Job_Costing_Updated_F08 - JobCosting:AFewObservations

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1 Job Costing: A Few Observations Understanding activities and processes is fundamental to modern management accounting. When you complete your study of material in this chapter, you should be able to: •. Take a factual situation and calculate a product's indirect cost. •. Discuss the shortcomings of the traditional approach and how products may be miscosted using such an approach. •. Take a factual situation and trace the flow of costs for a product using T­accounts; also, take the same situation and make the necessary journal entries. •. Given a data set, calculate a manufacturing firm's predetermined overhead rate. •. Determine when a firm has an overhead variance and discuss the implications of underapplied and overapplied overhead (both material and immaterial. •. Discuss actual and normal costing. What is product costing? Product costing is the process of accumulating, classifying, and assigning direct materials, direct labor, and factory overhead costs to products or services. Product costing provides useful cost information for both manufacturing and nonmanufacturing firms for the purposes of: (1) product and service cost determination and inventory measurement, (2) management planning, cost control, and performance evaluation, and (3) strategic and operational decision­making. Why do we need product costing? Many strategic and operational decisions managers must make are based primarily on information about the cost of products or services. These decisions include: 1. Determination of product or service pricing. What is the minimum rate a gas company must charge residential users in order to cover its costs? How should a restaurant price its menu in order to cover costs? 2. Assessment of the financial effect of adding or deleting a product, division, or subsidiary. Should an automobile manufacturer add an off­road vehicle to its product line? Should a department store close its sporting goods section? 3. Make or buy decision. Should a medical clinic do its own blood tests or purchase services from an outside laboratory? Should a toy manufacturing company make or buy some of the plastic components? 4. Evaluation of product, service, or division performance. What was last month’s "printer product line" profit for a computer peripheral manufacturing company? What profit was made last year in the "deluxe fishing boat product line" of a boat manufacturing company? Where do you get the information?
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2 •. Source Documents­­these items connect the factory floor with the accountants. Without the source documents, the accountants would not really be cognizant of what was happening in the factory. m . job cost record is used to accumulate costs of a job. Uses info from materials requisition records and labor time records.
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Job_Costing_Updated_F08 - JobCosting:AFewObservations

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