Cost-application basecost-allocation base when the cost object is a job, service, product, or customerWhen is the cost-allocation base not referred to as the cost-application basewhen the cost object is a department or another cost poolThe higher a divisions revenue, the higher the business's allocated cost of the advertising programbenefits receivedorganizations generally usecause and effect criterion to allocate costs, followed by benefits received and finally more rarely by ability to bearManagement accountants use two basic types of costing systems to assign costs to products or servicesJob-Costing System
Process-costing systemJob-Costing SystemThe cost object is a unit or multiple units of a distinct product or service called a jobWhen do you use the job-costing systemWhen the products and services are distinctJob-costing systems are used toaccumulate costs separately for each product or serviceProcess-Costing SystemThe cost object is masses of identical or similar units of product or serviceWhen do you use the Process-Costing systemwhen the product or service is identicalIn each period what does the process-costing system dodivides the total costs of producing an identical or similar product or service by the total number of units produces to obtain a per-unit ostsExamples when to use job costing system (service sector)Audit engagements done by PricewaterhouseCoopers
Advertising-agency campaigns run by a company
Computer Repair jobs done by CompUSAExamples when to use job costing system (Merchandising)L.L. Bean sending individual items by mail order
Special promotion of new products by WalmartExample when to use Job costing system (Manufacturing)Assembly of individual aircrafts at Boeing
Construction of ships at Litton IndustriesExample when to use Process-Costing System (Service)Bank-Check clearing at Bank of America
Postal delivery (standard items) by U.S. PostalExamples when to use process costing system (merchandising)Grain dealing by Arthur Daniel Midlands
Lumber dealing by WeyerhauserExamples when to use Process-Costing System (Manufacturing)Oil refining by Shell Oil
Beverage production by PepsiCoActual CostingOne form of job-Costing. A costing system that traces direct costs to a cost objective based on the actual direct-cost rates x the actual quantities of the direct-cost inputs usedin actual costing how is indirect costs allocatedBased on the actual indirect-costs rates x the actual quantities of the cost-allocation baseWhats the equation for actual indirect cost rateActual annual indirect costs/ actual annual quantity of the cost allocation basesWhy isn't actual costing systems commonly usedTrying to calculate indirect actual costs in a timely manner is the problem because they can only calculate actual indirect costs at the end of the fiscal yearWhat are the 2 reasons for using longer periods such as a year to calculate indirect-cost ratesThe numerator reason (indirect-cost pool)- The shorter the period the greater the influence of seasonal patterns on the amount of costs- it would charge future months with more costs than just gathering it at the end
The denominator reason (quantity of the cost-allocation base)- to avoid spreading monthly fixed indirect costs over fluctuating levels of monthly output and fluctuating quantities of the cost- allocation baseNormal Costing1. A costing system that traces direct costs to a cost object by using the actual direct-cost rates times the actual quantities of the direct-cost inputs and that
2. allocates indirect costs based on the budgeted indirect-cost rates times the actual quantities of the cost allocation basesBudgeted indirect-cost ratebudgeted annual indirect costs in a cost pool divided by the budgeted annual quantity of the cost allocation basewhat is the calculation for budgeted indirect cost ratebudgeted annual indirect costs/ budgeted annual quantity of the cost-allocationWhat is the outline of the seven-step approach to normal costingStep 1: Identify the job that is the chosen cost object
Step 2: Identify the Direct Costs of the Job
Step 3: Select the Cost-Allocation Bases to use for Allocating Indirect costs to the job
Step 4: Identify the Indirect costs associated with each cost-allocation base
Step 5: Compute the Rate per Unit of Each cost-allocation base used to allocate indirect costs to the job
Step 6: Compute the Indirect Costs allocated to the job
Step 7: Compute total cost of the job by adding all direct and indirect costs assigned to the jobSource DocumentsOriginal record that supports journal entries in an accounting systemJob-Cost recordSource document that records and accumulated all the costs assigned to a specific job, starting when work begins. AKA job-cost sheetMaterials Requisition recordSource document that contains information about the cost of direct materials used on a specific job and in a specific departmentLabor- time sheetSource document that contains information about the amount of labor used for a specific job in a specific departmentWhat is the calculation for budgeted manufacturing overhead rateBudgeted manufacturing overhead costs/ budgeted total quantity of cost-allocation baseshow do you calculate the indirect costs of jobactual quantity of each different allocation base (one allocation base for each cost pool) x budgeted indirect cost rate of each allocation baseWhat is the difference between normal costing and actual costingnormal costing uses budgeted indirect-cost rates and actual costing uses actual indirect cost rates calculated annually at the end of each yearT/F- In a normal-costing system the amounts in the Manufacturing Overhead Control account will always equal the amounts in the Manufacturing Overhead Allocated accountFalseIdentify three different debit entries to the Work-In-Process Control T-account under normal costingDirect materials used
Direct manufacturing labor billed to a job
manufacturing overhead allocated to a jobIdentify the appropriate way to dispose of under- or overallocated overhead costs1. Proration to work in process, finished goods and cost of goods sold
2. Year-end write-off of cost of goods sold
3. Restatement of all overhead entries using actual indirect costs rates rather than budgeted indirect cost ratesA company might use budgeted costs rather than actual costs to compute direct-labor rates becauseit may be difficult to trace direct labor costs to jobs as they are completedElectronic Data Interchange (EDI) is helpful to managers becauseit ensures that a purchase order is transmitted quickly and accurately to suppliers with minimum paperwork and costsWhat doesnt accurately describe the application of job-order costingManufacturing overhead costs incurred is used to determine total manufacturing costs
