ACC 212 Lecture Notes - Lecture 2: Cost Driver, Earnings Before Interest And Taxes, Income Statement

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Direct materials and labor costs are charged to each job as work is performed. Manufacturing overhead (indirect materials and labor) are allocated to all jobs instead of just assigned to one specific one. Using an allocation base: direct labor dollars of machine hours is used to assign manufacturing overhead to certain jobs, we use one because: It"s i(cid:373)possi(cid:271)le to tra(cid:272)e o(cid:448)erhead to parti(cid:272)ular jo(cid:271)s: manufacturing overhead consists of many different items, many types of overhead costs are fixed even though output fluctuates, the predetermined overhead rate used to apply overhead to jobs is determined. Before the period begins: estimate total manufacturing overhead cost/estimate total units in allocation base, allocation base is a cost driver that causes overhead, used (cid:271)e(cid:272)ause a(cid:272)tual o(cid:448)erhead for period is(cid:374)"t k(cid:374)o(cid:449)(cid:374) u(cid:374)til e(cid:374)d, and they can fluctuate seasonally. Inaccurately assigning manufacturing costs to jobs adversely influences planning and decisions made by managers. Job-order costing systems can accurately trace direct materials and labor costs to jobs.

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