ACC 213 Chapter 2

When predetermined overhead rate is applied based on capacity there will typically be larger amounts of overapplied overhead. True or False?

False

The adjustment for an Underapplied overhead....

Increases cost of goods sold AND Decreases net income

What is an essential quality of an overhead allocation base?

It must be common to all of the companies products and services

Companies that make many different products each period use what costing method?

Job costing

When all overhead is assigned using direct labor hours, the company will choose to use a ----- predetermined overhead rate.

Plantwide

The Predetermined overhead rate is calculated....(when?)

Before the period begins

The formula for applying an overhead to a specific job:

Predetermined overhead rate x Amount of allocation base incurred by job

designing and advertising a product are all __-level activities

Product

Total estimated overhead at capacity is generally larger than the total estimated overhead at the expected level of activity. True or False?

True

How to find the total cost of a job?

direct materials + direct labor + predetermined overhead rate x direct labor cost (overhead)

How to find the activity rate for direct labor support?

estimated overhead / expected activity

Predetermined Overhead Rate Equation

estimated total manufacturing overhead cost/estimated total amount of the allocation base

The average manufacturing overhead cost per unit usually varies from one period to the next because.....

fixed manufacturing overhead remains constant in total, even if production changes

In a system that uses multiple predetermined overhead rates, overhead is applied......

in each department as jobs proceed through the department

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

Because an actual overhead rate is not known until the end of the period

In the Formula y=a+bx, the a refers to.....

Total Fixed Manufacturing Overhead

Companies assign costs to products and services to

1. Value Ending Inventory 2. Establish selling prices 3. Understand product profitability

A normal cost system assigns overhead to jobs using....

A Predetermined overhead rate

What is the most common approach to product costing throughout the world?

Absorption Costing

What is an example of a costing method that would not be a good allocation base for manufacturing overhead?

Accounting hours

In activity-based absorption costing, what causes the consumption of overhead resources?

Activity

an activity measure in activity-based costing is used as a(n) __ base.

Allocation

A job-order costing system may inaccurately assign costs to jobs due to......

An inappropriate allocation base

What are the three costs that makeup a job?

Applied Manufacturing overhead, Direct Material costs, Direct Labor Costs

Underapplied Overhead =

Bad (Decrease Net Income AND Increases the Cost Of Goods Sold)

setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of __-level activities.

Batch

Costs at the batch level depend on the number of....

Batches Processed

When predetermined overhead rates are based on capacity, critics suggest that the cost of unused capacity should.....

Be disclosed separately on the income statement

The adjustment for an overapplied overhead....

Decreases cost of goods sold AND Increases net income

Underapplied and overapplied overhead is the....

Difference between overhead applied to work in process and the actual overhead

Labor costs that can easily be traced to a job are called....

Direct Labor Costs

An activity cost pool accumulates costs for how many activity measure(s)?

Exactly One

Job-order costing can only be used in manufacturing firms. True or False?

False

Multiple types of overhead are included in the predetermined overhead rate. True or False?

False

Overapplied Overhead =

Good (Increase Net Income AND Decreases the Cost Of Goods Sold)

Direct Material costs are recorded on the job cost sheet when.....

Materials are issued to the job

The type and quantity of materials to be drawn from the storeroom and the job that will be charged for the materials is specified on the --

Materials requisition form

Activity based absorption costing (more or less) than a traditional approach.

More

The process used to assign overhead costs to products is called

Overhead Application

The predetermined overhead rate is multiplied by the actual allocation base incurred by a job to find.......

Overhead applied to the job

When the predetermined overhead rate are based on a budgeted activity.....

Products are charged for resources they don't use and unit product cost fluctuates depending on the budgeted activity.

When all of a companies job sheets are viewed collectively, they form what is known as a(n)

Subsidiary Ledger

What is an example of a job that would not be considered a job in a service firm that uses job order costing?

The tax department in an accounting firm

an hour-by-hour summary of the employee's activities throughout the day is called what?

Time Ticket

Each department may have their own pre determined overhead cost. True or False?

True

One reason to use a predetermined overhead rate is to eliminate the effect of seasonal factors. True or False?

True

Too much fixed overhead may be applied to products when the predetermined overhead is based on an estimated amount of activity. True or False?

True

What is a cost driver?

a factor that causes overhead costs to occur

Overhead Application is the process of.....

assigning manufacturing overhead costs to jobs

Allocation bases that do not drive overhead costs....

can cause product costs to be distorted

Costs assigned to units of product under absorption costing include:

fixed and variable manufacturing costs

what are 3 typical cost drivers?

flight hours, machine hours, and computer time

What is a job cost sheet?

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

What is an activity cost pool?

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

The activity based approach tends to....

shift costs from high-volume to low-volume products

What is the X in the formula y=a+bX

total amount of the allocation base

How to calculate the unit product cost using the job cost sheet?

total job cost / number of units produced

The average manufacturing overhead cost per unit tends to.....

vary from one period to the next

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

Paper time tickets with Computerized systems

What is an example of a(n) direct material in a service firm that uses job order costing?

Paperwork at a law firm

A Bill of Materials Contains the -- and --

Type of each direct material needed to complete a unit of product AND Quantity of each direct material needed to complete a unit of product