Chapter 2 Flashcards
Companies assign costs to their products for two main reasons
1) Planning, Controlling, and Decision Making
2) Financial Reporting Purposes
Absorption Costing
Product units said to fully absorb manufacturing costs
All and only manufacturing costs are assigned to units
Required by GAAP
Name the two Absorption Costing Systems
Job Order Costing
Process Costing
When are Job Order Costing Systems Used
Many products are produced each period
Products are manufactured to order (customer places orders upfront)
Give examples of companies that would use job order costing
Ship Builder, Airplane manufacturer, hospitals
Difference between Made to Stock and Made to Order
Made to Stock production technique involves manufacturing goods based on anticipated consumer demand, the Made to Order (MTO) strategy allows shoppers to purchase goods that are assembled to order and have been customized to their specifications.
Job Order Costing Key Point
Charge direct material and direct labor costs to each job as work is performed
True or False: Manufacturing Overhead including indirect materials and indirect labor are allocated to all jobs rather than directly traced
True
Formula for Direct Materials Cost
Quantity * Unit Cost
Formula for Direct Labor Cost
Hours Completed * Hourly Rate
What is used to assign manufacturing overhead costs to individual jobs
Cost Allocation
What is the allocation base
Direct Labor Hours, Direct Labor-Dollars, Machine Hours
The allocation base is what
a cost driver that causes manufacturing overhead
Why do we use an allocation base
a. It is impossible to trace over head costs to particular jobs
b. Manufacturing overhead consists of many different items ranging from the grease used in machines to the production managers salary
Applying Manufacturing Overhead
