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Ch4-EndOfChQues&HWSoln

Cost Management: A Strategic Emphasis

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CHAPTER 4: JOB COSTING QUESTIONS 4-1 The purpose of any costing system is to (1) determine product and service cost, and value inventory, (2) facilitate management planning, cost control, and performance evaluation, and (3) facilitate managerial decision making. 4-2 Management can use product costs to determine the product or service pricing, to assess the financial effect of adding or deleting a product, division or subsidiary, to evaluate a make or buy decision, and to evaluate department or division product profitability performance. 4-3 Job costing is a product costing system that accumulates and assigns costs to a specific job. Process costing accumulates product or service costs by process or department and then assigns them to a large number of nearly identical products. 4-4 Companies that are likely to use a job costing system have a wide variety of products or services. These companies include printing shops, accounting firms, equipment companies, and construction companies. Companies that are likely to use a process costing system have homogeneous products or services. Such companies include automobile manufacturers, food processors, and textile companies. 4-5 Service industry companies most likely use a job costing system because each job is likely to have different quantities of materials and labor. 4-6 A job cost sheet accumulates direct materials, direct labor, and factory overhead. 4-7 The determination of a predetermined overhead rate has four steps: (1) estimate the factory overhead costs for an appropriate operating period, usually a year, (2) determine the most appropriate cost driver(s) for charging the factory overhead costs, (3) estimate the total amount or activity level of the chosen cost driver(s) for the operating period, (4) divide the estimated factory overhead costs by the estimated activity level of the chosen cost driver(s) to obtain the predetermined overhead rate(s). The predetermined factory overhead rates are applied to units instead of actual overhead costs because if the actual rate is applied to overhead costs the costs per unit for products produced in different periods will vary greatly. 1
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4-8 A material requisition is a source document that is used to request materials from the warehouse. A time ticket shows the time worked on each job, the pay rate, and the total labor cost chargeable to each job. The bill of materials is a list of different materials needed to manufacture a product or part. 4-9 Since the overhead cost cannot be traced directly to a particular product, we need a good costing system, which can assign overhead accurately to specific products. Generally speaking, the more expensive or extensive a costing system is, the more information it provides and the more reliable it is. It is important to balance the cost of obtaining the appropriate cost with the information obtained.
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