Job Order Costing Lecture Notes

Key Concepts

Product Costing
- Composed of:
  - Direct Material
  - Direct Labor
  - Overhead Cost
- Example: Making a burger
  - Direct Material: Bun, meat, cheese (traceable to the burger)
  - Direct Labor: Cook's wages
  - Overhead: Indirect costs (e.g., utilities like gas and lighting, cleaning supplies)
Direct Vs. Indirect Costs
- Direct Costs: Easily traceable to the product (e.g., materials and labor directly involved in production)
- Indirect Costs (Overhead): Costs not directly traceable to a single product (e.g., utilities, rent)

Actual vs. Applied Overhead
- Actuals used for materials and labor
- Overhead is estimated as applied overhead
Predetermined Overhead Rate
- Estimated before a period (month/year)
- Factors in estimated total overhead and an overhead driver (e.g., labor or machine hours)
- Helps apply overhead costs to products in real-time

Job Order Costing
- For custom products (e.g., architectural plans, legal services)
- Each order is distinct and varies per customer
- Involves more detailed tracking of costs per job
Process Costing
- For mass-produced, uniform products (e.g., smartphones, consumer goods)
- Products are identical, allowing cost per item to be averaged

Job Order Costing
- Architectural firms, accounting firms, custom home renovations
- Custom artwork (each piece is individually costed)
Process Costing
- Mass production like iPhones, dental flossers, shoes

This module focuses on job order costing; process costing will be addressed in the next module.
Emphasis on understanding the application of overhead costs and the use of predetermined overhead rates in costing systems.