ACC 252: Chapter 2

Absorption Costing

A costing method that includes all manufacturing costs-- direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a product.

Normal Cost System

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 based incurred by the job.

Job-order Costing

A costing system used in situations where many different products, jobs, or services are produced each period.

Multiple Predetermined Overhead Rates

A costing system with multiple overhead cost pools and a different predetermined overhead rate for each cost pool, rather than a single predetermined overhead rate for the entire company. Each production department may be treated as a separate overhead cost pool.

Over-applied Overhead

A credit balance in the manufacturing overhead account that occurs when the amount of overhead cost applied to Work in Process exceeds the amount of overhead cost actually incurred during a period.

Under-applied Overhead

A debit balance in the Manufacturing Overhead account that occurs when the amount of overhead cost actually incurred exceeds the amount of overhead cost applied to Work in Process during a period.

Time Ticket

A document that is used to record the amount of time an employee spends on various activities.

Bill of Materials

A document that shows the quantity of each type of direct material required to make a product.

Materials Requisition Form

A document that specifies the type and quantity of materials to be drawn from the storeroom and that identifies the job that will be charged for the cost of those materials.

Cost Driver

A factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs.

Job Cost Sheet

A form that records the materials, labor, and manufacturing overhead costs charged to a job.

Allocation Base

A measure of activity such as direct labor-hours or machine-house 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.

Schedule of Cost of Goods Sold

A schedule that contains three elements of product costs- direct materials, direct labor, and manufacturing overhead- and that summarizes the portions of those costs that remain in ending Finished Goods inventory and that are transferred out of Finished Goods into Cost of Goods Sold.

Schedule of Cost of Goods Manufactured

A schedule that contains three elements of product costs-- direct materials, direct labor, and manufacturing overhead-- and that summarizes the portions of those costs that remain in ending Work in Process inventory and that are transferred out of Work in Process into Finished Goods.

Plantwide Overhead Rate

A single predetermined overhead rate that is used throughout a plant.

Raw Materials

Any materials that go into the final product.

Cost of Goods Manufactured

The manufacturing costs associated with the goods that were finished during the period.

Overhead Application

The process of charging manufacturing overhead cost to job cost sheets and to the Work in Process account.

Work in Process

Units of product that are only partially complete and will require further work before they are ready for sale to the customer.

Finished Goods

Units of product that have been completed but not yet sold to customers.