ch14 S12 - CHAPTER 14 JOB COSTING SOLUTIONS REVIEW...

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C HAPTER 14 J OB C OSTING S OLUTIONS REVIEW QUESTIONS 14.1 (1) Discrete production of customized products (job shops), and (2) continuous produc- tion of homogeneous products (process shops). 14.2 A job-costing system accumulates and analyzes costs separately for each product or small batches of products. Examples of firms that use job-costing systems include law firms and firms that build custom houses. 14.4 Direct materials and direct labor are traced, and overhead is allocated. 14.5 Work in process inventory is the inventory of unfinished products at the start of a period. Cost of goods manufactured is the cost of items finished and transferred from work in process inventory to finished goods inventory. Cost of goods sold is the cost of products sold in a period. It is the cost of items transferred from finished goods inventory to the in- come statement. 14.6 A predetermined overhead rate equals expected overhead costs for the period divided by the expected activity level. 14.7 Firms use predetermined overhead rates because actual overhead costs and activity volumes frequently fluctuate. 14.8 A normal-costing system is a job-costing system that uses a predetermined overhead rate. 14.9 Underapplied overhead means that the overhead applied to jobs is smaller than the amount actually spent on overhead. Overapplied overhead means that the overhead ap- plied to jobs exceeds the amount spent on overhead. 14.10 False – if a firm has underapplied overhead, the actual rate must have exceeded the pre- determined rate. 14.11 (1) correct rates are year end, (2) write off to cost of goods sold, and (3) prorate among inventory accounts and cost of goods sold. 14.12 The adjustment will increase cost of goods sold and, in turn, decrease net income. 14.13 The proration method allocates the under- or overapplied overhead to WIP inventory, FG inventory, and cost of goods sold in proportion to their unadjusted ending balances. 14.14 Three accounts will be affected: (1) WIP, (2) FG, and (3) COGS. 14.15 Income will be higher under the proration method because some of the adjustment will be to the inventory account. Balakrishnan, Managerial Accounting 1e FOR INSTRUCTOR USE ONLY
D ISCUSSION Q UESTIONS 14.16 Job shops and process shops differ considerably in the extent to which we can trace costs to individual units and jobs. A pure job shop makes custom products. Each unit is a sep- arate job and is unique. It is therefore possible to trace many costs directly to each job. However, in process shops, it is not possible to trace most costs to individual units. Rather, we can trace the costs, even for direct materials and direct labor, only at the pro- cess or departmental level. 14.17 Yes. Each patient’s care may be viewed as a job. Many of the costs, including the costs of nurse care, attending physician’s time, medicines and drugs, room occupancy can be dir- ectly traced to the patient. Some indirect costs may still have to be allocated. However, such a system also has elements of process costing in that we might use pre-determined rates (e.g., $40 per hour of nursing or $100 per visit by a doctor) to determine costs rather

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