Question

Job Order Costing: Define job order costing. Compare and contrast job order costing with process costing. Trace the flow of costs through a job order costing system. Discuss manufacturing overhead and how it is applied. Why is the manufacturing overhead account adjusted at the end of the period?

Answer 1

In job costing system all the relevant manufacturing costs are assigned to a unique product. In process costing costs are assigned to all the similar products undergoing different processes whereas in Job order costing cost of performing each unique job calculated and assigned.

Manufacturing overheads are costs which occur during the manufacturing of the products but are not directly related to products such as utility cost, supervisor costs etc. Manufacturing overhead rate is calculated the basis of estimated manufacturing overhead and cost driver such as labor hours. Then manufacturing cost is applied to a particular job using the amount of cost driver used.

Actual manufacturing overhead is debited to manufacturing overhead account and manufacturing overhead applied is credited to the account.The applied manufacturing overhead and the actual manufacturing overhead may be different which may result into some debit or credit balance in the manufacturing overhead account. At the end of the period the manufacturing overhead balance should be zero and hence is to required to adjust the manufacturing overhead account agains the cost of goods sold account.