Ch. 2 Job-Order Costing: Calculating Unit Product Costs
Jones Company uses a job-order costing system with a predetermined overhead rate of 120% of direct labor cost. The job cost sheet for Job #420 showed that Jones Company spent $4,000 on direct materials and $5,000 on direct labor on the job. What is the total cost of Job #420?
$15,000 Reason: Direct materials + Direct labor + Predetermined overhead rate × Direct labor cost = $4,000 + $5,000 + 120% × $5,000 = $15,000
Murphy Manufacturing estimated total manufacturing overhead for the year to be $100,000 and that 5,000 direct-labor hours would be used. Actual overhead was $120,000 and actual direct labor-hours were 7,500. The overhead applied to a job completed during the year that used 200 direct labor-hours was ______.
$4,000 Reason: The predetermined overhead rate = $100,000 ÷ 5,000 direct labor-hours = $20 per direct labor-hour × 200 direct labor-hours = $4,000.
The total cost of a job includes ______.
-Direct Materials Cost -Direct Labor Cost -Applied Manufacturing Overhead
The unit product cost is the same as the ______.
-total job cost divided by number of units -average product cost per unit
Job XYZ has a total manufacturing cost of $600. If the mark-up percentage is 40%, the job will sell for $
840
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.
Multiple predetermined overhead rates
A costing system with multiple overhead cost pools and a different predetermined overhead rate for each cost pool, rather than a single predetermined overhead rate for the entire company. Each production department may be treated as a separate overhead cost pool.
Bill of Materials
A document that shows the quantity of each type of direct material required to make a product.
cost driver
A factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs.
A cost driver is ______.
a factor that causes overhead costs to occur
Cost-plus pricing occurs when ______.
a markup percentage is added to the cost of a job
plantwide overhead rate
a single predetermined overhead rate that is used throughout a plant
All manufacturing costs are assigned to units of product and all non-manufacturing costs are treated as period cost under _________ costing.
absoprtion
The most common approach to product costing throughout the world is ______ costing.
absorption
Which of the following would not be a good allocation base for manufacturing overhead?
accounting hours
A measure such as direct labor-hours or machine hours used to assign overhead costs to products and services is called a cost driver or a(n)
allocation base
A job-order costing system may inaccurately assign costs to jobs due to ______.
an inappropriate allocation base
A factor that causes overhead costs is called a ______.
cost driver
The United States requires absorption costing for ______ financial reports.
external
T/F: Job-order costing can only be used in manufacturing firms.
false
A SERVICE firm that would most likely use job-order costing is a ______.
law practice
An allocation base is a(n) ______.
measure of activity used to assign overhead costs to products and services
The approach used when overhead is applied to jobs by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the jobs is called...
normal costing
Allocation bases that do not drive overhead costs ______.
will not accurately measure the cost of overhead used
Jones Company uses a job-order costing system with a predetermined overhead rate of 120% of direct labor cost. The job cost sheet 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 Reason: Total cost of Job #420 = Direct materials + direct labor + overhead (predetermined overhead rate × direct labor cost) = $4,000 + $5,000 + 1.20 × $5,000 = $15,000 Unit product cost = $15,000 ÷ 7,500 units = $2.00 per unit.
materials requisition form
A document that specifies the type and quantity of materials to be drawn from the storeroom and that identifies the job that will be charged for the cost of those materials.
job cost sheet
A form that records the direct materials, direct labor, and manufacturing overhead cost charged to a job.
allocation base
A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.
cost-plus pricing
A pricing method in which a predetermined markup is applied to a cost base to determine the target selling price.
Manufacturing overhead costs...
are indirect costs consist of many different items
Overhead application is the process of ______.
assigning manufacturing overhead cost to jobs
Costs assigned to units of product in absorption costing include ______ manufacturing costs.
both variable and fixed
Job-order costing would most likely be used in a(n) ______.
construction company
The adjustment for underapplied overhead ______ net income.
increases cost of goods sold and decreases
Widely used allocation bases in manufacturing include ______.
machine hours direct labor hours units of product direct labor cost
In the formula Y = a + bX, b represents the estimated ______.
variable manufacturing overhead cost per unit
predetrmined overhead rate
A rate used to charge manufacturing overhead costs
Why do companies use a predetermined overhead rate rather than an actual overhead rate?
An actual overhead rate is not known until the end of the period.
overhead application
The process of assigning overhead cost to specific jobs.
Why is the unit product cost different from the cost that would be incurred if another (additional) unit were produced?
The unit product cost is an average, not an incremental cost.
job-order costing
a costing system used in situations where many different products, jobs, or services are produced each period
A normal cost system assigns overhead to jobs using ______.
a predetermined overhead rate
The total cost of a job is calculated by adding the total of direct labor cost, direct materials cost and ______.
applied manufacturing overhead cost
An allocation base should be ______.
cost driver
To calculate a predetermined overhead rate, divide estimated total manufacturing overhead by the ______.
estimated total allocation base
Costs assigned to units of product under absorption costing include ______.
fixed manufacturing variable manufacturing
The predetermined overhead rate is multiplied by the actual allocation base incurred by a job to find ______.
overhead applied to the job
When all overhead is assigned using direct-labor hours, the company has chosen to use a(n) ________________ predetermined overhead rate.
plantwide
The formula for applying overhead to a specific job is ______.
predetermined overhead rate × amount of allocation base incurred by job
Total manufacturing overhead costs tend to ______.
remain fairly constant
In the formula Y = a + bX, X represents the estimated ______.
total amount of the allocation base
