Accounting Job Costing

In: Business and Management

Submitted By Vagesha
Words 21831
Pages 88
ch05.qxd

9/27/04

4:19 PM

Page 174


CHAPTER
Q1 Q2 Q3 Q4 Q5 Q6

Job Costing
In Brief
Custom products and services, which are produced singly or in small batches, need to be valued for financial statements, tax reporting, and management monitoring. Job costing is an accounting method used to assign product costs to custom products or services. In job costing, direct costs are traced and overhead costs are allocated to individual jobs. Sometimes defects occur in custom products. Defective units can sometimes be reworked. The costs for both spoilage and rework need to be accounted for, as does the cost of scrap that arises from production.

This Chapter Addresses the Following Questions:
How are costs assigned to customized goods and services? How is overhead allocated to individual jobs? What is the difference between actual costing and normal costing? What are the uses and limitations of job cost information? How are spoilage, rework, and scrap handled in job costing? What are the quality and behavioral implications of spoilage?

ch05.qxd

9/27/04

4:19 PM

Page 175

BOMBARDIER: CUSTOM MANUFACTURING n 1942, the Canadian company L’AutoNeige Bombardier Limitée began manufacturing tracked vehicles for snow-covered terrain. These vehicles were early models of what later became snowmobiles. In English, L’Auto-Neige means snow car. Over time, the company developed expertise in building engines and expanded into other markets such as personal watercraft, aircraft, subway cars, buses, and jet boats. The company, eventually known as Bombardier Inc., continued to expand, often by acquiring existing companies. For example, it acquired Canadair (the leading Canadian aircraft manufacturer), Pullman Railcars in the United States, and an Irish manufacturer of civil and military aircraft and defense systems. In 1990, Bombardier acquired Learjet Corporation, a U.S. manufacturer of…...

Similar Documents

Job Order Costing Definition

...Job-Order Costing Jenis Sistem Akuntansi Biaya Job-order biaya adalah salah satu dari banyak sistem penetapan biaya akuntansi yang berbeda.Mencari sistem yang tepat untuk sebuah bisnis adalah kunci untuk pemantauan dan pengendalian biaya.Ada berbagai jenis sistem penetapan biaya manajemen dan biaya yang akuntan mungkin datang.Masing-masing sistem penetapan biaya ini dapat menangani entri tertentu dengan cara yang berbeda. Satu jenis sistem penetapan biaya yang populer di industri tertentu disebut penetapan biaya job-order. Penetapan biaya job-order dapat digunakan dalam beberapa keadaan di mana jenis biaya lainnya seperti penetapan biaya proses atau biaya normal tidak akan efektif. What Is Job-Order Costing? Penetapan biaya job-order adalah sistem biaya yang digunakan untuk mengumpulkan biayadengan pekerjaan. Pekerjaan ini juga bisa disebut batch, karena setiap pekerjaan umumnyamerupakan "batch" dari produk serupa. Setiap bets harus individual dalam beberapa cara untuk membuatnya berbeda dari batch lain untuk itu menjadi pekerjaan yang terpisah. Jika batch semuaidentik, jenis lain dari penetapan biaya akan lebih tepat. The Job-Order Costing Process . Ketika suatu perusahaan beroperasi dengan menggunakan penetapan biaya job-order, sebuahrangkaian peristiwa tertentu biasanya akan terjadi dengan setiap pekerjaan. Secara umum, prosesadalah sebagai berikut: • Perintah (atau sales order) yang diterima untuk batch produk • Sebuah pesanan produksi dikeluarkan dari pesanan......

