Chapter 3 Job - Order Costing

When predetermined OH rates are based on capacity, critics suggest the cost of unused capacity should

be disclosed separately on the income statement.

The formula for applying overhead to a specific job is

Predetermined overhead rate x Amt of allocation base incurred by job

A Journal Entry that debits Raw Materials and credits Accounts Payable is recording the

Purchase of materials

Any purchased materials that will go into the finished product are first recorded in the _____ _____ inventory account

Raw Materials

Which of the following are used to calculate COG available for sale on the schedule of COGS?

Beginning finished goods inventory COG manufactured

How are manufacturing costs that cannot be traced to a particular product assigned to products and services?

By averaging across time and across products.

Categories of manufacturing costs include

Manufacturing overhead Direct Labor Direct Materials

Why is under or overapplied overhead allocated to WIP, Finished Goods, and COGS?

OH costs would have gone to these accounts in the first place if there were no error in estimating the allocation rate.

Which of the following would be considered direct materials in a service firm that uses job-order costing?

Paperwork at a law firm.

A journal entry that Dr MOH and Cr Accounts Payable could be made to record

Rent expense on factory equipment Factory utilities expense

Which of the following costs are charged directly to the income statement?

Selling and Administrative Costs

The US requires absorption costing for

Tax Reports External Financial Reports

Which of the following information is contained on a time ticket?

The amount of time spend on each job The job number of jobs worked on The nature of indirect tasks worked.

MOH costs include

The factory supervisor's salary Factory insurance

The simpler method of closing out the balance in MOH is

closing it out to COGS.

An activity _____ pool relates to a single activity measure in the activity-based approach.

cost

A factor that causes overhead costs is called a

cost driver

Actual OH costs may not be proportional to the actual amount of allocation base used because

many actual OH costs are fixed OH spending may not be under control

Direct Materials Costs are recorded on the job cost sheet when the

materials are issued to the job.

Activity-based absorption costing uses _____ cost pools than a traditional approach.

more

The difference between OH applied to WIP and actual OH is

over- or underapplied overhead

To keep track of labor time and costs, many firms have replaced

paper time tickets with computerized systems.

A normal costing system applies OH by job by multiplying _____ _____ rate by the _____ amount of the allocation base incurred by the job.

predetermined OH; actual

A bill of materials contains the

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

Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of ______ -level activities

batch

The beginning balance on a job cost sheet represents the

cost of work done in prior periods.

Which of the following statements are true? In practice, most companies base their predetermined OH rates on the allocation base at capacity. Total Estimated OH at capacity is generally larger than total estimated OH at the expected level of activity. Too much fixed OH may be applied to products when the predetermined OH rate is based on estimated activity. When predetermined OH rates are based on capacity, there will typically be large amounts of overapplied OH.

Total estimated OH at capacity is generally larger than total estimated OH at the expected level of activity. Too much fixed OH may be applied to products when the predetermined OH rate is based on estimated activity.

What absorption cost system uses a volume-related allocation base for all the manufacturing costs?

Traditional

Basing the predetermined OH rate on the estimated amount of the allocation base has come under criticism.

True

Which account is Dr to record Direct Labor Costs?

WIP

The cost of jobs still unfinished at the end of a period are included in

WIP inventory

Which of the following statements are true?

When materials are purchased, they are recorded in the Raw Materials inventory account Raw materials used in production are transferred to Work in Process as Direct Materials

Units of product that are only partially complete are contained in

Work in Process

W a job is completed, the job costs are transferred OUT OF

Work in Process

Given the following, calculate Total Manufacturing Costs: Direct materials cost: $62,000 Direct Labor Cost: $78,000 MOH applied: $46,000 Actual MOH: $51,000 BI WIP: $32,000 EI WIP: $35,000

$186,000 62,000 + 78,000 + 46,000 = 186,000

Put the steps for calculating direct materials on the schedule of COG manufactured in order

1. Raw materials inventory, Beginning 2. Add: Purchases of raw materials 3. Total raw materials available 4. Deduct: Raw materials inventory, Ending 5. Raw materials use din production 6. Deduct: Indirect materials included in MOH.

Which account is Cr when MOH is applied?

MOH

The Journal Entry to record depreciation on factory equipment debits

MOH and Cr Accumulated Depreciation

OH is underapplied if

actual OH is more than applied OH.

OH is applied to products based on the

actual allocation base incurred

The COG _____ is the sum of all amounts transferred from WIP to Finished goods during a period.

manufactured.

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 credit balance in MOH account means OH was

overapplied.

When only a portion of the units involved in a job are sold, the

unit product cost is used to calculate the amount transferred from finished goods to COGS.

The average MOH cost per unit tends to

vary from one period to the next.

Why should the ideal allocation base drive OH costs?

