...is not sure about the difference between cost accouting and a cost accounting system. Explain the difference to Joe. Answer: Cost accounting involves the measuring, recording, and reporting of product costs. A cost accounting system consists of manufacturing cost accounts that are fully integrated into the general ledger of a company. (b) What is an important feature of a cost accounting system? Answer: An important feature of a cost accounting system is the use of a perpetual inventory system that provides immediate, up-to-date information on the cost of a product. 2. (a) Distinguish between the two types of cost accounting systems. Answer: The two principal types of cost accounting systems are: (1) job order cost system and (2) process cost system. Under a job order cost system, costs are assigned to each job or batch of goods; at all times each job or batch of goods can be separately identified. A job order cost system measures costs for each completed job, rather than for set time periods. Under a process cost system, product-related costs are accumulated by or assigned to departments or processes for a set period of time. Job order costing lends itself to specific, special-order manufacturing or servicing while process costing is better suited to similar, large-volume products and continuous process manufacturing. (b) May a company us both types of cost accounting systems? A company may use both types of systems. For example, General Motors uses process...
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...1. Cost accounting is primarily concerned with accumulating information about product costs. 2. A job order cost system is most appropriate when a large volume of uniform products are produced. 3. A process cost accounting system is appropriate for similar products that are continuously mass produced. 4. The perpetual inventory method cannot be used in a job order cost system. 5. A job order cost system and a process cost system are two alternative methods for valuing inventories. 6. A job order cost system identifies costs with a particular job rather than with a set time period. 7. A company may use either a job order cost system or a process cost system, but not both. 8. Raw Materials Inventory, Factory Labor, and Manufacturing Overhead are all control accounts in the general ledger when a job order cost accounting system is used. 9. Accumulating and assigning manufacturing costs are two important activities in a job order cost system. 10. Recording the acquisition of raw materials is a part of accumulating manufacturing costs. 11. Manufacturing costs are generally incurred in one period and recorded in a subsequent period. 12. The Purchases account is credited for all raw materials purchase returns and allowances. 13. When raw materials are received, there is no effort at this point to associate the cost of materials with specific jobs. 14...
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...behalf of EEC while using a job order costing system, which is a costing system where costs are to be collected then assigned to different units of production for each unique job, or process costing system, which is a costing system that is known to accumulate production costs by using a department or process’s data over a specific period of time in order to report the costs of a new product. I am going to focus and highlight the many differences within the various systems in use to do this job. I will also attempt to describe how these selected systems will work for EEC in order to track the costs of these products. Furthermore, my job in this assignment will be to identify the actual cost driver in order to explain the pattern and process of cost tracking. I will then go on to provide examples of products that the EEC’s firm could offer in order for a job-order costing system to be appropriately applied. •Should EEC use a job-order costing system, which is a costing system where costs are collected and assigned to units of production for each individual job, or a process costing system, which is a costing system that accumulates production costs by process or department for a given period of time, to report the costs of this new product? ◦How are the systems different? I believe that EEC should most definitely use a job-order costing system. “Job order costing systems are simply the various components of a much broader form of accounting system that may be used by a given...
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...used the traditional costing system to manage its cost management. Super Bakery changed its business strategy to an Activity-Based Costing system, to identify at the activities associated with each order. Because Super Bakery outsources its business operation, an Activity-Based Cost system would be beneficial to track effectiveness of each vendor. Activity-Based Costing strategic gives the company detailed information of its operational performance to adjust the strategic planning for better profit margins (Kimmel, Weygandt, & Kieso, 2009). Activity-Based Costing System Super Bakery management installed the Activity-based system because the traditional costing system was not effective tracking the profit margin for the company expenditures. Super Bakery has an elevated overhead cost because of the numerous outsources entities used. The Activity-Based Cost system is used to monitor the activities of each vendor and the process of manufacturing, and distribution. Understanding that overhead costs represent a dominate portion of total costs, Kimmel, Weygandt, and Kieso (2009) state Activity-Based Cost leads to more cost pools used to assign overhead costs to products. Activity-Based Cost is effective for controlling of overhead costs, and monitors costs direct or indirectly involved in product activity. Activity-Based Cost is an important factor in management decisions that are dependent on the accuracy of the product costs and overhead cost allows management to adjust the...
