Session 05 - Session 5 Job Cost Accounting for...

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Session 5 Job Cost Accounting for Manufacturing Firms
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Manufacturing firms use the same basic approach to job costing as do service firms. However, for a manufacturer, the job costing problem is more complex because: a) Typically, there are many more indirect costs to be allocated b) Costs move through, and must be traced through, the inventory accounts c) The time period for computing the overhead rate must be determined – the shorter the period the more the rate will be affected by s seasonality s idiosyncratic factors such as maintenance schedules d) And, the number of cost pools (the plant vs individual departments) and allocation bases (one vs many) must be determined.
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Source Documents for a Manufacturing Job For the Job: A job cost sheet (accompanying the job as it passes from one department to another), containing a record of: Direct materials costs (and types and quantities) traced to the job Direct labor costs (and types and quantities) traced to the job Overhead costs allocated to the job Note that the job cost sheet corresponds to the subsidiary inventory account (in the ledger) used to record the cost associated with the job For Materials: a materials requisition record For Labor: a labor time record (perhaps, a time card)
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Within the managerial accounting system, the basic records (accounts) needed to account for the firms production operations are relatively simple. What is needed is a subsidiary work-in-process inventory account for each job (corresponding to the job cost sheet): Job ZZ Cost of OH (Allocated) Cost of Direct Labor (Traced) Cost of Direct Materials (Traced) Job AA WORK-IN-PROCESS INVENTORY
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What Costs are to be Assigned (Applied) to the Product (Job) ? For managerial accounting purposes, manufacturing costs may be allocated to the product using any of one of three product costing methods. We discussed two of those methods earlier – actual costing and normal costing. The third, standard costing, which we will discuss later.
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Example (Actual vs Normal Costing): Job A, which was completed during the year, used $500 of direct materials and $300 of direct labor as well as 10 machine hours to complete. The following information is available regarding the firm’s overhead
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This note was uploaded on 10/06/2010 for the course FNCE 100 taught by Professor Jaffe during the Spring '10 term at UNC Asheville.

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Session 05 - Session 5 Job Cost Accounting for...

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