An accounting system that uses periodic inventories in accounting for its manufacturing operations is called a cost accounting system.
True / False
False
The four factors that come together in the production activity are: beginning goods in process inventory, direct materials, direct labour, and overhead.
True / False
True
The manufacturing statement (also called a schedule of manufacturing activities or a schedule of cost of goods manufactured) contains information useful to outside parties and is therefore included among the financial statements required by GAAP to be published.
True / False
False
A schedule of cost of goods manufactured can be used in place of the section on the income statement titled cost of goods sold.
True / False
False
The difference between a general accounting system and a cost accounting system is the inventory system used under each system.
True / False
True
There are two basic types of cost accounting systems: job order cost accounting and manufacturing cost accounting.
True / False
False
A unique product or service that is produced to meet the demands of a particular customer is called a 'job lot'.
True / False
True
Job order operations are limited to manufacturing operations.
True / False
False
Job costs sheets serve as a subsidiary ledger to the Goods in Process Inventory account.
True / False
True
A materials ledger card is a subsidiary record of a raw materials item that stores data on the quantity and cost of units purchased, units issued for use in production, and units that remain in the raw materials inventory.
True / False
True
The accounting department records the transfer of raw materials to the goods in process account when a purchases requisition is issued.
True / False
False
A clock card is a source document that an employee uses to report how much time was spent working on a particular job.
True / False
False
The application of factory overhead to goods in process (job cost sheets) is usually accomplished by means of a predetermined overhead allocation rate.
True / False
True
The ending balance of the overhead account, after application to the goods in process, is always closed to the Cost of Goods Sold account at the end of the accounting period.
True / False
False
Any underapplied or overapplied balance in the Factory Overhead account must be allocated to the Goods in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold accounts.
True / False
False
When the amount by which the overhead applied to jobs during a period using the predetermined overhead application rate exceeds the overhead incurred during the period, the overhead account will be overapplied.
True / False
True
A source document that an employee uses to record the number of hours at work is called a _______________ card.
CLOCK
When accounting for manufacturing activities based on the periodic inventory system, the accountant is going to use a _______________ accounting system.
GENERAL
The production of a unique product or service is called a _______________.
JOB
The cost of labor, materials, and overhead, for each job, are are maintained on a _______________ sheet.
JOB COST
Producing more than one unit of a unique product is called a _______________.
JOB LOT
A _______________ cost accounting system is designed to determine the cost of producing each job or job lot.
JOB ORDER
The production of products in response to special orders, also called customized production, is called job order _______________.
MANUFACTURING
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 called a _______________.
MATERIALS REQUISITION
When the amount of overhead applied to jobs during a period exceeds the overhead incurred during the period, the overhead account is _______________ (UNDERAPPLIED or OVERAPPLIED).
OVERAPPLIED
The amount of overhead applied to jobs is based on a _______________ overhead allocation rate.
PREDETERMINED
An employee uses a clock card to report the number of hours at work each day. The employee uses a _______________ to report that amount of that time that was spent working directly on a product or overhead activity.
TIME TICKET
Clock card:
A card issued to each employee that the employee inserts in a time clock to record the time of arrival to and departure from work. A source document that is used to record the number of hours an employee works and to determine the total labor cost for each pay period.
Cost accounting system:
An accounting system for manufacturing activities based on the perpetual inventory system.
Finished goods inventory:
Products that have completed the manufacturing process and are ready to be sold by the manufacturer.
General accounting system:
An accounting system for manufacturing activities based on the periodic inventory system.
Goods in process inventory:
Products that are in the process of being manufactured but that are not yet complete (also called work in process inventory).
Job:
The production of a unique product or service.
Job cost sheet:
A separate record maintained for each job.
Job lot:
Producing more than one unit of a unique product.
Job order cost accounting system:
A cost accounting system that is designed to determine the cost of producing each job or job lot.
Job order manufacturing:
The production of special order products, also called customized production.
Manufacturing statement:
A financial report that summarizes the types and amounts of costs incurred in a company's manufacturing process for the period; also called the schedule of manufacturing activities or the schedule of cost of goods manufactured.
Materials ledger cards:
Perpetual records that are updated each time units are purchased and each time units are issued for use in production.
Materials requisition:
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.
Overapplied overhead:
The amount by which the overhead applied to jobs during a period with the predetermined overhead application rate exceeds the overhead incurred during the period.
Predetermined overhead application rate:
The rate established prior to the beginning of a period that relates estimated overhead to another variable such as estimated direct labour, and that is used to assign overhead cost to jobs.
Raw materials:
Materials that are purchased for use in making products; most are used as direct materials but some are used as indirect materials.
Time ticket:
A source document used to report how much time was spent working on a job or on overhead activities and that is used to determine the amount of direct labour to charge to the job or the amount of indirect labour to charge to overhead.
Underapplied overhead:
The amount by which overhead incurred during a period exceeds the overhead applied to jobs with the predetermined overhead application rate.
What is a cost allocation base?
The cost allocation base (# of machine-hours) is a systematic way to link an indirect cost or group of indirect costs (operating costs) to cost objects (different products). In other words, how should a company allocate the costs among different products?
Distinguish job costing from process costing:
1. Job costing is used to cost a distinct product.
2. Process costing is used to cost masses of identical or similar units.
What are some examples of Job Costing and Process Costing in the Service Sector?
1. Job Costing: Audits, Consulting, Advertising, Repair jobs, Movie production
2. Process Costing: Bank-check clearing, Postal delivery
What are some examples of Job Costing and Process Costing in the Merchandising Sector?
1. Job Costing: Special promotion of new products, Sending individual items by mail order
2. Process Costing: Grain dealing, Lumber dealing
What are some examples of Job Costing and Process Costing in the Manufacturing Sector?
1. Job Costing: Assembly of individual aircrafts, Construction of ships
2. Process Costing: Oil refining, Beverage production
What is the main challenge of implementing job-costing systems?
The main challenge of implementing job-costing systems is estimating actual costs of jobs in a timely manner.
How do you implement a normal-costing system?
It requires identifying:
1. the job
2. the actual direct costs
3. the budgeted cost-allocation bases
4. the budgeted indirect-cost pools
5. the budgeted cost-allocation rates
6. the allocated indirect costs
7. the total direct and indirect costs of a job
How do you distinguish actual costing from normal costing?
Actual costing and normal costing differ in the type of indirect-cost rates used:
1. Actual costing: Use Actual rates for both Direct-cost rates and Indirect-cost rates.
2. However, Normal costing: Use Actual rates for Direct-cost rates and use Budgeted rates for Indirect-cost rates.
How is actual costing and normal costing similar?
Both systems used actual quantities of inputs for tracing direct costs and actual quantities of the cost-allocation bases for allocating indirect costs.
How are transactions recorded in a manufacturing job-costing system?
A job-costing system in manufacturing records the flow of inventoriable costs in the general and subsidiary ledgers for:
a) acquisition of materials and other manufacturing inputs
b) their conversion into work in process
c) their conversion into finished goods
d) the sale of finished goods
The job-costing system expenses period costs (i.e. marketing costs) as they are incurred.
How should managers dispose of under- or over-allocated manufacturing overhead costs and the end of the accounting year?
1. To adjust the allocation rate
2. To prorate on the basis of the total amount of the allocated manufacturing overhead cost in the ending balances of Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold accounts.
What are some variations of normal costing?
In some variations from normal costing, organizations use budgeted rates to assign direct costs, as well as indirect costs, to jobs.
What is a cost pool?
A grouping of individual indirect costs.
