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Ch 3 Notes (2)

# Ch 3 Notes (2) - Chapter 3 Job Order Costing Managers need...

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Chapter 3 Job Order Costing Managers need to assign costs to products to facilitate external financial reporting and internal decision making. This chapter illustrates an absorption costing approach to calculating product costs known as job-order costing. Remember: total fixed costs are constant and therefore change on a per unit basis. Variable costs are proportional to the number of units produced and are constant on a per unit basis. I. Process and job-order costing: Two costing systems are commonly used in manufacturing and many service companies; these two systems are known as process costing and job-order costing. A. Process costing systems. This type of cost system is used when: A.1. A company produces many units of a single product. A.2. One unit of product is indistinguishable from other units of product. A.3. The identical nature of each unit of product enables assigning the same average cost per unit. B. Job-order costing systems. This type of cost system is used when: B.1. Many different products are produced each period. B.2. Products are manufactured to order. B.3. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. C. Comparing process costing and job-order costing C.1. With job-order costing, many jobs are worked on during the period; with process costing, a single product is produced for a long period of time. C.2. With job-order costing, costs are accumulated by individual jobs; with process costing, costs are accumulated by departments. C.3. With job-order costing, average unit costs are computed by job; with process costing, average unit costs are computed for a particular operation or by department. II. Job-order costing- overview A. Types of manufacturing costs that are assigned to products using a job-order costing system: A.1. Direct costs A.1.a) Direct materials  Traced directly to each job as the work is performed. A.1.b) Direct labor  Traced directly to each job as the work is performed. A.2. Indirect costs A.2.a) Manufacturing overhead (including indirect materials and indirect labor). These costs are allocated to jobs rather than directly traced to each job. B. The job cost sheet  The accounting department relies upon a job cost sheet for tracking the direct and indirect costs associated with a given job. An overview of a job cost sheet B.1. A job number uniquely identifies each job. B.2. Direct material, direct labor and manufacturing overhead costs are accumulated for each job. B.3. The job cost sheet is a subsidiary ledger to the Work in Process account.

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III. Manufacturing Costs A. Measuring direct materials cost A.1. Once a sales order has been received and a production order issued, the Production Department prepares a materials requisition form to specify the type, quantity, and total cost of materials (to be drawn from the storeroom, and the job number to which the cost of the materials is to be charged. A.2.
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Ch 3 Notes (2) - Chapter 3 Job Order Costing Managers need...

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