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Direct costs and tracing


Indirect costs and allocation


Cost Pool

logical grouping of related cost objects


system accounting for DISTINCT cost objects called Jobs. Each job may be different from the


system accounting for MASS production of identical or similar products

Actual Costing

Indirect costs based on the ACTUAL indirect-cost rates times the actual activity consumption

Normal Costing

Indirect costs based on the BUDGETED indirect-cost rates times the actual activity consumption

Seven-step Job Costing

1) Identify Cost Object
2) Identify the Direct Costs
3) Select the Cost-Allocation base to use for allocating Indirect Costs to the Job
4) Match Indirect Costs to Cost-Allocation base
5) Calculate an Overhead Allocation Rate:
Actual OH Costs ÷ Actual OH Allocation Base
6) Allocate Overhead Costs to the Job:
OH Allocation Rate x Actual Base Activity For the Job
7) Total Job Costs = adding all direct and indirect costs together

Three Methods for Adjusting Over/Underapplied Overhead

1) Adjusted Allocation Rate Approach
2) Proration Approach between Cost of Goods Sold, Work-in-Process, and Finished Goods based on their relative sizes
3) Write-Off Approach

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