Part 2: Job Order Costing
Underapplied/Overapplied Overhead
An accounting record in cost accounting where the overhead costs assigned for a work-in-progress product does not reach the amount of the actual overhead costs. Underapplied overhead is reported as a prepaid expense on the company's balance sheet and, at the end of the year, it is balanced by inputing a debit to cost of goods sold.
Predetermined Overhead Rate
=estimated total manufacturing overhead cost/estimated total amount of the allocation base
bill of materials
A comprehensive list of raw materials, components and assemblies required to build or manufacture a product. SEE sample PDF in documents folder
absorption costing
A costing method. expensing all costs associated with manufacturing a particular product. uses the total direct costs and overhead costs associated with manufacturing a product as the cost base.
Cash-Basis Accounting
A major accounting method that recognizes revenues and expenses at the time physical cash is actually received or paid out.
Job Cost Sheet
is a document used to record manufacturing costs and is prepared by companies that use job-order costing system to compute and allocate costs to products and services. Also used for unit product costs.
COGS
Usually only a portion of the finished good units will be immediately sold, the unit product cost must be used to determine how much product cost is moved from finished goods and charged to this account. usually the largest expense on the income statement of a company selling products or goods. Cost of Goods Sold is a general ledger account under the perpetual inventory system.
Allocation base
a measure such as direct labor hours or machine hours that is used to assign overhead cost in order to help aid putting overhead costs to produc
Clearing Account for overhead
actual manufacturing overhead is debited however the predetermined overhead rate is based entirely on estimates of what costs are expected to be, thus the overhead cost will likely be more or less than the actual cost
Process costing
continuous process of a single product, unit product cost = total manufacturing cost/total units produced during period
materials requisition form
lists the items to be picked from inventory and used in the production process or in the provision of a service to a customer, usually for a specific job. The form usually has three purposes: To pick items from stock To relieve the inventory records in the amount of the items picked To charge the targeted job for the cost of the items requisitioned The form can also be used as the basis for the reordering of any inventory items that are not currently in stock. The information most commonly found on a material requisition form includes: Header section: Job number to be charged Header section: Date of requisition Header section: Date by which inventory is required Main body: Item number or description to be pulled from stock Main body: Unit quantity to be pulled from stock Footer section: Authorization signature line
Accrual Basis accounting
recognizing economic events regardless of when cash transactions occur. This method provides a more accurate picture of the company's current condition, but its relative complexity makes it more expensive to implement. This is the opposite of cash accounting, which recognizes transactions only when there is an exchange of cash. Must be earned in current period, dividends are different. (A/R and Revenue adjusting entry)
Overhead Application
the process of assigning overhead cost to jobs. overhead applied to a particular job - predetermined overhead rate X amount of the allocation base incurred by the job.
COGM
transfer of costs out of work in process into finished goods account
Job order costing
used when different products are produced each period; costs are traced and allocate to jobs and then the cost of the job are divided by the number of units in the job to arrive at an average cost per unit
