THE COSTS 




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7 STEPS TO MAKE A JOB ORDER COSTING 1. Identify
the chosen costobject
2. Identify the direct costs the job 3. Select the cost allocation bases 4. Identify the indirect costs 5. Calculate the rate per unit 6. Calculate the indirect costs 7. Calculate the total cost of the job EXAMPLE OF A JOB ORDER COSTING A manufacturing company is planning to sell a batch of 25 special machines (Order 650) to a retailer for $114,800. Step 1.
IDENTIFY THE OBJECT COST
The costobject is
Order 650.
Step 2. IDENTIFY
THE DIRECT COSTS OF THE JOB
Step 3. SELECT THE DISTRIBUTION BASES FOR COST ALLOCATION
The distribution of
costs is based on machinehours. The
order 650 used 500 machine hours. The
total machine hours used in all jobs was 2,480.
Step 4. IDENTIFY
THE INDIRECT COSTS
The manufacturing
indirect costs (overhead) were $ 65,100.
Step 5. CALCULATE
THE RATE PER UNIT
The indirect cost
rate is $ 65100 ÷ 2480 = $ 26.25 per machinehour.
Step 6. CALCULATE
THE INDIRECT COSTS
$26.25 per
machinehour x 500 hours = $ 13,125
Step 7. CALCULATE
THE TOTAL COST OF THE JOB
What is the
contribution margin of this work?
What is the percentage of contribution margin?
$32.675 ÷ $ 114.800 = 28.5%
ACTUAL OR CURRENT COSTING VS NORMAL COSTING Actual costing is a system that uses current costs to determine the cost of individual orders (see Step 7 in the example above). Normal costing is a method that distributes indirect costs based on their budgeted rate by the actual amount of the cost distribution base. EXAMPLE: Assuming that the manufacturing company of the example above budgeted a total of $60,000 for manufacturing indirect costs and 2400 machinehours. Which would be the rate of indirect costs budgeted? Ans = $60,000 ÷ 2,400 = $25 per hour. How much indirect cost was distributed to the Order 650? Ans = 500 machinehours X $25.00 = $12,500
Then
the cost of the Order 650 under normal costing would be:


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