The rate established prior to the beginning of a period that relates estimated overhead to an allocation factor such as estimated direct labor, and that is used to assign overhead cost to jobs, is the:
Term
Austin Company uses a job order cost accounting system. The company's executives estimated that direct labor would be $2,000,000 (200,000 hours at $10/hour) and that factory overhead would be $1,500,000 for the current period. At the end of the period, the records show that there had been 180,000 hours of direct labor and $1,200,000 of actual overhead costs. Using direct labor hours as the allocation base, calculate the under or over applied overhead for the period.
The R&R Company's manufacturing costs for August are: direct labor, $13,000; indirect labor, $6,500; direct materials, $15,000; taxes on raw materials and work in process, $800; heat, lights and power, $1,000; and insurance on plant and equipment, $200. R&R Company's factory overhead incurred for August is:
Definition
$8,500
$6,500 + 1,000 + 200 + 800 = $8,500
Term
If one unit of Product X used $.75 of direct materials and $6.00 of direct labor, sold for $12.00, and was assigned overhead at the rate of 20% of direct labor costs, how much gross profit was realized from this sale?
Definition
$4.05
Cost of goods sold = DM + DL + OH = $.75 + $6.00 + .2($6.00) = $7.95 Gross profit = Sales - cost of goods sold = $12.00 - $7.95 = $4.05
Term
If overhead applied is less than actual overhead, it is:
Definition
Underapplied.
Term
M.A.E. charged the following amounts of overhead to jobs during the year: $20,000 to jobs still in process, $60,000 to jobs completed but not sold, and $120,000 to jobs finished and sold. At year-end, M.A.E. Company's Factory Overhead account has a credit balance of $5,000, which is not a material amount. What entry should M.A.E. make at year-end? [image]
Definition
B Above
Term
O.K. Company uses a job order cost accounting system and allocates its overhead on the basis of direct labor costs. O.K. expects to incur $800,000 of overhead during the next period, and expects to use 50,000 labor hours at a cost of $10.00 per hour. What is O.K. Company's overhead application rate?
Definition
160%
Total DL Cost = 50,000 hours x $10/hr = $500,000 OH rate = $800,000/$500,000 = 160%
Term
BVD Company uses a job order cost accounting system and last period incurred $80,000 of overhead and $100,000 of direct labor. BVD estimates that its overhead next period will be $75,000. It also expects to incur $100,000 of direct labor. If BVD bases applied overhead on direct labor cost, their overhead application rate for the next period should be:
Definition
75%
OH rate = $75,000/$100,000 = 75%
Term
Canoe Company's manufacturing accounting system uses direct labor costs to apply overhead to goods in process and finished goods inventories. Canoe Company's manufacturing costs for the year were: direct labor, $30,000; direct materials, $50,000; and factory overhead applied, $6,000. The overhead application rate was:
Definition
20.0%
OH rate = OH applied/Dl = $6,000/$30,000 = 20%
Term
A company allocates overhead to production on the basis of direct labor cost. If the company's total estimated overhead is $870,000 and estimated direct labor cost is $1,160,000, determine the amount of overhead to be allocated to finished goods inventory. There is $791,000 of total direct labor cost in the jobs in the finished goods inventory.
The Goods in Process Inventory Account for XYZ Inc. follows: [image] If the overhead is applied at the rate of 80% of direct labor cost, what is the amount of Cost of Goods Manufactured?
A company has an overhead application rate of 125% of direct labor costs. How much overhead would be allocated to a job if it required total labor costing $20,000?
Definition
$25,000
$20,000 x 1.25 = $25,000
Term
A job cost sheet includes:
Definition
Direct material, direct labor, overhead.
Term
A document in a job order cost accounting system that is used to record the costs of producing a job is a(n):
Definition
Job cost sheet.
Term
Dell Builders manufactures each house to customer specifications. It most likely would use:
Definition
Job order costing.
Term
A job order manufacturing system would be appropriate for a company that produces which one of the following items?
Definition
A landscaping design for a new hospital.
Term
Job order manufacturing is also known as:
Definition
Customized manufacturing.
Term
The production activities for a customized product represent a(n):
Definition
Job
Term
A job cost sheet shows information about each of the following items except:
Definition
Term
At the current year-end, Hardly Company found that its overhead was underapplied by $2,500, and this amount was not deemed to be a material amount. Based on this information, Hardly should:
Definition
lose the $2,500 to Cost of Goods Sold.
Term
When raw materials are used in production and are recorded in job cost system:
Definition
Goods in Process and Factory Overhead are debited and Raw Materials Inventory is credited.
Term
A source document that an employee uses to record the number of hours at work and that is used to determine the total labor cost for each pay period is a:
Definition
Clock card.
Term
When time ticket information is entered into the accounting system, the journal entry is a debit to Factory Payroll and a credit to Goods in Process Inventory.
Definition
False
Term
If overhead applied is less than actual overhead, it is:
Definition
Underapplied.
Term
Materials requisitions and time tickets are cost accounting source documents.
