Ch3 Flashcards
Job Costing
- Used mainly for customized product or service
- Tracks and assigns costs to individual jobs
Process Costing
- Used for a homogeneous product produced on a continuous basis
- Track and assign costs to processes
- Then assign costs to each product that passes through the process
Operations Costing
- A hybrid of job and process costing
- Used by manufacturers who make products in batches
What costs are included in the cost of a product?
DM (Direct Material)
DL (Direct Labor)
MOH (Manufacturing Overhead)
Cost pool
is a collection of individual costs, typically by some “logical” grouping.
Cost Pools gather the $$$
Plant wide
Department (or service center)
Activity
Examples
Maintenance Department
Building costs
(Rent, Insurance, Taxes, etc.)
Cost allocations (assignments) are then made from the cost pool.
E.g. cost of the Maintenance Department is accumulated in a cost pool and then allocated to those departments or activities using its services.
Cost Drivers – to “drive” (or empty) the pool of its $$$
Machine hours
Direct labor hours
Square footage
Normal Costing
- Actual amount of DM (direct materials)
- Actual amount of DL (direct labor)
- Applied amount of MOH (manufacturing overhead)
Predetermined Overhead Rate
Estimated overhead $$$ for a cost pool/
Estimated units of the cost driver
“Applied” MOH Calculation
POHR x Actual units of cost driver
Job Costing
Companies that manufacture customized products or provide customized services
use a costing system called job costing.
This method accumulates, tracks, and assigns costs for each job.
Indirect materials are not listed separately but allocated as…
overhead.
As ___________ are used in a particular job they are recorded in the report.
Raw Materials.
Service Firm typically have minimum direct cost under…
Job Costing
Direct Labor Cost
Direct labor cost=
wage rate x number of hours that each employee works on each product
Wage rate must include the cost of
Fringe Benefits
Idle Time
Most companies treat as part of overhead rather than assigning the cost to a particular job.
Overtime Premiums
- If incurred from production problems, it’s overhead.
- If incurred due to rush orders, it’s usually direct labor for the job.
Manufacturing Overhead
- MOH is most difficult cost to track and assign to products
- Indirect in nature
- Made up of many unrelated costs
Measuring and Tracking Manufacturing Overhead
Overhead (MOH) cannot be directly tracked to products and services
- First … “SUM UP” all the MOH $$$
- Then must instead be “allocated” or “assigned” using cost drivers
Manufacturing Overhead Costs to “SUM UP” (examples)
Rent Depreciation Repairs and Maintenance Utilities Indirect Labor Indirect Materials
The choice of cost driver depends on
the specific company and the processes it uses to manufacture products and provide services to customers.
Over Head Rate =
Manufacturing Overhead/Cost Driver
POHR
for cost pool
Estimated overhead for cost pool/
Estimated units of cost driver
Application of Overhead to Products=
Estimated Overhead/
Estimated Allocation Base
Because overhead is applied to products using predetermined overhead rates based on estimates…
….it is likely that actual overhead costs (when they become known) will differ from those applied.
If applied overhead is greater than actual overhead:
overapplied overhead.
If the applied overhead is less than actual overhead:
underapplied overhead.
Actual overhead cost is found on which side of the T chart
Credit
If the amount of underapplied overhead is considered material
it would be allocated to WIP, finished goods, and cost of goods sold as follows:
Job Order Costing
- Each Job is different
- Cost are accumulated by job
- Cost are captured on a job cost sheet
- Unit costs are computed
Process Costing
All product are identical
Cost are accumulated on a dept production report
Costs are accumulated on a department production report
Unit costs are computed by department
Basic Process Costing:
Direct Material Costs
Tracked by department & assigned evenly as products pass through
Basic Process Costing:
Tracked by department & assigned evenly as products pass through
Operations costing
is a hybrid of job and process costing, for companies that make large numbers of products that are standardized within a batch.
Operation costing is most applicable to
more complex manufacturing environments that require a mix of different types of production processes in order to create goods.
