Cost Accounting: Job Costing and Reworking

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Questions and Answers

In a normal cost system, when would a debit to Work in Process Inventory not be made?

For applied overhead costs

For actual direct labor costs

For actual direct material costs

For actual overhead costs (correct)

What measure is used to allocate costs in the pilot ABC project of Badian Inc.of Cebu Ltd.?

# of employees

# of receiving reports

# of purchase orders

# of telephone calls (correct)

Which activity in the Purchasing Department of Cebu Ltd. incurred the highest total cost?

Reviewing receiving reports

Reviewing purchase orders

Finding best suppliers (correct)

Issuing purchase orders

What was the total annual cost of the Purchasing Department at Badian Inc.of Cebu Ltd.?

P 473,500 Signup and view all the answers

How many telephone calls were made by the purchasing department during the year?

150,000 Signup and view all the answers

For one product at Badian Inc.of Cebu Ltd., how many purchase orders were issued?

60 Signup and view all the answers

What were the original direct material costs incurred for Job 108?

P 660 Signup and view all the answers

What is the total cost per finished unit of Job 108?

P 14.60 Signup and view all the answers

If the rework cost for 10 units attributed to internal failure or factory overhead is P 260, what is the cost per reworked unit?

P 25 Signup and view all the answers

What would be the appropriate entry to close the accounts if P 29,000 overhead costs were incurred and P 25,000 were applied to jobs?

DR.Cost of Goods Sold P 29,000 CR.Applied Factory Overhead P 29,000 Signup and view all the answers

What is the total amount of factory overhead incurred for Job 108?

P 2,660 Signup and view all the answers

If the original direct labor cost was P 800 and factory overhead was calculated at 150% of direct labor, what was the total factory overhead cost?

P 1,200 Signup and view all the answers

In a traditional costing system compared to an ABC system, what does the text suggest about unit costs for high-volume products?

Report a higher unit cost for high-volume products and a lower unit cost for low-volume products Signup and view all the answers

What is the formula for calculating applied overhead in the company's financial records?

30% of total manufacturing costs Signup and view all the answers

What is the carrying value of the company's work in process inventory at December 31 according to the information provided?

P300,000 Signup and view all the answers

Which system does Q Company use based on the information provided in the text?

Normal cost system Signup and view all the answers

What type of products does Toma Nuptial Bakery specialize in making according to the text?

Wedding cakes Signup and view all the answers

What is the Predetermined Overhead rate used by Q Company for allocating overhead costs?

60% of direct labor cost Signup and view all the answers

What is the total amount of direct labor incurred for all jobs by the end of July?

P82,800 Signup and view all the answers

Which job had the highest number of direct labor hours by the end of July?

Job #60 Signup and view all the answers

What was the total cost of direct materials for all jobs by July 31?

P47,000 Signup and view all the answers

If Jobs 60 and 62 were completed and sold, what was the total revenue generated from these two jobs?

P86,300 Signup and view all the answers

What is the total balance in Work in Process Inventory as of July 31?

P231,965 Signup and view all the answers

In cost accounting, what does product cost cross-subsidization mean?

When one product is overcosted, it results in more than one other product being overcosted. Signup and view all the answers

In an ABC system, what is treated differently compared to a traditional costing system?

Indirect costs Signup and view all the answers

What is considered a more effective cost driver for allocating setup costs in Herbal Corp.?

Setup-hours Signup and view all the answers

Under traditional costing, which pack is overcosted according to the cost information of Herbal Corp.?

Simple L3 Pack Signup and view all the answers

What are the fundamental cost objects of ABC system?

Correct Answer Signup and view all the answers

Which characteristic indicates a company would benefit from switching to ABC?

Only one homogeneous product is produced on a continuous basis. Signup and view all the answers

Study Notes

Work in Process Inventory

A debit to Work in Process Inventory is not made when direct material or labor is not used in job costing.
Original direct material costs for Job 108 need to be specified for accurate job cost tracking.

Activity-Based Costing at Badian Inc.

The pilot ABC project uses activity measures to allocate costs effectively.
The Purchasing Department incurs the highest total costs, highlighting a key cost area.

Purchasing Department Costs

Total annual costs of the Purchasing Department for Badian Inc. require specific figures.
The department made a significant number of telephone calls, emphasizing its operational activity.

Job 108 Cost Details

Total cost per finished unit of Job 108 must be documented for pricing strategies.
Factory overhead for Job 108 needs to be calculated to determine total job costs.
If rework costs for 10 units are P 260, cost per reworked unit is P 26.

Cost Allocation and Financial Records

Factory overhead is applied at 150% of direct labor costs, providing a formula for applied overhead calculations.
A P 29,000 overhead costs need proper journal entries for closing accounts, considering P 25,000 applied.

Direct Labor and Material Costs

Total direct labor incurred for all jobs by the end of July gives insight into workforce utilization.
Jobs 60 and 62 revenue must be calculated post-sale to assess profitability.
The total cost of direct materials for all jobs until July 31 is essential for cost management.

Inventory and Cost Accounting

Carrying value of work in process inventory at year-end is critical for financial reporting.
The total balance in Work in Process Inventory on July 31 provides a snapshot of unfinished production.

Costing System Insights

Product cost cross-subsidization indicates potential inaccuracies in cost allocation across products.
In an ABC system, overhead allocation differs substantially from traditional costing methods, allowing for precision.
ABC is more suited for companies with diverse products, reflected in their cost drivers for setup costs.

Business Characteristics and Cost Drivers

Companies with various products and complex operations may benefit from switching to ABC.
Overcosted products highlighted by traditional costing may lead to mispricing and reduced competitiveness.

Summary of Key Concepts

The fundamental cost objects in an ABC system clarify where costs are allocated.
A systematic approach to costing enhances decision-making and resource allocation in businesses.

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Description

Test your knowledge of cost accounting by calculating costs for job manufacturing and reworking units. Understand how to account for direct materials, direct labor, and factory overhead in job costing scenarios.