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Topic Three by Dr. Ong Tze San tzesan@econ.upm.my

Systems Design: Job-Order, Process & AB Costing. Topic Three by Dr. Ong Tze San tzesan@econ.upm.edu.my. A company produces many units of a single product. One unit of product is indistinguishable from other units of product.

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Topic Three by Dr. Ong Tze San tzesan@econ.upm.my

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  1. Systems Design: Job-Order, Process & AB Costing Topic Three by Dr. Ong Tze Santzesan@econ.upm.edu.my

  2. A company produces many units of a single product. • One unit of product is indistinguishable from other units of product. • The identical nature of each unit of product enables assigning the same average cost per unit. Types of Product Costing Systems ProcessCosting Job-orderCosting

  3. Many different products are produced each period. • Products are manufactured to order. • The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. Types of Product Costing Systems ProcessCosting Job-orderCosting

  4. Job-Order Costing Costs are traced andapplied to individualjobs in a job-ordercost system. Direct Materials FinishedGoods Jobs Direct Labor ManufacturingOverhead Cost of GoodsSold

  5. Process Costing Costs are traced and applied to departments in a process cost system. Direct Materials FinishedGoods Processing Department Direct Labor ManufacturingOverhead Cost of GoodsSold

  6. Operation Costing Operation costing is a hybrid of job-order and process costing because it possesses attributes of both approaches. Job-order Costing Operation Costing (Products produced in batches) Process Costing Material Costs chargedto batches as injob-order costing. Conversion costsassigned to batchesas in process costing.

  7. ABC is a good supplement to our traditional cost system I agree! Activity Based Costing (ABC) ABC is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore affect fixed as well as variable costs.

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