Chapter 3: Job Order Cost Accounting Flashcards
What is the purpose of cost accounting?
To measure, record, and report product costs, determine total and unit costs of products, and inform decisions on production, pricing, and performance evaluation.
What are the two basic types of cost accounting systems?
Job-order cost system and process cost system.
How does a job-order cost system work?
It assigns product costs to each individual job or batch of goods, with costs tallied per job or batch, and unit cost calculated by dividing total job costs by units produced.
Can you give an example of job-order costing?
Manufacturing a private aircraft or printing wedding invitations, where each job is distinct and costs are specific to that job.
What is a process cost system and when is it used?
A process cost system accumulates costs for a large volume of similar products over a set period, used in continuous production environments like dairy, petroleum refining, or car manufacturing.
How are costs treated in a process cost system?
Costs are accumulated over a period of time and assigned to departments or processes rather than to specific products or job orders.
What is an example of a company that might use both job-order and process costing?
General Motors, which uses process costing for standard model cars and job-order costing for custom-made vehicles.
What distinguishes job-order costing from process costing in terms of product characteristics?
Job-order costing is used for distinct, low-volume products, while process costing is used for homogeneous, high-volume products.
How is unit cost calculated in job-order costing versus process costing?
In job-order costing, unit cost is calculated by dividing total job costs by units produced.
In process costing, it is calculated by dividing total process costs during the period by units produced during that period.
What are the main advantages of a job-order cost system?
It provides precise cost measurements for custom jobs, allowing for detailed tracking and costing of individual jobs.
Describe the flow of costs in a job-order cost accounting system.
Costs flow from raw materials inventory, to work in process inventory, to finished goods inventory, and finally to cost of goods sold upon sale.
What are the two major steps in the flow of costs in a manufacturing setting?
The two major steps are accumulating the manufacturing costs incurred and assigning the accumulated costs to the work done.
How are raw materials costs recorded in job-order costing?
Raw materials costs are debited to the Raw Materials Inventory account when purchased and credited when assigned to work in process or when there are returns and allowances.
What constitutes factory labor costs?
Factory labor costs include gross earnings of factory workers, employer payroll taxes on these earnings, and fringe benefits incurred by the employer.
How are manufacturing overhead costs accounted for?
Overhead costs are accumulated in the Manufacturing Overhead account and later assigned to work in process.
They can be recognized daily or periodically through adjusting entries.
How does the software-as-a-service (SaaS) model change how a company collects and uses cost data in decision-making, as seen in Autodesk’s case?
The SaaS model allows for continuous customer relationship and data collection, which informs decision-making regarding feature development and cost minimization strategies.
When accumulating manufacturing costs, which accounts are debited?
In accumulating manufacturing costs, the accounts debited are Raw Materials Inventory, Factory Labour, or Manufacturing Overhead.
What is the purpose of a job cost sheet in a job-order cost system?
A job cost sheet is used to track the costs that are chargeable to a specific job and to determine the total and unit costs of the completed job.
What entries are made when assigning manufacturing costs to work in process inventory?
Debits are made to Work in Process Inventory, and credits are made to Raw Materials Inventory, Factory Labour, and Manufacturing Overhead.
How do job cost sheets benefit managers?
Completed job cost sheets help managers compare costs with those of previous periods to ensure that costs are in line.
In what form are job cost sheets typically maintained today?
In today’s electronic environment, job cost sheets are maintained as computer files.
What is the subsidiary ledger for the Work in Process Inventory account, and what does it consist of?
The subsidiary ledger for the Work in Process Inventory account is made up of job cost sheets, which serve as individual records for each job.
How are marketing and selling costs treated for accounting purposes?
Marketing and selling costs are considered period costs and are expensed in the period they are incurred, rather than being included in the cost of products sold.
What are the two steps involved in the assignment of raw materials costs?
The two steps are posting detailed information to individual job cost sheets and journalizing summarized data in the general journal.
What is the purpose of materials requisition slips in cost accounting?
Materials requisition slips document the quantity and type of materials withdrawn from inventory and are used to assign direct materials to jobs and indirect materials to manufacturing overhead.
How does the prenumbering of documents like materials requisition slips aid in internal control?
Prenumbering helps in tracking all documents for accountability and ensures no slip goes unrecorded or missing, which aids in internal control.
Which accounts are debited and credited when assigning direct and indirect materials from a requisition slip?
Work in Process Inventory is debited for direct materials, Manufacturing Overhead is debited for indirect materials, and Raw Materials Inventory is credited for both.
What inventory costing methods might a company use when assigning costs from materials requisition slips?
A company may use FIFO (First-In, First-Out) or average cost methods for costing the requisitions to the individual job cost sheets.
