Job-costing system: costs are assigned to a distinct unit, batch or lot Cost pool – a grouping of individual cost items.

ms. Relevant range: is the band of the level of

of a product or service. A job is a task for which resources are
expended in bringing a distinct product or service to market.
Process-costing system: the cost object is masses of identical or
similar units. The cost of a product or service is obtained by using
broad averages to assign costs to masses of identical or similar
units.
The six steps taken in assigning costs to individual
jobs:
Step 1: Identify the job that is the chosen cost object.
Step 2: Identify the direct costs for the job.
Step 3: Identify the indirect-cost pools associated with
the job.
Step 4: Select the cost-allocation base to use in
allocating each indirect-cost pool to the job.
Step 5: Develop the rate per unit of the cost-allocation
base used to allocate indirect costs to the job.
Step6: Assign the costs to the cost object by adding all
direct costs and all indirect costs.
Cost of goods sold: refers to the direct costs attributable to the
production of the goods sold in a company. This amount includes the cost
of the materials used in creating the good along with the direct labor costs
used to produce the good.
Cost-allocation base – a factor that is the common activity or volume in which a specific
denominator for systematically linking an indirect relationship between the level of activity or
cost or group of indirect costs to a cost object. A volume and the cost in question is valid.
cost-allocation base can be financial (such as direct unit (average) cost:is computed by dividing
labour costs) or non-financial (such as the number some amount of total cost by some number of
of car kilometres travelled units.
Adjusted allocation rate approach: restates all entries in the general ledger by
using actual cost rates rather than budgeted cost rates. First, the actual indirect-
cost rate is calculated at the end of each period. Then, every job to which indirect
costs were allocated during the period has its amount recalculated using the
actual indirect-cost rate (rather than the budgeted indirect-cost rate). Finally, end-
of-period closing entries are made. The result is that every single job cost record –
as well as the closing stock and cost of goods sold accounts – accurately repre-
sents actual indirect costs incurred.
Proration approach: Proration is the term we use A cost object is anything for which
to refer to spreading of under- or overallocated a separate measurement of costs is
overhead among closing stocks and cost of goods desired
sold
Capitalised costs are all costs of
Method 1: Proration is based on the total amount
a product that are regarded as
of indirect costs allocated (before proration) in the
an asset when they are incurred
closing balances of Work in Progress, Finished
and then become cost of goods
Goods and Cost of Goods Sold.
sold when the product is sold.
Method 2: Proration is based on total closing
Revenue costs are recorded as
balances (before proration) in Work in Progress,
expenses of the accounting
Finished Goods and Cost of Goods Sold.
period in which they are
Method 3: Proration is based on year-end write-
off to Cost of Goods Sold.
incurred.
The cost of goods manufactured equation is calculated by adding
the total manufacturing costs; including all direct materials, direct
labor, and factory overhead to the beginning work in process
inventory and subtracting the ending goods in process inventory.

Why is overtime premium of direct labour usually considered an indirect Normal Costing allocates indirect costs based on the budgeted indirect-
rather than a direct cost? Because it does not add to the cost of a cost rate times the actual quantity of the cost-allocation base.
particular batch of work solely because it happened to be worked on Actual Costing allocates indirect costs based on uses an actual indirect-
during the overtime hours. cost rate times the actual quantity of the cost-allocation base.
purpose of Job Costing:
Q8: Which factors can change the release timing / mechanism of
Work load control: Production Planning and Control Concept: Allocation of indirect costs to
orders?
• Releasing jobs based on current work loads each job. Environment usually:
• Stabilise and balance work loads, and Consistent output MTO / ATO Sequence dependent set-ups/ Sequential batching/ Simultaneous
batching/ Nesting/ Assembly
Q1: For what companies WLC is suitable? Q9: What are the output control measures suggested by WLC?
MTO Small and Medium companies with limited financial resources Load capacity determination: Performance of WLC requires a good
understanding of capacity and its flexibility.
Q2: implementation of WLC concept often fail in practice? Q10: What are the output control measures encountered in practice?
Difference in theory and practice (complexity) Re-allocating workers, re-routing of jobs, overtime and subcontracting
No implementation strategy available (reason for research)
Q3: incorporated into the Planned workload? Shop floor (or production activity) control:
Four planning stages and three types of workload: A system for utilizing data from the shop floor as well as data
1. Customer Enquiry  job can be included in total workload processing files to maintain and communicate status information
2. Order Entry  job is included in planned workload on shop orders and workcenters
3. Order Release  job is included in released workload
4. Shop Floor Dispatching  after completion job is taken out of workload
Q4: What are important decisions related to input control? Major functions of shop floor control:
 Due date determination: dependent on routing, customer wishes, third parties etc. 1. Assigning the order priority
 Job acceptance: are we going to do this job? Base it on work load
2. Maintaining WiP (quantity) information
 Order release decision: compare the load of a job with the current load and limits of the
WorkCentre(s). If limit is not exceeded, release the job, otherwise keep it in the pool
3. Conveying order status information
(can be continuous or discreet decision) 4. Providing actual output data for capacity control
 Shop floor control: order progress control (see last week)  feedback loop purposes
Biggest disruptions to this process: 5. Providing quantity by location by order for accounting
Rush orders, rework, outsourced production purposes
6. Measuring efficiency, utilization, and productivity of
Q5: What are the fundamental principles underpinning WLC?
Control the input rate of work in accordance with the output rate; restrict and control the
manpower and machines
amount of work on the shop floor and stabilise throughput times as customers value Data integrity: Key problems in shop floor control:
reliability. • Data inaccuracy
Q6: What are the theoretical order release methods suggested in WLC? • Lack of timeliness
WLC theory: EDD or Planned Release Date in combination with load capacity Consequences:
Q7: What are the practical order release methods used? • Excess inventory
EDD, job size/complexity, customer importance, resource availability, profitability • Stock-out problems
• Missed due dates
• Inaccuracies in job-costing