Cost Accounting

Question 1

In a traditional job order cost system, what area is increased by indirect materials in a production department?

Answer 1

Factory Overhead Control is debited by use of indirect materials

Question 2

In which account is indirect labor included, and what kind of cost is it?

Answer 2

Indirect labor is included in factory overhead, and it is considered a conversion cost.

Question 3

Are salaries for factory foremen included in direct labor costs?

Answer 3

No. This is a supervisory role that is indirectly related to the manufacturing process. These salaries would be included in factory overhead.

Question 4

What are the steps for traditional overhead allocation?

Answer 4

1. Establish estimated OH costs and divide by budgeted or estimated quantity of cost driver to get a predetermined rate
2. Multiply predetermined rate by actual machine hours to get allocated overhead
3. Determine the difference between actual and estimated overhead and ‘dispose’ of the difference:
   DR COGS/Overapplied OH
   CR Underapplied OH/COGS

Question 5

What is the JE to record the application of factory overhead in a process cost system?

Answer 5

Work in Process XX
Factory OH Applied XX

The entry is similar for job costing

Question 6

What is the deal with Under/Over-applied Factory Overhead?

Answer 6

Underapplied overhead occurs when OH applied (estimated) is less than actual overhead. For this to happen, either FC are greater than budgeted costs or actual volume of production was less than budgeted volume.

Overapplied OH occurs when OH applied (estimated) is greater than actual OH. FC would either be less than budgeted amounts or actual production volume was greater.

Question 7

What are the four sections of the Cost of Goods Manufactured Statement?

Answer 7

1. Direct Materials
2. Total Manufacturing Costs
3. Cost of Goods Manufactured
4. Cost of Goods Sold

Question 8

Which section of the COGM Statement is the exception to the format: BB + Purchases - EI = “” Used?

Answer 8

Total Manufacturing Costs include the total DM used, Direct Labor, and Manufacturing OH.

Question 9

What is the format for Cost of Goods Manufactured Statement?

Answer 9

Work in process inventory, beginning
Add: Direct Material used*
Add: Manufacturing OH Applied
Total Manufacturing Costs avail.
Less: WIP Inventory, Ending
COGM - completed units in period

*Beginning raw materials
Add: Purchases
=Available
Less: Ending inventory
=Used, above

Question 10

Under direct costing, what costs are treated as product costs?

Answer 10

AKA ‘variable costing’ – Only variable manufacturing costs (DM, DL still included) are treated as product costs. All other costs associated, including variable selling costs, are considered to be period costs.

Question 11

What is absorption costing?

Answer 11

Assigns all factors of production to inventory: DM, DL, fixed and variable manufacturing OH

Question 12

What is the difference between absorption costing and direct or variable costing?

Answer 12

The ONLY difference bt these 2 methods is the application of Manufacturing OH: Variable costing ONLY applies variable manufacturing OH to product costs.

The result is higher inventory valuation, and COGS (lower income) for Absorption Costing vs Direct Costing.

Question 13

When production is greater than sales in a given period, will absorption costing provide higher or lower income than will direct costing?

Answer 13

Production = Sales: income is same for both
Production > Sales: Absorption income>Variable
Production Income