Chapter 5 Flashcards
manufacturing firms
combines direct materials, direct labor, and overhead to produce a new product
the good produced is tangible and can be inventoried and transported
service firms
service is characterized by its intangible nature
–not separable from the customer and cannot be inventoried
intangibility
nonphysical nature of services as opposed to products
inseparability
production and consumption are inseparable for services
heterogeneity
refers to greater variation in the performance of services than production of products
perishability
means that services cannot be inventoried but must be consumed when performed
job-order costing
used for unique units with unique costs of production
operation costing
a hybrid of job-order and process costing
process costing
used when units are homogeneous
cost accumulation
refers to the recognition and recording of costs
- -source docs
- ->describe transactions
cost measurement
refers to classifying or organizing costs in a meaningful way
–actual vs. normal
actual costing
uses actual direct material, direct labor, and overhead
normal costing
uses actual direct materials and direct labor but applies overhead using predetermined overhead rates or activity rates
cost assignment
refers to association of production costs with the units produced
expected activity level
production level the firm expects to attain for the coming year
normal activity level
average activity usage that a firm experiences in the long term
theoretical activity level
absolute maximum production activity of a manufacturing firm
practical activity level
maximum output that can be realized if everything operates efficiently
job-order cost sheet
identifies each job and accumulates its manufacturing costs
collection of all job cost sheets defines a WIP inventory file
materials requisitions
source doc used to assign direct materials cost to a job
job time tickets
source doc used to assign direct labor cost to each job
overhead application
jobs are assigned overhead costs with a predetermined overhead rate
–typically direct labor hours are used as the measure to calculate overhead
schedule of cost of goods manufactured
schedule summarizing the cost flows through the production activity is prepared
normal spoilage
if not caused by any particular job, it is subsumed in the overhead rate and spread across all jobs through applied overhead
–if caused due to exacting nature of the job, the extra cost is added to that job’s cost
abnormal spoilage
unexpected and not part of normal operations
–charged to loss from abnormal spoilage
