Production are completed and sold during the period

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production are completed and sold during the period The overhead application rate (POHR) is normally adjusted at the end of each year Throughout the year, seasonal fluctuations are expected
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Blocher,Stout,Cokins,Chen, Cost Management 4e 30 Job Costing in Service Industries Job costing is used extensively in service industries such as advertising agencies, construction companies, hospitals, accounting firms, and law firms The cost object is often a client, contract, or project rather than a job, but the premise is the same The major difference between manufacturing and service industries is the use of direct materials--service industries may not use little-to-no direct materials The main focus of a service industry’s costing system is direct labor The POHR is usually based on direct labor cost
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Blocher,Stout,Cokins,Chen, Cost Management 4e 31 Chapter Summary When developing a product costing system, there are three choices that must be made: Cost accumulation method (i.e., job or process costing) Cost measurement method (i.e., actual, normal, or standard costs) Overhead assignment method (i.e., volume-based or activity-based) A firm’s competitive strategy should affect its cost system design choices
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Blocher,Stout,Cokins,Chen, Cost Management 4e 32 Chapter Summary (continued) Job costing is a product costing system that accumulates costs and assigns them to specific jobs, customers, projects, or contracts At the end of the period the Factory Overhead account should be closed out to zero (i.e., over- or under- applied overhead must be disposed of), using one of two methods: Close the over/underapplied overhead entirely to the CGS account Allocate (prorate) the over/underapplied overhead to the ending inventory and CGS accounts
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Blocher,Stout,Cokins,Chen, Cost Management 4e 33 Chapter Summary (continued) Service industries use job costing with a focus on direct labor Operation costing is a hybrid costing system that uses job costing to assign direct material costs to jobs and a departmental approach to assign conversion costs (DL and factory overhead) to products or services
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