Job Costing & Cost Flows

Vocabulary flashcards covering key concepts of managerial accounting, cost classifications, job-order costing, cost flows, and overhead allocation methods.

Direct cost

A cost that can be easily, conveniently, and cost-effectively traced directly to a specific cost object.

Indirect cost

A cost that cannot be easily, conveniently, and cost-effectively traced to a specific cost object.

Cost object

Anything for which a manager or organization desires a total cost measurement, such as a product, department, sales region, or company.

Product costs

All costs associated with manufacturing and production that spend time on the balance sheet as inventory until the product is sold.

Direct materials (DM)

The raw materials and components that can be physically and conveniently traced directly into the finished product.

Direct labor (DL)

The touch labor cost of workers whose effort can be easily and conveniently traced to the production of a specific product.

Manufacturing overhead (MOH)

All manufacturing costs of a product except direct materials and direct labor, which cannot be traced directly and must be allocated.

Prime costs

The sum of all direct manufacturing costs, calculated as Direct Materials plus Direct Labor ($\text{DM} + \text{DL}$).

Conversion costs

The costs required to convert direct materials into finished goods, calculated as Direct Labor plus Manufacturing Overhead ($\text{DL} + \text{MOH}$).

Period costs

All non-manufacturing business costs (selling and administrative expenses) that are expensed on the income statement in the period incurred rather than capitalized into inventory.

Selling costs

Period costs incurred to secure customer orders and deliver the finished product to the customer.

Administrative costs

Period costs associated with the general management, oversight, and administration of an entire organization.

Job-order costing

A costing system used when many different products with unique features are produced each period, or for single customized products and service jobs, tracking costs per individual job.

Process costing

A costing system used by companies that convert raw materials into homogeneous products on a continuous basis.

Job cost sheet

A form that records the direct materials, direct labor, and manufacturing overhead costs charged to a specific job.

Material requisition form

A source document that authorizes the release of direct materials from the storeroom and traces those material costs to a specific job.

Time card

A source document used to record the direct labor hours worked by an employee on a specific job to trace labor costs.

Predetermined overhead application rate

A rate computed at the start of a period by dividing estimated total manufacturing overhead by estimated total units of the cost allocation base: $\frac{\text{Estimated Total MOH}}{\text{Estimated Total Units of Cost Allocation Base}}$.

Applied manufacturing overhead

The amount of overhead cost assigned to a job during production, calculated as the actual quantity of the allocation base incurred multiplied by the predetermined overhead rate ($\text{Actual Base} \times \text{Predetermined Rate}$).

Overapplied or underapplied overhead

The difference between actual manufacturing overhead costs incurred and the overhead applied to jobs, which is closed out to Cost of Goods Sold before publicly reporting financial statements.

Departmental MOH rate approach

A costing system where overhead is grouped into separate cost pools for each department, each determining its own allocation base and predetermined overhead application rate.

Activity-based MOH approach

A costing system where overhead is accumulated into separate pools for each manufacturing activity, each determining its own activity base and application rate.