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ACC 406 Lecture Notes - Lecture 5: Direct Labor Cost, Finished Good, Income Statement

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School
Ryerson University
Department
Accounting
Course
ACC 406
Professor
Cheryl Dyson

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Document Summary

For manufacturing firms, unit costs are essential for: For service firms, unit costs are used to determine: Job-order costing- firms operating in job-order industries produce a wide-variety of services can use a process-costing accounting system. Unit cost computed by dividing total job costs by units produced for that job. Process costing- firms producing identical products or services can use a process-costing accounting system. Unit cost computed by dividing process costs for the period by the units produced in the period. In the normal costing, overhead must be estimated and applied to output. Three-step process: calculate the predetermined overhead rate, apply overhead to production, reconcile applied overhead with actual overhead or allocate applied overhead to wip and finished goods ending inventories. Formula: best estimate of manufacturing-related costs, such as factory-related costs, indirect materials, and indirect labor . Both overhead and activity level are estimated because overhead rate must be calculated at beginning of year.

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Related Questions

Identify each statement as true or false. If false, indicate howto correct the statement.

1. Process cost systems are used to apply costs to similarproducts that are mass-produced in a continuous fashion.
2. A process cost system is used when each finished unit isindistinguishable from another.
3. Companies that produce soft drinks, motion pictures, andcomputers chips would all use process cost accounting.
4. In a process cost system, costs are tracked by individualjobs.
5. Job order costing and process costing track differentmanufacturing costs elements.
6. Both job order costing and process costing account for directmaterials, direct labor, and manufacturing overhead.
7. Costs flow through the accounts in the same basic way for bothjob order costing and process costing.
8. In a process cost system, only one work in process account isused.
9. In a process cost system, costs are summarized in a job costsheet.
10. In a process cost system, the unit cost is total manufacturingcosts for the period divided by the units produced during theperiod.

I. The basic parts of a joborder costing system are the:

A. Cost______________ and _________________ procedures.

B. ____________________ documents.

C. Accountsthat a company uses when it incurs costs for direct ____________,direct ________________, and ___________________.

II. Accounting for materialsrequires three types of entries.

A. With the ______________ of materials,debit Materials Inventory and credit Accounts Payable.

B. With the _______________ of directmaterials to ________________, debit Work in Process Inventory andcredit Materials Inventory.

C. With the transfer of__________________ materials to production, debit Overhead andcredit Materials Inventory.

III. Accounting for labor requirestwo types of entries.

A. For payroll costs incurred for_____________ labor, debit Work in Process Inventory and creditPayroll Payable.

B. For payroll costs incurred for_______________ labor, debit Overhead and credit PayrollPayable.

IV. Accounting for other overhead requires twotypes of entries.

A. Other overhead includes plant____________, property _____________, insurance, and_______________.

B. To record _____________ overhead costs,debit Overhead and credit Cash or Accumulated Depreciation.

C. To record _____________ overheadcosts, debit Work in Process Inventory and credit Overhead.

D. The actual (debits) and estimated(credits) overhead costs are ________________ at the end of theperiod to determine the accuracy of overhead costrecognition.

V. To recordthe transfer of ________________ units, debit Finished GoodsInventory and credit Work in Process Inventory.

VI. When a companyuses a perpetual inventory system, two accounting entries are madewhen products are sold.

A. To record the sold product’s________________, debit Accounts Receivable (or Cash) and creditSales.

B. To record the sold product’sassociated ____________, debit Cost of Goods Sold and creditFinished Goods Inventory.

VII. Each job in production has a job order_________________.

A. Hasspace for direct materials, direct labor, and overhead costs.

B. Includesthe job order number, product specifications, customer name, dateof order, projected completion date, and a cost summary.

C. Forincomplete jobs, they make up the _______________ ledger for theWork in Process Inventory account.

D. When ajob is completed, the costs are totaled on the_____________________.

1. Unit cost is computed to_____________ items in inventory.

2. Product ___________Cost = Total Costs for Job ÷ Number of Good Units Produced

VIII. Job order costing systems are also used in______________ organizations.

A. Job ordercost cards track ________________ contracts.

IX. Overhead costs are allocated in foursteps.

A. Step 1: _____________ the overheadrate.

1. A ________________ overheadrate is calculated as estimated overhead costs divided by estimatedcost driver activity.

B. Step 2:______________ the overhead rate.

1. Costs are assigned by multiplyingthe actual cost _____________ activity by the predeterminedoverhead rate.

C. Step 3:Record ________________ overhead costs

D. Step 4:_________________ applied and actual overhead amounts

1. Ifover- or underapplied amounts are minimal, credit or debit_________________.

2. Ifover- or underapplied amounts are material, adjustments should bemade to the inventory accounts affected.

X. The__________________ approach to applying overhead costs is to use asingle plantwide rate.

XI. The moreaccurate _____________________ approach to applying overhead costscreates many smaller activity pools and establishes separate ratesfor each pool.

1.) On January 31, Village Bank had 500,000 shares of $3 parvalue common stock outstanding. On that date, the company declareda 10% stock dividend when the market price of the stock was $62 pershare. The immediate effect of this dividend upon Village Bankwas:

A.)A reduction in cash of $3,794,500.

