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Summary Overview Job order costing, ABC & Process Costing
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Chapter 4,5,17 overview
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JOB ORDER COSTING ACTIVITY BASED COSTING PROCESS COSTING• involves the accumulation of the costs • precisely allocating overhead to those • Process costing: accurate analysis of
of materials, labor, and overhead for a items that actually use it; the system production process for identical
specific job can be used for the targeted products
• tracing specific costs to individual jobs reduction of overhead costs. • Each product has similar amount of:
• is used to accumulate costs at a small- • ABC works best in complex DM, DL, MOH
unit level environments, where there are many • direct materials are added at the
• job costing is appropriate for deriving machines and products beginning; conversion costa are
the cost of constructing a custom • ABC's 7 steps added equally along the process;
machine, designing a software • Step 1: identify the products that are • Five-step process-costing allocation
program, constructing a building, or the chosen cost objects • Summarize the flow of physical units
manufacturing a small batch of • Step 2: identify the direct costs of the of output
products. products. • Compute output in terms of
• following accounting activities: • Step 3: select the activites and cost- equivalent units
Materials. It accumulates the cost of allocation bases to use for allocating • Summarize total costs to account for
components and then assigns these indriect costs to the product. • Compute cost per equivalent unit
costs to a product or project once the • Step 4: Identify the indirect costs • Assign total costs to units completed
components are used. associated with each cost-allocation and to units in ending Work-in-
Labor. Employees charge their time to base (activity) Process
specific jobs, which are then assigned • Step 5: compute the rate per unit of
to the jobs based on the labor cost of each cost-allocation base (activity)
the employees. • Equivalent units: a metric that
used to allocate indirect costs to the
converts partially finished units into
Overhead. It accumulates overhead products.
completely finished units (unit in
costs in cost pools, and then allocates • Step 6: Compute the indirect costs process 60% its is equivalent to 0.6
these costs to jobs. allocated to the producs. complete unit)
• overhead cost pool • Step 7: compute the total costs of the
products by adding all direct and
indirect costs assigned to the product.
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