ACC 312 EXAM 2 STUDY GUIDE
Product costing - Answers - is the assignment of production costs to all output of the
organization, whether items manufactured, goods merchandised (resold), or services
delivered
product-costing system - Answers - accumulates the costs incurred in a production
process and assigns those costs to the organization's outputs
- accumulated and assigns COGS, production costs to inventory, and costs of services
delivered
Use of product costing in financial accounting - Answers - - value inventory on the b.s.
and to compute COGS ( inv is valued at its cost until it is sold)
- accumulate costs of services delivered, which are recoreded on the i.c.
Use of product costing in managerial - Answers - - help managers w planning and to
provide high-quality data for decision making
- how are profits earned
Job-order costing - Answers - - used by companies with job-shop (manufacture low
volumes at a time) or batch-production manufacturing processes (produce batches of
products)
- each distinct batch of production is called a job or job order
- custom orders/ service industries
process-costing system - Answers - accumulates all the production costs for a large
number of units of output, and then these costs are averaged over all of the units.
Process costing is used by companies that produce large numbers of identical units in a
continuous-flow manufacturing process
- some batch production environments use process costing: when process requires that
the product be produced in discrete batches rather than continuous flow, but batch after
batch of identical products are produced
job-cost record - Answers - document that records the cost of direct material, direct
labor, and MOH for a particular job production or batch; it's a subsidiary ledger for the
WIP account for the general ledger
Material requisition form - Answers - document used by production department to
request the release of raw materials for production
Source document - Answers - A document that is used as the basis for an accounting
entry; ex: material requisition form and direct-labor time tickets
,Supply chain - Answers - The flow of all goods, services, and info into and out of an
organization
Bill of materials - Answers - A list of all the materials needed to manufacture a product
or product component (for things produced routinely bc we know the materials needed
in advance)
Material requirements planning systems - Answers - operations management tool that
assists managers in scheduling production in each stage of the manufacturing process
Time record - Answers - form that records the amount of time an employee spends on
each production job
Overhead application (overhead absorption) - Answers - The third step in assigning
MOH costs. All costs associated with each production department are assigned to the
product units on which a department has worked
Two challenges in applying overhead costs effectively - Answers - 1. suppose the cost-
accounting department waited until the end of an accounting period so that the actual
costs of manufacturing overhead could be determined before applying overhead costs
to the firm's products. The result would be very accurate overhead application.
However, the information might be useless because it was not available to managers for
planning, control, and decision making during the period.
2. Problem of trying to match up the way assign expenses to when we think they should
be assigned??
Full cycle approach allows for - Answers - 1. allows a timely but reasonable
approximation to substitute for actual costs
2. combines costs that are only incurred sporadically (like the quarterly lease payments)
and applies them to all production throughout the year
3. dampens the effects of cyclicality that are associated with causes unrelated to
production (like the weather), instead applying the costs in a way that reflects the
annual average.
Volume-based cost driver (activity based) - Answers - cost driver that is closely
associated with production volume, such as direct labor hours or machine hours
estimates are made of - Answers - - the amount of manufacturing overhead that will be
incurred during the year
- the amount of the cost driver that will be used or incurred during the same year
predetermined overhead rate - Answers - rate used to apply MOH to WIP inventory,
calculated: estimated MOH cost/ estimated amount of cost driver
Why is some product cost information frequently required to be disclosed outside of the
company? - Answers - - rate changes that require regulatory approval
, - reimbursement programs
- cost-plus contracts
Formula to apply overhead cost - Answers - predetermined overhead rate x quantity of
activity required
Actual Manufacturing Overhead - Answers - The actual costs incurred for indirect
material, indirect labor, factory rental, equipment depreciation, utilities, property taxes,
and insurance are recorded as debits to the account.
proration - Answers - Process of allocating underapplied or overapplied overhead to
WIP Inventory, FG inventory, and COGS
underapplied overhead - Answers - The amount by which the period's actual
manufacturing overhead exceeds applied manufacturing overhead
Schedule of COGM - Answers - Schedule showing the manufacturing costs incurred
during an accounting period and the change in WIP inventory
Schedule of COGS - Answers - schedule showing the COGS and the change in FG
inventory during an accounting period
Normal costing - Answers - Product-costing system in which actual dm, actual dl, and
applied manufacturing overhead costs are added to WIP inventory
Actual costing - Answers - a system in which direct material and direct labor are added
to work-in-process inventory at their actual amounts, and actual overhead is allocated to
work in process using an actual overhead rate computed at the end of each accounting
period.
Drawbacks to actual costing - Answers - 1. Cyclicality - costs can vary from one part of
the year to another for reasons that have nothing to do with what's being produced
2. Large payments
3. Timeliness
Throughput time (cycle time) - Answers - the average amount of time required to
convert raw materials into finished goods ready to be shipped to customers
Plantwide overhead rate - Answers - an overhead rate calculated by averaging
manufacturing overhead costs for the entire production faciltiy
Departmental overhead rates - Answers - An overhead rate calculated for a single
production department
two-stage cost allocation - Answers - In the first stage, all manufacturing-overhead costs
are assigned to the production departments, such as machining and assembly. In the
Product costing - Answers - is the assignment of production costs to all output of the
organization, whether items manufactured, goods merchandised (resold), or services
delivered
product-costing system - Answers - accumulates the costs incurred in a production
process and assigns those costs to the organization's outputs
- accumulated and assigns COGS, production costs to inventory, and costs of services
delivered
Use of product costing in financial accounting - Answers - - value inventory on the b.s.
and to compute COGS ( inv is valued at its cost until it is sold)
- accumulate costs of services delivered, which are recoreded on the i.c.
