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Product Costing Product Costing 1 Product Costing • • • • • • • • The Need for Product
Costing Job-Order and Process Costing Process Costing Job-Order Costing Hybrid
Approaches to Product Costing Standard Costing Systems Microcosting Product Costing and
Computers Product Costing 2 The Need for Product Costing • Inside stakeholders need info
on product costing for making decisions • Outside stakeholders are also interested in info
on product costing Product Costing 3 Job-Order and Process Costing • Job-order costing vs
Process costing ? Product Costing 4 Job-Order and Process Costing Job-order Costing
Process Costing – measures separately the cost of producing the units for each job – is a
system in which all units are produced within a given time period are assigned the same
costs – Uses different amounts of labor, materials, and overhead for each job – Is widely
used when all products consume exactly the same inputs Product Costing 5 Job-Order and
Process Costing (continued) Table 3-1 Example of Process Costing for Surgical Patients $
Amount Cost Categories Total nursing and technician labor: 10 hours @ $24 Surgical
supplies Overhead costs (depreciation, administration,et.) $240 2,260 500 Total costs
Divided by number of patients $3,000 2 Cost per patient $1,500 Product Costing 6 Job-
Order and Process Costing (continued) $ Amount Patient A Patient B Cost Categories
Nursing and technician labor: 2 hours @ $20 8 hours @ $25 $40 $200 Surgical supplies 260
2,000 Overhead costs (depreciation, administration,et.) 250 250 $550 $2,450 Total costs
Product Costing 7 Job-Order and Process Costing (continued) Table 3-3 Example of Process
Costing for Laboratory Tests Cost Categories $ Amount Total technician labor: 1 hours @
$30 Laboratory supplies $30 6 Overhead costs (depreciation, administration,et.) 21 Total
costs Dividied by number of tests $57 3 Cost per test $19 Product Costing 8 Job-Order and
Process Costing (continued) $ Amount Patient A Patient B Patient B Cost Categories Nursing
and technician labor: 19 minutes @ $0.50 /minute 21 minutes @ $0.50 /minute 20 minutes
@ $0.50 /minute Laboratory supplies Overhead costs (depreciation, administration,et.)
Total costs Product Costing $9.50 $10.50 2.00 2.00 $10.00 2.00 7.00 7.00 7.00 $18.50
$19.50 $19.00 9 Process Costing • Is excellent for assigning responsibility and evaluating
the costs incurred in the department that produces homogeneous products/services
Product Costing 10 Job-
sheet • The extreme model
Costing 11 Job-Order Costing Exhibit 3-1 Patient Cost Sheet Patient Cost Sheet Patient
Number Admission Date A. Direct Supplies Date Item Description B. Direct Labor Date
Employee Name/Title Item Code # Comments Quantity Hourly Rate Amount of Time

2. Including Fringe ID # C. Ancillary Date Department Unit of Service D. Overhead Applied
Date Department Overhead Basis Quantity Product Costing Unit Cost Amount Amount Unit
Cost Amount Overhead Rate Amount 12 Process Costing vs. Job-Order Costing Table 3-5
Advantages of Process and Job-Order Costing Advantage More detailed information More
accurate information Less expensive system Less burdensome to maitain Usefulness for
responsibility accounting Better for decision making Less potential employeee resistance
Product Costing Process Job-Order Costing Costing X X X X X X X X 13 Process Costing vs.
