Chapter 2: Job Costing Flashcards
*Predetermined overhead rate equation:
Estimated overhead costs/estimated activity in allocation base
Ex. $1,140,000 estimated overhead/$38,000 estimated DL hours = $30 per DL hour
F. ___ is the assignment of overhead costs to jobs based on a predetermined overhead rate which represents a portion of estimated overhead costs to a particular job.
Overhead applied
What are the most common allocation bases?
DL hours
DL costs
Machine hours
*___ is the use of a predetermined overhead rate rather than actual data to apply overhead to jobs. It averages the costs out over the course of a year.
Normal costing
Why do companies use normal costing?
⚫️Actual overhead costs can fluctuate from month to month, causing high amounts of overhead to be charged to jobs during high-cost periods
⚫️Actual overhead cost data are typically only available at the end of the month, quarter, or year (managers may need before these periods)
⚫️The price charged to customers is often negotiated based on cost.
⚫️Bookkeeping is simplified by using a predetermined overhead rate
A ___ account is used to hold financial data temporarily and is closed out at the end of the period before preparing financial statements
I.e., MFO
Clearing
*___ occurs when actual overhead costs are higher than overhead applied to jobs; MFO has a debit balance at this time. This occurs because fewer costs were applied to jobs than were actually incurred.
Underapplied overhead
*___ occurs when actual overhead costs are lower than overhead applied to jobs; MFO has a credit balance at this time. This happens because more costs were applied to jobs than were actually incurred.
Overapplied overhead
Since MFO is a clearing account, it must be closed at the end of the period. What account is MFO closed to and when?
COGS when the account is immaterial
COGS is debited (+) and MFO is credited (-)
___ is a common term used to describe a relatively small amount to a company’s size.
Immaterial
___ is a common term used to describe a relatively large amount.
Material
F. If an amount is material, it should be closed to what accounts?
WIP, finished goods, and COGS
Job costing methods to service organizations:
Electricians track costs by ___
Accountants track costs by ___
Auto mechanics track costs by ___.
Project
Client
Job
___ tends to be the most significant cost for service organizations.
DL
Service organizations often use a ___ to apply overhead.
Predetermined overhead rate
Because overhead is typically driven by DL hours in a service organization, ___ or ___ are the most common allocation base.
DL hours or DL costs
The cost of DM may be insignificant for ___ companies.
Service
A ___ is an activity that produces a unique product that can be easily distinguished from other products.
Job
*___ records revenues and costs for each job/unique product I.e., custom home, custom furniture, etc.
Job costing
Why is tracking revenues and costs for each job important?
⚫️Managers want to assess the accuracy of cost estimates
⚫️Managers want to review actual revenues and costs for each job for profitability
⚫️Managers want to compare actual costs with estimated costs throughout a project to identify unexpected changes as early as possible
*___ records revenues and costs for batches of identical units of products, I.e., soft drinks, milk, lumber, paper, etc.
Process costing
How is the purchase of new material recorded?
An asset account, increased with debit and decreased with credit
How do you transfer direct materials out of raw materials and into production?
Debit to WIP and credit to raw materials
How is DL costs to specific jobs recorded?
Debit to WIP and credit to wages payable
When the wages payable is expensed, wages payable debited (-) and wages expense is credited (+)
___ is the activity used to allocate manufacturing overhead costs to jobs.
Allocation base
___ is a plant-wide rate which is based on th relationship between estimated annual overhead and expected annual operating activity; calculates an estimated amount of overhead assignment to a job based on activity (I.e., DL costs, DL hours, or machine hours).
Predetermined overhead rate
___ is used for expensing specific, custom products.
Job costing
___ is used for expensing large volumes of similar products (mass production)
Process costing
___ are costs that can be directly traced to a product.
Direct costs
___ are costs that cannot be directly traced to a product and must therefore be allocated.
Indirect costs
A ___ is used to accumulate all DM, DL, and MFO to determine total job cost; each job has it’s own.
Job cost record
F. A ___ is what occurs and is completed when materials are requisitioned to production.
Material requisition
When recording a requisition of materials, what accounts are debited and credited?
WIP - debit
MOH - debit
Raw materials - credit
When recording incurred MFG wages, what accounts are debited and credited?
MFG labor - debit
Wages payable - credit
When recording an assignment of labor to jobs, what accounts are debited and credited?
WIP - debit
MOH (indirect labor) - debit
MFG wages expense - credit
quiz: The Work-in-Process Inventory account includes:
a. goods that are returned by customers
b. goods that are partially completed
c. goods that are ready to be sold
d. goods that have been sold in the market
b. goods that are partially completed
Where are MFO costs recorded?
MFO expense account
When recording actual MFO costs, what accounts are debited and credited?
MFO - debit
Accumulated depreciation - credit
Accounts payable - credit
Prepaid insurance - credit
___ calculates an estimated amount of overhead assigned to jobs based on activity I.e., DL costs, DL hours, or machine hours.
Predetermined overhead rate
When calculating predetermined overhead rate, what is the equation?
Estimated overhead costs / expected operating activity (allocation base)
When applying overhead to jobs, what accounts are debited and credited?
WIP - debit
MOH - credit
___ MFO has too little overhead applied. It has a ___ balance.
Underapplied
Debit
___ MFO has too much overhead applied. It has a ___ balance.
Overapplied
Credit
What are two problems that occur as a result of over and under applied accounts?
