Slide Set 2

Question 1

Cost Accounting involves…

Answer 1

… Measuring, Recording, and Reporting product costs.

Question 2

Process Cost System vs. Job Order Cost System

Answer 2

Process Cost System:
- Used when a large volume of similar products are manufactured - (cereal, refining of petroleum, production of ice cream).
- Costs are accumulated for a time period – (week or month).
- Costs are assigned to departments or processes for a specified period of time.
Job Order Cost System:
- Costs are assigned to each job or batch.
- Important feature: Each job or batch has its own
distinguishing characteristics.
- Objective is to compute the cost per job.
- Measures costs for each job completed – not for set time periods.

Question 3

Job Order Cost Flow

Answer 3

The flow of costs parallels the physical flow of the materials as they are converted into finished goods.

Question 4

Factory Labor Costs

Consists of three costs:

Answer 4

1. Gross earnings of factory workers,
2. Employer payroll taxes on these earnings, and
3. Fringe benefits (such as sick pay, pensions, and vacation pay) incurred by the employer.

Question 5

Manufacturing Overhead Costs

Answer 5

• Costs related to manufacturing process are accumulated in Manufacturing Overhead account.
  ► Manufacturing overhead subsequently assigned to work in process.

Question 6

Job Cost Sheet

Answer 6

• Used to record costs chargeable to specific jobs.
• Constitutes the subsidiary ledger for the work in process
  account.
• Each entry to Work in Process Inventory must be accompanied by a corresponding posting to one or more job cost sheets.

Question 7

Materials requisition slip

Answer 7

► Written authorization for issuing raw materials.
► May be directly issued to use on a job - direct materials (charged to Work in Process Inventory).
► May be considered indirect materials – charged to Manufacturing Overhead.

Question 8

Time tickets indicate:

Answer 8

► Employee
► Hours worked
► Account and job charged
► Total labor cost

Question 9

Factory Labor Costs are assigned by?

Answer 9

Assigned to jobs on the basis of time tickets.

Time tickets are prepared when the work is performed.

Question 10

Companies assign manufacturing overhead to work in process and to specific jobs on an estimated basis through the use of a …

Answer 10

Predetermined Overhead Rate

Question 11

Predetermined Overhead Rate

Answer 11

Based on the relationship between estimated annual overhead costs and expected annual operating activity.
- Expressed in terms of an activity base such as:
► Direct labor costs
► Direct labor hours
► Machine hours
► Any other measure that will provide an equitable basis for applying overhead costs to jobs.
- Established at the beginning of the year.
- Small companies often use a single, company-wide
predetermined rate.
- Large companies often use a different rate for each department and each department may have a different activity base.

Question 12

Predetermined Overhead Rate

At the End of Each Month:

Answer 12

The balance in the Work in Process Inventory should equal the sum of the costs shown on the job cost sheets of unfinished jobs.

Question 13

Advantages and Disadvantages of Job Order Costing

Answer 13

Advantages
- More precise in assignment of costs to projects than process costing.
- Provides more useful information for determining the profitability of particular projects and for estimating costs when preparing bids on future jobs.
Disadvantage
- Requires a significant amount of data entry.

Question 14

Under- or Overapplied Overhead

Answer 14

• A debit balance in manufacturing overhead means that overhead is underapplied.
• A credit balance in manufacturing overhead means that overhead is overapplied.

Question 15

Any Year-End Balance in manufacturing overhead is eliminated by adjusting cost of goods sold.

Answer 15

Underapplied overhead is debited to COGS

Overapplied overhead is credited to COGS