LS CH4 - Job-Order Costing

What kinds of costs are assigned to units of product in absorption costing (check all that apply)? - Fixed manufacturing costs - Fixed selling and administrative costs - Variable manufacturing costs - Variable selling and administrative costs

- Fixed manufacturing costs - Variable manufacturing costs

Under/overapplied overhead is calculated by comparing ____ manufacturing overhead to ____ manufacturing overhead.

applied actual

When are actual manufacturing overhead costs recorded in the Manufacturing Overhead account?

as they are incurred

Which of the following is a SERVICE firm that would most likely use job-order costing? - A clothing shop - A law firm - A car manufacturer

A law firm (pg 117)

Underapplied or overapplied manufacturing overhead can be disposed of by:

Allocating it among Work in process, Finished goods, and Cost of goods sold. Closing it out to Cost of goods sold.

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.

Which of the following appear on a job cost sheet and in the work in process account?

Applied manufacturing overhead

When preparing financial statements in a job-order costing system, finished goods flow first to the ____ and then to the ____.

Balance sheet Income statement

Cost of goods manufactured = Total manufacturing costs charged to jobs + ____ work in process inventory - ____ work in process inventory.

Beginning Ending

How are costs that cannot be traced to a particular product assigned to products and services?

By averaging across time and across products

____ materials are recorded on job cost sheets, and ____ materials are charged to the overhead account.

Direct Indirect

T/F: The calculation of cost of goods sold using the direct method will be different than the calculation of cost of goods sold using the indirect method when overhead is over or under applied.

False

In 2010, Murphy Manufacturing's estimated manufacturing overhead was $100,000. The company estimated it would use 8,000 direct labor-hours and 5,000 machine-hours. At the end of 2010, actual manufacturing overhead totaled $120,000. The company used a total of 7,5000 direct labor-hours and 5,500 machine-hours during the year. Murphy uses direct labor-hours as the measure of activity in computing its predetermined overhead rate. In 2010, the predetermined overhead rate was:

PDR = 100,000/8,000 = $12.50 per direct labor-hour

Net operating income is calculated by subtracting ____ from ____.

Selling and administrative expenses Gross margin

What is overhead application?

The process of assigning manufacturing overhead cost to jobs.

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

True

When are direct material costs recorded on the job cost sheet?

When direct materials are issued to the job.

____ ____ ____ consists of units that are only partially complete.

Work In Progress

Job order costing is used when:

a company produces many different unique products during a period

An ideal allocation base should be:

a cost driver

The predetermined overhead rate is computed ____ the period begins.

before

Labor costs that are easily traced to a job are called ____ labor costs.

direct

To calculate the unit product cost using the job cost sheet:

divide the total job cost by the number of units produced

Completed units that have not been sold are found in ____ ____ inventory.

finished goods

Sales minus cost of goods sold equals:

gross margin

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

in each department as jobs proceed through the department

Cost of goods manufactured:

includes all manufacturing costs of goods finished during the period.

The manufacturing overhead account contains:

many different kinds of indirect costs

Any purchased materials that go into the finished product are recorded in the ____ ____ inventory account.

raw materials

Using the direct method, unadjusted cost of goods sold can be calculated by multiplying the cost per unit by the number of units ____.

sold

What is underapplied or overapplied overhead?

the difference between overhead applied to jobs and actual overhead

A(n) ____ ____ is a document used to record how long workers spend on each job and task.

time ticket

Given the following, calculate total manufacturing costs applied to jobs: Direct materials cost: $62,000 Direct labor cost: $78,000 Manufacturing overhead applied: $46,000 Actual manufacturing overhead: $51,000 Beginning Work in process inventory: $32,000 Ending work in process inventory: $35,000

$186,000 Total manufacturing costs= $62,000+$78,000+$46,000 = $186,000

Given the following calculate cost of goods manufactured: Direct materials: $66,000 Direct labor: $ $80,000 Applied overhead $60,000 Actual overhead: $70,000 Beginning work in process inventory: $27,000 Ending work in process inventory: $25,000.

