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intro to managerial accounting > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

What are the two basic types of cost accounting systems?

A
  • Process order cost system
  • Job order cost system
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2
Q

What is the primary objective of a job order cost system?

A

To compute cost per job

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3
Q

How are costs assigned in a job order cost system?

A

Costs are assigned to each job or batch

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4
Q

What is the flow of costs in a job order costing system?

A
  • Costs assigned to Work in Process Inventory
  • Completed jobs transferred to Finished Goods Inventory
  • Costs of sold units transferred to Cost of Goods Sold account
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5
Q

What increases Raw Materials Inventory in the accumulation of manufacturing costs?

A

Purchasing raw materials

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6
Q

What three components make up factory labor costs?

A
  • Gross earnings of factory workers
  • Employer payroll taxes
  • Fringe benefits
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7
Q

What types of costs are included in manufacturing overhead?

A
  • Property taxes
  • Depreciation
  • Insurance
  • Repairs
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8
Q

True or False: The job cost sheet is used to record costs chargeable to specific jobs.

A

True

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9
Q

Fill in the blank: Direct materials are charged to _______.

A

Work in Process Inventory

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10
Q

What is a materials requisition slip?

A

A written authorization for issuing raw materials

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11
Q

What happens to the costs of direct materials when they are issued?

A

They are charged to Work in Process Inventory

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12
Q

How are indirect materials accounted for?

A

Charged to Manufacturing Overhead

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13
Q

What is recorded when factory labor costs are incurred?

A

Increase in Factory Labor account

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14
Q

What must each increase or decrease to Work in Process Inventory be accompanied by?

A

A corresponding posting to one or more job cost sheets

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15
Q

How is the predetermined overhead rate determined?

A

By estimating total manufacturing overhead and dividing by estimated activity base

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16
Q

What is the result of assigning manufacturing costs to work in process?

A
  • Increases Work in Process Inventory
  • Decreases Raw Materials Inventory
  • Increases Factory Labor
  • Increases Manufacturing Overhead
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17
Q

What is the role of a job cost sheet in a job order costing system?

A

It serves as a subsidiary ledger for the Work in Process account

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18
Q

What is the total cost incurred for raw material purchases if 2,000 lithium batteries are purchased at $5 each and 800 electronic modules at $40 each?

A

$42,000

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19
Q

Fill in the blank: Manufacturing overhead costs are accumulated in the _______ account.

A

Manufacturing Overhead

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20
Q

What is the significance of distinguishing between under- and overapplied manufacturing overhead?

A

To adjust the cost of goods sold and reflect actual overhead incurred

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21
Q

What is the process of determining and using the predetermined overhead rate?

A

Estimate total manufacturing overhead and divide by estimated activity base

22
Q

What are time tickets used for in factory labor costs?

A

To assign labor costs to jobs based on hours worked, account charged, and total labor cost

Time tickets are prepared when work is performed, indicating employee hours worked and the specific job assigned.

23
Q

What is the total direct labor cost used by Wallace in January?

A

$28,000

This includes $28,000 of direct labor and $4,000 of indirect labor.

24
Q

How are manufacturing costs recorded for job orders?

A

Using job cost sheets to summarize direct materials and direct labor costs

For example, Job 120 has direct materials of $6,000 and direct labor of $4,000.

25
Q

What is a predetermined overhead rate?

A

An estimated rate used to apply manufacturing overhead costs to jobs based on expected annual costs and activity levels

It is established at the beginning of the year.

26
Q

Fill in the blank: The formula for computing the predetermined overhead rate is Estimated Annual Overhead Costs divided by _______.

A

Estimated Annual Operating Activity

27
Q

What activity bases can be used to express the predetermined overhead rate?

A
  • Direct labor costs
  • Direct labor hours
  • Machine hours
  • Any other equitable measure

These bases help in applying overhead costs accurately.

28
Q

What is the overhead rate for Wallace Company if estimated annual overhead costs are $280,000 and estimated direct labor costs are $350,000?

A

80%

This means for every dollar of direct labor, 80 cents of manufacturing overhead is assigned.

29
Q

How is manufacturing overhead applied to work in process?

A

By multiplying actual activity base used by the predetermined overhead rate

For instance, if direct labor costs are $28,000 and the overhead rate is 80%, then $22,400 is applied.

30
Q

What happens to the balance in Work in Process Inventory at the end of each month?

A

It should equal the sum of costs shown on job cost sheets of unfinished jobs.

31
Q

What is the predetermined overhead rate for Stanley Company if manufacturing overhead costs are estimated to be $160,000 with an expected machine usage of 40,000 hours?

A

$4.00 per machine hour

This is calculated by dividing $160,000 by 40,000 hours.

32
Q

What is done when a job is completed in terms of cost assignment?

A

Total cost is transferred to finished goods inventory

This includes recording the finished job on the applicable job cost sheet.

33
Q

What is the purpose of a job cost sheet?

A

To summarize the cost of jobs completed and not completed at the end of the accounting period.

34
Q

True or False: Service companies do not use job order costing techniques.

A

False

Service companies like Mayo Clinic and Goldman Sachs use job order costing to track costs for specific customers.

35
Q

What are the advantages of job order costing?

A
  • More precise assignment of costs to projects
  • Evaluation of profitability of specific jobs

This method helps in better financial tracking and analysis.

36
Q

What is Job Order Costing?

A

A costing method that tracks the cost of jobs performed for specific customers to evaluate profitability.

37
Q

List two advantages of Job Order Costing.

A
  • More precise assignment of costs to projects than process costing
  • Provides more useful information for determining profitability of particular projects and for estimating costs when preparing bids on future jobs
38
Q

What is a disadvantage of Job Order Costing?

A

Requires a significant amount of data entry.

39
Q

How much did Job 109 cost?

A

$19,000

40
Q

How much did Job 112 cost?

A

$27,000

41
Q

What was the sale price of Job 112?

A

$42,000

42
Q

Fill in the blank: A positive balance in manufacturing overhead means that overhead is _______.

A

underapplied

43
Q

Fill in the blank: A negative balance in manufacturing overhead means that overhead is _______.

A

overapplied

44
Q

What happens to any year-end balance in manufacturing overhead?

A

It is eliminated by adjusting cost of goods sold (COGS).

45
Q

How does underapplied overhead affect COGS?

A

Increases COGS.

46
Q

How does overapplied overhead affect COGS?

A

Decreases COGS.

47
Q

What is the predetermined overhead rate for Karr Company?

A

140% of direct labor cost.

48
Q

What amount of factory labor costs did Karr incur during the month?

A

$90,000

49
Q

What was the amount of direct labor incurred by Karr Company?

A

$80,000

50
Q

What was the actual overhead incurred for Karr Company?

A

$119,000

51
Q

Calculate the manufacturing overhead applied during the month for Karr Company.

A

$112,000

52
Q

What is the amount of underapplied manufacturing overhead for Karr Company?

A

$7,000

intro to managerial accounting (3 decks)

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