Acct 2020 - Part 2

Activity cost pool

A "bucket" in which costs are accumulated that relate to a single activity measure in an activity-based costing system.

Activity-based costing (ABC)

A costing method based on activities that is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed as well as variable costs.

Absorption costing

A costing method that includes all manufacturing costs -- direct materials, direct labor, and both variable and fixed manufacturing overhead -- in unit product costs.

Normal cost system

A costing system in which overhead costs are applied to a job by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job.

Job-order costing

A costing system used in situations where many different products, jobs, or services are produced each period.

Overapplied overhead

A credit balance in the Manufacturing Overhead account that occurs when the amount of overhead cost applied to Work in Process is greater than the amount of overhead cost actually incurred during a period.

Underapplied overhead

A debit balance in the Manufacturing Overhead account that occurs when the amount of overhead costs applied to Work in Process is less than the amount of overhead cots actually incurred during a period.

Job cost sheet

A form that records the direct materials, direct labor, and manufacturing overhead cost charged to a job.

Activity-based management (ABM)

A management approach that focuses on managing activities as a way of eliminating wasting and reducing delays and defects.

Allocation base

A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.

Duration driver

A measure of the amount of time required to perform an activity.

Predetermined overhead rate definition:

A rate used to charge manufacturing overhead cost to jobs that is established in advance for each period. it is computed by dividing the estimated total manufacturing overhead cost for the period by the estimated total amount of the allocation base for the period.

Schedule of costs of goods sold

A schedule that contains three elements of product costs -- direct materials, direct labor, and manufacturing overhead -- and that summarizes the portions of those costs that remains in ending Finished Goods inventory and that are transferred out of Finished Goods into Cost of Goods Sold.

Schedule of cost of goods manufactured

A schedule that contains three elements of products costs - direct materials, direct labor, and manufacturing overhead -- and that summarizes the portions of those costs that remain in ending Work in Process inventory and that are transferred out of Work in Process into Finished Goods.

Transaction driver

A simple count of then umber of times an activity occurs.

Benchmarking

A systematic approach to identifying the activities with the greatest potential for improvement.

BCD Corporation bases its predetermined overhead rate on the estimated labor-hours for the upcoming year. At the very beginning of the year 2021, the company estimated the labor-hours for the year 2021 at 60,000 labor-hours. Also, the company estimated the total manufacturing overhead cost for the year 2021 at $1,593,500. The actual labor-hours for the year turned out to be 56,400 labor-hours. The actual total manufacturing overhead cost for the year was $1,426,000. Compute the company's predetermined overhead rate for 2021. A) $ 26.56 per labor-hour B) $ 28.25 per labor-hour C) $ 25.28 per labor-hour D) $ 23.77 per labor-hour

A) $ 26.56 per labor-hour

A company pays a factory supervisor $2,000 in salary. This $2,000 is considered indirect labor for this company. In a job-order costing system, the journal entry to record this transaction usually contains a: A) Debit to Manufacturing Overhead B) Credit to Manufacturing Overhead C) Credit to Work in Process D) Debit to Work in Process

A) Debit to Manufacturing Overhead

When closing overapplied manufacturing overhead to Cost of Goods Sold, which of the following would be true? A) Net Income will increase B) Net Income will decrease C) Cost of Goods Sold will increase D) Work in Process will decrease

A) Net Income will increase

Refer to the T-Account graphic. The ending balance of $7,000 represents which of the following? A) Underapplied overhead B) Overapplied overhead C) A bookkeeping error D) Manufacturing overhead that will be carried over to the next period

A) Underapplied overhead

An activity-based costing system that is designed to make decisions inside the company will not conform to generally accepted accounting principles (GAAP) because: A) under activity-based costing some manufacturing costs (e.g., organization-sustaining costs) will not be assigned to products. B) activity-based costing has not been approved by the United Nations' International Accounting Board. C) activity-based costing results in less accurate costs than more traditional costing methods based on direct labor-hours or machine-hours.

A) under activity-based costing some manufacturing costs (e.g., organization-sustaining costs) will not be assigned to products.

