Managerial Accounting CH 2 - Job-Order Costing

Absorption costing

A costing method that includes all manufacturing costs—fixed and variable ex: job-order costing

Allocation base

a measure of activity (such as direct labor hours or machine hours) that is common to all products and used to assign overhead costs to them

Plantwide overhead rate

a single predetermined overhead rate that is used throughout a plant, based on direct-labor hours *often incorrect to assume this way

Production order issued when...

agreement has been reached with the customer concerning the quantities, prices, and shipment date for the order

Predetermined overhead rate

computed before period begins and is used to apply overhead cost to jobs throughout the period

Predetermined overhead rate

computed by dividing the total estimated manufacturing overhead cost for the period by(/) the estimated total amount of the allocation base

Adjustment for overapplied overhead...

decreases cost of goods sold and increases net operating income

Time ticket

hour by hour summary of employees activities throughout the day

ACTUAL overhead costs are not assigned to jobs because...

if that could be done, they would be direct costs, not overhead

Adjustment for underapplied overhead...

increases cost of goods sold and decreases net operating income

Overhead cost applied to jobs =

multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job

Overhead application formula

overhead applied to a particular job = predetermined overhead rate x amount of the allocation base incurred by the job * this approach is known as normal costing

The predetermined overhead rate is multiplied by the actual allocation base incurred by a job to find ______

overhead applied to the job

The formula for applying overhead to a specific job is: ______ x amount of allocation base incurred by job

predetermined overhead rate

Overhead application

process of assigning overhead cost to jobs

Job cost sheet

records the materials, labor, and manufacturing overhead costs charged to a job

A company's job cost sheets provide a(n) __________ _______ that summarizes the specific jobs that comprise the amounts reported in Work in Process and Finished Goods on the balance sheet as well as Cost of Goods Sold on the income statement

subsidiary ledger

Manufacturing cost

- direct materials - direct labor - manufacturing overhead

Widely used allocation bases in manufacturing include ______

- machine hours - direct labor hours - direct labor cost - units of product

total job costs do not include

- nonmanufacturing costs - actual manufacturing costs

Companies assign costs to their products for

- planning, controlling, and decision making - value ending inventories and cost of goods sold for external reporting

Job-order costing

- used by companies that make many different products, each with unique features, and are produced each period - compute unit costs for internal management purposes

Activity-based costing

-when a company creates overhead rates based on the actions it performs -results in more overhead rates -alternative and approach to developing multiple predetermined overhead rates -allows more accurate measure of demands that cost objects make on overhead resources

Four steps for obtaining "predetermined overhead rate"

1. estimate allocation base for next period's estimated level of production (denominator) 2. estimate total fixed manufacturing overhead for coming period & variable manufacturing overhead cost per unit of the allocation base 3. use cost formula Y= a+bX to estimate TOTAL manufacturing overhead cost (numerator) - where... Y= estimated total manufacturing overhead cost a= estimated total fixed manufacturing overhead cost b= estimated variable manufacturing overhead cost per unit of the allocation base X= estimated total amount of the allocation base 4.compute

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.

Bill of materials

A document that lists the quantity of each type of direct material required to make a unit product.

Cost driver

A factor, such as machine-hours, beds occupied, computer time, or flight-hours, that assign overhead costs. * also called allocation base

Predetermined overhead rate = *for determining overhead allocated to job using x amount of hours

Estimated Manufacturing Overhead / Estimated Direct Labor Hours

predetermined overhead rate per direct labor dollar formula

Estimated manufacturing overhead / Estimated direct labor cost

Normal cost system

applies overhead costs to jobs by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the jobs

An essential quality of an overhead allocation base is that it must

be common to all the company's products and services

cost driver

factor that causes overhead costs

Direct materials costs are recorded on the job cost sheet when the ______

materials are issued to the job *Costs are assigned to the job cost sheet as incurred throughout the production process.

Cost-plus pricing

method in which predetermined markup is applied to a cost base to determine the target selling price

Materials requisition form

specifies the type and quantity of materials to be drawn from the storeroom and identifies the job that will be charged for the cost of those materials. * used to control the flow of materials into production & for making journal entries in the accounting records

Estimated amount of the allocation base is determined before estimating the total manufacturing overhead cost because...

total manufacturing overhead cost includes variable overhead costs that depend on the amount of the allocation base