ACC 202 Chapter 3

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.

Job-Order Costing

A costing system used in situations where many different products, jobs, or services are produced each 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.

Overapplied Overhead

A credit balance in the Manufacturing Overhead account, that occurs when the amount of overhead cost applied to Work in Process exceeds the amount of overhead cost actually incurred during a period.

Time Ticket

A document that is used to record the amount of time an employee spends on various activities. (Bar Codes)

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.

Cost Driver

A factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs.

Job Cost Sheet

A form that records the materials, labor, and manufacturing overhead costs charged to a job.

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.

Schedule of Cost of Goods Sold

A schedule that contains three elements of product costs—direct materials, direct labor, and manufacturing overhead—and that summarizes the portions of those costs that remain in ending Finished Goods inventory and that are transferred out of Finished Goods into Cost of Goods Sold.

Schedule of Cost of Goods Manufactured

A schedule that contains three elements of product costs—direct materials, direct labor, and manufacturing overhead—and that summarizes the portions of those costs that remain in ending Work in Process inventory and that are transferred out of Work in Process into Finished Goods.

Raw Materials

Any materials that go into the final product.

Beginning finished goods inventory was $130,000. The cost of goods Mfg. for the month was $760,000. And the ending finished goods inventory was $150,00. What was the cost of goods sold for the month? a. $20,000 b. $740,000 c. $780,000 d. $760,000

$130,000+$760,000=$890,000 $890,000-$150,000=$740,000 b. $740,000

Allocation Base

A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.

Plantwide Overhead Rate

A single predetermined overhead rate that is used throughout a plant.

Cost of Goods

The manufacturing costs associated with the goods that were finished during the period.

Finished Goods

Units of product that have been completed but not yet sold to customers.

Overhead Application

The process of charging manufacturing overhead cost to job cost sheets and to the Work in Process account.

Beginning raw materials inventory was $32,000. During the month, $276,000 of raw materials was purchased. A count at the end of the month revealed that $28,000 of raw material was still present. What is the cost of direct material used? a. $276,000 b. $272,000 c. $280,000 d. $2,000

Beg. Raw Materials $32,000 +Raw Materials Purchased $276,000 =Raw Materials available for use in production $308,000 -Ending Raw Materials Inventory $28,000 =Raw Materials used in production $280,000 c. $280,000

Beginning work in process was $125,000. Mfg. cost added to production for the month were $835,000. There were $200,00 of partially finished goods remaining in work in process inventory at the end of the month. What was the cost of goods Mfg. during the month? a. $1,160,000 b. $910,000 c. $760,000 d. Cannot be determined

Beg. Work in Process Inventory $125,000 +Mfg. costs incurred for the Period $835,000 =Total Work in Process During the Period $960,000 -Ending Work in Process Inventory $200,000 =Cost of Goods Mfg. $760,000 c. $760,000

Direct materials used in production totaled $280,000. Direct labor was $375,000 and $180,000 of manufacturing overhead was added to production for the month. What were total manufacturing costs incurred for the month? a. $555,000 b. $835,000 c. $655,000 d. Cannot be determined

Direct Materials $280,000 +Direct Labor $375,000 +Mfg. Overhead Applied $180,000 =Mfg. Cost Incurred for the Month $835,000 b. $835,000

Tiger, Inc. had actual Mfg. overhead costs of b. $1,210,000 and predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. worked 290,000 machine hours during the period. Tiger's Mfg. overhead is: a. $50,000 Overapplied b. $50,000 Underapplied c. $60,000 Overapplied d. $60,000 Underapplied

Overapplied Overhead $4.00 per hour*290,000 hours =$1,160,000 Underapplied Overhead $1,210,000-$1,160,000 =$50,000 b. $50,000 Underapplied

Job WR53 at NW Fab, Inc. required $200 of direct materials and 10 direct labor hours at $15 per hour. Estimated total overhead for the year was $760,000 and estimated direct labor hours were 20,000. What would be recorded as the cost of job WR53? a. $200 b. $350 c. $380 d. $730

POUR= $760,000/20,000 hours $38 Direct Materials $200 Direct Labor $15*10 hours $150 Mfg. Overhead $38*10 hours $380 Total Cost $730 d. $730

Work in Process

Units of product that are only partially complete and will require further work before they are ready for sale to the customer.