Use of product costing in managerial - Answers - - help managers w planning and to
provide high-quality data for decision making
- how are profits earned
Job-order costing - Answers - - used by companies with job-shop (manufacture low
volumes at a time) or batch-production manufacturing processes (produce batches of
products)
- each distinct batch of production is called a job or job order
- custom orders/ service industries
process-costing system - Answers - accumulates all the production costs for a large
number of units of output, and then these costs are averaged over all of the units.
Process costing is used by companies that produce large numbers of identical units in a
continuous-flow manufacturing process
- some batch production environments use process costing: when process requires that
the product be produced in discrete batches rather than continuous flow, but batch after
batch of identical products are produced
job-cost record - Answers - document that records the cost of direct material, direct
labor, and MOH for a particular job production or batch; it's a subsidiary ledger for the
WIP account for the general ledger
Material requisition form - Answers - document used by production department to
request the release of raw materials for production
Source document - Answers - A document that is used as the basis for an accounting
entry; ex: material requisition form and direct-labor time tickets
,Supply chain - Answers - The flow of all goods, services, and info into and out of an
organization
Bill of materials - Answers - A list of all the materials needed to manufacture a product
or product component (for things produced routinely bc we know the materials needed
in advance)
Material requirements planning systems - Answers - operations management tool that
assists managers in scheduling production in each stage of the manufacturing process
Time record - Answers - form that records the amount of time an employee spends on
each production job
Overhead application (overhead absorption) - Answers - The third step in assigning
MOH costs. All costs associated with each production department are assigned to the
product units on which a department has worked
Two challenges in applying overhead costs effectively - Answers - 1. suppose the cost-
accounting department waited until the end of an accounting period so that the actual
costs of manufacturing overhead could be determined before applying overhead costs
to the firm's products. The result would be very accurate overhead application.
However, the information might be useless because it was not available to managers for
planning, control, and decision making during the period.
2. Problem of trying to match up the way assign expenses to when we think they should
be assigned??
Full cycle approach allows for - Answers - 1. allows a timely but reasonable
approximation to substitute for actual costs
2. combines costs that are only incurred sporadically (like the quarterly lease payments)
and applies them to all production throughout the year
3. dampens the effects of cyclicality that are associated with causes unrelated to
production (like the weather), instead applying the costs in a way that reflects the
annual average.
Volume-based cost driver (activity based) - Answers - cost driver that is closely
associated with production volume, such as direct labor hours or machine hours
estimates are made of - Answers - - the amount of manufacturing overhead that will be
incurred during the year
- the amount of the cost driver that will be used or incurred during the same year
predetermined overhead rate - Answers - rate used to apply MOH to WIP inventory,
calculated: estimated MOH cost/ estimated amount of cost driver
Why is some product cost information frequently required to be disclosed outside of the
company? - Answers - - rate changes that require regulatory approval
, - reimbursement programs
- cost-plus contracts
Formula to apply overhead cost - Answers - predetermined overhead rate x quantity of
activity required
Actual Manufacturing Overhead - Answers - The actual costs incurred for indirect
material, indirect labor, factory rental, equipment depreciation, utilities, property taxes,
and insurance are recorded as debits to the account.
proration - Answers - Process of allocating underapplied or overapplied overhead to
WIP Inventory, FG inventory, and COGS
underapplied overhead - Answers - The amount by which the period's actual
manufacturing overhead exceeds applied manufacturing overhead
Schedule of COGM - Answers - Schedule showing the manufacturing costs incurred
during an accounting period and the change in WIP inventory
Schedule of COGS - Answers - schedule showing the COGS and the change in FG
inventory during an accounting period
Normal costing - Answers - Product-costing system in which actual dm, actual dl, and
applied manufacturing overhead costs are added to WIP inventory
Actual costing - Answers - a system in which direct material and direct labor are added
to work-in-process inventory at their actual amounts, and actual overhead is allocated to
work in process using an actual overhead rate computed at the end of each accounting
period.
Drawbacks to actual costing - Answers - 1. Cyclicality - costs can vary from one part of
the year to another for reasons that have nothing to do with what's being produced
2. Large payments
3. Timeliness
Throughput time (cycle time) - Answers - the average amount of time required to
convert raw materials into finished goods ready to be shipped to customers
Plantwide overhead rate - Answers - an overhead rate calculated by averaging
manufacturing overhead costs for the entire production faciltiy
Departmental overhead rates - Answers - An overhead rate calculated for a single
production department
two-stage cost allocation - Answers - In the first stage, all manufacturing-overhead costs
are assigned to the production departments, such as machining and assembly. In the