$208,000 Cost of goods manufactured = Total manufacturing costs charged to jobs + Beginning work in process inventory - Ending work in process inventory =$27,000 + ($66,000 + $80,000 + $60,000) - $25,000 = $208,000

Given the following, calculate adjusted cost of goods sold: Cost of goods manufactured: $234,000 Beginning finished goods inventory: $18,000 Ending finished goods inventory: $24,000 Overapplied overhead: $9,000

$219,000 Overapplied is deducted = $18,000+$234,000-$24,000-$9,000 = $219,000

Estimated manufacturing overhead: $500,000 Estimated direct labor hours: 200,000 Actual manufacturing overhead: $625,000 Actual direct labor hours: 260,000 The company applies overhead using direct labor hours as the cost driver. Calculate the amount that overhead was overapplied or underapplied.

$25,000 overapplied ($500,000/200,000) = $2.50 x 260,000 = $650,000 applied. Actual overhead = $625,000 so overhead is $25,000.

For 2011, Cole Manufacturing estimated they would incur $500,000 in manufacturing overhead and $250,000 in direct labor cost. Cole uses direct labor cost as its allocation base. During 2011, Cole worked on a job that used $10,000 in direct materials and $20,000 in direct labor. How much overhead was applied to the job?

$40,000 Predetermined overhead rate = 500,000/250,000 = $2.00 per direct labor-hour Overhead applied to particular job = $2.00 x 20,000 = $40,000

Cost of goods manufactured equals $410,000 Finished goods inventory (beginning): $110,000 Finished goods inventory (ending): $125,000. Overhead was underapplied by $12,000 Adjusted cost of goods sold is:

$407,000 Adjusted Cost of Goods sold=Beginning Finished goods inventory + Cost of goods manufactured - Ending finished goods inventory (+or-) Underapplied overhead or Overapplied overhead. =$110,000+$410,000 - $125,000 + $12,000 = $407,000

Given the following, calculate the cost of goods available for sale: Cost of goods manufactured of $410,000 Beginning Finished goods inventory of $110,000 Ending Finished goods inventory of $125,000

$520,000 COG available for sale = COG manufactured + Beg. Finished goods inventory = $410,000 + $110,000 = $520,000

What methods can be used to dispose of underapplied or overapplied manufacturing overhead? (Check all that apply.) -Allocating it among Work in process, Finished goods, and Cost of goods sold. - Closing it out to Cost of goods sold. - Closing it out to Work in process. - Allocating it among Raw materials, Work in process, and Finished goods. - Closing it out to Finished goods.

- Allocating it among Work in process, Finished goods, and Cost of goods sold. - Closing it out to Cost of goods sold.

Which of the following is not required to calculate cost of goods sold using the indirect method? - Beginning work in process inventory - Beginning finished goods inventory - Ending work in process inventory - Ending raw materials inventory

- Ending raw materials inventory

Which of the following costs would be classified as manufacturing overhead? (check all that apply) - Factory insurance - The CEO's salary - Office equipment depreciation - Direct materials - The factory supervisor's salary

- Factory insurance - The factory supervisor's salary

Why have direct labor costs decreased relative to overhead as a component of product costs? (check all that apply) - More full-time labor is being used - Products have grown more sophisticated and complex - Production processes have become more automated - Labor has become more unionized

- Products have grown more sophisticated and complex - Production processes have become more automated

Indirect labor costs: - are recorded on job cost sheets - are expensed when incurred - include wages paid to employees who are making the products being produced - are changed to the manufacturing overhead incurred account

- are changed to the manufacturing overhead incurred account

Manufacturing overhead: (check all that apply) - are indirect costs - consists of only variable costs - can include materials and labor - consists of only manufacturing costs - are traceable costs

- are indirect costs - can include materials and labor - consists of only manufacturing costs

Which of the following are widely used allocation bases in manufacturing (check all that apply)? - Direct labor cost - Product revenue - Units of product - Maintenance costs - Machine hours - Nonmanufacturing costs - direct labor hours

- direct labor hours - Machine hours - Units of product - Direct labor cost

The United States requires absorption costing for? Check all that apply - external financial reports - tax reports - internal financial reports

- external financial reports - tax reports

Typical cost drivers included: (check all that apply) - flight-hours - machine-hours - machine depreciation - utilities cost - computer time

- flight-hours - machine-hours - computer time

The overhead entered on the job cost sheet ____ the actual amount of overhead caused by the job. - is - is not

- is not

Categories of manufacturing costs include: (check all that apply) - manufacturing overhead - direct materials - direct labor - administrative expenses - selling expenses

- manufacturing overhead - direct materials - direct labor

A job cost sheet contains (check all that apply): - materials costs charged to the job - labor costs charged to the job - manufacturing overhead costs charged to the job - the selling price of the job - selling costs charged to the job

