On normal defective units for a specific job rework

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On normal defective units for a specific job, rework costs are charged (debited) to WIP Inventory On normal defective units common to all jobs, rework costs are charged (debited) to Factory Overhead On abnormal units, charge the costs to a “Loss from Abnormal Rework” account
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17 Blocher,Stout,Cokins,Chen, Cost Management 4e Spoilage, Rework and Scrap in Job Costing (continued) Scrap is the material left over from the manufacture of the product; it has little or no value For a specific job, charge the WIP Inventory account Common to all jobs, charge to the Factory Overhead account
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Blocher,Stout,Cokins,Chen, Cost Management 4e 18 The Strategic Role of Product Costing A firm’s competitive strategy affects cost system design considerations: A commodity/cost leadership type of firm is likely to combine process costing, standard costing, and activity-based costing Products are largely homogenous and produced in large production runs (process costing) It is important for a cost leader to have accurate costs, and activity-based costing is generally more accurate than volume-based costing Standard costing would be important to a cost leader because it provides cost targets and the ability to generate regular reports on financial (cost) performance
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Blocher,Stout,Cokins,Chen, Cost Management 4e 19 A firm pursuing a differentiation strategy is likely to use job costing This type of firm produces a wide variety of distinct products in low volume Monitoring cost is still important but not as critical Many firms will use a combination of job and process costing An automobile manufacturer, for example, might use process costing for common features and job costing for unique features The Strategic Role of Product Costing (continued)
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Blocher,Stout,Cokins,Chen, Cost Management 4e 20 As a job goes through the production process, all costs for the job are accumulated on the job-cost sheet Upon its completion, overhead is allocated to the job All the costs that appear on the job-cost sheet are recorded in the Work-in-Process (WIP) Inventory account The total of all the active job cost sheets should equal the debit side of the WIP Inventory account (i.e., the Job- Cost sheets serve as the “subsidiary ledger” for the WIP inventory account) Job Costing
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Blocher,Stout,Cokins,Chen, Cost Management 4e 21 All costs recorded on the job cost sheets appear in WIP Inventory, but the process does not begin there Direct materials Direct materials are first recorded in Materials Inventory A bill of materials, a listing similar to a recipe, is used to decide the materials needed for a particular project A request is made with a materials requisition form for the supplies needed for a job Upon issuance to production, the cost of the materials is then transferred to WIP Inventory The materials requisition forms are used to record the direct material costs on the job-cost sheets Indirect materials, when issued to production, are taken out of Materials Inventory, but these costs are recorded to Factory Overhead rather than WIP Inventory Cost Flows – Direct Materials
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Blocher,Stout,Cokins,Chen, Cost Management 4e 22 Materials Requisition Form
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