Managerial Accounting Chapter 4 Study Guide

The current cost system allocates overhead costs once a year, as a function of direct labor dollars. This allocation strategy results in:

Process order cost systems are based on multiple work in process accounts and determine total manufacturing costs at the end of a time period. Multiple outsourced

Process order cost systems are based on multiple work in process accounts and determine total manufacturing costs at the end of a time period. Multiple outsourced

Brunton, N. M. (1988). Evaluation of overhead allocations. Management Accounting, 70(1), 22. Retrieved from http://search.proquest.com/docview/229737200?accountid=32521

Shaving 5% off the estimated direct labor-hours in the predetermined overhead rate will result in an artificially high overhead rate. The artificially high predetermined overhead rate is likely to result in overapplied overhead for the year. The cumulative effect of overapplying the overhead throughout the year is all recognized in December when the balance in the Manufacturing Overhead account is closed out to Cost of Goods Sold. If the balance were closed out every month or every quarter, this effect would be

The standard costs and variances for direct materials, direct labor, and factory overhead for the month of May are as follows:

“Companies can choose to use the accounting job order costing method when they have a single product line or numerous products to manufacture. However, it is less costly and less time-consuming if they elect to use process costing when calculating the manufacturing of a single product line. With similarities

It included $4000 of direct materials and had received 20 direct labour hours to date (it started on May 30)

a service department’s costs have been allocated, costs are not reallocated back to it under

Under an ABC system, the allocation of costs to products is achieved through at least four analytical steps. Firstly, costs are grouped into activity levels. Secondly, cost drivers are

According to this method, every unit of the product is assigned all direct, fixed, and variable costs. This method includes the cost of direct materials and labor as well as a portion of the overhead costs associated with it in the final costing of every unit of the product.

Feedback: Management accounting is the preparation and use of accounting information systems to achieve the organization's objectives by supporting decision makers inside the enterprise. LO 4

Process costing is an easier system to use when costing homogenous products compared to other cost allocation methods. Each process applies direct materials, labor and manufacturing overhead to the production cost total. Management accountants take the total number of goods leaving the process and divide the total process cost by this number. This creates a simple average cost for each item produced. Another advantage is that business owners use process costing because it creates a flexible production process. Companies needing to refine their process can simply add or remove a process as necessary. This also allows companies to lower their production cost for each good. Adding a process allows companies to produce slightly different goods or improve product quality. This flexibility ensures companies can produce at the most competitive cost in the economic marketplace. Also process costing provides an approach to allocate costs to

The Coca-cola company is a homogeneous product manufacturer company. With 1.7 Billions units sold a day, the company is the largest soft drink manufacturer in the world and hence it becomes important to have a simple accounting system to determine how much these products should be sold at. The process costing determines the average cost for each unit so that it is easy to sell both a large amount of products or a small amount and understand how much profit is being made on the products. This type of accounting system would not be as effective if the company was creating many different items that had different costs of tasks throughout the process.

The computation of equivalent units under FIFO method differs from weighted average method in two ways. First the units transferred out figure are divided into two parts. One part consists of the units from beginning inventory that were completed and transferred out, and the other part consists of the units that were both started and completed during the current period. Second full consideration is given to the amount of work expended during the current period on units in the beginning work in process inventory as well as units the ending inventory. Thus, under the FIFO method, it is necessary to convert both beginning and ending inventories to an equivalent unit basis. For the beginning inventory, the equivalent units represent the work done to complete the units; for the ending inventory, the equivalent units represent the work done to bring the units to a stage of partial completion at the end of the period (the same as with the weighted average method). The formula for computing equivalent units of production is more complex under FIFO method than under weighted average