RSM322H1 Lecture Notes - Lecture 9: Financial Statement, Indian Railways, Fixed Cost
Document Summary
Costs must be allocated between cost of goods sold (expense or expired costs) and ending inventories (assets or unexpired costs) note: because allocation involves (cid:373)a(cid:374)age(cid:373)e(cid:374)t"s judg(cid:373)e(cid:374)t, it offers discretio(cid:374) i(cid:374) product costi(cid:374)g a(cid:374)d i(cid:374)co(cid:373)e determination. Product costs: costs of inventory held for resale. Most product costs for physical goods are directly traced to external contacts and do not require cost allocation. Absorption cost systems ensure that all manufacturing costs are assigned to products either by direct tracing or by cost allocation. Job order costing is used in departments that produce output in distinct jobs (job order production) or batches (batch manufacturing). Process costing is used in departments that produce output that is not in distinct batches or produce continuous flows, such as beverages and oil refineries. In practice, many plants use hybrids of job order and process costing. Cost object: distinct job or batch records are maintained for each job (see table 9-1).
