Cost Accounting Basics, Job Order Costing & Overhead Allocation

Vocabulary flashcards covering key cost‐accounting terms from Chapters 14, 15, and 17, including cost classifications, inventory formulas, job order costing, and overhead allocation methods.

Direct Costs

Expenses that can be traced directly to a specific product.

Direct Materials (DM)

Physical components that become part of the finished product and are easily traced to it.

Direct Labor (DL)

Wages paid to workers who directly convert materials into finished goods.

Indirect Costs (Factory Overhead – FOH)

Production costs that cannot be traced to a specific product; include indirect materials, indirect labor, and other overhead.

Indirect Materials

Minor materials used in production that are difficult to trace to individual products (e.g., glue, screws).

Indirect Labor

Wages of employees who support production but do not work directly on the product (e.g., supervisors).

Other Overhead

Factory expenses such as utilities, rent, and equipment depreciation that support production indirectly.

Product Costs

Direct Materials + Direct Labor + Factory Overhead; recorded as inventory until the product is sold.

Period Costs

Selling and administrative expenses; expensed in the period incurred and not included in inventory.

Merchandisers

Businesses that buy finished goods and resell them without modification (e.g., Target, Best Buy).

Manufacturers

Companies that purchase raw materials and convert them into finished goods for sale.

Work in Process (WIP)

Partially completed products that are still in production at the balance sheet date.

Total Manufacturing Costs

Direct Materials + Direct Labor + Factory Overhead incurred during the period.

Cost of Work in Process (WIP)

Total Manufacturing Costs + Beginning WIP – Ending WIP.

Cost of Goods Manufactured (COGM)

Cost of Work in Process transferred to Finished Goods during the period.

Cost of Goods Sold (COGS)

Beginning Finished Goods + COGM – Ending Finished Goods.

Income Statement Format (Manufacturer)

Sales – COGS = Gross Profit; minus Selling and Administrative Expenses = Net Income.

Schedule of COGM

Report that summarizes Direct Materials Used, Direct Labor, Factory Overhead, and ending WIP to compute COGM.

Direct Materials Used

Beginning Raw Materials + Purchases – Ending Raw Materials.

Job Order Costing

Costing system used for custom jobs or unique batches where costs are accumulated by individual job.

Manufacturing Cost (Job)

For a specific job: Direct Materials + Direct Labor + Applied Overhead.

Cost per Unit (Job)

Total job cost divided by the number of units produced in that job.

Predetermined Overhead Rate

Estimated Overhead ÷ Estimated Activity Base (e.g., DL hours, machine hours).

Applied Overhead

Predetermined Overhead Rate × Actual activity base used by a job or department.

Underapplied Overhead

Occurs when Actual Overhead > Applied Overhead; increases COGS at period end.

Overapplied Overhead

Occurs when Actual Overhead < Applied Overhead; decreases COGS at period end.

Overhead Variance

Actual Overhead – Applied Overhead.

Plantwide Overhead Rate

Single overhead rate used for the entire plant: Budgeted Overhead ÷ Budgeted Activity Base.

Departmental Overhead Rate

Separate overhead rate for each department: Department Budgeted Overhead ÷ Department Activity Base.

Activity-Based Costing (ABC)

Allocates overhead based on activities that drive costs rather than volume alone.

Unit-level Activity

Activity performed for each individual unit produced (e.g., electricity to run a machine for one unit).

Batch-level Activity

Activity performed for each batch of units (e.g., machine setup).

Product-level Activity

Activity that supports an entire product line (e.g., product design).

Facility-level Activity

Activities that benefit the whole plant (e.g., building maintenance, security).