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...Cap 2. Job Order Costing Cost accounting involves the procedures for measuring, recording, and reporting product cost. From the data accumulated, companies determine the total cost and the unit cost of each product. The two basic type of cost accounting system are job order cost and process cost. Under a job order cost system the company assigns cost to each job or to each batch of goods. A company uses process cost system when it manufactures a large volume of similar products. Production is continuous. Companies can use both cost systems, the objective of both cost accounting system is to provide unit cost information for product pricing, cost control, inventory valuation, and financial statement presentation. In job order costing, companies first accumulate manufacturing cost in three accounts: Raw materials inventory, factory labor, and manufacturing overhead. The assign the accumulated cost to work in process inventory and eventually to finished good inventory and cost of goods sold. In a manufacturing company, the cost of factory labor consists of three costs: gross earnings of factory workers, employer payroll taxes on these earnings, fringe benefits incurred by employers. A company has many types of over head cost: machinery repair and the use of indirect materials and indirect labor. A job cost sheet is a form used to record the cost chargeable to specific job and to determine the total and unit cost of the completed job. Job cost sheets constitute the subsidiary...
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...www.StudentWhiz.com 1. A major purpose of cost accounting is to • measure, record, and report product costs. • classify all costs as operating or nonoperating. • measure, record, and report period costs. • provide information to stockholders for investment decisions. 2. The two basic types of cost accounting systems are • job order and process cost systems. • job order and batch systems. • process cost and batch systems. • job order and job accumulation systems. Quiz Answers just a click away ACC 561 Week 3 Quiz 3. A process cost system would most likely be used by a company that makes • breakfast cereal. • motion pictures. • college graduation announcements. • repairs to automobiles. 4. Which of the following would be accounted for using a job order cost system? • The refining of petroleum. • The production of automobiles. • The production of personal computers. • The construction of a new campus building. Quiz Answers just a click away ACC 561 Week 1 Quiz 5.The flow of costs in a job order cost system • measures product costs for a set time period. • generally follows a LIFO cost flow assumption. • involves accumulating manufacturing costs incurred and assigning the accumulated costs to work done. • cannot be measured until all jobs are complete. 6. The entry to record the acquisition of raw materials on account is • Raw Materials Inventory Accounts Payable • Work in Process Inventory Accounts Payable • Manufacturing Overhead...
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...TRUE-FALSE STATEMENTS 1. Process cost accounting focuses on the process involved in mass-producing products that are very similar in nature. 2. Process cost systems are used to apply costs to a specific job, such as the manufacturing of a specialized machine. 3. A company that produces motion pictures would likely use a process cost system. 4. In a process cost system, costs are tracked through a series of connected manufacturing processes or departments, rather than by individual jobs. 5. In a process cost system, total costs are determined at the end of a month or year. 6. Separate work in process accounts are maintained for each production department or manufacturing process in a process cost system. 7. In a process cost system, materials, labor and overhead are only added in the first production department. 8. The assignment of the three manufacturing cost elements to Work in Process in a process cost system is the same as in a job order cost system. 9. Fewer materials requisitions are generally required in a process cost system than in a job order cost system. 10. In a process cost system, labor costs incurred may be captured on time tickets. 11. A primary driver of overhead costs in continuous manufacturing operations is machine time used. 12. Equivalent units of production are used to determine the cost per unit of completed products. 13. ...
