Systems Design: Job-Order Costing

Chapter 3: Systems Design: Job-Order Costing

Absorption costing: A costing method that includes all manufacturing costs --- direct materials, direct labor, and both variable and fixed manufacturing overhead – in the cost of a product.

Allocation base: A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.

Bill of materials: A document that shows the quantity of each type of direct material required to make a product.

Cost driver: A factor, such as machine-hours, beds occupied, computer time, or flight-hours, that causes overhead costs.

Job cost sheet: A form prepared for a job that records the materials, labor, and manufacturing overhead costs charged to that job.

Job-order costing system: A costing system used in situations where many different products, jobs, or services are produced each period.

Materials requisition form: A detailed source documents that specifies the type and quantity of materials to be drawn from the storeroom and that identifies the job that will be charged for the cost of those materials.

Multiple predetermined overhead rates: A costing system with multiple overhead cost pools with a different predetermined overhead rate for each cost pool, rather than a single predetermined overhead rate for the entire company. Each production department is often treated as a separate overhead cost pool.

Normal cost system: A costing system in which overhead costs are applied to a job by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job.

Overapplied overhead: A credit balance in the Manufacturing Overhead account that occurs when the amount of overhead cost applied to Work in Process exceeds the amount of overhead cost actually incurred during a period.

Overhead application: The process of charging manufacturing overhead cost to job cost sheets and to the Work in Process account.

Plantwide overhead rate: A single predetermined overhead rate that is used throughout a plant.

Process costing system: A costing system used in situations where a single, homogeneous product (such as cement or flour) is produced for long periods of time.

Time ticket: A detailed source document that is used to record the amount of time an employee spends on various activities.

Underapplied overhead: A debit balance in the Manufacturing Overhead account that occurs when the amount of overhead cost actually incurred exceeds the amount of overhead cost applied to Work in Process during a period.