Question

T/F and Explain why Please

1) A cost driver is a factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes direct costs.

2) Job-order costing systems often use allocation bases that do not reflect how jobs actually use overhead resources.

3) An employee time ticket is an hour-by-hour summary of the employee's activities throughout the day.

4) The formula for computing the predetermined overhead rate is:

Predetermined overhead rate = Estimated total manufacturing overhead cost ÷ Estimated total amount of the allocation base

5) Generally speaking, when going through the process of computing a predetermined overhead rate, the estimated total manufacturing overhead cost is determined before estimating the amount of the allocation base.

6) If a job is not completed at year end, then no manufacturing overhead cost would be applied to that job when a predetermined overhead rate is used.

7) Actual overhead costs are not assigned to jobs in a job costing system.

Answer 1

1) False

A cost driver is a factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs but not direct costs

2) True

Job-order costing systems often use allocation bases that do not reflect how jobs actually use overhead resources. The allocation base in the predetermined overhead rate must drive the overhead cost to improve job cost accuracy

3) True

A completed time ticket is an hour-by-hour summary of the employee's activities throughout the day. At the end of the day, the time tickets are sent to the Accounting Department, where the direct labor-hours and costs are recorded on individual job cost sheets.

4) True

Predetermined overhead rate is used to apply manufacturing overhead to products or job orders and is usually computed at the beginning of each period by dividing the estimated manufacturing overhead cost by an allocation base (also known as activity base or activity driver). Commonly used allocation bases are direct labor hours, direct labor dollars, machine hours, and direct materials.

5) False

The first step is to estimate the amount of the activity base that will be required to support operations in the upcoming period. The second step is to estimate the total manufacturing cost at that level of activity. The third step is to compute the predetermined overhead rate by dividing the estimated total manufacturing overhead costs by the estimated total amount of cost driver or activity base.

6) False

If actual manufacturing overhead costs are applied to jobs, then the company must wait until the end of the accounting period to apply overhead and to cost jobs

7) True

A normal job-order costing system is a system that uses: actual costs for direct materials and direct labor and estimated costs for overhead. actual overhead costs are not assigned directly to jobs. consists of all manufacturing costs other than direct materials and direct labor.