Manufacturing Costs and Overhead

Questions and Answers

Factory labor charges that cannot be easily traced to a job are treated as

manufacturing overhead

Typical cost drivers include:

computer time, machine hours, flight-hours

All manufacturing costs are assigned to units of product and all nonmanufacturing costs are treated as period cost under ___________ costing.

absorption

To calculate a predetermined overhead rate, divide estimated manufacturing overhead by

estimated allocation base Signup and view all the answers

Categories of manufacturing costs include

manufacturing overhead, direct materials, direct labor Signup and view all the answers

Companies that make many different products each period use costing.

job order Signup and view all the answers

Manufacturing overhead costs consist of:

many different items, contain fixed costs, and are indirect costs Signup and view all the answers

Compared to plantwide overhead rate system, a multiple predetermined overhead rate system is:

more complex, more accurate Signup and view all the answers

A measure such as direct labor hours, or machine hours that is used to assign overhead costs to products and services is called an

allocation base. Signup and view all the answers

The total cost of a job is calculated by adding the total of direct labor cost, direct material costs and

applied manufacturing overhead cost. Signup and view all the answers

Widely used allocation bases in manufacturing are

direct labor hours, machine hours, direct labor cost, units of product Signup and view all the answers

The formula for applying overhead to a specific job is

predetermined overhead X amount of allocation base incurred by job. Signup and view all the answers

A job cost sheet contains

materials costs charged to the job, manufacturing overhead costs charged to the job, and labor costs charged to the job. Signup and view all the answers

A cost driver is:

a factor that causes overhead costs to occur. Signup and view all the answers

Labor costs that are easily traced to a job are called ______ labor costs.

direct Signup and view all the answers

________________ hours would not be a good allocation base for manufacturing overhead.

Accounting Signup and view all the answers

Predetermined overhead rate per direct labor hour is calculated by dividing

estimated manufacturing overhead by estimated direct labor hours. Signup and view all the answers

The manufacturing overhead account contains:

many different kinds of indirect costs. Signup and view all the answers

The document that records the materials, labor, and manufacturing overhead costs charged to a job is:

job cost sheet. Signup and view all the answers

The total cost of a job includes:

direct labor, direct materials, applied manufacturing overhead. Signup and view all the answers

A multiple predetermined overhead rate system is more accurate than a plantwide overhead rate system because:

it reflects differences in how overhead costs are incurred within departments. Signup and view all the answers

The unit product cost is the same as the:

average product cost per unit and the total job cost divided by the number of units. Signup and view all the answers

Materials requisition forms are used for:

controlling the flow of materials into production and making journal entries in accounting records. Signup and view all the answers

A normal costing system applies overhead by job by multiplying a ___ rate by the _ amount of the allocation base incurred by the job.

predetermined overhead, actual Signup and view all the answers

An hour-by-hour summary of an employee's activities throughout the day is found on the _ ____.

time ticket Signup and view all the answers

A factor that causes overhead costs is called a:

cost driver. Signup and view all the answers

Which of the following is an essential quality of an overhead allocation base?

True Signup and view all the answers

Based on the information, the predetermined overhead rate per direct labor dollar for department B is:

estimated manufacturing overhead divided by estimated direct labor cost. Signup and view all the answers

A single predetermined overhead rate is called a ________ overhead rate.

plantwide Signup and view all the answers

The predetermined overhead rate is multiplied by the actual allocation base incurred by a job to find:

the overhead applied to the job. Signup and view all the answers

Manufacturing overhead costs are:

indirect costs and consist of many different items. Signup and view all the answers

An allocation base is a(n)

measure of activity used to assign overhead costs to products and services. Signup and view all the answers

A bill of materials contains:

quantity of each direct material needed to complete a unit of product and the type of each direct material needed to complete a unit of product. Signup and view all the answers

The process used to assign overhead costs to products is called overhead __________.

allocation Signup and view all the answers

The formula y = a + b(x), X represents the ________________.

