Acct 261: Exam #2: Chapter 2

match (list) each item to activity based costing: a. running processing equipment b. processing a purchase order c. maintaining inventory parts for products d. factory management salaries

a. unit level activity b. batch level activity c. product level activities d. facility-level activities

DL costs are labor costs that are

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

Which of the following would NOT be a good allocation base for MO? accounting hours machine hours units of product DL hours

accounting hours

a technique that attempts to assign overhead costs more accurately to products is called?

activity based costing

a predetermined overhead rate in an activity based costing system is called an?

activity rate

The WIP account represents the totals of

all the job cost sheets

Job-Order costing tends to

allocate too little overhead to low-volume products

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

allocation

ac activity measure in activity-based costing is used for an __________________ base for applying overhead costs to products and services

allocation

A measure such as DL hours or machine hours used to assign overhead costs to products and services is called a cost driver or an ______________ ______________

allocation base

what is an activity?

an event that causes the consumption of overhead resources

MO costs

are indirect costs and consist of many different items

activity based costing attempts to

assign overhead costs more accurately to products than the simpler job-order costing method

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

batch

unit, batch, product, or facility level? A random sample of 10 units in each batch is inspected for defects

batch level

unit, batch, product, or facility level? •Cost of changing machine settings between batches of different products

batch level

All MOH (buckets examples) =

batch, unit, product, facility levels

Property taxes factory insurance are costs that cannot

be traced on a cause-and-effect basis to product

Similarities between job-order & process costing

both systems assign material Both assign labor and overhead costs to products Both provide a mechanism for computing unit product cost Both systems use the same Manufacturing accounts, including MO, raw materials, WIP, and FG

costs assigned to units of product in absorption costing include ______________ manufacturing costs

both variable and fixed

Classifying OH costs into categories helps us to

choose an appropriate activity measure for allocating overhead

Manufacturing overhead: consists of many different types of costs directly traceable to units produced contains fixed costs is an indirect cost

contains fixed costs is an indirect cost consists of many different types of costs

Process costing is appropriate for companies that One unit of product is indistinguishable from other units of product; this identical nature enables companies to assign the same average cost per unit

continually manufacture many units of a type of product (e.g. paper towels).

the allocation base is a

cost driver that is correlated with the amount of overhead

A company incurred $10,000 in direct labor costs and $8,000 in indirect labor costs. The journal entry to record this transaction would:

debit Work in process $10,000 and Manufacturing overhead $8,000 credit Salaries and wages payable $18,000

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

direct

Categories of manufacturing costs include:

direct materials, direct labor, manufacturing overhead

If factorywide overhead costs do not move in the same direction as the plantwide activity base, products costs will be

distorted

if more direct labor hours are worked on a job, the job will also probably use more

electricity, more indirect materials, and more indirect labor

A predetermined overhead rate is calculated by dividing the __________ total manufacturing overhead by the __________ total amount of the allocation base

estimated, estimated

unit, batch, facility, or product level The factory managers salary

facility level

unit, batch, product, or facility level The personnel department trains new production workers

facility level

unit, batch, product, or facility level? •Cost of regular monthly maintenance on equipment used to manufacture several products

facility level

unit, batch, product, or facility level? •Wages of janitorial staff who clean the factory each night

facility level

property taxes on plant and paying factory insurance are examples of?

facility level activities

MO costs include: office equipment dep. factory supervisors salary DM CEO salary factory insurance

factory insurance and factory supervisors salary

Which of the following costs is an example of MO? sales commissions office equipment depreciation assembly labor factory rent

factory rent

A journal entry that debits MO and credits AP could be made to record?

factory utilities expense and rent expense on factory equipment

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

finished goods

When a job is completed which account is debited?

