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Chapter 5

Chapter 5 - Job Order Costing

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ACC 406
Vincent Cappelli

Chapter 5Job Order CostingCharacteristics of Job Order Environmentcan be divided into 2 major parts depending on whether or not their productsservices are unique 1 Job Order Accounting System y Firms produce unique products or servicesy EX tailor making suits construction company that remodels homes service station that fixes your car lawyer who handles your real estate transaction 2 Process Costing Accounting System y Firms producing similar products or services y EX oil producers characteristics of the production process will determine whether it is a job or processProcess Production and Costing firms produce large quantities of similar or homogenous products y EX food cement petroleum and chemical firms yOne liter of paint is the same as another liter one bottle of aspirin is the same as anothercost of one unit or a product is identical to the cost of another process firms accumulate production cost by process or by department for a given period of time output for the process for that period of time is measured unit costs are compared by dividing process costs for the given period by the output of the periodJob Order Production and Costing firms operating in job order industries produce a wide variety of services or products that are quite distinct from one anothery Customized or built to order products fit into this category job is one distinct unit or set of units y EX it may be remodeling job for a specific family or a set of 12 tables for childrens reading room common job order processes include printing construction furniture making medicaldental services and automobile repair and beautician services key feature is that the cost of one job differs from that of another and must be kept track of separately when costs are assigned and accumulated it is called job order costing system production cost consists of direct materials direct labour and overheadNormal Costing and Overhead Application unit costs are very important because managers need accurate cost information on material labour and overhead when making decisions there are 2 ways to measure the costs associated with production1 Actual Costing requires firms to use actual cost of all direct materials direct labour and overhead used in production to determine unit cost strict actual cost system is rarely used because they cannot provide unit cost information on a timely basis
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