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...Cost Accounting Systems 1. Cost accounting involves the measuring, recording, and reporting of product costs. From the data accumulated, both the total cost and unit cost of each product is determined. 2. A cost accounting system consists of accounts for the various manufacturing costs. These accounts are fully integrated into the general ledger of a company. An important feature of a cost accounting system is the use of a perpetual inventory system. Such a system provides information immediately on the cost of a product. The two basic types of cost accounting systems are (a) a job order cost system and (b) a process cost system. 3. Under a job order cost system, costs are assigned to each job or to each batch of goods. 4. A process cost system is used when a large volume of similar products are manufactured. Process costing accumulates product-related costs for a period of time instead of assigning costs to specific products or job orders. Job Order Cost Flow 5. The flow of costs in job order cost accounting parallels the physical flow of the materials as they are converted into finished goods. There are two major steps in the flow of costs: (a) accumulating the manufacturing costs incurred and (b) assigning the accumulated costs to the work done. 6. A company accumulates manufacturing costs incurred by debits to Raw Materials Inventory, Factory Labor, and Manufacturing Overhead.. 7. The assignment of manufacturing costs involves entries to...
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...CHAPTER 3 LEARNING OBJECTIVES After studying Chapter 3, you should be able to: Distinguish between process costing and job-order costing and identify companies that would use each costing method. 2. Identify the documents used in a job-order costing system. 3. Compute predetermined overhead rates and explain why estimated overhead costs (rather than actual overhead costs) are used in the costing process. 4. Record the journal entries that reflect the flow of costs in a job-order costing system. 5. Apply overhead cost to Work in Process using a predetermined overhead rate. 6. Prepare schedules of cost of goods manufactured and cost of goods sold. 7. Compute under- or overapplied overhead cost and prepare the journal entry to close the balance in Manufacturing Overhead to the appropriate accounts. 8. (Appendix 3A) Explain the implications of basing the predetermined overhead rate on activity at capacity rather than on estimated activity for the period. SYSTEMS DESIGN: JOB-ORDER COSTING OVERAPPLIED/UNDERAPPLIED Cris Griffiths Guitar Works of Saint Johns, Newfoundland, focuses on repair work and building custom guitars. Late one night while disassembling yet another guitar, Griffiths had a vision of a single bracing piece instead of the three-dozen separate internal reinforcements acoustic guitars typically have. “It was a simple idea that was easy to flesh out, but turning it from an idea into...
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...face of these industry forces, D.C. apparently tries to mitigate that by attempting to differentiate it's products from the others. It's strategy appears to be that of trying to create unique and customizable chocolate bars that are most probably uncommon in their current market (European-Styled chocolate bars in an American market), and speed of service. With their inability to compete with larger companies on lowering costs due to their smaller size and resulting lack of economies of scale, they aim to increase the willingness-to-pay of their customers with the novelty, flexibility and speed of delivery of their products. With their focus on the quality and variety of their products, the costs for each type of chocolate could vary significantly. They may also be charging higher prices compared to that of their competitors. Hence, it is critical that they obtain accurate computations with regard to their variable costs, namely their direct materials and direct labour costs instead of relying on estimates. There also is a need to take into consideration the cost of extra special...
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...Cost Method Problem: ABC a Virtual Organization The Super Bakery supplies mineral, vitamin, and protein enriched baked goods to food markets like school systems. The strategic functions of the company are performed internally. The other activities including sales, warehousing, and shipping are outsourced to various external companies. The following questions explain the costing methods of the Super Bakery and what costing method system is the best process for the Super Bakery. Cost Methods Evaluated * What strategies and tactics did the management of Super Bakery, Inc. use to increase sales and growth? Management of Super Bakery Inc. increased sales by combining the external companies together with the parent company for maximized values and work flow. These values include: * Minimum investment * Staffing expenses * Fixed assets * Working capital. The growth of the company consists of controlling the quality and costs of services, which was not easy when the costs increased for orders in different parts of the country. The high profit margins were subsidizing orders with low profit margins and the Super Bakery needed a system to assign costs to each order correctly. * Why did Super Bakery’s management think it was necessary to install an ABC system? Do you agree with their reasoning? If you disagree, identify your recommended costing system, including your rationale, to management. I agree with the Super Bakery for installing the ABC system. Activity-Based...
