Chapter 3: Job-Order Costing - Cost Flows & External Reporting

job-order costing

a costing system used in situations where many different products, jobs, or services are produced each period

absorption costing

a costing method that includes all manufacturing costs--direct materials, direct labor, and both variable and fixed manufacturing overhead--in the cost of a product

allocation base

a measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects

predetermined overhead rate definition

a rate used to charge manufacturing overhead cost to jobs that is established in advance for each period

predetermined overhead rate equation

estimated total manufacturing overhead cost / estimated total amount of the allocation base

overhead application definition

the process of assigning overhead costs to specific jobs

overhead application formula

predetermined overhead rate x amount of the allocation base incurred by the job

normal costing

a costing system in which overhead costs are applied to a job by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job

job cost sheet

a form that records the direct materials, direct labor, and manufacturing overhead cost charged to a job

when raw materials are used in production as direct materials, their costs are transferred to

work in process inventory

when jobs are completed, their costs are transferred from work in process to

finished goods inventory

the amount transferred from work in process to finished goods is referred to as the

cost of goods manufactured

cost of goods manufactured

includes the manufacturing costs associated with units of product that were finished during the period

as jobs are sold, their costs are transferred from finished goods to

cost of goods sold

until goods are sold, their costs are in inventory accounts on the ____

balance sheet

true/false: period costs do not flow through the three balance sheet inventories

true

true/false: Raw materials is an asset account

true

the debit side of the manufacturing overhead account is always used to record

actual manufacturing overhead costs, such as indirect materials, incurred during the period

the credit side of the manufacturing overhead account is always used to record

the manufacturing overhead applied to work in process

how are manufacturing overhead costs assigned to work in process

using the predetermined overhead rate

true/false: The manufacturing overhead account operates as a clearing account

true

actual manufacturing overhead costs are debited/credited to the manufacturing overhead account

debited

manufacturing overhead applied to work in process is debited/credited to the manufacturing overhead account

credited

when clearing the account: when jobs are completed, overhead cost is applied to the jobs using the ____, and ____ is credited while ____ is debited

predetermined overhead rate

manufacturing overhead

work in process

true/false: actual overhead costs are charged to jobs

false

true/false: actual overhead costs do not appear on the job cost sheet

true

true/false: actual overhead costs appear in the work in process account

false

depreciation on factory equipment would be credited/debited to ____

debited

manufacturing overhead

depreciation on office equipment would be credited/debited to ____

debited

depreciation expense

the sum of all the amounts transferred from ____ to ____ represents the cost of goods manufactured for the period

work in process

finished goods

if a job is not completed by the end of the period, its assigned costs will remain in ____ and carry over to the next period

work in process

If only a portion of a job is sold, use the ____ to determined how much product cost should be removed from ____ and charged to ____

unit product cost

finished goods

cost of goods sold

what is debited and what is credited if:

$60 raw materials are purchased on account

debit Raw Materials $60

credit Accounts Payable $60

what is debited and what is credited if:

$60 direct and $10 indirect materials are taken out of the storeroom

debit Work in Process $60

debit Manufacturing Overhead $10

credit Raw Materials $70

what account do you credit/debit if you take direct materials out of a storeroom

debit Work in Process

credit Raw Materials

what is debited and what is credited if:

$40 direct labor and $10 indirect labor are incurred

debit Work in Process $40

debit Manufacturing Overhead $10

credit Salaries and Wages Payable $50

direct labor and materials are debited to

work in process

indirect labor and materials are debited to

manufacturing overhead

what is debited and what is credited if:

$10 general factory costs are payed on account

debit Manufacturing Overhead $10

credit Accounts Payable $10

what is debited and what is credited if:

$10 property tax and $20 prepaid insurance incur

debit $30 Manufacturing Overhead

credit $10 Property Taxes Payable

credit $20 Prepaid Insurance

what is debited and what is credited if:

$10 depreciation on factory equipment

debit $10 Manufacturing Overhead

credit $10 Accumulated Depreciation

what is debited and what is credited if:

$100 overhead costs are cleared

debit $100 Work in Process

credit $100 Manufacturing Overhead

what is debited and what is credited if:

$20 administrative salaries are incurred

debit $20 Salaries Expense

credit $20 Salaries and Wages Payable

direct labor is debited to ____, indirect labor is debited to ____, administrative labor is debited to ____

work in process

manufacturing overhead

salaries expense

what is debited and what is credited if:

$10 depreciation on office equipment

debit $10 Depreciation Expense

credit $10 Accumulated Depreciation

what is debited and what is credited if:

