exam 2- incomplete Flashcards
objective of a cost accounting system- job order cost system
to compute cost per job measures costs for each job completed- not for set time period
what does a job order cost system do
assign costs to each job or batch of goods - each job or batch has its own distinguishing characteristics
what are the flow of costs parallels physical flow of material as they are converted into finished goods
manufacturing costs are assigned to work in progress inventory(WIP)
cost of completed jobs is transferred to finished goods inventory
when units are sold, cost is transferred to cost of goods sold
what are the 3 goals of factory labor costs/ accumulating manufacturing costs
- gross earnings of factory workers
- employers’ payroll taxes on these wages
- fringe benefits( sick pay, pensions, and vacation pay) incurred by the employer
what are some types of manufacturing overhead costs
property taxes, depreciation, insurance, and repairs related to the manufacturing process
how are costs unrelated to manufacturing expensed
expensed as period costs
assign manufacturing costs( debits and credits) to work in process
- debits made to work in process inventory
- credits made to - raw materials inventory, factory labor, manufacturing overhead
where are costs related to manufacturing process accumulated
accumulated in manufacturing overhead account- MOH subsequently assigned to work in process
assigned to a job when materials are issued from the materials store room in response to requests
raw materials costs
materials requisition slip
-written authorization for issuing raw materials
- may be directly issues to use on job- direct materials( charged to work in process inventory)
- may be considered indirect materials- charger to manufacturing over head
pre determined over head rate
-established at the beginning of the year
small companies often use a single company-wide predetermined rate
- large companies often use rates that vary from department to department
pre determined over head rate equation
estimated annual cost / estimated annual operating activity= pre determined overhead rate
what does a predetermined overhead rate do to the general ledger
entry reduces the balance in manufacturing overhead and increases work in process inventory
what is underapplied manufacturing overhead
a debit balance in manufacturing overhead
what is an overapplied balance in manufacturing overhead
a credit balance in manufacturing overhead
how do you eliminate any year end balance
adjust COGS,
underapplied overhead is debited
overapplied overhead is credited
what is activity based costing
approach for allocating overhead costs
- allocates overhead to multiple activity cost pools
- assigns the activity cost pools to products or services by means of cost drivers
what is an activity
any event action, transactionn, work sequence that incures costs when producing a product or performing a service
what is an activity cost pool
the overhead cost sttributed to a distinct activity- such as ordering materials or setting up machines
what is a cost driver
any factor or activity that has a direct cause-effect relationship with the resources consumed
what are the 4 steps of activity based costing
1 identify and classify the activities involved in the manufacturing of specific products and assign overhead to cost pools
2. identify the cost driver that has a strong correlation to the costs accumulated in each ost pool and estimate total annual cost driver usage
3. compute the activity based overhead rate for each cost pool
4. assign overhead costs to products using the overhead rates determined fo each cost pool and each products use of each cost driver
how do you solve for activity based overhead rate
estimated overhead per activity / estimated use of cost drivers per activity= activity based overhead rate
what the the 3 benefits of ABC
- more cost pools therefore more accurate product costing
- enhance control over overhead costs
- supports better management decisions
what are advantages of multiple cost pools
- used instead of one plantwide pool and a single cost driver
- numerous activity cost pools with more relevant cost drivers
– - costs allocated on basis of cost drivers used to produce each product
