Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed

Job-costing and process-costing systems

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Job costing in service organisations using actual costing
Normal costing

Job-costing and process-costing systems
To focus on the big picture, emphasise that management accounting provides information for
1 Planning and control – management accounting systems accumulate costs by department to compare with budgeted costs for performance evaluation.
2 Product/service costing – just as financial accounting requires many choices in determining income, management accounting requires many choices to determine the costs of services and products.
Job costing in service organisations using actual costing
Why do service firms need costs of individual jobs Not for costing stock, because there is none. Rather, service firms use job-cost information for cost management, profitability analysis and pricing. Accurate cost information is especially important in public accounting firms where competition is fierce.
Normal costing
Normal costing arose because managers did not want to wait for cost information until actual indirect-cost rates are calculated at year-end. The only difference between actual costing and normal costing is that normal costing uses a budgeted OH rate – all other elements of costing are at actual rates and quantities.

Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012

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