Chapter 17

Question 1

Cost accounting systems

Answer 1

The methods and techniques used by enterprises to track resources consumed in creating and delivering products and services to customers.

Question 2

Cost accounting systems help management attain two important objectives

Answer 2

1. Determine the unit cost of manufacturing a product or providing a service
2. Provide manager with useful information for planning and cost control functions.

Question 3

Cost control refers to

Answer 3

keeping costs at reasonable levels

Question 4

Job order costing

Answer 4

A cost accounting method under which the focal point of costing is a quantity of product known as a job or lot. Costs of direct materials, direct labor, and manufacturing overhead applicable to each job are compiled to arrive at average unit cost.

Question 5

Three reasons why overhead isn’t applied at year-end by simply dividing actual overhead costs incurred by the actual number of units completed during the year

Answer 5

1. Not all products and services consume equal amounts of overhead.
2. Actual overhead costs and total units of output are not known until the end of the year, which is too late to be useful.
3. Estimated overhead application rates can be used to inform management on a daily basis whether reasonable amounts of overhead costs are being incurred.

Question 6

Overhead application rate

Answer 6

A device used to apply a normal amount of overhead costs to work in process. The rate is predetermined at the beginning of the year and expresses the percentage relationship between estimated total overhead for the year and the estimated total of some cost driver, such as direct labor hours, direct labor costs, or machine-hours. Use of the overhead application rate causes overhead to be charged to work in process in proportion to the amount of “cost driver” traceable to those units.

Question 7

Overhead application rate equation

Answer 7

Question 8

The challenging problems for accountants are

Answer 8

Selecting an appropriate activity base and making reliable estimates at the beginning of the accounting period regarding the total of the overhead costs to be incurred and the total activity base units that will be required.

Question 9

Cost driver

Answer 9

An activity base that can be traced directly to units produced and that serves as a causal factor in the incurrence of overhead costs. Serves as an activity base in an overhead application rate.

Question 10

Activity-based costing

Answer 10

Cost accounting method that tracks indirect costs to the activities that consume resources.

Question 11

Job cost sheet

Answer 11

A record used in job order costing to summarize the manufacturing costs (materials, labor, and overhead) applicable to each job or batch of production. Job cost sheets may be viewed as a subsidiary ledger supporting the balance of the Work in Process Inventory control account.

Question 12

Job cost sheet example

Answer 12

Question 13

Overapplied overhead

Answer 13

When actual overhead is less than applied overhead, the resulting credit balance in
the Factory Overhead account is overapplied overhead.

Question 14

Underapplied overhead

Answer 14

When actual overhead is more than applied overhead, the resulting debit balance in
the Factory Overhead account is underapplied overhead.

Question 15

Activity-based costing (ABC)

Answer 15

An overhead allocation method that uses multiple overhead rates to track indirect costs by the activities that drive those costs. Use to apply overhead costs to products. they are more effective overhead cost control but costly to implement and
maintain.

Question 16

Activity cost pools

Answer 16

Overhead categories that represent the costs associated with an activity that consumes overhead resources.