ACCT 314 Test 1
Direct materials - ANSresources in stock and available
WIP - ANSproducts started but not yet finished
Finished goods - ANScompleted and ready for sale
Inventoriable cost - ANSProduct manufacturing costs. DM DL MOH. Capitalized as assets
(inventory) until they are sold
Period cost - ANShave no future value and are expensed as incurred. (marketing, distribution,
... they are expected to benefit revenues in only that period
Prime cost - ANSrefers to all direct manufacturing cost (labor and material)
Conversion cost - ANSrefers to direct labor and factory overhead
Overtime labor cost - ANSConsidered part of overhead due to the inability to precisely know the
true cause of these costs
Opening DM+DM Purchased - Ending DM= - ANSDM used which is transferred into WIP
Opening WIP + DM used + DL + MOH- ending WIP= - ANSCOGM which is transferred into FG
Opening FG+ COGM- ending FG= - ANSCOGS income statement
Why do we need job costing - ANSNeed a system to:
1. cost individual product, calculate the real cost of a product or perform a service from start to
finish
2. We need a system to track the flow of costs incurred for a product or service
Decision making applications - ANS1. How much profit are we making on a product or service
2. How can we lower our cost
3. How should we price the product or service
4. Should we continue producing, buying or providing the service
Job costing - ANSsystem accounting for distinct cost objects called jobs. Each job may be
different, EG. wedding arrangement, aircraft, advertising
Process costing - ANSsystem for accounting for mass production of identical or similar products.
EG. oil refining, orange juice, soda pop
, Indirect costs Actual - ANS-allocates: Indirect cost based on the actual indirect cost rates times
activity consumption
Indirect cost Normal - ANSIndirect cost based on the budgeted indirect cost rate times the
activity consumption
Job costing steps - ANS1. Identify the job that is the chosen cost object.
2. Identify the direct cost for the job
3. Select the cost allocation base
4. Calculate the over head rate
5. Allocate overhead cost to the job
6. Compute the job cost by adding all direct and indirect cost
Budgeted MOH rate - ANSBudgeted MOH cost/ Budgeted Total Quantity of cost allocation base
Cost pool - ANSany logical grouping of related objects
Cost allocation base - ANSA cost driver is used as a basis upon which to build a systematic
method of distributing indirect cost
If Overhead control > Overhead allocated - ANSUnder allocated overhead
If Overhead control < Overhead allocated - ANSOver allocated overhead
Closing out overhead accounts - ANS1. adjusted allocation rate approach- all allocations are
recalculated with the actual, exact allocation rate
2. Proration approach- the difference is allocated between COGS, WIP, and FG based on their
relative sizes
3. Write off approach the difference is simply written off to COGS
Over costing - ANSA product consumes a low level of resources but is allocated high costs per
unit
Undercosting - ANSa product consumes a high level of resources but is allocated low cost per
unit
Cross subsidation - ANSThe result of overcosting one product and undercost another
Cross subsidation - ANSThe overcosted product absorbs too much cost, making is seem less
profitable than it really is (TOO HIGH no one wants it)
The undercosted product is left with too little cost, making it seem more profitable than it really is
(YOU arent covering costs)
Direct materials - ANSresources in stock and available
WIP - ANSproducts started but not yet finished
Finished goods - ANScompleted and ready for sale
Inventoriable cost - ANSProduct manufacturing costs. DM DL MOH. Capitalized as assets
(inventory) until they are sold
Period cost - ANShave no future value and are expensed as incurred. (marketing, distribution,
... they are expected to benefit revenues in only that period
Prime cost - ANSrefers to all direct manufacturing cost (labor and material)
Conversion cost - ANSrefers to direct labor and factory overhead
Overtime labor cost - ANSConsidered part of overhead due to the inability to precisely know the
true cause of these costs
Opening DM+DM Purchased - Ending DM= - ANSDM used which is transferred into WIP
Opening WIP + DM used + DL + MOH- ending WIP= - ANSCOGM which is transferred into FG
Opening FG+ COGM- ending FG= - ANSCOGS income statement
Why do we need job costing - ANSNeed a system to:
1. cost individual product, calculate the real cost of a product or perform a service from start to
finish
2. We need a system to track the flow of costs incurred for a product or service
Decision making applications - ANS1. How much profit are we making on a product or service
2. How can we lower our cost
3. How should we price the product or service
4. Should we continue producing, buying or providing the service
Job costing - ANSsystem accounting for distinct cost objects called jobs. Each job may be
different, EG. wedding arrangement, aircraft, advertising
Process costing - ANSsystem for accounting for mass production of identical or similar products.
EG. oil refining, orange juice, soda pop
, Indirect costs Actual - ANS-allocates: Indirect cost based on the actual indirect cost rates times
activity consumption
Indirect cost Normal - ANSIndirect cost based on the budgeted indirect cost rate times the
activity consumption
Job costing steps - ANS1. Identify the job that is the chosen cost object.
2. Identify the direct cost for the job
3. Select the cost allocation base
4. Calculate the over head rate
5. Allocate overhead cost to the job
6. Compute the job cost by adding all direct and indirect cost
Budgeted MOH rate - ANSBudgeted MOH cost/ Budgeted Total Quantity of cost allocation base
Cost pool - ANSany logical grouping of related objects
Cost allocation base - ANSA cost driver is used as a basis upon which to build a systematic
method of distributing indirect cost
If Overhead control > Overhead allocated - ANSUnder allocated overhead
If Overhead control < Overhead allocated - ANSOver allocated overhead
Closing out overhead accounts - ANS1. adjusted allocation rate approach- all allocations are
recalculated with the actual, exact allocation rate
2. Proration approach- the difference is allocated between COGS, WIP, and FG based on their
relative sizes
3. Write off approach the difference is simply written off to COGS
Over costing - ANSA product consumes a low level of resources but is allocated high costs per
unit
Undercosting - ANSa product consumes a high level of resources but is allocated low cost per
unit
Cross subsidation - ANSThe result of overcosting one product and undercost another
Cross subsidation - ANSThe overcosted product absorbs too much cost, making is seem less
profitable than it really is (TOO HIGH no one wants it)
The undercosted product is left with too little cost, making it seem more profitable than it really is
(YOU arent covering costs)
