Chapter 4 - Job costing. After studying this chapter you should be able to: Explain the types of costing systems, explain the strategic role of product costing, explain the flow of costs in a job costing system, explain the application of factory overhead costs in a job costing system,. | Job Costing Chapter Four 4-2 Explain the types of costing systems Explain the strategic role of product costing Explain the flow of costs in a job costing system Explain the application of factory overhead costs in a job costing system Learning Objectives 2 4-3 Learning Objectives (continued) Calculate underapplied and overapplied overhead and show how to dispose of it at the end of the period Explain an operation costing system Explain how to handle spoilage, rework and scrap in a job costing system 3 4-4 Why Costing Systems? Costing accuracy is critical to a firm’s success Costing systems help management estimate costs and accurately charge customers An accurate costing system can provide a competitive advantage 4-5 Product costing is a general term that refers to the process of assigning both direct and indirect costs to products or services: Direct costs are traced to a cost object (., a job) Indirect costs are allocated to a cost object (using one or more cost-allocation bases/cost drivers) A firm’s choice of costing system depends on the firm’s industry and product or service, the firm’s strategy and management information needs, and the costs and benefits of acquiring, designing, modifying, and operating a particular system Developing a Costing System 4-6 When developing a product-costing system, there are three choices that must be made: Cost accumulation method (., job or process costing) Cost measurement method (., actual, normal, or standard costing) Overhead assignment method (., volume-based or activity-based) Each product-costing system will reflect these three choices For example, an organization’s cost system may be characterized by: job costing with normalized costs, and activity-based costing used to allocate indirect costs Developing a Costing System (continued) 4-7 Cost accumulation: Job or Process Costing? In a job costing system, all manufacturing costs incurred are assigned to jobs This type of system is appropriate when cost can | Job Costing Chapter Four 4-2 Explain the types of costing systems Explain the strategic role of product costing Explain the flow of costs in a job costing system Explain the application of factory overhead costs in a job costing system Learning Objectives 2 4-3 Learning Objectives (continued) Calculate underapplied and overapplied overhead and show how to dispose of it at the end of the period Explain an operation costing system Explain how to handle spoilage, rework and scrap in a job costing system 3 4-4 Why Costing Systems? Costing accuracy is critical to a firm’s success Costing systems help management estimate costs and accurately charge customers An accurate costing system can provide a competitive advantage 4-5 Product costing is a general term that refers to the process of assigning both direct and indirect costs to products or services: Direct costs are traced to a cost object (., a job) Indirect costs are allocated to a cost object (using one or more cost-allocation .
