Steven R.Jackson, Roby B.Sawyers & J. Gregory Jenkins, ” Managerial Accounting: a Focus on Ethical Decision Making”, 5th Ed., South- Western, 2009,2008. Chapter 5
American University in Cairo (AUC) Managerial Accounting ACCT (202)
Dr.Mona ElBannan
Spring 2012
HANDOUT CHAPTER 5 JOB COSTING AND PROCESS COSTING
Product Costing Systems
Companies use various product systems to accumulate, track, and assign the costs of production (direct labor, direct materials, and overhead costs) to the goods produced & services provided by the company.
Reasons behind determining the cost of the product:
1- Pricing decisions made by the marketing manager depend on the product cost information in order to set or fix the optimal price. If the company fix too low price it will gain high market share but achieve low profit. Also, if the company fixes a price which is too high then it will gain low market share and can’t be competitive. 2- Production manager need cost information in order to know whether to buy components or to make it internally.
1
American University in Cairo (AUC) Managerial Accounting ACCT (202)
Dr.Mona ElBannan
Spring 2012
Product costing systems
• Job Costing Jobs are the individual units of the product. Companies which manufacture customized production or service use a job costing system, which accumulates, tracks, and assigns costs for each job (unit). Job costing is used in situations in which a customer initiates an order, which pulls the product through the process. • Examples include: Home Builders Furniture Manufacturers Custom Printers Hospitals determining patient costs CPA firms Audit firms Brokerage firms Law Firms Printer for wedding invitations
Process Costing Companies that produce a homogeneous product produced on a continuous basis use process costing system. It is used by companies that forecast the demand and push a product through manufacturing process. Instead of accumulating, tracking and assigning costs to each unit, it accumulates, tracks, and assign cost to each process as the product pass through each process. • Examples include: Oil
Dr.Mona ElBannan
Spring 2012
HANDOUT CHAPTER 5 JOB COSTING AND PROCESS COSTING
Product Costing Systems
Companies use various product systems to accumulate, track, and assign the costs of production (direct labor, direct materials, and overhead costs) to the goods produced & services provided by the company.
Reasons behind determining the cost of the product:
1- Pricing decisions made by the marketing manager depend on the product cost information in order to set or fix the optimal price. If the company fix too low price it will gain high market share but achieve low profit. Also, if the company fixes a price which is too high then it will gain low market share and can’t be competitive. 2- Production manager need cost information in order to know whether to buy components or to make it internally.
1
American University in Cairo (AUC) Managerial Accounting ACCT (202)
Dr.Mona ElBannan
Spring 2012
Product costing systems
• Job Costing Jobs are the individual units of the product. Companies which manufacture customized production or service use a job costing system, which accumulates, tracks, and assigns costs for each job (unit). Job costing is used in situations in which a customer initiates an order, which pulls the product through the process. • Examples include: Home Builders Furniture Manufacturers Custom Printers Hospitals determining patient costs CPA firms Audit firms Brokerage firms Law Firms Printer for wedding invitations
Process Costing Companies that produce a homogeneous product produced on a continuous basis use process costing system. It is used by companies that forecast the demand and push a product through manufacturing process. Instead of accumulating, tracking and assigning costs to each unit, it accumulates, tracks, and assign cost to each process as the product pass through each process. • Examples include: Oil