| activity base (or cost driver) | A measure of an organization's activity that is used as a basis for specifying cost behavior. The activity base also is used to compute a predetermined overhead rate. The current trend is to refer to the activity base as a volume-based cost driver.
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| activity-based costing (ABC) system | A two-stage procedure used to assign overhead costs to products or services produced. In the first stage, significant activities are identified, and overhead costs are assigned to activity cost pools in accordance with the way resources are consumed by the activities. In the second stage, the overhead costs are allocated from each activity cost pool to each product line in proportion to the amount of the cost driver consumed by the product line.
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| actual costing | A product-costing system in which actual direct-material, direct-labor, and actual manufacturing-overhead costs are added to Work-in-Process Inventory.
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| actual manufacturing overhead | The actual costs incurred during an accounting period for manufacturing overhead. Includes actual indirect material, indirect labor, and other manufacturing costs.
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| actual overhead rate | The rate at which overhead costs are actually incurred during an accounting period. Calculated as follows: actual manufacturing overhead ÷ actual cost driver (or activity base).
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| applied manufacturing overhead | The amount of manufacturing-overhead costs added to Work-in-Process Inventory during an accounting period.
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| bill of materials | A list of all the materials needed to manufacture a product or product component.
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| cost distribution (sometimes called cost allocation) | The first step in assigning manufacturing-overhead costs. Overhead costs are assigned to all departmental overhead centers.
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| cost of goods manufactured | The total cost of direct material, direct labor, and manufacturing overhead transferred from Work-in- Process Inventory to Finished-Goods Inventory during an accounting period.
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| cycle time | See throughput time.
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| departmental overhead center | Any department to which overhead costs are assigned via overhead cost distribution.
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| departmental overhead rate | An overhead rate calculated for a single production department.
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| job-cost record | A document that records the costs of direct material, direct labor, and manufacturing overhead for a particular production job or batch. The job-cost record is a subsidiary ledger account for the Work-in-Process Inventory account in the general ledger.
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| job-order costing system | A product-costing system in which costs are assigned to batches or job orders of production. Used by firms that produce relatively small numbers of dissimilar products.
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| material requisition form | A document used by the production department supervisor to request the release of raw materials for production.
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| normal costing | A product-costing system in which actual direct- materials, actual direct-labor, and applied manufacturing-overhead costs are added to Work-in-Process Inventory.
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| normalized overhead rate | An overhead rate calculated over a relatively long time period.
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| overapplied overhead | The amount by which the period's applied manufacturing overhead exceeds actual manufacturing overhead.
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| overhead application (or absorption) | The third step in assigning manufacturing-overhead costs. All costs associated with each production department are assigned to the product units on which a department has worked.
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| plant-wide overhead rate | An overhead rate calculated by averaging manufacturing-overhead costs for the entire production facility.
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| predetermined overhead rate | The rate used to apply manufacturing overhead to Work-in-Process Inventory, calculated as: estimated manufacturing overhead cost ÷ estimated amount of cost driver (or activity base).
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| process-costing system | A product-costing system in which production costs are averaged over a large number of product units. Used by firms that produce large numbers of nearly identical products.
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| product-costing system | The process of accumulating the costs of a production process and assigning them to the products that constitute the organization's output.
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| proration | The process of allocating under-applied or over-applied overhead to Work-in-Process Inventory, Finished-Goods Inventory, and Cost of Goods Sold.
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| schedule of cost of goods manufactured | A detailed schedule showing the manufacturing costs incurred during an accounting period and the change in work-in-process inventory.
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| schedule of cost of goods sold | A detailed schedule showing the cost of goods sold and the change in finished-goods inventory during an accounting period.
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| service department cost allocation | The second step in assigning manufacturing-overhead costs. All costs associated with a service department are assigned to the departments that use the services it produces.
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| service (or support) departments | Subunits in an organization that are not involved directly in producing the organization's output of goods or services.
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| source document | A document that is used as the basis for an accounting entry. Examples include material requisition forms and direct-labor time tickets.
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| supply chain | The flow of all goods, services, and information into and out of an organization.
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| throughput time | The average amount of time required to convert raw materials into finished goods ready to be shipped to customers.
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| time record | A document that records the amount of time an employee spends on each production job.
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| two-stage cost allocation | A two-step procedure for assigning overhead costs to products or services produced. In the first stage, all production costs are assigned to the production departments. In the second stage, the costs that have been assigned to each production department are applied to the products or services produced in those departments.
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| underapplied overhead | The amount by which the period's actual manufacturing overhead exceeds applied manufacturing overhead.
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| volume-based cost driver (or activity base) | A cost driver that is closely associated with production volume, such as direct-labor hours or machine hours.
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