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Chapter 5

ACC 406 Chapter Notes - Chapter 5: Decision-Making, Finished Good


Department
Accounting
Course Code
ACC 406
Professor
Anthony Chan
Chapter
5

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Chapter 5: Job Order Costing System
Costing System: a set of procedures to accumulate and distribute cost
Job costing System: major example of PCS
Absorption costing vs. Variable Costing
Absorption costing: fixed overhead is treated as product cost and applied to products
Variable Costing: fixed overhead is excluded from product cost and expected to accounting
period
Product cost = direct material + direct labour + total overhead (variable or fixed)
Variable costing:
Product cost = Direct material + direct labour + variable overhead only
Absorption Costing
Actual Absorption costing
Normal Absorption costing
Actual overhead rate = overhead cost ÷ activity volume} actual
Normal overhead rate = overhead cost ÷ activity volume} estimated
Accounting Qualities
Actual
Objectivity
Reliability
Verifiability
(Financial activity)
Normal
timeliness
Relevance
Decision making usefulness
(Management activity)
(1) Immediate write off method:
to use only COGS to close the overhead variance
(2) Provation Method: to use COGS, work in process, finished goods inventory accounts to close
overhead variance
If variance = $30,000
Actual vs Applied Overhead
1) Immediate write-off method: to use COGS to close overhead variance
A) Under application:
Cost of Goods Sold $30,000
Overhead $30,000
B) Over application:
Overhead $30,000
COGS $30,000
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