Systems Design—Job-Order Costing Show Learning Objectives
Chapter Overview A. Costing Systems. Two major types of costing systems are used in manufacturing and many service companies: process costing and job-order costing.
B. Job-Order Costing—An Overview. The discussion in the text and below assumes that a paper-based manual system is used for recording costs. Cost and other data are recorded on materials requisition forms, time tickets, and job cost sheets. Of course, many companies now enter cost and other data directly into computer databases and have dispensed with these paper documents. Nevertheless, the data residing in the computer typically consists of a “virtual” version of the manual system. Since a manual system is easy for students to understand, we continue to rely on it when describing a job-order costing system.
C. Job Order Costing—The Flow of Costs . Exhibit 3-14 in the text provides a model for the cost flows in a job-order costing system.
D. Under- and Overapplied Overhead. Since the predetermined overhead rate is based entirely on estimated data, the actual amount of overhead cost incurred will almost always differ from the amount of overhead cost that is applied to the Work In Process account. The difference is termed underapplied or overapplied overhead, and as discussed above, can be determined by the ending balance in the Manufacturing Overhead control account. An underapplied balance occurs when more overhead cost is actually incurred than is applied to the Work In Process account. An overapplied balance results from applying more overhead to Work In Process than is actually incurred.
Is job order cost homogeneous?A business that produces homogeneous products on a large scale would use process costing to determine the amount of money spent on each individual process over a particular period, while those dealing in unique, heterogeneous wares would use job costing to determine the cost of each individual unit made.
What type of firms would use job order costing?Companies in the white-collar sector of business, including law firms, accounting businesses, and private investment companies, can utilize job order costing to manage individual client accounts. For example, accounting firms can consider each individual client a job.
Which of the following will most likely use a job order costing system?Answer and Explanation: The answer is option A, a health care clinic. A health care clinic would most likely use a job-order costing system as it offers unique and specialized services to its clients.
What is job order costing best for?Job order costing is useful for determining if a job is profitable. It helps the company make estimates about the value of materials, labor, and overhead that will be spent while doing that particular job.
|