Bus242 exam 4

What are job order costing systems?

A type of cost accounting system that provides for a separate record of the cost of each quantity of product (job) that is manufactured.

What are process costing systems?

A type of cost accounting system that provides product costs for each manufacturing department or process

What are characteristics of job order and process costing systems

-Job order costing tracks costs for unique, customized products or jobs, while process costing tracks costs for high-volume, standardized products produced in a continuous flow.

-Job order systems accumulate costs per job using job cost sheets, while process costing accumulates costs per department or process and calculates an average cost per unit at the end of a period.

what are work in progress? what is included in it?

the value of partially completed goods still in the manufacturing process

• includes the costs of raw materials, direct labor, and overhead for incomplete items

what are finished goods? what is included in it?

completed products that are ready for sale 

• include all these costs transferred from the WIP account once production is complete.  

What is the flow of manufacturing process (materials – WIP – Finished Goods – COGS)

begins with raw materials, which are converted through labor and overhead into partially completed goods in work-in-process (WIP) inventory.

Once production is complete, these items become finished goods, and when they are sold, their cost is transferred from inventory to the cost of goods sold (COGS) expense on the income statement.  

Calculate a predetermined overhead rate based on a cost driver.

Estimated Overhead Costs / Estimated Allocation Base.

how to use a predetermined overhead rate to apply overhead.

Predetermined Overhead Rate × Actual Activity Level.

underapplied factory overhead

If the applied overhead is less than the actual overhead incurred, the factory overhead account will have a debit balance.

overapplied factory overhead

If the applied overhead is more than the actual overhead incurred, the factory overhead account will have a credit balance

What effect does overapplied have on net income at the end of the year?

increases net income by decreasing cost of goods sold

What effect does underapplied overhead have on net income at the end of the year?

decreases net income by increasing cost of goods sold.

the difference between period and product costs as well as examples of each.

Product costs are expenses directly tied to the manufacturing of a good and are capitalized as inventory until the product is sold, while period costs are non-manufacturing expenses that are expensed in the period they are incurred

• Product costs include direct materials, direct labor, and manufacturing overhead; examples of period costs are selling, general, and administrative expenses like rent, marketing, and executive salaries. 

What is a materials requisition, and how is it used?

The form or electronic transmission used by a manufacturing department to authorize materials issuances from the storeroom.

• It is used to authorize the release of materials from inventory, track material costs for accounting, and ensure that production has the necessary components to avoid downtime. 

What is a receiving report, and how is it used?

prepared when materials that have been ordered are received and inspected. 

• It's used to verify the delivery against the purchase order and invoice, ensuring that the company is paying for what it actually received.

When is an entry recorded to increase cost of goods sold?

The entries to record the sale:

-Accounts Receivable xxx

Sales xxx

The related cost of goods sold are as follows:

COGS xxx

Finished Goods xxx

How and when is the finished goods
account used?

-used at the end of the production process to track and value products that are completed and ready for sale.

-used to record the cost of products that are complete and ready for sale. It functions as a current asset on a company's balance sheet and is crucial for tracking inventory value, managing production levels, and calculating key financial figures like the cost of goods sold (COGS).

Be able to apply overhead based on cost driver factors provided.

• Formula: Overhead Rate = Total Overhead Costs / Total Cost Driver Activity

• Allocated Overhead = Overhead Rate × Amount of Cost Driver for the Job

Under job costing, calculate the cost per unit, given amounts for direct materials, direct labor, and overhead.

1. Calculate the total job cost

• Formula: Total Job Cost = Direct Materials + Direct Labor + Overhead 
  

2. Calculate the cost per unit

• Formula: Cost Per Unit = Total Job Cost / Total Units Produced 

What are three categories of manufacturing costs included in WIP?

The three categories of manufacturing costs included in work-in-process (WIP) are direct materials, direct labor, and manufacturing overhead

How are WIP costs determined under the process cost system? Be able to complete equivalent units

1. Determine the units to be assigned costs.

2. Step 2.

   Compute equivalent units of production.

3. Step 3.

   Determine the cost per equivalent unit.

4. Step 4.

   Allocate costs to units transferred out and partially completed units.

Identify conversion costs

include direct labor and manufacturing overhead. Direct labor consists of wages for workers directly involved in production, while manufacturing overhead includes indirect costs like factory rent, utilities, and equipment depreciation. 

calculate equivalent units of production for a particular department

3. Units Started and Completed
Units started and completed = Units transferred out − Beginning work in process units

---

4. Equivalent Units for Direct Materials
Equivalent units for direct materials = (Beginning work in process units × Percent of materials remaining) + (Units started and completed × 100%) + (Ending work in process units × Percent of materials complete)

---

5. Equivalent Units for Conversion Costs
Equivalent units for conversion costs = (Beginning work in process units × Percent of conversion remaining) + (Units started and completed × 100%) + (Ending work in process units × Percent of conversion complete)

calculate equivalent units with respect to conversion costs and material costs

-Direct material= (BWIP × %DM Remaining) + (Started & Completed × 100%) + (EWIP × %DM) 

-Conversion cost = (BWIP × %CC Remaining) + (Started & Completed × 100%) + (EWIP × %CC)

calculate work-in-process (WIP) costs at the end of a period (before units transferred to the next process).

Ending WIP Cost=(EUPDM​×Cost per EUPDM​)+ (EUPCC​×Cost per EUPCC​)

calculate the cost of WIP at beginning of period through production.

Cost of Beginning WIP (completed)=Beginning WIP Cost + (BWIP Units×%Remaining Conversion × Cost per EUP for Conversion)

calculate the cost of units started and completed through production

(Units Started and Completed × Cost per EUP for Materials) + (Units Started and Completed x Cost per EUP for Conversion)

calculate the materials cost per equivalent unit for a given month.

Total Direct Materials Costs / Total Equivalent Units for Materials

What are equivalent units?

The number of production units that could have been completed within a given accounting period, given the resources consumed.

be able to complete equivalent units formula

Units Started and Completed = Units Completed and Transferred Out − Beginning WIP Units

Apply Separately-

For Direct Materials:
EUP (DM) = (Beginning WIP × % Materials Remaining) + (Units Started and Completed × 100%) + (Ending WIP × % Materials Complete)

For Conversion Costs:
EUP (CC) = (Beginning WIP × % Conversion Remaining) + (Units Started and Completed × 100%) + (Ending WIP × % Conversion Complete