Words: 1596 - Pages: 7

Job Costing

...Job and Process Costing   Managerial accounting is made up of different forms of accounting. This week was focused on cost accounting and the two different forms of cost accounting, job and process costing. According to Albert Galway, cost accounting, in general, involves determining the costs for different areas of a firm (1991). Depending on the firm, one may find a job costing system more important as where another firm may be able to utilize a process costing system to allocated costs. Stephen did a very good job of describing both job costing and process costing. Using the textbook by Blocher, Stout & Cokins, a definition was given for each costing system. The examples given provide insight on when and how job costing and process costing is used within different industries. There are also instances when both job costing and process costing can be used. This hybrid system is called operations costing according to Blocher, Stout & Cokins (2010). Some different industries that utilize the operations costing system are clothing, shoes, or even the furniture industry. These examples are all a type of manufacturing. According to Avi Rushinek, many manufacturing companies utilize operations costing because they ignore work-in-progress. Could operations costing be the better method of allocating cost in the manufacturing industry as opposed to job costing or process costing alone?   References Blocher, E., Stout, D., & Cokins, G. (2010). Cost Management: A Strategic......

Words: 275 - Pages: 2

Chapter 4 Job Costing

...CHAPTER 4 JOB COSTING TRUE/FALSE 1. Direct costs are allocated to the cost object using a cost-allocation method. Answer: False Difficulty: 1 Objective: 1 Terms to Learn: cost-allocation base Indirect costs are allocated to the cost object using a cost-allocation method. 2. Quality control costs may be a direct cost of the Manufacturing Department, but an indirect cost of an individual job. Answer: True Difficulty: 2 Objective: 1 Terms to Learn: job 3. Cost objects may be jobs, products, or customers. Answer: True Difficulty: 1 Objective: 1 Terms to Learn: job 4. The cost driver of an indirect cost is often used as the cost-allocation base. Answer: True Difficulty: 1 Objective: 1 Terms to Learn: cost-allocation base 5. A company may use job costing to assign costs to different product lines and then use process costing to calculate unit costs within each product line. Answer: True Difficulty: 2 Objective: 2 Terms to Learn: job-costing system, process-costing system 6. Job costing is commonly used to estimate costs in beverage production. Answer: False Difficulty: 1 Objective: 2 Terms to Learn: job-costing system, process-costing system Process costing is commonly used to estimate costs in beverage production. 7. In a job-costing system the cost object is an individual unit, batch, or lot of a distinct product or service. ......

Words: 1461 - Pages: 6

Process Order Costing vs Job Order Costing

...Process Costing - The Hershey Company/ Kaiser Aluminum Process costing is used mostly in companies when converting raw materials into homogenous products. A single product is produced on a continuous basis and all units of the product are identical. Costs are computed by department where the materials, labor, or overhead costs are added to the product in the processing department. Our two companies, The Hershey Company and Kaiser Aluminum, convert raw materials to their finished products of chocolate and aluminum. The Hershey Company's main raw materials come from cocoa products such as cocoa liquor, cocoa butter and cocoa powder that is processed from cocoa beans. They continuously make certain chocolate products under their brand name or franchise. Under their annual report it states that their cost of sales represents the costs directly related to the manufacture and distribution of their products. These costs are the raw materials, packaging, direct labor, overhead, shipping and handling, and warehousing and distribution facilities. Their manufacturing overhead includes salaries, wages, utilities, maintenance and property taxes. This shows why The Hershey Company would use process costing because their costs are traced to only a few departments and there aren't significant differences among the costs of various products. They are continuously making large batches of chocolate products and use an assembly line of mixing, refining, molding and wrapping to do it. Kaiser......

Words: 658 - Pages: 3

Ch3-Job-Order-Costing

...三 True/False Questions 1. Job-order costing is used in manufacturing companies and process costing is used in service companies. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 2. A flour manufacturer is more likely to use process costing than job-order costing whereas a manufacturer of customized leather jackets is more likely to use job-order costing than process costing. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 1 Level: Easy 3. Normally a job cost sheet is not prepared for a job until after the job has been completed. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Medium 4. Job cost sheets contain entries for actual direct material, actual direct labor, and actual manufacturing overhead cost incurred in completing a job. Ans: False AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 2 Level: Easy 5. Multiple departmental overhead rates generally provide more accurate product costs than a single plant-wide overhead rate. Ans: True AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting LO: 3 Level: Easy 6. If direct labor-hours is used as the allocation base in a job-order costing system, but overhead costs are not caused by direct-labor-hours, then jobs with high direct labor requirements will tend to be overcosted relative to jobs with low direct labor requirements. Ans:......

