Exam 2 Study Guide
20 Multiple choice and true/false question x 3 points each
15 Matching questions x 1 point each
Traceable vs. common fixed costs CH. 5
ABC cost levels CH. 6
Identify relevant costs CH. 7
Choose 3 of 4 Problems (details below) x 10 points each
What are some characteristics of job-order costing? What types of companies might use this
• Allocating costs to the specific item that caused that cost to incur. Service industries,
construction, Boeing and Hallmark.
The total cost of a job in a job-order costing system consists of what three costs?
• Direct Materials, Direct Labor, Manufacturing Overhead
When computing the cost of a job, is ACTUAL overhead or APPLIED overhead used?
What is a predetermined overhead rate?
• Is the MOH that is computed before the period begins. It is used to apply overhead
cost to jobs throughout the period.
What are the benefits of using an allocation base and a predetermined overhead rate?
• Helps calculate the cost of products while they are still being produced.
What considerations should be made when choosing the allocation base (Hint: machines vs.
• Mostly MH or LH. It depends on what the product is made with. A machine or a
How is overhead applied to jobs? (i.e. what is the formula?)
• Overhead applied to a particular job = Predetermined Overheard rate * Actual direct
labor-hours charged to the job
Understand the three inventory accounts that are used in a job-order costing system and how
the costs flow through the accounts.
• Raw Materials – any materials that go into the final product. When raw materials are
used in production, their costs are transferred to the Work in Process inventory
account as direct materials. Work in Process – consists of unites of product that are
only partially complete and will require further work before they are ready for sale to
the customer. Finished Goods – consist of completed units of product that have not
yet been sold to customers.
At what point in the process does the product cost get moved from the balance sheet to the
• When the product is sold, the costs are transferred from the Finished Goods account
on a balance sheet to the Costs of Goods Sold account on the Income Statement.
What does it mean if the manufacturing overhead is overapplied? What does it mean when it's
• Underapplied – applied cost was less than the actual cost; Overapplied – the applied
cost was more than the actual cost.
Be able to calculate cost of goods sold using the direct method.
Be able to calculate cost of goods manufactured and cost of goods sold using the indirect
How do you calculate the amount overapplied or underapplied for the period? How does this
affect cost of goods sold and net income?
• Actual Total MOH – Total MOH applied = Under/Overapplied overhead. You add
underapplied to COGs and you subtract overapplied from COGs.
You will have a problem where you must calculate the predetermined overhead rate and use
that rate to determine the amount of overapplied or underapplied overhead for the period.
Problem will be similar to #2 of your Ch 4 homework (Exercise 4-8).
• Predetermined Overhead = Estimated total MOH cost .
Estimated total amount of the allocation base
What is the difference between variable and absorption costing methods? What is included for
absorption that is not included for variable?
• Absorption Costing is affected by either Units sold or Units Produce.
• Variable Costing is only affected by Units sold
Which method (variable or absorption) is used for external reporting and which method is
used for internal decision making?
How is product cost calculated under the variable method? Under the absorption method?
• Variable-DM,DL,VMOH; Absorption-DM,DL,VMOH,FMOH
How is net income calculated under the variable method? Under the absorption method?
• Variable NI=units sold*CM/unit-Total FC
• Absorption NI=Sales-COGS-S&A
Will variable or absorption net income be higher when we produce more units than we sell?
When we produce less units than we sell? When we produce the same as we sell?
• Absorption. Variable. They are equal
When reconciling variable and absorption net income, do we add or subtract deferred (held)
costs from variable to arrive at absorption? Add or subtract "released" costs?
What is a business segment?
• Any part of an organization about which a manager seeks costs, revenue, or profit
What is segment margin and how is it calculated?
• The best gauge of long-run profitability of a segment. Segments CM-traceable FC of a
20 multiple choice and true/false question x 3 points each. Choose 3 of 4 problems (details below) x 10 points each. What types of companies might use this method: allocating costs to the specific item that caused that cost to incur. The total cost of a job in a job-order costing system consists of what three costs: direct materials, direct labor, manufacturing overhead. 4-3 when computing the cost of a job, is actual overhead or applied overhead used: applied. Is the moh that is computed before the period begins. It is used to apply overhead cost to jobs throughout the period. 4-5 what are the benefits of using an allocation base and a predetermined overhead rate: helps calculate the cost of products while they are still being produced. 4-6 what considerations should be made when choosing the allocation base (hint: machines vs. people): mostly mh or lh. It depends on what the product is made with.