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Distinguish between Job, Process, Normal and Actual Costing

Exercises
Job costing, process costing. In each of the following situations, determine whether job costing or
process costing would be more appropriate.
Situation JOB COSTING OR PROCESS COSTING EXPLANATION
a. A CPA firm
b. An oil refinery
c. A custom furniture manufacturer
d. A tire manufacturer
e. A textbook publisher
f. A pharmaceutical company
g. An advertising agency
h. An apparel manufacturing plant
i. A flour mill
j. A paint manufacturer
k. A medical care facility
l. A landscaping company
m. A cola-drink-concentrate producer
n. A movie studio
o. A law firm
p. A commercial aircraft manufacturer
q. A management consulting firm
r. A breakfast-cereal
t. A paper mill
u. An auto repair shop

Job costing, normal and actual costing. Anderson Construction assembles residential houses. It uses
a job-costing system with two direct-cost categories (direct materials and direct labor) and one indirect-cost
pool (assembly support). Direct labor-hours is the allocation base for assembly support costs. In December
2006, Anderson budgets 2007 assembly-support costs to be $8,000,000 and 2007 direct labor-hours to be
160,000.
At the end of 2007, Anderson is comparing the costs of several jobs that were started and completed in 2007. Direct materials and direct labor are paid for on a contract basis. The costs of each are known when direct materials are used or when direct labor-hours are worked. The 2007 actual assembly-support costs

1. Compute the (a) budgeted indirect-cost rate and (b) actual indirect-cost rate. Why do they differ?
2. What are the job costs of the Laguna Model and the Mission Model using (a) normal costing and
(b) actual costing?
3. Why might Anderson Construction prefer normal costing over actual costing?

Laguna Model Mission Model
Construction period
Direct materials
Direct labor
Direct labor-hours Feb¡VJune 2007
$106,450
$36,276
900 May¡VOct 2007
$127,604
$41,410
1,010

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Exercises
Job costing, process costing. In each of the following situations, determine whether job costing or
process costing would be more appropriate.

The distinction between process costing and job costing is
Job-order costing is used in situations where many different products, jobs, or batches are produced each period. Process costing is used in situations where a homogeneous product is produced on a continuous basis.
Situation JOB COSTING OR PROCESS COSTING EXPLANATION
a. A CPA firm
Job Each client is separate person with different requirements

b. An oil refinery Process The units are the same and the quantity is large

c. A custom furniture manufacturer
Job It is a custom furniture so each item is made as per the specification of the customer

d. A tire manufacturer
Process The items are the same

e. A textbook publisher
Job The textbooks are different from each other and so are customized products

f. A pharmaceutical company
Process The units produced are all the same.

g. An advertising agency
Job Different clients will have different needed

h. An apparel manufacturing plant Job Different garments will have different styles

i. A flour mill
Process The output is homogeneous

j. A paint manufacturer
Process
The output is homogeneous

k. A medical care facility Job Each patient would need ...

Solution Summary

The solution explains when to use job order costing and when to use process costing. It has a numerical example which shows the calculations for Actual Costing and Normal Costing

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