Chapter 4 Key Terms/ Quiz

The Meredith Company reported the following information. Required: Compute the Variable Indirect Cost Rate per Direct Professional Labor-Hour.

$14.70; $11.11

Westinghouse Company has an opportunity to bid on a new job. The manufacturing cost estimate to bid on the job is $25,000, which yields a markup of 50% over the manufacturing cost. How much should they bid on this project?

$37,500

The Pine Tree Service provides tree services to consumers in the community. The manager reported that the indirect costs were $800,000 to run the log-cutting machine for 15,000 hours. Required: Compute the cost allocation rate.

$53.33 per machine-hour.

Three main approaches to adjust the underallocated or overallocated overhead

1. Adjusted allocation-rate approach 2. Proration approach 3. Writeoff to cost of goods sold approach

The seven steps for actual costing include the following:

1. Identifying the cost object 2. Calculating actual direct material costs and actual direct manufacturing labor costs 3. Using a single cost-allocation base or multiple allocation bases for allocating manufacturing overhead costs to jobs 4. Grouping various actual indirect manufacturing costs into one manufacturing overhead cost pool or different cost pool 5. Calculating actual indirect-cost rate 6. Calculating the manufacturing overhead costs allocated to cost object 7. Finally, finding the cost of the job under actual costing by adding the direct manufacturing costs as well as the manufacturing overheads

Seven-Step Approach to Normal Costing

1.Identify the job that is the chosen cost object 2. Identify the direct costs of the job 3. Select the cost-allocation bases to use for allocating indirect costs to the job 4. Identify the indirect costs associated with each cost- allocation base 5.Compute the rate per unit of each cost-allocation base 6. Compute the indirect costs allocated to the job 7. Compute the total cost of the job by adding all direct and indirect costs assigned to the job

Normal Costing

A costing system that (1) traces direct costs to a cost object by using the actual direct-cost rates times the actual quantities of the direct-cost inputs and (2) allocates indirect costs based on the budgeted indirect-cost rates times the actual quantities of the cost-allocation bases.

Cost Pool

A grouping of individual indirect cost items. (often organized in conjunction with cost-allocation)

Budgeted Indirect- Cost Rate

A predetermined rate for for allocating indirect costs to jobs.

The denominator reason (quantity of the cost-allocation base):

Another reason for longer periods is to avoid spreading monthly fixed indirect costs over fluctuating levels of monthly output and fluctuating quantities of the cost-allocation base.

A difference between costing a job with normal costing and actual costing is that normal costing uses which of the following cost rates?

Budgeted indirect-cost rates

Job

In a job costing system, a unit or multiple units of a distinct product or service.

Overapplied Indirect Costs

Overallocated indirect costs that occur when the allocated amount of indirect costs in an accounting period is more than the actual (incurred) amount.

Job Cost Record

Records and accumulates all the costs assigned to a specific job, starting when work begins.

Adjusted Allocation-Rate Approach

Restates all overhead entries in the general ledger and job-cost records to represent actual cost rates rather than budgeted cost rates

Job Costing System

System in which the cost object is a unit or multiple units of a distinct product or service.

Cost of Allocation Base

Systematic way to link an indirect cost or group of indirect costs to a cost object (financial/nonfinancial)

Manufacturing Overhead Applied

The amount of manufacturing overhead costs allocated to individual jobs based on the budgeted rate multiplied by actual quantity used of the allocation base.

Time Period Used to Compute Indirect-Cost Rates

The numerator reason The denominator reason

The numerator reason (indirect-cost pool):

The shorter the period, the greater the influence of seasonal patterns on the amount of costs. Levels of total indirect costs are also affected by non-seasonal erratic costs.

Writeoff to Cost of Goods Sold Approach

The total under- or overallocated manufacturing overhead is adjusted to the current year's Cost of Goods Sold

Underapplied Indirect Costs

Underallocated indirect costs that occur when the allocated amount of indirect costs in an accounting period is less than the actual (incurred) amount.

A costing system that traces direct costs to a cost object based on the actual direct-cost rates times the actual quantities of the direct-cost inputs

actual costing

when the cost object is a job, product, or customer it is called

cost application base

can range from broad, such as all manufacturing-plant costs, to narrow, such as the costs of operating metal-cutting machines.

cost pool

The specific term for assigning direct costs is:

cost tracing

Managers use job costing to cost multiple identical units of ________ products.

distinct

Costs related to a particular cost object that cannot be traced to that cost object in an economically feasible way is:

indirect costs of a cost object.

The cost object is masses of identical or similar units of a product or service

process costing

This per-unit cost is the average unit cost that applies to each of the identical or similar units produced in that period

process costing

Which approach is known for spreading the underallocated overhead or overallocated overhead among ending work-in-process inventory, finished goods inventory, and cost of goods sold?

proration

Once jobs are completed, they recorded in the finished goods inventory records of jobs in the

subsidiary ledger

A summary of the job-cost record is typically found in a subsidiary ledger.

true

Like all other indirect manufacturing costs, indirect materials are accumulated in Manufacturing Overhead Control.

true