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...SUBJECT: Cost Accounting Systems Managerial accounting concerns utilizing information available that assists managers to plan, control, and execute the company’s performance. It emphasizes on the relationships of internal costs and internal control tools in a systematic way. In a manufacturing organization, a typical cost accounting system aims to identify and allocate costs reasonably so that the organization can estimate the profitability of its products. With the input of numerical information such as direct materials and direct costs, management within the organization can make decisions such as the selling price of its products. The system is also a tool for managers to control the product lines. There are several types of costing systems, including job-order system, process costing system, and activity-based system. For instance, the activity-based system is composed of cost drivers, fixed cost, variable cost, and fixed/variable overheads. Cost drivers help allocate variable cost to the production of different product lines. Process costing method distributes the cost according to the manufacturing progress of the products, while job-order costing system assigns costs to different categories of job functions. Driven by the objective of controlling relevant cost and minimizing ineffective activities, managers of the organization examines the costs from a macro perspective instead of focusing on each piece of products. Under the method of full absorption costing, costs are...
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...Chapter 07 Activity-Based Costing: A Tool to Aid Decision Making Solutions to Questions 7-1 Activity-based costing differs from traditional costing systems in a number of ways. In activity-based costing, nonmanufacturing as well as manufacturing costs may be assigned to products. And, some manufacturing costs—including the costs of idle capacity—may be excluded from product costs. An activity-based costing system typically includes a number of activity cost pools, each of which has its unique measure of activity. These measures of activity often differ from the allocation bases used in traditional costing systems. 7-2 When direct labor is used as an allocation base for overhead, it is implicitly assumed that overhead cost is directly proportional to direct labor. When cost systems were originally developed in the 1800s, this assumption may have been reasonably accurate. However, direct labor has declined in importance over the years while overhead has been increasing. This suggests that there is no longer a direct link between the level of direct labor and overhead. Indeed, when a company automates, direct labor is replaced by machines; a decrease in direct labor is accompanied by an increase in overhead. This violates the assumption that overhead cost is directly proportional to direct labor. Overhead cost appears to be driven by factors such as product diversity and complexity as well as by volume, for which direct labor has served as a convenient measure. 7-3...
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...differences in the reported cost estimates calculated under each of the two costing systems are significant. This is especially the case with regard to Job order 973. The management accountant’s calculations for the cost estimates produce the following increase/ (decrease) in reported costs: Job order 973 Job order 974 $ $ Unit cost per job under existing system 1,172·00 620·00 Unit cost per job under activity based costing 1,612·00 588·89 Increase/ (decrease) in reported cost 37·54% (5·02) % Job order 973 shows an increase in reported cost of 37·54% [(1,612 – 1,172)/1,172] whereas Job order 974 shows a decrease in reported cost of 5·02% [(88·89 – 620)/620]. A common occurrence when activity-based costing is implemented is that low-volume products show an increase in their reported costs while high-volume products show decreases in their reported costs. This is very much the case with regard to the products which are the subjects of Job orders 973 and 974. The reported costs also differ due to the following: – Job orders 973 and 974 differ in the way they consume activities in each of the five activity areas within SFS’s premises – The activity areas differ in their indirect cost allocation bases. In particular no activity area uses direct labor hours as the basis of allocating indirect costs. Two areas where the differences...
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...TRUE-FALSE STATEMENTS 1. Process cost accounting focuses on the process involved in mass-producing products that are very similar in nature. 2. Process cost systems are used to apply costs to a specific job, such as the manufacturing of a specialized machine. 3. A company that produces motion pictures would likely use a process cost system. 4. In a process cost system, costs are tracked through a series of connected manufacturing processes or departments, rather than by individual jobs. 5. In a process cost system, total costs are determined at the end of a month or year. 6. Separate work in process accounts are maintained for each production department or manufacturing process in a process cost system. 7. In a process cost system, materials, labor and overhead are only added in the first production department. 8. The assignment of the three manufacturing cost elements to Work in Process in a process cost system is the same as in a job order cost system. 9. Fewer materials requisitions are generally required in a process cost system than in a job order cost system. 10. In a process cost system, labor costs incurred may be captured on time tickets. 11. A primary driver of overhead costs in continuous manufacturing operations is machine time used. 12. Equivalent units of production are used to determine the cost per unit of completed products. 13. ...
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