Ch 2 Flashcards
What is the purpose of assigning costs to products in managerial accounting?
To facilitate internal decision making and external financial reporting
This is crucial for accurate financial analysis and operational planning.
Define job-order costing.
A costing system used when many different products are produced each period and products are manufactured to order.
What types of companies typically use job-order costing?
- Large-scale construction companies
- Aircraft manufacturers
- Companies that design and print business cards
- Companies that prepare airline meals
What are the types of manufacturing costs assigned to products in job-order costing?
- Direct costs
- Indirect costs
Give examples of direct costs in job-order costing.
- Direct materials
- Direct labor
What are indirect costs in job-order costing?
Manufacturing overhead, which includes indirect materials and indirect labor.
What is the purpose of a job cost sheet?
To track the direct and indirect costs associated with a given job.
What information does a job cost sheet include?
- Job number
- Accumulated direct material costs
- Accumulated direct labor costs
- Accumulated manufacturing overhead costs
What is a materials requisition form used for?
To specify the type, quantity, and total cost of materials to be drawn from the storeroom for a job.
How is direct labor cost recorded in job-order costing?
Using time tickets to record the amount of time spent on each job.
What is a predetermined overhead rate?
A rate calculated by dividing estimated manufacturing overhead by the estimated quantity of the allocation base.
Why are predetermined overhead rates often used?
- Actual overhead costs are not known until the end of the period.
- Actual overhead costs can fluctuate seasonally.
List the four steps to calculate a predetermined overhead rate.
- Estimate total allocation base required
- Estimate total fixed manufacturing overhead cost
- Use a cost formula to estimate total manufacturing overhead cost
- Compute the predetermined overhead rate
How is manufacturing overhead applied to jobs?
Using the predetermined overhead rate multiplied by the actual amount of the allocation base used.
What is the total cost assigned to Job A-143?
$268
What is the average cost per unit for Job A-143?
$134
True or False: Job-order costing systems can accurately trace both direct materials and direct labor costs.
True
What is a cost driver?
A factor that causes overhead costs.
What is activity-based costing?
An approach that develops multiple predetermined overhead rates based on activities performed.
What is underapplied overhead?
When a company applies less overhead to production than it actually incurs.
What happens to cost of goods sold when there is underapplied overhead?
It increases cost of goods sold and decreases net operating income.
What is the role of job cost sheets in financial reporting?
They provide the underlying financial records for Work-in-Process, Finished Goods, and Cost of Goods Sold.
Give an example of how job-order costing is used in a service company.
In a law firm, each client represents a ‘job’ with legal forms as direct materials and attorney time as direct labor.
