Ch 3

Question 1

What does cost accounting include?

Answer 1

Measuring, recording, and reporting of product costs

Question 2

What is a prerequisite for accurate product cost information?

Answer 2

A reliable cost accounting system

Question 3

How are manufacturing costs integrated within a company?

Answer 3

Fully integrated within the company’s general ledger

Question 4

What system helps provide immediate information on product costs?

Answer 4

Perpetual inventory system

Question 5

In a Job Order Cost System, how are costs assigned?

Answer 5

Costs are assigned to each individual job or batch

Question 6

What is required for each job or batch in a Job Order Cost System?

Answer 6

Each job or batch can be easily identified

Question 7

Give examples of industries that use Job Order Costing.

Answer 7

• Automotive repair
• Accounting and Law firm client work
• Building a house

Question 8

What is the objective of Job Order Costing?

Answer 8

To calculate the cost per job

Question 9

Where are job costs held at the end of an accounting period for incomplete jobs?

Answer 9

Work in process inventory

Question 10

Where are job costs held at the end of an accounting period for completed jobs?

Answer 10

Finished goods inventory

Question 11

What does the flow of manufacturing costs mirror?

Answer 11

The physical flow of inputs as they are converted into finished goods

Question 12

What happens to the cost of completed jobs?

Answer 12

Transferred to Finished Goods Inventory

Question 13

What are the two major steps in flows of costs?

Answer 13

• Accumulate all manufacturing costs as incurred
• Assign costs to each specific job or unit

Question 14

What is debited to Raw Materials Inventory when purchased?

Answer 14

Raw materials (both direct and indirect)

Question 15

When are costs assigned to specific jobs or orders?

Answer 15

As materials are used

Question 16

What does Factory Labour include?

Answer 16

• Gross earnings or wages
• Employer portion of payroll taxes
• Fringe benefit costs

Question 17

What should the Factory Labour account balance be at the end of the accounting period?

Answer 17

Zero balance

Question 18

What is included in Manufacturing Overhead?

Answer 18

All manufacturing or product costs that are not direct costs

Question 19

What is the purpose of a materials requisition slip?

Answer 19

Authorization for issuing raw materials

Question 20

How are direct materials issued/used recorded?

Answer 20

Debited to Work in Process Inventory and to the respective Job Cost Sheet

Question 21

How are indirect materials issued/used recorded?

Answer 21

Debited to Manufacturing Overhead Control

Question 22

What is used to assign manufacturing overhead costs to jobs?

Answer 22

Predetermined Overhead Rate (POR)

Question 23

What is the Predetermined Overhead Rate based on?

Answer 23

The relationship between estimated annual overhead costs and expected annual operating activity

Question 24

What must the balance in Work in Process Inventory equal at the end of each month?

Answer 24

The sum of the costs shown on the job cost sheets of unfinished jobs

Question 25

What happens when a job is completed?

Answer 25

The total cost is transferred from Work in Process Inventory to Finished Goods Inventory

Question 26

When is Cost of Goods Sold recognized?

Answer 26

When a sale occurs

Question 27

Is job-order costing used by service companies?

Answer 27

Yes

Question 28

What records do service companies use to track costs?

Answer 28

Job cost sheets

Question 29

What is the difference between under-applied and over-applied overhead?

Answer 29

Under-applied overhead means overhead applied is less than overhead incurred; over-applied means the opposite

Question 30

What are the two methods for clearing Manufacturing Overhead?

Answer 30

* Cost of Goods Sold Method * Proration Method

Question 31

What does a debit balance in Manufacturing Overhead indicate?

Answer 31

Overhead is under-applied

Question 32

What does a credit balance in Manufacturing Overhead indicate?

Answer 32

Overhead is over-applied

Question 33

What happens to under-applied overhead using the Cost of Goods Sold Method?

Answer 33

Debited to COGS

Question 34

What happens to over-applied overhead using the Cost of Goods Sold Method?

Answer 34

Credited to COGS

Question 35

Which method is more commonly used for treating under/over applied overhead?

Answer 35

Cost of Goods Sold Method

Question 36

What is prorated in the Proration Method?

Answer 36

Under-applied or over-applied overhead is prorated to Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold