4-1 CHAPTER 4 JOB COSTING4-1Cost pool––a grouping of individual cost items. Cost tracing––the assigning of direct costs to the chosen cost object. Cost allocation––the assigning of indirect costs to the chosen cost object. Cost-allocation base––a factor that links in a systematic way an indirect cost or group of indirect costs to a cost object. 4-2In a job-costing system,costs are assigned to a distinct unit, batch, or lot of a product or service. In a process-costing system, the cost of a product or service is obtained by using broad averages to assign costs to masses of identical or similar units. 4-3An advertising campaign for Pepsi is likely to be very specific to that individual client. Job costing enables all the specific aspects of each job to be identified. In contrast, the processing of checking account withdrawals is similar for many customers. Here, process costing can be used to compute the cost of each checking account withdrawal. 4-4The seven steps in job costing are: (1) identify the job that is the chosen cost object, (2) identify the direct costs of the job, (3) select the cost-allocation bases to use for allocating indirect costs to the job, (4) identify the indirect costs associated with each cost-allocation base, (5) compute the rate per unit of each cost-allocation base used to allocate indirect costs to the job, (6) compute the indirect costs allocated to the job, and (7) compute the total cost of the job by adding all direct and indirect costs assigned to the job. 4-5Two major cost objects that managers focus on in companies using job costing are (1) products or jobs, and (2) responsibility centers or departments. 4-6Three major source documents used in job-costing systems are (1) job cost record or job cost sheet, a document that records and accumulates all costs assigned to a specific job, starting when work begins (2) materials requisition record, a document that contains information about the cost of direct materials used on a specific job and in a specific department; and (3) labor-time record, a document that contains information about the labor time used on a specific job and in a specific department. 4-7 The main concern with the source documents of job cost records is the accuracy of the records. Problems occurring in this area include incorrect recording of quantity or dollar amounts, materials recorded on one job being “borrowed” and used on other jobs, and erroneous job numbers being assigned to materials or labor inputs. 4-8 Two reasons for using an annual budget period are a. The numerator reason––the longer the time period, the less the influence of seasonal patterns, and b.The denominator reason––the longer the time period, the less the effect of variations in output levels on the allocation of fixed costs.
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