Cost Management: Measuring, Monitoring, and Motivating Performance, 2nd Edition

CHAPTER 5

Job Costing

In Brief

Custom products and services, which are produced singly or in small batches, need to be valued for financial statements, tax reporting, and management monitoring. Job costing is an accounting method used to assign product costs to custom products or services. In job costing, direct costs are traced and overhead costs are allocated to individual jobs. Sometimes defects occur in custom products. Defective units can sometimes be reworked. The costs for both spoilage and rework need to be accounted for, as does the cost of scrap that arises from production.

This Chapter Addresses the Following Questions:

• Q1 How are costs assigned to customized goods and services?
• Q2 How is overhead allocated to individual jobs?
• Q3 How does job costing information affect managers' incentives and decisions?
• Q4 How are spoilage, rework, and scrap handled in job costing?
• Q5 What are the quality and behavioral implications of spoilage?

BOMBARDIER: CUSTOM MANUFACTURING

Bombardier, Inc., manufactures high-performance business Learjets. The jets, though relatively small, are well-appointed with interiors designed for personal comfort and convenience. They are often referred to as the limousines of the skies. Models include the Learjet 45XR (super-light jet) and Learjet 60XR (midsize jet). Part of the manufacturing process is the customization of each jet. These activities ...