Job-Order Costing Quiz | ACCT 125 Accounting Exam Practice

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Questions and Answers

What is the main purpose of a product costing system in a manufacturing environment?

Accumulates production costs and assigns them to final products

Describe the cost flow in a manufacturing environment according to the text.

Manufacturing costs are added to work-in-process inventory, then transferred to finished goods inventory, and recorded as cost of goods sold upon sale of products.

Why are product costs significant in managerial accounting?

For planning, decision-making, and cost management purposes

Differentiate between job-order costing and process costing systems based on their applications.

Job-order costing is suitable for job-shop or batch production, while process costing is used for producing large numbers of identical units. Signup and view all the answers

What is the importance of accurate tracking and assignment of manufacturing costs in a job-costing system?

It ensures proper allocation of direct and indirect costs to each job. Signup and view all the answers

Explain the significance of allocating direct and indirect costs in a job-costing system.

It helps in determining the true cost of each job and maintaining cost control. Signup and view all the answers

What are the two alternatives for the disposition of underapplied or overapplied overhead at the end of an accounting period?

Close into the Cost of Goods Sold (COGS) account or allocate among COGS, finished goods inventory, and work-in-process inventory. Signup and view all the answers

How does underestimation or overestimation of the predetermined overhead rate affect COGS, work-in-process inventory, and finished goods inventory?

It affects all three accounts. Signup and view all the answers

What are some examples of costs that grow over time?

Depreciation, Interest, Labor Cost, Rent, and Electricity (Consumption). Signup and view all the answers

What is the difference between budgeted cost and actual cost?

Budgeted cost is a forecast, while actual cost is what actually happens. Signup and view all the answers

Why would electricity and labor costs have variances?

Due to factors like consumption, price per kWh, labor skill, and work ethic. Signup and view all the answers

How can you determine if a variance in costs is good or not?

By analyzing the reasons behind the variance and its impact on the business. Signup and view all the answers

What are the procedures outlined for in the text?

Accumulating direct material, direct labor, and manufacturing overhead costs for a job. Signup and view all the answers

Explain the concept of cost pooling mentioned in the text.

Cost pooling involves combining direct and indirect costs. Signup and view all the answers

What are the two alternatives presented for handling underapplied or overapplied overhead?

Closing into cost of goods sold or prorating among cost accounts. Signup and view all the answers

What is the significance of tracking direct labor costs through time records?

To monitor and manage direct labor expenses. Signup and view all the answers

What does Purchases refer to in the context of cost management?

Acquisition of raw materials, goods, or services for production. Signup and view all the answers

What is the purpose of a product costing system in financial accounting?

To value inventory and compute the cost of goods sold. Signup and view all the answers

What are the two types of product costing systems mentioned in the text?

Job-order costing and process costing. Signup and view all the answers

What is the flow of costs provided by the cost of goods sold statement?

From the purchase of raw materials to the cost of goods sold. Signup and view all the answers

What is each distinct batch of production called in job-order costing?

A job or job order. Signup and view all the answers

What are the two basic sets of procedures used in product costing systems?

Job-order costing and process costing. Signup and view all the answers

What is the purpose of a material requisition form (MRF) in job-order costing systems?

To authorize the release of materials and transfer the cost from raw material inventory to work-in-process inventory. Signup and view all the answers

How are direct labor costs assigned to jobs in job-order costing systems?

Based on time records filled out by employees recording the amount of time spent on each production job. Signup and view all the answers

What is manufacturing overhead and why is it essential to allocate these costs to jobs?

Manufacturing overhead includes indirect production costs and is necessary for production to occur. Allocating these costs provides a comprehensive picture of product costs. Signup and view all the answers

What is a predetermined overhead rate (POHR) used for in job-costing systems?

To apply manufacturing overhead costs to production jobs by multiplying the rate by the quantity of the cost driver required for a specific job. Signup and view all the answers

Why is it important to accurately record time spent on production jobs?

