Chapter 3 – Job Costing

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flow of inventory through a manufacturing system
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raw materials, work in process, finished goods, cost of goods sold
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Bill of Materials
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A list of all of the raw materials needed to manufacture a job
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Billing Rate
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The labor rate charged to the customer, which includes both cost and profit components
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Cost Driver
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The primary factor that causes a cost
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Cost of Goods Sold account is debited and Finished Inventory is credited for
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The sale of goods to a customer
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Extended Producer Responsibility
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Laws that require product manufacturers to “take back” a large percentage of the products they manufacture at the end of the product’s life in order to reduce the amount of waste ending up in landfills and the environment
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Job Cost Record
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A written or electronic document that lists the direct materials, direct labor, and manufacturing overhead costs assigned to each individual job
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Job Costing
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A system for assigning costs to products or services that differ in the amount of materials, labor, and overhead required. Typically used by manufacturers that produce unique, or custom-ordered products in small batches; also used by professional service firms ex. hospitals, custom home builders
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Invoice
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Bill from a supplier
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Labor Time Record
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A written or electronic document that identifies the employee, the amount of time spent on a particular job, and the labor cost charged to a job
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Management can use job cost information for each of the following except: -Determining cost of goods sold -Determining the profitability of different jobs -Bidding on custom jobs -All of the listed choices are possible uses of job cost information
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All of the listed choices are possible uses of job cost information
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Materials Requisition
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A written or electronic document that requests specific materials be transferred from the raw materials inventory storeroom to the production floor
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Overallocated Manufacturing Overhead
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Amount of manufacturing overhead allocated to jobs is more than the amount of manufacturing overhead costs actually incurred, results in jobs being over costed
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Pick
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Storeroom workers remove items from raw materials inventory that are needed by production
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Predetermined Manufacturing Overhead Rate
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The rate used to allocate manufacturing overhead to individual jobs; calculated before the year begins as follows: total estimated manufacturing overhead costs divided by total estimated amount of allocation base
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Process Costing
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A system for assigning costs to a large number of identical units that typically pass through a series of uniform production steps. Total costs are averaged over all units ex. paint manufacturers, cereal manufacturers
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Production Schedule
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A written or electronic document indicating the quantity and types of inventory that will be manufactured during a specified time frame
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Purchase Order
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A written or electronic document authorizing the purchase of specific raw materials from a specific supplier
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Raw Materials Record
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written or electronic document listening the number and cost of all units used and received, and the balance currently in stock; a separate received is maintained for each type of raw material kept in stock
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Receiving Report
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A written or electronic document listing the quantity and type of raw materials received in an incoming shipment; the report is typically a duplicate of the purchase order without the quantity prelisted on the form
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Stock Inventory
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Products normally kept on hand in order to quickly fill customer orders
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Subsidiary Ledger
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Supporting detail for a general ledger account
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Underallocated Manufacturing Overhead
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The amount of manufacturing overhead allocated to jobs is less than the amount of manufacturing overhead cost actually incurred this results in jobs being under costed
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JOURNAL ENTRIES: Assume that Life Fitness ordered and received $90,000 of raw materials during December.
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Raw Materials Inventory 90,000 Accounts Payable 90,000
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JOURNAL ENTRIES: Assume that Life Fitness used $112,000 of direct raw materials during December.
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Work in Process Inventory 112,000 Raw Materials Inventory 112,000
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JOURNAL ENTRIES: Assume that Life Fitness used $90,000 of indirect raw materials during December.
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Manufacturing Overhead 2,000 Raw Materials Inventory 2,000
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JOURNAL ENTRIES: Assume that Life Fitness incurred $30,000 of direct labor on jobs.
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Work in Process Inventory 30,000 Wages Payable 30,000
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JOURNAL ENTRIES: Assume that Life Fitness incurred $13,000 of indirect labor on jobs.
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Manufacturing Overhead 13,000 Wages Payable 13,000
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JOURNAL ENTRIES: Assume Life Fitness incurs other indirect manufacturing costs, such as plant utilities ($3,000), plant depreciation ($4,000), plant insurance ($1,000), and plant property taxes ($2,000), during the period.
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Manufacturing Overhead 10,000 Accounts Payable 3,000 Accumulated Depreciation 4,000 Prepaid Plant Insurance 1,000 Plant Property Taxes Payable 2,000

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