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Foundations and Evolutions

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1 Foundations and Evolutions
Cost Accounting Foundations and Evolutions Kinney, Prather, Raiborn Chapter 4 Job Order Costing

2 Learning Objectives (1 of 3)
Contrast the job order and process costing systems and their valuation methods Define what the term ‘job’ means Explain the purpose of the documents used in a job order costing system

3 Learning Objectives (2 of 3)
List the journal entries used to accumulate costs in a job order costing system Identify how technology impacts the gathering and use of information in job order costing systems

4 Learning Objectives (3of 3)
Explain how standard costs are used in a job order costing system Describe how job order costing information supports management decision making Explain how losses are treated in a job order costing system

5 Job Order or Process Costing
Small quantities Batches of identifiable, tailor-made products User-specific services Tracks costs by job Process Large quantities Homogeneous goods Tracks costs by batch of goods by department

6 Job Order Costing A job is a single unit or group of units identifiable as being produced to distinct customer specifications A job can be a Client Engagement Project Contract

7 Methods of Product Costing
Cost Accumulation System defines cost object method of assigning costs to production Valuation Method specifies how product costs will be measured

8 Six Possibilities V A L M U E A T T H I O O D N COSTING SYSTEM
Job Order Actual Normal Standard Process Actual Normal Standard

9 Job Order Costing System
Each job is a cost object Costs are accumulated for each job A job can consist of one or more units of output There is a subsidiary ledger for each job

10 Job Order Costing System
WIP Subsidiary Ledger Job 2 Job 1 Job 3 WIP Control = 100 200 500 Job Job Job Total 800 Job 1 + Job 2 + Job = WIP Control

11 Material Requisition Form
Tracks who is responsible for materials Verifies flow of materials from warehouse to department to job

12 Job Order Cost Sheet All financial information about a job
direct material (from material requisition) direct labor (from time sheets or labor tickets) applied overhead budgeted cost information When job is complete, use job order cost sheet to analyze actual costs to budgeted costs

13 Employee Time Sheet Time worked on each job

14 Job Order Costing and Technology
Automate data collection and data entry Accounting software includes job costing modules Share information using intranet

15 Intranet Restricted network for sharing information and delivering data from corporate databases to local-area network (LAN) desktops

16 Standard Cost System Actual cost Normal cost Standard cost
Predetermined norms (or standards) for materials, labor, and overhead Compare actual costs to standard costs - difference is a variance

17 Management Use of Job Order Costing Systems
Estimate future job costs Establish realistic bids and selling prices Develop budgets and standards Compare actual costs to estimated costs Determine which jobs are profitable Manage inventory

18 Product and Material Losses
Shrinkage Evaporation Leakage Oxidation Production errors Defects can be economically reworked Spoilage cannot be economically reworked

19 Product and Material Losses
Normal Loss – expected during production Abnormal Loss – exceeds that expected during production

20 Product and Material Losses
Normal Loss Abnormal Loss Loss for most jobs In overhead rate Period cost Loss identified with a specific job Charge to specific job Period cost

21 Questions What is the difference between job order and process costing systems? How do actual, normal, and standard costing valuation methods differ? How is the job order cost sheet used?

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