MA chap 9 process costing

DIFFERENCE BETWEEN PROCESS COSTING AND JOB ORDER COSTING

Process costing is for mass production
Jo0b order costing is adjusted due to each demand of customer
The kind of product can be used to distinguished between process costing: if they are the
same order
Job order costing if the order is not the same
Based on the characteristics of the product
Producing the potatoes chips, the company use process costing
With different ships, they use job-order costing according to customer needs. Different ships
have different designs

- 1st step; wash potatoes

- 2nd cut
Before move to 2nd step need to finish 1st step so cost overheard will be accumulated until the
end of the production because between each step, they need to add additional labor and
material to complete each step

WORK FLOW
Different where costs are traced to
The value of the goods is the value of the inventory
The value of good will be considered as expense only when the good is sold

COMPUTE
Equivalent costing: if the cost is finished at the end of period, if the target is 5000 but we
finished 4000 or lower. Because we still have unfished good then we cannot calculate all
products
Don’t mention LIFO cause the unfinished/incomplete inventory will be forgotten
if the cost is finished at the end of period, if the target is 5000 but we finished 4000 or
lower.1000 will be continued to be produced, not to be forgotten
MA Chap 10
Basic of framing budgeting
Planning & controlling
Advantage of budgeting
Bottleneck ( there is an issue within a a department of a company so it affect the overall result
, ie production department do well but marketing has problem, then we need to inform all
departments of the company then find out the issue, in other world find the bottleneck)
Budget Period
Budget is made based on balance sheet and income statement
Usually for a year but can be also monthly
Bottom up budgeting vs top down budgeting
Disadvantage of bottom up: affect the overall budget in terms of personal budget, not
cooperating with top management/ sale manager, can be biased based on self ability (low or
high cost, low or high target)
Disadvantage of top-down budgeting: can set unrealistic/unachievable goal for the company,
then blame for lower management if they cannot meet the goal
Solution: top management make the decision with input of lower management to update
market information

Understand the key components of master budget in Manufacturing, Merchandising, and

Service Industries
Starting with sale , then cash budgeting
The major differences of different industries include:
Manufacturing: production budget is involved
Merchandising: no production budget, only purchase budget of merchandise is required.
Service Industries: budget for revenue and cost of providing services
Not-for-profit: expected funding available and plan usage of funding

The Master Budget: overview

Production will depending on inventory
Then we will have back up ; Ie 1100 for 1000
We need spare cause we can have back up products if sale is better than expected, or the
budget is not 100% correct or there is delay in production in next period, need to be
continuos/ perpetual in sale
Keep spare inventory just in case we need more
Cash budget: list the cost in-flow, outflow to see there is a lack of cash and which month we
need cash so that prepare in advance
Budget income statement
Budgeting Example
Expecting cash collections:
Depending on credit policy
Why we need minimum balance cash ?
We need back up cash for uncredited outflow, or customers fail to pay money on time ( lack
money in account receivable) problem with company cash inflow