Principles of Accounting: Chapter Nineteen

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Chapter Summary

Chapter 19 provides information about job costing systems that are ideally suited to situations where goods and services are produced based on a specific order, to customer specifications, or in unique batches. The costs of such activities are traced to specific activities or products. An extensive illustration is developed to demonstrate how time, material, and overhead is tracked and assigned. The chapter discusses how modern technology has greatly eased the burden and facilitated utilization of accurate job costing.

It is important that a firm's ledger mirror its cost assignment process, and the techniques by which this occurs are demonstrated. Because overhead is initially applied to jobs based on an anticipated rate, it is also important to grasp the final disposition of under- or overapplied overhead.

Job costing is also shown to be applicable in service, not-for-profit, and governmental venues. The chapter closes by giving consideration to additional modern techniques that can be used to manage costs and quality within an organization. Some of these techniques include Kaizen, lean principles, just in time inventory, and others.

To aid in your understanding of this chapter, exercises with solutions are available for free download at Bookboon.com. You will find these exercises very helpful in providing models and guidelines for solving all of the problems at principlesofaccounting.com.

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Objectives: Chapter Nineteen

The following learning objectives for this chapter map to the curriculum design for our online university-level courses. These courses are offered through Utah State University, and result in the awarding of up to 6 hours of highly transferrable college credit. To learn more, check out the classroom link.

Basic concepts in job costing.

Describe the approach to accumulating product cost using a job costing system.

Develop an illustration that portrays the typical content of a job cost sheet.

Identify the purpose of a materials requisition.

How is an overhead application rate calculated, and how is it applied?

What is a database system, and how does it facilitate job costing mechanics?

Information systems for job costing environments.

What are some of the influences of technology on job costing data capture?

Define "cost driver."

In a modern manufacturing environment, why might traditional cost drivers produce misleading results?

Tracking job costs in the corporate ledger.

Be able to prepare journal entries to record direct and indirect materials and labor.

Prepare typical entries related to the completion and sale of a manufactured product.

Understand cost flows throughout the various inventory accounts.

Be familiar with transfer pricing issues.

Explain why Work in Process is actually a control account.

Accounting for actual and applied overhead.

Discuss the issues and problems associated with accounting for factory overhead.

How is actual overhead cost accumulated?

Describe the basic content of the Factory Overhead account.

What is meant by over- and underapplied overhead, and how do such amounts emerge from within the accounting system?

Job costing in service, not-for-profit, and governmental environments.

Define capacity utilization, and how does it influence costing allocations for service, not-for-profit, and governmental entities.

Is job costing only applicable to manufacturing businesses?

Modern management of costs and quality.

What is the concept of of Kaizen?

Know the difference between cutting costs and developing lean organization.

Explain just in time inventory management.

Be able to discuss quality management concepts, like TQM, ISO 9000, and Six Sigma.

What is the management accountants role in quality management?

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