MA Chapter 3

Plantwide Overhead Rate

A single predetermined overhead rate that is used throughout the plant. Fairly common practice - particularly with small companies.

Absorption Costing

All manufacturing cost, both fixed and variable, are assigned to units of product - units are said to be fully absorbed manufacturing costs.

Time Ticket

An hour-by-hour summary of the employee's activities throughout the day.

Cost of Goods Sold

As goods are sold, their costs are transferred from Finished Goods to Cost of Good Sold. At this point, the various costs required to make the product are finally recorded as an expense on the income statement.

Finished Goods

Consists of completed goods that have not yet been sold to customers.

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.

Raw Materials

Include any materials that go into the final product. When raw materials are used in production, their costs are transferred to the Work in Process inventory account as direct materials.

Cost of Goods Manufactured

Includes the manufacturing costs associated with the goods that were finished during the period. The amount transferred from Work in Process to Finished Goods. These costs are still in an inventory account on the balance sheet.

Job Cost Sheet

Records the materials, labor, and manufacturing overhead costs charged to that job.

Why Predetermined Overhead Rate

3 Reasons 1. Manufacturing Overhead is an indirect cost which is difficult to trace to one particular product or job. 2.. Manufacturing Overhead includes many different items including grease used in machines to salary of production manager. 3. Due to fixed costs in manufacturing overhead, total overhead costs tend to remain relatively constant. Consequently, the avg cost per unit will vary from period to period!

Normal Cost System

A costing system in which overhead costs are applied to a job by multiplying a predetermined rate by the actual amount of the allocation base incurred by the job.

Job-Order Costing

A costing system used in situations where different products, jobs or services are produced each period. Costs are traced and allocated to jobs and then divided by the number of units in the job to arrive at avg cost per unit. Example: Levi Jeans.

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 rate for the entire company. Each production department is treated as a separate overhead cost pool. Commonly found is larger companies and is usually more accurate because it reflects the difference across the depts.

Overapplied Overhead

A credit balance in manufacturing overhead account that occurs when the amount of overhead cost applied to work in process exceeds the amount of overhead cost actually incurred during a period.

Underapplied Overhead

A debit balance in 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.

Bill of Materials

A document that lists the type and quantity of each type of direct material needed to complete a unit of product.

Materials Requisition Form

A document that specifies the type and quantity of materials to be drawn from the store room and identifies the job that will be charged for the cost of materials. The form is used to control the flow of materials into production and also for making entries into the accounting records.

Cost Driver

A factor, such as machine-hours, bed occupied, computer time, or flight hours that causes (or drives) overhead costs.

Allocation Base

A measure such as direct labor-hours (DLH) or machine-hours (MH) that is used to assign overhead costs to product and services. Most commonly used allocation bases are direct labor hours, direct labor cost, machine hours and units of product (only a single product is produced).

Predetermined Overhead Rate

A rate used to charge manufacturing overhead costs that is established in advance for each period. Computed by: (Estimated Total manufacturing overhead cost)/ (Estimated Total Amount of the allocation base)

Schedule of Cost of Goods Sold

A schedule that contains 3 elements of product costs - direct materials, direct labor and manufacturing overhead - and that summarizes the portions of those costs that remain in ending Finished Goods inventory and that are transferred out of Finished Goods into Cost of Goods Sold.

Schedule of cost of goods manufactured

A schedule that contains 3 elements of product costs - direct materials, direct labor and manufacturing overhead - and that summarizes the portions of those costs that remain in ending Work in Process inventory and that are transferred out of Work in Process in Finished Goods.

Overhead Application

The process of charging manufacturing overhead costs to job sheets and to the Work In Process account. Computed by: Predetermined Overhead Rate/ Amt of allocation base incurred by the job.