W3 - Job Costing & Process Costing

Question 1

Why do we need product costing systems?

Answer 1

• Facilitate decisions (how should we cost a product?)
• Facilitate control (e.g. reduce direct material costs, improve efficiency)

Question 2

What is a job costing system?

Answer 2

Focuses on individual jobs of products that differ from one another.

Question 3

What is a process costing system?

Answer 3

Focuses on several processes completing a product.

Question 4

True or False: In a job-costing system, the cost object is an individual unit, batch, or a lot of a distinct product or service.

Answer 4

True

Question 5

True or False: Indirect manufacturing costs should be allocated equally to each job.

Answer 5

False

Question 6

What are the advantages of an actual costing system?

Answer 6

Simple and straightforward.

Question 7

What are the disadvantages of an actual costing system?

Answer 7

1. Distortion of the MOH costs in certain months can occur. This may happen due to unexpected situations that cause the MOH to suddenly increase. This will lead to an unfair increase in the charges of those products.

For example, a machine has broken down in May, this will therefore increase repair costs (MOH) in May, leading to higher MOHs for those cars repaired in that month.

2. May need to wait until the end of period when actual overhead costs are known (this is because some bills only come out quarterly or yearly end). You cannot wait long for the bills to charge the cars.

Question 8

What are the differences between actual and normal costing systems?

Answer 8

1. “Control” is added at the end of account names for normal costing system.
2. There is a difference in the treatment of journal entries in WIP.
   - Actual costing systems trace actual DM and actual DL & allocate actual MOH to WIP
   - Normal costing systems trace actual DM & actual DL & allocate budgeted MOH to WIP.