Words: 23821 - Pages: 96

Job Order and Process Costing Systems - Quiz

...costs. The number of equivalent units with respect to materials costs under the weighted-average method is: | |   | Student Answer: | x | the same as the number of units put into production. |   | | | less than the number of units put into production. |   | | | the same as the number of units completed. |   | | | less than the number of units completed. |   | Instructor Explanation: | Chapter 4 | | |   | Points Received: | 5 of 5 |   | Comments: | Great job | | |  2. | Question : | (TCO F) Process costing would be appropriate for each of the following except: | |   | Student Answer: | x | custom furniture manufacturing. |   | | | oil refining. |   | | | grain milling. |   | | | newsprint production. |   | Instructor Explanation: | Chapter 4 | | |   | Points Received: | 5 of 5 |   | Comments: | Great job | | |  3. | Question : | (TCO F) Lucas Company uses the weighted-average method in its process costing system. The company adds materials at the beginning of the process in the Forming Department, which is the first of two stages in its production process. Information concerning operations in the Forming Department in October follows:     | Units | Material Cost | Work in process on October 1 | 6,000 | $3,000 | Units started in October | 50,000 | $25,560 | Units completed and transferred to next Department during October | 44,000 |   |   What was the materials cost of work in......

Words: 1894 - Pages: 8

Job Opportunities for Accounting Graduate

...Accounting is the process or work of keeping financial accounts. Logic and attention to detail are involved in accounting. This profession mostly uses left-brain thinking which is about numbers and the practical application of numbers. If you want to be an accountant, it is no big surprise that you should have a knack for numbers. According to Taylor (2010), as a certified public accountant, or CPA, you will be in charged of reviewing and analyzing the financial information of clients’ companies for auditing, taxpaying, or advisory purposes. The diversity of the accounting profession makes it easier for accounting graduates to find and fill a job. Accounting graduates will not run out of job opportunity. In fact, accounting graduates have many opportunities in the job market such as as accountants, budget analysts, forensic accountants and auditors. First, the most popular job opportunity for accounting graduates is as accountants. Accountants check financial accounts. They can work in the private or government sector. Their scope of work includes working in accounts payable, receivable or general ledger. They also perform reconciliations and analysis. This profession can be divided into three major fields. The first field is public accountants who focus on auditing and tax functions. The second field is management accountants. They work in companies and contribute to decisions making on capital budgeting and business analysis. The last field is financial accountants. The...

Words: 712 - Pages: 3

Accounting Jobs

...by using a unique data set that combines data from the 2005 and 2006 Australian Graduate Destination Survey with data from the University of Tasmania’s (UTAS) student administration database, which includes students’ pre-tertiary school results. Degree choice is modelled using a Nested Logit, while labour force participation is modelled using a Probit. Using a ‘Heckit’ type methodology, the Inverse Mills Ratios (pseudo-residuals) from the Nested Logit and the modified Inverse Mills Ratios from the Probit are included in the final Probit model for Employment. Both correction terms are statistically significant at 5% in the employment probability equation. Allowing for self selection significantly reduces the probability of employment for accounting, architecture, engineering and economics/finance graduates by 6%, 9%, 10% and 5% respectively, suggesting that better students select these degrees at UTAS. Correcting for sample selection reduces the probability of employment for the average student from 80% to 70%, indicating that UTAS graduates who choose to enter the labour force have a higher probability of being employed than those who pursue additional/alternate study. This paper is draws from the approach, model and results, from Aaron Nicholas 2006 University of Tasmania honours dissertation. I: INTRODUCTION The literature on the economics of education has primarily been focussed on the wage that a graduate commands. In terms of the expected benefit of completing a......

