A method used in allocating the costs of manufacturing service departments (factory administration, maintenance, etc.) directly to the producing departments in the factory. Under this method, no service department cost...
A method used in allocating the costs of manufacturing service departments (factory administration, maintenance, etc.) directly to the producing departments in the factory. Under this method, no service department cost...
The direct method could refer to the method of preparing the statement of cash flows. The direct method could also refer to the method of allocating a manufacturing facility’s service departments to its production...
A method for recognizing bad debts expense arising from credit sales. Under this method there is no allowance account. Rather, an account receivable is written-off directly to expense only after the account is determined...
Reciprocal Method 11. This method uses simultaneous equations. Select... Direct Method Step Method Reciprocal Method 12. Under this method, the order or sequence in which the service department costs are allocated is...
The assigning or dividing up of amounts. For example, depreciation is an allocation process because it assigns an asset’s cost to expense in each of the years the asset is expected to be used. There is also an...
What is the direct write-off method? Definition of Direct Write-off Method The direct write-off method is one of the two methods normally associated with reporting accounts receivable and bad debts expense. (The other...
with the asset can be direct cost or an indirect cost or both a direct and indirect cost. Direct costs are traceable to a cost object (department, product, etc.) without any allocation. Indirect costs must be allocated...
What is the traditional method used in cost accounting? Definition of Traditional Method in Cost Accounting The traditional method of cost accounting refers to the allocation of manufacturing overhead costs to the...
An allocation of indirect costs based on the units of production, the number of machine hours, the number of labor hours, etc.
In activity-based costing this refers to the allocation of costs to activities. For example, allocating the costs of setting up the manufacturing equipment to run a batch of product to the activity “setup...
Income tax allocations arising from differences between income tax rules and generally accepted accounting rules. For example, depreciation for income tax purposes is based on the income tax code and may require that...
What is cost allocation? Definition of Cost Allocation Cost allocation is the assigning of a cost to several cost objects such as products or departments. The cost allocation is needed because the cost is not directly...
In activity-based costing this refers to the allocation of the cost of activities (determined by stage 1 allocations) to the cost objects such as products or services.
Our Explanation of Manufacturing Overhead gives you examples of what is included in manufacturing overhead. You will learn that these are indirect product costs and therefore are allocated to the products in order to...
Is the direct method still used in the statement of cash flows? The direct method is one of two methods allowed for preparing the statement of cash flows (or cash flow statement). The direct method is recommended by the...
What is the difference between the direct method and the indirect method for the statement of cash flows? Main Difference between Direct and Indirect Method of SCF The main difference between the direct method and the...
The allocation of manufacturing overhead (indirect manufacturing costs) to products on the basis of a volume metric such as direct labor hours or production machine hours. As manufacturing becomes more sophisticated the...
Why isn't the direct write off method of uncollectible accounts receivable the preferred method? Definition of Direct Write Off Method Under the direct write off method of accounting for credit losses pertaining to...
The allocation of common costs based on the sales value of the products that emerge. For example, a company develops a large parcel of land at a cost of $5 million dollars. Individual lots will be sold for $100,000 to...
the direct write-off method or the allowance method. Examples of the Write-off of a Bad Account Under the direct write-off method a company writes off a bad account receivable when a specific account is determined to be...
ledger account that reports the cost of the goods that are on the factory floor. In this current asset account are the cost of the direct materials, direct labor and the allocation of manufacturing overhead for the...
rate is estimated prior to the start of an accounting year and then used during the accounting year to attach indirect manufacturing costs to products. Mark as wrong Mark as right normal costing This product costing...
or services on credit and the customer did not pay the amount owed. Examples of Bad Debts Expense There are two methods for reporting the amount of bad debts expense: direct write-off method allowance method The direct...
What is accelerated depreciation? Definition of Accelerated Depreciation Accelerated depreciation is the allocation of a plant asset‘s cost at a faster rate than straight-line depreciation. Compared to straight-line...
What is the meaning of systematic and rational allocation? Definition of Systematic and Rational Allocation Systematic and rational allocation is typically included in the definition of depreciation. In this context, it...
What are direct costs? Definition of Direct Costs Direct costs are directly traceable to a cost object such as a product or a department. In other words, direct costs do not have to be allocated to a product, department,...
What are direct materials? Definition of Direct Materials Direct materials are defined as: Traceable matter that is converted by a manufacturer into products Part of manufacturer’s production costs A variable cost of a...
A cost that can be traced to a cost object. For example, the flour used in baking bread is a direct cost of a bakery’s bread. The wages and salaries of the employees working exclusively in a manufacturer’s...
A method where only the variable manufacturing costs are assigned to inventory and the cost of goods sold. Fixed manufacturing costs are viewed as expenses of the period in which they are incurred. This method is not...
Raw materials that are a traceable component of a manufactured product. For example, the direct material of a baseball bat is the wood. Flour, sugar, and vegetable oil are direct materials of a company that manufactures...
That component of a product that has not yet been placed into the product or into work-in-process inventory. This account often contains the standard cost of the direct materials on hand. A manufacturer must disclose in...
What is direct labor? Definition of Direct Labor Direct labor refers to the employees and temporary staff who work directly on a manufacturer’s products. (People working in the production area, but not directly on the...
of subtracting a plant asset’s accumulated depreciation from the asset’s cost. book value (or) carrying value This is the result of subtracting a plant asset’s accumulated depreciation from the asset’s cost....
Costs that have been divided up and assigned to periods, departments, products, etc. In depreciation it is the asset’s cost that is assigned to each of the years that the asset is in use. In cost accounting it is...
To assign costs to a product, department, customer, etc. on an arbitrary basis. For example, the heating cost might be allocated to the five departments located in the area that is heated. The allocation is often based...
Is there a relationship between direct materials variances and direct labor variances? Definition of Direct Materials Variances Direct materials variances (pertaining to standard costing) commonly consist of two...
methods: Indirect method (almost always used) Direct method (rarely used) The indirect method begins with the company’s net income based on the accrual method. That amount is then converted to the cash from operating...
Featured Review
"AccountingCoach is designed for non-accountants and is well suited to students, small-business owners, and bookkeepers. The quizzes and crosswords provide positive reinforcement and are a fun way to learn. There are videos if you prefer to learn by watching and listening rather than reading. The tests increase your confidence in your mastery of the material. As an employer, you can test the knowledge of a potential hire before they can touch your books. Additionally, the free articles on bookkeeping and accounting are a great resource for when you have questions as an isolated bookkeeper working from home with no peers working alongside you. The PRO Plus membership has certificates you can earn, which could potentially even help an employee get a raise or promotion at work, or to return to the workforce. All around, this site is a great resource." - Laura
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviews
For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: