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Lecture 3

ADM 3346 Lecture Notes - Lecture 3: Cost Driver


Department
Administration
Course Code
ADM 3346
Professor
Tiemei L I
Lecture
3

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Chapter 4-Job Costing
Learning Objectives
Q1: How are the costs of products or services accumulated?
Q2: How are costs assigned to customized goods and services?
Q3: How is overhead allocated to individual jobs?
Q1: How are the costs of products or services accumulated?
Manufacturing vs. Merchandising Concerns
Manufacturing concerns produce inventory in-house and calculate cost of goods sold as
follows:
Beginning Inventory + Cost of Goods Manufactured = Cost of Goods Sold +
Ending Inventory
Cost of Goods Manufactured includes three components:
Direct materials used
Beginning raw materials + raw materials purchases – ending raw materials
Direct labor
obtained from the company ledger
Manufacturing overhead (indirect expenses such as indirect labor and materials,
utilities and rent for the plant, etc)
Obtained from the company ledger
Cost of Goods Manufactured – Cost Flow:
Manufacturing Cost (total of direct materials used, direct labor and
manufacturing OH) + beginning work-in process inventory – ending work –in-
process inventory = Cost of Goods Manufactured (COGM)
Merchandising concerns purchase inventory from suppliers and calculate cost of goods sold
as follows:
Beginning Inventory + Purchases = Cost of Goods Sales + Ending Inventory
Purchases include the cost of the products themselves plus costs such as freight,
duty, taxes that are incurred in bringing the inventory to the sellers location
Q2: How are costs assigned to customized goods and services?
Job Costing vs. Process Costing
Job costing is best used when products can be distinguished from one another.
Process Costing is best used when similar products are massed produced.
In many companies, hybrid costing systems are used that include characteristics of
both job and process costing.
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