Module 1 Job-Order Costing: Notes and Quiz Answers

Product costs

All costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. ex: raw material wages president wages too utility bills rent bills *basically every costs that goes into the factory that involves making the product*

Product Costs

All costs that are involved in acquiring or making a product. In the case of manufactured goods, these costs consist of: 1. direct materials, 2. direct labor 3. manufacturing overhead.(infrastructure/ supervisors, maintenance, machines, rent, electiricity)

The glue and nails used in a manufacturing process should be included in which cost?

Manufacturing overhead costs Miscellaneous materials like glue and nails would be classified as a manufacturing overhead cost.

What is the correct sequence for the flow of material costs through the production process?

Raw materials inventory, work-in-process inventory, finished goods inventory, cost of goods sold

1 / 1 Why is having accurate product cost information important?

So manufacturers can charge a price based on costs and a reasonable markup Having accurate product cost information allows manufacturers to provide reasonable markups that provide coverage of costs and a reasonable profit.

price maker

has power to influence the price it charges. keep prices high without worrying about competition. consumers have no way to seek cheaper alternatives.

When not to use JOB-order costing

if products/services are similar

When to use Job-Order costing

individual discrete different from each other through similar process

You are working for a product manufacturer whose bookkeeper is currently recording all costs and expenses directly to generic accounts in the general ledger instead of by product. The manufacturer would like to be able to trace costs by product in the future and implement job order costing.

Identify the product or project, trace direct costs, and allocate overhead The three steps in a job order costing system are identify the product or project, trace direct costs, and allocate overhead.

What is a condition to using job order costing?

Identifying each specific job or product manufactured

The profitability of each separate job or product can only be tracked using which product costing system?

Job order costing

Which company should use a job ordering costing system?

Manufacturer of custom furnitureBecause each piece of custom furniture made would be specific and different, the costs of each piece made would be tracked using a job order costing system.

Why is TRACKING costs important?

1. Price Maker 2. Price Taker

Job order costing is appropriate when which two conditions exist?

1. Products produced are distinct from each other 2. manufacturing processes used are different for different products. Job order costing is used when products or services produced or rendered are different from each other and the costs can be accurately tracked through the manufacturing or service process.

Cost flows in manufacturing organizations

1. Raw material + Salaries/wages(labor) + manufacturing overhead ==== a> work in progress inventory(COGS manufactured) b> Finished goods inventory (cogS) c> CoGS

Which type of company should use job order costing?

Commercial aircraft manufacturer A commercial aircraft manufacturer makes products that are very expensive and have different configurations. Each airplane would have its costs tracked separately, making job order costing appropriate.

Period Costs

Costs occured OUTSIDE the facility They are EXPENSES ex: administrative office workers or electricity/utility in administrative office buildings

You are working for a product manufacturer whose bookkeeper is currently recording all costs and expenses incurred in manufacturing directly to generic accounts in the general ledger instead of recording such costs by product. The manufacturer would like to be able to trace costs by product in the future. Which costs can be specifically traced to a product and then recorded by the bookkeeper if the manufacturer decides to invest in and use a job order costing system as a product costing tool?

Direct materials and direct labor In a job order costing system, direct materials and direct labor costs can be specifically traced to a product or project.

What are the three types of manufacturing costs incurred in the manufacturing of each product?

Direct materials, direct labor, and manufacturing overhead

Which costs are included in the cost of goods sold category?

Direct materials, direct labor, and manufacturing overhead

Which costs should be assigned to each product under a job order costing system?

Direct materials, direct labor, and manufacturing overhead The costs that are tracked for each product made in a manufacturing firm, regardless of whether job order costing is used, are direct materials, direct labor, and manufacturing overhead.

When manufacturing is completed on specific products, their costs are transferred to which account?

Finished goods inventory When manufacturing is completed and products are finished, their costs are transferred to finished goods inventory.

The cost of which items should be included as a manufacturing overhead cost?

The wages of factory custodians Wages of maintenance or custodial personnel would be included in manufacturing overhead costs.

What is the major purpose and use of job order costing?

To create a system in which manufacturing costs are accumulated by separate product orders or batches This is the definition of job order costing. Job order costing is used when each product or service is distinct and the costs associated with those products or services can be separately tracked.

Having accurate product or service cost information is important for both price takers and price makers. True or False

True

In completing its job order costing journal entries, ABC Company's accountants made a credit entry to finished goods inventory.

When finished goods inventory is sold When raw materials are first purchased, whether they are used as direct materials or indirect materials, and their cost is included in manufacturing overhead, the journal entry is a debit to raw materials inventory and a credit to either cash or accounts payable. Finished goods inventory is credited when it is sold and a debit is made to cost of goods sold.

Two competitors exist in the same industry. The first company has accurate product cost information while the second company does not. What is the reason behind why the first company is more successful than the second?

With accurate job cost information, the first company can set prices that guarantee making a profit, can understand which costs need to be worked on, and can determine which actions can be taken to make the company more efficient and profitable.

Which account are the costs of the raw materials, direct labor, and miscellaneous manufacturing overhead transferred to when the product is being manufactured?

Work-in-process inventory The three types of manufacturing costs (direct materials, direct labor, and manufacturing overhead) are all transferred to work-in-process inventory when products are being manufactured.

price taker

a buyer or seller that is unable to affect the market price accept prices

Cost flows

step 1. Raw material are bought and stored in inventory step 2. Raw materials move to factory floor referred to WORK-IN-PROCESS inventory Step 3. Employees combine materials with labor to produce product. Supported by manufactured overhead Step 4. finished product move to Finished GOODS INVENTORY There are 3 inventorys.

Job Order Costing

used in situations where many different products, each with individual and unique features, are produced each period. The job order costing system is used when the various items produced are sufficiently different from each other and each has a significant cost.