Chapter3 - Job Order Costing.pdf

Measuring, recording, and reporting product costs

What is the definition of cost accounting?

Integrated into the general ledger

What is the status of manufacturing cost accounts in a cost accounting system?

Perpetual inventory system

What type of inventory system is an important feature of cost accounting for providing immediate information?

Job order cost system and process cost system

What are the two basic types of cost accounting systems?

Assigned to each job or batch of goods

How are costs assigned in a job order cost system?

Distinguishing characteristics

What does each job or batch have in a job order cost system?

Calculate the cost per job

What is the primary objective of job order costing?

Time period

Process costing calculates costs for what duration instead of specific jobs?

Continuous

What is the nature of production in a process cost system?

Large volume of uniform or relatively homogeneous products

What does a process cost system produce?

Unit cost information

What is the shared objective of both job order and process cost systems?

Pricing, cost control, inventory valuation, and financial statement presentation

Unit cost information is provided for what four purposes?

Parallels the physical flow

How does the flow of costs in job order accounting relate to materials being converted?

Direct materials, direct labor, and manufacturing overhead

What are the three components of manufacturing costs whose flow is tracked?

Work in Process Inventory

To which account are manufacturing costs assigned as jobs are worked on?

Finished Goods Inventory

To which account is the cost of a job transferred when it is finished?

Cost of Goods Sold

To which account is cost transferred when goods are sold?

Accumulating costs and assigning costs

What are the two major steps in the flow of costs?

Period in which they are incurred

When are manufacturing costs recorded in a job order cost system?

Raw Materials Inventory

Which account is debited when raw materials are purchased?

Accounts Payable

Which account is credited when raw materials are purchased on account?

Received

At what point are raw materials debited to inventory?

Control account

What is the accounting status of the Raw Materials Inventory account?

Subsidiary ledger

What do individual records or cards for each item of raw materials constitute?

Individual records for each item

What comprises the subsidiary ledger for Raw Materials Inventory?

Gross earnings, employer payroll taxes, and fringe benefits

What three components make up the cost of factory labor?

Factory Labor

To which account are labor costs debited when incurred?

Manufacturing Overhead

Which account is debited for repair costs and indirect materials when incurred?

Periodic adjusting entries

How are overhead costs like property taxes and depreciation typically recorded?

Debits to Work in Process and credits to Raw Materials, Factory Labor, and Manufacturing Overhead

What is the general entry for assigning manufacturing costs to work in process?

Monthly

How frequently are journal entries for assigning costs to work in process usually made and posted?

Job cost sheet

What is the indispensable accounting record used in assigning costs to specific jobs?

Total cost and unit cost

What two cost figures are determined using a job cost sheet for a completed job?

Daily

How frequently are postings made to job cost sheets?

Subsidiary ledger for Work in Process Inventory

What role do job cost sheets play in the accounting system?

Job cost sheet

Each entry to Work in Process Inventory must be accompanied by a posting to what?

Materials requisition slip

On what basis are raw materials costs assigned to jobs?

Storeroom

Raw materials are assigned to jobs when they are issued by what department?

Prenumbered

What is a physical characteristic of materials requisition slips used for control?

Authorized employee

Who must sign a materials requisition slip?

Quantity, type of materials, and account to be charged

What three pieces of information should a materials requisition slip indicate?

Duplicate

In how many copies is a materials requisition slip prepared?

Individual job cost sheets

To where are requisitions for direct materials posted daily?

Work in Process Inventory

Which account is debited for requisitions of direct materials?

Manufacturing Overhead

Which account is debited for requisitions of indirect materials?

Raw Materials Inventory

Which account is credited when materials are assigned to jobs or overhead?

Time tickets

On what basis are factory labor costs assigned to jobs?

Employee, hours worked, account and job to be charged, and total labor cost

What four pieces of information should a time ticket indicate?

Work in Process Inventory

Which account is debited for direct labor costs?

Manufacturing Overhead

Which account is debited for indirect labor costs?

