Chapter 2: Job-order costing

Absorption costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs.

Materials requisition form

A document that specifies the type and quantity of materials to be drawn from the storeroom and that identifies the job that will be charged for the cost of those materials.

How do you record depreciation on equipment?

Debit MOH Credit Accumulated Depreciation

Actual overhead costs are not assigned to jobs in a job costing system

True

Advertising costs should not be charged to the MOH acct

True

An employee time ticket is an hour-by-hour summary of the employee's activities throughout the day

True

In the schedule of cost of goods manufactured, raw materials used in production=Beginning raw materials inventory+purchases of raw materials-ending raw materials inventory

True

The absorption cost approach provides for the absorption of all manufacturing costs, fixed and variable, into units of a product

True

The appeal of using multiple departmental overhead rates is that they presumably provide a more accurate accounting of the costs caused by jobs

True

The costs attached to products that have not been sold are included in ending inventory on the balance sheet

True

The fact that one department may be labor intensive while another department is machine intensive explains in part why multiple predetermined overhead rates are often used in large companies

True

The schedule of cost of goods manufactured contains 3 elements of product costs-direct materials, direct labor, and MOH- and it summarizes the portions of those costs that remain in ending WIP inventory and that are transferred out of WIP into finished goods

True

When raw materials are purchased, they are recorded as an asset

True

Job-order costing

a costing system used in situations where many different products, jobs, or services are produced each period

Time Ticket

a document that is used to record the amount of time an employee spends on various activities

job cost sheet

a form that records the materials, labor, and manufacturing overhead costs charged to a job

Plantwide overhead rate

a single predetermined overhead rate that is used throughout a plant

Normal cost system

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.

Multiple predetermined overhead rates

A costing system with multiple overhead cost pools and a different predetermined overhead rate for each cost pool, rather than a single predetermined overhead rate for the entire company. Each production department may be treated as a separate overhead cost pool.

Bill of materials

A document that shows the quantity of each type of direct material required to make a product.

Cost driver

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

Allocation base

A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.

Cost-plus pricing

A pricing method in which a predetermined markup is applied to a cost base to determine the target selling price.

Predetermined Overhead Rate

A rate used to charge manufacturing overhead cost to jobs that is established in advance for each period. It is computed by dividing the estimated total manufacturing overhead cost for the period by the estimated total amount of the allocation base for the period.

schedule of cost of goods sold

A schedule that contains three elements of product costs—direct materials, direct labor, and manufacturing overhead—and that summarizes the portions of those costs that remain in ending Finished Goods inventory and that are transferred out of Finished Goods into Cost of Goods Sold.

schedule of cost of goods manufactured

A schedule that contains three elements of product costs—direct materials, direct labor, and manufacturing overhead—and that summarizes the portions of those costs that remain in ending Work in Process inventory and that are transferred out of Work in Process into Finished Goods.

If a job is not completed at year end, then no manufacturing overhead cost would be applied to that job when a predetermined overhead rate is used

False

If the allocation base in the predetermined overhead rate does not drive overhead costs, it will nevertheless provide reasonably accurate unit product cost because of the averaging process

False

In absorption costing, nonmanufacturing costs are assigned to units of product

False

Job cost sheets contain entries for actual direct material, actual direct labor, and actual manufacturing overhead cost incurred in completing a job

False

The formula for computing the predetermined overhead rate is: Predetermined overhead rate=estimated total amount of the allocation base/estimated total manufacturing cost

False

The journal entry for cost of goods sold includes the costs of units that are partially completed

False

If the account balance in the MOH account is a credit balance...

The OH was overapplied

If the account balance in the MOH account is a debit balance...

The OH was underapplied

Overhead application

The process of assigning overhead cost to specific jobs.

Cost of goods manufactured

the manufacturing costs associated with the goods that were finished during the period