Chapter 2: Job-Order Costing - Calculating Unit Product Costs

Vocabulary flashcards covering key terms and concepts in job-order costing, predetermined overhead rates, cost allocation, cost drivers, and overhead adjustments.

Job-Order Costing System

A costing system used when many different products are produced each period, products are manufactured to order, and costs must be traced or allocated to each unique job.

Direct Costs Assignment in Job-Order Costing

The direct charging of direct materials and direct labor costs to each individual job as work is performed.

Manufacturing Overhead Allocation

The process of allocating indirect manufacturing costs, including indirect materials and indirect labor, to jobs rather than directly tracing them.

Allocation Base

A measure, such as direct labor hours, direct labor dollars, or machine hours, used to assign manufacturing overhead to individual jobs.

Predetermined Overhead Rate (POHR)

A rate calculated before the period begins using the formula: $\text{POHR} = \frac{\text{Estimated total manufacturing overhead cost for the coming period}}{\text{Estimated total units in the allocation base for the coming period}}$

Cost Driver

A factor, such as machine-hours or direct labor-hours, that causes overhead costs and serves as an ideal allocation base.

Estimated Total Manufacturing Overhead Cost Equation

The formula $Y = a + bX$, where $Y$ is estimated total manufacturing overhead cost, $a$ is estimated total fixed manufacturing overhead cost, $b$ is estimated variable manufacturing overhead cost per unit of allocation base, and $X$ is estimated total amount of allocation base.

Plantwide Overhead Rate

A single predetermined overhead rate used by an entire facility to allocate manufacturing overhead costs to jobs based on a single allocation base.

Multiple Predetermined Overhead Rates

The practice of using separate departmental predetermined overhead rates based on different cost drivers to improve job cost accuracy.

Job Cost Sheet Subsidiary Ledger

A set of financial records formed by all individual job cost sheets that explains the costs comprising Work-in-Process, Finished Goods, and Cost of Goods Sold.

Underapplied Overhead

The condition when the amount of manufacturing overhead applied to production is less than the actual overhead costs incurred during the period.

Overapplied Overhead

The condition when the amount of manufacturing overhead applied to production is greater than the actual overhead costs incurred during the period.

Cost of Goods Sold Overhead Adjustment

The income statement adjustment where underapplied overhead increases Cost of Goods Sold (and decreases net income) while overapplied overhead decreases Cost of Goods Sold (and increases net income).