Session 04 - Session 4 Introduction to Job Cost Systems...

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Introduction to Job Cost Systems Session 4
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Product Costing Systems
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Key Building Blocks of a Product Costing System • Cost Object – To which Direct Costs are traced, and – Indirect Costs are allocated • Cost Pool – A logical grouping of related (typically, overhead) costs • Cost Allocation Base – Typically, a cost driver that is used as a basis for systematically distributing (allocating) indirect costs to a cost object
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Product Costing Systems – Job vs Process Costing There are two principal kinds of product costing systems. The choice between them substantially depends upon the nature of the firm’s production process Job Costing Systems A job costing system is used by firms which produce relatively unique products or services or distinct batches of similar products (perhaps for different customers). In a job costing system, costs are assigned to the “job” – the term used to refer to the cost object which represents a specific product or a batch of similar products – as it moves through the production process. A job costing system provides an estimate of the cost for each “job”. Example of firms that use a job costing system: Public accounting firms Consulting firms Advertising agencies Government contractors Custom manufacturers – tool and die firms
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Process Costing Systems A process costing system is used in those cases where the firm produces relatively large quantities of goods that are substantially identical (i.e. mass production). In a process costing system, costs are initially accumulated into cost pools (during the accounting period), one, for each production department (process). At the end of the period, the costs are allocated from a department (process) cost pool to the all of the units completed by it during that period (and to the units that remain “in process”). A process costing system does not provide an estimate of the cost of
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Session 04 - Session 4 Introduction to Job Cost Systems...

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