Cost Accounting Chapter 7

Front 1

True

Back 1

t/f

when a manufacturing firm has several departments that incur overhead costs relating to different activity levels, departmental overhead application rates are preferable.

Front 2

Departmentalization

Back 2

In large businesses, factory operations are divided into departments. This is called?

This provides greater accuracy in job costing and product costing.

requires the use of different overhead rates for applying manufacturing overhead.

Front 3

Producing Department

Back 3

are those departments that are directly engaged in the manufacturing activities.

ex: assembly, finishing, packaging departments

Front 4

Service Department

Back 4

are those departments that assist indirectly by rendering services to producing departments.

ex: purchasing, medical, maintenance departments

Front 5

Producing Departments

Service Departments

Back 5

Departments are classified into two categories:

Front 6

Direct departmental overhead costs

Back 6

are those that can be easily traced to specific departments.

ex: • repairs and maintenance - traced to maintenance department

• indirect labor - traced to payroll summaries of a department

• indirect materials -traced through stores requisitions of a department

• depreciation of equipment - traced to department using the equipment

Front 7

Direct Method

Back 7

under this method, the costs of each service department are allocated only to producing departments

Front 8

Step Method

Back 8

This method allocates service department costs to all service departments as well as producing departments.

Front 9

Reciprocal Method

Back 9

provides a way to adjust for the reciprocal services provided among the service departments.

using this method, service department costs and service department reciprocal service relationships are described by an algebraic equation.