Ch3

Question 1

Job Costing

Answer 1

• Used mainly for customized product or service

- Tracks and assigns costs to individual jobs

Question 2

Process Costing

Answer 2

• Used for a homogeneous product produced on a continuous basis
• Track and assign costs to processes
• Then assign costs to each product that passes through the process

Question 3

Operations Costing

Answer 3

• A hybrid of job and process costing

- Used by manufacturers who make products in batches

Question 4

What costs are included in the cost of a product?

Answer 4

DM (Direct Material)

DL (Direct Labor)

MOH (Manufacturing Overhead)

Question 5

Cost pool

Answer 5

is a collection of individual costs, typically by some “logical” grouping.

Question 6

Cost Pools gather the $$$

Answer 6

Plant wide
Department (or service center)
Activity

Examples
Maintenance Department
Building costs
(Rent, Insurance, Taxes, etc.)

Question 7

Cost allocations (assignments) are then made from the cost pool.

Answer 7

E.g. cost of the Maintenance Department is accumulated in a cost pool and then allocated to those departments or activities using its services.

Question 8

Cost Drivers – to “drive” (or empty) the pool of its $$$

Answer 8

Machine hours
Direct labor hours
Square footage

Question 9

Normal Costing

Answer 9

• Actual amount of DM (direct materials)
• Actual amount of DL (direct labor)
• Applied amount of MOH (manufacturing overhead)

Question 10

Predetermined Overhead Rate

Answer 10

Estimated overhead $$$ for a cost pool/

Estimated units of the cost driver

Question 11

“Applied” MOH Calculation

Answer 11

POHR x Actual units of cost driver

Question 12

Job Costing

Answer 12

Companies that manufacture customized products or provide customized services
use a costing system called job costing.
This method accumulates, tracks, and assigns costs for each job.

Question 13

Indirect materials are not listed separately but allocated as…

Answer 13

overhead.

Question 14

As ___________ are used in a particular job they are recorded in the report.

Answer 14

Raw Materials.

Question 15

Service Firm typically have minimum direct cost under…

Answer 15

Job Costing

Question 16

Direct Labor Cost

Answer 16

Direct labor cost=

wage rate x number of hours that each employee works on each product

Question 17

Wage rate must include the cost of

Answer 17

Fringe Benefits

Question 18

Idle Time

Answer 18

Most companies treat as part of overhead rather than assigning the cost to a particular job.

Question 19

Overtime Premiums

Answer 19

• If incurred from production problems, it’s overhead.

- If incurred due to rush orders, it’s usually direct labor for the job.

Question 20

Manufacturing Overhead

Answer 20

• MOH is most difficult cost to track and assign to products
• Indirect in nature
• Made up of many unrelated costs

Question 21

Measuring and Tracking Manufacturing Overhead

Answer 21

Overhead (MOH) cannot be directly tracked to products and services

• First … “SUM UP” all the MOH $$$
• Then must instead be “allocated” or “assigned” using cost drivers

Question 22

Manufacturing Overhead Costs to “SUM UP” (examples)

Answer 22

Rent
Depreciation
Repairs and Maintenance
Utilities
Indirect Labor
Indirect Materials

Question 23

The choice of cost driver depends on

Answer 23

the specific company and the processes it uses to manufacture products and provide services to customers.

Question 24

Over Head Rate =

Answer 24

Manufacturing Overhead/Cost Driver

Question 25

POHR

for cost pool

Answer 25

Estimated overhead for cost pool/

Estimated units of cost driver

Question 26

Application of Overhead to Products=

Answer 26

Estimated Overhead/

Estimated Allocation Base

Question 27

Because overhead is applied to products using predetermined overhead rates based on estimates…

Answer 27

….it is likely that actual overhead costs (when they become known) will differ from those applied.

Question 28

If applied overhead is greater than actual overhead:

Answer 28

overapplied overhead.

Question 29

If the applied overhead is less than actual overhead:

Answer 29

underapplied overhead.

Question 30

Actual overhead cost is found on which side of the T chart

Answer 30

Credit

Question 31

If the amount of underapplied overhead is considered material

Answer 31

it would be allocated to WIP, finished goods, and cost of goods sold as follows:

Question 32

Job Order Costing

Answer 32

• Each Job is different
• Cost are accumulated by job
• Cost are captured on a job cost sheet
• Unit costs are computed

Question 33

Process Costing

Answer 33

All product are identical
Cost are accumulated on a dept production report
Costs are accumulated on a department production report
Unit costs are computed by department

Question 34

Basic Process Costing:

Direct Material Costs

Answer 34

Tracked by department & assigned evenly as products pass through

Question 35

Basic Process Costing:

Answer 35

Tracked by department & assigned evenly as products pass through

Question 36

Operations costing

Answer 36

is a hybrid of job and process costing, for companies that make large numbers of products that are standardized within a batch.

Question 37

Operation costing is most applicable to

Answer 37

more complex manufacturing environments that require a mix of different types of production processes in order to create goods.