Cost15EChapter04_Solutions - CHAPTER 4 JOB COSTING 4-1 Cost poola grouping of individual indirect cost items Cost tracingthe assigning of direct costs

Cost15EChapter04_Solutions - CHAPTER 4 JOB COSTING 4-1 Cost...

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CHAPTER 4 JOB COSTING 4-1Cost pool––a grouping of individual indirect cost items.Cost tracing––the assigning of direct costs to the chosen cost object.Cost allocation––the assigning of indirect costs to the chosen cost object.Cost-allocation base––a factor that links in a systematic way an indirect cost or group ofindirect costs to cost objects.4-2In a job-costing system,costs are assigned to a distinct unit, batch, or lot of a product orservice. In a process-costing system, the cost of a product or service is obtained by using broadaverages to assign costs to masses of identical or similar units.4-3An advertising campaign for Pepsi is likely to be very specific to that individual client.Job costing enables all the specific aspects of each job to be identified. In contrast, theprocessing of checking account withdrawals is similar for many customers. Here, process costingcan be used to compute the cost of each checking account withdrawal.4-4The seven steps in job costing are (1) identify the job that is the chosen cost object,(2) identify the direct costs of the job, (3) select the cost-allocation bases to use for allocatingindirect costs to the job, (4) identify the indirect costs associated with each cost-allocation base,(5) compute the rate per unit of each cost-allocation base used to allocate indirect costs to thejob, (6) compute the indirect costs allocated to the job, and (7) compute the total cost of the jobby adding all direct and indirect costs assigned to the job.4-5Major cost objects that managers focus on in companies using job costing are a productsuch as a specialized machine, a service such as a repair job, a project such as running the Expo,or a task such as an advertising campaign.4-6Three major source documents used in job-costing systems are (1) job cost record or jobcost sheet, a document that records and accumulates all costs assigned to a specific job, startingwhen work begins; (2) materials requisition record, a document that contains information aboutthe cost of direct materials used on a specific job and in a specific department; and (3) labor-timesheet, a document that contains information about the amount of labor time used for a specificjob in a specific department.4-7The main advantages of using computerized source documents for job cost records arethe accuracy of the records and the ability to provide managers with instantaneous feedback tohelp control job costs.
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