Chapter 2

Question 1

Two basic cost accounting systems

Answer 1

1. Job Order Costing System

2. Process Cost System

Question 2

Job Order Costing System

Answer 2

• Costs are assigned to each job or batch (big ticket items)
• a job may be for a specific order
• measures costs for each JOB COMPLETED, not for a set time
  Ex: production of a house or 100 custom jerseys

Question 3

Process Cost System

Answer 3

• used when a large volume of similar products are manufactured (mass production)
• costs are accumulated by department for a specific time period

Question 4

Actual Costing

Answer 4

• Assign actual DM used, DL cost and Manufacturing OH cost to each unit
• problematic because Manufacturing OH costs are indirect costs of production and may not be known

Question 5

Normal Costing

Answer 5

• assign actual DM used and DL to each unit

- assign an allocated share of Manufacturing OH cost to each unit

Question 6

Flow of Product Costs

Answer 6

• When incurred, manufacturing costs are assigned to: WIP (Work in Process Inventory)
• When a job is completed, cost is transferred to: FG (Finished Goods Inventory)
• When units are sold, cost is transferred to: COGS (Cost of Goods Sold)

Question 7

Source document for recording product costs

Answer 7

Job Cost Sheet

Question 8

Job Cost Sheet

Answer 8

Beginning Costs
\+ DM used
\+ DL
\+ OH Applied
—

Question 9

When Raw Materials are USED in production

Answer 9

1. When DIRECT MATERIALS are USED:
   - Debit WIP Inv. & update job cost sheet
2. When INDIRECT MATERIALS are USED:
   - Debit Manufacturing OH

Question 10

When Labor Costs are recorded

Answer 10

1. When Direct Labor is recorded:
   - Debit WIP Inv. & update Job Cost Sheet
2. When Indirect Labor is recorded:
   - Debit Manufacturing OH

Question 11

Manufacturing Overhead Costs

Answer 11

DEBIT when:
- Indirect Materials are used
- Indirect Labor costs
- FACTORY rent, insurance, maintenance, etc.
CREDIT when:
- OH Applied to production

Question 12

Determine the Predetermined OH Rate

Answer 12

OH Rate = (estimated Manufacturing OH costs / estimated activity)

Question 13

Determine the Applied OH

Answer 13

OH Applied = OH Rate * actual activity

Question 14

COGS for a Merchandising Company

Answer 14

Beginning Inv.
+ Purchases
—

Question 15

COGS for Manufacturing companies

Answer 15

Schedule 1:

Beginning DM Inv.
+ DM Purchases
—