Chapter 6: Job Order Costing

Product Costing System

Assigns direct and indirect costs to products or services.

Job-Order Costing

Used when a company produces output in distinct batches or jobs.

Process Costing

Used when a company produces a large number of identical items.

Actual Costing

Records actual direct and indirect costs using an actual overhead rate.

Normal Costing

Records actual direct and estimated indirect costs using a budgeted overhead rate.

Standard Costing

Records estimated direct and indirect costs using budgeted rates and flexible amounts.

Predetermined Overhead Rate (PDOR)

Estimated total overhead divided by estimated volume.

Applied Overhead

Calculated as the predetermined overhead rate multiplied by actual volume.

Underapplied Overhead

Occurs when applied overhead is less than actual overhead.

Overapplied Overhead

Occurs when applied overhead is greater than actual overhead.

Manufacturing Overhead Control Account

Control account tracking actual overhead as debits and applied overhead as credits.

Disposal of Overhead Variance

Methods include adjusted allocation-rate, proration, and writing off to cost of goods sold.

Spoilage

Output that fails to attain specified standards and cannot be reworked.

Rework

Conversion of production rejects into reusable products.

Normal Losses

Expected, uncontrollable losses considered a product cost.

Abnormal Losses

Controllable losses exceeding expected amounts, treated as period expenses.

Normal Spoilage Common to All Jobs

Charged to manufacturing overhead and allocated to all jobs.

Normal Spoilage Attributable to Specific Job

Charged directly to that specific job, increasing its unit cost.

Abnormal Spoilage Treatment

Written off immediately as a period cost or loss.

Full Costing Purpose

Required for financial reporting to reflect both variable and fixed costs.