Mowen3e Ch05--Revised

Mowen3e Ch05--Revised - Chapter Five Job-Order Costing...

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Chapter Five Job-Order Costing
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Learning Objectives 1. Describe the difference between job-order costing and process costing and identify the types of firms that would use each method. 2. Compute the predetermined overhead rate and use the rate to assign overhead to units or services produced. 2
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1. Identify and set up the source documents used in job-order costing. 2. Describe the cost flows associated with job-order costing. 3. (Appendix) Prepare the journal entries associated with job-order costing. 3 Learning Objectives
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Describe the differences between job-order costing and identify the types of firms that would use each method. OBJECTIVE 1
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Job-Order Production and Costing Firms operating in job-order industries produce a wide-variety of services or products that are quite distinct from each other. Printing 5 Construction Furniture making Medical and dental services Automobile repair Beautician services Example industries:
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Job-Order Production and Costing The key feature is that the cost of one job differs from that of another job and must be kept track of separately. 6
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Process Production and Costing Firms in process industries mass-produce large quantities of similar or homogeneous products. 7 Budweiser Tasty Kakes Glaxo Smith Klein Exxon/Mobile Example industries:
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Process Production and Costing 8 The key feature is that the cost of one unit of a product is identical to the cost of another.
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Production Costs in Job- Order Costing Direct Materials 9 Direct Labor Job #1 Job #2 Job #3 Direct materials and direct labor are fairly easy to trace to individual jobs.
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Production Costs in Job- Order Costing Overhead 10 Overhead is not so easy to trace to individual jobs Instead overhead is applied to production.
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Compute the predetermined overhead rate and use the rate to assign overhead to units or services provided. OBJECTIVE 2
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Actual Costing 12 Actual costs of direct materials, direct labor, and overhead are used to determine unit cost. Actual overhead can be hard to track
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Problems With Actual Costing and Overhead Many overhead costs are not incurred uniformly through the year. Uneven production levels Give rise to fluctuating unit overhead costs. 13
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Normal Costing 14 Determine unit cost by adding actual direct materials, actual direct labor, and estimated overhead. Virtually all firms use normal costing.
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Importance of Unit Costs to Manufacturing Firms Valuing inventory Determining income Making important decisions Unit costs are essential for: 15
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Importance of Unit Costs to Service Firms profitability feasibility of introducing new services Unit costs are used to determine: 16
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Normal Costing and Estimating Overhead Calculate the predetermined overhead rate. Apply overhead to production throughout
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This note was uploaded on 05/04/2011 for the course ACCOUNTING 2102 taught by Professor Wurst during the Spring '11 term at Temple.

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Mowen3e Ch05--Revised - Chapter Five Job-Order Costing...

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