Decision-Making and Cost Calculation
Job order costing
Costing method for calculating the cost of manufacturing each product
Process costing
Costing method for continuously mass-produced units
Traditional costing
Costing method using a single cost driver to allocate indirect costs
Activity-based costing
Costing method using multiple cost drivers to allocate indirect costs
Relevant costs
Costs affected by a managerial decision
Direct costs
Costs directly related to the production of a product
Cost of making products
Costs incurred in the production of a product
Indirect costs
Costs not directly related to the production of a product
Per-unit costs
Costs per individual unit of a product
Variable costs
Costs that change with the level of production
Irrelevant costs
Costs that do not change with different decisions
Fixed costs
Costs that do not change with the level of production
Committed costs
Costs that have already been committed and cannot be changed
Sunk costs
Costs that have already been incurred and cannot be recovered
Total costs
All costs associated with a product, department, or business unit
Predetermined overhead per unit
Amount of manufacturing overhead cost attributed to each unit of product
Simple method
An easy-to-understand and implement costing method
Special order
An order that is different from regular orders
Suitable for
Appropriate for
Unprofitable decision
A decision that results in a loss
Complex method
A more detailed and accurate costing method that requires more time and effort to implement
Cost driver
Activity that causes a change in the cost of an activity
Cost allocation
Assigning costs to specific products or activities
Predetermined overhead rate
Estimated manufacturing overhead divided by estimated activity base
Cost behavior
How costs change with changes in production or activity levels
Manufacturing overhead
Indirect costs incurred in the manufacturing process
Overhead costs
Indirect costs incurred in the production process
Factory overhead
Indirect costs of production, including indirect materials, indirect labor, and other overhead
Direct labor
Labor directly used in the production of a product
Direct materials
Materials directly used in the production of a product
Net loss
Negative net income
Over-applied overhead
Overhead expenses that are less than budgeted
Under-applied overhead
Overhead expenses that are more than budgeted
Cost driver rate
Rate used to allocate overhead costs to activities
Net income
Revenue minus expenses
Capacity
The ability to fulfill a special order
Discontinue
To stop producing or offering a product or service
Cost pool
Total costs associated with a particular activity
Product cost per unit
Total product cost divided by the number of units produced
Cost of inventory
Value of inventory at a given point in time
Opportunity costs
Value of the best alternative forgone