To track and allocate direct labor costs to specific jobs, ensuring the accuracy of job costs and overall cost management. Signup and view all the answers

What is the goal of allocating manufacturing overhead costs to jobs?

To ensure that overhead costs are allocated in a manner reflecting the actual usage of resources. Signup and view all the answers

What causes underapplied or overapplied overhead in job-order costing systems?

Errors in the estimates of overhead and activity used to compute the predetermined overhead rate. Signup and view all the answers

What is the process of overhead application in job-order costing systems?

It involves using a predetermined overhead rate to apply manufacturing overhead costs to production jobs based on a cost driver. Signup and view all the answers

How does a material requisition form (MRF) impact the accounting entries in job-order costing systems?

It provides necessary information for accounting entries related to the use of materials in production, transferring costs from raw material to work-in-process inventory. Signup and view all the answers

What type of costs are included in manufacturing overhead?

Indirect production costs such as indirect materials, indirect labor, utility costs, and depreciation. Signup and view all the answers

Study Notes

Product Costing Systems

The main purpose of a product costing system in a manufacturing environment is to accurately determine the cost of goods sold and inventories.

Cost Flow

The cost flow in a manufacturing environment involves the flow of costs from raw materials to work-in-process inventory to finished goods inventory and finally to cost of goods sold.

Importance of Product Costs

Product costs are significant in managerial accounting as they are used to make decisions about pricing, profitability, and performance evaluation.

Job-Order Costing vs. Process Costing

Job-order costing is used for customized or batch production, where each job is unique, and costs are tracked individually.
Process costing is used for mass production, where identical products are produced in large quantities, and costs are averaged over the entire production process.

Importance of Accurate Tracking and Assignment of Manufacturing Costs

Accurate tracking and assignment of manufacturing costs is crucial in a job-costing system to ensure accurate product costing and decision-making.

Allocating Direct and Indirect Costs

Allocating direct costs, such as direct labor and materials, to jobs helps in accurate product costing.
Allocating indirect costs, such as manufacturing overhead, to jobs helps in accurate product costing and decision-making.

Disposition of Underapplied or Overapplied Overhead

The two alternatives for the disposition of underapplied or overapplied overhead at the end of an accounting period are:
- Allocating it to cost of goods sold and inventory accounts.
- Recognizing it as a gain or loss on the income statement.

Effect of Underestimation or Overestimation of Predetermined Overhead Rate

Underestimation or overestimation of the predetermined overhead rate affects COGS, work-in-process inventory, and finished goods inventory.

Costs that Grow Over Time

Examples of costs that grow over time include labor and material costs.

Budgeted Cost vs. Actual Cost

Budgeted cost is the estimated cost of a product or service.
Actual cost is the actual amount spent on producing a product or service.

Variance in Costs

Variance in costs occurs when actual costs differ from budgeted costs.
Electricity and labor costs may have variances due to changes in usage or prices.

Determining Variance in Costs

A variance in costs is good if it results in cost savings, and bad if it results in increased costs.

Procedures Outlined

The procedures outlined in the text include allocating direct and indirect costs, tracking direct labor costs, and allocating underapplied or overapplied overhead.

Cost Pooling

Cost pooling involves grouping costs into a single cost pool for allocation to jobs.

Alternatives for Handling Underapplied or Overapplied Overhead

The two alternatives for handling underapplied or overapplied overhead are:
- Allocating it to cost of goods sold and inventory accounts.
- Recognizing it as a gain or loss on the income statement.

Significance of Tracking Direct Labor Costs

Tracking direct labor costs through time records is essential to accurately assign labor costs to jobs.

Purchases

In the context of cost management, Purchases refer to the acquisition of raw materials or goods.

Purpose of a Product Costing System in Financial Accounting

The purpose of a product costing system in financial accounting is to accurately value inventory and cost of goods sold.

Types of Product Costing Systems

The two types of product costing systems mentioned in the text are job-order costing and process costing.

Cost of Goods Sold Statement

The cost of goods sold statement provides the flow of costs from raw materials to cost of goods sold.