CHAPTER 4 JOB COSTING 41 Cost pool––a grouping of individual cost items. Cost tracing––the assigning of direct costs to the chosen cost object. Cost allocation––the assigning of indirect costs to the chosen cost object. Costallocation base––a factor that links in a systematic way an indirect cost or group of indirect costs to a cost object.
42 In a jobcosting system, costs are assigned to a distinct unit, batch, or lot of a product or service. In a processcosting system, the cost of a product or service is obtained by using broad averages to assign costs to masses of identical or similar units. 43 An advertising campaign for Pepsi is likely to be very specific to that individual client. Job costing enables all the specific aspects of each job to be identified. In contrast, the processing of checking account withdrawals is similar for many customers. Here, process costing can be used to compute the cost of each checking account withdrawal. 44 The seven steps in job costing are: (1) identify the job that is the chosen cost object, (2) identify the direct costs of the job, (3) select the costallocation bases to use for allocating indirect costs to the job, (4) identify the indirect costs associated with each costallocation base, (5) compute the rate per unit of each costallocation base used to allocate indirect costs to the job, (6) compute the indirect costs allocated to the job, and (7) compute the total cost of the job by adding all direct and indirect costs assigned to the job. 45 Two major cost objects that managers focus on in companies using job costing are (1) products or jobs, and (2) responsibility centers or departments. 46 Three major source documents used in jobcosting systems are (1) job cost record or job cost sheet, a document that records and
