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Ch 3 - System Design - Job-Order Costing (same info, different order)

Ch 3 - System Design - Job-Order Costing (same info, different order)

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1 Describe the differences between job-order costing and process costing and identify the types of firms that would use each method.
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2 The cost of one job differs from that of another job and must be kept track of separately. Job-Order Production and Costing Process Production and Costing The cost of one unit of a product is identical to the cost of another.
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3 Job-Order Production and Costing The cost of one job differs from that of another job and must be kept track of separately. Printing Example industries: Construction Furniture making Medical and dental services Automobile repair Beautician services Firms operating in job-order industries produce a wide-variety of services or products that are quite distinct from each other.
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4 Process Production and Costing The cost of one unit of a product is identical to the cost of another. Firms in process industries mass- produce large quantities of similar or homogeneous products. Food Example industries: Cement Chemicals Petroleum
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Job-Order vs Process Costing 1. Wide variety of distinct products 1. Similar, homogenous products 2. Costs accumulated by job 2. Costs accumulated by process or department 3. Unit cost is computed by dividing total job costs by the units produced. 3. Unit cost is computed by dividing process costs of the period by the units produced in the period. Job-Order Costing Process Costing
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6 Production Costs in Job-Order Costing Direct Materials 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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7 Overhead Overhead is not so easy to trace to individual jobs. Instead overhead is applied to production. Production Costs in Job-Order Costing
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8 Compute the predetermined overhead rate and use the rate to assign overhead to units or services provided.
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9 Actual Costing 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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10 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
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11 Normal Costing Determines unit cost by adding actual direct materials, actual direct labor, and estimated overhead. Virtually all firms use normal costing.
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12 Actual Costing vs Normal Costing Actual Costing Normal Costing Direct materials Actual cost Actual cost Direct labor Actual cost Actual cost Overhead Actual cost Estimated cost using a predetermined overhead rate
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13 Importance of Unit Costs to Manufacturing Firms Unit costs are essential for: Valuing inventory Determining income Making important decisions
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14 Importance of Unit Costs to Service Firms Unit costs are used to determine: profitability Feasibility of introducing new services
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15 Normal Costing and Estimating Overhead Applying overhead is a three step process: 1. Calculate the predetermined overhead rate.
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