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MAC1501 Notes

The document discusses methods of cost accumulation in production, focusing on job costing and process costing. Job costing is suitable for custom orders and batch production, assigning costs per job, while process costing is used for mass production, accumulating costs by departments over specific periods. Each method has distinct approaches to assigning and accumulating production costs based on the nature of the goods produced.

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15 views1 page

MAC1501 Notes

The document discusses methods of cost accumulation in production, focusing on job costing and process costing. Job costing is suitable for custom orders and batch production, assigning costs per job, while process costing is used for mass production, accumulating costs by departments over specific periods. Each method has distinct approaches to assigning and accumulating production costs based on the nature of the goods produced.

Uploaded by

tianesnyman5
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Methods of cost accumulation

We have seen that we must select a basis for measuring production costs (actual, normal or standard costing) then decide if all overheads will be included in the cost of production
(absorption or marginal costing) and if we select absorption costing, we must decide how to determine the overhead apportionment rates (traditional or ABC methods)
We still do not know how we are going to accumulate the assigned costs until the goods are completed and ready for sale.
The two most widely used methods of cost accumulation are job costing and process costing.

Job Costing Process Costing

Also called job-order costing Production costs are assigned to processes or departments rather than
Most appropriate where goods are made according to customer specifications individual jobs
(Where a tender had been accepted) Used when identical goods are mass produced on a continuous basis and for a
Also suited for contexts where goods are produced in batches long time
A "job" can consist of a single product, a batch of similar products or a special Process costing accumulates costs in departments (processes) for a specific
order period (e.g. a month)
In Job costing we assign and determine product costs per job and not per Separate work-in-progress account is opened for each department (example
period the cutting department, the stitching department, the packing department)
We can only assign costs per job if the goods manufactured differ markedly The cost of direct materials, direct labour and production overheads are
from one another accumulated and assigned to departments first
Also used for special orders Costs of the departments are then assigned to the cost of the goods
Each job represents a separate work-in-progress account until the job is manufactured.
completed and the goods manufactured in that job are transferred to finished Direct materials are expected to be added in the first department; you cannot
goods add labour and overheads, unless the labour and overheads have materials to
convert.
More direct materials may be added in subsequent departments

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