Accounting Flashcards
Job order Costing
Helps with planning, controlling, and decision-making
Helps value ending inventories and COGS for external purposes
The cost attached to products not sold are included in the ending inventory Balance Sheet
The cost attached to products sold are included in the COGS Income Statement
Job order Costing
is used when
Used when there are many different products, jobs, and services produced each period
Products are manufactured to order
The unique nature of each order requires tracing or allocating costs, and maintaining cost records for each job
After the production order is issued
automatically generate a job cost sheet
Assigning and tracing costs to products and services
Direct cost is assigned - Indirect cost is allocated
External Perspective
amount of overhead applied to all jobs during a period will differ from the actual amount
underapplied overhead
company applies less overhead to production than it actually incurs
increases the cost of goods sold and decreases net operating income
overapplied overhead
applies more overhead to production than it actually incurs
decreases cost of goods sold and increases net operating income.
Finished Goods flow where
Flow first to the balance sheet then to the income statement
External Financial Reporting
Heavily influence companies to assign costs to products and services
Absorption Costing
Also known as “full costing,” is a managerial accounting method for capturing all costs associated with manufacturing a particular product.
Nonmanufacturing cost
Period cost & not assigned to products
Bill of Materials
Lists the quantity of each type of direct material needed to complete a unit
Materials Requisition Form
Controls the flow of materials into production
Type and quantity of materials drawn from the storeroom
Time tickets
Under direct labor. Hourly summary of employee activity
Predetermined Overhead Rates
A mix of variable and direct overhead cost
Usually have high overhead costs. So, total overhead tends to be constant each period while the average cost per unit varies.
Is used because it is impossible to trace overhead costs to jobs
Manufacturing overhead consists of different items
If the actual rate is computed monthly or quarterly, factors in overhead cost or in allocation base can produce fluctuations in the overhead rate
used to apply the estimated cost of manufacturing overhead to cost objects for a specific reporting period
Multiple predetermined rate is more accurate
To give the ability to estimate job costs during the period
Predetermine Overhead rates is established when?
Before the period
Why is predetermined overhead rate needed?
Actual OH is not known till the end of the period, inhibiting the ability to estimate job cost
Actual OH can fluctuate, misleading decision makers
Allocation Base
A Measure like direct labor hours or machine hours. Used to assign overhead costs to them
Allocation base should drive
To improve job cost accuracy: Allocation based on predetermined overhead rate should DRIVE overhead cost
Cost driver
plantwide overhead rate
a single predetermined overhead rate
Overhead Application
Overhead application is used to apply overhead costs to jobs throughout the accounting period
Manufacturing overhead
Computed after the period
Normal Cost System
adds actual direct material, actual direct labor, and applied manufacturing overhead costs to the work-in-process inventory
Job Cost Sheet
Records direct materials, labor, manu overhead charged to a job
Cost Plus Pricing
A pricing method.
Predetermined markup is applied to the cost base to determine the target selling price
Activity Based Approach
Using departmental overhead rates is one approach to creating a job-order costing system with multiple predetermined overhead rates.
Another approach is to create overhead rates related to the activities performed within departments.
Results in more overhead rates
Activity Based Costing
an alternative approach to developing multiple predetermined overhead rates
more accurately measure
Cost Driver
a factor that causes overhead costs
Machine hours, beds occupied, computer time, flight hours, etc,
Traditional Absorption Costing Problem
Traditional absorption costing tends to focus on volume-related drivers, such as labour hours
Activity-based Absorption Costing
Assign all manufacturing overhead costs to products based on the activities performed to make those products.
Activity Measure
denominator for an activity cost pool
An allocation base
Activity Cost Pool
a “bucket” that accumulates costs related to a single activity
Accumulates cost for for EXACTLY ONE activity measure
Activity Rate
assign costs from an activity cost pool to products
Activity-based Absorption different from traditional absorption costing
uses more cost pools
includes some activities and activity measures that do not relate to the volume of units produced. The traditional approach relies exclusively on allocation bases that are driven by the volume of production
include product-level activities
Costs at the product level depend on the number of batches process
Batch Level Activity
Setting up equipment, placing purchase orders, and arranging shipments to customers
Product Level Activity
Activities such as design or engineering changes for an item being produced
Costs incurred that are not related to number of batches run or unit produced, such as making design changes
If actual and applied Manu Overhead aren’t equal, year-end adjustment is
Required
Capacity-Based Overhead Rates
limitations of traditional absorption costing can be overcome by using the “estimated total amount of the allocation base at capacity” as the denominator of the predetermined overhead rate
capacity-based approach would treat this cost as a period expense
Schedule of COGM
Contains direct materials, labor, and manu overhead
Summarize portions of remaining in ending WIP and transfer out to finished goods
Actual overhead costs may not be proportional to the actual amount of the allocation base used because
overhead spending may not be under control
many actual overhead costs are fixed
Widely used allocation bases in manufacturing include:
units of product
direct labor hours
direct labor cost
machine hours
The journal entry to record the more accurate allocation of overapplied or underapplied overhead includes entries to
Finished goods
Cost of goods sold
Manufacturing overhead
Work in process
Actual manufacturing overhead is ________ to the Manufacturing overhead account
debited
Applied overhead is _____ to the Manufacturing overhead account
Credited
A ________ in Manufacturing overhead means overhead is _____
Credit, Overapplied
The Manufacturing Overhead account is _______ when actual overhead costs are incurred
debited
The Manufacturing Overhead account is ______ when actual overhead is applied to Work in Process
credited
A journal entry that debits Manufacturing overhead and credits Accounts payable could be made to record
rent expense on factory equipment
factory utilities expense
A journal entry that debits Manufacturing overhead and credits Accounts payable would not be used to record
The incurrence of direct labor costs should be recorded by debiting Work in process accounts.
Why is the unit product cost different from the cost that would be incurred if another (additional) unit were produced?
The unit product cost is an average, not an incremental cost.
The unit product cost is the same as the
average product cost per unit
total job cost divided by the number of units
Which of the following are used to calculate the Cost of goods available for sale on the schedule of cost of goods sold?
Cost of goods manufactured
Beginning finished goods inventory
Closing underapplied or overapplied overhead proportionally to Work in Process, Finished Goods, and Cost of Goods Sold is
more accurate than closing the entire balance to the Cost of goods sold
more complex than closing the entire balance to the Cost of Goods Sold
calculated by multiplying applicable percentages by the over or under-applied overhead
Key Assumptions:
Always use only one predetermined overhead rate
Under and Over manu overhead always closed to COGS
Record transactions in Microsoft Excel using positive numbers to increase balance sheet accounts
Disposition of overapplied and underapplied overhead (remaining balance in manu overhead can be disposed by)
Closed to COGS
Closed proportionally to WIP, FG, COGS (more accurate but more complex)
Schedule of COGS
Contains direct materials, labor, and manu overhead
Summarize portions of remaining in ending Finished Goods and transfer out to COGS
Accounting for Nonmanufacturing
Not assigned to individual jobs
Expensed in the period incurred
Schedules of COGM and COGS calculate
Raw materials and direct labor cost in production and Manu Overhead applied to production
Manu cost associated with finished goods during the period
Raw materials placed in production are called direct materials
When materials are purchased they are recorded in the Raw materials inventory account.
Raw materials inventory represents the cost of materials not yet used in production.
Process Cost Accounting System
appropriate for similar products that are continuously mass-produced.
