CH4-SOL - CHAPTER 4 JOB COSTING 4-1 Cost poola grouping of...

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4-1 CHAPTER 4 JOB COSTING 4-1 Cost 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 is the common denominator for systematically linking an indirect cost or group of indirect costs to a cost object. 4-2 In 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 similar units. 4-3 An 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. 4-4 The seven steps in job costing are (1) identify the chosen cost object or job, (2) identify the direct costs of the job, (3) select the cost-allocation base(s) 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 it. 4-5 Two major cost objects that managers focus on in companies using job costing are (1) products or jobs, and (2) responsibility centers or departments. 4-6 Three 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, (2) materials requisition record, a document used to charge job cost records and departments for the cost of direct materials used on a specific job, and (3) labor-time record, a document used to charge job cost records and departments for labor time used on a specific job. 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 six-month or annual budget periods 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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4-2 4-9 Actual costing and normal costing differ in their use of actual or budgeted direct or indirect cost rates: Actual Costing Normal Costing Direct-cost rates Indirect-cost rates Actual rates Actual rates Actual rates Budgeted rates
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This note was uploaded on 11/17/2010 for the course AC552 AC552 taught by Professor Kokes during the Spring '10 term at Keller Graduate School of Management.

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CH4-SOL - CHAPTER 4 JOB COSTING 4-1 Cost poola grouping of...

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