Session 04

Session 04 - Session 4 Introduction to Job Cost Systems...

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Introduction to Job Cost Systems Session 4
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Product Costing Systems
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Key Building Blocks of a Product Costing System • Cost Object –D i r e c t C
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Product Costing Systems – Job vs Process Costing There are two principal kinds of product costing systems. The choice between them depends upon the nature of the firm’s production process Job Costing Systems A job costing system is used by firms which produce relatively unique products or distinct batches of similar products (perhaps for different customers). In a job costing system, costs are assigned to the “job” (an individual product or a batch of similar products) as it moves through the production process. A job costing system provides an estimate of the cost for each “job”. Example of firms that use a job costing system: Public accounting firms Consulting firms Advertising agencies Government contractors Custom manufacturers – tool and die firms
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Process Costing Systems A process costing system is used in those cases where the goods produced are substantially identical (i.e. mass production). In a process costing system, costs are initially accumulated, during the accounting period, for each production department (process). At the end of the period, the costs are allocated to the all of the units completed during that period (and to the units that remain “in process”). A process costing system does not provide an estimate of the cost of each unit produced. Instead, it provides an estimate of the “average” cost of the units produced in a period. Example of firms which use a process costing system: Oil refiners Steel Producers Automobile Manufacturers
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As a practical matter, job costing and process costing systems represent the two ends of a spectrum of cost accounting systems used by firms. Most companies use a cost accounting system that contains elements of
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Session 04 - Session 4 Introduction to Job Cost Systems...

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