- materials costs charged to the job - labor costs charged to the job - manufacturing overhead costs charged to the job

Job-order costing: (check all that apply) - works well in manufacturing firms but not well in service firms - is best used in companies that only provide a single good or service - may be used in almost any type of organization - is a widely used costing method

- may be used in almost any type of organization - is a widely used costing method

In order to adjust Cost of Goods sold to reflect actual rather than estimated overhead costs (check all that apply): - overapplied overhead is added to Cost of Goods sold - underapplied overhead is deducted from Cost of Goods sold - overapplied overhead is deducted from Cost of Goods sold - underapplied overhead is added to Cost of goods sold

- overapplied overhead is deducted from Cost of Goods sold - underapplied overhead is added to Cost of goods sold

A materials requisition form contains the: (check all that apply) - quantity of each direct material needed to complete a unit of product - quantity of materials to be draw from the storeroom - type of materials to be draw from the storeroom - type of each direct material needed to complete a unit of product - job that will be charged for the cost of materials.

- quantity of materials to be draw from the storeroom - type of materials to be draw from the storeroom - job that will be charged for the cost of materials.

The unit product cost is the same as the: (check all that apply) - total job cost divided by number of units - average product cost per unit - incremental unit cost - cost that would be incurred if another unit were produced

- total job cost divided by number of units - average product cost per unit

A bill of materials contains the: (check all that apply) - job that will be charged for the cost of materials - type of materials to be drawn from the storeroom - they quantity of materials to be drawn from the storeroom - type of each direct material needed to complete a unit of product - quantity of each direct material needed to complete a unit of product

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

The average manufacturing overhead cost per unit tends to:

- vary from one period to the next

Which of the following statements are true? -When predetermined overhead rates are based on capacity, there will typically be large amounts of overapplied overhead. -Too much fixed overhead may be applied to products when the predetermined overhead rate is based on estimated activity. -In practice, most companies base their predetermined overhead rates on the allocation base at capacity. -Total estimated overhead at capacity is generally larger than total estimated overhead at the expected level of activity.

-Too much fixed overhead may be applied to products when the predetermined overhead rate is based on estimated activity. -Total estimated overhead at capacity is generally larger than total estimated overhead at the expected level of activity.

What are materials requisition forms used for? (check all that apply) - Summarizing the cost of a job - Controlling the flow of materials into production - Specifying the cost of materials to be ordered - making entries in the accounting records

-controlling the flow of materials into production. -making entries in the accounting records

Place the following steps in requisitioning and issuing materials in order. - A production order is issued - The production department prepares a materials requisition form. - The materials requisition form is presented to the storeroom clerk. l - The storeroom clerk issues materials.

1. A production order is issued 2. The production department prepares a materials requisition form. 3. The materials requisition form is presented to the storeroom clerk. l 4. The storeroom clerk issues materials.

Put the steps in order as needed to calculate cost of goods sold: (Place these in the proper order) - Deduct: Ending finished goods inventory - Add: Cost of goods manufactured - Beginning finished goods inventory - Cost of goods sold

1. Beginning finished goods inventory 2. Add: Cost of goods manufactured 3. Deduct: Ending finished goods inventory 4. Cost of goods sold

Place these items from the income statement in the order in which they should appear: - Selling and administrative expenses - Gross margin - Cost of goods sold - Sales - Net Operating income

1. Sales 2. Cost of goods sold 3. Gross margin 4. Selling and administrative expenses 5. Net Operating income

Smith, Inc. uses a job-order costing system with the predetermined overhead rate of $12 per machine-hour. The job cost sheet for Job #42A listed $12,000 in direct labor cost, $18,000 in direct materials cost, 1,200 direct labor-hours and 1,100 machine-hours. The total cost of Job #42A is $____.

43200 Total cost of Job# 42A = Direct materials+ Direct labor+ Predetermined overhead rate x Actual machine-hours= $18,000 + $12,000 + ($12 per machine-hour x 1,100 machine-hours) = $43,200.

T/F: Job-order costing can only be used in manufacturing firms.

False

A normal cost system assigns overhead to jobs using:

a predetermined overhead rate

The United States requires ____ costing for tax reports.

absorption

Overhead is underapplied if:

actual overhead is more than the applied overhead

The adjusted cost of goods sold differs from the unadjusted cost of goods sold as it has been:

adjusted for over/under-applied overhead