finished goods

Labor charges that cannot be easily traced to a job are considered:

indirect labor and MO

Identify activities that could be used in activity-based costing, but would not be used with traditional costing methods a. inspections b. machine set ups c. purchase orders d. machine hours e. DL hours

inspections purchase orders machine set ups

unit product cost is used to calculate

inventory balances and COGS on income statement

Manufacturing overhead consists of traceable costs includes some materials and some labor consists of only variable costs consists of only manufacturing costs is an indirect cost

is an indirect cost consists of only manufacturing costs includes some materials and some labor

A JE that debits WIP and MO and credits raw materials records the?

issuance of materials

A journal entry that debits WIP and MO and credits Raw materials records the

issuance of materials

The docuement that records the materials, labor, and MO costs charged to a job is the?

job cost sheet

a job cost sheet contains

labor costs charged to the job MO costs charged to the job materials costs charged to the job

Widely used allocation bases in manufacturing are: DL cost nonmanufacturing costs DL hours units of product product revenue machine hours

machine hours DL cost DL hours units of product

Typical cost drivers include: (Select all that apply) a. machine-hours b. computer time c. utilities cost d. flight-hours c. machine depreciation

machine hours flight hours computer time

Job-order costing is appropriate for companies that Companies use a _________ to allocate overhead, and costs are traced to each job on?

manufacture many different products each period.

Manufacturing overhead consists of

manufacturing costs other than direct labor and direct materials

Overtime is charged to

manufacturing overhead and allocated to all products (with the POHR)

The MO account contains

many different kinds of indirect costs

Job-order costing is used by companies where

many different products are produced each period, such as Boeing, Levi's, and even by service companies like law firms

We can easily allocate DM & DL to each job by figuring out how

much we used on each job.

Activity based costing does a better job

of accurately assigning overhead in companies that produce both high-volume & low-volume products

batch-level costs are driven by the #

of batches

Unit-level costs are driven by the #

of units of products made.

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

overhead applied to the job

We use the POHR to apply

overhead based upon the actual quantity of allocation base (DLH) used on the job, but the POHR itself is calculated using estimates.

period costs (selling and admin expenses) are expensed when _______

period costs (selling & administrative expenses) are expensed when incurred

_____ level activities are incurred for each product produced and are not dependent on the number of units or batches

product

Unit, product, facility, or batch level? Engineering costs to modify a product's design

product level

unit, batch, product, or facility level •The wages of the person in the parts storeroom who orders the parts for the various products manufactured

product level

Unit product cost increases as

product moves from department to department (like a snowball)

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 _______ ________ inventory account.

raw materials

The journal entry to record labor costs credits

salaries and wages payable

which of the following is not a manufacturing cost category DM DL MO Selling and administrative costs

selling and administrative costs

The schedule of cost of goods ________________ summarizes costs that remain in finished goods inventory and that have been transferred to COGS

sold

product level costs are driven by?

the nature or complexity of the product

The costs stay on the balance sheet in the inventory accounts--Raw Materials (RM), work in process or work in progress (WIP), and finished goods (FG) until? Then they move to?

the product is sold COGS

Since the manufacturing overhead account is a clearing account, the goal is

to end up with a zero balance after applying overhead

Challenge: How to allocate mfg. overhead, since by definition, it can't be physically and/or easily traced to specific units of product or jobs?

under job-order costing, Use a predetermined overhead rate (POHR) to apply overhead to jobs.

power to run production equipment would be an _______ level cost

unit

Unit-level, batch-level, product-level, or facility level? •The cost of inspecting a percentage of all completed goods on a random basis

unit level

which costs are correlated with volume?

unit level activities and batch level activities

Facility level costs are not correlated with

volume

Ideally, the allocation base is a cost driver that is correlated

with the amount of overhead.

The journal entry to record the issuance of direct materials into production debits

work in process

When a job is completed, the job costs are transferred out of?

work in process

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

DL and DM

Facility-level costs cannot be traced on a cause-and-effect basis to product; therefore, they are arbitrarily allocated using some method, example:

DL hours and machine hours

PearCo sold the $228 in finished goods inventory to customers for $400 on account.

