Chapter 4 Flashcards
Job Costing
What is the difference between Cost Assignment, Cost Allocation, and Cost Tracing?
The overall assigning of direct and indirect costs to specific cost drivers is a Cost Assignment. Cost Allocation is assigning indirect costs. Cost tracing is for direct costs.
A grouping of indirect costs items is called a ______.
A Cost Pool
True or False: Cost Pools are only related to narrow costs, such as the costs of operating a machine.
False
They can be both narrow and broad. From the costs of a single machine to the overall production plant.
The number of machine-hours or labour-hours would be considered a _______.
A cost allocation base.
If the indirect cost of operating metal-cutting machines is $300,000 based on running these machines for 5,000 hours, the cost allocation rate is
$60 per machine-hour
$300,000 / 5,000 = $60
The system for tracking the cost drivers of a mass of identical or similar units is _______.
Process-costing
(Scotiabank provides the same service to all its customers)
The system used for tracking the cost object of a unit or multiple units of a distinct product or service is ______.
Job-costing
(A specialized machine made at Samsung, a repair job done at an Audi service centre, or an advertising campaign produced by Saatchi & Saatchi.)
When would you use the budgeted indirect cost rate?
When the company doesn’t want to wait until the end of the year to allocate their overhead. Therefore, they budget it at the beginning and allocate accordingly.
Normal costing is a system that ________.
Traces direct costs to a cost object by using the actual direct-cost rates multiplied by the actual quantities of the direct-cost inputs
Allocates indirect costs based on the budgeted indirect-cost rates multiplied by the actual quantities of the cost-allocation bases.
What are the steps to Normal costing?
Step 1: Identify the job that is the chosen cost object
Step 2: Identify the direct costs of the job
Step 3: Select the cost-allocation bases to use for allocating indirect costs to the job
Step 4: Identify the indirect costs associated with each cost-allocation base
Step 5: Compute the rate per unit of each cost-allocation base used to allocate indirect costs to the job
Step 6: Compute the indirect costs allocated to the job
Step 7: Compute the total cost of the job by adding all direct and indirect costs assigned to the job
What are two reasons why a company may use a longer period, such as a year, to calculate indirect cost rates?
Seasonal Patterns: Shorter periods means seasonal patterns have a greater effect on costs. (Heating during the winter)
Unitized Fixed Costs: The fixed cost potions will be spread out more evenly.
True or False: Normal costing uses budgeted indirect-cost rates, while actual costing does not.
True
Actual costing uses actual indirect-cost rates calculated annually at the end of the year.
Manufacturing overhead control is 1,215,000. Manufacturing Overhead Allocated is 1,080,000. Is overhead over or under allocated and by how much?
1,215,000 - 1,080,000 = 135,000
Overhead is under allocated by $135,000
True or False: Adjusted allocation-rate approach has the benefits of both normal costing and actual costing.
True
The adjusted allocation-rate approach yields the benefits of both the timeliness and convenience of normal costing during the year and the allocation of actual manufacturing overhead costs at year-end.
The Proration Approach is ______.
The spreading of over or underallocated overhead among ending work-in-process, finished goods, and cost of goods sold.