B.) A reduction in retained earnings of $3,100,000.

C.) A reduction in retained earnings of $150,000.

D.) A liability to the stockholders of $150,000.

2.) Mayfair Corporation has outstanding 70,000 shares of $1 parvalue common stock as well as 20,000 shares of 7%, $100 par valuecumulative preferred stock. At the beginning of the year, thebalance in retained earnings was $800,000, and one year's dividendswere in arrears. Net income for the current year is $580,000.Compute the balance in retained earnings at the end of the year ifMayfair Corporation pays a dividend of $3 per share on its commonstock this year.

A.)

$1,080,000.

B.)

$1,670,000.

C.)

$890,000.

D.)

$310,000.

3.) During the years 2009 through 2011, Powers, Inc., reportedthe following amounts of net income (dollars in thousands):

Relative to the prior year, the percentage change in netincome:

A.)

Was the same in 2010 and 2011.

B.)

Was larger in 2011 than in 2010.

C.)

Was smaller in 2011 than in 2010.

D.)

Cannot be determined without knowing how many shares of stockwere outstanding.

4.) Hines Cannery issued capital stock in 2009 for $700,000.During 2009 the company paid dividends of $250,000. What is theeffect of these events in Hines' statement of cash flows for2009?

A.)

$700,000 cash provided by investing activities, and $250,000cash disbursed for financing activities.

B.)

$700,000 cash provided by financing activities, and $250,000cash disbursed for investing activities.

C.)

$700,000 cash provided by financing activities, and $250,000cash disbursed for operating activities.

D.)

$450,000 net cash provided by financing activities

5.) Direct labor costs in a paint factory would include wages ofemployees who:

A.)

Supervise heavy equipment operators.

B.)

Operate paint-mixing machines.

C.)

Develop highly secret formulas for new products.

D.)

Paint the interior of the factory every two years.

6.) Which of the following is a characteristic of manufacturingoverhead in a job order cost system?

A.)

It is indirectly traceable to specific jobs or units.

B.)

It includes the cost of all labor relating to manufacturingoperations.

C.)

It is assigned to units produced by means of an overheadapplication rate.

D.)

It includes the cost of direct materials used and of indirectlabor.

7.) A job order cost system traces direct materials cost to aparticular job by means of:

A.)

Materials requisitions.

B.)

A production budget.

C.)

The Materials Inventory controlling account.

D.)

A debit to the job cost sheet for the job.

8.) Which of the following costing systems would always use jobcost sheets?

A.)

Job order costing.

B.)

Process costing.

C.)

Activity-based costing.

D.)

All three systems.

9.) Edwards Auto Body uses a job order cost system. Overhead isapplied to jobs on the basis of direct labor hours. During thecurrent period, Job No. 337 was charged $425 in direct materials,$475 in direct labor, and $190 in overhead. If direct labor costsan average of $16 per hour, the company's overhead application rateis:

A.)

$7.27 per direct labor hour.

B.)

$6.40 per direct labor hour.

C.)

$17.50 per direct labor hour.

D.)

$40 per direct labor hour.

10.) Marty's Metal Shop uses a job order cost system. It appliesoverhead to jobs at a rate of 175% of direct labor costs. Job No.2617 required $800 in direct labor costs. The job was initiallybudgeted to require $850 in direct labor costs. Overhead applied toJob No. 2617 during the period amounted to:

A.)

$850.

B.)

$1,400.

C.)

$1,275.

D.)

Some other amount.

11.) In a job cost system, the Work-in-Process Inventorycontrolling account may be reconciled to the total of the:

A.)

Employee time cards.

B.)

Materials requisitions.

C.)

Work-in-Process Inventory records for each department orprocess.

D.)

Job cost sheets.

12.) For the month of December, its first month of operations,the Radcliffe Corporation completed and transferred 800 units ofproduct costing $80,000 to produce to Finished Goods Inventory. IfRadcliffe sold 650 units during the same month, how much was costof goods sold for the same period?

A.)

$80,000.

B.)

$8,000.

C.)

$6,500.

D.)

$65,000.

13.) The computation of equivalent full units is generally notnecessary when:

A.)

Beginning work-in-process inventories are significantly largerthan ending work-in-process inventories.

B.)

Beginning and ending work-in-process inventories differ onlyslightly.

C.)

The number of units in ending work-in-process exceeds the numberof units completed and transferred to finished goods during theperiod.

D.)

Per-unit costs become distorted as a result of not computingequivalent full units of production.

14.) During July, the equivalent full units of direct materialsadded to the product worked on by Department A amounted to a totalof 90,000 applied as follows: beginning inventory, 20,000 units;units started and completed in July, 60,000 units; and endinginventory, 10,000 units. Assuming that the cost of direct materialsrequisitioned by the department in July was $135,000; the amount ofthe materials cost to be assigned to the ending inventory wouldbe:

A.)

$16,875.

B.)

$54,000.

C.)

$15,000.

D.)

$18,000.