review17 - CHAPTER 17 Costing Systems: Job Order and...

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CHAPTER 17 Costing Systems: Job Order and Process Costing 0 REVIEWING THE CHAPTER Objective 1: Discuss the role that information about costs plays in the management process, and explain why unit cost is important. 10. Throughout the management process, managers rely on the cost information that management accounting provides. When managers plan, they use information about unit costs to estimate product or service costs, set reasonable selling prices, establish performance goals, and develop budgets. In performing daily operations, managers use timely cost and volume information to support decisions about controlling costs, managing volume, ensuring product or service quality, and negotiating prices. When managers evaluate performance, they watch for changes in costs and quality. They compare actual and targeted costs and monitor relevant price and volume information. This enables them to make necessary adjustments to their plans and decision-making strategies. When managers communicate results to shareholders, they use unit costs in preparing financial statements and performance evaluation reports. Objective 2: Distinguish between the two basic types of product costing systems, and identify the information each provides. 020. A product costing system is a set of procedures used to account for an organization’s product costs and to provide timely and accurate unit cost information for pricing, cost planning and control, inventory valuation, and financial statement preparation. Job order costing and process costing are the two basic types of product costing systems. 30. Companies that make one-of-a-kind, special-order products or that provide custom services, such as shipyards, makers of custom cabinets, or wedding planners, use a job order costing system. Such a system traces the costs of direct materials, direct labor, and overhead to a specific batch of products or job order. A job order is a customer order for a specific number of specially designed, custom-made products or services. A job order costing system measures the cost of each complete unit and summarizes the costs of all jobs in a single Work in Process Inventory account that is supported by job order cost cards. A job order cost card is a record of all costs incurred in the production of a particular job order. 40. Companies that produce large amounts of similar products or liquid products or that have a continuous production flow—for example, makers of paint, cars, or breakfast cereal— typically use a process costing system. Such a system first traces the costs of direct materials, direct labor, and overhead to processes, departments, or work cells and then assigns the costs to the products manufactured by those processes, departments, or work cells. A process costing system uses several Work in Process Inventory accounts, one for each department, process, or work cell. 50.
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review17 - CHAPTER 17 Costing Systems: Job Order and...

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