Cost Accounting Basics Quiz

Accumulation of Basic Cost Elements

• The three basic elements of cost—direct materials, direct labor, and manufacturing overhead—are accumulated by tracking expenses related to specific jobs.
• Direct materials are tracked as they are requisitioned for each job.
• Direct labor costs are recorded based on the time employees spend working on specific jobs, often using time tickets.
• Manufacturing overhead is applied using a predetermined overhead rate, which is based on estimated costs for a specific period.

Companies Using Job Order Costing

• Job order costing is commonly employed by companies that produce unique or custom products, such as construction firms, specialized manufacturing companies, and custom furniture makers.
• Service industries, like law firms or consulting agencies, also utilize job order costing to track costs associated with specific client projects.

Summarization of Job Costs

• A job cost sheet is used to summarize applicable job costs within a job order cost system, detailing each job’s expenses.
• The job cost sheet includes columns for direct materials, direct labor, manufacturing overhead, and total costs, allowing for a comprehensive view of expenditures.

Requirements for Functionality

• For a job order cost system to function properly, it must have accurate tracking of costs associated with individual jobs and a clear method for recording and calculating those costs.
• Accurate estimates of overhead costs and efficient documentation practices are crucial for maintaining the integrity of the costing system.

Three Basic Elements of Cost

• Direct materials: Raw materials used specifically for a job.
• Direct labor: Labor costs for workers directly involved in producing the job.
• Manufacturing overhead: Indirect costs associated with production that cannot be traced directly to specific jobs.