- Jobs aren’t costed correctly
2. Account balances end up on the income statements as an operating expense (period costs)
F. How can over and under applied MFO costs be corrected?
Transfer to COGS*, WIP, or finished goods
Assume all goods have been sold or are immaterial
If MFO is underapplied by $50,000, what accounts are debited and credited to remove the underapplied MFO?
COGS - debit
MFO - credit
If MFO is overapplied by $100,000, what accounts are debited and credited to remove the underapplied MFO?
MFO - debit
COGS - credit
quiz: Super Tread Inc. is a large manufacturer of auto tires. Super Tread has provided the following information:
Sales Revenue - $55,000
Beginning Finished Goods Inventory - 15,500
Cost of Goods Sold - 37,500
Cost of Goods Manufactured - 44,500
Calculate the amount of ending Finished Goods Inventory reported on Super Tread’s balance sheet.
a. $60,000
b. $7,000 Incorrect
c. $10,500
d. $22,500
d. $22,500
quiz: Payton Corporation provided the following information for the year:
Beginning Balance - Work-in-Process Inventory - $26,000 Ending Balance - Work-in-Process Inventory - 55,000 Beginning Balance - Direct Materials - 81,000 Ending Balance - Direct Materials - 59,000 Purchases - Direct Materials - 360,000 Direct Labor - 471,000 Indirect Labor - 19,000 Depreciation on Factory: Plant and Equipment - 24,000 Plant Utilities and Insurance - 268,000
What was the amount of the cost of goods manufactured for the year?
Select one:
a. $1,164,000
b. $1,135,000
c. $1,363,000
d. $1,193,000
b. $1,135,000
quiz: The following relates to Harrison, Inc:
Advertising Costs - $10,600 Sales Salary - 10,000 Sales Revenue - 500,000 President's Salary - 230,000 Office Rent - 60,500 Manufacturing Equipment Depreciation - 1,200 Indirect Materials Used - 8,000 Indirect Labor 13,000 Factory Repair and Maintenance - 920 Direct Materials Used - 27,500 Direct Labor - 36,000 Delivery Vehicle Depreciation - 1,550 Administrative Salaries - 22,000
How much were Harrison’s product costs?
a. $510,600
b. $604,650
c. $252,000
d. $86,620
d. $86,620
quiz: The following information is available from Avery Company, a manufacturer of security cameras:
Cost of Goods Manufactured - $312,000
Total Units Produced - 1,200
Number of Units Sold - 850
Cost of Goods Sold - $275,000
The unit product cost for a security camera is:
a. $286
b. $324
c. $260
d. $1
c. $260
quiz: Which of the following is an example of direct labor cost in a factory?
a. salary of vice president of production
b. wages of factory security guard
c. wages of assembly line personnel
d. salary of production manager
c. wages of assembly line personnel
quiz: Which of the following will most likely be considered an indirect material cost for a bakery?
a. eggs
b. spices
c. milk
d. flour
b. spices
quiz: Costs are transferred from the balance sheet to the income statement as cost of goods sold when:
a. finished goods are sold
b. direct materials, direct labor and manufacturing overhead are transferred to the beginning Work-in-Process Inventory account
c. goods are transferred from the Work-in-Process Inventory account to the Finished Goods Inventory account
d. the total of Cost of Goods Manufactured is determined
a. finished goods are sold
quiz: Period costs are the
Select one:
a. costs related to production of products
b. same as manufacturing overhead costs
c. product costs that must be paid in the accounting period in which they are incurred
d. operating costs that are expensed in the accounting period in which they are incurred
d. operating costs that are expensed in the accounting period in which they are incurred
quiz: Which of the following would be considered a product cost for a manufacturing company?
a. depreciation on manufacturing equipment
b. depreciation on administrative building furniture and fixtures
c. depreciation on delivery vehicles
d. depreciation on the accounting department’s computer equipment
a. depreciation on manufacturing equipment
___, ___, and ___ are three ways to allocate MFO to products.
Plant-wide rate*
Departmental rate
Activity-based rate
Depreciation, utilities, maintenance, supplies, insurance, and indirect labor are examples of ___.
Overhead
___ is the relationship between estimated annual overhead costs and expected annual operating activity.
Plant-wide overhead rate
___ is the refined process by breaking down overhead by department I.e., departments, product lines, etc.
Departmental rate
Departmental rate = ___ / departmental allocation base
Ex. $1,000,000 OH / 80,000 DLhrs = $12.50 DLhrs
Estimated OH department
___ is the overcosting or undercosting products.
Cost distortion
___ focuses on activities and costs of activities and has a separate rate for each activity.
Activity-based overhead rate
What are the steps of activity-based overhead rate?
- Identify and estimate indirect costs
- Identify and estimate number of cost drivers
- Calculate the allocation rate for each activity (predetermined overhead rate per activity)
- Obtain quantity of allocation base used (make charts)
- Allocate to products based on actual activity used
Overhead allocation rate per activity = estimated OH cost per activity / ___
Estimated costs driver per activity
___ is the activity that causes the OH to occur for a specific function.
Cost driver
Facility upkeep, depreciation, utilities, etc are examples of ___.
Plant-wide level (1)
R and D, design, market new models, etc are examples of ___.
Product line level (2)
Machine setup (while milk vs skim milk, but not gallons vs half gallons) is an example of ___.
Batch level (3)
Inspecting and packaging each unit a company produces is an examples of ___.
Unit level (4) Most refined*
