Manag acct Ch2
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 Explanation: Direct materials + Direct labor + Predetermined overhead rate × Direct labor cost = $4,000 + $5,000 + 120% × $5,000 = $15,000
Estimated manufacturing overhead $450,000 estimated direct labor hours 150,000 actual manufacturing overhead $405,000 actual direct labor hours 180,000 Based on this information, the amount of overhead allocated to a job that used 300 direct labor hours is $_______.
$900 : 450,000 / 150,000 = 3.00 per direct labor hour X 300 = 900
Manufacturing overhead costs ______.
- are indirect costs - consist of many different items
The appeal of using predetermined departmental overhead rates is they presumably provide ______
- enhanced information for decision making - a more accurate accounting of costs
A bill of materials contains the ______.
- quantity of each direct material needed to complete a unit of product - type of each direct material needed to complete a unit of product
Predetermined overhead (#3 HW)
1) Total manufac overhead cost + (manufac overhead per machine * machine hours) / total machine hours 2) Manufacturing Overhead = machine hours * Predetermined overhead rate per MH * Predetermined overhead rate per DLH *Explanation: Direct materials ($500 + $310) = $810 Direct labor ($108+ $360) =$468 Cutting Department ($80 MHs × $7.50 per MH):$600 Finishing Department (20 DLH × $16.20 per DLH) $486 Total manufacturing cost $1,954
Predetermined overhead rate per MH (machine houre) (#2 HW)
1)Fixed manufacturing overhead cost / Machine-hours required to support estimated production + variable overhead 2) Total manufac cost: DM + DL + Overhead (calculate overhead by: Machine hours * Machine hour) 3) Unnit product cost = Total manufac cost / # of units 4) Selling price = unit production cost * 1.2 (markup percentage converted to decimal)
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 explanation: (The predetermined overhead rate = $100,000 ÷ 5,000 direct labor-hours = $20 per direct labor-hour. The overhead applied to the job = $20 per direct labor-hours ×200 direct labor-hours = $4,000.)
Overhead
= predetermined overhead rate x actual amt of allocation base recorded for each job
Absorbtion 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 costing system
A costing system in which overhead costs are applied to a job by x a predetermined overhead rate by the actual amount of the allocation base incurred by the job. a) predetermined overhead rate = estimated total manufac overhead costs / estimated total amt of allocation base for period.
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.
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.
Predetermined Overhead Rate
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. *formula: estimated total manufac overhead / estimated amt allocation base.
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
The total cost of a job is calculated by adding the total of direct labor cost, direct materials cost and ______.
Applied manufacturing overhead cost
Braverman company has two manufacturing departments- Finishing and fabrication. The predetermined overhead rates in finishing and fabrication are $18 per direct labor hour and 110% of direct material cost respectively. The company's direct labor wage rate is $16 per hour. Finishing: DM= $410 DL=$128 Fabrication: DM=$60 DL=$48What is the total manufacturing cost assigned to job 700?
DM (direct materials) (410+60)= 470 DL (direct labor) (128+48)= 176 Finishing OH (18 per DLH x 8DLH)=144 ^**Total direct labor hours= direct labor cost of 128/ Direct labor wage rate per hour of $16 = 8 DLH*** Fabrication OH (110% x $60 direct material cost)= 66 Total manufacturing cost = 470+176+144+66= $856
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 $_____
Direct materials + Direct Labor + Predetermined overhead rate x Actual machine hours = $18,000 + $12,000 + ($12 per machine-hour x 1, 100 machine-hours) = $43,200.
Which of the following is only true in a multiple predetermined overhead rate system?
Each production department may have its own predetermined overhead rate.
Activity-based absorption costing only assigns variable manufacturing overhead costs to products.
False
Which of the following is not** a manufacturing cost category?
Selling & administrative costs
The type and quantity of each type of direct material needed to complete a unit of product is listed on the ______.
The document that records the materials, labor, and manufacturing overhead costs charged to a job is the ______.
Assume (1) a company's plantwide predetermined overhead rate is $15.25 per direct labor-hour, and (2) its job cost sheet for Job X shows that this job used 18 direct labor-hours and incurred direct materials and direct labor charges of $500 and $360, respectively. What is the total cost of Job X?
Total production cost per unit = (Direct material+Direct labour+Manufacturing over head) / no.of units
Job-order costing systems are used when:
Use only predetermined overhead rate (plantwide rate) or multiple predetermined overhead rates. a) Many different products are produced each period. Products are manufactured to order. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job.
job order costing
a costing system used in situations where many different products, jobs, or services are produced each period
time ticket
a document that is used to record the amount of time an employee spends on various activities
plantwide overhead rate
a single predetermined overhead rate that is used throughout a plant
Unit production cost
a) Total manufacturing costs / # of units b)Costs expressed in terms of equivalent units of production.
Allocation base for overhead costs:
a) should be cost driven b) should cause consumption of overhead costs c) most freq used allocation bases in job-order costing systems = direct labor hours + machine hours
All manufacturing costs are assigned to units of product and all nonmanufacturing costs are treated as period cost under costing.
absorption
An event that causes consumption of overhead resources is called an
activity
When a company creates overhead rates based on the actions it performs, it is employing an approach called ___-___ costing
activity-based
The process used to assign overhead costs to products is called overhead
allocation
In activity-based absorption costing, the consumption of overhead resources is caused by ______
an activity
Manufacturing overhead costs
another term for indirect manufacturing costs - must be allocated to jobs
Overhead application is the process of ______.
assigning manufacturing overhead cost to jobs
Activity-based absorption costing ______
assigns overhead based on events that consume overhead resources
Costs assigned to units of product in absorption costing include ______ manufacturing costs.
both variable and fixed
The difference between direct labor and indirect labor is that direct labor ______.
can be easily traced to jobs, while indirect labor cannot
Job-order costing would most likely be used in a(n) ______.
construction company
A "bucket" in which costs are accumulated that relate to a single activity measure is called an activity
cost pool
When a company uses a departmental approach rather than a plantwide approach to applying overhead, the selling price of the product will always be
different
Widely used allocation bases in manufacturing include ______.
direct labor hours units of product machine hours direct labor cost
Total Manufacturing Costs
direct materials + direct labor + manufacturing overhead.
The total cost of a job includes
direct materials cost applied manufacturing overhead direct labor cost
An activity cost pool accumulates costs for ______ activity measure(s).
exactly one
The document that records the materials, labor, and manufacturing overhead costs charged to a job is the ______.
job cost sheet
Categories of manufacturing costs include
manufacturing overhead, direct materials, direct labor
Manufacturing overhead consists of ______.
many different kinds of indirect costs
An allocation base is a(n) ______.
measure of activity used to assign overhead costs to products and services
When compared to a departmental approach, using activity-based costing results in ______ overhead rates.
more
The formula for applying overhead to a specific job is ______.
predetermined overhead rate × amount of allocation base incurred by job
A multiple predetermined overhead rate system is more accurate than a plantwide overhead rate system because it ______.
reflects differences in how overhead costs are incurred within departments
The predetermined overhead rate is multiplied by the actual allocation base incurred by a job to find ______.
the overhead applied to the job.
Job order costing
used in situations where many different products, each with individual and unique features, are produced each period. Ex): furniture manufac, hospitals, legal firms a)In manufacturing: accumulate a job's direct materials, direct labor, and manufacturing overhead costs on a job cost sheet. **Selling/admin not assigned bc treated as period costs b) uses material requisition forms and labor time tickets to trace direct materials and direct labor costs to jobs.
