Chapter 5

Question 1

manufacturing firms

Answer 1

combines direct materials, direct labor, and overhead to produce a new product
the good produced is tangible and can be inventoried and transported

Question 2

service firms

Answer 2

service is characterized by its intangible nature

–not separable from the customer and cannot be inventoried

Question 3

intangibility

Answer 3

nonphysical nature of services as opposed to products

Question 4

inseparability

Answer 4

production and consumption are inseparable for services

Question 5

heterogeneity

Answer 5

refers to greater variation in the performance of services than production of products

Question 6

perishability

Answer 6

means that services cannot be inventoried but must be consumed when performed

Question 7

job-order costing

Answer 7

used for unique units with unique costs of production

Question 8

operation costing

Answer 8

a hybrid of job-order and process costing

Question 9

process costing

Answer 9

used when units are homogeneous

Question 10

cost accumulation

Answer 10

refers to the recognition and recording of costs

• -source docs
• ->describe transactions

Question 11

cost measurement

Answer 11

refers to classifying or organizing costs in a meaningful way
–actual vs. normal

Question 12

actual costing

Answer 12

uses actual direct material, direct labor, and overhead

Question 13

normal costing

Answer 13

uses actual direct materials and direct labor but applies overhead using predetermined overhead rates or activity rates

Question 14

cost assignment

Answer 14

refers to association of production costs with the units produced

Question 15

expected activity level

Answer 15

production level the firm expects to attain for the coming year

Question 16

normal activity level

Answer 16

average activity usage that a firm experiences in the long term

Question 17

theoretical activity level

Answer 17

absolute maximum production activity of a manufacturing firm

Question 18

practical activity level

Answer 18

maximum output that can be realized if everything operates efficiently

Question 19

job-order cost sheet

Answer 19

identifies each job and accumulates its manufacturing costs

collection of all job cost sheets defines a WIP inventory file

Question 20

materials requisitions

Answer 20

source doc used to assign direct materials cost to a job

Question 21

job time tickets

Answer 21

source doc used to assign direct labor cost to each job

Question 22

overhead application

Answer 22

jobs are assigned overhead costs with a predetermined overhead rate
–typically direct labor hours are used as the measure to calculate overhead

Question 23

schedule of cost of goods manufactured

Answer 23

schedule summarizing the cost flows through the production activity is prepared

Question 24

normal spoilage

Answer 24

if not caused by any particular job, it is subsumed in the overhead rate and spread across all jobs through applied overhead
–if caused due to exacting nature of the job, the extra cost is added to that job’s cost

Question 25

abnormal spoilage

Answer 25

unexpected and not part of normal operations

–charged to loss from abnormal spoilage