Chapter 1
What is the difference between fixed costs and variable costs?
What is job-order costing?
A costing system used for unique, custom orders, where costs are traced or allocated to individual jobs.
What is the primary difference between job-order costing and process costing?
Job-order costing is used for custom products or small batches, while process costing is used for mass production of identical products.
What is process costing used for?
Process costing is used for mass production of identical or similar products, where costs are accumulated by department or process.
What is activity-based costing (ABC)?
ABC is a costing method that assigns overhead costs based on the activities that cause those costs, rather than using a single allocation base like machine hours or labor hours.
What is the main difference between financial accounting and managerial accounting?
What is the difference between underapplied and overapplied overhead?
Underapplied overhead occurs when the applied overhead is less than the actual overhead incurred. Overapplied overhead occurs when the applied overhead exceeds the actual overhead.
Which of the following best describes the purpose of the predetermined overhead rate (POHR)?
Answer: B) To estimate overhead costs before they are incurred
What is the formula for calculating cost per equivalent unit in process costing?
How does ABC treat organization-sustaining costs?
ABC excludes organization-sustaining costs from product costs because these costs are not directly tied to the production of a specific product.
Define product cost and period cost.
Why do companies use a predetermined overhead rate?
To estimate overhead costs for jobs before the actual costs are known.
How do you calculate the total manufacturing costs incurred during the period?
Total Manufacturing Costs = Direct materials used + Direct labor + Manufacturing overhead applied.
How does process costing apply to industries like oil refining or chemical manufacturing?
These industries use process costing because they produce large quantities of identical products that go through different stages of production.
What are unit-level activities in ABC?
Unit-level activities are activities that are performed each time a unit is produced, such as energy costs for operating machinery for each product.
Three major classifications of costs.
Which of the following costs would be classified as a product cost?
C) Direct labor
What is the correct journal entry when raw materials are purchased in a job-order costing system?
What does "equivalent units" mean in process costing?
Equivalent units represent the amount of work done on incomplete units, shown as a full unit.
Why do companies use ABC in addition to traditional costing systems?
Companies use ABC to get a more accurate picture of product costs, especially when overhead costs are high and not directly related to volume.
What is a sunk cost?
- cost already incurred and non-recoverable, irrelevant for decision-making.
What is the formula to calculate the predetermined overhead rate (POHR)?
POHR = Estimated total manufacturing overhead / Estimated total units in the allocation base.
What type of costs are included in the cost of goods manufactured?
The cost of goods manufactured includes direct materials used, direct labor, and manufacturing overhead that are applied to production during the period.
Clean Company produces Clean Kleanse. Clean utilizes a weighted average process costing system. During the current period, Clean completely produced 10,000 units of Clean Kleanse, while 5,000 units remain in production 50% complete. Clean incurred $30,000 in production costs this period.
How many equivalent units were produced this period?
2. Under-allocated overhead