CAfD - Ch. 4 (Job Costing) Flashcards
What is cost accounting?
Costing accounting is the process of analyzing and planning what it costs to produce or supply a product or service.
What is cost accounting used for?
It is used to determine the profitability of a product. The rule is simple; the price should cover the product cost and generate a profit.
What is job costing?
Job costing is a methodology you use when your customers incur unique amounts of costs. Job costing allows you to provide detailed price estimates based on the product constructed or the service provided.
Real world: job costing focuses on custom projects with costs that (can) vary greatly between projects, like putting a roof on a house or Dad’s custom chimneys. Process costing focuses on processes that are uniform regardless of the customer, like building office chairs.
What is a cost object?
A cost object is anything that causes you to incur costs. Think about a cost object as a sponge that absorbs your money. The object can be your customer, job, a product line, or a company division.
No cost object = no cost incurred
Direct costs are ___________ to an object, and indirect costs are ___________ to the cost object
Direct costs are traced to the cost object, and indirect costs are allocated to the cost object.
Direct costs
Direct costs are costs you can trace (or tie) to your product or service.
There are variable direct costs, such as denim material, where denim jeans are the cost object
There are fixed direct costs, such as supervisor salary at an auto plant, where an automobile produced is the cost object.
Indirect costs
Indirect costs can’t be traced directly to your product or service. Instead, indirect costs are allocated.
There are variable indirect costs, such as utility costs for a television plant, where a television produced is the cost object.
There are also fixed indirect costs, such as insurance for a plumbing vehicle, where a plumbing job is the cost object.
What is cost allocation?
The process of connecting an indirect cost to a cost object.
What is a cost pool?
A grouping of similar costs. You can think of a cost pool as a bunch of similar cost objects thrown together.
Indirect costs are also referred to as?
Overhead costs
What is a cost driver?
A cost driver is an item that changes the total costs. For example, if you drive your trucks more, they require more repair and maintenance. An activity (driving to see customers) drives up your costs.
**Just to clarify, the cost object is the “sponge” that absorbs the cost. The cost driver adds to the size of the sponge. A bigger sponge absorbs more cost.
What’s the difference between actual costing and normal costing?
Actual costing represent costs that come out of your checkbook. You determine actual costs after the work is completed.
Normal costing instead uses budgeted data, which is generated before the work is complete.
