Exam 1
process costing
a costing method used when homogenous products are produced on a continuous basis
job order costing
a costing system used in situations where many different products, jobs, or services are produced each period
cost driver
a factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs
product costs
all the costs that are involved in acquiring or making a product--"attach" to a unit of product as it is purchased or manufactured and they stay attached to each unit of product as long as it remains in inventory awaitng sale
contribution margin
amount of revenue remaining to cover fixed costs after paying for variable costs
indirect materials
cannot be easily or conveniently traced to specific units of product (ex. thread in a shirt, glue for furniture, etc.)
indirect labor
cannot be easily or conveniently traced to specific units of product (wages of supervisors, cleaning staff, etc.)
work in process
consists of units of product that are only partially complete and will require further work before they are ready for sale to the customer
manufacturing overhead
includes all manufacturing costs except direct material and direct labor--costs cannot be readily traced to finished products
direct labor
labor costs that can be easily traced to individual units of product--wages of people who actually physically touch the product
direct materials
raw materials that become an integral part of the finished product that can be conveniently traced directly to it
prime cost
the things that manufacturers spend the most money on--direct materials cost plus direct labor cost
fixed cost
cost that remains constant, in total, regardless of changes in the level of activity--average fixed cost per unit varies inversely with the level of activity
variable costs
cost that varies, in total, in direct proportion to changes in the level of activity--cost per unit is constant
period costs
costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued
conversion cost
direct labor cost plus manufacturing overhead cost
overapplied overhead
exists when the amount of overhead applied to jobs during the period using the predetermined overhead rate is greater than the total amount of overhead actually incurred during the period
underapplied overhead
exists when the amount of overhead applied to jobs during the period using the predetermined overhead rate is less than the total amount of overhead actually incurred during the period