Bases that do not drive OH costs cause product costs to be distorted.

The journal entry to record the more accurate allocation of overapplied or underapplied OH includes entries to

Finished Goods MOH COGS W-I-P

What account is debited for the issuance of indirect materials?

Manufacturing Overhead

A journal entry that Dr WIP and Cr MOH is recording the

application of MOH costs.

The process used to assign OH costs to products is called overhead

application.

Actual MOH costs are recorded in MOH account

as they are incurred.

Labor costs that are easily traced to a job are called _____ labor costs.

direct

The Journal Entry that Debits Work in Process and MOH and credits Salaries and Wages Payable is recording

direct and indirect labor costs

To calculate the unit product cost using the job cost sheet

divide the total job cost by the number of units produced.

Direct Labor Costs are labor costs that are

easily traced to a particular job. accounted for on a time ticket.

To calculate a predetermined OH rate, divide estimated MOH by

estimated allocation base.

A predetermined overhead rate is calculated by dividing the _____ total MOH by the _____ total amount of the allocation base.

estimated; estimated

Completed units that have not yet been sold are found in _____ _____ inventory.

finished goods

Average MOH cost per unit usually varies from one period to the next because

fixed MOH remains constant in total even when production changes.

A journal entry Dr COGS and CR Finished Goods is made when

goods are sold.

COG manufactured

includes all manufacturing COG finished during the period.

When predetermined OH is based on capacity

it is likely that OH will be underapplied.

A service firm that would most likely use job-order costing is a

law practice.

MOH consists of all

manufacturing costs other than direct labor and direct materials

Factory labor charges that cannot be easily traced to a job are treated as

manufacturing overhead (MOH)

An accurate calculation of the cost of an order is important to a company because they need to ensure that the sales _____ of the order exceeds the cost of the order.

price

Designing and Advertising a product are _____-level activities.

product

The value of WIP ending inventory is calculated by

summing the costs of all unfinished jobs.

All job costs will be recorded by the time

the job is completed.

MOH costs

Consist of many different items are indirect costs

The journal entry to record depreciation on office equipment Debits

Depreciation expense and credits Accumulated depreciation

Jones Co uses a job-order costing system with a predetermined OH rate of 120% of DLC. The job cost for Job 420 listed $4,000 in Direct Materials Cost and $5,000 in Direct Labor Cost to manufacture 7,500 units. The unit cost of Job 420 is

$2.00 TC of Job 420 = DM + DL = OH(predet OH rate x DLC) = 4,000 + 5,000 + (1.2 x 5000) = 15,000 Unit product cost = 15,000/7500 = $2,00

Costs of goods manufactured: $234,000: BI finished goods: $18,000 EI finished goods $24,000 Unadjusted COGS is

$228,000 18,000 + 234,000 - 24,000 = 228,000

Murphy Manufacturing estimated total MOH for 2015 to be $100,000 and uses DLH as the allocation base. They estimated that 5,000hrs would be used in 2015. Actual overhead for 2015 was $120,000 and actual DLHs were 7,500. How much overhead was applied to a job completed during 2015 that used 200 DLHs?

4,000 Predetermined rate = 100,000/5,000 = $20/DLH OH applied to job = $20/DLH x 200DLH = $4,000

Smith, Inc. uses a job-order costing system with the predetermined OH rate of $12/machine-hour. The job cost sheet for Job #42A listed $12,000 in direct labor cost, $18,000 in direct materials cost, 1,200 DLH and 1,100 machine-hrs. The total cost of Job #42A is

43,200 18,000 + 12,000 + (12 x 1,100) = 43,200

Which of the following would not be a good allocation base for MOH?

Accounting hours

A measure such as DLHs or Machine hours used to assign OH costs to products and services is called a cost driver or

Allocation Base

What side of the MOH account is actual MOH is entered on?

Always the Dr side

Why do companies use a predetermined OH rate rather than an actual OH rate?

An actual OH rate is not known until the end of the period.

The unit production cost is the same as the

Average product cost per unit. Total job cost divided by number of units.

The journal entry to record shipping goods to customers includes a Dr to

COGS

What two accounts are involved when underapplied or overapplied OH is closed out using the simpler method?

COGS and MOH

What methods can be used to dispose of underapplied or overapplied MOH?

Closing it out to COGS Allocating it among WIP, Finished goods, and COGS

Which of the statements regarding closing out over or under applied OH is correct?

Closing to COGS is simpler, and allocating is more accurate

Which of the following costs can be directly traced to a particular product?

Direct Labor Direct Materials

Murphy co. has three dpts, and uses a multiple predetermined OH rate system. Dpt. A manufactures parts in a highly automated process, then Dept. B assembles the parts by hand. Dpt. C places completed units in a heat chamber to sterilize them before they are shipped out. Match each dept with an appropriate OH allocation rate.

