Accounting 2 Ch. 17: Job Order Costing

How do service companies use a job order costing system? (3 ways)

-knowing the full cost of the job allows for better pricing decisions -direct costs are assigned to jobs -indirect costs are allocated to jobs using the predetermined overhead allocation rate

How do manufacturing companies use job order/process costing systems? (3 ways)

-to know the cost of their products/services -job order costing: accumulates costs by jobs (production of unique/specialized products) -process costing: accumulates costs by processes (production of identical units through uniform processes)

Cost Accounting System

an accounting system that measures, records, and reports product costs

How is the manufacturing overhead account adjusted at the end of the period if... A. under allocated B. overallocated

A. (if actual cost is more than allocated costs) DR cost of goods sold, CR manufacturing overhead B. (if actual cost is less than allocated cost) DR manufacturing overhead, CR cost of goods sold

How do overhead costs flow through the job order costing system.... A. Before the period? B. During the period? C. Journal entry

A. calculate predetermined overhead allocation rate (total estimated overhead costs/total estimated quantity of overhead allocation base) B. calculate allocated manufacturing overhead cost (predetermined overhead allocation rate x actual quantity of allocation base used for each job) C. Manufacturing overhead is allocated to the work in progress inventory account (DR), manufacturing overhead (CR)

How do materials/labor costs flow through the job order costing system after.... A. Purchases of materials on account? B. Use of materials/indirect vs. direct? C. Labor incurred/indirect vs. direct?

A. increase the raw materials inventory (DR), increase accounts payable (CR) B. decreases raw materials inventory (CR), direct materials: increases work in progress inventory (DR), indirect materials: increases manufacturing overhead (DR) C. increases wages payable (CR), direct labor: increases work in progress inventory (DR), indirect labor: increases manufacturing overhead (DR)

What happens when products are completed and sold... A. Cost of completed jobs? B. Job sold on account? C. Cost of Sold job?

A. increases Finished goods inventory (DR), decreases work in progress inventory (CR) B. increases accounts receivable (DR), sales revenue (CR) C. cost of goods sold (DR), decreases finished goods inventory (CR); also moves the product's cost from balance sheet to income statement

Allocation Base

a denominator that links indirect costs to cost objects. Ideally, it's the primary cost driver of the indirect costs.

Materials Requisition

a document that requests the transfer of raw materials to the production floor

Job Cost Record

a document that shows the direct materials, direct labor, and manufacturing overhead costs for an individual job

Labor Time Record

a record used to assign direct labor cost to specific jobs

Cost Driver

the primary factor that causes a cost to increase or decrease