Ch 4 Flashcards
Direct costs of a cost object, define? Example?
Costs related to particular cost object that can be traced
In economically feasible way
Ex. Cost of parts used for iMac
Cost object, define, example?
Anything for which measurement of cost is desired
Ex. iMac cost, cost of repairing and iMac
Indirect costs of cost object, define? Example?
Costs related to particular cost object that can’t be directly
Traced to cost object in economically feasible way
Ex. Cost of supervisors that oversee multiple products,
Rent paid for facility that makes many different products
Cost assignment
General term for assigning costs both indirect and direct
To a cost object
Cost tracing
Specific term used for assigning direct costs to cost object
Cost allocation
Refers to assigning indirect costs to cost object
Cost pool, define, broad example, narrow example?
Grouping of individual indirect cost items
Organized in conjunction with cost allocation bases
Ex. Broad like manufacturing plant costs, narrow like costs of operating metal cutting machines
Cost allocation base? Example
Systematic way to link an indirect cost or group of
Indirect costs to cost object (different products)
Ex. Cost per machine hour
Cost-application base
Cost object is a job, product or customer
Job costing system
In this system, the cost object is a unit or multiple units
Of a distinct product called a job
Each job uses different amount of resources to produce
A distinct product
Process-costing system
In system, cost object is masses of identical or similar units
Of product or service
What is the ideal cost allocation base?, why?
The cost driver of indirect costs
B/c cause and effect relationship btw/ cost allocation base
And indirect costs
5 steps of job costing evaluation and implementation?
1 identify problems and uncertainties
2 obtain info
3 make predictions about the future
4 make decisions by choosing among alternatives
5 implement decision, evaluate performance and learn
Actual costing
Costing system that traces direct costs to a cost object
By using actual direct costs rates times actual quantities
Of direct-cost inputs
Allocates indirect costs based on actual indirect cost rates
times actual quantities of cost allocation bases
Calculate actual cost of jobs
2 reasons for using longer periods, such as a year, to calculate indirect cost rates?
Numerator reason (indirect-cost pool)
The denominator reason (quantity of allocation base)
Numerator reason (indirect costing pool), example?
The shorter the period, the greater influence of
Seasonal patterns on the amount of costs
Ex. Costs of heating charged to production in winter
Denominator reason (quantity of cost-allocation base), example?
avoid spreading Monthly fixed allocation costs over fluctuating levels Of monthly output
and fluctuating quantities of cost Allocation base
Ex. Tax accountants that see a high volume around tax season
Budgeted indirect cost rate, equation?
Budgeted indirect cost rate =
budgeted annual indirect costs/
budgeted annual quantity of cost-allocation base
Normal costing is a costing system that? 2 things.
1) Traces direct costs to cost object by using
actual direct cost rates x actual quantities of direct cost inputs
2) allocates indirect costs based on
budgeted indirect-cost rates x
actual quantities of cost-allocation bases
In Job costing, what are the 7 steps to assign costs to an individual job?
1) identify job that has been chosen as cost object
2) identify direct costs of job
3) select cost allocation bases for allocating
indirect costs to job
4) identify indirect costs associated with each
cost-allocation base
5) compute rate/unit of each cost allocation base used to
Allocate indirect costs to job
6)compute indirect costs allocated to job
7) compute total cost of job by adding all direct and
indirect costs assigned to job
Source document
Original record that supports journal entries in
accounting system
Job cost record AKA Job cost sheet
Records and accumulates all costs assigned to specific job
Starting when work begins
Materials-requisition record
Basic source document contains info about cost of direct materials and cost of specific job in specific department
Labor-time sheet
Source document for direct manufacturing labor
Contains info on amount of labor time used for
Specific job, in specific department
Budgeted manufacturing overhead rate, equation, what is it used to calculate?
Budgeted manufacturing overhead rate =
budgeted manufacturing overhead costs/
Budgeted total quantity of cost-allocation base
Used to calculate allocation rate for single
Manufacturing overhead cost pool, in step 5 of job costing
Difference of costing a job btw/ normal costing and actual costing?
Normal costing uses budgeted indirect cost rates
In contrast, actual costing uses actual indirect cost rates
Calculated annually at end of year
Actual manufacturing overhead rate, equation? What is it calculated for?
Actual manufacturing overhead rate =
Actual annual manufacturing overhead costs/
Actual annual quantity of cost allocation base
Calculated for single manufacturing overhead cost pool
Actual indirect cost rate, equation, when is it calculated?
Actual indirect cost rate =
total Indirect costs in pool (determined in step 4)/
total quantity of cost allocation base (determined in step 3)
Calculated in step 5
Manufacturing overhead costs allocated to job, equation, when is it calculated?
Manufacturing overhead costs allocated to job =
(Actual manufacturing overhead rate) x
(actual quantity of direct manufacturing labor hours)
Are manufacturing costs of job available earlier in the actual costing system or normal costing system?
Normal costing system
Work in process control
In general ledger contains total of al separate job-cost
Records pertaining to unfinished jobs
“control” in general ledger accounts?
Titles with control have underlying subsidiary ledgers
Under normal costing, define manufacturing overhead allocated AKA Manufacturing overhead applied?
Manufacturing overhead allocated (applied) =
(Amount of manufacturing overhead costs allocated
to individual jobs based on budgeted rate)
X
(actual quantity used of allocation base)
Labor records by employee
Used to trace direct manufacturing labor to individual jobs
Manufacturing department overhead records by month, 6 main categories?
Subsidiary ledger of manufacturing overhead control
Includes indirect materials, indirect manufacturing labor,
Supervision, engineering, plant insurance and utilities,
Plant depreciation
Under allocated indirect costs AKA under applied indirect costs
Occur when allocated indirect costs in an accounting
period is less than actual incurred amount
Over allocated indirect costs
Occur when allocated amount of indirect costs in an
Accounting period is greater than actual amount
Manufacturing overhead control and manufacturing overhead allocated?
Control-Records actual cost of manufacturing overhead
Allocated-manufacturing overhead budgeted rate
Multiplied by actual direct manufacturing labor hours
3 main approaches for accounting for under allocated manufacturing overhead?
1) adjusted allocation rate approach
2) proration approach
3) write off to cost of goods sold approach
Adjusted allocation rate approach
Restates all overhead entries in general ledger and
subsidiary ledgers using actual cost rates rather
Than budgeted cost rates
Proration
Spreads under (or over) allocated overhead among
Ending work-in-process inventory, finished goods inventory
And cost of goods sold
Write off cost of goods sold approach?
Total under- or over allocated manufacturing overhead
is included in this year’s cost of goods sold
Journal entry for write off cost of goods sold approach journal entry for $135,000 under allocated manufacturing overhead with manufacturing overhead allocated of $1,080,000?
Cost of goods sold. 135,000
Manufacturing overhead allocated. 1,080,000
Manufacturing overhead control. 1,215,000
Budgeted direct labor cost rate equation?
Budgeted direct labor cost rate =
Budgeted total direct labor cost/budgeted total direct labor hours
Budgeted indirect cost rate, equation?
Budgeted indirect cost rate =
Budgeted total costs in indirect cost pool/
Budgeted total quantity of cost allocation base (direct labor cost)
