Chapter 3- Product Costing and Cost Accumulation in a Batch Production Environment

Which of the following statements are incorrect regarding accounting for manufacturing overhead?

Actual manufacturing overhead will always equal applied manufacturing overhead. The manufacturing overhead account is increased by the manufacturing overhead applied

What entry(s) are made when goods are sold?

Cost of goods sold Finished goods inventory, Accounts receivable Sales revenue

Which of the following entries is made upon completion of a job?

Finished goods inventory Work-in-process inventory

Which account is debited when factory utility bills are paid?

Manufacturing Overhead

Which of the following entries reflect the use of indirect materials in production?

Manufacturing Overhead Manufacturing Supplies Inventory

Which of the following entries reflect actual indirect production costs incurred?

Manufacturing overhead Factory property taxes payable, Manufacturing overhead Accumulated depreciation-factory equipment, Manufacturing overhead Prepaid factory insurance

Which of the following is the entry to record the use of indirect labor in production?

Manufacturing overhead Wages payable

Which of the following cause a challenge in assigning manufacturing overhead to jobs or units of production?

Overhead costs may not be incurred evenly over the period of production. Actual overhead costs may not be available on a timely basis.

Which of the following statements is incorrect regarding the use of product costing in managerial accounting?

The determination of a product cost is objective.

Which account(s) is/are credited when a production job is completed?

Work-in-Process Inventory

Which of the following entries records the release of direct materials to production in a job-order costing system?

Work-in-process inventory Raw materials inventory

The most accurate assignment of overhead costs is generally achieved by using ______.

activity-based costing

The fact that payments for some overhead costs are not spread evenly throughout the year is a drawback of using...

actual costing

The overhead rate is computed at the end of the period when using ______.

actual costing only

Under or over applied manufacturing overhead is the result of ______.

actual manufacturing overhead being greater than applied manufacturing overhead. actual manufacturing overhead being less than applied manufacturing overhead. the inaccuracy of the predetermined overhead rate

Weaknesses of actual costing include ______.

actual overhead costs are not timely the same product could appear to be profitable or unprofitable, depending upon when it was produced the variance of costs during a production cycle

When choosing a cost driver consideration should be given to ______.

an activity that is common across all products a correlation between the cost and the activity chosen as the driver

The first stage in a two-stage cost allocation involves ______.

assigning overhead costs to the production departments

The cost of goods sold schedule shows the ______.

changes in finished goods inventory for the period cost of goods manufactured

Under and over applied manufacturing overhead is most commonly ______.

closed into cost of goods sold

The assignment of all manufacturing overhead costs to departmental centers is called...

cost allocation or cost distribution

Specific product cost information is frequently required to be disclosed outside of the company for ______.

cost-plus contracts, reimbursement programs, rate changes that require regulatory approval

Product costing is used in financial accounting to accumulate and assign ______.

costs of goods sold, production costs to inventory, costs of services delivered

Manufacturing overhead is __.

costs that must be incurred for production to take place, but are difficult to trace to individual jobs or units of product

Manufacturing overhead costs are applied to jobs with journal entries that ______.

debit Work-in-process inventory and credit Manufacturing overhead

Reasons that direct labor may not be the best choice for a cost driver include ______.

decreasing proportion of direct labor to total production costs increasing proportion of manufacturing overhead to total production costs increasing automation

True or false: The only organizations that use product costing are manufacturing firms.

false

Product costs are needed to value inventory on the balance sheet and compute cost-of-goods-sold expense on the income statement in...

financial accounting

An unsold, but completed product is shown in ______,

finished goods inventory

The proration of under/over applied manufacturing overhead involves the ______ accounts.

finished goods inventory work-in-process inventory cost of goods sold

Manufacturing overhead is underapplied when actual manufacturing overhead is ______ manufacturing overhead.

greater than applied

At the end of the accounting period, COGS is closed into the...

income summary account

Selling and administrative costs include ______.

insurance expense - showroom, sales commissions, office supplies expense, advertising expense

Job order costing ______.

is used in the production of custom products, accumulates costs by each distinct batch of production, is frequently used in service industries

In order to apply overhead costs effectively ______.

it must fairly represent costs incurred to create the product or service, it must be done on a timely basis

A subsidiary ledger called a(n)___________is assigned to each job to keep track of the manufacturing costs for that job.

job cost record

The two procedures used in product costing systems are ______ costing.

job-order costing and process

The document used to authorize the release of materials into production is called a(n) ______,

materials requisition form

The term "product" is used to refer to ______.

merchandise to be resold, manufactured goods, services delivered

The product-costing system that uses a predetermined overhead rate is referred to as...

normal costing

The difference between normal costing and actual costing is ______.

normal costing uses predetermined overhead rates, actual costing uses actual overhead rates

Selling and administrative costs are ______.

period costs

When an organization uses a single overhead rate it is referred to as a ______ overhead rate.

plantwide

The formula to apply overhead costs is ______.

predetermined overhead rate x quantity of activity required

A company that produces a large number of identical items would most like use a ______ costing system.

process

A system that accumulates costs incurred in a production process and assigns those costs to outputs is called a(n)...

product costing system

Stage two of the two-stage cost allocation process assigns manufacturing overhead to ______.

production jobs on which the department worked

A more accurate, but complicated procedure to dispose of underapplied or overapplied manufacturing overhead is called...

proration

The second step in stage one of the cost allocation process is to ______.

reassign all service department costs to production departments

The right side of the Manufacturing Overhead account ______.

records overhead applied to Work-in-Process Inventory, accumulates entries based on estimated overhead

Materials requirements planning is a system designed to ensure that ______.

required materials are known in advance and available as needed for production

Changes in the finished goods inventory for the period are shown on the ______.

schedule of cost of goods sold

The flow of goods, services and information into and out of the organization is called the...

supply chain

The process of working proactively with other companies and organizations to improve service or reduce costs is called ______ management.

supply chain

The average amount of time it takes to convert raw materials to finished goods is...

throughput time

Some common alternatives to direct labor as a cost driver for manufacturing overhead are ______.

throughput time machine hours

The form that records the hours spent by an individual employee on each production activity is called a ______ record.

time

Job-cost records include ______.

total job cost, average cost per unit, direct materials, direct labor

The cost of goods manufactured schedule shows the ______.

total manufacturing costs, direct labor cost

The sections on the job-cost record are used to ______.

track units shipped to customers, record total cost, accumulate direct materials, labor and manufacturing overhead, calculate average unit cost

The cost of goods manufactured schedules shows the amount of goods ______.

transferred into finished goods inventory

When actual manufacturing overhead costs are incurred ______.

various accounts are credited based on the costs incurred

In traditional product-costing systems, the measure of productive activity used as a basis for overhead application is usually some__________cost driver or activity base.

volume based

When a company chooses to use a single,_________cost driver, it should be some productive input that is common across all the firm's products.

volume-based

Costs added to the production process are accumulated in the ______ inventory account.

work-in-process

Which of the following are part of the flow of manufacturing costs?

work-in-process inventory to finished goods inventory, finished goods inventory to cost of goods sold, direct materials, direct labor and manufacturing overhead to work-in-process inventory