Ch 2 Flashcards
Coat accounting system
Acct system for manufacturing activities based on perpetual inventory system
Job order production
Production of secial order products; aka customized production
Job
Production of a customized product
Process operations
Processing of products in a continuous (sequential) flow of steps; aka process manufacturing or process production
Job order production requires
Materials, labor, & overhead costs
Direct materials
Key parts of finished product & are clearly identified w/ 1 job
Direct labor
Employee effort to directly convert materials to finished product on 1 job
Overhead or factory overhead
Manufacturing costs that indirectly support production of more than 1 job
Work in process inventory
Account in which costs are accumulated for products that are in process of being produced but are not yet complete; aka goods in process inventory
Finished goods inventory
Account that controls finished goods files, which acts as a subsidiary ledger (of inventory account) in which costs of finished goods that are ready for sale are recorded
Cost of goods sold (cogs)
Coat of inventory sold to customers during a period of time; aka cost of sales
General ledger
Record containing all accounts (w/ amounts) for a business; aka ledger
Subsidiary records
Job order costing, the job cost sheets that store l job-spwcific cost data
Job order costing system
Cost accounting system to determine cost of producing each job/ job lot
Job cost sheet
Separate record maintained for each job
A cost accounting system:
is used to control costs of manufacturing activities.
&
helps managers’ determine selling prices.
Job order production is most likely used by companies that produce:
customized wedding cakes, tattoos, acct audits, factory building, custome home.
The cost accounting system used when producing customized products is called
job order production.
A job which involves producing more than one unit of a custom product is called a
job lot
Manufacturing of products in a repetitive manner is referred to as ….. operations while manufacturing custom products is referred to as …..
operations.
Process & job order
A cost accounting system includes which of the following?
It accumulates production costs and assigns them to products and services.
The three types of manufacturing costs in a job order costing system include:
direct materials, overhead. direct labor
True or false: The principle of customization is applicable to both service and manufacturing companies.
True
The correct order of cost flows in a job order costing system is:
work in process; finished goods, cost of goods sold
To determine the cost of producing each job or job lot, companies use a:
job order costing system.
Job cost sheets can be used to:
provide a record for the Cost of Goods Sold account.
monitor costs incurred and to predict costs for each job.
provide a subsidiary ledger for the Finished Goods Inventory account.
Choose the product(s) that are most likely to be manufactured as a job, rather than as a job lot.
Tailored wedding dress
Customized home
During production, job cost sheets represent:
the balance in the work in process inventory account
Custom orders matches to …
Mass production matches to …
Order operations
Process operations
List the following documents in the order in which they are used when recording direct materials costs in job order cost accounting, with the first document on top:
Materials requisition
Job costs sheets
Receiving reports
Materials ledger
- Receiving reports
- Materials ledger
- Materials requisition
- Job cost sheets
All of the following are manufacturing costs
direct labor
direct materials
overhead costs
Receiving report
Form used to report that ordered goods were received and to describe their quantity and condition
Materials ledger card
Perpetual record updated each time materials are purchased or issued for production use
Labor costs classified as
Direct or Indirect
Time tickets
Docu used to report time employee spent working on a job or on overhead activities and then to determine amount of direct labor to charge the job or amount of indirect labor to charge overhead.
following are characteristics of materials ledger cards:
Perpetual records
Used to record materials purchases
Used to record materials issued for use in production
following are inventory accounts for a manufacturer:
three inventory accounts include raw materials inventory, work in process inventory, and finished goods inventory.
I direct materials for manufacturer go where?
Indirect materials are part of factory overhead
journal entry to record the purchase of materials on account is to:
debit Raw Materials Inventory
credit Accounts Payable
Companies use job cost sheets to track the costs of:
materials, labor, and overhead costs of a job
After jobs are complete, the job cost sheet is used to provide a subsidiary ledger for which account?
Finished Goods Inventory
List the following documents in the order in which they are used when recording indirect materials costs in job order cost accounting, with the first document on top:
Materials requisition
Materials lager cards
Factory overhead ladder
Receiving reports
The journal entry to record the use of direct materials in production is to:
debit Work in Process Inventory and credit Raw Materials Inventory.
Requisitions are used in job order costing to record the cost and quantity of:
both direct and indirect materials requested by the production department
The journal entry to record the purchase of materials on account is a(n):
increase in assets and an increase in liabilities
Time tickets are used in job order costing to record the time and cost of:
both direct and indirect labor in the production department
Job cost sheets can be used to:
provide a record for the Cost of Goods Sold account.
monitor costs incurred and to predict costs for each job.
provide a subsidiary ledger for the Finished Goods Inventory account.
During production, job cost sheets represent:
the balance in the work in process inventory account
True or false: Journal entries are not required when direct materials are requisitioned.
