Chapter 4 study cards Flashcards
Cost Assignments
The general process of assigning both direct and indirect costs to a cost object (product, service, or job).
Direct Costs: Can be traced directly to a cost object.
Indirect Costs: Cannot be directly traced and must be allocated.
Cost Tracing
The process of assigning direct costs to a cost object.
DM or DL costs traced to a job
Cost Allocation
The process of assigning indirect costs to a cost object using a cost-allocation base.
Allocating factory rent (indirect cost) based on machine hours used.
Cost Pool
Grouping indirect cost items together to simplify their allocation.
Manufacturing Plant Costs: Rent, utilities, and maintenance.
Machine Operating Costs: Costs tied to specific machines.
Cost-Allocation Base
A systematic way to link an indirect cost to a cost object based on an activity driver.
Using direct labor hours (DLH) to allocate manufacturing overhead costs.
Job Costing
A costing system for distinct products or services, where each job uses a different amount of resources.
Specialized machine made at Samsung or a custom repair at an Audi service center.
Process Costing
A costing system used when a company produces many identical products or services.
A bank processing deposits for customers.
Normal Costing
Allocating overhead using a predetermined (budgeted) indirect-cost rate throughout the year.
Budgeted Indirect cost rate formula
Budgetedindirectcostrate=
Budgetedannualindirectcost/Budgetedannualquantityofallocationbase
Seven-Step Method to Compute Job Costs
Identify the Job (Cost Object)
Identify Direct Costs
Select Cost-Allocation Bases
Identify Indirect Costs
Compute the Indirect Cost Allocation Rate
Allocate Indirect Costs
Compute the Total Job Cost by adding direct and allocated indirect costs.
To Compute Indirect Cost Allocation Rate (MOH Rate)
Formula
MOH rate= Budgeted total MOH cost/ Budgeted total cost allocation base
To Compute Indirect Costs Allocated to a Cost Object
Formula
Indirectcostallocated=MOHRate× Actualallocationbaseactivity
Accounting for Overhead - Journal Entries
Manufacturing OH Control (Debit): Records actual overhead costs (utilities, maintenance).
Manufacturing OH Allocated (Credit): Records predetermined (budgeted) overhead applied to production.
Overhead Imbalance
Under allocated OH
Actual costs > Allocated costs (more overhead costs incurred than allocated).
Overhead Imbalance: Overallocated OH:
Actual costs < Allocated costs (more overhead was allocated than actually incurred).
