wk4_ch4n - Ch 4: Job Costing Basic Costing Terminology...

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Ch 4: Job Costing
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Basic Costing Terminology… Several key points from prior chapters: Cost Objects – including responsibility centers, departments, customers, products, etc. Costs are Assigned to Cost Objects Direct Costs are Traced – materials and labor Indirect Costs are Allocated – overhead
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…logically extended Cost Pool – any logical grouping of related indirect cost items Cost-allocation Base – a cost driver is used as a basis upon which to build a systematic method of distributing indirect costs Let’s say that direct labor hours cause indirect costs to change. Accordingly, direct labor hours will be used to distribute or allocate costs among objects based on their usage of that cost driver
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Costing Systems Job-Costing : system to account for distinct cost objects called Jobs. Each job may be different from the next, and consumes different resources Wedding announcements, aircraft, advertising Process-Costing : system to account for mass production of identical or similar products Oil refining, orange juice, soda pop
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Costing Approaches Actual Costing allocates : Indirect costs based on the actual indirect-cost rates times the actual activity consumption Normal Costing allocates : Indirect costs based on the budgeted indirect-cost rates times the actual activity consumption Both methods trace Direct costs to a cost object the same way : by using actual direct-cost rates times actual consumption
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Seven-step Job Costing 1. Identify the Job to be costed 1. Identify the Direct Costs of the Job 1. Select the Cost-Allocation base(s) to use for allocating Indirect Costs to the Job 1. Match Indirect Costs to their respective Cost- Allocation base(s)
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Seven-step Job Costing (continued) 1. Calculate an Overhead Allocation Rate : = Actual OH Costs ÷ Actual OH Allocation Base = Normal OH Costs ÷ Normal OH Allocation Base 1. Allocate Overhead Costs to the Job: OH Allocation Rate x Actual Base Activity For the Job 1. Compute Total Job Costs by adding all direct and indirect costs together OR
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Calculating Overhead Rates 4-19: Waheed Company uses normal costing. It allocates manufacturing overhead costs using a budgeted rate per machine-hour. The following data are available for 2006: Budgeted manufacturing overhead costs
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This note was uploaded on 04/28/2011 for the course ACCOUNTING 2521 taught by Professor Byzalov during the Spring '11 term at Temple.

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wk4_ch4n - Ch 4: Job Costing Basic Costing Terminology...

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