Solutions_CH 06 - CHAPTER 6 JOB ORDER AND PROCESS COSTING...

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CHAPTER 6 JOB ORDER AND PROCESS COSTING QUESTIONS FOR WRITING AND DISCUSSION 1. Job-order costing accumulates costs by jobs, and process costing accumulates costs by processes. Job-order costing is suitable for operations that produce custom- made products that receive different doses of manufacturing costs. Process costing, on the other hand, is suitable for operations that produce homogeneous products that re- ceive equal doses of manufacturing costs in each process. 2. More paperwork is required. Labor and ma- terials are assigned to departments in a pro- cess-costing system. In a job-order costing system, labor and materials must be tracked to each job, requiring time tickets and more use of materials requisitions. Additionally, a job-order costing system requires a separ- ate job-order cost sheet for each job. 3. Job-order costing is appropriate for many service firms. The key factor is that differing amounts of resources must be used for dif- ferent jobs. Examples of service firms that use job-order costing are law firms, account- ing firms, dentists, automobile repair, and architectural firms. 4. Unless all your jobs (lawns) are the same size and require the same services, you will need to use a job-order costing system. At minimum, you will need job-order cost sheets for each customer. You will need labor time tickets to record the amount of time spent on each job, both to cost the job and to pay the individual doing the work. A materials requisition form may be needed if fertilizer or weed control products are used (alternatively, it may be possible to just list the amount of product used directly on the job-order cost sheet). The more complicated your business becomes (e.g., mowing, trim- ming, fertilizing, trimming shrubbery, and planting shrubs and trees), the more source documents will be needed to keep track of time, materials, and use of capital equip- ment (e.g., trimmers and brushhogs). 5. The cost of a job is often strongly related to the price charged. Logically enough, the higher the cost of the job, the higher the price charged to the customer. This relation- ship makes sense not only to the business but also to the customer. By comparing the cost of the individual job with the price charged, the firm can determine the profit attributable to each job. Then, the firm can decide whether the profit is sufficient to con- tinue offering the product or service under the current terms. 6. Materials requisition forms serve as the source documents for posting materials us- age and costs to individual jobs. Time or work tickets serve a similar function for labor. Predetermined overhead rates are used to allocate overhead to jobs. 7. In sequential processing, products pass through a series of processes, one after an- other (i.e., in a given sequence). In parallel processing, products pass through two or more different sequences at the same time, merging eventually at the final process. 8.
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Solutions_CH 06 - CHAPTER 6 JOB ORDER AND PROCESS COSTING...

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