Definition
True
Term
A manufacturing company uses a job order cost accounting system. Overhead is applied using direct labor hours as an allocation base. Total costs for a particular job were $5,720. Of this amount $2,600 was direct labor and $1,040 was direct material. The company pays $26 per hour of direct labor and $2 per pound of direct materials. What is this company's overhead rate?
Definition
$20.80 per direct labor hour.
DM + DL + OH = Total cost $1,040 + $2,600 + OH = $5,720 OH = $2,080 applied overhead Total DL cost/DL cost per hour = number of DL hours $2,600/ $26 = 100 direct labor hours Predetermined overhead rate (POHR) x allocation base = applied overhead POHR x 100 DL hours = $2,080 POHR = $2,080/100 POHR = $20.80 per DL hour
Term
A time ticket is a source document used by an employee to record the number of hours worked on a particular job during the work day.
Definition
True
Term
Estimated overhead and direct labor costs for the year were $112,500 and $125,000, respectively. During the year, actual overhead was $107,400 and actual direct labor cost was $120,000. The entry to close the over- or underapplied overhead at year-end, assuming an immaterial amount, would include:
Definition
A credit to Cost of Goods Sold for $600.
Predetermined OH rate = $112,500/$125,000 = 90%; OH applied = 120,000(.9) = $108,000; OH is overapplied by $600 leaving a credit balance in OH.
Term
There are two basic types of cost accounting systems: job order costing and periodic costing.
Definition
False
Term
Estimated overhead and direct labor costs for the year were $250,000 and $125,000, respectively. During the year, actual overhead was $248,000 and actual direct labor cost was $123,000. The entry to close the over- or under-applied overhead at year-end, assuming an immaterial amount, would include:
Definition
A debit to Cost of Goods Sold for $2,000.
Predetermined OH rate = $250,000/$125,000 = 200%; OH applied = 123,000(2.0) = $246,000; OH is underapplied by $2,000 leaving a debit balance in OH.
Term
A manufacturing firm that produces a large numbers of standardized units would normally use a job order cost accounting system.
Definition
False
Term
A manufacturing company uses a job order cost accounting system. Overhead is applied using pounds of direct materials used as an allocation base. Total costs for a particular job were $5,720. Of this amount $2,600 was direct labor and $1,040 was direct material. The company pays $26 per hour of direct labor and $2 per pound of direct materials. What is this company's overhead rate?
Definition
$4 per pound of direct material used.
DM + DL + OH = Total cost $1,040 + $2,600 + OH = $5,720 OH = $2,080 applied overhead Total DM cost/DM cost per pound = number of DM pounds $1,040/ $2 = 520 pounds of DM Predetermined overhead rate (POHR) x allocation base = applied overhead POHR x 520 DM pounds = $2,080 POHR = $2,080/520 POHR = $4.00 per pound of DM
Term
The Goods in Process Inventory account of a manufacturing company that uses an overhead rate based on direct labor cost has a $7,750 debit balance after all posting is completed. The cost sheet of the one job still in process shows direct material cost of $6,000 and direct labor cost of $1,000. Therefore, the company's overhead application rate is:
The overhead cost applied to a job during a period is recorded with a credit to Factory Overhead and a debit to:
Definition
Goods in Process Inventory
Term
Job order manufacturing systems would be appropriate for companies that produce training films for a specific customer or custom-made furniture to be used in a new five-star resort hotel.
Definition
True
Term
In a job order cost accounting system, the total balances of all of the job cost sheets for unfinished jobs equal the balance in the Goods in Process Inventory account.
Definition
True
Term
The predetermined overhead allocation rate is used to apply overhead cost to products.
Definition
True
Term
A source document that production managers use to request materials for manufacturing and that is used to assign materials costs to specific jobs or to overhead is a:
Definition
Materials requisition.
Term
Cost accounting systems accumulate costs and then assign them to products or services.
Definition
True
Term
If one unit of Product X used $2.50 of direct materials and $3.00 of direct labor, sold for $8.00, and was assigned overhead at the rate of 30% of direct labor costs, how much gross profit was realized from this sale?
Definition
$1.60
Cost of goods sold = DM + DL + OH = $2.50 + $3.00 + .3($3.00) = $6.40 Gross profit = Sales - cost of goods sold = $8.00 - $6.40 = $1.60
Term
Cost accounting systems used by manufacturing companies are based on the:
Definition
Perpetual inventory system.
Term
A system of accounting for manufacturing operations that produces timely information about inventories and manufacturing costs per unit of product is a:
Definition
Cost accounting system.
Term
Job order costing systems normally use:
Definition
Perpetual inventory systems.
Term
The production activities for a customized product represent a(n):
Definition
Job.
Term
A perpetual record of a raw materials item that records data on the quantity and cost of units purchased, units issued for use in production, and units that remain in the raw materials inventory, is called a(n):
Definition
Materials ledger card.
Term
Managerial accounting information:
Definition
Involves gathering information about costs for planning and control decisions.
Term
Managerial accounting is different from financial accounting in that:
Definition
Managerial accounting includes many projections and estimates whereas financial accounting has a minimum of predictions.
Term
Flexibility of practice when applied to managerial accounting means that:
Definition
The design of a company's managerial accounting system largely depends on the nature of the business and the arrangement of the internal operations of the company
Term
Which of the following items does not represent a difference between financial and managerial accounting?
