Cost Accounting Exam 1 — Key Vocabulary 2

Flashcards summarizing fundamental cost-accounting vocabulary from Chapters 14, 15, and 17 to prepare for Exam 1.

Direct Costs

Expenses that can be directly traced to a specific cost object, such as a product or job.

Direct Materials

Physical parts that become an integral component of the finished product (e.g., tires and engine in a car).

Direct Labor

Wages paid to employees who physically convert materials into finished goods.

Indirect Costs (Factory Overhead)

Production-supporting costs that cannot be traced directly to a specific product.

Indirect Materials

Low-cost materials used across many products (e.g., glue, screws, tape).

Indirect Labor

Employee wages for those who support production but do not work directly on the product (e.g., supervisors, assistants).

Other Factory Overhead

Non-labor, non-material overhead such as rent, utilities, depreciation, etc.

Product Costs

All manufacturing costs—direct materials, direct labor, and factory overhead—capitalized as inventory until sold.

Period Costs

Non-manufacturing expenses recognized in the period incurred (selling and general & administrative).

Selling Expenses

Costs related to marketing and delivering products, such as advertising and salesperson salaries.

General & Administrative Expenses

Office-related costs for overall company operations (office wages, insurance, utilities, etc.).

Work in Process (WIP) Inventory

Account holding costs of products that are partially completed but not yet finished.

Manufacturing Costs

Sum of direct materials used, direct labor, and factory overhead for a period.

Cost of Goods Manufactured (COGM)

Total production cost of goods completed during the period and transferred out of WIP.

Finished Goods Inventory

Cost of completed products awaiting sale.

Cost of Goods Sold (COGS)

Cost assigned to goods that were sold during the period.

Gross Profit

Sales revenue minus cost of goods sold.

Net Income

Profit after subtracting COGS, selling, and general & administrative expenses from sales.

Current Assets

Cash, accounts receivable, inventory, and prepaid expenses expected to be converted to cash within one year.

Raw Materials Inventory

Stock of materials on hand that have not yet entered the production process.

Schedule of Cost of Goods Manufactured

Formal statement reconciling WIP to calculate COGM for the period.

Job Order Costing

Costing system that accumulates costs by individual job or batch.

Applied Overhead

Amount of overhead assigned to production using a predetermined rate.

Predetermined Overhead Rate

Estimated overhead divided by an estimated activity base, set before the period begins.

Overhead Rate

Factor used to allocate overhead; may be plantwide, departmental, or activity-based.

Underapplied Overhead

Actual overhead exceeds applied overhead; debit balance in Factory Overhead.

Overapplied Overhead

Applied overhead exceeds actual overhead; credit balance in Factory Overhead.

Overhead Variance

Difference between actual and applied overhead (actual − applied).

Plantwide Overhead Rate

Single overhead rate used for the entire factory, based on one allocation base.

Allocation Base

Measure such as direct labor hours or machine hours used to distribute overhead costs.

Departmental Overhead Rate

Separate overhead rate computed for each production department to improve allocation accuracy.

Activity-Based Costing (ABC)

System that allocates overhead using multiple activity rates based on specific activities.

Activity Rate

Budgeted cost of an activity divided by its budgeted activity usage.

Unit-Level Activity

Activity performed for each individual unit produced.

Batch-Level Activity

Activity performed once per batch or group of units (e.g., machine setup).

Product-Level Activity

Activity that supports a specific product line regardless of volume (e.g., product design).

Facility-Level Activity

General activities that support the overall production process (e.g., plant maintenance).

Factory Overhead Account

Temporary ledger account that accumulates actual overhead and is cleared by applied overhead.