Debit: Accounts Receivable 400 Credit: Sales 400 Debit: Cost of Goods Sold 228 Credit: Finished Goods 228

During the period, PearCo completed jobs with a total cost of $228.

Debit: Finished Goods 228 Credit: Work in Process 228

During the month the company incurred the following actual overhead costs: 1. Utilities (heat, water, and power) $1,700 2. Depreciation of factory equipment $2,900 3. Property taxes payable on factory $1,000

Debit: Manufacturing Overhead 5,600 Credit: Utilities Payable 1,700 Accumulated Depreciation 2,900 Property Taxes Payable 1,000

During the month, PearCo incurred but has not paid sales salaries of $2,000, and advertising expense of $750.

Debit: Salaries Expense 2,000 Advertising Expense 750 Credit: Salaries Payable 2,000 Accounts Payable 750

On October 3, PearCo had $216 in raw materials requisitioned from the storeroom for use in production. These raw materials included $116 of direct and $100 of indirect materials.

Debit: Work in Process 116 Manufacturing Overhead 100 Credit: Raw Materials 216

PearCo uses a predetermined overhead rate of $3.00 per direct-labor hour. For Job A-143, 8 direct-labor hours were worked to complete the job.

Debit: Work in Process 24 Credit: Manufacturing Overhead 24 (8 direct labor hours * $3.00 = $24)

During the month the employee time tickets included $88 of direct labor and $50 for indirect labor.

Debit: Work in Process 88 Manufacturing Overhead 50 Credit: Salaries and Wages Payable 138

If overhead is under-applied and we end up with a debit balance in MOH, then you will make this journal entry And what does this entry do?

Debit: COGS Credit: MO This entry closes the MOH account to zero and increases COGS

When goods are sold, what is JE

Debit: COGS Credit: FG

When a job is completed, what is the journal entry?

Debit: FG Credit: WIP

If overhead is over-applied and we end up with a credit balance in the Manufacturing Overhead account, then you will make this journal entry And what does this entry do?

Debit: MO Credit: COGS This entry closes the MOH to zero and decreases COGS

JE: PearCo. purchased $25,000 of materials on account

Debit: Raw Materials 25,000 Credit: A/P 25,000

A company purchased $70,000 of materials on account. $40,000 were direct materials and $30,000 were indirect materials. The journal entry would be?

Debit: Raw materials 70,000 Credit: A/P 70,000

Murphy company has thee departments. Department A manufactures parts in a highly automated process then Department B assembles the parts by hand. Department C places completed units in a heat chamber to sterilize them before they are shipped out. match each department with the appropriate overhead allocation rate

Department A: machine hours Department B: Direct labor hours Department C: Batches

complication factor

Ending WIP may be at different stages of completion with respect to materials, labor, & overhead

The formula for predetermined overhead rate is

Estimated manufacturing overhead cost / estimated allocation base

POHR equation

Estimated total manufacturing overhead cost for the coming period / Estimated total units in the allocation base for the coming period

True or false: Actual overhead costs appear in the WIP account but not on the job cost sheet

FALSE

JE when a job is completed

FG is debited and WIP is credited

By definition, Manufacturing Overhead (MO) is not physically and/or conveniently traceable to product. But,

GAAP requires us to allocate all manufacturing costs to units of product(for external reporting purposes)

which of the following is a cost that car manufacturers can directly trace to the product?

GPS

The journal entry to record accrued property taxes for a factory building debits and credits?

MO and credits Property taxes payable

List three main factors for job order costing

Many different products are produced each period. Costs are traced to each job on job cost sheets. Unit product cost = Total costs on job cost sheet divided by # of units in job

Place these items in the order in which they appear on the schedule of costs of goods sold. Adjusted COGS Add: underapplied overhead Unadjusted cost of goods sold Deduct: Finished goods inventory, ending Cost of goods available for sale

Order: 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 COGS

Overhead gets applied to WIP through use of the?