Definition
Purpose of accounting.
Term
Which of the following items is a management concept that was not created to improve companies' performances?
Definition
Theory of Constraints.
Term
Which of the following is not a characteristic of all fraud?
Definition
Term
A direct cost is a cost that is:
Definition
Traceable to a cost object.
Term
An opportunity cost is:
Definition
A cost of potential benefit lost.
Term
Labor costs that are clearly associated with specific units or batches of product because the labor is used to convert raw materials into finished products called are:
Definition
Direct labor.
Term
Costs that are incurred as part of the manufacturing process but are not clearly associated with specific units of product or batches of production, including all manufacturing costs other than direct material and direct labor costs, are called:
Definition
Factory overhead.
Term
Materials that are used in support of the production process but that do not become a part of the product and are not clearly identified with units or batches of product are called:
Definition
Indirect materials.
Term
The salary paid to the supervisor of an assembly line would normally be classified as:
Definition
Indirect labor.
Term
Classifying costs by behavior involves:
Definition
Identifying fixed cost and variable cost.
Term
Products that are in the process of being manufactured but are not yet complete are called:
Definition
Goods in process inventory or Work in process inventory.
Term
The cost of labor that is not clearly associated with specific units or batches of product is called:
Definition
Indirect labor.
Term
Factory overhead costs normally include all of the following except:
Definition
Term
Which of the following items appears only in a manufacturing company's financial statements?
Definition
Term
A manufacturing statement is also known as a schedule or listing of the:
Definition
Cost of goods manufactured.
Term
A financial report that summarizes the amounts and types of costs that were incurred in the manufacturing process during the period is a:
Definition
Manufacturing statement.
Term
The following information is available for the year ended December 31: [image] The amount of raw materials used in production for the year is:
Definition
$3,500
Beg RM + Purch - End RM = RM used $2,500 + $4,000 - $3,000 = $3,500
Term
Ajax Company accumulated the following account information for the year: [image] Using the above information, total factory overhead costs would be:
The number of units that could have been completed if all effort had been applied to units that were started and completed that period.
Term
A department had 12,500 units which were 20% complete in beginning Goods in Process Inventory. During the current period 60,000 units were transferred in. Ending Goods in Process Inventory was 15,000 units which were 70% complete. Assume this company uses the Weighted Average method of process costing and direct material is added uniformly throughout the process. What are the equivalent units produced with respect to direct material?
Definition
68,000.
Equivalent Units Produced = Units completed + Ending Goods in Process Inventory Units Completed = 12,500 + 60,000 -15,000 + (15,000 x 70%) = 68,000
Term
After posting all actual factory overhead and applying factory overhead to production departments in a process costing system:
Definition
There may be over or underapplied overhead.
Term
To compute an equivalent unit of production, one must be able to reasonably estimate:
Definition
The percentage of completion.
Term
A company's beginning work in process inventory consisted of 20,000 units that were 1/5 complete with respect to direct labor. These beginning units were completed and another 90,000 units were started during the current period. Of those started, 60,000 were finished and the remaining 30,000 were 1/3 complete at the end of the period. Using the Weighted Average method, the equivalent units of production were:
Definition
90,000
80,000 + (30,000)(1/3) = 90,000
Term
The following data are available for a company's manufacturing activities: [image] Assume the company uses the Weighted Average inventory method. If materials are added when the production process begins and direct labor is applied uniformly throughout the process, what are the equivalent units for direct materials and for direct labor, respectively?
At the beginning of the recent period, there were 900 units of product in a department, one-third completed. These units were finished and an additional 5,000 units were started and completed during the period. 800 units were still in process at the end of the period, one-fourth completed. Using the Weighted Average valuation method, the equivalent units produced by the department were:
Definition
6,100 units.
5,900 + (800 x ¼) = 6,100
Term
During a period, Department A finished and transferred 50,000 units to Department B. Of the 50,000 units, 20,000 were 1/5 complete with respect to direct labor at the beginning of the period and 30,000 were started and completed during the period. Also, during the period, 10,000 units were started but brought only to a stage of being 3/5 completed. Using the Weighted Average inventory valuation method, the number of equivalent units of labor added by the end of the period was:
Definition
56,000 units.
50,000 + (10,000 x 3/5) = 56,000
Term
A company uses a process cost accounting system. Its Sewing Department's beginning inventory consisted of 50,000 units (1/4 complete with respect to direct labor and overhead). The Sewing Department started and finished 120,000 units this period. Its ending inventory consists of 40,000 units (1/4 complete with respect to direct labor and overhead). All direct materials are added at the beginning of the process. Under the Weighted Average inventory valuation method, what are the equivalent units of production for the Sewing Department for direct materials and for direct labor and overhead, respectively?
Definition
210,000; 180,000
Direct materials: 170,000 + 40,000 = 210,000 Direct labor and overhead: 170,000 + (40,000 x .25) = 180,000
Term
Medina Corp. had the following information available for the year: [image]
Definition
The number of units transferred to finished goods during the year is:
3,000 units.
