ACCOUNTING 1-4
a normal cost system applies overhead to jobs
by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job
normal costing
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
mixed costs
contains both variable and fixed elements
indirect costs
costs that cannot be easily and conveniently traced to a unit of product or other cost object
which observation is true of period costs
they are expenses in the period they are occurred
if the level of activity increases
total variable cost will increase while fixed cost per unit will decrease
predetermined overhead rate (POHR)
used to apply overhead to jobs is determined before the period begins
cost behavior classifications
variable costs fixed costs mixed costs
variable cost
varies in direct proportion to changes in the level of activity a variable cost per unit is constant
example of direct labor
wages paid to automobile assembly workers
formula doe computing the cost per equivalent unit
weighted-average method
the distinction between indirect and direct costs depends on
whether a cost can be easily and conveniently traced to the product
work in progress
consists of units of product that are only partially complete and will require further work before they are ready for sale to the customer
the traditional income statement uses which of the following cost categories
cost of goods sold, selling and administrative expenses
selling costs
costs necessary to secure the order and deliver the product. selling costs can be direct or indirect
direct costs
costs that can be easily and conveniently traced to a unit of product or other cost object
journal entry for depreciation on factory equipment
debit: manufacturing overhead credit: accumulated depreciation
examples of indirect costs
manufacturing overhead
allocation base
used to assign manufacturing overhead to individual jobs: direct labor-hours, direct labor dollars, or machine-hours
absorption costing
includes all manufacturing costs- direct materials, direct labor, and both variable and fixed manufacturing overhead- in the cost of a product
underapplied overhead
a company applies less overhead to production that it actually incurs
overapplied overhead
a company applies more overhead to production that it actually incurs
a manufacturing company reports cost of goods manufactured as
a component in the calculation of cost of goods sold on the income statement
which of the following industries would be most likely to use a job order cost system
a construction company
fixed cost
a cost that remains constant regardless of changes in the level of activity
job cost sheet
a form that records the direct materials, direct labor, and manufacturing overhead cost charged to a job
example of a direct material
a radio installed in an automobile
process costing
a single product is produced either on a continuous basis or for long periods of time... all units of product are identical
the salary of the company's accountant is classified as
administrative cost
administrative costs
all executive, organizational, and clerical costs. administrative costs can be either direct or indirect costs
manufacturing overhead
all manufacturing costs except direct material and direct labor... these costs can not be readily traced to finished products included indirect materials and indirect costs
subsidiary ledger
all of the company's job cost sheets collectively form
product costs
all the costs that are involved in acquiring or making. a product
manufacturing overhead is applied to each job
be means of predetermine overhead rate
the direct materials required to manufacture each unit of product are listed on a
bill of materials
types of fixed costs
committed and discretionary
finished goods
consists of completed unites of product that have not yet been sold to customers
which of the following occurs when finished jobs are shipped to customers
debit to cost of goods sold
which of the following best describes the journal entry to record the withdrawal of raw materials from the storeroom for use as direct and indirect materials in production
debit work in progress debit manufacturing overhead credit raw materials
which of the following best describes the journal entry to record the use of direct and indirect labor in production
debit work in progress debit manufacturing overhead credit salaries and wages expense
journal entry when products are sold
debit- COGS credit- finished goods
adjusting overapplied overhead
decreases COGS and increases net operating income
examples of manufacturing overhead
depreciation of manufacturing equipment, utility costs, property taxes, insurance premiums incurred to operate a manufacturing facility
the predetermined overhead rate is
determined at the beginning of the year
can be called "touch labor" because worked typically touch the product while it is made
direct labor
is common to both prime cost and conversion cost
direct labor
which if the following costs would be included both as a part of prime cost and as part of conversion cost
direct labor
the wages of employees who assemble computers from components is classified as
direct labor cost
what is not an appropriate cost driver for allocating overhead in a highly automated manufacturer of auto parts
direct labor hours
materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product are called
direct material
the cost of a hard drive installed in a computer is classified as
direct materials
examples of direct costs
direct materials and direct labor
when companies incur selling and administrative costs, those costs
do not flow through the three inventory accounts
an important feature of a job order cost system is that each job
has its own distinct characteristics
sunk costs
have already been incurred and cannot be changed now or in the future
operation costing
hybrid of job-order and process costing because it possesses attributes of both approaches
period costs
include all selling costs and administrative costs
product costs
include direct materials, direct labor, and manufacturing overhead
raw materials
included any materials that go into the final product
cost of goods manufactured
includes the manufacturing costs associated with the goods that were finished during the period
adjusting underapplied overhead
increases COGS and decreases net operating income
common costs
indirect costs incurred to support a number of cost objects. this costs cannot be traced to any individual cost object
direct labor
labor costs that can be easily traced to individual units of product
committed fixed cost
long-term, cannot be significantly reduced in the short term
depreciation on equipment used to test assembled computers before release to customers is classified as
manufacturing overhead cost
the salary of the assembly shop's supervisor is classified as
manufacturing overhead cost
items such as indirect materials, indirect labor, maintenance and repairs on production equipment, depreciation, and insurance on manufacturing facilities are included in
manufacturing overhead costs
job-ordering costing systems are used when
many different products are produced each period, products are manufactured to order, the unique nature of each order required tracing or allocating costs to each job and maintaining cost records for each job
requires that the costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized.
matching principle
the source documents for assigning costs to job cost sheets are
materials requisition forms and time tickets
discretionary cost
may be altered in the short term by current managerial decisions
companies can improve job cost accuracy by using
multiple predetermined overhead rates
property taxes associated with a company's administrative facility are considered
non-manufacturing cost
equivalent units equation
number of partially completed units x percentage completion
which of the following statements about processing costing is false
process costing is used when a company produces a continuous flow of units that are distinguishable from one another
how should the wages of a sheet metal worker in a fabrication plant be classified?
product cost
direct materials
raw materials that become an integral part of the product and that can be conveniently traced directly to it
manufacturing product costs
raw materials, work in process, finished goods
the three inventory accounts used by a manufacturing firm are
raw materials, work-in-process, and finished goods
cost behavior
refers to how a cost will react to changes in the level of activity
sales commissions paid to the company's salespeople is classified as
selling cost
the cost of advertising in the Puget Sound Computer User newspaper is classified as
selling cost
nonmanufacturing costs
selling costs and administrative costs
opprotunity Cost
the potential benefit that is given up when one alternative is selected over another
equivalent units
the product of the number of partially completed units and the percentage completion of those units
the balance in the work in process account should equal
the sum of the totals on all the job cost sheets for uncompleted jobs
journal entry for purchase of raw materials
debit: raw materials credit: accounts payable or cash
which of the following occurs when a job has been completed and transferred to the finished goods warehouse
credit to work in progress
journal entry when products are complete
debit- finished goods credit- work in process
journal entry when MOH is applied to goods
debit- work in progress credit- MOH
activity base (cost driver)
measure of what causes the incurrence of a variable cost
differential costs
a difference in cost between two alternatives