False
following are characteristics of materials ledger cards
Used to record materials purchases
Used to record materials issued for use in production
Perpetual records
Time tickets are used in job order costing to:
report hours worked on specific jobs during the payroll period
The recording of direct labor will result in a:
debit to Work in Process Inventory and credit Factory Wages Payable
After jobs are complete, the job cost sheet is used to provide a subsidiary ledger for which account?
Finished Goods Inventory
Overhead may be applied based on:
machine hours
direct labor
After jobs are completed and delivered to customers, the job cost sheet is used to provide a permanent record for:
Cost of Goods Sold
A company has a predetermined overhead rate of $14 per machine hour. Job 846 uses 27.5 machine hours. Overhead allocated to Job 846 will be $
$385
journal entry to record the allocation of factory overhead is:
Managers use a predetermined overhead rate for which of the following reasons?
To estimate total job costs before the job is completed
To assist in setting prices for jobs
The predetermined overhead rate is based on total ….. costs and activity base.
Overhead
The journal entry to record indirect materials in production is to:
debit Factory Overhead and credit Raw Materials Inventory
The base to which overhead costs are linked, such as direct labor or machine hours, is known as the overhead ….. base.
Activity
The journal entry to record indirect labor costs used in production includes a debit to Factory ……
Overhead
A company works on three jobs and incurs the following: Direct materials - $50,000 and Direct labor - $100,000. The company uses a predetermined overhead rate of 60% of direct labor costs. How much overhead will be allocated to the three jobs?
$60,000
($100,000 x .60 = $60,000.)
journal entry to record the accrual of factory utilities is to:
debit Factory Overhead and credit Utilities Payable
journal entry to record the allocation of factory overhead to work in process is:
debit Work in Process Inventory and credit Factory Overhead
Allocate indirect labor credit …
Credit Factory Wages Payable
Pay factory property tax debit …
Debit Factory Overhead
Purchase materials debit…
Debit Raw Materials Inventory
Use direct materials credit …..
Credit Raw Materials Inventory
Complete job debit ….
Debit Finished Goods Inventory
Sold job credit …..
Credit Finished Goods Inventory
True or false: Factory overhead includes direct materials and direct labor.
False
(Reason: Overhead includes all production costs except direct material and direct labor.)
Schedule of Cost of Goods Manufactured includes all of the following
factory overhead applied
direct materials used
direct labor
work in process
journal entry to record indirect labor used in production is to:
debit Factory Overhead and credit Factory Wages Payable
Factory Overhead account is (debited/credited)……
for applied overhead costs.
credited
journal entry to record depreciation on factory equipment is to:
debit Factory Overhead and credit Accumulated Depreciation - Equipment
company incurs factory overhead costs of $1,200 and applied $1,500. If the difference is considered immaterial, then the: (cogs & f.oh beginning balance)
adjusting entry will require a credit to Cost of Goods Sold.
Factory Overhead account has a credit balance of $300 before adjusting.
Allocate overhead costs to jobs credit
Credit Factory Overhead
Pay factory utilities debit
Debit Factory Overhead
Indirect materials source docu
Material requisition forms
Indirect labor source docu
Time tickets
Factory utilities source docu
Vouchers authorizing payment
Depreciation on factory equipment source docu
Adjusting entries
At the end of the accounting period, a company’s overhead was overapplied by $400. The Factory Overhead account was properly adjusted. What effect did the adjustment have on net income?
It increased net income by $400.
Schedule of Cost of Goods Manufactured includes all of the following costs:
direct labor used
factory overhead applied
work in process inventory
direct materials used
One important difference between service companies and manufacturing companies is that:
service companies do not have raw materials inventory
If the factory overhead is overapplied, then:
applied overhead costs > actual overhead costs.
the Factory Overhead account has a credit balance.
Factory overhead is a _____ account.
temporary
Allocate indirect labor credit
Credit Factory Wages Payable
Pay factory property tax debit
Debit Factory Overhead
Purchase materials debit
Debit Raw Materials Inventory
Complete job debit
Debit Finished Goods Inventory
Sold job credit
Credit Finished Goods Inventory
A tax accounting firm pays tax preparers $44 per hour. The firm has a predetermined overhead rate of $24 per labor hour. The Jones tax return required 2.5 hours to complete. The total cost of this job is $….
$170
Reason: (44×2.5)+(24×2.5)
At the end of the accounting period, a company’s overhead was underapplied by $150. If not adjusted, how does this affect net income?
Net income will be overstated by $150.
Both service companies and manufacturing companies have:
direct labor
overhead
The Factory Overhead account is (debited/credited) ……..
for applied overhead costs.
credited
If the factory overhead is underapplied, then the adjusting journal entry to close the factory overhead account includes a:
debit to Cost of Goods Sold.
credit to Factory Overhead.
