Ch. 4 - Job-order and service department costing Flashcards
Absorption costing
A costing method that includes all manufacturing costs – direct materials, direct labour and both variable and fixed overhead – as part of the cost of a finished unit of product.
This term is synonymous with full cost.
Allocation base
A measure of activity such as direct labour-hours or machine-hours that is used to assign costs to cost objects.
Bill of materials
A document that shows the type and quantity of each major item of materials required to make a product.
Cost driver
A factor that causes overhead costs
E.g. machine-hours, beds occupied, computer time, or flight-hours.
Job cost sheet
A form prepared for each job that records the materials, labour and overhead costs charged to the job.
Job-order costing system
A costing system used in situations where many different products, jobs, or services are produced each period.
Multiple predetermined overhead rates
A costing system in which there are multiple overhead cost pools with a different predetermined rate for each cost pool, rather than a single predetermined overhead rate for the entire company. Frequently, each production department is treated as a separate overhead cost pool.
Normal cost system
A costing system in which overhead costs are applied to jobs by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job.
Overapplied overhead
A credit balance in the Manufacturing Overhead account that arises when the amount of overhead cost applied to Work in Progress is greater than the amount of overhead cost actually incurred during a period.
Overhead application
The process of charging manufacturing overhead cost to job cost sheets and to the Work in Progress account.
Plantwide overhead rate
A single predetermined overhead rate that is used throughout a plant.
Predetermined overhead rate
A rate used to charge overhead cost to jobs in production; the rate is established in advance for each period by use of estimates of total manufacturing overhead cost and of the total allocation base for the period.
Process costing system
A costing system used in those manufacturing situations where a single, homogeneous product (such as cement or flour) is produced for long periods of time.
Underapplied overhead
A debit balance in the Manufacturing Overhead account that arises when the amount of overhead cost actually incurred is greater than the amount of overhead cost applied to Work in Progress during a period.
