JOB COSTING Cost object > anything for w/c measurement of cost is desired Direct costs > costs

related to a particular cost object that can be traced to that cost object in an economically feasible way Indirect costs > costs related to a particular cost object that cant be traced to that cost object in an economically feasible way Cost assignment > general term for assigning costs Cost tracing > assigning direct costs Cost allocation > assigning indirect costs Managers include all costs because in the long run: (1) more costs can be managed and fewer costs are regarded as fixed; (2) a business cant survive unless that prices of the products and services it chooses to sell cover both fixed & variable costs Cost pool > grouping of indirect cost items; organized in conjunction with cost-allocation bases Cost-allocation base > systematic way to link an indirect cost or group of indirect costs to a cost object; often cost drivers because of the case-and-effect relationship bet. changes in the level of the cost driver and changes in indirect costs over the long run; can be either financial or nonfinancial; also called cost-application base (if cost object is a job, product, or customer) 2 BASIC TYPES OF COSTING SYSTEMS Job-costing system > the cost object is a unit or multiple units of a distinct product or service called a job; each job typically uses different amts of resources; accumulate costs separately for each product or service Process-costing system > the cost object is masses of identical or similar units of a product or service; divide the total costs of producing an identical or similar product or service by the total number of units produced to obtain per-unit cost *costing systems need to be tailored to the underlying operations ACTUAL COSTING >a costing system w/c traces direct costs to a cost object by using the actual direct-cost rates times the actual quantities of the direct-cost inputs; allocates indirect cost based on the actual indirect cost rates times the actual quantities of the cost-allocation bases General approach to Job Costing Step 1: Identify the job that is the chosen cost object. Source document > an original record that supports journal entries in an accounting system Job-cost record/Job-cost sheet > records & accumulates all the costs assigned to a specific job

Step 2: Identify the direct costs of the job. Direct materials: Materials-requisition record > contains info about the cost of direct materials used on a specific job & in a specific dept Direct manufacturing labor: Labor-time record > contains info about the amount of labor time used for a specific job in a specific dept *all other costs other than direct matls & direct mftg labor are classified as indirect costs Step 3: Select the cost-allocation bases to use for allocating indirect costs to the job. Step 4: Identify the indirect costs associated w/ each costallocation base. Manages must: (1) understand the cost drivers; (2) reasons why costs are being incurred Step 5: Compute the rate per unit of each cost-allocation base used to allocate indirect cost to jobs.

Step 6: Compute the indirect costs allocated to the job. Step 7: Compute the total cost of the job. Reasons for using longer periods to compute indirect cost rates: (1) Cost pool: The shorter the period, the greater the influence of seasonal patterns on the amount of costs; pooling indirect costs together smoothes erratic bumps (2) Cost-alloc. base: need to spread monthly fixed indirect costs over fluctuating levels of monthly output NORMAL COSTING >traces direct costs to a cost object by using actual directcost rates times actual quantities of direct-cost inputs; allocates indirect costs based on the budgeted indirect-cost rates time actual quantities of the cost-allocation bases

Mftg overhead allocated/Mftg overhead applied > amount of mftg overhead costs allocated to individual jobs based on the budgeted rate multiplied by actual quantity used of the allocation base Underallocated indirect costs: allocated amount < actual amount Overallocated indirect cost: allocated amount > actual amount (1) Adjusted Allocation-Rate Approach > restates all overhead entries in the GL and subsidiary ledgers using actual cost rate rather than budgeted cost rates;

benefits: timeliness and convenience of normal costing during the year and allocation of actual manufacturing overhead costs at year-end (2) Proration approach > spreads underallocated or overalloacted overhead among ending WIP inventory, FG inventory, & COGS (3) Write-off to COGS > included in the years COGS