$50 advertising costs are payed on account

debit $50 Advertising Expense

credit $50 Accounts Payable

what is debited and what is credited if:

Job has been completed and it has a cost of $100

debit $100 Finished Goods

credit $100 Work in Process

what is debited and what is credited if:

$50 of product sold on account

debit $50 Accounts Receivable

credit $50 Sales

what is debited and what is credited if:

5 goods are sold, and unit product cost is $2

debit $10 Cost of Goods Sold

credit $10 Finished Goods

schedule of cost of goods sold

contains direct materials, direct labor, and manufacturing overhead

summarizes the portions of those costs that remain in ending Finished Goods inventory and that are transferred from Finished Goods to Cost of Goods Sold

schedule of cost of goods manufactured

contains direct materials, direct labor, and manufacturing overhead

summarizes the portions of those costs that remain in ending Work in Process inventory and that are transferred from Work in Process to Finished Goods

schedule of cost of goods manufactured contains ____, ____, and ____

summarizes the portions of those costs that remain in ending ____ inventory and that are transferred from ____ to ____

direct materials, direct labor, manufacturing overhead

work in process, work in process, finished goods

schedule of cost of goods sold contains ____, ____, and ____

summarizes the portions of those costs that remain in ending ____ inventory and that are transferred from ____ to ____

direct materials, direct labor, manufacturing overhead

finished goods, finished goods, cost of goods sold

raw materials used in production =

beginning raw materials inventory + purchases of raw materials - ending raw materials inventory

beginning raw materials inventory + purchases of raw materials - ending raw materials inventory =

raw materials used in production

underapplied overhead is added/deducted to/from cost of goods sold

added to

overapplied overhead is added/deducted to/from cost of goods sold

deducted from

underapplied overhead is added to ____

cost of goods sold

overapplied overhead is deducted from

cost of goods sold

total manufacturing costs =

direct materials + direct labor + manufacturing overhead applied to work in process

direct materials + direct labor + manufacturing overhead applied to work in process =

total manufacturing costs

cost of goods manufactured =

total manufacturing costs + beginning work in process inventory - ending work in process inventory

total manufacturing costs + beginning work in process inventory - ending work in process inventory =

cost of goods manufactured

unadjusted cost of goods sold =

beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory

beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory =

unadjusted cost of goods sold

overapplied overhead

a credit balance in Manufacturing Overhead that occurs when the amount of overhead cost applied to Work in Process exceeds the amount of overhead cost actually incurred

when there is overapplied overhead, there is a ____ balance in ____ that occurs when the amount of overhead cost applied to ____ is greater than/less than the amount of overhead cost actually incurred

credit, Manufacturing Overhead, Work in Process, greater than

when there is underapplied overhead, there is a ____ balance in ____ that occurs when the amount of overhead cost applied to ____ is greater than/less than the amount of overhead cost actually incurred

debit, Manufacturing Overhead, Work in Process, less than

underapplied overhead

a debit balance in Manufacturing Overhead that occurs when the amount of overhead cost applied to Work in Process is less than the amount of overhead cost actually incurred

when the allocation base is in ____, the predetermined overhead rate is expressed as a percentage of the allocation base

dollars

if there is a debit balance in Manufacturing Overhead, the overhead is ____

underapplied

if there is a credit balance in Manufacturing Overhead, the overhead is ____

overapplied

once we have found the amount of underapplied or overapplied overhead, that amount in Manufacturing Overhead at the end of the period must be disposed one of what two ways

closed to cost of goods sold

closed proportionally to work in process, finished goods, and cost of goods sold

what three accounts can manufacturing overhead be closed to proportionally

cost of goods sold

work in process

finished goods

if manufacturing overhead was underapplied by $10, how would you close it out to cost of goods sold

debit Cost of Goods sold $10

credit Manufacturing Overhead $10

when overhead is underapplied, not enough/too much overhead cost was applied to jobs and cost of goods sold is understated/overstated

not enough

understated

when overhead is overapplied, not enough/too much overhead cost was applied to jobs and cost of goods sold is understated/overstated

too much

overstated

if manufacturing overhead was overapplied by $10, how would you close it out to cost of goods sold

debit Manufacturing Overhead $10

credit Cost of Goods Sold $10

which method of closing underapplied and overapplied overhead is more accurate

closing proportionally to work in process, finished goods, cost of goods sold

which method of closing underapplied and overapplied overhead is less complex

closing to cost of goods sold