total amount of the allocation base. Signup and view all the answers

Overhead application is the process of:

assigning manufacturing overhead cost to jobs. Signup and view all the answers

In the formula Y= a + bX, b represents the estimated:

variable manufacturing overhead cost per unit. Signup and view all the answers

In the formula Y=a+bX, this represents the estimated:

total fixed manufacturing overhead cost. Signup and view all the answers

The formula for applying overhead to a specific job is:

predetermined overhead rate multiplied by amount of allocation base incurred by job. Signup and view all the answers

The process used to assign overhead costs to products is called overhead ________.

allocation Signup and view all the answers

Smith, Inc. uses a job-order costing system with the predetermined overhead rate of $12 per machine-hour. The job cost sheet for Job #42A listed $12,000 in direct labor cost, $18,000 in direct materials cost, 1,200 direct labor hours and 1,100 machine hours. What is the total cost of Job #42A?

$43,200, calculated as $18,000 + $12,000 + ($12 per machine-hour x 1,100 machine hours). Signup and view all the answers

Companies assign costs to products and services to:

establish selling prices, value ending inventory, and understand product profitability. Signup and view all the answers

Cost-plus pricing occurs when:

a markup percentage is added to the cost of a job. Signup and view all the answers

The adjustment for underapplied overhead:

increases COGS and decreases net operating income. Signup and view all the answers

To calculate the unit product cost using the job cost sheet:

divide the total job cost by the number of units produced. Signup and view all the answers

Total manufacturing overhead costs tend to:

remain fairly constant. Signup and view all the answers

Why do companies use a predetermined overhead rate rather than an actual overhead rate?

An actual overhead rate is not known until the end of the period. Signup and view all the answers

Study Notes

Manufacturing Overhead and Costs

Factory labor that cannot be directly traced to a job is categorized as manufacturing overhead.
Manufacturing overhead includes indirect costs, fixed costs, and a variety of items.
Key categories of manufacturing costs include manufacturing overhead, direct materials, and direct labor.
The total cost of a job combines direct labor costs, direct materials, and applied manufacturing overhead.

Cost Drivers and Allocation Bases

Typical cost drivers include computer time, machine hours, and flight-hours.
Allocation bases, like direct labor hours and machine hours, are crucial for assigning overhead costs to products.
A cost driver is defined as a factor that causes overhead costs to occur.
The allocation base must be common to all company's products and services to be effective.

Job Order Costing and Overhead Application

Companies producing diverse products often use job order costing.
A job cost sheet records materials, labor, and manufacturing overhead charges for a specific job.
A predetermined overhead rate is calculated by dividing estimated manufacturing overhead by an estimated allocation base.
The formula for applying overhead to a specific job is: predetermined overhead rate x amount of allocation base incurred by job.

Overhead Systems and Accuracy

A multiple predetermined overhead rate system provides greater accuracy compared to a plantwide overhead rate, reflecting departmental differences.
Total manufacturing overhead costs typically remain relatively constant.
Companies rely on predetermined overhead rates because actual rates are unavailable until the end of the accounting period.

Costing Techniques and Pricing

The unit product cost is equivalent to the average product cost per unit or total job cost divided by total units.
Cost-plus pricing involves adding a markup percentage to the cost of a job to determine selling price.
Underapplied overhead adjustments increase Cost of Goods Sold (COGS) and decrease net operating income.

Measurement and Documentation

Materials requisition forms help control material flow into production and assist in making accounting journal entries.
Time tickets provide an hourly overview of employee activities to help track labor costs accurately.
The bill of materials outlines the quantity and type of direct materials needed for product completion.

Summary of Formulas

Direct labor costs + Direct material costs + (Predetermined overhead rate x Actual machine hours) = Total job cost.
Unit product cost = Total job cost / Number of units produced.
The formula for applying overhead: predetermined overhead rate x amount of allocation base incurred by job.

This structured overview encompasses the crucial concepts found in managerial accounting related to job costing, overhead allocation, and cost management.

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Description

This quiz covers key concepts related to manufacturing overhead, cost drivers, and job order costing. Learn to identify different categories of manufacturing costs and understand how to allocate overhead effectively. Test your knowledge on the components that contribute to the total cost of production.