Managerial Accounting Chapter 2

job order costing systems are used when

1. Many different products are produced each period.
2. Products are manufactured to order.
3. The unique nature of each order requires tracing or
allocating costs to each job, and maintaining cost
records for each job.

Allocation base

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

we use an allocation based because

a. It is impossible or difficult to trace overhead costs to particular
jobs.
b. Manufacturing overhead consists of many different items
ranging from the grease used in machines to the production
manager’s salary.
c. Many types of manufacturing overhead costs are fixed even
though output fluctuates during the period.

Predetermined over head rate

used to apply over head to jobs is determined before the period begins

POHR= est total manufacturing overhead cost for the coming period/est. total units in the allocation based for the coming period

cost driver

factor that causes overhead costs

Activity based costing

alternative approach to
developing multiple predetermined overhead rates.
Managers use activity-based costing systems to more
accurately measure the demands that jobs, products,
customers, and other cost objects make on overhead
resources.

underapplied overhead

company applies less overhead to production than it actually incurs

increases COGS and decreases NOI

overapplied overhead

applies more overhead to production than it actually incurs

decreases COGS and increases NOI