Chapter 2 Job-Order Costing: Calculating Unit Product Costs
A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.
Allocation base
which of the following is an essential quality of an overhead allocation base?
It must be common to all the company's products and services
A costing system used in situations where many different products, jobs, or services are produced each period.
Job-order costing
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.
Materials requisition form
The process of assigning overhead cost to specific jobs.
Overhead application
how do you find the total product cost?
add direct materials, direct labor, and manufacturing overhead
costs assigned to units of production under absorption costing include:
all manufacturing costs, both fixed and variable.
a job order costing system may inaccurately assign costs to jobs due to
an inappropriate allocation base
the predetermined overhead rate is calculated
before the period begins
allocation bases that do not drive overhead costs
can cause product costs to be distorted
Average manufacturing overhead cost per unit usually varies from one period to the next because
fixed manufacturing overhead remains constant in total even when production changes
overhead applied to a particular job=predetermined overhead rate* Amount of the allocation base incurred by the job
formula for determining the amount of overhead cost to apply to a particular job
Manufacturing overhead consists of many different types of costs eg
grease used in machines, annual salary of the production manager,
the costs attached to units THAT HAVE BEEN SOLD are included in cost of goods sold on the
income statement.
Manufacturing overhead is an.............. .........This means that it is either impossible or difficult to trace these costs to a particular product or job.
indirect cost.
Some Manufacturing Overhead costs are variable overhead costs because they vary in direct proportion to changes in the level of production eg
indirect materials, supplies, and power
bill of materials
is a document that lists the quantity of each type of direct material needed to complete a unit of product.
direct materials are put on the job cost sheet when they have been
issued
A form that records the direct materials, direct labor, and manufacturing overhead cost charged to a job.
job cost sheet
manufacturing overhead(indirect labor) includes tasks such as
maintenance, supervision, and cleanup
companies that use job-order costing make:
many different products
the type and quantity of materials to be drawn from the storeroom and the job that will be charged for the materials is specified on the
materials requisition form
an allocation base is a
measure of activity used to assign overhead costs to products and services.
companies assign costs to products and services to:
value ending inventory, understand product profitability, establish selling prices
A Service firm that would most likely use job-order costing is a
example: law practice
companies generally classify manufacturing costs into three broad categories:
(1) direct materials, (2) direct labor, (3) manufacturing overhead.
some are fixed overhead costs because they remain constant as the level of production fluctuates
(e.g., heat and light, property taxes, and insurance).
A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs.
Absorption costing
total manufacturing overhead cost tend to remain
fairly constant
The costs attached to products that have NOT BEEN SOLD are included in ending inventories on the
BALANCE SHEET
A document that shows the quantity of each type of direct material required to make a product.
Bill of materials
........... .............. consists of labor charges that are easily traced to a particular job. Labor involved in production rather than administration, maintenance, and other support services.
Direct labor
A document that is used to record the amount of time an employee spends on various activities.
Time ticket
Y=a+bX
Y=The estimated total manufacturing overhead cost. a=The estimated total fixed manufacturing overhead cost b=The estimated variable manufacturing overhead cost per unit of theallocation base X=The estimated total amount of the allocation base
cost formula
Y=a+bX
when a company creates overhead rates based on the actions it performs, it is employing an approach called
activity based costing
the unit product cost is found by
dividing the total product cost and the # of units completed.
Compared to a plantwide overhead rate system, a multiple predetermined overhead rate system is
more complex, but more accurate
a single predetermined overhead rate is called a(n)............. overhead rate.
plantwide
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.
predetermined overhead rate=Estimated total manufacturing overhead cost/Estimated total amount of the allocation base
