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ACCT 002 Lecture Notes - Lecture 30: Cost Accounting, Activity-Based Costing

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blackpig616
22 Oct 2020
School
College of The Sequoias
Department
Accounting (ACCT)
Course
ACCT 002
Professor
cooper

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Document Summary

Product costs are recorded when sold (cogs) and all related expenses. Period costs are recorded as incurred as they are not part of production. The process of assigning manufacturing costs to manufactured products is called cost accounting. Costs are accumulated for each individual unit produced, or each separate order of products. Costs are accumulated for each production process. Mass production e. g. coca cola or gasoline refineries. Problems resulting from measuring product cost using actual overhead. Companies may not know utilities charges until it receives a bill. How to determine how to distribute costs to different products. However, sometimes one product is larger and deserve greater distribution of costs (e. g. different size boats) Actual amounts are used for direct materials and direct labor. Applied overhead (overhead charged to the job) If products are produced in a continuous manufacturing environment, where production does not have a distinct beginning and end, it is necessary to use a process costing system.

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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.

Listed below are seven technical accounting terms introduced oremphasized in this chapter.


Job Order costing

Overhead application rate

Overapplied overhead

Activity-based costing

Cost driver

Cost of finished goods manufactured

Job cost sheet


Each of the following statements may (or may not) describe thsestechinial terms. For each statment, indicate the term described, oramswer "None" if the statement does not correctly describe any ofthe terms.


a. An activity base that can b etraced directly to unitsproduced and can be used as a denominator in computing an overheadapplication rate.

b. The total of all direct lavor, direct materials andmanufacturing overhead transferred from work in process to finishedgoods.

c. A means of assigning indirect product costs to work inprocess during the period.

d. A debit balance remaining in the Manufacturing Overheadaccount at teh end of the period.

e. The type of cost accounting system likely to be used by aconstruction company.

f. The type of cost accounting method likely to be used foroverhead costs.

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.