Acc550-ch_4 - ACC550 CHAPTER 4 JOB COSTING Two basic...

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ACC550 CHAPTER 4 JOB COSTING Two basic costing systems exist 1) Job costing system a) Manufacturing costs are traced to individual jobs. b) A job may represent one unit or it may represent one batch of many units. c) Costs of individual jobs are tracked separately from each other. d) Used when units are highly customized or expensive. e) Examples – construction projects, machine tools, made-to-order items. f) Direct mfg costs (direct materials and direct labor) are traced directly to specific jobs. g) Indirect manufacturing costs are allocated to jobs. 2) Process costing system a) Manufacturing costs are traced to departments rather than individual jobs. b) The cost per unit represents an average cost based on all costs and units traced to departments. c) Used when units are homogeneous and produced in a continuous process. d) Examples – Almost anything mass-produced; toys, paints, candy bars. e) Covered in later chapters. Expanded discussion Job costing and process costing both deal with assigning manufacturing costs to inventory units. Manufacturing costs are comprised of direct materials, direct labor and indirect manufacturing costs. Job costing is best suited for situations where we want to separately track the cost of each individual job. For example, a construction company would want to separately track the cost of each construction project; the company would not want to commingle the costs of various construction projects. The company would want to how much wood was used in project #1 versus project #2. Process costing is best suited for situations where we do not wish to separate the cost of individual jobs, but instead wish to calculate an average cost of all jobs produced in a particular time period. For example, a manufacturer of candy bars would probably not care to separately track the cost of each individual candy bar. They would not care how much cocoa went into candy bar #10,000 versus candy bar #10,001. Instead, they would want to know how much cocoa went into all candy bars produced this period, and would then calculate an average cost of cocoa per candy bar produced during the period. Overview of job costing steps 1) Identify the jobs to be costed. 2) Trace direct material costs and direct labor costs directly to individual jobs. 3) Select cost allocation bases for allocating indirect manufacturing costs to jobs. a) By their nature, indirect manufacturing costs cannot be directly traced to individual jobs. Thus we must find a way to allocate them to jobs. b) Each base selected should represent i) A logical measurement for allocating costs. ii) A measurement that you can trace to individual jobs. c) Examples i) Machine hours could be used when production is highly automated. ii)
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Acc550-ch_4 - ACC550 CHAPTER 4 JOB COSTING Two basic...

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