POHR

companies use what to allocate overhead?

POHR job costs sheets

The formula for applying overhead to a specific job is?

POHR x amount of allocation base incurred by job

how many overhead cost pools are used if the plantwide approach is used for assigning overhead

1

Match each event in the process of accounting for manufacturing overhead with the appropriate entry 1. actual overhead is incurred 2. overhead is applied to work in process 3. The period ends

1. MO is debited 2. MO is credited 3. MO is closed

Put the steps for calculating direct materials on the schedule of cost of goods manufactured in order. Deduct: indirect materials included in MO Raw materials used in production Deduct: Raw materials inventory, ending Total raw materials available Add: purchases of raw materials Raw materials inventory, beginning

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 used in production 6. Deduct: indirect materials included in MO

Place these items from the income statement in the order in which they would appear Gross margin COGS Sales NOI Selling and admin expense

1. Sales 2. COGS 3. Gross margin 4. Selling and admin expense 5. NOI

List three main factors for process costing

A company produces many units continuously of products. v One unit of product is indistinguishable from other units of product. The identical nature of each unit of product enables assigning the same average cost per unit.

How are total equivalent units of production calculated?

A.Equivalent units in ending WIP + units completed and transferred out

The journal entry to record the purchase of materials credits

Accounts payable

what is an allocation base?

An allocation base is some measure of activity that is common to all of the company's products and/or services, such as direct labor hours (DLH) or machine hours (MH)

Using an ABC system, company estimated overhead of 2,100,000. They expect to use 1,000,000 machine hours and 500,000 labor hours. ABC has identified this is a machine-hour related activity. The activity rate for this activity using ABC is?

Answer: $2.10 Work: 2,100,000 divided by 1,000,000= per machine hour

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

Answer: 43,200 work to get answer: total cost of job #42a= DM + DL + POHR x actual machine hours

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 the period, only Job 14C was still in process (unfinished). The cost of goods manufactured this period is $______________.

Answer: 51,000

Unit-level, batch-level, product-level, or facility level? •The cost of purchase orders issued for materials to be used in production

Batch level

True or false: The transfer of costs from one inventory account to the next parallels the physical transfer of goods from one inventory to the next

TRUE

The cost driver won't drive property taxes and insurance, but

The cost driver won't drive property taxes and insurance, but we still need to allocate those costs to jobs

which of the following costs would not be classified as MO? factory utilities tires used to produce vehicles factory supervisor salary Dep on machinery

Tires used to produce vehicles

True or False: direct materials (DM) and direct labor (DL) can be physically & conveniently traced to units of product

True

True or false: Not all overhead costs are correlated with activity measures such as DLH, machine hours, etc., so job-order costing doesn't work well for all companies

True

True or false: In companies that make both low-volume and high-volume products, activity-based costing results in the most accurate overhead cost allocations

True

True or false: Low volume products can use a lot of overhead

True

True or false: activity based costing is more complicated than job order costing?

True

Differences between job-order & process costing

Unit product cost calculation methods are different between the two

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

Variable manufacturing costs fixed manufacturing costs

DM are directly debited to ________ when put into production, but indirect materials are debited to _______ Both direct and indirect materials are credited to _____ when they come out of the materials storeroom and are put into production.

WIP MO RM

DL is directly debited to ______ when worked on a job, but indirect labor is debited to _______. The credit will be to cash or Salaries & Wages Payable, depending upon whether the paychecks are cut right away or not.

WIP MO

Which accounts are debited in the journal entry to record manufacturing labor costs

WIP and MO

units of product that are only partially complete are contained in ___________ _______________ _______________ inventory

Work in process

The journal entry to record issuing both direct and indirect materials into production debits

Work in process and MO

A cost driver is

a factor that causes overhead costs to occur

departmental overhead rates may NOT correctly assign overhead costs in situations where a company has?

a variety of products