Organization-sustaining activities

Activities that are carried out regardless of which customer are served, which are produced, how many batches are run, or how many units are made.

Customer-level activities

Activities that are carried out to support customers, but that are not related to any specific product.

Batch-level activities

Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in the batch. The amount of resource consumed depends on the number of batches runs rather than on the number of units in the batch.

Product-level activities

Activities that relate to a specific products that must be carried out regardless of how many nits are produced and sold or batches run.

Activity measure

An allocation base in an activity-based costing system; ideally, a measure of the amount of activity that drives the costs in an activity pool.

Activity

An event that causes the consumption of overhead resources in an organization

Raw materials

Any materials that go into the final product.

What is true about Activity-Based Costing (ABC) Systems? A) Under ABC systems, product costs include only indirect costs (manufacturing and non-manufacturing) that are caused by products. B) ABC systems separate overhead costs into different cost pools and allocate overhead costs using multiple cost drivers. C) Under ABC systems, product costs include only direct costs (manufacturing and non-manufacturing) that can be traced to products. D) ABC systems were developed before Absorption Costing systems

B) ABC systems separate overhead costs into different cost pools and allocate overhead costs using multiple cost drivers.

Activity-Based Costing includes in product costs: A) NEITHER direct costs that can be traced to products NOR indirect costs that are caused by products B) BOTH direct costs that can be traced to products AND indirect costs that are caused by products C) ONLY direct costs that can be traced to products D) ONLY indirect costs that are caused by products

B) BOTH direct costs that can be traced to products AND indirect costs that are caused by products

Which of the following best describes a desirable allocation base? A) Easy to measure B) A cost driver C) Both a cost driver and easy to measure D) Neither a cost driver nor easy to measure

C) Both a cost driver and easy to measure

What are the two desirable allocation bases?

Cost drivers and Easy to Measure

Spaghetti Company's unadjusted cost of goods sold was $125,000. The company actually spent $50,000 on Manufacturing Overhead Costs. Manufacturing overhead was overapplied by $5,000. The company closes out all over or underapplied overhead to Cost of Goods Sold (Option #1 from our class lecture). What is Spaghetti Company's adjusted cost of goods sold? A) $80,000 B) $170,000 C) $130,000 D) $120,000

D) $120,000

What makes up product costs under Job-Order Costing?

Direct Materials, Direct Labor, and Manufacturing Overhead

True or False: Activity-based costing is a costing method that is designed to provide managers with product cost information for external reporting purposes.

False

Total Estimated Manufacturing Overhead Cost

Fixed MOH + Variable MOH

How is manufacturing overhead applied to jobs?

Predetermined Overhead Rate (POHR)

Applied Overhead to Job

Predetermined Overhead Rate (POHR) * Actual usage of the allocation base

Cost of goods manufactured

The manufacturing costs associated with units of product that were finished during the period.

Second-stage allocation

The process by which activity rates are used to apply costs to products and customers in activity-based costing.

First-stage allocation

The process by which overhead costs are assigned to activity cost pools in an activity-based costing system.

Overhead application

The process of assigning overhead cost to specific jobs.

True or False: Absorption costing is required by gap

True

True or False: Compared to traditional absorption costing systems, Activity-Based Costing (ABC) systems have an increased focus on causal relationships between products and costs.

True

True or False: Direct Materials and Direct Labor costs are attached directly to jobs as they are used on them

True

Work in process

Units of product that are only partially complete and will require further work before they are ready for sale to the customer.

Finished goods

Units of product that have been completed by not yet sold to customers.

Predetermined Overhead Rate formula

Y= a + bX

Unit-level activities

activities that are performed each time a unit is produced

Predetermined overhead rate

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

Overhead applied to a particular job

predetermined overhead rate * actual direct labor hours charged to the job

Overhead applied to a particular job

predetermined overhead rate * amount of the allocation base incurred by the job

The schedule of cost of goods ______________________ summarizes Cost that remain in finished goods inventory and that have been transferred to cost of good sold.

sold