Chapter 4 - Job Costing

Question 1

What is a cost allocation base?

Answer 1

The cost allocation base (# of machine-hours) is a systematic way to link an indirect cost or group of indirect costs (operating costs) to cost objects (different products). In other words, how should a company allocate the costs among different products?

Question 2

Distinguish job costing from process costing:

Answer 2

1. Job costing is used to cost a distinct product.

2. Process costing is used to cost masses of identical or similar units.

Question 3

What are some examples of Job Costing and Process Costing in the Service Sector?

Answer 3

1. Job Costing: Audits, Consulting, Advertising, Repair jobs, Movie production
2. Process Costing: Bank-check clearing, Postal delivery

Question 4

What are some examples of Job Costing and Process Costing in the Merchandising Sector?

Answer 4

1. Job Costing: Special promotion of new products, Sending individual items by mail order
2. Process Costing: Grain dealing, Lumber dealing

Question 5

What are some examples of Job Costing and Process Costing in the Manufacturing Sector?

Answer 5

1. Job Costing: Assembly of individual aircrafts, Construction of ships
2. Process Costing: Oil refining, Beverage production

Question 6

What is the main challenge of implementing job-costing systems?

Answer 6

The main challenge of implementing job-costing systems is estimating actual costs of jobs in a timely manner.

Question 7

How do you implement a normal-costing system?

Answer 7

It requires identifying:

1. the job
2. the actual direct costs
3. the budgeted cost-allocation bases
4. the budgeted indirect-cost pools
5. the budgeted cost-allocation rates
6. the allocated indirect costs
7. the total direct and indirect costs of a job

Question 8

How do you distinguish actual costing from normal costing?

Answer 8

Actual costing and normal costing differ in the type of indirect-cost rates used:

1. Actual costing: Use Actual rates for both Direct-cost rates and Indirect-cost rates.
2. However, Normal costing: Use Actual rates for Direct-cost rates and use Budgeted rates for Indirect-cost rates.

Question 9

How is actual costing and normal costing similar?

Answer 9

Both systems used actual quantities of inputs for tracing direct costs and actual quantities of the cost-allocation bases for allocating indirect costs.

Question 10

How are transactions recorded in a manufacturing job-costing system?

Answer 10

A job-costing system in manufacturing records the flow of inventoriable costs in the general and subsidiary ledgers for:
a) acquisition of materials and other manufacturing inputs
b) their conversion into work in process
c) their conversion into finished goods
d) the sale of finished goods
The job-costing system expenses period costs (i.e. marketing costs) as they are incurred.

Question 11

How should managers dispose of under- or over-allocated manufacturing overhead costs and the end of the accounting year?

Answer 11

1. To adjust the allocation rate
2. To prorate on the basis of the total amount of the allocated manufacturing overhead cost in the ending balances of Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold accounts.

Question 12

What are some variations of normal costing?

Answer 12

In some variations from normal costing, organizations use budgeted rates to assign direct costs, as well as indirect costs, to jobs.

Question 13

What is a cost pool?

Answer 13

A grouping of individual indirect costs.