200 beginning + 3,200 started - 400 ending = 3,000 transferred out
If the weighted average inventory method were used, the equivalent units for the year would be:
3,320
3,000 + (400 x .8) = 3,320
Term
A department had 600 units which were 40% complete in beginning Goods in Process Inventory. During the current period, 7,000 units were transferred out. Ending Goods in Process Inventory was 800 units which were 40% complete. Using the Weighted Average method, what are the equivalent units produced if all direct material and direct labor are added uniformly throughout the process?
Definition
7,320
7,000 + (800 x .4) = 7,320
Term
A department had 65 units which were 20% complete in beginning Goods in Process Inventory. During the current period, 77 units were transferred out. Ending Goods in Process Inventory was 30 units which were 20% complete. Using the Weighted Average method, what are the equivalent units produced if all direct material and direct labor are added uniformly throughout the process?
Definition
83
77 + (30 x .2) = 83
Term
Which of the following five types of products is least likely to be produced in a process manufacturing system?
Definition
Term
Which of the following characteristics does not usually apply to process manufacturing systems?
Definition
Term
Which of the following is true when computing cost per equivalent unit in a FIFO process costing system?
Definition
Term
Which of the following characteristics applies to process cost accounting and not to job order cost accounting?
Definition
Term
A company that applies process costing is most frequently characterized by:
Definition
Homogeneous product and high production volume.
Term
An organizational unit of a factory that has the responsibility for partially manufacturing or producing a product is called a:
Definition
Production department.
Term
What journal entries correctly records the current month's activity where $60,000 of direct material and $17,000 of indirect materials were used in the production process?
Definition
Goods in Process 60,000
Factory Overhead 17,000
Raw Materials Inventory 77,000
Term
Direct labor and indirect labor are recorded, respectively, to:
Definition
Goods in Process and Factory Overhead.
Term
In a process costing operation, the direct labor of a production department includes:
Definition
All labor used exclusively by that department, even if the labor is not applied to the product itself.
Term
After posting all actual factory overhead and applying factory overhead to production departments in a process costing system:
Definition
There may be over or underapplied overhead.
Term
Hou Company applies factory overhead to its production departments on the basis of 90% of direct labor costs. In the Assembly Department, Hou had $125,000 of direct labor cost, and in the Finishing Department, Hou had $35,000 of direct labor cost. The entry to apply overhead to these production departments is:
Definition
Work in Process-Assembly 112,500
Work in Process-Finishing 31,500
Factory Overhead 144,000
Term
Assume that the Hood River Juice Company applies factory overhead to its production departments on the basis of 65% of direct labor costs. Direct labor in the Squeezing Department was $80,000 and direct labor in the Filtering Department was $12,000. The entry to apply overhead to these production departments is:
Definition
Work in Process-Squeezing 52,000
Work in Process-Filtering 7,800
Factory Overhead 59,800
Term
To compute an equivalent unit of production, one must be able to reasonably estimate:
Definition
The percentage of completion.
Term
A company's beginning work in process inventory consisted of 20,000 units that were 1/5 complete with respect to direct labor. These beginning units were completed and another 90,000 units were started during the current period. Of those started, 60,000 were finished and the remaining 30,000 were 1/3 complete at the end of the period. Using FIFO, the equivalent units of production were:
Definition
86,000
(20,000 x (4/5)) + 60,000 + (30,000 x (1/3)) = 86,000
Term
A company's beginning work in process inventory consisted of 20,000 units that were 1/5 complete with respect to direct labor. These beginning units were completed and another 90,000 units were started during the current period. Of those started, 60,000 were finished and the remaining 30,000 were 1/3 complete at the end of the period. Using the Weighted Average method, the equivalent units of production were:
Definition
90,000
80,000 + (30,000)(1/3) = 90,000
Term
The following data are available for a company's manufacturing activities: [image] Assume the company uses FIFO inventory. If materials are added when the production process begins and direct labor is applied uniformly throughout the process, what are the equivalent units for direct materials and for direct labor, respectively?
Definition
21,000; 19,250
DM: 15,000 + 6,000 = 21,000 DL: (5,000 x .25) + 15,000 + (6,000 x .5) = 19,250
Term
The following data are available for a company's manufacturing activities: [image] Assume the company uses the Weighted Average inventory method. If materials are added when the production process begins and direct labor is applied uniformly throughout the process, what are the equivalent units for direct materials and for direct labor, respectively?
Medina Corp. had the following information available for the year: [image]
Definition
The number of units transferred to finished goods during the year is:
3,000 units.
200 beginning + 3,200 started - 400 ending = 3,000 transferred out
If the weighted average inventory method were used, the equivalent units for the year would be:
3,320
3,000 + (400 x .8) = 3,320
Term
The Machining Department started the current month with beginning goods in process inventory of $10,000. During the month, it was assigned the following costs: direct materials, $76,000; direct labor, $24,000; and factory overhead, 50% of direct labor cost. Also, inventory with a cost of $109,000 was transferred out of the department to the next phase in the process. The ending balance of the Goods in Process Inventory account for the Machining Department is:
The Filtering Department started the current month with beginning goods in process inventory of $55,000. During the month, it was assigned the following costs: direct materials, $77,000; direct labor, $44,000; and factory overhead, 20% of direct material cost. Also, inventory with a cost of $66,000 was transferred out of the department to the next phase in the process. The ending balance of the Goods in Process Inventory account for the Filtering Department is:
Que Corporation uses a process cost accounting system. The company manufactured certain goods at a cost of $800 and sold them on credit to Are Corporation for $1,075. The complete journal entry to be made by Que at the time of this sale is:
Definition
Acct Rec - Are Corp 1,075
Cost of Goods Sold 800
Sales 1,075
Finsihed Goods Inventory 800
Term
A method of assigning overhead costs to a product using a single overhead rate is:
Definition
Plantwide overhead rate method.