Words: 8542 - Pages: 35

Case I - Greeting Inc.: Job Order Costing

...1. Define and explain the meaning of a predetermined manufacturing overhead rate that is applied in a job-order costing system. The predetermined overhead rate is used for estimating the manufacturing overhead cost because companies cannot assign the actual overhead cost to specific job. From the case, Wall Décor uses a traditional job-order costing system. The actual costs of direct materials and direct labor are charged to its specific jobs which are unframed prints, steel-framed with no matting prints, and wood-framed with matting prints. As mentioned, predetermined overhead rate is based on estimates rather than actual results. This is because the predetermined overhead rate is computed before the period begins and is used to apply overhead cost throughout the period. Wall Décor calculates this rate as total estimated manufacturing overhead cost divided by total estimated cost of prints. Then, companies use predetermined overhead rates to allocate manufacturing overhead costs to each unframed or framed print, based on the costs of the prints. In conclusion, Wall Décor can assign this rate to a specific job to determine total cost of each specific job when it is completed. 2. What are the advantages and disadvantages of using the cost of each print as a manufacturing overhead cost driver? From the case, Wall Décor calculates predeterminated overhead rate as total estimated manufacturing overhead cost divided by total estimated cost of prints. The advantage of using......

Words: 973 - Pages: 4

Job Costing

...When are companies likely to use a job costing system or process costing system?  Describe the specific characteristics of each system and provide several examples (i.e. at least two) from companies in your community for each system (i.e. at least four companies should be described). Companies use both job costing system and process costing systems. It is important to understand the differences in the two systems. According to Blocher (2013), a job costing system is a product costing system in which it collects and assigns certain costs to a specific job. A process costing system differs in that it collects product or service costs by process or department and then assigns them to a large number of similar or nearly identical products. According to Goss (2003), the easiest way for costing is to average all the indirect costs and allocate them. This would be an example of a process costing system. Some local companies are Dixie Brick and Coca-Cola. Dixie Brick is a company that develops brick blocks for local construction companies. Since the company produces a mass amount of bricks it is best to use the process costing system. It would not be beneficial to assign a different price to differing bricks. Coca-Cola is also a company that produces nearly similar products and sells the products for the same price. Different ingredients are used in the different flavors of products. The products are still similar enough that it would not make sense to assign different prices......

Words: 565 - Pages: 3

Introduction to Costing and Management Accounting

...AC108 Lecture 1 Introduction to Cost and management Accounting Accounting is divided into two parts: (i) Financial Accounting (ii) Cost and Management Accounting Financial Accounting is concerned with preparing financial reports, for External users/Stakeholders . Egs of such reports are Statement of P&L and other Comprehensive income, Statement of changes in equity, SOFP, Statement of Cash Flows, etc based on transactions during a past financial period. External Users/ Stakeholders include: shareholders/owners, lenders, tax authorities, regulators and others. Anyone who has a vested interest in the business is a stakeholder: customers, suppliers, employees, and communities. Financial Accounting reports follow a common base line in order for them to be comparable to users: GAAP, and IFRS. Cost and Management Accounting Cost accounting is central to management accounting. According to Kohler it is: ‘…That branch of accounting which deals with the classification, recording, allocation, summarisation and reporting of current and prospective costs.’(Kohler). Cost accounting is concerned with setting up budgets, and determining the actual cost of operations, processes, departments or products and the analysis of variances and profitability. Managers use cost accounting in order to support their decisions whose general aim is to cut costs and improve profits. Cost and management accounting reports are for internal use of the business for taking future decisions and...

Words: 445 - Pages: 2

Managerial Accounting Concepts/Job Costing

...CHAPTER 2: MANAGERIAL ACCOUNTING CONCEPTS/JOB COSTING ANSWERS TO QUESTIONS 1. The major differences between managerial and financial accounting are: |Financial Accounting |Managerial Accounting | |External users of information—usually stockholders, financial|Internal users of information—usually managers. | |analysts, and creditors. | | |Must comply with generally accepted accounting principals. |Need not comply with generally accepted accounting principles| | |Internal cost-benefit evaluation deter-mines how much | | |information is enough. | |Uses historical data. |May use estimates of the future for budgeting and decision | | |making. | |Summary data are presented. |More detailed data are provided about product costs, | | |revenues, and profits. | 2. The three elements of costs incurred in manufacturing a......