A consulting firm has a predetermined overhead rate of $120 per labor hour. The Smith job required 5 hours to compete. The overhead cost applied to this job is $
$600
At the end of the accounting period, a company’s overhead was overapplied by $400. The Factory Overhead account was properly adjusted. What effect did the adjustment have on net income?
It increased net income by $400.
If the factory overhead is underapplied, then:
the Factory Overhead account has a debit balance.
actual overhead cost > applied overhead costs.
The architecture firm of Dream Design Company uses a job order cost system in pricing the home blueprints it designs for its clients. The company‘s predetermined overhead rate is 130% of direct labor cost (which, in this situation, is the amount paid to the company‘s designers). Dream Design Company estimates that it will take 32 labor hours (paying the designers $3,200) to complete the home designs for its client Joan Smitte. What is the total cost to Dream Design Company to complete this project?
$7,360
(3,200*130%) + 3,200
(Reason: total cost to complete the project is $7,360, which is made up of the $3,200 to be paid to the designers and the $4,160 of overhead costs (or $3,200 × 130%)
What is the chronological order of the material cost flows through the subsidiary records?
Receiving Reports, Materials Ledger Card, Requisitions, Job Cost Sheets
What account is debited when materials are purchased on credit for later use in production?
Raw Materials Inventory
A _______blank is used to track each employee’s direct labor time.
time ticket
What account is debited when direct labor is recorded for the month?
Work in Process Inventory
Bridge Building Company estimates that it will incur $1,200,000 in overhead costs for the year. Additionally, the company estimates 50,000 direct labor hours will be spent building custom walking bridges for the year at a total direct labor cost of $600,000. What is the predetermined overhead rate for Bridge Building Company if direct labor costs are to be used as an allocation base?
200% of direct labor cost
(1,200,000÷600,000)
×100
Dream House Builders, Incorporated applies overhead by linking it to direct labor. At the start of the current period, management predicts total direct labor costs of $100,000 and total overhead costs of $20,000. On January 31, the direct labor for this job equals $2,700.
Complete the following journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.
Work in process inventory: 540 (debit)
Factory overhead: 540 (credit)
(20,000/100,000)*2,700 = 540
During January, Dream House Builders, Incorporated incurred $550 of actual indirect materials costs, as supported by materials requisitions.
Complete the following journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.
Factory overhead: 550 (debit)
Raw materials inventory: 550 (credit)
Bridge Builders Company examined its Factory Overhead account at the end of the year and discovered a debit balance. What does this indicate?
Overhead has been underapplied
Bridge Builders Company examined its Factory Overhead account at the end of the year and discovered a credit balance of $2,000. The journal entry to close this account includes which of the following?
Credit to Cost of Goods Sold
A marketing agency used 76 hours of direct labor in creating advertising for a film festival. Direct labor costs $65 per hour. The agency applies overhead at a rate of $57 per direct labor hour.
What is the total estimated cost for this job?
If the company applies a markup of 10% of total costs (price quote is 110% of total costs), what price should it quote for this job?
Note: Round your intermediate calculations and final answer to the nearest whole dollars.
- Total estimated job cost $9,272
- Price quote $10,199
(Reason: (7665)+(7657) = 9272; (9272*10%) = 927; 9272+927 = 10199)
An advertising agency is estimating costs for promoting a music festival. The job will require 230 direct labor hours at a cost of $56 per hour. Overhead costs are applied at a rate of $68 per direct labor hour.
What is the total estimated cost for this job?
If the company applies a markup of 20% of total costs (price quote is 120% of total costs), what price should it quote for this job?
- Total estimated job cost $28,520
- Price quote $34,224
(Reason: (23056)+(23068) = 28520. (28520*20%) = 5704; 28520+5704)
Auto Safe’s job cost sheet for Job A40 shows that the total cost to add security features to a car was $12,000. The car was delivered to the customer, who paid $16,700 cash for this job. Prepare the journal entries for Job A40 to record
(a) its completion and
(b) its sale.
a. ) Finished goods inventory 12,000 (debit)
Work in process inventory 12,000 (credit)
b1.) Cost of goods sold 12,000 (debit)
Finished goods inventory 12,000 (credit)
b2.) Cash 16,700 (debit)
Sales 16,700 (credit)
At the beginning of the year, a company estimates total overhead costs of $960,000. The company applies overhead using machine hours and estimates it will use 1,600 machine hours during the year.
What amount of overhead should be applied to Job 65A if that job uses 33 machine hours that year?
Overhead applied to Job 65A $19,800
(Reason: (960,000÷1,600)×33 = 19800)
On March 1, a dressmaker starts work on three different custom-designed wedding dresses. The company uses job order costing and applies overhead to each job (dress) at the rate of 43% of direct materials costs. During the month, the jobs used direct materials as shown below. Compute the amount of overhead applied to each of the three jobs.
