Lecture 2 Flashcards
When is job costing used
Job costing is used when products or services are produced in distinct, individual batches or jobs
Where is job costing typically used
Job costing is typically used in industries where products or services are customized or produced in small quantities
What is cost tracking
Cost tracking is where costs are traced to specific jobs
What are the advantages of job costing
Advantages of job costing are:
- Provides detailed cost information for each job
- Helps in pricing individual jobs accurately
What are the disadvantages of job costing
The disadvantages of job costing are
- Can be labor-intensive to track and allocate costs accurately
- May become difficult to manage for businesses with many jobs at once
When is process costing used
Process costing is used when products are produced in a continuous flow
When is process costing typically used
Process costing is typically used in industries where products are standardized and produced in large volumes
how does process costing track costs
Instead of tracking costs for each job, process costing tracks costs for entire processes or departments over a period of time
What are the advantages of process costing
Advantages of process costing are:
- Easier to apply when production is continuous and uniform
- Costs are accumulated and averaged over large volumes, making it simpler for high-volume operations
What are the disadvantages of process costing
Disadvantages of process costing are:
- Less detailed cost information for individual products
- Difficult to track costs for specific units if products are not distinguishable
What are normal losses
Normal loss are expected or unavoidable loss that occurs during the production process
What are normal losses typically factored into in cost allocation
Normal losses are typically factored into the cost of the good units produced
In accounting what are normal losses absorbed into
Normal loss is absorbed in the cost of production
What are abnormal losses
Abnormal loss refers to losses that are unexpected and not a regular part of the production process
How might abnormal losses occur
Abnormal losses might occur due to accidents, machine breakdowns, human errors, or other irregular factors
How does cost allocation treat abnormal losses
Cost of abnormal loss is treated separately and shown as an expense in the profit and loss account
How does accounting treat abnormal losses
Abnormal losses are usually written off as an expense directly in the profit and loss statement
How do you calculate abnormal and normal losses
To calculate abnormal and normal losses you must:
Step 1: Calculate the Cost per Unit
Step 2: Allocate Costs to Normal Loss
Step 3: Handle Abnormal Loss
Cost per unit =
Cost per unit = Total cost / Total units produced
How does First in First out (FIFO) work
Under FIFO, the first items purchased are assumed to be the first ones sold or used
How does FIFO impact cost of goods sold
Since the older, typically cheaper inventory is sold first, COGS is lower in periods of inflation
How does FIFO impact ending inventory
The inventory on hand is valued at more recent (and typically higher) prices, resulting in a higher ending inventory value
How does FIFO affect profits
FIFO generally leads to higher profits in times of inflation because older, cheaper goods are recorded as the cost of goods sold
What is Last in First out (LIFO)
Under LIFO, the most recently purchased items are assumed to be the first ones sold or used
