ACC 102 Ch 2
job cost sheet
A form that records the direct materials, direct labor, and manufacturing overhead cost charged to a job.
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.
plantwide overhead rate
A single predetermined overhead rate that is used throughout a plant.
absorption costing
A costing method that includes all manufacturing costs-direct materials, direct labor, and both variable and fixed manufacturing overhead-in unit product costs.
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 situations 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 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, or flight-hours, that causes overhead costs.
allocation base
A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.
overhead application
The process of assigning overhead cost to specific jobs.
summary
Job-order costing is used in situations where the organization offers many different products or services, such as in furniture manufacturing, hospitals, and legal firms. When used in a manufacturing context, job-order costing systems accumulate a job's direct materials, direct labor, and manufacturing overhead costs on a job cost sheet. Selling and administrative costs are not assigned to jobs because they are treated as period costs. Job-order costing systems use materials requisition forms and labor time tickets to trace direct materials and direct labor costs to jobs. Because manufacturing overhead costs are indirect costs, they must be allocated to jobs. Ideally, the allocation base used to allocate overhead costs to jobs should be a cost driver - it should cause the consumption of overhead costs. The most frequently used allocation bases in job-order costing systems are direct labor-hours and machine-hours. Normal costing systems allocate overhead costs to jobs using predetermined overhead rates that are estimated before the period begins. A predetermined overhead rate 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. Job-order costing systems can use only one predetermined overhead rate (also called a plantwide rate) or multiple predetermined overhead rates. Throughout the period, overhead is applied to jobs by multiplying the predetermined overhead rate by the actual amount of the allocation base recorded for each job. The total manufacturing costs assigned to a job (including direct materials, direct labor, and applied overhead) divided by the number of units within that job equals what is known as the unit product cost.