Dpt A: Machine hours (Highly automated) Dpt B: Direct Labor Hours (labor-driven) Dpt C: Batches (Process is applied in batches)

A total of $10,000 in MOH was applied to Job #40. The journal entry to record this would

Dr WIP $10,000 and Cr MOH $10,000.

A journal entry that Dr MOH and Cr Prepaid insurance records the

Expiration of prepaid factory insurance.

Which of the following costs would be classified as manufacturing overhead?

Factory Utilities Factory Maintenance wages Factory Rent

Which of the following is a cost that car manufacturers incur that can be directly traced to the product?

Factory-installed GPS system.

Actual OH costs appear in the WIP account but not on the job cost sheet.

False

Job-Order costing can only be used in manufacturing firms

False

Job-order costing can only be used in manufacturing firms.

False.

Himber, Inc. just completed a job that costs $14,000 in direct materials, $12,000 in direct labor, and $8,000 in applied MOH. The Journal Entry to record completion of the job would debit

Finished goods $34,000 and credit Work in Process $34,000

What kinds of costs are assigned to units of product in absorption costing?

Fixed Manufacturing costs Variable Manufacturing costs

The journal entry to record a cash payment of $400 for insurance on administrative office equipment Dr _____ and Cr Cash

Insurance Expense

A Job Cost sheet contains

Labor costs charged to the job Materials costs charged to the job MOH costs charged to the job.

The unit product cost is the same as the

Total job cost/ number of units Average product cost per unit

In ABC, any event that causes consumption of overhead resources is an

activity.

Over- or underapplied OH is the difference between

actual total OH and total OH applied.

The purpose of the MOH account is to accumulate

all MOH costs as they occur during a period.

An activity measure in activity-based absorption costing is used as _____ base.

allocation

The process used to assign OH costs to products is called overhead

allocation.

Raw Materials is a(n) _____ account.

asset

Activity-based absorption costing

assigns OH based on events that consume OH resources.

When preparing financial statements in a job-order costing system, finished goods flow first to the _____ _____ and then to the _____ _____.

balance sheet; income statement

The predetermined OH rate is calculated

before the period begins.

Est. MOH: $500,000 Est DLH: 200,000 Act MOH: $625,000 Act DLH: 260,000 The company applies OH using DLHs as the cost driver. Calculate the amount that OH was overapplied or underapplied.

$25,000 (500,000/200,000) = 2.5 x 260,000 = 650,000 applied. Actual OH = 625,000, so overhead is 25,000. (650,000 - 625,000)

Given the following, calculate the COG available for sale: COG manufactured: $234,000 BI Finished goods: $18,000 EI Finished goods: $24,000

$252,000 234,000 + 18,000 = 252,000

Meet industries had unadjusted COGS of $300,000. OH was overapplied by $20,000. Adjusted COGS is

$280,000 300,000 - 20,000 = 280,000

Gemini had Sales of $50,000, COGS of $20,000, and Selling and Administrative expenses of $25,000. Gross margin is

$30,000 GM = 50,000 - 20,000 = 30,000

Fillia, Inc. worked on three jobs this period: Job 14C, which cost $15,000; Job 23A, which cost $28,000, and Job 45B, which cost $23,000. At the end of this period, only Job 14C was still in process. The COG manufactured this period is

$51,000

Place the following steps in requisitioning and issuing materials in order:

1. A production order is issued 2. The production department prepared a materials requisition form. 3. The materials requisition form is presented to the storeroom clerk. 4. The storeroom clerk issues materials.

Place the following steps in requisitioning and issuing materials in order

1. A production order is issued 2. The production department prepares a materials requisition form. 3. The materials requisition form is presented to the storeroom clerk. 4. The storeroom clerk issues materials.

Place these items in the order in which they appear on the schedule of costs of goods sold.

1. Cost of goods available for sale 2. Deduct: Finished goods inventory, ending 3. Unadjusted cost of goods sold 4. Add: Underapplied overhead 5. Adjusted cost of goods sold

Place these items from the Income Statement in the order in which they should appear

1. Sales 2. COGS 3. Gross Margin 4. Sell and Admin Expenses 5. Net Operating INcome

George Corporation recognized $1,000 of accrued property taxes on its manufacturing facility. The Journal Entry to record this would debit

MOH $1,000 and credit Property taxes payable $1,000

Match each event in the process of accounting for MOH with the apropriate entry.

MOH credited - OH is applied to Work in Process MOH debited - Actual OH is incurred MOH closed - Period ends

A job cost sheet contains

Materials costs charged to the job Manufacturing overhead costs charged to the job Labor costs charged to the job