Why would a manager opt to use the write-off to cost of goods sold approach for...

Why would a manager opt to use the write-off to cost of goods sold approach for allocating over-applied or under-applied overhead over the other approaches?
Why do service businesses like hospitals benefit from using job costing instead of process costing?

Expert Solution

1. Writing off the over applied or under applied overhead costs to the cost of goods sold charges the overheads to Income statement in the same period it is incurred. There is no carry forward of the over applied or under applied overheads costs. This will ensure the actual overheads incurred matches with the overheads absorbed in cost of goods sold. The overall difference is nil and there is no reconciliation needed. Also this method is simple to use compared to pro-rata method of allocation to inventories and cost of goods sold.

2. A Job costing method is a method of costing which accumulates cost to each job separately. Each job has specific identity from each other. Hence it helps service businesses like hospital in charging each patient separately since each patient case would be different compared to other patient cases. Hospital can track profitability at client level when job costing is applied. Job costing will ensure accurate costing of service rendered.

ekkarill92 answered 2 years ago

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