Deck 7: Job and Process Costing Systems

Question 1

GAAP requires a product cost for finished goods inventory only.

Answer 1

B

Question 2

An example of a source document in a job costing system is a materials requisition form.

Answer 2

A

Question 3

An allocation base is chosen for each department in job costing.

Answer 3

B

Question 4

A period cost is expensed directly to the statement of profit or loss in the period in which they occur.

Question 5

An architect is a business which is likely to use job costing.

Question 6

Non-manufacturing costs are treated as period costs.

Question 7

Organisations can use single or multiple overhead cost pools.

Question 8

When the nature or level of overhead differs across activities or departments the organisation should use a single overhead cost pool.

Question 9

Job costing uses subsidiary ledgers to track the costs of individual jobs.

Question 10

In job costing, direct materials are traced to the job while direct labour and manufacturing overhead are allocated to the job.

Question 11

Cost of sales is shown in the statement of financial position.

Question 12

Goods that are in production but not yet complete are classified as work in process.

Question 13

Inventoriable product costs consist of the direct and indirect costs of producing goods.

Question 14

Selling and administrative costs are indirect costs that are included in the inventoriable product cost.

Question 15

Job costing is the process of assigning costs to custom products where the cost object is the individual job.

Question 16

A job can be an individual product or a batch of products.

Question 17

Variable overhead includes costs such as management salaries and insurance.

Question 18

Prime costs are direct labour and direct material.

Question 19

Inventory is reported at cost in the statement of financial position.

Question 20

Manufacturing overhead includes all production costs except direct materials and direct labour.

Question 21

The allocation rate in job costing is the dollar amount per unit of allocation base used to allocate overhead to each cost object.

Question 22

Actual overhead is debited to the overhead control account.

Question 23

In actual costing overhead is allocated using the actual quantity of the allocation base multiplied by the actual allocation rate.

Question 24

The allocation base is a measure of activity that is used to allocate costs to a cost object.

Question 25

The journal entry to record overhead allocated is debit Work in Process and credit Overhead Control.

Question 26

The estimated allocation rate equals actual overhead cost divided by estimated quantity of allocation base.

Question 27

The amount of under or over applied overhead must be removed with an adjusting entry at the end of the accounting period.

Question 28

There are normally three inventory accounts in a manufacturer's general ledger; raw materials, cost of sales and finished goods.

Question 29

Process costing assigns costs to cost pools and allocates the costs to individual units in a two stage process.

Question 30

To calculate under or over applied overhead compare the amount of overhead allocated to the actual overhead cost.

Question 31

When raw materials are purchased the raw materials inventory account is credited.

Question 32

The assignment of overhead to individual jobs requires information about each job's use of the allocation base.

Question 33

Over applied overhead is always material and should be treated accordingly.

Question 34

The overhead control account records the actual overhead costs incurred and the overhead costs allocated.

Question 35

The cost pools used in process costing are typically overhead cost pools.

Question 36

In both actual and normal costing the actual cost of direct materials and direct labour is recorded.

Question 37

In normal costing overhead is allocated using the estimated allocation rate multiplied by the actual quantity of allocation base.

Question 38

If the amount of over or under applied overhead is material it should be allocated on a pro rata basis to work in process, finished goods and raw materials.

Question 39

The accounting method for assigning production costs to mass produced products is process costing.

Question 40

Under applied overhead occurs when actual costs are less than the amount of overhead allocated.

Question 41

FIFO assumes that the units in beginning work in process will be completed and transferred out first.

Question 42

The weighted average method isolates efficiencies or inefficiencies in each period by using an average cost.

Question 43

When using the FIFO method of process costing, the cost per equivalent unit is calculated by current period costs / equivalent units for work performed this period.

Question 44

When using the weighted average method to calculate cost per equivalent unit, the cost is calculated as total costs / equivalent units for total work.

Question 45

Process costing environments are unlikely to have work in process inventories.

Question 46

The equivalent unit calculation is not required for finished goods.

Question 47

In process costing direct materials are traced to products while direct labour and overhead are allocated.

Question 48

There are two categories of costs in process costing; direct materials and direct overhead.

Question 49

Equivalent units measure the resources consumed by partially completed units relative to the resources needed to complete the units.

Question 50

If manufacturing costs change significantly from period to period weighted average costing will produce the more accurate product cost.

Question 51

Direct labour is grouped with overhead in process costing because all units consume labour resources in the same pattern.

Question 52

Under the FIFO method of process costing, the total manufacturing costs of units started and completed within a period will be the costs incurred in the current period to complete them less the prior period costs attached to beginning inventory.

Question 53

In the weighted average method, cost per equivalent unit is often calculated separately for materials costs and conversion costs.

Question 54

The weighted average costing method calculates an average unit cost which is applied to finished goods and work in process inventory.

Question 55

The weighted average cost per unit and the FIFO cost per unit will be identical if there is no beginning work in process inventory.

Question 56

Transferred in costs refer to the costs that flow between departments in mass production facilities.

Question 57

Conversion costs are the combined costs of direct labour and manufacturing overhead.

Question 58

In the weighted average method, costs from beginning work in process are averaged with costs incurred during the current period and then allocated to units completed and ending work in process.

Question 59

Equivalent units are calculated by multiplying the percentage of completion by the number of incomplete units.

Question 60

Under the FIFO method of process costing, the total manufacturing costs of beginning work in process units will include the prior period costs plus the costs incurred in the current period to complete them.

Question 61

Job costing systems provide information for understanding the work profiles of individuals.

Question 62

In a process costing system, the cost of normal spoilage is allocated to all units produced as part of overhead.

Question 63

The cost of a partially complete spoiled unit is treated as though the unit had been completed.

Question 64

Scrap is the incidental materials left over from normal manufacturing processes.

Question 65

The opportunity costs of spoilage are generally not measured.

Question 66

Inspection for spoilage is carried out once the product is ready for sale.

Question 67

A type of abnormal spoilage is spoilage that occurs because of external environmental events.

Question 68

Signs that an organisation might have a high spoilage rate include higher than average warranty liabilities or a poor reputation for product quality.

Question 69

Cost benefit analysis is used to determine whether to rework a spoiled item.

Question 70

The costs associated with abnormal spoilage is excluded from product costs and treated as a separate loss.

Question 71

If scrap has value then it should be recorded as part of inventory.

Question 72

Normal spoilage consists of defective units that arise as part of regular operations.

Question 73

Spoiled units should not typically be reworked because it is not possible to hide the original defect.

Question 74

The way the spoilage cost is treated in the accounting records depends on whether the spoilage is considered normal or abnormal.

Question 75

Job costing information cannot be used for financial reporting purposes.

Question 76

Scrap should always be immediately disposed of using environmentally friendly procedures.

Question 77

In job costing if scrap can be sold it can reduce the cost of the job it was associated with or be credited to overhead.

Question 78

A type of opportunity cost associated with spoilage and rework is loss of reputation.

Question 79

Spoilage refers to product that is unacceptable and is discarded, reworked or sold at a reduced price.

Question 80

All spoilage in a process costing system is considered normal spoilage.