CHAPTER 4 JOB COSTING

4-1 Define cost pool, cost tracing, cost allocation, and cost-allocation base. Cost pool––a grouping of individual indirect cost items. Cost tracing––the assigning of direct costs to the chosen cost object. Cost allocation––the assigning of indirect costs to the chosen cost object. Cost-allocation base––a factor that links in a systematic way an indirect cost or group of indirect costs to cost objects. 4-2 What is the main difference between job costing and process costing? Provide one example for each costing method. In a job-costing system, costs are assigned to a distinct unit, batch, or lot of a product or service. In a process-costing system, the cost of a product or service is obtained by using broad averages to assign costs to masses of identical or similar units. Students‘ answers will vary when sharing examples of each. 4-3 Why might an advertising agency use job costing for an advertising campaign by PepsiCo, whereas a bank might use process costing to determine the cost of checking account deposits? An advertising campaign for Pepsi is likely to be very specific to that individual client. Job costing enables all the specific aspects of each job to be identified. In contrast, the processing of checking account deposits is similar for many customers. Here, process costing can be used to compute the cost of each checking account deposit. 4-4 Explain how you can determine the cost of a cost object/job under job-costing system. By tracing the cost of direct cost and allocating the cost of indirect cost to a cost object as follows: After identifying the cost object, you can trace the cost of direct cost to it. Then you can select necessary cost-allocation base(s) for all relevant indirect costs, calculate the overhead rate(s) for each cost-allocation base(s), and allocate indirect costs associated with each cost- allocation base(s) to the chosen cost object/job. And finally calculate the total cost of the job by adding all direct traced and all indirect costs allocated to the cost object/job. 4-5 Give examples of two cost objects in companies using job costing. Major cost objects that managers focus on in companies using job costing are a product such as a specialized machine, a service such as a repair job, a project such as running the Expo, or a task such as an advertising campaign.