Job-Order Costing (continued) Table 3-6 Comparison of Process and Job-Order Costing
Process Job-Order Labor Averaged Specific Cost Materials Averaged Specific Product
Costing Overhead Averaged Averaged 14 Hybrid Approaches to Product Costing • Managers
must decide as to how much average they are willing to tolerate or how much they are
willing to pay for more specific costing Product Costing Job-Order Costing Hybrid Costing
Product Costing Process Costing 15 Standard Costing Systems • Standard costs are
predetermined estimates of what is expected to cost • Standard costs are determined by
using historical results, time-and-motion observations, or theoretical calculations Product
Costing 16 Standard Costing Systems (continued) Table 3-7 Standard Cost Card for Chest X-
Ray $ Amount Cost Categories Direct Labor Technician: 18 minutes @ $30 / hour $9.00
Direct Materials Film 25.00 Department indirect costs Variable costs per X-ray Fixed costs:
$60,000 divided by 20,000 expected X-rays Allocated overhead costs from other
departments $100,000 divided by 20,000 expected X-rays Total 4.00 3.00 5.00 $46.00
Product Costing 17 Table 3-8 Cleverley Standard Costing Method-Standard Treatment
Protocol, Patient Type A, Department 1 SUs Service Unit 15 28 43 Quantity 2 1 5 Standard
Cost Profile ($) Direct labor Direct materials Department 1 indirect costs Variable Fixed
Allocated cost from other departments Variable Fixed Extended Cost ($) 23.20 46.40 11.20
22.40 5.24 7.40 10.48 14.80 9.25 4.20 18.50 8.40 Direct labor Direct materials Department
1 indirect costs Variable Fixed Allocated cost from other departments Variable Fixed 41.20
21.90 41.20 21.90 6.45 12.10 6.45 12.10 12.25 7.50 12.25 7.50 Direct labor Direct materials
Department 1 indirect costs Variable Fixed Allocated cost from other departments Variable
Fixed 5.00 4.50 25.00 22.50 3.00 2.50 15.00 12.50 10.00 2.00 50.00 10.00 Product Costing
18 Table 3-9 Standard Cost Card for Department 1, SU 43 Table 3-9 Standard Cost Card for
Department 1, SU 43 Cost Categories Direct labor 20 minutes @ Direct materials Reagents
Other direct supplies Total materials $ Amount $15 /hour $5.00 $3.00 1.50 Department 1
indirect costs Variable (labor, supplies, other) Fixed (supervisors, clerks, depreciation,
supplies, seminars, dues, publications, etc.) $125,000.00 Divided by expected volume
50,000.00 Allocated cost from other departments Variable Fixed Divided by expected
volume Total cost per unit $100,000.00 50,000.00 4.50 3.00 2.50 10.00 2.00 $27.00 Product
Costing 19 Microcosting • Is the process of closely examining the actual resources
consumed by a particular patient or service • Tends to be extremely costly and is generally
done only for special studies Product Costing 20 Product Costing and Computers • Adopting
bedside or portable hand-held computers to enable immediate entry into an electronic
medical record, immediate access to patient lab work, and patient-specific resource use •
Scanning clinicians’ identification card into the computer to record time of entry and exit
from specific room • However, these devices and associated efforts are still costly

3. endeavors Product Costing 21 Assignment • Problem 2 on page 48 Product Costing 22
Cardiology Orthopedic Oncology Total Patient volume Number of X-ray per pt Number of X-
ray treated 8 4 – 3 – – Stationary % 0% – 90% – 85% – Portable % 100% – 10% – 15% –
Stationary Portable Total Variable costs X-ray film Developing chemicals $ Volume Total
variable cost Fixed costs Technician salary for stationary X-ray Number of technician for
portable X-ray Number of technician $ – $ – $ $ – $ $ – $ – 6 8 Maintenance cost Stationary
X-ray Portable X-ray $ Overhead $ $ – $ – $ – $ $ – $ – $ – – – Chapter 3, Problem 2, page 48
Cost per unit Finkler Chapter 3, Problem 2 Total fixed costs $ – $ – $ – Total costs $ – $ – $ –
The radiology department of Metro-North Hospital takes 37,000 X-rays each year. The X-
rays are taken as part of the treatment protocols for patients from three revenue
departments: 2,000 cardiology patients who require an average of 8 X-rays each; 4,500
orthopedic patients who each get an average of 4 X-rays during the course of their
treatment; and 1,000 oncology patients who have three X-rays taken for cardiology patients
require the use of portable equipment while only 10% of the orthopedic patient X-rays and
15% of the oncology patients’ X-rays use the portable equipment. On average, the number
of X-rays that have to be taken does not vary between patients that use the stationary X-ray
machines in the radiology laboratory and X-rays taken using the portable equipment. X-ray
film costs $15 per exposure and developing chemicals cost $2.00 per image. Annual salaries
are $30,000 per year for each of the six technicians who operate the stationary X-ray
machines and $35,000 for each of the eight technicians who operate the portable X-ray
equipment. Radiology has fixed overhead costs of $100,000 per year and spends $15,000
per year to maintain the stationary X-ray machines and $25,000 to maintain the portable
units. a) Using process costing, what is the cost per X-ray? b) Using job-order costing, what
is the cost per X-ray for the patients who have X-rays taken in the laboratory and those
whose X-rays are taken using the portable equipment?