Ch. 2 - Job Order Costing: Calculating Unit Product Costs

Predetermined overhead rate

= Estimated manufacturing overhead/ estimated allocation base

Time ticket

An hour by hour summary of an employee's activities throughout the day

Manufacturing overhead costs:

Are indirect costs, consist of many different items

What two accounts are involved when underapplied or overapplied overhead is closed out using the simpler method:

COGS and manufacturing overhead

Which of the following is only true in a multiple predetermined overhead rate system?

Each production department may have its own predetermined overhead rate

Indirect labor/manufacturing overhead:

Labor charges that cannot be easily traced to a job

Direct labor costs

Labor costs that are easily traced to a job

Widely used allocation bases in manufacturing are:

Machine hours, direct labor hours, units of product, direct labor cost

The predetermined overhead rate is multiplied by the actual allocation base incurred by A JOB to find:

Overhead applied to the job

A job cost sheet

Records the materials, labor and manufacturing overhead costs charged to that job.

Plantwide

Single predetermined overhead rate

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

TRUE

companies assign costs to products and services to:

To establish selling price, understand product profitability, value ending inventory

TRUE

Underapplied or overapplied overhead occurs because overhead is applied to jobs using a predetermined rate based on estimates of costs and activity levels

Allocation

Used to assign overhead costs to products by selecting an allocation base that is the same for all products.

The average manufacturing overhead cost per unit tends to:

Vary from one period to the next

Activity based costing

When a company creates overhead rates based on the actions it performs

Accounting hours

Would NOT be a good allocation base for manufacturing overhead

A normal costing system:

applies overhead by job by predetermined overhead rate x actual amount of allocation base incurred by the job

Typical cost drivers include:

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

Absorption costing

All manufacturing costs, both fixed and variable are assigned to units of production - units are said to fully absorb manufacturing costs.

Unit product cost is the same as the:

Average product cost per unit Total job cost/number of units

Actual MOH $50,000 Overhead applied $45,000 WIP contained 10% applied overhead Finished goods contained 40% COGS contained 50% Whats the entry to dispose of underapplied/overapplied overhead using the allocation method?

Debit: WIP $5,000 (Overhead is underapplied by $5,000. To dispose of the underapplied overhead Credit: OVERHEAD DEBIT: WIP, FINISHED GOODS, COGS

Total cost of a job includes:

Direct materials cost, direct labor cost, and applied manufacturing overhead

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

In each department as jobs proceed through the department

An allocation base is a(n):

Measure of activity used to assign overhead costs to products and services

Why is the unit product cost different from the cost that would be incurred if another unit were produced?

The cost to product another unit is the incremental/marginal cost

Y = a + bx

a = total fixed manufacturing overhead cost b = Variable manufacturing overhead cost per unit x = Amount of allocation base

Why should the ideal allocation base drive overhead costs?

a. Bases that do not drive overhead cost cause product costs to be distorted

What are materials requisition forms used for? (select all that apply)

a. Making entries in the accounting records d. Controlling the flow of materials into production

A bill of materials contains the: (select all that apply)

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

Job order costing

Is used in situations where many different products are produced each period (Paperwork at a law firm would be considered direct materials in a service firm that uses job-order costing)

Overhead allocation

Process used to assign overhead costs to products is called