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ch05tc - COST MANAGEMENT Accounting Control HansenMowenGuan...

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COST MANAGEMENT 1 Accounting & Control Hansen▪Mowen▪Guan Chapter 5 Product and Service Costing: Job-Order System
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2 Study Objectives 1. Differentiate the cost accounting systems of service and manufacturing firms and of unique and standardized products. 2. Discuss the interrelationship of cost accumulation, cost measurement, and cost assignment. 3. Explain the difference between job-order and process costing, and identify the source documents used in job- order costing. 4. Describe the cost flows associated with job-order costing, and prepare the journal entries. 5. Explain why multiple overhead rates may be preferred to a single, plantwide rate. 6. Explain how spoilage is treated in a job-order costing system.
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3 Manufacturing Firms versus Service Firms Manufacturing involves joining together direct materials, direct labor, and overhead to produce a new product. The product is tangible and can be inventoried. A service is intangible. It cannot be separated from the customer and cannot be inventoried. Managers must be able to track the costs of services rendered just as precisely as they must track the costs of goods manufactured.
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4 Unique versus Standardized Products and Services Firms that produce unique products in small batches that incur different product costs must track the costs of each product or batch separately. This is a… Job-order costing system Examples: Cabinet makers, home builders, dental and medical services
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5 Unique versus Standardized Products and Services Some firms produce identical units of the same product. The costs of each unit are also the same. This is a… Process-costing costing system Examples: Food, cement, petroleum and chemicals We’ll discuss this further in Chapter 6
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6 Setting Up the Cost Accounting System
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7 Setting Up the Cost Accounting System Cost Accumulation The recognition and recording of costs. Source documents can, and should, be designed to supply information that can be used for multiple purposes. Examples on page 133.
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8 Setting Up the Cost Accounting System Cost Measurement Classifying the costs and determining the dollar amounts for direct materials, direct labor and overhead.
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