Week 4 Review

Question 1

Explain absorbsion cost

Answer 1

Directly trace or allocate all manufacturing costs to products made

Question 2

How is absorption costs used?

Answer 2

Used in financial reporting for calculating book value of inventory and COGS manufactured

Question 3

What are the two types of absorption costs?

Answer 3

Job order and process cost systems

Question 4

Describe job order costing

Answer 4

Used in departments that produce in batches and assembly processes.

Question 5

Describe process costing

Answer 5

Continuous production of a single type of product. Costs are assigned to the production process

Question 6

What are the components of job order costing

Answer 6

Use of job sheets
Direct material issued for job
Machine hours
Indirect manufacturing costs-accummilated in O/H account as machine hours

Question 7

Describe cost flow among inventory in job order costing

Answer 7

Work in process- jobs not complete
Finished goods- jobs complete and not sold
Cost of goods sold- jobs sold

Question 8

Illustrate product costing approach used in job order costing.

Answer 8

Determine the cost of producing the job by adding DM, DL and Applied O/H (% of DL) per job

Question 9

Describe process costing system

Answer 9

Costs from first process are incurred (DM, DM, O/H) and are WIP. These cost are transferred to Department 2. Department 2 will incur DM, DL AND O/H + costs from depart 1. Assuming both processes are complete, then both processes are transferred Finished Goods. Beginning WIP will be used first assuming FIFO.

Question 10

Explain activity based costing

Answer 10

DM and DL Costs are assigned to activities initially then O/H costs are allocated to the activity

Question 11

What is a unit cost

Answer 11

Activities performed at least once for each unit of product- Direct Labor, Materials and O/H

Question 12

What is batch level costs

Answer 12

Activities performed at least once for a batch or lot of products- ex. Machine set up, cleanup, purchase orders, inspections, moving the batch to the next process

Question 13

What are product level costs

Answer 13

Activities to support the production - ex. Engineering costs, product enhancement

Question 14

What are capacity sustaining costs?

Answer 14

Common cost such as: security, maintenance, admin, insurance, utilities, taxes

Question 15

What is the purpose of, advantage and disadvantage of activity based costing?

Answer 15

Purpose- to better understand cost relationships to the department pertaining to the costs.
Advantage- accuracy of product costs and resource utilization
Disadvantage- still not 100% accurate. Additional cost pools/ drivers could exceed the benefit

Question 16

What concept is required for process costing?

Answer 16

Equivalent units

Question 17

What is an equivalent unit?

Answer 17

Amount of output in terms of complete units (ex. If 3 units are 1/3 complete…then equivalent to 1 unit

Question 18

Examples of equivalent units?

Answer 18

If 200 units in WIP at the end of the month and they are 75% complete, then the 200 units represent 150 equivalent units

Question 19

Process cost systems track what?

Answer 19

Direct material and Conversion costs (labor and overhead)

Question 20

What are the major functions of all absorbsions costs to include process costs?

Answer 20

Total costs are divided into:

1)costs still in WIP
2)completed manufacturing
A) finished goods inventory
B) cost of goods sold

Question 21

Equation for cost per equivalent units materials

Equation for cost per eq. Units conversion

Answer 21

Material costs/ (started & completed units + end WIP units)

Conversion costs/ (started & completed + (end WIP * % complete))

Question 22

Equation for Actual overhead in job processing

Answer 22

Step 1- fixed O/H+( per unit V O/H* activity base)/
Activity base= applied O/ H rate.

Step 2 - app. O/H rate * actual output