ACG3331 FINAL EXAM STUDY GUIDE Chapters 12 p 515 517 13 p 563 572 14 Cumulative Test Outline 30 total questions 15 old material 15 new material CHAPTER 2 3 Costs and Job Order Costing 5 questions 4 computational 1 conceptual Important Terms and Concepts Product Costs o Product costs also called inventoriable costs are used in financial accounting to value the inventory of manufactured goods for sale until the products are sold when the product costs become expenses In managerial accounting product costs are needed to help managers with planning and to provide them with data for decision making This information is also used in reporting on relationships between firms and various outside organizations o Product costs Direct Material Direct Labor Man OH o Product Costs remain in the Raw Materials Work in Process or Finished Goods Inventory account Balance Sheet and become part of Cost of Goods Sold COGS when expensed Income Statement Period Costs o Period costs are all costs that are NOT product costs This includes Research Development costs and Selling Administrative expenses These costs are identified as operating expenses during the period of time in which they are incurred rather than with units produced o Period Costs Selling Administrative Expenses Job Order Costing System o In contrary to process costing firms that produce relatively small numbers of dissimilar products use job order costing systems This system is designed to assign costs to each job and then the costs assigned to each job are averaged over the units of production in the job to obtain an average cost per unit This system works best where quantities can be separately identified custom made or unique goods each product job is different from another product job and output consists of many diverse products o The primary document for tracking the costs associated with a given job is a job cost record This includes a materials requisition form labor time records and manufacturing overhead The job cost sheet is a subsidiary ledger account for the Work in Process Inventory account in the general ledger A materials requisition form is used to authorize the use of raw materials for production on a job It indicates the cost of direct material to charge to jobs and the cost of indirect material to charge to overhead A Labor time record is a document upon which employees record the time they spend working on each production job or batch usually kept with employee time tickets This record indicates the cost of direct labor to charge to jobs and the cost of indirect labor to charge to overhead Though manufacturing overhead costs are not directly traceable to products they are still a factor used in pricing decisions Overhead applied is determined by multiplying the predetermined overhead rate POHR by the actual activity DL hours incurred POHR is based on estimates and determined before the period begins This is found by dividing the budgeted manufacturing overhead cost by the budgeted amount of cost driver o Example The Sims Company uses a job order cost system The following information was recorded for April Added during April April 1 Direct Direct Job No Work in Process Inventory Materials Labor 600 400 1 2 500 800 1 000 2 1 500 1 200 1 750 3 1 000 1 500 2 250 4 800 Overhead is applied to jobs at the rate of 80 of direct materials cost Jobs 1 3 and 4 were completed during April and transferred to finished goods Jobs 1 and 4 have been delivered to customers The work in process inventory balance at April 30 is equal to WIP Inventory job 2 1 3 and 4 were completed Job 2 Beg Inv 1 500 DM 800 DL 1 000 OH 80 x 800 640 Total 1 500 800 1 000 640 3 940 Equations Cost of Goods Sold Beg finished goods inventory Cost of goods manufactured Cost of goods available for sale End finished goods inventory COGS Cost of Goods Manufactured DM used DL Total manufacturing overhead Total manufacturing costs Beg work in process inventory End work in process inventory COGM Cost of Direct Raw Material Used Beg DM inventory Purchase of DM DM available for use End DM inventory DM used Total Manufacturing Overhead Indirect material and labor Depreciation on factory and equipment Utilities Insurance Total Man OH Job Order Costing System CHAPTER 5 Activity Based Costing 2 questions computational diff traditional costing and ABC Important Terms and Concepts Traditional Volume Based Product Costing System o In a traditional volume based product costing system only a single predetermined overhead rate is used This system is typically used by many manufacturing companies where labor hours are closely related to volume of activity All manufacturing overhead costs are combined into one cost pool and they are applied to products on the basis of a single cost driver that is closely related to production volume The most frequently used cost drivers in traditional product costing systems are direct labor hours direct labor dollars machine hours and units of production In traditional volume based costing systems only direct material and direct labor are considered direct costs In contrast under an activity based costing system an effort is made to account for as many costs as possible as direct costs of production Two factors that tend to result in product cost distortion in traditional volume based product costing systems are non unit level overhead costs and product diversity This causes high volume product lines to be overcosted and the low volume product lines to be undercosted which leads to mispricing o Example 800 000 of overhead is applied to Products A and B Product A has 1 200 hours of direct labor and Product B has 2 800 hours How much overhead cost is allocated to each product Total Overhead Total DL hours 800 000 4 000hrs 200 hr Product A 1 200hrs x 200 hr 240 000 Product B 2 800hrs x 200 hr 560 000 Activity Based Costing System o An activity based costing system includes a two stage allocation process in assigning costs to products and uses a five step process of implementation Data for an ABC system can be collected through interviews and paper trails storyboarding and multidisciplinary ABC project teams In step one activity cost pools are established which identifies significant activities comprising the production process There are four broad categories of identified activities o Unit level activities o Batch level activities Must be done for each unit of production Must be performed for each batch of products o Product sustaining activities