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conversion costs
total of labor and overhead for a product; the costs that “convert” the direct material into the finished product
cost driver
activity that is the reason for the increase or decrease of another cost; examples include labor hours incurred, labor costs paid, amounts of materials used in production, units produced, machine hours, or any other activity that has a cause-and-effect relationship with incurred costs
cost of goods manufactured
manufacturing costs incurred less the ending work in process inventory
cost of goods sold
expense account that houses all costs associated with getting a product ready for sale
direct labor
labor directly related to the manufacturing of the product or the production of a service
direct materials
materials used in the manufacturing process that can be traced directly to the product
estimated activity base
total amount of the activity for the year
expense recognition principle
(also, matching principle) matches expenses with associated revenues in the period in which the revenues were generated
indirect labor
labor not directly involved in the active conversion of materials into finished products or the provision of services
indirect materials
materials used in production but not efficiently traceable to a specific unit of production
job cost sheet
document created for each job that includes all material, labor, and overhead costs for that job
job order costing
information system that traces the individual costs directly to the final product and not to production departments
loss leader
product sold at a price that is often less than the cost of producing it in order to entice customers to buy accessories that are necessary for its use
manufacturing costs
total of all costs expended in the manufacturing process; generally consists of direct material, direct labor, and manufacturing overhead
manufacturing overhead
costs incurred in the production process that are not economically feasible to measure as direct material or direct labor costs; examples include indirect material, indirect labor, utilities, and depreciation
materials requisition form
form showing which specific raw materials and costs are transferred from raw materials inventory to work in process inventory
operating overhead
overhead account used for service industries
overapplied overhead
situation when the overhead applied to the individual jobs is greater than the actual overhead; when overhead is overapplied, the manufacturing overhead has a credit balance
period costs
typically related to a particular time period instead of attached to the production of an asset; treated as an expense in the period incurred (examples include many sales and administrative expenses)
prime costs
direct material expenses and direct labor costs
time ticket
document used to record the particular job worked on by each employee
underapplied overhead
situation when the overhead applied to the individual jobs is less than the actual overhead; when overhead is underapplied, the manufacturing overhead has a debit balance
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