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Accounting: Difference between revisions
→Lesson 2 Job costing and overheads: adding notes of the 1st half of the lesson
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=== Lesson 2 [[w:Job costing|Job costing]] and [[w:overheads|overheads]] === | === Lesson 2 [[w:Job costing|Job costing]] and [[w:overheads|overheads]] === | ||
* In [[w:Production (economics)|production]], [[w:research|research]], [[w:retail|retail]], and [[w:accounting|accounting]], a '''[[w:cost|cost]]''' is the value of [[w:money|money]] that has been used up to produce something, and hence is not available for use anymore. ( Wikipedia ) | |||
* '''[[w:Job costing|Job costing]]''' involves the calculation of costs involved in a construction "job" or the manufacturing of goods done in discrete batches. These costs are recorded in ledger accounts throughout the life of the job or batch and are then summarized in the final trial balance before the preparing of the job cost or batch manufacturing statement. ( Wikipedia ) | * '''[[w:Job costing|Job costing]]''' involves the calculation of costs involved in a construction "job" or the manufacturing of goods done in discrete batches. These costs are recorded in ledger accounts throughout the life of the job or batch and are then summarized in the final trial balance before the preparing of the job cost or batch manufacturing statement. ( Wikipedia ) | ||
* An '''[[w:overhead|overhead]]''' or '''overhead expense''' refers to an ongoing [[w:expense|expense]] of operating a business; it is also known as an "operating expense". Examples include rent, gas, electricity, and labour burden. The term ''overhead'' is usually used when grouping expenses that are necessary to the continued functioning of the business but cannot be immediately associated with the products or services being offered (i.e., do not directly generate [[w:profit (accounting)|profit|]]s). ( Wikipedia ) | * An '''[[w:overhead|overhead]]''' or '''overhead expense''' refers to an ongoing [[w:expense|expense]] of operating a business; it is also known as an "operating expense". Examples include rent, gas, electricity, and labour burden. The term ''overhead'' is usually used when grouping expenses that are necessary to the continued functioning of the business but cannot be immediately associated with the products or services being offered (i.e., do not directly generate [[w:profit (accounting)|profit|]]s). ( Wikipedia ) | ||
* '''[[w:Costs|Costs]]''': | |||
::* '''[[w:Direct cost|Direct cost]]s''' are costs that can easily be associated with a particular cost object.( Wikipedia on [[w:variable cost|variable cost]] ) | |||
::* '''[[w:Indirect costs|Indirect costs]]''' are costs that are not directly accountable to a [[w:cost object|cost object]] (such as a particular project, facility, function or product). Indirect costs may be either fixed or variable. Indirect costs include administration, personnel and security costs. These are those costs which are not directly related to production. Some indirect costs may be [[w:overhead (business)|overhead]]. But some overhead costs can be directly attributed to a project and are direct costs. | |||
::* '''Unallocated [[w:cost|cost]]''' | |||
* '''[[w:Cost pool|Cost pool]]s''' is an [[w:Accountancy|accounting]] term that refers to groups of accounts serving to express the [[w:cost|cost]] of goods and service allocatable within a business or manufacturing organization. The principle behind the pool is to correlate direct and indirect costs with a specified cost driver, so to find out the total sum of [[w:expense|expense]]s related to the manufacture of a product. ( Wikipedia ) | |||
* '''[[w:Cost allocation|Cost allocation]]''' is a process of providing relief to shared service organization's [[w:Cost center (business)|cost center]]s that provide a product or service. In turn, the associated expense is assigned to internal clients' [[w:Cost center (business)|cost center|]]s that consume the products and services. ( Wikipedia ) | |||
* '''[[w:Manufacturing overhead costs|Manufacturing overhead costs]]''' ('''MOH cost''') are all manufacturing costs that are related to the cost object (work in process and then [[w:finished good|finished good]]s) but cannot be traced to that cost object in an economically feasible way. ( Wikipedia ) | |||
:::Examples include supplies, indirect materials such as lubricants, indirect manufacturing labor such as plant maintenance and cleaning labor, plant rent, plant insurance, [[w:property tax|property tax]]es on the plant, plant depreciation, and the compensation of plant managers. | |||
:::This cost category is also referred to as '''[[w:Factory overhead|Factory overhead]] cost''' ('''FO cost'''). ( Wikipedia ) | |||
* A '''[[w:pre-determined overhead rate|pre-determined overhead rate]]''' or '''[[w:POHR|POHR]]''' is the rate used to apply [[w:manufacturing|manufacturing]] [[w:business process overhead|overhead]] to work-in-process [[w:inventory|inventory]]. | |||
:::The pre-determined overhead rate is calculated before the period begins. The first step is to estimate the amount of the [[w:Activity-based costing|activity base]] that will be required to support operations in the upcoming period. | |||
:::The second step is to estimate the total [[w:manufacturing cost|manufacturing cost]] at that level of activity. | |||
:::The third step is to compute the predetermined overhead rate by dividing the estimated total [[w:manufacturing overhead costs|manufacturing overhead costs]] by the estimated total amount of [[w:cost accounting|cost driver]] or [[w:Activity-based costing|activity base]]. | |||
:::Common activity bases used in the calculation include direct [[w:cost|labor costs]], direct [[w:Working time|labor hours]], or [[w:machine|machine]] hours. ( Wikipedia ) | |||
* [[w:Direct materials cost|Direct materials cost]] + [[w:direct labor cost|direct labor cost]] + [[w:manufacturing overhead|manufacturing overhead]] -> [[w:work in progress|work in progress]] -> [[w:finished goods|finished goods]] -> [[w:cost of goods sold|cost of goods sold]] | |||
=== Lesson 3 Activity based costing === | === Lesson 3 Activity based costing === | ||