Managerial Accounting Chapter Two

allocation bases used in manufacturing overhread

- direct labor costs - direct labor hours - manufacturing hours - units of products

normal costing

A costing system in which overhead costs are applied to a job by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job.

Allocation base

A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.

predetermined overhead rate

A rate used to charge manufacturing overhead cost to jobs that is established in advance for each period. It is computed by dividing the estimated total manufacturing overhead cost for the period by the estimated total amount of the allocation base for the period.

overhead application

The process of assigning overhead cost to specific jobs.

why does manufacturing overhead cost per unit usually vary?

fixed manufacturing overhead remains constant in total even when production changes

cost plus pricing

summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price

In the formula Y = a + bX, X represents the estimated

total amount of the allocation base

Plant wide overhead rate

a single overhead rate calculated by using all estimated overhead for a factory divided by the estimated activity level across the entire factory.

Activity Based Costing

allocation of overhead to specific jobs based on their percentage of activities

Companies use a predetermined overhead rate rather than an actual overhead rate because ______.

an actual rate is not known until the end of the period

total cost of a job

direct materials + direct labor + predetermined manufacturing overhead

To calculate the unit product cost using the job cost sheet ______ by the number of units produced.

divide the total job cost

typical cost drivers

machine-hours, flight-hours, computer time

in comparison to a departmental approach, activity based costing results in

more overhead rates

The formula for applying overhead to a specific job is: Blank______ amount of allocation base incurred by job

predetermined overhead rate x