Cost Accounting

Job Order Costing

An accounting method used to determine the cost of producing specific items or completing specific jobs.

Direct Costs

Costs that can be directly attributed to a specific job, such as materials and labor.

Indirect Costs

Costs that are not directly attributed to a specific job, such as overhead.

Cost Allocation

The process of assigning indirect costs to jobs.

Direct Method

A costing method where costs are traced directly to jobs based on actual expenses incurred.

Step Method

A costing method that allocates indirect costs to each job in a sequential manner using predetermined rates.

Algebraic Method

A costing method that assigns jobs costs through equations for a more analytical approach.

Predetermined Overhead Rate (POHR)

Calculated at the beginning of a period to allocate overhead costs to jobs throughout that period.

Prime Cost

Total direct costs incurred during the production of goods, calculated as Direct Materials + Direct Labor.

Conversion Cost

Expenses incurred to convert raw materials into finished products, calculated as Direct Labor + Manufacturing Overhead.

Applied Manufacturing Overhead

Overhead cost allocated to jobs based on the predetermined overhead rate.

Cost of Goods Manufactured (COGM)

Total production costs of goods completed during a period.

Cost of Goods Sold (COGS)

The cost attributed to goods that were sold during a specific period.

Total Goods Available for Sale

Total amount of inventory available to sell during a period, calculated as Beginning Finished Goods + COGM.

Cost Per Unit

Calculated as Total Costs divided by Total Units Produced in a process cost system.

Total Production Costs

Comprises costs from all processes combined, calculated as Direct Materials + Direct Labor + Manufacturing Overhead.

Manufacturing Overhead

All other costs incurred that are necessary to produce goods but cannot be directly traced to specific products.

Work in Process Inventory

Value of products that are not yet finished at a specific time.

Sales

Total revenue generated from selling goods, calculated as Selling Price multiplied by Number of Units Sold.

Calculate the Prime Cost

If a company incurs Direct Materials cost of $20,000 and Direct Labor cost of $15,000, what is the Prime Cost?
Solution: Prime Cost = Direct Materials + Direct Labor = $20,000 + $15,000 = $35,000.

Determine Applied Manufacturing Overhead

If a company's Predetermined Overhead Rate is $10 per hour and they worked 500 hours on a job, what is the Applied Manufacturing Overhead?
Solution: Applied Manufacturing Overhead = Predetermined Rate x Hours Worked = $10 x 500 = $5,000.

Cost of Goods Manufactured Calculation

Given Beginning Work in Process Inventory of $5,000, Direct Materials used of $10,000, Direct Labor of $7,000, and Ending Work in Process of $4,000, calculate the Cost of Goods Manufactured.
Solution: COGM = Beginning WIP + Direct Materials + Direct Labor - Ending WIP = $5,000 + $10,000 + $7,000 - $4,000 = $18,000.

Cost of Goods Sold Calculation

If the Total Goods Available for Sale is $50,000 and Ending Inventory is $10,000, what is the Cost of Goods Sold?
Solution: COGS = Total Goods Available - Ending Inventory = $50,000 - $10,000 = $40,000.

Calculate Cost Per Unit

If the Total Costs incurred in production are $32,000 and the Total Units Produced are 1,000, what is the Cost Per Unit?
Solution: Cost Per Unit = Total Costs / Total Units Produced = $32,000 / 1,000 = $32.