Costing Methods

Costing Methods

1. Process Costing

   • Assigning costs and revenues to a process of products that are identical and mass-produced Ex: sodas

2. Job Costing

   • Assigning costs and revenues for each individual job rather than for an entire process. Ex: tracking costs and revenues for custom made furniture that is unique
   • Job
     • A job is an activity that produces a unique product that can be easily distinguished from other products. Ex: custom furniture
   • Assigning Direct Materials
     • Begin with purchase of Raw Materials
       • Materials are "requisitioned" for production using a "Materials Requisition Form"
         • WIP inv                         xxx      Raw materials inv.          xxx
         • Materials Requisition Form
           • Matches the requisitioned materials to the corresponding job the materials will be used for
   • Assigning Direct Labor
     • Use "Time Sheet" to assign Direct Labor
       • Each employee will indicate on their time sheet how much time they spent on a job WIP inv       Wages payable      
   • Job Cost Sheet
     • Used to track the Direct Materials, Direct Labor, and Manufacturing Overhead of each Job
   • Assigning Manufacturing Overhead
     • Use Predetermined Overhead Rate(POR) to assign MOH
       • Predetermined Overhead Rate
         • Uses an estimate of what the current year's total MOH will be, divided by the estimate of the Allocation base, which is chosen based on a common cost driver

3. Activity Based Costing

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