Job 1 Job 2 Job 3
Direct materials used: $ 6,400; $ 8,400; $ 2,900
Overhead Applied
Job 1 $2,752
Job 2 3,612
Job 3 1,247
(Reason: (direct materials used * rate %))
A company estimates the following manufacturing costs at the beginning of the period: direct labor, $496,000; direct materials, $203,000; and factory overhead, $122,000.
Required:
Compute its predetermined overhead rate as a percent of direct labor.
Compute its predetermined overhead rate as a percent of direct materials.
- Numerator: Estimated overhead cost.
Denominator: Estimated direct labor
Overhead Rate: $122,000/$496,000=25% - Numerator: Estimated overhead cost.
Denominator: Estimated direct materials.
Overhead Rate: $122,000 / $203,000 = 60%
A company that uses job order costing incurred a monthly factory payroll of $208,000. Of this amount, $53,000 is indirect labor and $155,000 is direct labor.
Prepare journal entries to record the
(a) use of direct labor and
(b) use of indirect labor.
a. Work in process inventory: 155,000 (debit)
Factory wages payable: 155,000
(Credit)
b. Factory overhead: 53,000 (debit)
Factory wages payable: 53,000 (credit)
Indicate whether each item a through e is a feature of a job order or process operation.
a. Low production volume
b. High production volume
c. Low product standardization
d. High product flexibility
e. High standardization
a. Low production volume: Job order operation
b. High production volume: Process operation
c. Low product standardization: Job order operation
d. High product flexibility: Job order operation
e. High standardization: Process operation
The following information is available for ADT Company, which produces special-order security products and uses a job order costing system. Overhead is applied using a predetermined overhead rate of 55% of direct labor cost.
Inventories Beginning of period End of Period
Raw materials $ 40,000; $ 45,000
Work in process 9,300; 18,900
Finished goods 62,000; 33,100
Cost incurred for the period
Raw materials purchases $ 179,000
Factory payroll 250,000
Factory overhead (actual)
Indirect materials used 7,000
Indirect labor used 57,500
Other overhead costs 101,000
1. Raw materials purchases for cash.
2. Direct materials used.
3. Indirect materials used.
- Raw materials inventory 179,000 (debit)
Cash 179,000 (credit) - Work in process inventory 167,000(debit)
Raw materials inventory 167,000(credit)
(Reason: ((40,000+179,000)
−7,000)−45,000 = 167,000)
- Factory overhead 7,000 (debit)
Raw materials inventory 7,000 (credit)
The following information is available for ADT Company, which produces special-order security products and uses a job order costing system. Overhead is applied using a predetermined overhead rate of 55% of direct labor cost.
Inventories Beginning of period End of Period
Raw materials $ 40,000; $ 45,000
Work in process 9,300; 18,900
Finished goods 62,000; 33,100
Cost incurred for the period
Raw materials purchases $ 179,000
Factory payroll 250,000
Factory overhead (actual)
Indirect materials used 7,000
Indirect labor used 57,500
Other overhead costs 101,000
- Direct labor used (recorded as factory wages payable).
- Indirect labor used (recorded as factory wages payable).
- Work in process inventory 192,500 (debit)
Factory wages payable 192,500 (credit)
(Reason: 250,000−57,500 = 192500)
- Factory overhead 57,500 (debit)
Factory wages payable 57,500 (credit)
The following information is available for ADT Company, which produces special-order security products and uses a job order costing system. Overhead is applied using a predetermined overhead rate of 55% of direct labor cost.
Inventories Beginning of period End of Period
Raw materials $ 40,000 ; $ 45,000
Work in process 9,300; 18,900
Finished goods 62,000; 33,100
Cost incurred for the period
Raw materials purchases $ 179,000
Factory payroll 250,000
Factory overhead (actual)
Indirect materials used 7,000
Indirect labor used 57,500
Other overhead costs 101,000
- Incurred other actual overhead costs (all paid in Cash).
- Applied overhead to work in process.
- Factory overhead 101,000 (debit)
Cash 101,000 (credit) - Work in process inventory 105,875 (debit)
Factory overhead 105,875 (credit)
(Reason: (250,000−57,500)×55% = 105875; bc OH applied is 55% of direct labor)
Match each of the terms with the best definition a through d.
a. The expected selling price of a job minus its desired profit:
b. Measures the cost to produce a job:
c. A system that records manufacturing costs:
d. Production of more than one unit of a custom product
a. The expected selling price of a job minus its desired profit: Target cost
b. Measures the cost to produce a job: Job order costing system
c. A system that records manufacturing costs: Cost accounting system
d. Production of more than one unit of a custom product: Job lots
