Question

1. Name three types of businesses who would use Job Order Costing.

2. A Job Cost Sheet is a very important tool In Job Order Costing. Why?

3. Discuss the procedure for applying Manufacturing Overhead. Include in your discussion the use of the predetermined overhed rate.

Answer 1

Types of business

1) manufacturing companies

e.g - small manufacturing concer may by combining small orders toghether and make production in job..

2) Studio companies / film

E.g - job order cost sheets for film companies contain actor salaries, director payments and crew wages as direct labor costs. Direct material costs can include props, costumes, utility costs for sound stages and set design fees.

3) Medical business

E.g - Doctor's office may order patients based on the purpose of visits and the cost of treatments administered.

2) Importance of job cost sheet In job order costing

The accounting department is responsible for record all manufacturing cost including preparing job cost sheet for each job,

Job cost sheet is important due to following reason

- All neccesary information required for job can be collected through cost sheet

- Job cost sheet is not only used to charge cost to jobs but is also a part of the company’s accounting record.

- information about manufacturing cost and all details about Job in process can be derived

3) Procedure

manufacturing overhead is generally applied using predetermined overhead rate..

in most cases, multiply the direct labor costs or total manufacturing costs, such as materials and employee pay, by the predetermined application or overhead rate.

Predetermined overhead rate

Predetermined overhead rate is used to apply manufacturing overhead to products or job orders and is usually computed at the beginning of each period by dividing the estimated manufacturing overhead cost by an allocation base (also known as activity base or activity driver). Commonly used allocation bases are direct labor hours, direct labor dollars, machine hours, and direct materials.

Formula = estimated manufacturing overhead cost ÷estimated number of units in allocation base