Accounting 3020 Chapter 2

Activity-based absorption costing only assigns variable manufacturing overhead costs to products. (T/F)

False

Which of the following would be considered direct materials in a service firm that uses job-order costing?

Paperwork at a law firm

Which of the following is not a manufacturing cost category?

Selling & administrative costs

What absorption cost system(s) uses a volume-related allocation base for all of the manufacturing costs?

Traditional

One reason to use a predetermined overhead rate is to eliminate the effect of seasonal factors. (T/F)

True

True or false: The absorption approach to overhead charges products for resources they don't use.

True

Cost-plus pricing occurs when

a markup percentage is added to the cost of a job

All manufacturing costs are assigned to units of product and all nonmanufacturing costs are treated as period cost under

absorption costing

When a company creates overhead rates based on the actions it performs, it is employing an approach called

activity-based costing

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 process used to assign overhead costs to products is called overhead

application

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

An essential quality of an overhead allocation base is that it must

be common to all the company's products and services

The type and quantity of each type of direct material needed to complete a unit of product is listed on the

bill of materials

Costs assigned to units of product in absorption costing include Blank______ manufacturing costs.

both variable and fixed

Typical cost drivers include

computer time flight-hours machine-hours

A factor that causes overhead costs is called a

cost driver

A "bucket" in which costs are accumulated that relate to a single activity measure is called an activity

cost pool

The adjustment for overapplied overhead _____ net income.

decreases cost of goods sold and increases

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 cost. units of product. direct labor hours. machine hours.

The total cost of a job includes:

direct materials cost. direct labor cost. predetermined manufacturing overhead.

To calculate the unit product cost using the job cost sheet _____ by the number of units produced

divide the total job cost

The appeal of using predetermined departmental overhead rates is they presumably provide

enhanced information for decision making, a more accurate accounting of costs

An activity cost pool accumulates costs for ______ activity measure(s).

exactly one

Average manufacturing overhead cost per unit usually varies from one period to the next because

fixed manufacturing overhead remains constant in total even when production changes

The activity-based approach tends to shift costs from _____ volume products to _____ volume products.

high, low

In a system that uses multiple predetermined overhead rates, overhead is applied

in each department as jobs proceed through the department

The total cost of a job is calculated by adding the total of direct labor cost, direct materials cost, and:

predetermined manufacturing overhead cost.

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 from one period to the next even though the units produced fluctuate

When all of a company's job cost sheets are viewed collectively, they form what is known as a(n)

subsidiary ledger

An hour-by-hour summary of an employee's activities throughout the day is found on the

time ticket

The document used to record the hours workers spend on each job and task is called a

time ticket

A bill of materials contains the

type of each direct material needed to complete a unit of product, quantity of each direct material needed to complete a unit of product

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

$2.00 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.

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 The predetermined overhead rate = $100,000 ÷ 5,000 direct labor-hours = $20 per direct labor-hour × 200 direct labor-hours = $4,000.

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.

The document that records the materials, labor, and manufacturing overhead costs charged to a job is the

job cost sheet

Companies that make many different products each period use

job-order costing

Manufacturing overhead consists of

many different kinds of indirect costs

Companies that use job-order costing make

many different products

Direct materials costs are recorded on the job cost sheet when the

materials are issued to the job

When compared to a departmental approach, using activity-based costing results in _____ overhead rates.

more

The predetermined overhead rate is multiplied by the actual allocation base incurred by a job to find

overhead applied to the job