Job-Order Costing Basics
This type of costing system is used for unique, customized products.
Job Order Costing
This rate is calculated before the period begins to apply overhead to jobs
Pre determined overhead rate
why traditional costing can distort product costs
has the ability to under or over allocate for OH
these activities are performed for every unit produced.
Unit level activities
GAAP requires companies to use this costing method for external financial reporting.
absorption costing
The three main cost components in job-order costing (+ together to get Total Job Cost)
Direct Materials, Direct labor, applied overhead
the formula for calculating the predetermined overhead rate.
Estimated Applied Overhead/ Estimated Activity Rate
This term refers to the percentage of an activity consumed by a particular product
Consumption Ratio
These activities occur each time a batch of products is made, regardless of the number of units.
batch level activities
Under variable costing, this type of cost is not included in product cost but is expensed in the period incurred.
what is fixed overhead
this document tracks the total cost of materials, labor, and overhead for a specific job.
Job order cost sheet
If actual overhead is higher than applied overhead, the company...
This formula is used to calculate the activity rate in ABC costing.
Total OH for Activity/ Total Activity Driver Units
These activities support specific products but are not dependent on the number of units or batches
product sustaining activities
Absorption costing assigns fixed overhead to this account until the product is sold.
what is inventory
The cost flow in job order costing
Raw Mats->Work in Progress Inventory->Finished Goods->Cost of Goods Sold
If actual overhead is lower than applied overhead, the company...
Has over applied the OH and needs to decrease COGS
This formula is used to calculate the Consumption Ratio
Activity usage per product/ total activity usage
Factory maintenance and administrative costs are examples of this highest-level activity driver.
facility sustaining activities
If inventory increases, net income under this costing method will be higher.
what is absorption costing
If actual overhead is $200,000, but the applied overhead is $180,000, the company has this type of variance.
under applied overhaed
A company estimates overhead costs of $500,000 and expects to use 100,000 labor hours. What is the predetermined overhead rate per labor hour?
$5 / hour
A company spends $80,000 on machine setups and performs 400 setups. What is the activity rate per setup?
$200
A company has 1,500 setup hours and two products: Product A uses 600 setup hours, and Product B uses 900 setup hours. What is the consumption ratio for Product A?
40%
A company uses 10,000 units per year of a raw material. It costs $40 per order to place an order, and the carrying cost per unit per year is $5. What is the EOQ?
What is 400 units? (EOQ = √[(2 × 10,000 × 40) / 5])