Module 2: Job Order Costing

Question 1

Inventory:

Answer 1

Goods purchased by a business for resale to customers.

Question 2

Job order costing system:

Answer 2

An accounting system that accumulates costs by job. Used by companies that manufacture unique products or provide specialized services. May be a unit or a batch of units.

Question 3

Raw materials:

Answer 3

Materials used to manufacture a product.

Question 4

Financial statements:

Answer 4

Business documents that are used to communicate information needed to make business decisions.

Question 5

Manufacturing overhead (MOH):

Answer 5

All manufacturing costs other than direct materials and direct labor; also called factory overhead and manufacturing cost.

Question 6

Allocation base:

Answer 6

The denominator that links overhead costs to the products.

Question 7

Cash flows:

Answer 7

Cash receipts and cash payments of a business.

Question 8

Depreciation:

Answer 8

Allocation of the cost of a long-term asset to expense over its useful life.

Question 9

Cost Accounting System:

Answer 9

Used to accumulate product cost information.

Question 10

How can the cost accounting system help managers?

Answer 10

It helps managers on:

1. setting product prices;
2. computing the cost of goods sold;
3. computing the cost of inventory.

Question 11

How is the cost accounting information used?

Answer 11

Cost Accounting Information is used to plan and control the cost of resources needed to create a product, and deliver it to a costumer.

Question 12

What is an ERP-system?

Answer 12

Enterprise resource planning (ERP) refers to a type of software that organizations use to manage day-to-day business activities such as accounting, procurement, project management, risk management and compliance, and supply chain operations.

Question 13

Process costing system:

Answer 13

An accounting system that accumulates costs by process. Used by companies that produce large quantities of similar products.

Question 14

What are the steps in the four-step method to track product costs and their definitions?

Answer 14

Step 1: Accumulate costs by the accounting system;

Step 2: Assign costs to different products or services;

Step 3: Allocate costs (specifically for moh) to jobs or products;

Step 4: Adjust costs for overhead. -> Overhead allocated throughout the period might not equal to the actual overhead.

Question 15

Cost allocation system:

Answer 15

A cost allocation system is a process for assigning costs to the differnt businesses, departments or products that benefit from those costs.

Question 16

Fixed costs:

Answer 16

Remain the same from month to month, no matter how the company´s production or sale volume fluctuates. (Renting equipment, supervisor´s salary)

Question 17

Variable costs:

Answer 17

Increase when sales or production volumes goes up and vice-versa. (Maintenance of equipment)

Question 18

Overhead costs:

Answer 18

Are not part of producing a good or service, but the benefit a business as a whole. (Advertising, insurance)

Question 19

Job Cost Record:

Answer 19

A document that shows the direct materials, direct labour and manufacturing overhead costs for an individual job.

Question 20

What is the main issue with tracking manufacturing overhead?

Answer 20

Manufacturing overhead cannot be traced to specific jobs.

Question 21

Allocation Base:

Answer 21

A denominator that links indirect costs to cost objects. Ideally, the allocation base is the primary cost driver of the indirect costs.

Question 22

Cost Driver:

Answer 22

The primary factor that causes a cost to increase or decrease.

Question 23

What is cost of goods manufactured? Describe the flow of this cost through the job order costing system. Your answer should include the accounts involved and whether the flow involves a debit or credit.

Answer 23

When a job is completed, the costs are transferred out of Work-in-Process Inventory with a credit and transferred into Finished Goods Inventory with a debit. This amount is called Cost of Goods Manufactured.

Question 24

What is cost of goods sold? Describe the flow of this cost through the job order costing system. Your answer should include the accounts involved and whether the flow involves a debit or credit.

Answer 24

When the job is sold, the costs are transferred out of Finished Goods Inventory with a credit and transferred into Cost of Goods Sold with a debit. This amount is the job’s cost of goods sold. Cost of Goods Sold is an expense on the income statement.

Question 25

Predetermined Overhead Allocation Rate:

Answer 25

Estimated overhead cost per unit of the allocation base calculated at the beginning of the accounting period.