# Chapter 3: Product Costing & Cost Accumulation (Batch Production)
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# Chapter 3: Product Costing & Cost Accumulation (Batch Production)
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### Product & Service Costing
Flashcard 1
Q: How are product costs used in Financial Accounting?
A: To value inventory on the balance sheet and compute Cost of Goods Sold (COGS) on the income statement.
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Flashcard 2
Q: How are product costs used in Managerial Accounting?
A: For planning, controlling, directing, and decision-making.
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Flashcard 3
Q: Why do external organizations need product cost information?
A: For taxation (IRS), investment decisions (stockholders), competitive analysis, and government oversight.
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### Flow of Costs in a Manufacturing Firm
Flashcard 4
Q: What costs flow into Work in Progress (WIP)?
A: Direct materials, direct labor, and manufacturing overhead.
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Flashcard 5
Q: What happens when a product is finished?
A: Costs transfer from WIP to Finished Goods Inventory (Credit WIP, Debit Finished Goods).
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Flashcard 6
Q: What happens when a product is sold?
A: Cost transfers from Finished Goods to Cost of Goods Sold (COGS).
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Flashcard 7
Q: When is COGS recognized as an expense?
A: In the period the sale occurs.
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### Types of Product Costing Systems
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## Job Order Costing
Flashcard 8
Q: When is Job Order Costing used?
A: For low-volume, unique, high-cost, built-to-order products.
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Flashcard 9
Q: What are job shop operations?
A: Very low-volume production, often one unit at a time (e.g., film production, aircraft manufacturing).
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Flashcard 10
Q: What are batch production operations?
A: Production of multiple products in small batches (e.g., furniture, printing).
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## Process Costing
Flashcard 11
Q: When is Process Costing used?
A: For mass production of small, identical, low-cost items.
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Flashcard 12
Q: Why can't costs be traced directly in process costing?
A: Units are identical and produced continuously.
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Flashcard 13
Q: Examples of industries using process costing?
A: Oil refineries, paint manufacturers, paper mills, beverage companies.
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### Accumulating Costs in Job-Order Costing
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Flashcard 14
Q: What are the three main product costs in job-order costing?
A: Direct materials, direct labor, manufacturing overhead.
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Flashcard 15
Q: What is a material requisition form?
A: A document authorizing materials to be transferred from raw materials to production.
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Flashcard 16
Q: What records track direct labor?
A: Time tickets or labor time records.
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Flashcard 17
Q: What is manufacturing overhead?
A: A pool of indirect production costs (indirect labor, indirect materials, utilities, etc.).
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### Predetermined Overhead Rate (POHR)
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Flashcard 18
Q: What is the formula for the Predetermined Overhead Rate (POHR)?
A: POHR = Budgeted Manufacturing Overhead ÷ Budgeted Activity Level.
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Flashcard 19
Q: How is overhead applied to jobs?
A: Overhead Applied = POHR × Actual Activity.
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Flashcard 20
Q: Why use a predetermined overhead rate?
A: Managers need cost estimates immediately and cannot wait for actual totals.
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### Underapplied & Overapplied Overhead
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Flashcard 21
Q: What is underapplied overhead?
A: Actual overhead > Applied overhead.
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Flashcard 22
Q: What is overapplied overhead?
A: Applied overhead > Actual overhead.
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Flashcard 23
Q: What happens if overhead is underapplied?
A: COGS is increased (debited).
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Flashcard 24
Q: What causes overapplied overhead?
A: Overestimating overhead costs or underestimating activity.
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### Schedule of Cost of Goods Manufactured (COGM)
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Flashcard 25
Q: What does the Schedule of COGM show?
A: The total manufacturing cost of goods completed during the period.
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Flashcard 26
Q: What is the last line of the COGM schedule?
A: Cost of Goods Manufactured.
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### Actual vs. Normal Costing
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Flashcard 27
Q: What is actual costing?
A: Direct materials, direct labor, and overhead are recorded at actual amounts.
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Flashcard 28
Q: What is normal costing?
A: Direct materials and labor are actual, but overhead is applied using POHR.
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### Two-Stage Cost Allocation
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Flashcard 29
Q: What happens in Stage One of cost allocation?
A: Overhead costs are assigned to departments (cost pools).
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Flashcard 30
Q: What happens in Stage Two?
A: Departmental overhead is allocated to jobs using cost drivers.
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Flashcard 31
Q: Why does each department have its own POHR?
A: Because departments use different cost drivers (e.g., machine hours vs. labor hours).
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### Direct vs Indirect Labor
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Flashcard 32
Q: Is direct labor a product cost or overhead?
A: Product cost.
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Flashcard 33
Q: Is indirect labor a product cost or overhead?
A: Manufacturing overhead.
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### Journal Entries (Basic Flow)
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Flashcard 34
Q: What is the journal entry to purchase raw materials?
A: Debit Raw Materials Inventory, Credit Accounts Payable.
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Flashcard 35
Q: What is the entry to transfer direct materials to WIP?
A: Debit WIP, Credit Raw Materials.
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### Job-Order Costing in Nonmanufacturing
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Flashcard 36
Q: Can job-order costing be used outside manufacturing?
A: Yes (law firms, hospitals, consulting, contracts, programs).
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### Key Concept
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Flashcard 37
Q: Why is cost accumulation important?
A: To determine profitability, compare efficiency across jobs, and estimate future job costs.
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If you'd like, I can also:
* Combine Chapters 3 & 6 into one master exam review
* Create a 30-question multiple choice practice test
* Make a condensed 2-page midterm cheat sheet
* Or put everything into Quizlet import format