CHAPTER 4 Flashcards
Product Costing System
a system that accumulates product-related costs and uses a series of procedures to assign them to the organisations final products.
Production Cost
the costs incurred during the production process.
Current product costs
recorded in the ledger.
E.g. inventory valuation
Future product costs
Estimates
e.g. decision making
Manufacturing costs consist of what three components?
- Direct Material
- Direct labour
- Manufacturing overhead
Raw material inventory
an account that records the cost of the major materials that will be used in production.
Current Asset
Work in process inventory
an account that records the cost of products that are only partially complete at balance date.
Allocation base - calculate a predetermined overhead rate per unit of cost driver:
= Budgeted overhead/ Budgeted level of cost driver
Predetermined overhead rate
an estimate of the overhead resources to be consumed per unit of cost driver
Actual manufacturing overhead
the manufacturing overhead costs incurred in production
Applied manufacturing overhead
an estimate of the overhead resources used to manufacture a product.
Overapplied overhead
the amount by which the total manufacturing overhead applied to production is greater than the total of the actual overhead costs incurred.
Underapplied overhead
the amount by which the total manufacturing overhead applied to production is less than the total of the actual overhead costs incurred.
Proration
the allocation of underapplied or overapplied overhead between cost of goods sold, work in process and finished goods
