Chapter 3

Question 1

cost pool

Answer 1

grouping of individual cost items

Question 2

cost allocation base

Answer 2

factor that is the common denominator for systematically linking an indirect cost or group of indirect costs to a cost object

Question 3

is cost-allocation base financial or non financial

Answer 3

both

Question 4

job costing system

Answer 4

Costs are assigned to a distinct unit, batch or lot of a product or service, CUSTOM MADE

Question 5

process costing system

Answer 5

used when the cost object is masses of identical similar units, SAME PRODUCT

Question 6

actual costing

Answer 6

costing method that traces direct cost to a cost object by using the actual direct cost rates times the actual quantity of direct-cost inputs and allocates the indirect costs based on the actual indirect-cost rate(s) times the actual quantity of the cost-allocation base.

Question 7

6 steps to job costing

Answer 7

1. identify job: what are we going to calculate the cost for?
2. identify direct costs: materials, labor
3. identify indirect-cost pools: electricity, factory, tools
4. choose a cost-allocation base: divide those indirect costs among all jobs
5. calculate the rate for indirect costs
6. add up the total costs

Question 8

indirect cost rate formula for actual costing

Answer 8

Totalindirectcosts
​

Question 9

source documents

Answer 9

original records that support journal entries in an accounting system

Question 10

how do we use normal costing

Answer 10

Instead of waiting until the end of the year to calculate the actual costs for a job, they use budgeted numbers for certain costs (specifically indirect costs).

Question 11

whats the difference between actual and normal

Answer 11

they both calculate the direct costs the same wat but indirect way different. the actual does actual rate x actual quantity and normal does budgeted rate x actual quantity, so actual are not known until the end of the year.

Question 12

indirect cost rate formula for normal costing

Answer 12

budgeted Totalindirectcosts

Question 13

Job cost record

Answer 13

key source document in job-costing system

Question 14

materials requisition record

Answer 14

form used to charge departments and job costing records for the cost of materials used on a specific job

Question 15

labour time record

Answer 15

used to charge departments and job cost records for labour time used on a specific job

Question 16

Job costing system helps a company achieve two main goals

Answer 16

1. Department responsibility and control: each department can see the costs related to the part it’s responsible for.
2. Product costing: system helps calculate the total cost of making a product

Question 17

Disadvantage of Budgeted indirect costs

Answer 17

it ia an estimation so might not be accurate

Question 18

Under allocated indirect costs

Answer 18

when allocated amount of indirect costs in an accounting period is less than the actual amount in that period

Question 19

Overallocated indirect costs

Answer 19

When the allocated amount of indirect costs in an accounting period exceeds the actual amount in that period.

Question 20

Adjusted allocation rate approach

Answer 20

adjusts all entries in the general ledger to use actual costs instead of budgeted ones.

Question 21

Proration Approach

Answer 21

You spread any difference in overhead across three key areas:
1. work in progress
2. finished foods
3. COGS

Question 22

There are three ways to spread (prorate) the difference

Answer 22

1. based on total indirect cost allowed: based on how much overhead was allocated to each before proration.
2. based on total closing balances: based on how much money is left in each account
3. directly to COGS: put all the under- or overallocated overhead into just the Cost of Goods Sold account (NOT AS ACCURATE).

Question 23

Most accurate job cost record?

Answer 23

Adjusted allocation rate approach

Question 24

to get accurate figures for stock and COGS

Answer 24

proration approach (adjusted also possible but proration is simpler ad doesn’t adjust individual job costs).