Question 1

The basic types of cost accounting systems are:

Accepted Answer

Job order cost systems, activity based cost systems, and process cost systems are the three basic types of cost accounting systems. Direct cost systems and indirect cost systems refer to how costs are assigned, rather than the overall system being used. Completed job cost systems and work in process cost systems are more specific types of job order cost systems. Fixed cost systems and variable cost systems refer to cost behavior, rather than the overall accounting system being used.

Question 2

A job order cost system would be suitable for which of the following:

Accepted Answer

A job order cost system is suitable for customized or unique products, like sailboats, where costs are tracked for each individual job.

Question 3

Activity-based costing uses multiple activity bases to assign overhead costs to units of production.

Accepted Answer

Activity-based costing assigns overhead costs to units of production by using multiple activity bases, such as setup hours, machine hours, or number of units produced. This allows for a more accurate allocation of overhead costs compared to traditional methods that may only use one activity base.

Question 4

Which of the following is a characteristic of manufacturing overhead in a job order cost system?

Accepted Answer

Manufacturing overhead in a job order cost system is not directly traceable to specific jobs or units, and it does not include the cost of all labor relating to manufacturing operations. Instead, it includes indirect costs such as rent, utilities, and depreciation on factory equipment. These costs are assigned to units produced by means of an overhead application rate, which is calculated based on estimated overhead costs and a chosen allocation base (such as direct labor hours or machine hours).

Question 5

The method used by managers when comparing unit costs with budgeted costs or other measures is broadly known as:

Accepted Answer

The method used by managers when comparing unit costs with budgeted costs or other measures is known as cost control. Sales management, employee evaluation, and account reconciliation do not involve comparing unit costs with budgeted costs or other measures.

Question 6

The two steps required in activity-based costing are identifying separate activity cost pools and allocating each cost pool to the product using an appropriate cost driver.

Accepted Answer

This statement accurately describes the two steps required in activity-based costing.

Question 7

If the manufacturing overhead account at month end has a credit balance before adjustment,this indicates that overhead is under-applied.

Accepted Answer

A credit balance in the manufacturing overhead account before adjustment indicates that overhead is over-applied, not under-applied.

Question 8

A job order cost system would be appropriate in the manufacturing of:

Accepted Answer

A job order cost system is appropriate for custom-made products that are produced in small quantities and have unique characteristics. Custom-made furniture fits this description, whereas paints, breakfast cereal, and standard-grade plywood are typically mass-produced in large quantities and would be better suited for a process cost system.

Question 9

Which of the following is an advantage of developing a predetermined overhead application rate?

Accepted Answer

Developing a predetermined overhead application rate facilitates assigning overhead costs to the ending inventory of work in process. This is because a predetermined overhead application rate is based on a forecast of the expected amount of overhead costs that will be incurred during the period, and this amount is then used to calculate the amount of overhead costs that should be assigned to each unit of production based on the actual amount of direct labor or machine hours used. By using this predetermined rate, the amount of overhead costs assigned to each unit of production remains constant regardless of the actual amount of overhead costs incurred during the period. This makes it easier to assign overhead costs to the ending inventory of work in process by simply multiplying the number of units in the inventory by the predetermined overhead application rate.

Question 10

A debit balance in the Manufacturing Overhead account at the end of the period indicates that overhead has been under-applied to jobs.

Accepted Answer

A debit balance in the Manufacturing Overhead account means actual overhead costs were greater than the applied amount, indicating under-application of overhead to jobs.

Question 11

The advantage of using a predetermined overhead application rate is that:

Accepted Answer

Using a predetermined overhead application rate ensures that units produced are charged with a "normal" amount of manufacturing overhead regardless of whether they are produced in a high-volume month or a low-volume month. This provides consistency in the cost of producing units and allows for easier budgeting and cost estimation. Option B is not entirely correct as actual overhead costs may exceed the predetermined amount. Option C is incorrect as entries must still be made to record actual overhead costs incurred, but they will be reconciled against the predetermined rate. Option D is also incorrect as the unit cost of production will not necessarily be lower than if actual overhead costs were assigned to units produced.

Question 12

In activity-based costing,only one cost driver should be used in applying overhead.

Accepted Answer

In activity-based costing, multiple cost drivers are used to apply overhead costs to various activities and products based on the specific activities that drive those costs. One cost driver alone may not accurately reflect the true cost of an activity, so multiple cost drivers are used to provide more accurate costing information.

Question 13

Under a job order cost system,costs are accumulated for:

Accepted Answer

Under a job order cost system, costs are accumulated for each batch of production, known as a job or lot. This means that costs are tracked and assigned specifically to each unique job or project that is being worked on, rather than being allocated across departments or individual units.

Question 14

Activity-based costing tracks cost to the activities that consume resources.

Accepted Answer

Activity-based costing (ABC) is a method of allocating costs to the different activities that consume resources in a business process. This allows for a more accurate understanding of the costs associated with producing a particular product or delivering a particular service, and can help businesses make more informed decisions about pricing, production, and investment.

Question 15

Activity-based costing systems always result in more accurate measurements of unit costs.

Accepted Answer

Activity-based costing systems allocate overhead costs to products or services based on their actual consumption of specific activities, resulting in more accurate measurements of unit costs compared to traditional costing systems that use broad averages to allocate overhead costs.

Question 16

An increase in an activity base must cause an increase in actual overhead costs incurred for that base to be considered a cost driver.

Accepted Answer

An increase in an activity base must cause an increase in actual overhead costs incurred for that base to be considered a cost driver because a cost driver is a factor that causes changes in overhead costs.

Question 17

Select the best answer to complete the sentence: An effective cost accounting system should match processes that consume resources with the associated ________ in order to maintain competitive advantage.

Accepted Answer

An effective cost accounting system matches processes that consume resources with the associated costs, enabling a company to identify areas for efficiency improvements and cost savings, thereby maintaining competitive advantage.

Question 18

Which of the following is not a commonly used cost accounting system?

Accepted Answer

Manufacturing yield costing is not a commonly used cost accounting system. The three commonly used cost accounting systems are job order costing, process costing, and activity-based costing.

Question 19

The type of cost accounting system best suited to a particular company depends on:

Accepted Answer

The nature of the company's manufacturing operations will dictate which cost accounting system is best suited to capture and allocate costs accurately. For example, a job costing system may be best suited for a company that produces custom-made or one-of-a-kind products, whereas a process costing system may be best suited for a company that produces large quantities of identical products. Factors such as production process, product variability, and complexity will all impact the choice of cost accounting system.

Question 20

If actual overhead costs are less than the amount of overhead applied to production,this indicates that manufacturing overhead is over-applied.

Accepted Answer

This is because applied overhead is based on a predetermined rate multiplied by the actual amount of direct labor or machine hours used in production. If the actual amount of overhead costs incurred is less than the amount applied, it means that too much overhead was allocated to the product, resulting in an over-application of manufacturing overhead.

Quiz 17: Job Order Cost Systems and Overhead Allocations