CH 3, Module 2

Question 1

What kind of cost accumulation system is used if there is a custom order?

Answer 1

job costing

Question 2

What kind of cost accumulation system is used if the cost object is a mass produced, homogenous product?

Answer 2

process costing

Question 3

cost of goods manufactuerd

Answer 3

accounts for the manufacturing costs of the products completed during the period

these costs consist of DM, DL, and MOH

The manufacturing costs incurred during the period are increased or decreased by the net change in WIP invenotry (beg WIP - end WIP) to equal cost of goods manufactured

WIP inventory, beginning
\+ DM used
\+ DL
\+ MOH applied
- WIP inventory, ending
= COGM

Question 4

Cost of goods sold

Answer 4

Finished goods inventory, beginning
\+COGM
= COGAS
-Finished goods inventory, ending (B/S)
= COGS (I/S)

Question 5

job order costing

Answer 5

the method of product costing that identifies the job (or individual units or batches) as the cost objectjective

used when relatively few units are produced ans when each unit is unique or easily identifiable.

cost is allocated to a specific job as it moves through the manufacturing process

Question 6

job cost records

Answer 6

maintained for each product, service, or batch of products

serve as the primary records used to accumulate all costs for the job

aka job cost sheets or job orders

accumulate informatino from Materials requisitions, labor time tickets (time cards), job costing systems

Question 7

materials requisitions

Answer 7

documents showing materials requested for use on the job (DM)

Question 8

Labor time tickets

Answer 8

time cards

documents that show the labor hours and labor rate associate with the time applied to the job

Question 9

process costing

Answer 9

a method of product costing that averages costs and applies them to a large number of homogenous items using the following steps:

1. summarize the flow of physical units (production report)
2. calculate the equivalent unit output
3. accumulate the total costs (DM + DL + MOH)
4. calculate the average unit costs (FIFO and LIFO)
5. apply the average costs to the units completed and the units remaining in ending WIP inventory

Question 10

equivalent units

Answer 10

costs must be attached to the completed units as well as to the units that are partially complete at the end of each period. This calcualtion is made by taking into account the partially completed units and by making use of equivalent units

an equivalent unit of DM, DL, or conversion costs (DL + factory OH) is equal to the amount of DM, DL, or conversion cost necessary to complete one unit of production.

Question 11

normal spoilage

Answer 11

occurs under regular operating conditions is included in the standard cost of the manufactured product

per unit cost is automatically increased as a result of spoilage because actual costs are spread over fewer equivalent good units rather than actual units produced

capitalized as part of inventory costs

per unit cost = (DM + DL + MOH + Normal spoilage) / units produced

Question 12

abnormal spoilage

Answer 12

should not occur under normal operating conditions and is excluded from the standard cost of a manufactured product

the per unit cost is based on actual units

normally expensed separately on the I/S as a period expense

Question 13

volume- based operational cost driver

Answer 13

aka traditional costing

1 overhead application reate

Question 14

activity based- operational cost driver

Answer 14

refines traditional costing methods and assumes that the resource consuming activities with specific purposes cause costs

focuses on multiple causes (activities) and effects (costs)

uses multiple overhead application rates

Question 15

define value chain (value-added activities)

Answer 15

a value chain is a series of activities in which customer usefulness is added to the product. Support activities directly support value-added activities

Question 16

non value added activities

Answer 16

do not increase product value or service and are targeted for elimination

Question 17

What are the effects of activity-based costing

Answer 17

An ABC system will apply high amounts of overhead to a product that places high demands on expensive resources

Question 18

What are the steps involved in ABC costing

Answer 18

1. identify activity centers and each cost driver
2. accumulate the costs in cost pools
3. trace indirect costs to activity centers ( that can be assigned without allocation)
4. allocate remaining indirect cost pools
5. divide assigned costs by by level of activity for the cost center
6. cost the product by multiplying its demand for the resources of an activity center by the rate for that center

Question 19

Direct Method

Answer 19

the most widely used (and least complex) method to allocate service costs

each service department’s total costs are directly allocated to the production departments without recognizing that service depts themselves may use the services from other service depts

Question 20

Step-Down Method

Answer 20

a more sophisticated approach to allocate service costs in more complex situations

service department costs are also allocated to other service departments as well as production departments

Question 21

which is more expensive abc or traditional costing?

Answer 21

abc

Question 22

joint product

Answer 22

two or more products that are generated from a common input (i.e. a tree can result in paper or cardboard or lumber)

Question 23

by products

Answer 23

minor products of relatively small value that incidentally result from the manufacture of the main product

can account for revenue from by product sales through either:

• any proceeds from the sale are a reduction to common costs for joint product costing
• miscellaneous income

Question 24

split off point

Answer 24

the point in the production process at which the joint products can be recognized as individual products.

Question 25

joint product costs

Answer 25

or joint costs

costs incurred in producing products UP TO the split off point

Question 26

seaprable costs

Answer 26

costs incurred on a product AFTER the split off point