Cost accounting CH 5
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What are the Costing Systems?
Job order costing
is a system for allocating costs to groups of unique products made to customer specifications. House constuction often relies on job order costing because they are each different.
is a system for allocating costs to homogeneous units of a massproduced product. Method would be used in producing running shoes that are all basically the same.
- Activity-based costing (ABC) is a cost system that focuses on activities, determines their costs, and then uses appropriate cost drivers to trace costs to the products based on the activities. It is most
- commonly used when overhead is a significant part of an item's cost because various types of
- overhead are driven by different things.
Prime Vs. Conversion cost
Prime cost = Direct Labor + Direct Material
Conversion Cost = Direct Labor +Manufacturing Overhead
Overhead application rate
Overhead application rate = Estimated Factory overhead costs/ Estimated activity base
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