A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in unit product costs.
Absorption costing
A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.
Allocation base
The manufacturing costs associated with units of product that were finished during the period.
Cost of goods manufactured (COGM)
Units of product that have been completed but not yet sold to customers.
Finished goods (FG)
A form that records the direct materials, direct labor, and manufacturing overhead cost charged to a job.
Job cost sheet
A costing system used in situations where many different products, jobs, or services are produced each period (as opposed to mass production of homogeneous goods)
Job-order costing
A costing system in which overhead costs are applied to a job by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job (as opposed to using quantity and price standards)
Normal cost system
A credit balance in the Manufacturing Overhead account that occurs when the amount of overhead cost applied to Work in Process is greater than the amount of overhead cost actually incurred during a period.
Overapplied overhead
The process of assigning overhead cost to specific jobs.
Overhead application/applying overhead
A rate used to charge MOH cost to jobs that is established in advance for each period. It is computed by dividing the estimated total MOH cost for the period by the estimated total amount of the allocation base for the period.
Predetermined overhead rate (POHR)
Any materials that go into the final product.
Raw materials
A schedule that contains three elements of product costs—DM, DL, and MOH—and that summarizes the portions of those costs that remain in ending FG inventory and that are transferred out of FG into COGS.
Schedule of cost of goods sold
A debit balance in the Manufacturing Overhead account that occurs when the amount of overhead cost applied to Work in Process is less than the amount of overhead cost actually incurred during a period.
Underapplied overhead
Units of product that are only partially complete and will require further work before they are ready for sale to the customer.
Work in process
The manufacturing costs associated with units of product that were finished and sold during the period.
Cost of goods sold (COGS)
A schedule that contains three elements of product costs—DM, DL, and MOH—and that summarizes the portions of those costs that remain in ending WIP inventory and that are transferred out of Work in Process into Finished Goods.
Cost of goods manufactured (COGM)
