Exam 1

process costing

a costing method used when homogenous products are produced on a continuous basis

job order costing

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

cost driver

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

product costs

all the costs that are involved in acquiring or making a product--"attach" to a unit of product as it is purchased or manufactured and they stay attached to each unit of product as long as it remains in inventory awaitng sale

contribution margin

amount of revenue remaining to cover fixed costs after paying for variable costs

indirect materials

cannot be easily or conveniently traced to specific units of product (ex. thread in a shirt, glue for furniture, etc.)

indirect labor

cannot be easily or conveniently traced to specific units of product (wages of supervisors, cleaning staff, etc.)

work in process

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

manufacturing overhead

includes all manufacturing costs except direct material and direct labor--costs cannot be readily traced to finished products

direct labor

labor costs that can be easily traced to individual units of product--wages of people who actually physically touch the product

direct materials

raw materials that become an integral part of the finished product that can be conveniently traced directly to it

prime cost

the things that manufacturers spend the most money on--direct materials cost plus direct labor cost

fixed cost

cost that remains constant, in total, regardless of changes in the level of activity--average fixed cost per unit varies inversely with the level of activity

variable costs

cost that varies, in total, in direct proportion to changes in the level of activity--cost per unit is constant

period costs

costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued

conversion cost

direct labor cost plus manufacturing overhead cost

overapplied overhead

exists when the amount of overhead applied to jobs during the period using the predetermined overhead rate is greater than the total amount of overhead actually incurred during the period

underapplied overhead

exists when the amount of overhead applied to jobs during the period using the predetermined overhead rate is less than the total amount of overhead actually incurred during the period