cost? Manufacturing Overhead Direct labor costs applicable to production Advertising expense Direct materials used

Advertising expense

What is manufacturing overhead?

All manufacturing costs, other than direct materials and direct labor.

Process costing systems:

Are used when companies produce homogeneous units.

In comparison with a financial statement prepared in conformity with generally accepted accounting principles, a managerial accounting report is more likely to:

Be tailored to the specific needs of an individual decision maker.

What is period cost classified as ?

Classified as an operating expense on the income statement separate from cost of goods sold.

What are some examples of indirect Materials ?

Cleaning supplies Disposable safety equipment Disposable tools Fittings and fasteners Glue Oil Tape

In evaluating the efficiency of a production department, management should:

Consider that department activities only.

The account Finished Goods:

Consists of completed goods that have not yet been sold.

A job cost sheet should:

Contain information on each individual job in process.

During the year, Coronado boat yard has incurred manufacturing cost of 420,000 in building three large sailboats. At year end, each boat is about 70% complete. How much of these manufacturing costs should be recognized as expenses in Coronado boat yards income statement of the current year? Explain.

Coronado boat yards manufacturing cost ($420,000) are the product costs and should be shown as working in progress in current assets of balance sheet. This product cost will not appear on the year-end income statement. Only revenue or sales on the boat(finished product) Will appear on that and year income statement

A job order cost system would be appropriate in the manufacturing of:

Custom-made furniture.

Which of the following is a period cost? The cost of disposing of hazardous waste materials from factory operations The cost of direct materials used Depreciation on a sales showroom Depreciation on a factory building

Depreciation on a sales showroom

Distinguish between direct and indirect costs.

Direct Cost - Direct material and Direct labor Indirect Cost- Manufacturing overhead

The cost of the employee who installs the leather on the seats of a new automobile would be considered:

Direct Labor

What are some examples of overhead-related activity cost pools ?

Direct Labor hours Machine Hours Number of square feet

The Work in Process account in a job order cost accounting system will include

Direct labor, direct materials, and applied overhead.

What are direct materials ?

Direct materials are the raw materials and component parts that: 1.Become an integral part of finished products and 2.Can be traced directly and conveniently to products manufactured

Equivalent units are usually computed for:

Direct materials, direct labor, and factory overhead costs.

In most process costing systems, per-unit costs are determined by:

Dividing the total manufacturing costs incurred during the period by the equivalent number of units completed during the period.

Under a job order cost system, costs are accumulated for:

Each batch of production, known as a job or lot.

A predetermined overhead application rate:

Expresses an expected relationship between overhead costs and an activity base.

The cost of salaries paid to employees who work in a factory maintaining the heating system is considered:

Factory overhead

What are some example of indirect labor ?

Factory supervisors Maintenance personnel Forklift drivers Security guards

Explain the purposes of cost accounting systems.

In both manufacturing and service companies, cost accounting systems help attain two important management objectives: 1.To determine the unit cost of manufacturing a product or providing a service. 2.To provide managers with useful information for planning and cost control functions.

What is included in Product cost ?

Includes direct material, direct labor, and manufacturing overhead.

What is included in Period cost ?

Includes selling expenses, general and administrative expenses, interest expense, and income tax expense.

What is indirect labor ?

Indirect labor is the labor that is part of the overall production process but does not come into direct contact with the product. This includes all employees working in the general or administrative positions in a company.

What are indirect materials ?

Indirect materials are materials used in the production process that cannot be traced conveniently or directly to the finished goods manufactured.

The principal difference between managerial accounting and financial accounting is that managerial accounting information is:

Intended primarily for use by decision makers inside the business organization.

An activity base is said to be a "driver" of overhead costs when the activity base:

Is a causal factor in the amount of overhead cost incurred.

Which of the following is a characteristic of manufacturing overhead in a job order cost system? - It includes the cost of all labor relating to manufacturing operations. - It includes the cost of direct materials used and of indirect labor. - It is directly traceable to specific jobs or units. -It is assigned to units produced by means of an overhead application rate.

It is assigned to units produced by means of an overhead application rate.

