A202 Chapter 2 Job-Order Costing

Jones Company uses a job-order costing system with a predetermined overhead rate of 120% of direct labor cost. The job cost sheet for Job #420 showed that Jones Company spent $4,000 on direct materials and $5,000 on direct labor on the job. What is the total cost of Job #420?

$15,000 Direct materials: $4,000 Direct Labor: $5,000 Applied manufacturing overhead: $6,000 ($5,000 * 120%)

Jones Company uses a job-order costing system with a predetermined overhead rate of 120% of direct labor cost. The job cost sheet for Job #420 listed $4,000 in direct materials cost and $5,000 in direct labor cost to manufacture 7,500 unites. The unit cost of Job #420 is:

$2.00 Total cost of job $15,000 / 7,500 units

Estimated manufacturing overhead: $450,000 Estimated direct labor hours: 150,000 Actual manufacturing overhead: $405,000 Actual direct labor hours: 180,000 Based on this information, the amount of overhead allocated to a job that used 300 direct labor hours is ________.

$900 $450,000 / 150,000 = $3.00$3.00 * 300 = $900

companies generally classify manufacturing costs into three broad categories:

(1) direct materials, (2) direct labor, and (3) manufacturing overhead

materials requisition form

-a document that specifies the type and quantity of materials to be drawn from the storeroom and identifies the job that will be charged for the cost of the materials -used to control the flow of materials into production and also for making journal entries in the accounting records

categories of manufacturing costs

-direct materials -direct labor -manufacturing overhead applied

Manufacturing overhead consists of:

-many different types of costs ranging from the grease used in machines to the annual salary of the production manager -Some of these costs are variable overhead costs because they vary in direct proportion to changes in the level of production -some are fixed overhead costs because they remain constant as the level of production fluctuates

Absorption Costing

-product costs include manufacturing overhead as well as direct materials and direct labor -all nonmanufacturing costs are treated as period costs and they are not assigned to units of product

job cost sheet

-records the materials, labor, and manufacturing overhead costs charged to that job.

A cost system with multiple predetermined overhead rates:

-uses more than one overhead rate to apply overhead costs to jobs. -Such a system, while more complex, is more accurate because it reflects differences across departments in terms of how jobs consume overhead costs.

indirect labor

The labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products.

bill of materials

a document that lists the quantity of each type of direct material needed to complete a unit of product.

When a company creates overhead rates based on the activities that it performs, it is employing an approach called

activity-based costing

While job-order costing systems can accurately trace direct materials and direct labor costs to jobs, they often fail to accurately allocate the manufacturing overhead costs used during the production process to their respective jobs. The root cause of the problem often relates to the choice of an:

allocation base

time ticket

an hour-by-hour summary of the employee's activities throughout the day.

barcodes can be used to:

automatically record and post direct labor costs to jobs

the unit product cost is the same as the

average product cost per unit total job cost divided by number of units

allocation bases that do not drive overhead costs:

can cause product costs to be distorted

if Job A has a total manufacturing cost of $100, managers often use a predefined markup percentage, say 50%, to establish a markup of $50 (= $100 × 50%) and a selling price of $150 (= $100 + $50). this approach is called:

cost-plus pricing

Manufacturing overhead is an:

indirect cost

job-order costing

is used in situations where many different products, each with individual and unique features, are produced each period.

an allocation base is a:

measure of activity used to assign overhead costs to products & services

overhead application

process of assigning overhead cost to jobs

Many companies have large amounts of fixed manufacturing overhead. Therefore, their total manufacturing overhead costs tend to remain relatively constant from one period to the next even though the number of units that they produce can fluctuate widely. Consequently:

the average cost per unit will vary from one period to the next.

in the formula Y = a + b(x), a represents

total fixed manufacturing overhead cost