C1103s - 1 ACCT 2200 Systems Design: Job-Order Costing...

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Unformatted text preview: 1 ACCT 2200 Systems Design: Job-Order Costing (Chapter 3) Week 3 2 Job-Order Costing: The Plan I. Usefulness of product cost information II. Costing systems III. Job-Order Costing documents used and the flow of costs applying overhead using a predetermined overhead rate computing the predetermined overhead rate applying the predetermined overhead rate to job I. Under- or over-applied overhead 3 II. Costing systems The general principle to determine the cost per unit of product: Difficulties in practice: resources are shared by multiple products ( common costs ) operating period does not coincide with the accounting period So, we need to average across products and across periods Different costing systems are used in different production situations, often in combination total costs incurred in production units of product produced = unit cost This is the average cost 4 II. Two Major Costing systems: Job-order costing system different jobs are worked on during each period; each job has different production requirement costs are accumulated by job Process costing system a single product is produced for a long time; units are identical costs are accumulated by department The major differences between the two system is 5 The Main Idea Whenever we can, we trace costs to the products (i.e., record them). These are direct costs. When finding direct costs is difficult or impossible, we have to estimate them. Most of the time, this involves allocating common costs to products. This is how we estimate indirect product costs. Cost allocation always involves error; our goal is to minimize this error. So allocate means estimate , based on other information that we have and educated guesses . 6 The Restaurant Example Ana, Bob, Cindy, and Dylan are having dinner at a fancy restaurant. They order drinks from the bar and have a good time together. By the end of the dinner, they receive one bill from the restaurant and another one from the bar. The problem is that they dont remember who ordered which drink. The bills look like this: Restaurant: Spaghetti Bolognese (Ana) $ 72.00 Surf and Turf (Bob) 150.00 New York Strip Steak (Cindy) 240.00 Roasted Chicken (Dylan) 138.00 Total $600.00 Bar: Side Car x 2 $ 200.00 Manhattan Dry x 2 250.00 Pia colada x 4 400.00 Jack Daniels on the Rocks x 2 150.00 Total $1000.00 Q: How much should each of the guests pay for the drinks? 7 The Restaurant Example (contd) One way to allocate the total cost of the bill would be to split it equally among the guests, so everyone pays $250.00. This is reasonable. Alternatively, they could reason that people who order more expensive food usually also order more expensive drinks....
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This note was uploaded on 01/10/2012 for the course ACCT 220 taught by Professor Kirillnovoselov during the Fall '08 term at HKUST.

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C1103s - 1 ACCT 2200 Systems Design: Job-Order Costing...

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