Chapter 4 - Job Costing

Question 1

Cost Pool

Answer 1

A grouping of individual indirect cost items

Question 2

Cost Allocation Base

Answer 2

A basis of systematically linking indirect cost to a cost object

Question 3

Normal Costing (Timely)

Answer 3

-Direct costs are traced to a particular job
> Direct materials and direct labor
-Indirect costs or overhead are allocated based on a predetermined or budgeted overhead rate
> Factory rent, utilities, supervisor salary, etc.

Question 4

Normal Costing (con.)

Answer 4

-Indirect cost or overhead is estimated for the period (budgeted overhead)
-An appropriate cost driver is selected (what causes overhead to go up or down, i.e. allocation base)
>Usually labor hours, machine hours, or direct materials

Question 5

Budgeted Manufacturing Overhead Rate

Answer 5

Budgeted Manufacturing Overhead Costs / Budgeted Total Quantity of Cost-Allocation Base

Question 6

Actual Costing (Accurate)

Answer 6

-Essentially the same as normal costing
-Except when you calculate overhead allocation you:
> Use the actual overhead costs
> Use the actual allocation base

Question 7

Actual Manufacturing Overhead Rate

Answer 7

Actual Manufacturing Overhead Costs / Actual Total Quantity of Cost-Allocation Base

Question 8

Under-Applied Overhead

Answer 8

-Applied < Actual
> Overhead costs were higher than expected
> The allocation base was lower than expected

Question 9

Over-Applied Overhead

Answer 9

-Applied > Actual
> Overhead costs were lower than expected
> The allocation base was higher than expected

Question 10

Write-off to COGS

Answer 10

-If the difference is small, simply write off to cost of goods sold
> If under-applied, debt COGS
> If over-applied, credit COGS

Question 11

Journal Entries

Answer 11

• Purpose is to have the accounting system closely reflect the actual state of the business, its inventories, and its production processes
• Made at each step of the production process (buying DM, completing WIP)
• Adjusting journal entries at the end of the reporting period (Under/over allocated indirect costs)

Question 12

JE 1 - Purchase of RM on credit

Answer 12

Raw materials 100

Accounts payable 100

Question 13

JE 2 - Requisition of direct and indirect RM into production

Answer 13

Work-in-Process 40
Manufacturing Overhead 10
Raw Materials 50

Question 14

JE 3 - Incurred direct and indirect (OH) labor wages

Answer 14

Work-in-Process 80
Manufacturing Overhead 20
Accounts Payable or Cash 100

Question 15

JE 4 - Incurring or recording of various actual indirect costs

Answer 15

Manufacturing Overhead 200
Salaries Payable 50
Accounts Payable 40
Accumulated Depreciation 80
Prepaid Expenses 30

Question 16

JE 5 - Allocation of Overhead Costs

Answer 16

Work-in-Process 240

Manufacturing Overhead 240

Question 17

JE 6 - Produced are Completed

Answer 17

Finished Goods 360

Work-in-Process 360

Question 18

JE 7 - Products are sold to customers on credit

Answer 18

Cost of Goods Sold 360
Finished Goods 360
Accounts Receivable 500
Sales 500

Question 19

JE 8 - Adjusting entry made to COGS

Answer 19

Manufacturing Overhead 10

COGS 10