ACF5955 Chap.3 Job, Process and Service Costing
Job, Process and Service Costing
Costing systems accumulate and assign resources according to how output is produced. Job costing follows distinct orders, process costing averages homogeneous flow, and service costing defines a meaningful service unit.
This chapter traces cost through work in process and finished output, applies overhead through a predetermined rate, and reconciles applied with actual overhead so the system explains both product cost and period-end differences.
What this chapter covers
- 01
Job-cost accumulation
- 02
Process-cost averaging
- 03
Service-cost units
- 04
Direct-cost tracing
- 05
Predetermined overhead rates
- 06
Under-applied and over-applied overhead
Worked example · free
Cost a specialised repair job
- +1Direct labour is 120 times $36, which equals $4,320.
- +2Applied overhead is 120 times $28, which equals $3,360.
- +2Total job cost is $8,400 plus $4,320 plus $3,360, which equals $16,080.
- +2Cost per unit is $16,080 divided by 24, which equals $670.
Key terms
- Job costing
- Job costing accumulates resource costs for a distinct order, contract or batch.
- Process costing
- Process costing averages costs over homogeneous output moving through repeated stages.
- Service unit
- A service unit measures intangible output in a form that reflects resource workload.
- Applied overhead
- Applied overhead is the indirect cost assigned to output using a predetermined rate and actual activity.
Job, Process and Service Costing FAQ
Can one organisation use more than one costing system?
Yes. A bakery can process-cost standard rolls while job-costing bespoke cakes, and a service firm can job-cost distinct engagements. The production characteristics of each output stream determine the useful accumulation method.
Why is overhead usually applied with a budgeted rate?
A predetermined rate provides timely product costs during the period and avoids waiting for final actual overhead. The tradeoff is that applied and actual overhead differ, so the system needs a period-end reconciliation.
What makes a good service-cost unit?
It should represent both the service and the workload that consumes resources. Client-hours, passenger-kilometres and occupied-bed days can be stronger than a simple client or trip count when intensity varies.
Exam move
For every question, name the output unit before dividing cost. Draw the resource flow and label direct tracing, overhead application and the point where cost becomes expense. Reconcile actual and applied overhead, then explain whether the chosen base represents resource consumption. Keep reporting cost separate from the incremental cash cost needed for a decision.
Begin by sorting cases according to output: a distinct job or batch, a continuous stream of homogeneous units, or a service episode whose completion boundary must be defined. Write that unit at the top of the page before entering any cost.
For job costing, practise a document trail from materials and labour records into the job account, add applied overhead using the predetermined rate, and follow completed cost into finished output and expense. Recalculate the rate denominator when the capacity assumption changes so you can explain why identical resource spending may produce a different amount per job.
For process settings, draw separate department accounts and trace transferred-in cost. If equivalent units are required, state what completion means for material and conversion rather than using one percentage for both automatically. Reconcile physical units before assigning cost; a cost-per-equivalent-unit answer cannot rescue a missing or duplicated unit.
For services, identify a measurable episode such as a consultation, route, claim or engagement. Explain which professional labour or consumable can be traced and which support resource needs an allocation base. Test whether that base reflects the work that consumes the resource rather than what is easiest to count. Maintain a reconciliation template with actual overhead, applied overhead and the under- or overapplied balance.
Interpret the direction: underapplication means actual overhead exceeded the amount applied, not that every job was necessarily inefficient. Ask whether the difference comes from spending, activity volume or an unrealistic denominator. Create comparison cards that hold the underlying resource use constant while changing the system. State what information each method reveals and what averaging hides.
A process average suits homogeneous flow but can conceal variation; job detail supports distinct contracts but costs more to maintain. Before a tactical recommendation, cross out unavoidable allocations and rebuild the relevant future cash flows. Product cost supports reporting and long-run pricing, while a special order or keep-or-drop choice uses a different boundary.
End practice with a full flow reconciliation and one paragraph on driver quality, capacity and the management decision supported by the number. Rotate the same operating facts through a job, process and service framing. Identify which records, accumulation account and output denominator must change, while keeping the underlying resource amounts constant.
Comparing the resulting reports shows which differences arise from production characteristics and which arise only from the chosen costing architecture, strengthening both method selection and interpretation.
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