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Chapter Summary

Section 20.1: Compare and Contrast Job Order Costing and Process Costing​

  • Job order costing: Unique products, costs by job
  • Process costing: Identical products, costs by process
  • Choose based on product characteristics
  • Some businesses use both

Section 20.2: Three Major Components of Product Costs​

  • Direct materials: Traceable to jobs
  • Direct labor: Work directly on jobs
  • Manufacturing overhead: Indirect costs, allocated
  • Total job cost = Direct materials + Direct labor + Applied overhead

Section 20.3: Flow of Product Costs through Inventory Accounts​

  • Costs flow: Raw Materials → Work in Process → Finished Goods → Cost of Goods Sold
  • Job cost sheet tracks costs by job
  • Work in Process accumulates costs for all jobs
  • PCN accounts support cost flow

Section 20.4: Predetermined Overhead Rate​

  • Predetermined rate = Estimated overhead ÷ Estimated activity base
  • Common bases: Direct labor hours, direct labor cost, machine hours
  • Apply overhead as jobs are worked on
  • Actual vs. applied will differ

Section 20.5: Compute Job Cost​

  • Accumulate all costs for job
  • Direct materials + Direct labor + Applied overhead
  • Job cost sheet documents all costs
  • Calculate profitability by job

Section 20.6: Underapplied/Overapplied Overhead​

  • Underapplied: Actual > Applied
  • Overapplied: Applied > Actual
  • Dispose by closing to COGS or allocating to WIP, FG, and COGS
  • Adjust rate if consistently off

Section 20.7: Journal Entries​

  • Purchase materials
  • Issue materials to jobs
  • Record direct labor
  • Incur actual overhead
  • Apply overhead
  • Complete jobs
  • Sell jobs
  • Close underapplied/overapplied overhead

Section 20.8: Nonmanufacturing Applications​

  • Service companies use job costing
  • Construction companies use job costing
  • Professional services use job costing
  • Similar principles, adapted to industry

Section 20.9: Luxembourg Service Company Job Costing​

  • Service companies track costs by client/project
  • Direct labor often major cost
  • Overhead allocation needed
  • Multilingual and cross-border considerations
  • Use appropriate PCN accounts

Section 20.10: Luxembourg Craft/Artisan Business Costing​

  • Each product is unique
  • Direct materials and labor significant
  • Overhead includes workshop costs
  • Job costing essential for pricing
  • Track costs accurately