Job Order Costing


allocation base

standard unit that provides the system for the way overhead costs of a product or service are divided

cost center

department, unit, or section within a business that requires money to operate

cost driver

factor that causes a company to spend money because it affects volume or activity levels or both

direct labor

hours spent producing a product or providing a service that can easily be traced to the product or service

direct materials

raw goods that can be traced directly to or easily identified with a product

job cost sheet

document used to record the expenses of a product or service completed using job order costing

job order costing

system companies use when they can trace costs to a specific product or service

manufacturing overhead

indirect, factory-related production costs that come from making an item

multiple predetermined overhead rates

system in which each department or product has a different amount charged to it for a fixed cost, depending on the production processes

normal costing

calculation of cost of a product by adding the actual direct materials cost, the actual direct labor, and overhead based on a predetermined overhead rate

overhead application

assigning a fixed cost to a product based on a predetermined overhead rate or other calculation, such as actual costs

plantwide overhead rate

single amount used across all production processes to charge indirect, factory-related production costs to items

predetermined overhead rate

estimated ratio established before an accounting period begins and used to allocate costs involved in producing goods or services. The accountant calculates it by dividing the estimated manufacturing overhead costs for the accounting period by the allocation base.

process costing

system used when large quantities of similar products are manufactured and expenses are applied to a series of actions instead of an individual product

sales and administrative costs

expenses related to marketing a company's products or services and general management of the company

time sheet

paper sheet or spreadsheet employees use to record the amount of time they spent working on a job

variable cost

expense that increases or decreases with the level of production

work in process (WIP) inventory

asset account representing the costs in inventory that are not yet complete as of the end of the accounting period