Principles of Accounting Unit 3 Discussion Tell us about the business and why they have chosen...

Principles of Accounting

Unit 3 Discussion

Tell us about the business and why they have chosen a job order system. What are the advantages of a job order system to the company? How does management use the data generated? What source documents are used to charge costs to specific jobs? How is labor accounted for? How is the predetermined overhead rate decided upon? Does the company use a computerized or manual system?

Expert Solution

Tell us about the business and why they have chosen a job order system.– No detail available for Unit 3

What are the advantages of a job order system to the company?

Under Job order system, all the manufacturing cost are assigned and accumulated under individual unit of output. It helps in analysing cost of each output/product and can find out the which component of the cost is high and which is low. This helps in controlling cost if any component deviates against standard/plan. We can estimate cost of any new product to be launched using this system.

How does management use the data generated?

Data generated by Job order system helps management in analysing each component of cost and can easily place control mechanism over it. Data generated by this system gives management trend of avg cost of each component. Management can easily find out impact of any expected change in the component of the product and take necessary steps to increase the price to save margins.

What source documents are used to charge costs to specific jobs?

Actual purchase documents indicate which job/product they are going to be used for. In case of common input for many products, an allocation method can be used based on consumption pattern in each product.

How is labor accounted for?

Labor is charged to each product on the basis of time spent on the production of each product.

How is the predetermined overhead rate decided upon?

Overhead rates are decided based on total estimated overheads and underlying volume. In case of electricity cost, we can decide the allocation between two products if they use different machinery to produce the different product, based on actual consumption. In case of common machinery, actual hrs spent on production should be the base.

Does the company use a computerized or manual system? No detail available for Unit 3

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