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 (+)
