Week 2, LO 1 Demo - to determine product cost Definitions...

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Week 2: Systems Design: Job-Order Costing Week 2 Skill Building Demonstration Problem 1 Distinguish between process costing and job-order costing and identify companies that would use each costing method. Learning Objective 1 Job-order costing is used in situations where the organization offers many different products or services, such as in furniture manufacturing, hospitals, and law firms. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. Process costing is used in situations where the company product is homogeneous. A process cost system is used by companies that produce many units of a single product and when one unit of output is indistinguishable from any other unit of output such as flour milling or cement production. Since the units of output are identical, the company will probably use an average cost system
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Unformatted text preview: to determine product cost. Definitions The basic formula for process costing: Unit product cost = Total Manufacturing Cost Total Units Produced *Because we assume that all products are homogeneous we can assign the same cost to each product. Formulas Which would be the most appropriate in each situation- job-order costing or process costing? 1. A city architect 2. Chocolate chip cooking manufacturer 3. A celebrity one-of-a-kind designer 4. A custom painter 5. A salt company Problem 2-1a 1. Job-order Solution 2-1a 2. Process 3. Job-order 4. Job-order 5. Process Nadine and Jason are opening a cookie shop. It cost $200 to manufacture to produce 100 boxes of cookies. They want to know how much cost to allocate to each box of cookie when it is sold. Problem 2-1b Total cost/Total units = $200/100 units = $2 Answer: $2/box Solution 2-1b...
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