Ch 2

Predetermined overhead rate (formula)

Estimated total manufacturing overhead cost/Estimated total cost driver

Process Costing: Average unit cost

Total manufacturing cost/Total units produced

Applied manufacturing overhead

(Predetermined overhead rate) x (actual cost driver)

What are the 3 categories of manufacturing costs?

1) Direct materials 2) Direct labor 3) Manufacturing overhead

Job cost sheet

A document companies use to record manufacturing costs (direct materials, direct labor, and manufacturing overhead) that provides a detailed record of the costs incurred to complete a specific job

Materials requisition form

A form that lists the quantity and cost of the direct materials used; used to control the physical flow of materials out of inventory and into production;

Direct labor time ticket

A source document that shows how much time a worker spent on various jobs each week

Source documents

Documents used for direct costs to keep track of the costs of specific jobs; Materials requisition form for direct materials, a direct labor time ticket for direct labor

Finished goods inventory

Represents the cost of jobs that have been completed but not yet sold. The cost of a completed job remains in Finished Goods Inventory until it is sold.

Raw materials inventory

Represents the cost of materials purchased from suppliers but not yet used in production. This account includes both direct materials that will be traced to specific jobs (lumber, piping) and the indirect materials that cannot be traced to specific jobs (screws, nails, and so on)

Work in progress inventory

Represents the total cost of jobs that are in process at any given point in time. Any cost that is added to the Work in Process Inventory account must also be recorded on an individual job cost sheet. The job cost sheet serves as a subsidiary ledger to the Work in Process Inventory account. Thus, the total cost of all jobs in process should equal the balance in Work in Process Inventory.

Predetermined overhead rate (definition)

The rate estimated before the accounting period begins and used throughout the period to assign overhead costs to products or services Steps in assigning manufacturing overhead costs: 1. Determine the allocation base (cost driver) 2. Calculate the predetermined overhead rate 3. Assign manufacturing overhead using the predetermined overhead rate