12e_GNB_CH03_Solutions_Manual

# 12e_GNB_CH03_Solutions_Manual - Chapter 3 Systems Design...

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Sheet1 Page 1 Chapter 3 Systems Design: Job-Order Costing Solutions to Questions 3-1 By definition, manufacturing overhead consists of costs that cannot be practically traced to products or jobs. Therefore, if these costs are to be assigned to products or jobs, they must be allocated rather than traced. 3-2 Job-order costing is used in situations where many different products or services that require separate costing are produced each pe- riod. Process costing is used in situations where a single, homogeneous product, such as cement, bricks, or gasoline, is produced for long periods. 3-3 The job cost sheet is used to record all costs that are assigned to a particular job. These costs include direct materials costs traced to the job, direct labor costs traced to the job, and manufacturing overhead costs applied to the job. When a job is completed, the job cost sheet is used to compute the unit product cost. 3-4 A predetermined overhead rate is used to apply overhead to jobs. It is computed before a period begins by dividing the period& s estimated total manufacturing overhead by the period¯ s es- timated total amount of the allocation base. The- reafter, overhead is applied to jobs by multiplying the predetermined overhead rate by the actual amount of the allocation base that is incurred for each job. The most common allocation base is direct labor-hours. 3-5 A sales order is issued after an agree- ment has been reached with a customer on quan- tities, prices, and shipment dates for goods. The sales order forms the basis for the production order. The production order specifies what is to be produced and forms the basis for the job cost sheet. The job cost sheet, in turn, is used to summarize the various production costs incurred to complete the job. These costs are entered on the job cost sheet from materials requisition forms, direct labor time tickets, and by applying overhead. 3-6 Some production costs such as a factory

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Sheet1 Page 2 manager&s salary cannot be traced to a particular product or job, but rather are incurred as a result of overall production activities. In addition, some production costs such as indirect materials cannot be easily traced to jobs. If these costs are to be assigned to products, they must be allocated to the products. 3-7 If actual manufacturing overhead cost is applied to jobs, then the company must wait until the end of the accounting period to apply over- head and to cost jobs. If the company computes actual overhead rates more frequently to get around this problem, the rates may fluctuate widely. Overhead cost tends to be incurred somewhat evenly from month to month (due to the presence of fixed costs), whereas production activity often fluctuates. The result would be high overhead rates in periods with low activity and low overhead rates in periods with high activity. For these reasons, most companies use prede-
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12e_GNB_CH03_Solutions_Manual - Chapter 3 Systems Design...

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