Job-order and Service Costing

Question 1

What is product costing?

Answer 1

The process of assigning costs to the products and services provided by a company

Question 2

What is the essential purpose of any managerial costing system?

Answer 2

To provide cost data to help managers to plan, control, direct and make decisions

Question 3

What heavily influences how costs are accumulated and summarised on managerial reports?

Answer 3

External financial reporting and tax reporting

Question 4

What are the two major types of costing systems?

Answer 4

Process Costing and job-order costing

Question 5

What are the the characteristics of process costing?

Answer 5

A single, homogeneous product/service is produced

Question 6

What are examples of industries in which process costing is used?

Answer 6

Cement, flour, brick and oil refining

Question 7

What is the full cost approach?

Answer 7

Unit cost = total manufacturing cost / total units produced

Question 8

What is job-order costing?

Answer 8

When many different products, jobs, or batches are produced each period

Question 9

What are the typical job-order cost applications?

Answer 9

Special-order printing and building construction

Question 10

What are the sequence of events in a job-order costing system?

Answer 10

Receive orders from customers, schedule jobs, order materials and then begin production

Question 11

What can be traced directly to each job in job-order costing?

Answer 11

Direct material and direct labour

Question 12

How do we apply overheads to each job in job-order costing?

Answer 12

By using a pre-determined overhead rate

Question 13

How do we calculate the pre-determined overhead rate?

Answer 13

Estimated total manufacturing cost for the coming period / estimated total units in the allocation base for the coming period

Question 14

How do we calculate overhead applied?

Answer 14

POHR x actual activity

Question 15

Why do we use a POHR?

Answer 15

Using POHR makes it possible to estimate total job costs sooner

Question 16

What can cause fluctuation in the overhead rates?

Answer 16

Seasonal factors

Question 17

What is a job-cost sheet?

Answer 17

The primary document for tracking the costs associated with a given job

Question 18

What is a materials requisition form?

Answer 18

It is used to authorise the use of materials on a job

Question 19

What happens if the manufacturing overhead is underapplied?

Answer 19

Applied OH is less than actual OH

Question 20

What happens if the manufacturing overhead is overapplied?

Answer 20

Applied OH is greater than actual OH

Question 21

If an overhead is underapplied, how can this be adjusted?

Answer 21

By decreasing cost of goods sold

Question 22

What do companies base their POHR rates on?

Answer 22

The estimated, or budgeted, amount of the allocation base for the upcoming period

Question 23

What are operating departments?

Answer 23

Departments where the central purposes of the organisation are carried out

Question 24

What are operating departments responsible for?

Answer 24

The major activities that ultimately generate revenue

Question 25

What are service departments?

Answer 25

They provide services or assistance to the operating departments, and engage in activities that do not generate significant revenue

Question 26

How are service department costs charged to operating departments?

Answer 26

Identify the factor that drives costs in the service department, measure the consumption of the allocation base in the operating departments and then allocate the service department cost based on the relative amount of the allocation based used in each operating department

Question 27

What happens to service department costs after they are allocated to operating departments?

Answer 27

Allocated service department costs become a part of the overhead in each operating department

Question 28

Why are service department costs allocated to operating departments?

Answer 28

To help evaluate performance, measure profitability, develop overhead rates and to encourage managers of operating departments to make wise use of services provided by service departments

Question 29

What is an allocation base?

Answer 29

It should be a measure of whatever activity causes variations in the costs of the service department whose costs are to be allocated

Question 30

How do the allocations asses the profitability of a segment such as product?

Answer 30

It needs to know what portion of a service departments costs are caused by the segment

Question 31

How do we select allocation bases?

Answer 31

By the easier, benefits received by the operating department and availability of space or equipment

Question 32

How can we allocating costs when service departments provide services to each other?

Answer 32

By using the direct, step or reciprocal method

Question 33

What is the direct method?

Answer 33

It ignores reciprocal services that are provided among service departments

Question 34

What are some examples of allocation bases?

Answer 34

No. of employees, square metres occupied, kW hours, direct labour-hours, direct machine-hours

Question 35

What is the step method?

Answer 35

It takes reciprocal services into account, but only imperfectly

Question 36

What is the reciprocal method?

Answer 36

Interdepartmental services are given full recognition rather than partial recognition as with the step method

Question 37

What are allocation pitfalls to avoid?

Answer 37

Using sales as an allocation base and allocating fixed costs using a variable activity allocation base,