Term
Overhead costs:
Definition
Cannot be traced to units of product in the same way that direct labor can.
Term
The cost object of the plantwide overhead rate method is:
Definition
The unit of product.
Term
The cost object of the departmental overhead rate method is:
Definition
The production departments in the first stage and the unit of product in the second stage.
Term
The cost object(s) of the activity-based costing method is(are):
Definition
The production activities in the first stage and the unit of product in the second stage.
Term
From an ABC perspective, what causes costs to be incurred?
Definition
Activities.
Term
Which of the following are advantages of using the plantwide overhead rate method?
Definition
The necessary information is readily available.
Term
Overhead costs are often affected by many issues and are frequently too complex to be explained by any one factor.
Definition
TRUE
Term
What are three advantages of activity-based costing over traditional volume-based allocation methods?
Definition
More accurate product costing,
more effective cost control,
and better focus on the relevant factors for decision making.
Term
What are the main advantages of traditional volume-based allocation methods compared to activity-based costing?
Definition
Traditional volume-based methods are easier to use and less costly to implement and maintain.
Term
K Company estimates that overhead costs for the next year will be $2,900,000 for indirect labor and $800,000 for factory utilities. The company uses direct labor hours as its overhead allocation base. If 80,000 direct labor hours are planned for this next year, what is the company's plantwide overhead rate?
Definition
$46.25 per direct labor hour.
($2,900,000 + $800,000)/80,000 direct labor hours = $46.25 per direct labor hour
Term
Ridley Company estimates that overhead costs for the next year will be $6,870,000 for indirect labor and $450,000 for factory utilities. The company uses machine hours as its overhead allocation base. If 160,000 machine hours are planned for this next year, what is the company's plantwide overhead rate?
Definition
$45.75 per machine hour.
($6,870,000 + $450,000)/160,000 machine hours = $45.75 per machine hour
Term
A company estimates that overhead costs for the next year will be $9,234,000 for indirect labor and $156,800 for factory utilities. The company uses machine hours as its overhead allocation base. If 500,000 machine hours are planned for this next year, what is the company's plantwide overhead rate? (Round to two decimal places)
Definition
$18.78 per machine hour.
($9,234,000 + $156,800)/500,000 machine hours = $18.78 per machine hour
Term
Aztec Industries produces bread which goes through two operations, mixing and baking, before it is ready to be packaged. Next year's expected costs and activities are shown below. [image]
Definition
Compute Aztec's departmental overhead rate for the mixing department based on direct labor hours.
$600,000/400,000 DLH = $1.50 per DLH
Compute Azetec's departmental overhead rate for the mixing department based on machine hours.
$600,000/800,000 MH = $0.75 per MH
Compute Aztec's departmental overhead rate for the baking department based on direct labor hours.
$400,000/80,000 DLH = $5.00 per DLH
Compute Aztec's departmental overhead rate for the baking department based on machine hours.
$400,000/800,000 MH = $0.50 per MH
Term
Consider the following activities which take place in a veterinary clinic. (a.) Cleaning cages (b.) Heating and air conditioning the clinic (c.) Sending blood work to a lab (d.) Dispensing medicine Which of the following statements is(are) true?
Definition
Heating and air conditioning the clinic is a facility level activity.
Term
A company uses activity-based costing to determine the costs of its three products: A, B and C. The budgeted cost and activity for each of the company's three activity cost pools are shown below. [image] Which of the following statements is true regarding this company's activity rates?
Definition
The activity rate under the activity-based costing system for Activity 2 is $1.50.
$45,000/(7,000 + 15,000 + 8,000) = $1.50
Term
Which types of overhead allocation methods result in the use of more than one overhead rate during the same time period?
Definition
Departmental overhead rate method and activity based costing.
Term
Crinkle Cut Clothes Company manufactures two products CC1 and CC2. Current direct material and direct labor costs are detailed below. Next year the company wishes to use a plantwide overhead rate with direct labor hours as its allocation base. Next year's overhead is estimated to be $338,250. The direct labor and direct materials costs are estimated to be consistent with the current year. Direct labor costs $28 per hour and the company expects to manufacture 22,000 units of CC1 and 91,000 units of CC2 next year. [image] Compute the plantwide overhead rate for next year.
Definition
$5.00 per DLH.
