ACCT1022 Chapter Notes - Chapter 3: Income Statement, Batch Production, Cost Driver

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Chapter Three: Product Costing and Cost Accumulation in a Batch Production
Environment
Product and Service Cost
Producing costing system: accumulates the costs incurred in a production process
and assigns those costs to the organization’s final product
o Financial accounting: value inventory on the balance sheet and compute
cost of good sod expense on income statement
o Managerial accounting: help managers will planning the provide data for
decision making
o Cost management: provides data for a variety of cost management
purposes
Product Costing in Non-Manufacturing Firms
Identical to that in manufacturing firms
Provide costs of producing their services
Types of Product-Costing Systems
Job Order Costing System
Used by companies with job shop or batch production operations
o Job shop products are created one at a time
o Batch multiple products are produced in batches of relatively small
quantities
Job order costing: each distinct batch of production is called a job or job order and
the cost accounting procedures are designed to assign costs to each job; the cost
are then assigned to each job are averaged over the units of production in the job
to obtain an average cost per unit
Process Costing Systems
Used by companies that produce large numbers of identical units
No need to trace costs to specific batches of production because the product in the
different batches are identical
Process costing system: accumulates all the production costs for a large number of
units of output and then these costs are averaged over all of the units
Accumulating Cost in A Job Order Costing System
Job Cost Record
Job cost record: ledger account assigned to each job where it keeps track of
manufacturing costs
Direct Material Cost
Material requisition form: completed to authorize the release of materials
Source document: a document such as a material requisition for, which is used as
the basis for an accounting entry
Supply Chain Management
Supply chain: refers to the flow of all goods, services, and information into and
out of the organization
Proactively working with some or all of the organizations in a company’s supply
chain to improve service and to manage or reduce costs
Material Requirements Planning
Bill of materials: list of all the materials needed for products
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Document Summary

Chapter three: product costing and cost accumulation in a batch production. Used by companies with job shop or batch production operations: job shop products are created one at a time, batch multiple products are produced in batches of relatively small quantities. Used by companies that produce large numbers of identical units. No need to trace costs to specific batches of production because the product in the different batches are identical. Process costing system: accumulates all the production costs for a large number of units of output and then these costs are averaged over all of the units. Accumulating cost in a job order costing system. Job cost record: ledger account assigned to each job where it keeps track of manufacturing costs. Material requisition form: completed to authorize the release of materials. Source document: a document such as a material requisition for, which is used as the basis for an accounting entry.

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