Cost tracking, productivity and profitability · Lesson 1 of 4

Cost tracking, productivity and profitability: principles and terminology

What a job cost is made of, direct and indirect cost, time tickets, what productivity measures, why productive is not the same as profitable, and what AFS does and does not record about a job.

You will be able to: Define a job cost, separate direct from indirect cost, state what productivity is and is not, tell productive from profitable, and state the safety boundary that no cost target moves.

13 min · 11 slides · 10 questions

All lessons in this module

Slide 1 of 11

What cost tracking is for

OpenStax says the cost of each job includes direct materials, direct labor and manufacturing overhead.

Those costs are recorded against the job on a job cost sheet.

Cost tracking is the habit of recording them as the work happens, so the next estimate starts from what happened, not from memory.

No AFS hours, rates or margins appear in this module: every hours figure is a classroom example.

Sources

4.5 Compute the Cost of a Job Using Job Order Costing - OpenStax, Principles of Accounting, Volume 2: Managerial Accounting

Glossary

Job cost: The cost of one job: its direct materials, direct labor and applied manufacturing overhead, recorded on a job cost sheet (OpenStax, job order costing).
Direct labor: The pay, with related payroll costs, of workers who work directly on a particular product (OpenStax). It is charged to the job through time tickets.
Manufacturing overhead: Production cost that is neither direct material nor direct labor, such as indirect labor, supplies, rent and depreciation (OpenStax). It is applied to jobs at a predetermined rate.
Time ticket: A record of which jobs a worker spent hours on, with job numbers and hours, used to charge direct labor to the right job (OpenStax).
Labor productivity: A ratio of real output to hours worked (U.S. Bureau of Labor Statistics). In a shop the output unit is chosen, such as pieces or linear feet.
Contribution margin: Sales price per unit minus variable cost per unit (OpenStax); the contribution margin ratio is that amount divided by the sales price.