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