$22.40/$28 = .80 DLH per unit of CC1 $15.40/$28 = .55 DLH per unit of CC2 .80 DLH x 22,000 units of CC1 + .55 DLH x 91,000 units of CC2 = 67,650 Total DLH $338,250/67,650 DLH = $5 per DLH
Term
A company has two products: A and B. It uses activity-based costing and has prepared the following analysis showing budgeted cost and activity for each of its three activity cost pools. [image] Annual production and sales level of Product A is 34,300 units, and the annual production and sales level of Product B is 69,550 units. What is the approximate overhead cost per unit of Product A under activity-based costing?
Definition
$3.00
Activity 1 allocated to Product A line: $87,000 x 3,000/5,800 = $45,000 Activity 2 allocated to Product A line: $62,000 x 4,500/10,000 = $27,900 Activity 3 allocated to Product A line: $93,000 x 2,500/7,750 = $30,000 Total overhead allocated to Product B = $102,900 Overhead per unit of Product B: $102,900/34,300 = $3.00
Term
True statement with regard to activity-based costing rates?
Definition
The premise of ABC is that activities are what cause costs to be incurred.
Term
Product level costs do not vary with the number of units or batches produced.
Definition
True
Term
Direct cost are
Definition
•traceable to a product
Term
Indirect materials are accounted for as...
Definition
factory overhead because they are not easily traced to specific units or batches of production.
Term
Product costs can be classified as one of three types:
Definition
•direct materials, direct labor, or overhead– relate to the production of the product
Term
Period costs are costs not part of the...
Definition
•manufacturing process (i.e. selling or administrative expenses)
Term
The salary paid to the supervisor of an assembly line would normally be classified as:
Definition
Indirect labor.
Term
Materials that are used in support of the production process but that do not become a part of the product and are not clearly identified with units or batches of product are called:
Definition
Indirect materials.
Term
Labor costs that are clearly associated with specific units or batches of product because the labor is used to convert raw materials into finished products called are:
Definition
Direct labor.
Term
direct materials–
Definition
Raw materials that become part of a product and are identified with specific units or batches of a product
Term
Goods in Process also known as
Definition
•Work in Process WIP – production in process
Term
•3 stages of inventory
Definition
-Raw materials (manufacturing cost)
-Goods in Process also known as Work in Process WIP (COGM)
- Finished goods (COGS)
Term
Four factors come together in the manufacturing process:
Definition
direct materials
direct labor
factory overhead
goods in process inventory
Term
RM used =
Definition
Beg RM + Purch - End RM
Term
Raw materials that physically become part of the product and can be traced to specific units or batches of product are called:
Definition
Direct materials.
Term
The following information is available for the year ended December 31:
Beginning raw materials inventory: $2500
Raw materials purchases: $4000
Ending raw materials inventory: $3000
Office supplies expense: $1000
The amount of raw materials used in production for the year is:
Definition
Beg RM + Purch - End RM = RM used $2,500 + $4,000 - $3,000 = $3,500
Term
Factory Overhead (FOH)
Definition
•Costs that are not direct materials or direct labor
•Cannot necessarily be traced to the finished goods, Indirect materials, indirect labor, factory maintenance, building/equipment, factory rent, supervision of employees, factory insurance, factory utilities, depreciation of factory etc.
•Overhead does NOT include selling & administrative expenses – these expenses are not incurred in manufacturing of products
Term
Which of the following costs is not included in factory overhead?
Definition
Direct materials.
Term
The following costs are included in a recent summary of data for a company: advertising expense $85,000; depreciation expense - factory building $133,000; direct labor $250,000; direct material used $300,000; factory utilities $105,000; and sales salaries expense $150,000. Determine the dollar amount of overhead costs.
Definition
$238,000
$133,000 + $105,000
Term
Total manufactured costs formula
Definition
•Total mfg costs = DM +DL + FOH
Term
The three major cost components of a manufactured product are:
Definition
Direct materials, direct labor, and factory overhead.
Term
•Use the following information from Hardy Co. for the current year:
Direct materials used $5000
Direct labor $7000
Total Factory overhead $5100
Beginning goods in process $3000
Ending goods in process $4000
The total of Hardy Co.'s manufacturing costs added during the current year is:
A manufacturing company has a beginning finished goods inventory of $14,600, raw material purchases of $18,000, cost of goods manufactured of $32,500, and an ending finished goods inventory of $17,800. The cost of goods sold for this company is:
Definition
$29,300
COGS = Beg FG + COGM - End FG $14,600 + $32,500 - $17,800 = $29,300
Term
Net income formula
Definition
Net income = sales – COGS – op exp – gen/admin exp – income tax
Term
Classifying costs by behavior involves:
Definition
Identifying fixed cost and variable cost.
Term
The beginning and ending finished goods inventories of the Prize Ring manufacturing company were $75,000 and $73,000 respectively. If cost of goods sold equaled $66,000, what is the amount of cost of goods manufactured for this period?
Raw materials that physically become part of the product and can be traced to specific units or batches of product are called:
Definition
Direct materials
Term
4.The beginning and ending finished goods inventories of a company were $91,000 and $94,000 respectively. If cost of goods sold equaled $800,000, what is the amount of cost of goods manufactured for this period?
5.Which of the following costs would not be classified as factory overhead?
Definition
Metal doorknobs used on wood cabinets produced.
Term
Products that have been completed and are ready to be sold by the manufacturer are called:
Definition
Finished goods inventory.
