M. A. Chapter 2
materials requisition forms are used for
- Making journal entries in accounting records - Controlling the flow of materials into production
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 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.
Formula for predetermined overhead rate
Estimated Total Manufacturing Overhead Costs / Estimated Total Amount Of the Allocation Base
Note that the amount of overhead applied is not
The actual amount of overhead caused by the job - if that could be done there would be no overhead
Why is the unit product cost different from the cost that would be incurred if another unit were produced?
The cost to produce another unit is the incremental or marginal cost
A=
The estimated total fixed manufacturing overhead cost
Y=
The estimated total manufacturing overhead cost
overhead application
The process of assigning overhead cost to specific jobs.
Absorption cost
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
Job Order Costing
a costing system used in situations where many different products, jobs, or services are produced each period
time ticket
a document that is used to record the amount of time an employee spends on various activities
job cost sheet
a form that records the materials, labor, and manufacturing overhead costs charged to a job
Plant wide overhead rate
a single predetermined overhead rate that is used throughout a plant
A measure such as direct labor hours, or machine hours that is used to assign overhead costs to products and services is called a cost driver or
allocation base
measure of activity used to assign overhead costs to products and services
allocation base
the unit product cost is the same as
average product cost per unit total job cost divided by number of units
manufacturing overhead
consists of many different types of costs contains fixed costs is an indirect cost
Categories of Manufacturing Costs include
direct materials, direct labor, manufacturing overhead
essential quality of an overhead allocation base
it must be common to all the company's product and services
companies that make many different products each period use
job ordering costing
Widely used allocation bases in manufacturing are:
machine hours units of product direct labor hour direct labor cost
Factory labor charges that cannot be easily traced to a job are treated as
manufacturing overhead
Labor charges that cannot be easily traced to a job are considered:
manufacturing overhead and indirect labor
overhead applied to a particular job=
predetermined overhead rate x actual direct labor hours worked on the job
allocation bases that do not drive overhead costs can casue
product costs to be distorted
Bill of Materials contains the
quantity of each direct material needed to complete a unit of product type of each DM needed to complete unit of product
Jobs in a service firm that uses job- order costing
repair in auto shop, pastient in hospital, client in law firm, NOT tax department (Hint no Departments
X=
the estimated total amount of the allocation base
B=
the estimated variable manufacturing overhead cost per unit of the allocation base
units of product under absorption costs
variable and fixed manufacturing
Cost Formula
y = a + bx
Manufacturing Overhead is hard
1. It is an indirect cost 2. Supplies power grease salary 3. Large overhead cost tends to remain same even from one period to next —- average cost per unit will vary from one period to the next
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.
all manufacturing costs are assigned to units of product and all non manufacturing costs are treated as period cost under----- costing
absorption
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.
