ch5 - Chapter 5 Job Order Costing Questions 1 The two...

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Chapter 5 Job Order Costing Questions 1.The two choices for cost accumulation are the job order and process costing systems. A company should use job order costing when it is necessary and possible to trace costs to products made for individual customers, and when the products made for one customer are very different from those made for other customers. A process costing system is appropriate for those production environments that make homogeneous products, usually in large quantities, in batch or continuous flow systems. 2. The three valuation methods are actual, normal, and standard costing. In actual costing, only the actual amounts of material, labor, and overhead costs are assigned to production. Normal costing differs from actual costing in that an amount of overhead is applied to products using a predetermined overhead rate rather than the actual amount. Standard costing differs from actual and normal costing in that a per-unit amount (standard) is established for direct material, direct labor and manufacturing overhead. These predetermined amounts are charged to production rather than the actual or normal costs. 3. The principal documents are the material requisition forms, employee time sheets, and job order cost sheets. Material requisition forms are used to initiate the removal of the material from inventory or to acquire material from suppliers. Time sheets are used to track the time of individual employees to specific jobs. The job order cost sheet is used to track the actual costs of direct material, direct labor, and manufacturing overhead associated with a particular job, and possibly to compare these actual costs to budgeted costs. 4. In a standard costing system, variances identify the areas of efficiency and inefficiency in production operations. Managers, using the concept of management by exception, focus their attention on the significant variances and attempt to determine causes of those variances (both favorable and unfavorable). Additionally, managers will look for interactions between or among the variances. By concentrating on the significant variances, mangers are able to concentrate on the aspects of operations that are “out of control” and try to correct the causes. 57
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Chapter 5 5. If normal spoilage is generally anticipated on all jobs in a job order costing system, the estimated overhead used in setting the predetermined overhead rate should include an amount for the net cost of the spoilage. This treatment allows the cost of normal spoilage to be spread over all jobs produced. In contrast, if spoilage is related to a single job, the cost of that spoilage should be assigned to the job that gave rise to the spoilage. 6. The job order costing information allows managers to better estimate the costs of producing their products and of serving specific customers. This information can be used to manage costs, identify which customers generate the most profitable business, and set prices for products and services. 7. Normal spoilage refers to an expected reduction in production quantity
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ch5 - Chapter 5 Job Order Costing Questions 1 The two...

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