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1

Nonmanufacturing cost

administrative cost advertising cost also known as period cost.

2

The direct materials required to manufacture each unit of product are listed on a ________.

bill of materials

3

In the cost formula (Y = a + bX) that is used to estimate the total manufacturing overhead cost for a given period, the letter “a” refers to the estimated ________.

total fixed manufacturing overhead cost

4

predetermined overhead rate =

Estimated total manufacturing overhead cost / estimated total amount of the allocation base.

5

Predetermined overhead rates

- Depreciation - Utilities - Indirect labor. - Indirect materials.

6

Allocation base

-Direct labor - hours - Direct labor cost - machine hours - Units of product. - manufacturing overhead cost.

7

Predetermined overhead rates 4 steps :

Step 1: Estimate the total amount of the allocation base (the denominator) Step 2: Estimate the total fixed manufacturing overhead cost for the coming period and the variable manufacturing overhead cost per unit of the allocation base. Step 3: Use the cost formula (Y = a + bX) to estimate the total manufacturing overhead cost for the coming period. (the numerator) Step 4: Compute the predetermined overhead rate by diving the numerator by the monitor.

8

(Y = a + bX)

Y = estimated total manufacturing overhead cost. a = estimated total fixed manufacturing overhead cost. b = estimated Variable manufacturing overhead cost per unit of allocation base. X= Estimated Total amount of allocation base.

9

The management of Blue Ocean Company estimates that 50,000 machine-hours will be required to support the production planned for the year. It also estimates $300,000 of total fixed manufacturing overhead cost for the coming year and $4 of variable manufacturing overhead cost per machine-hour. What is the predetermined overhead rate?

$10.00 per machine hour. (Y = a + bX) a= $300,000 b= $4 X = 50,000 Y= 300,000 + 4(50,000) = 500,000 Estimated total manufacturing overhead cost / estimated total amount of the allocation base. 500,000 / 50,000 = 10

10

Spartan Corporation estimates that it will incur $200,000 of total manufacturing overhead cost at an estimated activity level of 10,000 direct labor-hours. What is the amount of manufacturing overhead that would be applied to a job that required 200 direct labor-hours?

$4,000 Predetermined overhead rate = $200,000 ÷ 10,000 DLHs = $20 per DLH For 200 DLHs, the manufacturing overhead that would be applied is = $20 per DLH × 200 DLHs = $4,000

11

Overhead applied to a particular job =

Predetermined Overhead Rate X Amount of the allocation base incurred by the job.

12

Overhead cost applied to jobs =

predetermined overhead rate X actual amount of the allocation base incurred by the jobs

13

A normal cost system applies overhead to jobs ________.

by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job

14

Wilson Products uses a plantwide predetermined overhead rate of $10 per direct labor-hour. Direct material and direct labor associated with Job X23 are $4,000 and $1,200 respectively. If Job X23 used 100 direct labor-hours, what is the total cost assigned to this job?

$6,200 Total cost associated with the job = Direct material + Direct labor + Manufacturing overhead applied Total cost associated with the job = $4,000 + $1,200 + ($10 × 100 DLHs) = $6,200

15

Wilson Products uses a plantwide predetermined overhead rate of $10 per direct labor-hour. Direct material and direct labor associated with Job X23 are $4,000 and $1,200 respectively. If Job X23 used 100 direct labor-hours to produce 50 audio controllers, what is this job’s unit product cost (per audio controller)?

$124 total cost assigned / units = unit product cost (per audio controller). 6,200 / 50 = 124

16

Companies can improve job cost accuracy by using ________.

multiple predetermined overhead rates

17

What is the estimated total manufacturing overhead in the Assembly Department? Assembly Packaging Direct labor-hours 5,200 62,000 Machine-hours 68,400 11,900 Total fixed manufacturing overhead cost $ 390,000 $ 419,000 Variable manufacturing overhead per DLH $ 3.75 Variable manufacturing overhead per MH $ 3.00

$595,200 Estimated total manufacturing overhead = $390,000 + ($3.00 per DLH × 68,400 MHs) = $595,200

18

What is the predetermined overhead rate for the Packing Department? Assembly Packaging Direct labor-hours 5,200 62,000 Machine-hours 68,400 11,900 Total fixed manufacturing overhead cost $ 390,000 $ 419,000 Variable manufacturing overhead per DLH $ 3.75 Variable manufacturing overhead per MH $ 3.00

$10.51 per DLH Predetermined overhead rate = $651,500 ÷ 62,000 DLHs = $10.51 per DLH

19

What is the term used when a company applies less overhead to production than it actually incurs?

Underapplied

20

The adjustment for overapplied overhead ________.

decreases cost of goods sold and increases net operating income.

21

When all of a company’s job cost sheets are viewed collectively they form what is known as a ________.

subsidiary ledger

22

Underapplied or overapplied overhead is the:

difference between overhead applied to work in process and actual overhead.

23

The adjustment for underapplied overhead :

increases cost of goods sold and decreases net income

24

Costs assigned to units of product under absorption costing include:

- fixed manufacturing - variable manufacturing

25

Companies that make many different products each period use ____ - _____ costing.

job order

26

True or false: Job-order costing can only be used in manfucaturing firms.

false

27

A measure such as direct labor-hours or machine hours used to assign overhead costs to products and services is called a cost driver or a(n) _______ ________.

allocation base.

28

Which of the following would not be a good allocation base for manufacturing overhead? - Direct labor hours -Machine hours - Units of product - Accounting hours

accounting hours.

29

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

estimated allocation base.

30

The predetermined overhead rate is calculated:

before the period begins.