Which of the following is a characteristic of manufacturing overhead in a job order cost system? -It is assigned to units produced by means of an overhead application rate. -It is directly traceable to specific jobs or units. -It includes the cost of all labor relating to manufacturing operations. -It includes the cost of direct materials used and of indirect labor.

It is assigned to units produced by means of an overhead application rate.

Which of the following would likely be the most appropriate cost driver to allocate machinery set-up costs to products? Direct labor hours Repair work orders Number of production runs Machine hours

Number of production runs

Direct labor costs in a paint factory would include wages of employees who:

Operate paint-mixing machines.

The best cost system to use for a company producing a continuous stream of similar items would be a:

Process costing system.

A process costing system differs from a job order costing system in that:

Process costing systems are used when production involves large volumes of standardized products, whereas job order costing systems are used when each job or batch of products is uniquely different.

Costs that are traceable to a particular unit and inventoriable are called:

Product Cost

Distinguish between product costs and period costs.

Product Cost- Resources consumed to create inventory. Period Cost- Operating expenses associated with time periods, rather than with the production of inventory

A summary of work completed with related unit and total costs in a process costing system is called a(n):

Production cost report.

Process costing would be suitable for: Kitchen remodeling. Boat building. Automobile repair. Production of television sets.

Production of television sets.

Manufacturing companies normally have three types of inventory:

Raw materials, work in process, and finished goods.

What is period cost reported as part of on the Income Statement ?

Recorded as an expense on the income statement in the period in which they are incurred.

What is product cost reported as part of on the balance sheet ?

Reported as part of inventory on the balance sheet until the goods are sold.

Manufacturing costs do not include:

Selling expenses related to goods manufactured during the period.

Amounts credited to the Work in Process inventory account may best be described as:

The cost of finished goods manufactured.

In a manufacturing company, the cost of goods sold is equal to:

The costs of direct materials, direct labor, and manufacturing overhead incurred in manufacturing the goods sold during the period.

What is direct labor?

The employees who work directly on the product being manufactured either by hand or by using machines.

-Demonstrate how to calculate equivalent units -Use the costs of resources consumed to calculate the cost per equivalent unit of production -Use the cost per equivalent unit to assign costs to the work completed during the period.

The link does a good job of explaining how to do all 3: https://www.youtube.com/watch?v=q1Y3VcklqMU

A product cost is deducted from revenue in the period in which:

The related finished goods are sold.

In a process costing system, costs flow from one Work in Process Inventory account to the next in the same sequence as:

Units flow through production.

In a process costing system, the number of units started and completed for a period is equal to:

Units transferred out less units in beginning work in process.

What are some examples of other cost related a production facility

Utilities Maintenance Property taxes

What is product cost reported as part of on the balance sheet when the goods are sold ?

When goods are sold, the cost is transferred from inventory to cost of goods sold.

When direct materials are used:

Work in Process Inventory is debited.

When direct labor employees contribute to the production process, the cost of their labor is recorded by debiting:

Work in Process Inventory.

Equivalent units of production represent units of:

Work performed during the period.

What are some examples of direct labor?

assembly line workers production supervisors delivery truck drivers quality control inspectors.

Define overhead-related activity cost pools

groups of individual costs influenced by the same cost drivers , which are activities that control the amount of costs incurred.

Where are the inventories, cost of goods sold, and period costs reported when they are tracked by cost accounting system ?

in the balance sheet and income statement.

What does cost accounting systems track ?

inventories cost of goods sold and period costs

Process Costing

method for accumulating the direct and indirect costs of a production process and averaging those costs over the identical units produced by that process.

What are cost accounting systems ?

methods and techniques used to track resources consumed in creating and delivering products and services to customers.

What are cost systems used for ?

to monitor resource consumption and to evaluate and reward employee performance.

Job order costing

traces specific direct costs, that is, direct labor and direct materials, to the specific job being created.

What is are some examples of Job Order Costing

◦Automobile repair ◦Furniture building ◦Lawn care ◦Accounting services

What is are some examples of Process Costing

◦Packaged food products ◦Oil and gas ◦Paint ◦Textiles Televisions