Job Order

Topics: Management accounting, Cost accounting, Costs Pages: 10 (2289 words) Published: August 7, 2013
CHAPTER 4

JOB COSTING

I. LEARNING OBJECTIVES

1. Describe the building-block concepts of costing systems

2. Distinguish job costing from process costing

3. Outline the seven-step approach to job costing

4. Distinguish actual costing from normal costing

5. Track the flow of costs in a job-costing system

6. Dispose of under- or overallocated manufacturing overhead costs at the end of the fiscal year using alternative methods

7. Apply variations from normal costing

II. CHAPTER SYNOPSIS

Chapter 4 outlines the basics of costing systems by illustrating the accounting for costs in a typical job-costing system. Two more key terms, cost pool and cost-allocation base, are introduced in this chapter. A cost pool is any grouping of cost items. A cost-allocation base is the allocation basis used to allocate the costs in the cost pool to the cost object. For example, machine hours might be the cost-allocation base used to allocate equipment maintenance costs to the products produced since there is usually a cause-and-effect relationship between the number of machine hours and the level of maintenance required.

The chapter distinguishes job-costing systems from process-costing systems. Job-costing systems track costs to distinct jobs, while process-costing systems apply the average cost to each unit of a large batch of identical or similar products. The seven-step process to job-costing is outlined, and normal-costing systems using standard costs are compared to actual-costing systems which use actual costs. The total of actual indirect costs often differs from the total of indirect costs applied in standard-costing systems and the chapter illustrates how to account for any underallocation or overallocation of indirect costs at the end of the fiscal period. Three common methods for allocating any indirect costs allocation variances are the adjusted allocation-rate approach, the proration approach, and the write-off to cost-of-goods-sold approach. III. CHAPTER OUTLINE

Costs assigned to a cost object are either fixed or variable, and direct or indirect. Cost tracing is the term for assigning direct costs; cost allocation is the term for assigning indirect costs. Two more key terms, cost pool and cost-allocation base are introduced in this chapter. A cost pool is any grouping of cost items. A cost-allocation base is the allocation basis used to allocate the costs in the cost pool to the cost object. For example, machine hours might be the cost-allocation base used to allocate equipment maintenance costs to the products produced since there is usually a cause-and-effect relationship between the number of machine hours and the level of maintenance required. These five terms form the building blocks used to design the costing systems discussed in this chapter.

Do Chapter Quiz #1.Assign Exercise 4-21and Problems 4-31 and 4-32.

Two basic types of costing systems used by management accountants are job-costing systems and process-costing systems. Job-costing systems are typically used by companies producing small quantities of distinct products or services, for example a home builder or an automotive repair shop or an advertising agency. Job-costing systems accumulate and track costs separately for each product or service. Process-costing systems are typically used by companies producing large quantities of identical or similar products, for example an oil refinery or a dairy or a steel mill. Process-costing systems accumulate and track the costs of each batch and divide the total costs by the units produced to determine average unit cost.

(Exhibit 4-1 offers examples of job costing and process costing in different sectors.) (Exhibits 4-2 and 4-3 display sample job-cost records.)

Do Chapter Quiz #2.Assign Exercise 4-16 PHGA.

A general approach to assigning costs in a job-costing system involves seven steps:

Step 1Identify the job that is the...
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