Module 2: Job Order Costing Flashcards
Inventory:
Goods purchased by a business for resale to customers.
Job order costing system:
An accounting system that accumulates costs by job. Used by companies that manufacture unique products or provide specialized services. May be a unit or a batch of units.
Raw materials:
Materials used to manufacture a product.
Financial statements:
Business documents that are used to communicate information needed to make business decisions.
Manufacturing overhead (MOH):
All manufacturing costs other than direct materials and direct labor; also called factory overhead and manufacturing cost.
Allocation base:
The denominator that links overhead costs to the products.
Cash flows:
Cash receipts and cash payments of a business.
Depreciation:
Allocation of the cost of a long-term asset to expense over its useful life.
Cost Accounting System:
Used to accumulate product cost information.
How can the cost accounting system help managers?
It helps managers on:
- setting product prices;
- computing the cost of goods sold;
- computing the cost of inventory.
How is the cost accounting information used?
Cost Accounting Information is used to plan and control the cost of resources needed to create a product, and deliver it to a costumer.
What is an ERP-system?
Enterprise resource planning (ERP) refers to a type of software that organizations use to manage day-to-day business activities such as accounting, procurement, project management, risk management and compliance, and supply chain operations.
Process costing system:
An accounting system that accumulates costs by process. Used by companies that produce large quantities of similar products.
What are the steps in the four-step method to track product costs and their definitions?
Step 1: Accumulate costs by the accounting system;
Step 2: Assign costs to different products or services;
Step 3: Allocate costs (specifically for moh) to jobs or products;
Step 4: Adjust costs for overhead. -> Overhead allocated throughout the period might not equal to the actual overhead.
Cost allocation system:
A cost allocation system is a process for assigning costs to the differnt businesses, departments or products that benefit from those costs.
Fixed costs:
Remain the same from month to month, no matter how the company´s production or sale volume fluctuates. (Renting equipment, supervisor´s salary)
Variable costs:
Increase when sales or production volumes goes up and vice-versa. (Maintenance of equipment)
Overhead costs:
Are not part of producing a good or service, but the benefit a business as a whole. (Advertising, insurance)
Job Cost Record:
A document that shows the direct materials, direct labour and manufacturing overhead costs for an individual job.
What is the main issue with tracking manufacturing overhead?
Manufacturing overhead cannot be traced to specific jobs.
Allocation Base:
A denominator that links indirect costs to cost objects. Ideally, the allocation base is the primary cost driver of the indirect costs.
Cost Driver:
The primary factor that causes a cost to increase or decrease.
What is cost of goods manufactured? Describe the flow of this cost through the job order costing system. Your answer should include the accounts involved and whether the flow involves a debit or credit.
When a job is completed, the costs are transferred out of Work-in-Process Inventory with a credit and transferred into Finished Goods Inventory with a debit. This amount is called Cost of Goods Manufactured.
What is cost of goods sold? Describe the flow of this cost through the job order costing system. Your answer should include the accounts involved and whether the flow involves a debit or credit.
When the job is sold, the costs are transferred out of Finished Goods Inventory with a credit and transferred into Cost of Goods Sold with a debit. This amount is the job’s cost of goods sold. Cost of Goods Sold is an expense on the income statement.
Predetermined Overhead Allocation Rate:
Estimated overhead cost per unit of the allocation base calculated at the beginning of the accounting period.
