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Sesion4student - Commerce 354 Session 4 Job Costing Systems...

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Commerce 354 Session 4 Job Costing Systems and Overhead
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Objectives Review of overhead vocabulary Illustrate how product costs are determined under a product costing system, including a detailed discussion of overhead. Motivate the use of annualized, normal overhead in determining costs. Discuss the use of different notions of denominator values
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Costing Vocabulary—From Session 1 Basic Costing Model and Definitions related to Costing Models Cost Object : This is what we want to know the cost of. Direct Cost : A cost that can be identified specifically with a given cost object in an economically feasible way . Indirect Cost: A cost that cannot be identified specifically with a given cost object in an economically feasible way. Example: The materials used in manufacturing a compact disc are direct costs. The glue holding the packaging material together for the compact disc could be classified, in principle, as direct costs, but the cost is so minor and the effort involved in tracing this cost to the finished product is too great, and so, the glue is likely to be classified as an indirect cost. Direct costs are traced to a cost object. Indirect costs are allocated to a cost object.
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Costing Vocabulary—From Session 1 Cost Pool —A collection or grouping of individual cost items. Cost tracing Cost Allocation Indirect Costs Direct Costs Cost Object Widgets Examples of Direct Costs? Examples of Indirect Costs See Next Slide
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Cost Object = Audit Client Partners Salaries Auditors Salaries Administrative Costs In a Service Organization Which are direct costs? Which are indirect?
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I. Introduction to Product Costing (Job Order versus Process) A. Two extremes to product costing: a. Job Order Costing -- identifiable units or small batches of reasonably homogenous products (costs are applied to specific "jobs") Examples: b. Process Costing -- mass production of homogeneous products (costs are accumulated over a specific period of time and assigned to a large batch of output) Examples:
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I. Introduction to Product Costing (Job Order versus Process) Example: A boat manufacturer manufactured three boats in January. The company estimates that Boat #1 cost $7,000, Boat #2 cost $8,000, and Boat #3 cost $6,000. All three boats were completed, however, only Boat # 1 and Boat #2 were shipped. There were no beginning balances in WIP or Finished goods, and there is no ending balance in WIP. Job Order Costing: Process Costing: Finished Goods COGS Finished Goods COGS
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I. Introduction to Product Costing (Job Order versus Process) Question 1: Which do you like better? Why? Note:
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Sesion4student - Commerce 354 Session 4 Job Costing Systems...

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