Factory Labor

Which account is credited when labor is assigned to jobs and overhead?

Estimated basis

How are manufacturing overhead costs assigned to work in process and specific jobs?

Predetermined overhead rate

What tool is used to assign overhead on an estimated basis?

Beginning of the year

When is the predetermined overhead rate established?

Estimated annual overhead and expected annual operating activity

The predetermined overhead rate is based on the relationship between what two factors?

Activity base

In what terms is expected annual operating activity expressed?

Direct labor costs, direct labor hours, or machine hours

Name three common activity bases for manufacturing overhead.

Costs are not incurred uniformly each month

What is one reason a predetermined rate is used instead of actual costs?

Actual overhead invoices are not all received by month end

What is a timing reason for using a predetermined overhead rate?

Immediate

What speed of cost determination is enabled by using a predetermined overhead rate?

Activity Base times Predetermined Overhead Rate

What is the formula for assigned or applied overhead?

Work in Process Inventory

Which account is debited when overhead is assigned to jobs?

Manufacturing Overhead

Which account is credited when overhead is assigned to jobs?

Unfinished jobs

At month end, the Work in Process Inventory balance should equal the sum of costs on the sheets of what?

Work in Process Inventory

Which account is credited when a job is finished?

Finished Goods Inventory

Which account is debited when a job is finished?

Cost of Goods Manufactured

What does the transfer from Work in Process to Finished Goods represent?

When each sale occurs

When is the recognition of Cost of Goods Sold made?

Sales

Which account is credited when a job is sold?

Accounts Receivable or Cash

Which account is debited when a job is sold?

Cost of Goods Sold

Which account is debited to record the cost when a job is sold?

Finished Goods Inventory

Which account is credited to record the cost when a job is sold?

Materials Requisition Slips, Labor Time Tickets, and Predetermined Overhead Rate

What three documents or tools charge costs to a job?

Job Cost Sheet

On what record is the cost of jobs summarized?

Manufacturing overhead applied

What is added to direct materials and direct labor in a job order COGM schedule instead of actual overhead?

Underapplied

What is the term for when the Manufacturing Overhead account has a debit balance?

Applied overhead is less than actual overhead incurred

What does underapplied overhead mean?

Overapplied

What is the term for when the Manufacturing Overhead account has a credit balance?

Applied overhead is greater than actual overhead incurred

What does overapplied overhead mean?

No corrective action needed

What is management's typical response to under or overapplied overhead at month end?

Prepaid expense or current asset

How is underapplied overhead reported on an interim balance sheet?

Unearned revenue or current liability

How is overapplied overhead reported on an interim balance sheet?

Eliminated with an adjusting entry

What must happen to the Manufacturing Overhead balance at year end?

Adjustment to Cost of Goods Sold

Where is under or overapplied overhead usually assigned at year end?

Cost of Goods Sold

Which account is debited to eliminate underapplied overhead?

Manufacturing Overhead

Which account is credited to eliminate underapplied overhead?

Cost of Goods Sold

Which account is credited to eliminate overapplied overhead?

Manufacturing Overhead

Which account is debited to eliminate overapplied overhead?

Zero

What should the balance of Manufacturing Overhead be after the year end adjusting entry?

Expense

Cost of Goods Sold is categorized as what type of account?

Period cost

Sales commission is classified as what type of cost?

Sold

According to the matching principle, when do inventoriable costs become expenses?

Total Cost divided by Quantity

What is the formula for Unit Cost on a job cost sheet?

Gross earnings, payroll taxes, and fringe benefits

What are the three components of factory labor costs?

Work in Process Inventory

Which account is debited when actual overhead is applied to jobs?

Finished Goods

Where are completed jobs transferred to await sale?

Aggregate data

What do financial statements at the end of a period present regarding manufactured jobs?

Labor intensive

For what kind of companies are direct labor hours or costs commonly used as an activity base?

Automated

For what kind of companies are machine hours used as a more equitable activity base?

Incurred

In a job order system, manufacturing costs are recorded in the period they are what?