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.

Test your knowledge of cost accounting basics with this quiz. Topics covered include job order costing, process costing, and multiple products costing systems.