Cost acc chapter 2 notes PDF

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Chapter 2 notes, contains bulleted list of important topics covered in the chapter....

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Cost Accounting Chapter 2 o Companies assign costs to their objects for two reasons: helps fulfill planning, controlling, and decision making responsibilities, also it helps them determine the value of ending inventories and COGs. o Absorption costing- all manufacturing costs, both fixed and variable, are assigned to units of product- units are said to fully absorb manufacturing costs. All nonmanufacturing costs are treated as period costs and are not assigned to units of product. o Job order costing- used in situations where many different products are produced each period. o Bill of materials- document that lists the quantity of each type of direct material needed to complete a unit of product. o Materials requisition form- document that specifies the type and quantity of materials to be drawn from the storeroom and IDs the job that will be charged for the cost of the materials. o Direct labor consists of labor charges that are easily traced to a particular job. o Labor charges that cant be easily traced to specific jobs are treated as part of manufacturing overhead. o Assigning manufacturing overhead to a specific cost is complicated by: 1. Because it is an indirect cost. 2. Because it consists of many different types of costs. 3. Many companies have large amounts of fixed manufacturing overhead. o Allocation base- measure such as direct labor hours that is used to assign overhead costs to products and services. Predetermined overhead rate = estimated total manufacturing overhead cost/estimated total amount of the allocation base. The estimated total manufacturing overhead cost = the estimated total fixed manufacturing overhead cost + (estimated variable manufacturing overhead cost PER UNIT of the allocation base*estimated total amount of the allocation base). Overhead applied to a particular job = predetermined overhead rate * actual direct labor hours worked on the job o Overhead assigned to the job is simply a share of the total overhead that was estimated at the beginning of the year o Normal cost system- applies overhead cost to jobs by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the jobs. Unit product cost = total product cost/number of units o Managers may use job cost information to make pricing decisions

o Cost plus pricing- managers establish a markup percentage they believe will generate enough revenue to cover all of a jobs manufacturing costs and a portion of the companys nonmanufacturing costs, while generating some residual profit. o Job order costing systems often fail to accurately allocate the manufacturing overhead costs used during the production process. o Cost driver- factor, similar to allocation base o Plantwide overhead rate- single predetermined overhead rate o Multiple predetermined overhead rate- uses more than one overhead rate to apply overhead costs to a job o A multiple system is more accurate because it reflects differences across departments in terms of how jobs consume overhead costs. o Activity based costing- When a company creates overhead rates based on the activities that it performs o Underapplied overhead- when a company applies less overhead to production than it actually incurs. o Overapplied overhead- when it applies more overhead to production than it actually incurs o Job cost sheet- accumulates the total direct materials, direct labor, and manufacturing overhead costs assigned to a job Cost of job = direct materials + direct labor + predetermined overhead rate*direct labor costs...