Term
Products that are in the process of being manufactured but are not yet complete are called:
Definition
Goods in process inventory
Term
Another title for goods in process inventory is:
Definition
Work in process inventory.
Term
The cost of labor that is not clearly associated with specific units or batches of product is called:
Definition
Indirect labor
Term
Which one of the following items is normally not a manufacturing cost?
Definition
General and administrative expenses.
Term
The production process is continuous or______ in recording materials, goods in process and finished goods inventory
Definition
“perpetual”
Term
Two basic types of cost accounting systems
Definition
job order and process cost
Term
Steps before beginning job order production
Definition
Step 1 – predict cost to complete the job
Step 2 – negotiate price & decide on whether to pursue job
Step 3 – schedule production of the job
Term
Cost accounting systems used by manufacturing companies are based on the:
Definition
Perpetual inventory system
Term
A job order cost accounting system would best fit the needs of a company that makes:
Definition
Custom machinery.
Term
Dell Builders manufactures each house to customer specifications. It most likely would use:
Definition
Job order costing
Term
Cost flow-during production
Definition
In production, cost accumulate and are kept in GIP Inventory account
Term
Cost flow-job completion
Definition
Once the job is completed it moves from in goods in process to finished jobs file.
Our costs from GIP would now be transferred to Finished Goods
Term
Cost flow-job delivery
Definition
Once the job is delivered to the customer, it is moved to a permanent file with the costs being transferred to COGS
• We create a journal entry of:
credit to Sales
debit to Cash or AR
Term
A document in a job order cost accounting system that is used to record the costs of producing a job is a(n):
Definition
Job cost sheet.
Term
A job cost sheet includes:
Definition
Direct material, direct labor, overhead.
Term
A perpetual record of a raw materials item that records data on the quantity and cost of units purchased, units issued for use in production, and units that remain in the raw materials inventory, is called a(n):
Definition
Materials ledger card.
Term
GJ Entry
We purchased material on a credit account for $2,750
Definition
Debit Credit
Raw Materials Inventory 2,750
Accounts Payable 2,750
Term
We have started the production process and need to account for DM we have used and indirect material used in overhead while in the GIP phase
GJ Entry:
Definition
Goods in Process Inventory $1,800
Raw Materials Inventory $1,800
to account for DM being used in the job
Factory Overhead $550
Raw Material Inventory $550
*to account for indirect materials being used in the job
Term
Labor
We have also incurred payroll, so we need to account for it. But we also must break out our payroll into DL and indirect labor.
Definition
Debit Credit Factory Payroll 5,300
Cash 5,300
to account for the total payroll we have to pay out on payday
Goods in Process Inventory 4,200
Factory Payroll 4,200
to show how much of the 5,300 is direct labor
Factory Overhead 1,100
Factory Payroll 1,100
**to show how much of the 5,300 is indirect labor
Term
When raw materials are used in production and are recorded in job cost system:
Definition
Goods in Process and Factory Overhead are debited and Raw Materials Inventory is credited.
Term
When factory payroll costs are recorded in a job cost accounting system:
Definition
Goods in Process Inventory and Factory Overhead are debited and Factory Payroll is credited.
Term
Overhead We have incurred overhead expenses of insurance, utilities, rent, depreciation of $5,070 that must be paid. We also need to move the indirect materials and labor accounted for earlier to GIP.
Definition
Debit Credit Factory Overhead 5,070
Cash 5,070
to account for the insurance etc. being paid
Factory Overhead 550
Raw Material Inventory 550
**to account for indirect materials being used in the job
Factory Overhead 1,100
Factory Payroll 1,100
**to account for the indirect labor being used in the job Goods in Process Inventory 6,720
Factory Overhead 6,720
Term
The overhead cost applied to a job during a period is recorded with a credit to Factory Overhead and a debit to:
Definition
Goods in Process Inventory
Term
The Goods in Process Inventory account for the AB Corp. follows:
Goods in Process Inventory
Beginning Balance: $4500
Direct materials $47100
Direct labor $29600
Applied overhead $15800
Ending balance $8900
The cost of units transferred to finished goods is:
Recall one of the steps before starting a job is to “predict” the cost of the job
• Predicting overhead can sometimes be hard because you might have more or less actual indirect labor, indirect material or factory expenses.
• However, we still need to allocate overhead on each job and in a reasonable manner
• We normally will link overhead to another factor such as direct labor or machine hours.
• This factor that we are linking it to is called the “allocation base”
• Recall our example had OH allocated at 160% of DL. Therefore, we take the DL amount and multiply it by 160%.
Term
Allocation Rate
Definition
Because we are dealing with a perpetual system, we have to keep costs updated. We cannot wait until the end of the job to calculate overhead
• We have to predict the overhead in advance for pricing of the job
• To estimate overhead in advance requires a predetermined overhead rate or predetermined overhead allocation (application) rate.
• We must have our estimated overhead costs and an allocation factor or activity base before the period starts
Term
Allocation Rate formula
Definition
Predetermined overhead rate =
estimated OH / activity base
Term
A company has an overhead application rate of 125% of direct labor costs. How much overhead would be allocated to a job if it required total labor costing $20,000?
