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Unformatted text preview: Chapter 2 Job-Order Costing for Manufacturing and Service Companies QUESTIONS 1. Manufacturing costs include all costs associated with the production of goods. Examples of manufacturing costs are: labor costs of workers directly involved with manufacturing goods, cost of all materials directly traced to products, indirect factory labor, indirect materials used in production, depreciation of production equipment, and depreciation of the manufacturing facility. Nonmanufacturing costs are all costs that are not associated with the productions of goods. These typically include selling costs and general and administrative costs. 2. Product costs are assigned to goods produced. Product costs are assigned to inventory and become an expense when inventory is sold. Period costs are not assigned to goods produced. Period costs are identified with accounting periods and are expensed in the period incurred. 3. Two common types of product costing systems are (1) job-order costing systems and (2) process costing systems. Job-order costing systems are generally used by companies that produce individual products or batches of unique products. Companies that use job-order costing systems include custom home builders, airplane manufacturers, and ship-building companies. Process costing is used by companies that produce large numbers of identical items that pass through uniform and continuous production operations. Process costing tends to be used by beverage companies and producers of chemicals, paints, and plastics. 4. A job cost sheet is a form that is used to accumulate the cost of producing a job. The job cost sheet contains detailed information on direct materials, direct labor, and manufacturing overhead used on the job. 5. Actual overhead is not known until the end of the accounting period. If managers used actual overhead rates to apply overhead to jobs, they would have to wait until the end of the period to determine the cost of jobs. In order to make timely decisions, managers may need to know the cost of jobs before the end of the accounting period. 6. An important characteristic of a good overhead allocation base is that it should be strongly related to overhead cost. Assume that setup costs are classified as factory overhead. The number of setups that a job requires would be a better allocation base for setup costs than would the number of direct labor hours worked on that job. Number of setups is more closely related to setup costs than is the number of direct labor hours and, therefore, number of setups is a better allocation base. Jiambalvo Managerial Accounting 7. In highly automated companies where direct labor cost is a small part of total manufacturing costs, it is unlikely that overhead costs vary with direct labor. Further, in such companies, predetermined overhead rates based on direct labor may be quite large....
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- Spring '10
- Managerial Accounting