33:010:275 Lecture Notes - Lecture 4: Indirect Costs

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rubysalmon273

11 Aug 2017

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Building-block concepts of costing systems: cost pool is a grouping of individual indirect costs. This grouping can range from broad groups to very narrow groups: cost allocation base: a systematic way to link an indirect cost or group of indirect costs to cost objects. When the cost object is a job, product, or customer, the cost allocation base is also called a cost-application base: sometimes cost can be allocated based upon factors such as revenue of specific departments. The higher the revenue, the more money is allocated there. Identify the problems and uncertainties: how much will it cost to complete the job and what are the prices of the competitors: obtain information: is doing the job consistent with the company"s strategy. Other information about the job: make predictions about the future: estimate costs and other judgements, make decisions by choosing among alternatives: consider alternatives.

Related Questions

1- Which of the following costs is the most likely to be allocated to a product in a traditional job costing environment?

A. Direct materials

B. Direct labor

C. Manufacturing overhead

D. Selling and administrative

2. An allocation base that causes overhead costs to be incurred is called a:

A. revenue drives.

B. predetermined driver.

C. cost driver.

D. applied driver.

3. Which of the following statements is true regarding cross-subsidies

A. they occur when factory workers are trained to work on many different machines,

B. they occur when high-volume products are assigned more than their fair share of overhead costs,

C. they occur when high-volume products have more direct material and direct labor costs than overhead costs.

D. They occur when more than one cost driver cat he determined for a particular overhead cost item.

4. Which of the following is true regarding activity-based costing (ABC)?

A. The benefits of using ABC always outweigh its limitations.

B. the lower the proportion of Overhead costs as compared to direct materials and direct labor costs, the more likely a company, will benefit by using ABC.

C. Companies with a high-proportion of non-unit -level costs should rarely use ABC.

D. High measurement costs associated with ABC may deter some companies from its use.

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I. The basic parts of a joborder costing system are the:

A. Cost______________ and _________________ procedures.

B. ____________________ documents.

C. Accountsthat a company uses when it incurs costs for direct ____________,direct ________________, and ___________________.

II. Accounting for materialsrequires three types of entries.

A. With the ______________ of materials,debit Materials Inventory and credit Accounts Payable.

B. With the _______________ of directmaterials to ________________, debit Work in Process Inventory andcredit Materials Inventory.

C. With the transfer of__________________ materials to production, debit Overhead andcredit Materials Inventory.

III. Accounting for labor requirestwo types of entries.

A. For payroll costs incurred for_____________ labor, debit Work in Process Inventory and creditPayroll Payable.

B. For payroll costs incurred for_______________ labor, debit Overhead and credit PayrollPayable.

IV. Accounting for other overhead requires twotypes of entries.

A. Other overhead includes plant____________, property _____________, insurance, and_______________.

B. To record _____________ overhead costs,debit Overhead and credit Cash or Accumulated Depreciation.

C. To record _____________ overheadcosts, debit Work in Process Inventory and credit Overhead.

D. The actual (debits) and estimated(credits) overhead costs are ________________ at the end of theperiod to determine the accuracy of overhead costrecognition.

V. To recordthe transfer of ________________ units, debit Finished GoodsInventory and credit Work in Process Inventory.

VI. When a companyuses a perpetual inventory system, two accounting entries are madewhen products are sold.

A. To record the sold productâs________________, debit Accounts Receivable (or Cash) and creditSales.

B. To record the sold productâsassociated ____________, debit Cost of Goods Sold and creditFinished Goods Inventory.

VII. Each job in production has a job order_________________.

A. Hasspace for direct materials, direct labor, and overhead costs.

B. Includesthe job order number, product specifications, customer name, dateof order, projected completion date, and a cost summary.

C. Forincomplete jobs, they make up the _______________ ledger for theWork in Process Inventory account.

D. When ajob is completed, the costs are totaled on the_____________________.

1. Unit cost is computed to_____________ items in inventory.

2. Product ___________Cost = Total Costs for Job Ã· Number of Good Units Produced

VIII. Job order costing systems are also used in______________ organizations.

A. Job ordercost cards track ________________ contracts.

IX. Overhead costs are allocated in foursteps.

A. Step 1: _____________ the overheadrate.

1. A ________________ overheadrate is calculated as estimated overhead costs divided by estimatedcost driver activity.

B. Step 2:______________ the overhead rate.

1. Costs are assigned by multiplyingthe actual cost _____________ activity by the predeterminedoverhead rate.

C. Step 3:Record ________________ overhead costs

D. Step 4:_________________ applied and actual overhead amounts

1. Ifover- or underapplied amounts are minimal, credit or debit_________________.

2. Ifover- or underapplied amounts are material, adjustments should bemade to the inventory accounts affected.

X. The__________________ approach to applying overhead costs is to use asingle plantwide rate.

XI. The moreaccurate _____________________ approach to applying overhead costscreates many smaller activity pools and establishes separate ratesfor each pool.

carminewhale946

1.Which of the following is not a benefit ofcost allocation?

a.Instilling responsibility for all costs of the company indivision managers.

b.Constructing performance measures that may be more meaningfulthan contribution margins.

c.Relating indirect costs to contracts, jobs and products.

d.Additional bookkeeping costs incurred to provide costallocation information.

2.Cost pools are used with:

	Plantwide Rates	Department Rates
A.	Yes	No
B.	No	Yes
C.	No	No
D.	Yes	Yes

Option A

Option B

Option C

Option D

3.Product costs are computed by:

a.dividing the cost driver rate by the number of units of thecost driver in each product.

b.multiplying the cost driver rate by the number of units of thecost driver in each product.

c.adding the cost driver rates of all products.

d.averaging the plantwide cost driver rate with the cost driverfor each product.

4.When product costs are used for decision-making, whatassumption is most likely to distort the decisions?

a.There is a proportionality of overhead costs and output,regardless of whether a product is dropped or not.

b.Some overhead estimates can decrease when a product isdropped.

c.Some overhead costs could be fixed when a product isdropped.

d.The cost accounting system treats all overhead as if it werevariable with respect to the allocation base.

5. Dreamland University has 20 departments. Two of its bestdepartments are the (1) College of Innovation (COI) and (2) TestingServices. The College of Innovation (COI) attempts to teachstudents the difficult, but useful, skill of innovation. TestingServices grades examinations for professors. How would these twodepartments be classified?

	College of Innovation	Testing Services
A.	Service	Service
B.	User	Service
C.	User	User
D.	Service	User

Option A

Option B

Option C

Option D

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33:010:275 Lecture Notes - Lecture 4: Indirect Costs

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