Definition
$25,000
Predetermined overhead rate = estimated OH / activity base
125% = X / 20,000
$20,000 x 1.25 = $25,000
Term
Canoe Company's manufacturing accounting system uses direct labor costs to apply overhead to goods in process and finished goods inventories. Canoe Company's manufacturing costs for the year were: direct labor, $30,000; direct materials, $50,000; and factory overhead applied, $6,000. The overhead application rate was:
Definition
20.0%
Predetermined overhead rate = estimated OH / activity base
OH rate = OH applied/Dl
$6,000/$30,000 = 20%
Term
Overapplied / Underapplied Overhead
Definition
• When we allocate the overhead using the predetermined overhead rate, we are predicting in advance what we think overhead might be
• Once the period ends we know exactly how much overhead actually is
• We have to account for the overhead applied vs the actual overhead
Term
How do we know if we have overapplied or underapplied overhead?
Definition
• If our actual overhead came in higher than the applied then we have underapplied our overhead ~ we under estimated our cost
• If our actual overhead came in lower than the applied then we have overapplied our overhead ~ we over estimated our costs
Term
The journal entries to account for the overapplied or the underapplied only impact?
Definition
the COGS and the Factory Overhead accounts
Term
Journal entry to account for under or over applied
Definition
Underapplied
Cost of Good Sold #
Factory Overhead #
Overapplied
Factory Overhead #
Cost of Goods Sold #
Term
If overhead applied is less than actual overhead, it is:
Definition
Underapplied.
Term
Estimated overhead and direct labor costs for the year were $112,500 and $125,000, respectively. During the year, actual overhead was $107,400 and actual direct labor cost was $120,000. The entry to close the over- or underapplied overhead at year-end, assuming an immaterial amount, would include:
OH is overapplied by $600 leaving a credit balance in OH.
Term
The rate established prior to the beginning of a period that relates estimated overhead to an allocation factor such as estimated direct labor, and that is used to assign overhead cost to jobs, is the:
Definition
. Predetermined overhead allocation rate.
Term
BVD Company uses a job order cost accounting system and last period incurred $80,000 of overhead and $100,000 of direct labor. BVD estimates that its overhead next period will be $75,000. It also expects to incur $100,000 of direct labor. If BVD bases applied overhead on direct labor cost, their overhead application rate for the next period should be:
Definition
OH rate = $75,000/$100,000 = 75%
Term
The R&R Company's manufacturing costs for August are: direct labor, $13,000; indirect labor, $6,500; direct materials, $15,000; taxes on raw materials and work in process, $800; heat, lights and power, $1,000; and insurance on plant and equipment, $200. R&R Company's factory overhead incurred for August is
Definition
$6,500 + 1,000 + 200 + 800 = $8,500
Term
. O.K. Company uses a job order cost accounting system and allocates its overhead on the basis of direct labor costs. O.K. expects to incur $800,000 of overhead during the next period, and expects to use 50,000 labor hours at a cost of $10.00 per hour. What is O.K. Company's overhead application rate?
Definition
Total DL Cost = 50,000 hours x $10/hr = $500,000 OH rate = $800,000/$500,000 = 160%
Term
The Goods in Process Inventory account of a manufacturing company that uses an overhead rate based on direct labor cost has a $4,400 debit balance after all posting is completed. The cost sheet of the one job still in process shows direct material cost of $2,000 and direct labor cost of $800. Therefore, the company's overhead application rate is:
Definition
GIP = DM + DL + OH
$4,400 = $2,000 + $800 + OH
OH = $1,600
OH rate = $1,600/$800 = 200%
Term
If one unit of Product X used $2.50 of direct materials and $3.00 of direct labor, sold for $8.00, and was assigned overhead at the rate of 30% of direct labor costs, how much gross profit was realized from this sale?
Definition
Cost of goods sold = DM + DL + OH = $2.50 + $3.00 + .3($3.00) = $6.40
Gross profit = Sales - cost of goods sold = $8.00 - $6.40 = $1.60
Term
Overhead applied formula
Definition
Overhead applied=DL cost x predetermined rate
Term
A process cost summary involves computations and analysis at four sequential steps, they are:
Definition
1. Physical flow
2. Equivalent Units
3. Cost per equivalent unit of production
4. Cost reconcilation
Term
Master budget has three main budgets
Definition
Operating budget Capital Expenditures budget Financial budget
Term
Operating budget includes
Definition
Sales - starting point for most of budget
Merchandising/Manufacturers-invetory purchasing, can be units or dollars
(selling expenses and general & admin expenses)
Term
operating budget formula
Definition
inventory to purchase = budget ending + budget cost for period - budget beginning
Express in $ by multiplying units to purchase x cost per unit
Term
Capital Expenditures Budget
Definition
Focuses on assets
-Money to be received from disposal of assets
-Money to spend to purchase assets
-Allows company's to know their ability to take on more debt for production capacity
Term
Financial budgets
Definition
includes cash, income statement and balance sheet budget
(expected cash inflow and outflow)
Term
General formula for cash budget
Preliminary cash balance formula
Definition
begin cash balance + budget cash balance - cash disbursed
