ACG3331 FINAL EXAM STUDY GUIDEChapters 12 (p. 515-517), 13 (p. 563-572), 14, CumulativeTest Outline: 30 total questions (15 old material, 15 new material)CHAPTER 2 & 3Costs 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 withplanning 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. OHo 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 Costso 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 Systemo 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 jobto 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 jobis 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 ofraw 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 1 $2,500 $ 600 $ 400 2 $1,500 $ 800 $1,000 3 $1,000 $1,200 $1,750 4 $ 800 $1,500 $2,250 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 = $1,500DM = $800DL = $1,000OH = 80% x 800 = 640Total = (1,500 + 800 + 1,000 + 640) = $3,940Equations 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 ManufacturedDM used+ DL+ Total manufacturing overheadTotal manufacturing costs+ Beg. work-in-process inventory- End work-in-process inventoryCOGM Cost of Direct (Raw) Material UsedBeg. DM inventory+ Purchase of DMDM available for use- End DM inventoryDM used Total Manufacturing OverheadIndirect material and labor+ Depreciation on factory and equipment+ Utilities+ InsuranceTotal Man. OH Job-Order Costing SystemCHAPTER 5Activity-Based Costing - 2 questions (computational) diff. traditional costing and ABCImportant Terms and Concepts Traditional, Volume-Based Product-Costing Systemo 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 Ahas 1,200 hours of direct labor and Product B has 2,800 hours. How muchoverhead cost is allocated to each product?Total