Ch 4 Rdg Part 1
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This 4 page Class Notes was uploaded by Shannon Panagopoulos on Monday January 4, 2016. The Class Notes belongs to ACC at DePaul University taught by Nancy Hill in Winter 2016. Since its upload, it has received 15 views.
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Date Created: 01/04/16
Making a profit depends on pricing it right Labor is a key element of job costing Cost object= anything for which a measure of costs is desired (ex: 1) Service: product cost of repairing 2) Product: computer, etc Direct cost of a cost object= costs related to a particular cost object that can be traced to that cost object in a costeffective way Indirect costs of a cost object= costs related to a particular cost object that can NOT be traced to that cost object in a cost effective way Indirect costs are allocated to the cost object using a costing allocation method Cost assignment vs cost tracing: Cost assignment= general term for assigning costs, whether direct or indirect, to a cost object Cost tracing= specific term for assigning direct costs Cost allocation refers to assigning indirect costs diagram pg. 98: cost assignment: Direct Costs → Cost Tracing → Cost Object Indirect Costs → Cost Allocation → Cost Object 1. Cost pool= a grouping of individual indirect cost items can range from broad, such as manufacturing costs, to narrow, such as the cost of operating metalcutting machines are often organized in conjunction with costallocation bases 2. CostAllocation Base= a systematic way to link an indirect cost or group of indirect costs (such as operating costs) to a cost object When the cost object is a job, product, or customer, the costallocation base is also called a costapplication base Managers and management accountants choose cost objects to help them make decisions One major type of cost object of an accounting system is a product or service another is a responsibility center responsibility center= part, segment, or subunit of an organization whose manager is accountable for specified activities the most common responsibility center is a department identifying departments, divisions, and geographic territories this process also allows seniors managers to evaluate the performance of their subordinates and the performance of subunits as economic investments 1. JobCosting system= cost object is a unit or multiple units of a distinct product or service called a job each job generally uses different amounts of resources the product or service is often a single unit 2. Processcosting system= the cost object is masses of identical or similar units of a product or service in each period, processcosting systems divide the total costs of producing an identical unit or similar product by the total number of units produced to obtain a perunit cost Diagram pg. 99 JobCosting System → ProcessCosting System Distinct units of a product/service (ps) → Masses of identical or similar units of a p/s *many companies have costing systems that are neither pure job costing nor pure process costing, but rather have elements of both costing systems, therefore, need to be tailored to the underlying operations Job Costing: 1. Identify the problems and uncertainties 2. Obtain information 3. Make predictions about the future 4. Make decisions by choosing among alternatives 5. Implement the decision, evaluate performance, and learn Actual Costing= a costing system that traces direct costs to a cost object by using the actual directcost rates times the actual quantities of the directcost inputs allocates indirect costs based on the actual indirectcost rates times the actual quantities of the costallocation bases Actual Costing: Step 1. Identify the job that is the chosen cost object: a. a source document is an original record that supports journal entries in an accounting system b. a jobcost record/jobcost sheet records and accumulates all the costs assigned to a specific job, starting when the work begins Step 2. Identify the direct costs of the job: a. on the basis of engineering specifications and drawings provided by WPP, a manufacturing engineer orders materials from the storeroom b. Materialsrequisition form= the order is placed using this basic source document which contains information about the cost of direct materials used on a specific job in a specific department. 3. Direct manufacturing labor= the accounting for direct manufacturing labor is similar to the accounting described for direct materials a. Labor time record=source document for direct manufacturing labor, contains info about the amount of labor time used for a specific job in a specific department. Step 3. Select the costallocation bases to use the allocating indirect costs to the job a. indirect manufacturing costs are costs that are necessary to do a job but that cannot be traced to a specific job b. because they can’t be traced to a specific job, they must be allocated to all jobs in a systematic way; different jobs require different quantities of indirect resources c. *the objective is to allocate the costs of indirect resources in a systematic way to their related jobs d. companies often use multiple costallocation bases to allocate indirect costs because different indirect costs have different cost drivers Step 4. Identify the indirect costs associated with each costallocation base a. managers first identify costallocation bases and then identify costs related to each costallocation base, not the other way around b. ^ that is because managers must first understand the cost driver, the reasons why costs are being incurred, before they can determine the costs associated with each cost driver c. the reason for not doing step 4 before step 3 is that there is nothing to guide the creation of the cost pools; as a result, the cost pools created may not have cost allocation bases that are cost drivers of the costs in the cost pool *steps 3 and 4 can be done almost simultaneously Step 5: Compute the rate per unit of each costallocation base used to allocate indirect costs to the job a. for each cost pool, the actual indirectcost rate is calculated by dividing the total actual indirect costs in the pool by the actual quantity of the costallocation base actual MOH rate= (actual MOH costs / actual total quantity of costallocation base) Step 6: Compute the indirect costs allocated to the job a. the indirect costs of a job are computed by multiplying the actual quantity of each different allocation base associated with the job by the indirect cost rate of each allocation base (one allocation for each cost pool) Step 7: Compute the total cost of the job by adding all direct and indirect costs assigned to the job a. manufacturing managers and sales managers can use the grossmargin and grossmargin percentage calculations to compare the profitability of different jobs b. Jobcost analysis provides the information needed for judging the performance of manufacturing and sales managers for making future decisions i. (have DM been wasted? was DML too high? etc) The five building blocks of jobcosting system: cost object, direct costs of a cost object, indirectcost pool, and costallocation base Triangle identifies a direct cost (direct materials [DM] and direct manufacturing labor [DML] ) Rectangle represents the indirect cost pool Octagon describes the allocation base
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