Cost Accounting – Job Order Costing

Vocabulary flashcards covering the fundamental concepts, costs classifications, and overhead application methods within Job Order Costing as presented in the lecture notes.

Cost Accounting

The system that records, summarizes, analyzes, and interprets the details of the cost of materials, labor, and overhead necessary to produce and sell an article or product.

Product Costs

Costs that apply to both sold (CGS) and unsold (ASSET) units, consisting of direct materials, direct labor, and manufacturing overhead.

Period Costs

Costs that apply to sold units only, consisting of distribution/selling costs and administrative costs.

Job Order Costing

A system where costs are accumulated for each specified job order or lot of similar goods manufactured on a specific order for stock or for a customer, typically for heterogeneous or dissimilar products.

Process Costing

A system that accumulates costs without attempting to allocate them during the accounting period to specific units, determining the average cost per unit at the end of the period.

Hybrid Costing

Also known as Operation Costing or Blended Method; a system where direct materials are accumulated using Job Order Costing and conversion costs are accumulated using process costing.

Backflush Costing

A costing system introduced due to the Just-in-Time (JIT) Philosophy in Production.

Direct Materials

Materials used in the manufacturing process that become a significant part of the finished product.

Indirect Materials

Materials used in small amounts or that cannot be easily traced to specific products, charged as part of actual overhead.

Direct Labor

Employees who work directly with the raw materials in converting them into finished goods.

Indirect Labor

The wages of factory personnel who do not work directly on raw materials, charged as part of actual overhead.

Actual Manufacturing Overhead

Costs actually incurred in the factory other than direct materials and direct labor, debited to the Manufacturing Overhead Control Account.

Applied Manufacturing Overhead

Manufacturing overhead assigned to Work in Process and specific jobs on an estimated basis using a predetermined overhead rate.

Predetermined Overhead Rate Formula

$$\text{Predetermined Overhead Rate} = \frac{\text{Budgeted Manufacturing Overhead}}{\text{Budgeted Production Activity Level}}$$

Applied Overhead Formula

$$\text{Applied Overhead} = \text{Actual Production Activity Level} \times \text{Predetermined Overhead Rate}$$

Underapplied Overhead

Occurs when actual overhead is greater than applied overhead ($\text{Actual} > \text{Applied}$), representing an unfavorable variance.

Overapplied Overhead

Occurs when actual overhead is less than applied overhead ($\text{Actual} < \text{Applied}$), representing a favorable variance.

Scrap Materials

Unavoidable filings, excessive trimmings, or defective materials that cannot be returned to the vendor or are not suitable for manufacturing but may have salvage value.

Waste

Raw materials left over from a production process for which there is no further use and no salable value.

Spoilage

Partially or fully completed units that cannot be corrected because it is not technically possible or economical to do so.

Rework

The process of correcting defective units in order to bring them into salable condition.

Normal Costing System

A product cost accumulation system where direct materials and direct labor are recorded at actual costs, but manufacturing overhead is applied.