Key Terms
Job Order Costing (JOC)
Tracks costs per individual job or product. Used when goods are custom-made or individual costs are easily traced to ind
Process Costing
Tracks costs per department or production process. Used when products are mass-produced, homogeneous, and continuous.
HYBRID SYSTEMS
Some companies use both. Process costing for mass- produced parts; job order costing for assembling those parts into cus
Manufacturing costs (product costs)
Direct materials + direct labor + manufacturing overhead. Become part of inventory; expensed as COGS when product is sol
Prime costs
Direct materials + direct labor (the primary, directly traceable costs).
Conversion costs
Direct labor + manufacturing overhead Prime costs: Direct materials + direct labor Cost driver: Activity causing overhea
EXPENSE RECOGNITION PRINCIPLE (matching principle)
Costs are expensed when matched to the revenue they generate. A product made in one year but sold the next is carried as
Definition
A subsidiary ledger document created for each individual job. Records all direct materials, direct labor, and applied ov
Materials requisition form
The document used to request materials from raw materials inventory into WIP. Shows items, quantities, and costs.
Time ticket
The document employees use to record hours worked on specific jobs. Used to assign direct labor costs to individual jobs
COST DRIVER
An activity that causes overhead costs to increase or decrease. Has a cause-and-effect relationship with incurred costs.
Common cost drivers
Direct labor hours, direct labor dollars, machine hours, units produced.
Raw materials inventory
Beginning RM inventory + Purchases = RM available for use - Ending RM inventory = Direct materials used in production
Work in process inventory
Beginning WIP + Direct materials used + Direct labor + Applied overhead = Total manufacturing costs in process - Ending
Finished goods inventory
Beginning FG inventory + COGM = FG available for sale - Ending FG inventory = Cost of goods sold (COGS)