week 5 Flashcards
(9 cards)
Two approaches of cost accounting
- A job order costing system accumulates costs for each batch, or job
- A process costing system accumulates the costs of each process needed to complete the product
cost tracing
Accountants use cost tracing to assign directly traceable costs, such as direct materials and direct labour, to the product
cost allocation
accountants use cost allocation to assign manufacturing overhead and other indirect costs to the product
job order costing system
A job order costing system tracks costs as raw materials move from the storeroom to the production floor to finished products
The company starts the job cost record when work begins on the job
job order costing system
For jobs started but not yet finished,
For jobs started but not yet finished, the job cost records show costs that accumulate as costs are added to the Work in process (WIP) inventory
job order costing system
when the company finishes a job
When the company finishes a job, the company totals the costs and transfers costs from the Work in process inventory to the Finished goods inventory
job order costing system
When the job’s units are sold
When the job’s units are sold, the costing system moves the costs from the Finished goods inventory, an asset, to Cost of sales, an expense
The total debits to the Manufacturing overhead account rarely equal the total credits
The reason for this is that the predetermined manufacturing overhead rate is based on estimates
The predetermined manufacturing overhead rate represents the expected relationship between overhead costs and the allocation base. It can be under-allocated or over-allocated
The total debits to the Manufacturing overhead account rarely equal the total credits
what do accountants do?
Accountants adjust under-allocated and over-allocated overhead at the end of the period when closing the Manufacturing overhead account
