Chapter 3

Question 1

Cost Accounting and cost accounting system:

Answer 1

Cost accounting = focuses on the measuring, recording, and reporting of product costs.

Cost Accounting system: consists of accounts for the various manufacturing costs.

Question 2

Job order cost system:

Answer 2

Distinct products with low volumes: home building, shipbuilding, film production, aircraft manufacture, custom machining, furniture manufacture, printing, consulting

Costs totalled by job or batch

Unit cost calculated by dividing total job costs by units produced

Question 3

4 steps of job order cost flow:

Answer 3

1.Companies first accumulate manufacturing costs in the form of raw materials, factory labour, or manufacturing overhead.
2.Manufacturing costs are assigned to the Work in Process Inventory account.
3.When a job is completed, the cost of the job is transferred to the Finished Goods Inventory account.
4.Later, when the goods are sold, their cost is transferred to Cost of Goods Sold, reported on the income statement.

Question 4

Step 1: Accumulating Manufacturing Cost

Answer 4

• Raw Material Cost
  —Debit Raw Material Inventory
  Credit (What you used to pay)
  To record the purchase of Material
• Factory Labor cost
  Debit Factory Labor
  Credit payroll Liabilities
  To record labor cost

-Manufacturing Overhead Cost
Debit Manufacturing Over Head cost
Credit (All the things part of MO)
To record overhead cost

Question 5

Step 2: Assigning manufacturing cost to jobs

Answer 5

Raw Material assigning:
Debit Work in Process Inventory
Debit Manufacturing Overhead
Credit Raw Material inventory
To assign materials to job overhead

To assign Labor:
Debit Work in Process Inventory
Debit Manufacturing Overhead
Credit Factory labor
To assign labor to jobs and overhead

To assign Overhead:
Debit : work in process Inventory
Credit : Manufacturing
to assign manufacturing over head to jobs

Question 6

Predetermined Overhead Rate:

Answer 6

Based on the relationship between the estimated annual overhead costs and the estimated annual operating activity. This relationship is expressed through a common activity base.

Estimated annual overhead / estimated annual operating activities= pre determined overhead rate

Question 7

The normal costing System:

Answer 7

applied manufcaturing overhead

Question 8

Entries for jobs completed and sold:

Answer 8

Debit: Finished goods
Credit: Work in process inventory
To record the competition of job no

Debit : Account Recievable
Credit: Sales
To record sale of job no.

Debit : Cost of good sold
Credit : Finished good inventory
To record cost of job no.

Question 9

Applied Manufacturing Overhead:

Answer 9

When Manufacturing Overhead has a debit balance, overhead is said to be under-applied. Under-applied overhead means that the overhead assigned to Work in Process Inventory is less than the overhead incurred.

Conversely, when Manufacturing Overhead has a credit balance, overhead is over-applied. Over-applied overhead means that the overhead assigned to Work in Process Inventory is greater than the overhead incurred.