Job Order Costing

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.

Job-Order Costing

A costing system used in situation 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.)

Time ticket

A document that indicates the employee, the hours worked, the account and the job to be charged, and the total labor cost.

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, flight-hours, that causes overhead costs.

Cost accounting system

Manufacturing cost accounts that are fully integrated into the general ledger of a company.

Cost per unit

Manufacturing costs / number of units produced

Job cost sheet

Form used to record the costs chargeable to a specific job and to determine the total and unit costs of the completed job

APPLYING manufacturing overhead (sprinkling)

dr. work in process cr. manufacturing overhead

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.

Over-applied Overhead

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

Underapplied 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.

Job Cost Sheet

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

Cost pool

A location for accumulating the costs associated with an activity or activity center

Cost driver or activity measure

A measure of activity selected for a cost center or activity because of the high correlation between the cost incurred by the cost center and the measure of activity.

Allocation Base

A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.

Equivalent Unit

A measure used in process cost systems to computer the number of units that would have been completed had the same production effort been devoted to starting and completing a smaller number of units

Predetermined Overhead Rate

A rate used to charge manufacturing overhead cost to jobs that is established in advance for each period.

Activity or activity center

A repetitive task performed by a specialized group within a company as it executes business objectives

Schedule of Cost of Goods Manufactured

A schedule that contains three elements of product costs- direct materials, direct labor, and manufacturing overhead- and that summarize 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.

Overapplied overhead

A situation in which overhead assigned to work in process is greater than the overhead incurred

Underapplied overhead

A situation in which overhead assigned to work in process is less than the overhead incurred

Job Order Cost System

A system of accounting for a production process that produces products in batches or dissimilar units

Process Cost System

A system of accounting for a production process that produces the same or similar products continously.

Process cost system

A system of accounting used when a large quantity of similar products are manufactured

Activity based costing (ABC)

A system of allocating both manufacturing and nonmanfacturing costs to objects of interest to management, such as products, services, or customers

Cost Object

Any item or activity for which management wants to determine the cost, such as products, services, or customers

Raw Materials

Any materials that go into the final product.

Cost Accounting

Area of accounting that measures, records and reports product costs

Job order cost system

Cost accounting system in which costs are assigned to each job or batch.

Materials requisition slip

Document authorizing the issuance of raw materials from teh storeroom to production

Predetermined Overhead Rate Based on Capacity Equation

Estimated total manufacturing overhead cost at capacity/ estimated total amount of the allocation base at capacity.

Predetermined Overhead Rate Equation

Estimated total manufacturing overhead cost for the period/ estimated total amount of the allocation base for the period.

Summary entry

Journal entry that summarizes the totals from multiple transactions

Complications of process costing

Number of units produced may include partially processed units (resolved by equivalent units), must use the same method of flow of costs (i.e. FIFO), spoilage, and prior department process costs

Predetermined overhead rate

Rate based on the relationship between estimated annual overhead costs and the expected annual operating activity, expressed in terms of common based activity.

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.

Characteristic of process costing

Used for manufacturing processes that produce a single type of product continuously for an extended period of time, includes cement production, flour processing, and oil refining

Characteristic of job order costing

Used for manufacturing processes that produce products in batches where all units in the same batch are identical

nonmanufacturing costs

dr. ___expense cr. salaries/wages payable or accumulated depreciation on office equipment

cost of goods sold

dr. accounts receivable cr. sales dr. cost of goods sold cr. finished goods

cost of goods manufactured

dr. finished goods cr. work in process

all other manufacturing costs (rent, utilities, misc)

dr. manufacturing overhead cr. accounts payable [depreciation][taxes]

purchase of raw materials

dr. raw materials cr. accounts payable

direct and indirect materials used in production

dr. work in process dr. manufacturing overhead cr. raw materials (indirect is manufacturing overhead and direct is wip)

labor cost

dr. work in process dr. manufacturing overhead cr. salaries and wages payable (indirect labor goes under manufacturing overhead and direct is wip)