Words: 4641 - Pages: 19

Job Order Costing

...Job Costing Summary The cost accounting system is used to accurately record, measure and report product manufacturing costs. It is critical to for such system to provide up-to-date information for the product cost. There are two types of cost accounting system, the job order cost system and the process cost system. The former system (job order cost) is suitable for production that will varies in characteristics from job to job. Each production might have different raw materials or a different labor time as well as overhead rate, so it is important to record all these differences and correctly assign costs to specific products. The latter, the process cost system, is a system that is best used for production of a large volume of similar products. With job order cost system, the flow of costs such as raw materials, direct labor, and overhead cost will reflect the actual physical flow of materials into finished goods as detailed below: Accumulation of direct material, labor and overhead cost – a manufacturer will debit these account to record all the costs. Assignment of cost to jobs – as the materials and labor has been requested; the company will assign these costs to a specific job (into the work in process account) or into an overhead costs if it is not directly related to a specific job. Then, the company will record the predetermined overhead rate into work in process account (a company might use either direct labor hour, direct labor cost, or machine hour as an......

Words: 365 - Pages: 2

Job Costing

...Job Costing Job costing is a technique used where jobs are performed to meet the customer’s standards. It usually involves accounting for indirect and direct costs. For example, In a situation where you surveyed a week in business operations in what had looked like to be a busy week, but then the next day a bookkeeper shows a report that says the business lost money. One report says that integrators as a cohort are improving at estimating the materials side of job costing, but as jobs change and become more difficult, they tend to get the time and labor estimates wrong. They call it “scope-creep,” which the company adds time to projects like safety training, that wasn’t on the original time to be budgeted. Spencer Bullins says that labor projections are the most difficult part of job costing because after estimating labor costs coming in they have to protect them from things that change during jobs. Commercial integrators tend to use software for job costing, but most of the time it’s programs like Excel and/or Quickbooks. These programs are too generic to generate labor values and establishing workflows. For instance, people that use these programs can do job costing effectively. For example, for the past twenty years, Ray Bailey has been using a system that uses Microsoft Excel that attaches nine labor categories to a single part. The categories range from opening, packing, installing, and cleaning products. Also, if the company has a twenty four floor building they......

Words: 1036 - Pages: 5

Job Order Costing - Greetings Inc.

...WRITTEN GROUP BUSINESS CASE ANALYSIS “Greetings Inc.” Adapted from: Weygandt, J.J., Kimmel, P.D., & Kieso, D.E. Managerial Accounting, 4th edition. John Wiley & Sons (ASIA) Pte Ltd. Greetings Inc. has operated for many years as a nationally recognized retailer of greeting cards and small gift items. It has 1,500 stores throughout the United States located in high-traffic malls. As the stock price of many other companies soared, Greetings’ stock price remained flat. As a result of a heated 2013 shareholders’ meeting, the president of Greetings, Robert Burns, came under pressure from shareholders to grow Greetings’ stock value. As a consequence of this pressure, in 2014 Mr. Burns called for a formal analysis of the company’s options with regard to business opportunities. Location was the first issue considered in the analysis. Greetings stores are located in high-traffic malls where rental costs are high. The additional rental cost was justified, however, by the revenue that resulted from these highly visible locations. In recent years, though, the intense competition from other stores in the mall selling similar merchandise has become a disadvantage of the mall locations. Mr. Burns felt that to increase revenue in the mall locations, Greetings would need to attract new customers and sell more goods to repeat customers. In order to do this, the company needs to add a new product line. However, to keep costs down, the product line should......

Words: 1651 - Pages: 7