Question

1) Describe cost systems and the flow of costs in a job order system?

2) How does a company determine and use the predetermined overhead rate?

3) Distinguish between under- and overapplied manufacturing overhead and what does each mean to the company?

Answer 1

Answer 1)

Cost System is a framework used by organization to estimate the cost o their products. Cost Accounting is use to calculation of profitability of business or valuation inventory and cost control. Cost includes direct Material , Labour or overheaad Cost.

The basic flow of costs in job order system begins by recording the cost of direct material, Labour cost and Overhead Cost. In Job order Costing direct material and labour cost are debited to work in process account. And indirect material and labour cost are debited to the manufacturing overhead account. The cost of finished goods credit to work in process and debit to the finished good inventory account.

When Units Sold, their costs are credited to finished goods and debited to cost of goods sold.

Answer 2)

Overhead Rate is determine by dividing estimated manufacturing overhead cost by allocation base or activity base. Commonly used allocation bases are direct labour hours, machine hours and direct materials.

Pre determined overhead rate is use to determine cost of goods and for valuation of inventory. Overhead is applied by multiplying the pre determine overhead rate by the actual driver units.

Answer 3) If Manufacturing Overhead Cost applied to work in process is more than the manufactiring overhead cost actually incurred during a period, the difference is known as over applied manufacturing overhead.

And if Overhead actually incurred is more then overhead applied in work in process then difference is under applied manufacturing overhead.

Over apllied Manufacturong overhead:

Applied Overhead > Actual Overhead

Under apllied Manufacturing Overhead :

Applied Overhead < Actual Overhead