Acc 203 chapter 3

Job costing

A costing system that calculates costs separately for each unique job or customer order. Example: a custom house.

Process costing

A costing system that averages costs across many identical products. Example: bottles of soda.

Direct materials

Materials that become part of the product and can easily be traced to one job.

Direct labor

Wages of employees who directly make the product and can easily be traced to one job.

Manufacturing overhead

All indirect factory costs, such as factory utilities, insurance, depreciation, supervisors, and indirect materials.

Direct cost

A cost that can easily be traced to one specific job, such as wood used for a custom table.

Indirect cost

A cost that supports production but cannot easily be traced to one job. Indirect factory costs are manufacturing overhead.

Job cost record

A document that collects the direct materials, direct labor, and allocated manufacturing overhead for one job.

Bill of materials

A list of all materials needed to complete a job.

Materials requisition

A document authorizing materials to be taken from storage and used on a particular job.

Labor time record

A document showing how much time an employee worked on each job.

Allocation base

The activity used to assign manufacturing overhead to jobs, such as direct labor hours or machine hours.

Predetermined manufacturing overhead rate

The rate used to allocate overhead to jobs. Formula: Estimated manufacturing overhead ÷ Estimated total allocation base.

Allocated manufacturing overhead

The amount of overhead assigned to a job. Formula: Predetermined overhead rate × Actual allocation base used by the job.

Total job cost

The complete manufacturing cost of one job. Formula: Direct materials + Direct labor + Allocated manufacturing overhead.

Cost per unit

The cost of producing one unit. Formula: Total job cost ÷ Number of units produced.

Flow of manufacturing costs

Raw Materials Inventory → Work in Process Inventory → Finished Goods Inventory → Cost of Goods Sold.

Work in Process Inventory

The cost of products that have been started but are not finished.

Finished Goods Inventory

The cost of completed products that have not yet been sold.

Actual manufacturing overhead

The factory overhead costs the company actually incurred during the period.

Underallocated manufacturing overhead

Actual overhead is greater than allocated overhead, meaning too little was assigned to jobs. It increases Cost of Goods Sold.

Overallocated manufacturing overhead

Allocated overhead is greater than actual overhead, meaning too much was assigned to jobs. It decreases Cost of Goods Sold.