HDFRIChapter4Solutions13e - CHAPTER 4 JOB COSTING 4-1 Cost...

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CHAPTER 4 JOB COSTING 4-1 Cost pool ––a grouping of individual 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 of indirect costs to a cost object. 4-2 In a job-costing system, costs are assigned to a distinct unit, batch, or lot of a product or service. In a process-costing system, the cost of a product or service is obtained by using broad averages to assign costs to masses of identical or similar units. 4-4 The 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 allocating indirect 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 the job, (6) compute the indirect costs allocated to the job, and (7) compute the total cost of the job by adding all direct and indirect costs assigned to the job. 4-6 Three major source documents used in job-costing systems are (1) job cost record or job cost sheet, a document that records and accumulates all costs assigned to a specific job, starting when work begins (2) materials requisition record, a document that contains information about the cost of direct materials used on a specific job and in a specific department; and (3) labor-time record, a document that contains information about the labor time used on a specific job and in a specific department. 4-8 Two reasons for using an annual budget period are a. The numerator reason––the longer the time period, the less the influence of seasonal patterns, and b. The denominator reason––the longer the time period, the less the effect of variations in output levels on the allocation of fixed costs. 4-9 Actual costing and normal costing differ in their use of actual or budgeted indirect cost rates: Actual Costing Normal Costing Direct-cost rates Indirect-cost rates Actual rates Actual rates Actual rates Budgeted rates Each costing method uses the actual quantity of the direct-cost input and the actual quantity of the cost-allocation base. 4-13 Alternative ways to make end-of-period adjustments for underallocated or overallocated overhead are as follows: (i) Proration based on the total amount of indirect costs allocated (before proration) in the ending balances of work in process, finished goods, and cost of goods sold. (ii) Proration based on total ending balances (before proration) in work in process, finished goods, and cost of goods sold. 4-1
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(iii) Year-end write-off to Cost of Goods Sold.
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HDFRIChapter4Solutions13e - CHAPTER 4 JOB COSTING 4-1 Cost...

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