Textbook Notes (363,559)
Canada (158,426)
Commerce (585)
COMM 112 (20)
Chapter 5

112 Chapter 5.docx

3 Pages
Unlock Document

Queen's University
COMM 112
Teri Shearer

PROCESS PRODUCTION AND COSTING  Those firms producing similar products and services use process-costing accounting systems o Mass production of similar products – factories  The cost of one product is the same as the cost of the identical product  Process firms accumulate production costs by process or by department for a given period  The output is measured  Unit costs are computed by dividing the process costs by the output  Looked at in chapter 6 JOB ORDER COSTING:  Firms producing unique product or services require a job-order accounting system o Real estate, remodeling homes, custom suits, construction, etc.  Customized products to fit the needs of different customers  Costs are assigned and accumulated by job  Production costs: direct materials, direct labour, and overhead  DM and DL are easy to trace – but overhead is not o Solution: apply overhead to production ACTUAL COSTING VS NORMAL COSTING  Job-costing uses normal costing  Actual costing: require firm to use the actual cost of DM, DL and overhead to determine unit cost o It is rarely used because they cannot provide accurate unit cost information on a timely basis o Per-unit consumption of DL and DM isn’t the problem o Overhead items do not have a direct relationship – so you shouldn’t just take the total overhead and divide it up by the number of units produced o Overhead costs don’t occur uniformly over the year  EX: you only have a machine breakdown at a certain time of the year – not uniform o SO, you can't wait until the end of the year to compute overhead costs  Normal costing: requires firm to assign actual costs of DM and DL to units produced and to apply overhead to units based on a predetermined estimate o Determines unit cost by estimating overhead and adding it to DM and DL o You estimate at the beginning of the year and then use a predetermined rate throughout the year ESTIMATING OVERHEAD STEP 1: calculate the predetermined overhead rate  Calculated at the beginning on the year  Overhead rate = estimated annual overhead / estimated annual activity level  Often based on last year’s activity and then adjusted for the coming year  The activity depends on what is most related to overhead o EX: number of machine hours can be associated with a firm who automates a lot STEP 2: apply overhead to production  Once overhead rate is computed, you can apply the rate to the production  Overhead is applied by multiplying the predetermined overhead rate by the actual use of the associated activity STEP 3: determine actual overhead and allocate overhead to WIP and finished goods  Overhead applied to production is computed throughout the year and is added to actual DM and DL to get total product cost  At the end of the year, you have to reconcile any difference between actual and applied overhead  Under applied = when you estimate less than actual = understated costs = ADD to cogs  Over applied = when you estimate more than actual = overstated costs = SUBTRACT from cogs  Entire overhead variance is assigned to COGS o Overhead variance is usually small o AND, all production costs get moved to COGS eventually  Plant-wide overhead rate: a single overhead rate calculated by using all estimated overhead  Departmental overhead rate: split up by departments – then you can add them all together in the plant UNIT COSTS  Unit cost = the total cost of a job / number of units in the job o Total cost = Materials used, labour worked, applied overhead CONVE
More Less

Related notes for COMM 112

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.