Management Accounting chapter 10

Job costing

Units of output are distinctive (individual jobs, special order). Each unit has a relatively high value and costs can be traced feasibly to the units

Process costing

Units of output are homogeneous (mass production). Each unit has a very low value and tracing costs to the units is not feasible

Operation costing

A hybrid often used for batches of similar products with differnt types of materials

Job cost ending balance (EB): basic cost-flow model

Job cost begin balance (BB) + resource transfer-in (TI) - resource transfer-out (TO)

Manufacturing overhead

Applied to each job using a predetermined rate

Job cost record

A record of all production-related resources used on individual jobs

Predetermined overhead rate (POHR)

Budgeted total manufacturing overhead costs for the coming year / budgeted total units in the allocation base for the coming period

Calculating overhead applied

POHR * actual activity

Overhead variance

Difference between actual and applied overhead

Underapplied overhead (overhead variance)

Actual > applied

Overapplied overhead (overhead variance)

Actual < applied

Absorption based costing (or full costing)

Includes direct material, direct labour, and both variable and fixed manufacturing overhead in the costs of products

Variable costing

Applies direct material and direct labour costs, but only variable manufacturing overhead to products

Throughput costing (TC)

Assigns only out-of-pocket spending for direct costs as the cost of products or services

Product-costing system

Accumulates the costs of a production process and assigns them to the products or services that constitute the organization’s output

Normal costing

Assigns costs to products based on historical, average costs, which may be different from current, actual or expected costs

Actual costing

Assign costs to specific products (or batches) based on the costs of resources actually used