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Chapter05 Solutions-Hansen6e

Chapter05 Solutions-Hansen6e - CHAPTER 5 PRODUCT AND...

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CHAPTER 5 PRODUCT AND SERVICE COSTING: JOB-ORDER SYSTEM QUESTIONS FOR WRITING AND DISCUSSION 1. Cost measurement is the process of de- termining the dollar amounts of direct ma- terials, direct labor, and overhead that should be assigned to production. Cost ac- cumulation (or assignment) is the process of associating costs with the units pro- duced. Essentially, cost measurement is concerned with whether actual or estimated costs should be used, and cost assignment is concerned with whether costs should be assigned to jobs or processes. 2. Actual costing is rarely used because man- agers cannot wait until the end of the year to obtain product costs. Information on product costs is needed as the year unfolds for planning, control, and decision making. 3. Job-order costing accumulates costs by jobs, and process costing accumulates costs by processes. Job-order costing is suitable for operations that produce cus- tom-made products that receive different doses of manufacturing costs. Process costing, on the other hand, is suitable for operations that produce homogeneous products that receive equal doses of manu- facturing costs in each process. 4. The principal difference between a manual and an automated system is the nature of the records. In an automated system, ter- minals can be used to input data directly to the job, thus eliminating the need for many source documents such as time tickets and requisition forms. Even if these forms are used and the data are entered on a batch basis, the job-order cost sheet has been re- placed with an electronic record. Instead of cabinets with collections of job-order cost sheets, files are collections of job records located on disk or tape. 5. Materials requisition forms serve as the source document for posting materials us- age and costs to individual jobs. Time or work tickets serve a similar function for labor. Predetermined overhead rates are used to assign overhead costs to individual jobs. 6. Multiple overhead rates often produce a more accurate assignment of overhead costs to jobs. 7. Activity drivers are those factors that drive or cause the consumption of overhead. Knowing what drives overhead costs allows a more accurate assignment of overhead costs to products. 8. Expected actual activity is the level of pro- duction activity expected for the coming year. Normal activity is the long-run aver- age activity level. Practical activity is the level of activity achievable under efficient operating conditions. Theoretical activity is the level of activity achievable under ideal operating conditions. 9. Assignment using normal activity produces less fluctuation in period-to-period over- head assignments. It also avoids assigning the costs of idle capacity to products when production is down.
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