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Chapter 5

Chapter 5 ACC 406.docx

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ACC 406
Anthony Chan

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
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