D101 Cost and Managerial Accounting - Set 3 - Part 2

Correct Answer: A law firm

Job order costing is commonly used by companies that offer specialized, individualized services or products, like a law firm where each client case is unique.

Correct Answer: To allocate costs based on actual usage of resources

ABC allocates costs to products or services based on the specific activities that are responsible for incurring those costs, making cost allocation more accurate.

Correct Answer: By department or process

In process costing, costs are accumulated for each department or process over a set period of time, as its used for continuous, mass production systems.

Correct Answer: Actual overhead costs were more than applied overhead costs

Underapplied overhead means the amount of overhead allocated to jobs is less than the actual overhead costs incurred.

Correct Answer: The product generates significant revenue to cover fixed costs

A high contribution margin means that after covering variable costs, there is more revenue left to cover fixed costs and contribute to profit.

Correct Answer: To calculate the cost per unit produced

Equivalent units allow companies to account for partially completed units, helping determine the cost per unit for products still in process.

Correct Answer: Process costing

Process costing averages costs across all units produced during a period, making it suitable for mass production environments.

Correct Answer: Depreciation on factory equipment

Fixed costs, like depreciation, remain constant regardless of the number of units produced, unlike variable costs such as raw materials.

Correct Answer: They are accumulated in manufacturing overhead

Indirect labor costs are not directly traceable to specific jobs and are included in manufacturing overhead, which is then allocated to jobs using a predetermined rate.

Correct Answer: Costs are transferred from finished goods to cost of goods sold

When goods are sold, the costs associated with those goods move from the finished goods inventory to cost of goods sold, reflecting the expense of the sale.

Correct Answer: To assign costs to partially completed units

Equivalent units allow for the allocation of costs to units that are partially completed, ensuring that costs are accurately reflected at various stages of production.

Correct Answer: Labor costs for workers directly involved in converting materials into finished goods

Direct labor costs are associated with employees who work directly on the production of goods or services, such as assembly line workers.

Correct Answer: The cost of goods transferred to finished goods inventory

The cost of goods manufactured refers to the total costs incurred to complete products and move them from work-in-process to finished goods.

Correct Answer: When a company produces diverse products with different resource requirements

ABC is most useful in environments where products consume resources differently, allowing for more accurate cost allocation.

Correct Answer: Total fixed costs / contribution margin per unit

The break-even point in units is calculated by dividing total fixed costs by the contribution margin per unit, which shows how many units must be sold to cover fixed costs.

Correct Answer: As debits to the manufacturing overhead account

Actual overhead costs incurred are recorded as debits to the manufacturing overhead account throughout the production process.

Correct Answer: Costs are accumulated in the work-in-process account

When a job is started, direct materials, direct labor, and overhead costs are accumulated in the work-in-process account until the job is completed.

Correct Answer: Factory utilities

Product costs are directly related to the production of goods, including costs like factory utilities, which are incurred in the production process.

Correct Answer: To assign indirect costs to jobs based on a consistent method

The predetermined overhead rate allows companies to apply overhead to jobs in a consistent manner throughout the period, based on estimates.

Correct Answer: More overhead was allocated to jobs than was actually incurred

Overapplied overhead occurs when the amount of overhead assigned to jobs is more than the actual overhead costs incurred.