EXAM TWO

Question 1

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Direct Materials + Direct Labor + Manufacturing Overhead

Answer 1

Total Manufacturing Cost

Question 2

Estimated Overhead Costs / Estimated Operating Activity

Answer 2

Predetermined Overhead Rate

Question 3

Estimated Overhead Per Activity / Estimated use of Cost Driver

Answer 3

Activity-Based Overhead Rate

Question 4

Revenue – Cost of Goods Sold

Answer 4

Gross Profit

Question 5

Type of managerial accounting that involves measuring, recording, and
reporting product and service costs

Answer 5

Cost Accounting

Question 6

What are the two types of Cost Accounting?

Answer 6

Process Cost System & Job Order System

Question 7

Businesses use Process Cost System when it manufactures…

Answer 7

Large volume of similar products

Question 8

Costs are assigned to each job or batch in

Answer 8

Job Order System

Question 9

True or False: Each job in Job Order Costing has its own distinguishing characteristics

Answer 9

True

Question 10

Job Order Cost System’s Cost Flow

Answer 10

Raw Materials, Factory Labor, Manufacturing Overhead -> Assign costs to Work in Progress (WIP) -> Once job is completed put into Finished Goods -> once sold, move to Cost of Goods Sold (COGS)

Question 11

To assign costs to WIP, what do you need to use?

Answer 11

Job Cost Sheet

Question 12

How do companies assign factory labor costs to a job?

Answer 12

Time Tickets

Question 13

Companies assign to work in process and to specific jobs on an estimated
basis using a…

Answer 13

Predetermined Overhead Rate

Question 14

Predetermined Overhead Rate Equation

Answer 14

Estimated Annual Overhead Costs/Estimated Annual Operating Activity

Question 15

Estimated Annual Operating Activity includes…

Answer 15

Direct Labor Costs, Direct Labor Hours, and Machine Hours

Question 16

Predetermined Overhead Rate x Actual Labor Hours

Answer 16

Applied Overhead

Question 17

A positive balance in manufacturing overhead (MOH Applied < Actual MOH)

Answer 17

Underapplied Overhead

Question 18

A negative balance in manufacturing overhead (MOH Applied > Actual MOH)

Answer 18

Overapplied Overhead

Question 19

True or False: Underapplied Overhead increases COGS

Answer 19

True

Question 20

The overhead cost attributed to a distinct activity

Answer 20

Activity Cost Pool

Question 21

Any factor or activity that has direct cause-effect relationship with the resources consumed

Answer 21

Cost Driver

Question 22

Any event, action, transaction, or work that incurs costs when producing a product or performing a service

Answer 22

Activity

Question 23

Benefits of Traditional Costing

Answer 23

1. Allocates overhead using a predetermined rate
2. Adopts direct labor hours as the relevant activity base

Question 24

Limitations of Traditional Costing

Answer 24

1. Decrease of Direct Labor usage
2. Complex manufacturing processes may require multiple allocation bases
3. Tremendous change in manufacturing and service industries

Question 25

Benefits of ABC

Answer 25

1. Employs more cost pools, which results in more accurate product costing 2. Better control over overhead costs 3. Allows better management decisions

Question 26

Estimated Overhead per Activity/Estimated Use of Cost Drivers per Activity

Answer 26

Activity-Based Overhead Rate

Question 27

Are performed for each unit of production

Answer 27

Unit Level Activities

Question 28

Are performed each time a company produces another batch of product

Answer 28

Batch Level Activities

Question 29

Are performed every time a company produces a new type of product

Answer 29

Product Level Activities

Question 30

Activities performed to sustain or maintain an entire production process. The costs do not vary as a function of the number of units, batches or products

Answer 30

Facility Level Activities

Question 31

Direct Labor Hours/Cost

Answer 31

Traditional Costing

Question 32

Are operations that increase perceived value of a company’s product or service to customers (ex. assembling and machining)

Answer 32

Value Added Activity

Question 33

Only adds cost to a product or service. IF ELIMINATED, they do not reduce the value of a company’s product or device. (ex. Inspection and Inventory)

Answer 33

Non-Value Added Activity

Question 34

Steps of ABC

Answer 34

1. Identify activity cost pools and allocate cost to pools 2. Identify cost drivers and estimate total usage 3. Compute activity-based overhead rate 4. Assign overhead costs to products based on use of cost drivers

Question 35

Three Important Elements of JIT Processing

Answer 35

1. Dependable Suppliers 2. Multi-skilled Work Force 3. Total Quality Control System

Question 36

Limitations of ABC

Answer 36

1. More expensive than traditional systems 2. More complex than traditional systems 3. Costs may still be allocated with incorrect cost drivers, where inputs used may change over time, or later be identified as the incorrect inputs

Question 37

A Company has the right amount of materials, parts, or products just as they are needed. The goal is a smooth, continuous flow in the manufacturing process with no buildup of inventories at any point.

Answer 37

Just in Time Processing

Question 38

Major Benefits of JIT

Answer 38

1. Significant reduction or elimination of manufacturing inventories. 2. Enhanced product quality. 3. Reduction or elimination of rework costs and inventory storage costs. 4. Production cost savings from the improved flow of goods through the processes

Question 39

Job Order + Process Cost System

Answer 39

Cost Accounting System

Question 40

Actual - Applied =

Answer 40

Over/Under Applied Overhead

Question 41

What do you get when you multiply the POH rate by Actual operating activity

Answer 41

Applied Overhead