Week 4

Question 1

Costing:

Answer 1

The process of accumulating, classifying and assigning costs to cost objects.

Question 2

Components of costing system:

Answer 2

Cost accumulation methods:
Job costing - entails that costs can be accumulated by tracing them to a specific product or service. In this type of system, the jobs consist of batches, products or services.
Process costing - entails that costs can be accumulated at the department level and allocated from departments to the products.

Cost measurement method:
Actual costing system - uses actual costs incurred for all products
Normal costing - uses actual costs for materials and labour, but estimate for factory overhead.
Standard costing system - uses standard costs and quantities for materials, labour and overhead. Standard costs are expected costs the firm should attain

Overhead application method:
Volume based - with volume cost drivers
Activity based costing - using both volume and non-volume cost drivers to provide more accurate allocation of overhead to products.

Question 3

Job costing:

Answer 3

Uses job cost sheets where materials, labour and overhead is recorded for a specific job

Materials requisition is an online data entry that the production departments use to request materials for production

Question 4

Factory overhead costs application:

Answer 4

A process of allocating factory overhead costs to jobs, involving the allocation of indirect costs to cost objects.

Normal costing avoids fluctuations in cost per unit under actual costing, which originate from changes in the month-to-month volume of units produced and consequently changes in overhead

Question 5

Normal costing:

Answer 5

Predetermined factory overhead rate is an estimated rate used to apply factory overhead to a specific job.
The amount applied to a job is factory overhead applied.

Estimated factory overhead rate = Total factory overhead/estimated total amount of cost driver for the year

This is called plantwide method of normal costing (used if department usage of overhead is similar).

Question 6

Disposition of underapplied and overapplied overhead:

Answer 6

Write-offs - adjust the COGS account
Proration - adjusting the production costs of the period by proportionally allocating costs to different departments