Question

a) Explain the use of overhead rate in job order costing?

b) what is your understanding of the concept of Equivalent units?

c) Explain giving examples why it is important to keep current cost in line with planned cost.

d) With the use of examples, Comment or illustrate what method of job costing is used specific to non-profit organizations

Answer 1

Answer for a)

In job order costing, the overhead rate is used to allocate the overhead for different jobs.For example the interior designers salary who worked for three different jobs have to be allocated to all the three jobs which needs an specific overhead rate.

Answer for b)

At the end of certain accounting period in general the manufacturer have certain in finished goods along with finished goods.Here, the equivalent units concept will be used to express such unfinished goods in finished goods to find the total goods produced during such period.

Answer for c)

It is very important to keep current cost in line with planned costs to increase costs and also to maintain efficiency in the operation so that such operations results in profitability. For eg, the planned cost per unit is estimated to be £3 and selling price is £5.here if the current cost fails to be in line with planned costs then every penny increase in costs(say which are avoidable) decreases profit.In same way if the costs planned is high than actual then it may result in quality issues which results in lost of customers brand loyalty.

Answer for d)

There won't be any huge change in use of job costing in non profit organisation except that their will be less kind of overheads in service industries.

For eg., there may be different persons working in non profit organisation who may be receiving some salaries for their livelihood and the non profit organisation may be providing different services to different segment people like cancer patient, Leprosy patients, orphans etc. Which may be classified as different departments. Here the salaries so paid may divide based on hours worked or so to show a proper working to the donor that how their funds are used.