Direct costs and tracing
Indirect costs and allocation
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
Indirect costs based on the ACTUAL indirect-cost rates times the actual activity consumption
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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