Definitions Flashcards
Under Applied Overhead
A credit balance in the manufacturing overhead account. Occurring when the amount applied to work in progress is less than the actual.
OverApplied Overhead
A credit balance in the manufacturing overhead account. Occurring when the amount applied to work in progress is more than the actual.
Multiple predetermined Overhead rate
system in which each production department may have its own predetermined overhead rate. Such a system, while more complex, is more accurate because it can reflect differences across departments in how overhead costs are incurred.
processing department
An organizational unit where work is performed on a product and where materials, labor, or overhead costs are added to the product.
equivalent units
The product of the number of partially completed units and their percentage of completion with respect to a particular cost. Equivalent units are the number of complete whole units that could be obtained from the materials and effort contained in partially completed units.
EU = WIP x % Completed so 500 units x 35% complete materials = 175 equivalent Units
FIFO method
A process costing method in which equivalent units and unit costs relate only to work done during the current period.
weighted-average method
A process costing method that blends together units and costs from both the current and prior periods.
Weighted AVG Method
EU = XFER OUT + (WIP x % completed)
equivalent units of production
The units transferred to the next department (or to finished goods) during the period plus the equivalent units in the department’s ending work in process inventory.
sunk cost
A sunk cost has already been incurred and cannot be avoided or changed. It is irrelevant to future decisions.
out-of-pocket cost
An out-of-pocket cost requires a future outlay of cash and is relevant for decision making. Future purchases of equipment involve out-of-pocket costs.
product costs
Costs that are capitalized as inventory because they produce benefits expected to have future value; include direct materials, direct labor, and overhead.,
period costs
Expenditures identified more with a time period than with finished products costs; includes selling and general administrative expenses.
Raw materials inventory
Goods a company acquires to use in making products.
indirect materials
Material used to support the production process but not clearly identified with products or batches of product.
goods in process inventory
Account in which costs are accumulated for products that are in the process of being produced but are not yet complete; also called work in process inventory.
finished goods inventory
Account that controls the finished goods files, which acts as a subsidiary ledger (of the Inventory account) in which the costs of finished goods that are ready for sale are recorded.
Factory overhead
Factory activities supporting the production process that are not direct material or direct labor; also called overhead and manufacturing overhead.
prime costs
Expenditures directly identified with the production of finished goods; include direct materials costs and direct labor costs.
Prime costs = Direct materials + Direct labor.
conversion costs
Expenditures incurred in converting raw materials to finished goods; includes direct labor costs and overhead costs.
Conversion costs = Direct labor + Factory overhead.
manufacturing statement
Report that summarizes the types and amounts of costs incurred in a company’s production process for a period; also called cost of goods manufacturing statement.
value chain
Sequential activities that add value to an entity’s products or services; includes design, production, marketing, distribution, and service.
