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Lecture 6

ADMS 1000 Lecture 6: ADMS 1000 Lecture 6 Notes – Process Costing, Job-Order Costing, Measuring Direct Materials Cost and Job Cost SheetPremium


Department
Administrative Studies
Course Code
ADMS 1000
Professor
Keith Lehrer
Lecture
6

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ADMS 1000 Lecture 6 Notes Process Costing, Job-Order Costing, Measuring Direct Materials
Cost and Job Cost Sheet
Introduction
A process costing system is used in situations where the company produces many units
of a single product (such as frozen orange juice concentrate) for long periods at a time.
Examples are mixing cement at St. Marys Cement, refining oil at Petro-Canada, mixing
and bottling beverages at Coca-Cola, and making wieners at J. M. Schneider Inc. (owned
by Maple Leaf Foods Inc.).
All of these industries are characterized by an essentially homogeneous product that
flows evenly through the production process on a continuous basis.
Process costing systems accumulate costs in a particular operation or department for an
entire period (month, quarter, or year) and then divide this total cost by the number of
units produced during the period.
Since one unit of product (litre, kilogram, and bottle) is indistinguishable from any other
unit of product, each unit is assigned the same average cost.
This costing technique results in a broad average unit cost figure that applies to
homogeneous units flowing in a continuous stream out of the production process.
Job-Order Costing
A job-order costing system is used in situations where many different products or
services are produced each period.
For example, a Levi Strauss clothing factory may make many different types of jeans for
both men and women during a month.
A particular order might consist of 1,000 stonewashed men’s blue denim jeans, style
number A312, with a 32-inch waist and a 30-inch inseam.
This order of 1,000 jeans is called a batch or a job.
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