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Chapter 3 Party1

Chapter Three discusses job costing concepts, including cost objects, direct and indirect costs, cost pools, and cost-allocation bases. It outlines the differences between job-costing and process-costing systems and provides a general approach to job costing with specific steps for implementation. Additionally, it summarizes Robinson Company's transactions for February 2011, detailing purchases, usage of materials, payroll, and overhead costs.

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4 views2 pages

Chapter 3 Party1

Chapter Three discusses job costing concepts, including cost objects, direct and indirect costs, cost pools, and cost-allocation bases. It outlines the differences between job-costing and process-costing systems and provides a general approach to job costing with specific steps for implementation. Additionally, it summarizes Robinson Company's transactions for February 2011, detailing purchases, usage of materials, payroll, and overhead costs.

Uploaded by

homeleader0
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter Three: Job Costing.

Building-Block Concepts of Costing Systems

1. Cost object—anything for which a measurement of costs is desired

2. Direct costs of a cost object—costs related to a particular cost object that can be traced to that cost object in an
economically feasible (cost-effective) way
3. Indirect costs of a cost object costs related to a particular cost object that cannot be traced to that cost object
4. Cost pool. A cost pool is a grouping of individual indirect cost items.
5. Cost-allocation base. is a systematic way to link an indirect cost or group of indirect costs (operating costs of all
metal-cutting machines) to cost objects (different products).

Job-Costing and Process-Costing Systems.


1. Job-costing system. In this system, the cost object is a unit or multiple units of a distinct product or service called
a job.
2. Process-costing system. In this system, the cost object is masses of identical or similar units of a product or
service.

Job Costing: Evaluation and Implementation.


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.

General Approach to Job Costing


Step 1: Identify the Job That Is the Chosen Cost Object.
Step 2: Identify the Direct Costs of the Job.
Step 3: Select the Cost-Allocation Bases to Use for Allocating Indirect Costs to the Job
Step 4: Identify the Indirect Costs Associated with Each Cost-Allocation Base.
Step 5: Compute the Rate per Unit of Each Cost-Allocation Base Used to Allocate Indirect Costs to the Job
Step 6: Compute the Indirect Costs Allocated to the Job.
Step 7: Compute the Total Cost of the Job by Adding All Direct and Indirect Costs Assigned to the Job.
Explanations of Transactions.
We next look at a summary of Robinson Company’s transactions for February 2011 and the corresponding journal
entries for those transactions.
1. Purchases of materials (direct and indirect) on credit, $89,000
2. Usage of direct materials, $81,000, and indirect materials, $4,000 Materials Control 89,000 Accounts Payable
Control 89,000 Work-in-Process Control 81,000 Manufacturing Overhead Control 4,000 Materials Control 85,000
3. Manufacturing payroll for February: direct labor, $39,000, and indirect labor, $15,000, paid in cash Work-in
Process Control 39,000
Manufacturing Overhead Control15, 000 Cash Control 54,000
4. Other manufacturing overhead costs incurred during February, $75,000, consisting of supervision and
engineering salaries, $44,000 (paid in cash); plant utilities, repairs, and insurance, $13,000 (paid in cash); and plant
depreciation, $18,000 Manufacturing Overhead Control 75,000 Cash Control 57,000 Accumulated Depreciation
Control 18,000
5. Allocation of manufacturing overhead to jobs, $80,000 Work-in-Process Control 80,000 Manufacturing
Overhead Allocated 80,000.

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