ac102_ch2 - Revised Summer 2010 CHAPTER 2 SYSTEMS DESIGN:...

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Revised Summer 2010 Page 1 of 21 CHAPTER 2 SYSTEMS DESIGN: JOB ORDER COSTING Key Terms and Concepts to Know Job-Order Costing vs. Process Costing Job-order costing is used for companies that produce different products each period. Costs are accumulated for each job. Process costing is used for companies that produce many identical units of a single product for long periods of time. Costs are accumulated by manufacturing department. Key Job-Order Costing Documents Material requisitions request materials for production and support direct materials costs charged to each job. Time cards or time tickets record direct labor hours used in production and support direct labor costs charged to each job. Job cost sheets are the most important job costing document. They summarize all of the key information about the job and accumulate total direct materials costs, total direct labor costs and overhead costs applied to the job to determine the total costs for the job. Actual Manufacturing Overhead vs. Manufacturing Overhead Applied Actual manufacturing overhead costs are the indirect manufacturing costs incurred in the production process. Manufacturing overhead applied are the overhead costs added or applied to each job during the production process. These costs are added to work-in-process to become part of total manufacturing costs along with direct materials and direct labor. Key Topics to Know Choosing a Cost System
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Revised Summer 2010 Page 2 of 21 Job-order costing is used by companies with multiple unique products which generally have a low to moderate annual production volume. Example #1 Which method for assigning costs to products would be more appropriate in each of the following cases? a) Cruise ship builder b) Cornflakes factory c) Law firm d) Dentists office e) Beverage bottling company Solution #1 a) Job-order costing (every ship is a separate job) b) Process costing c) Job-order costing (every case is a separate job) d) Job-order costing (every patient visit is a separate job) e) Process costing Applying Manufacturing Overhead Manufacturing overhead is applied or added to each job while it is in process. There are three kinds of overhead costs consider: o Estimated overhead cost which is determined from the annual budget prepared before the year begins and is used only in the pre-determined overhead rate calculation o Actual overhead cost which is incurred periodically throughout the year and debited to the manufacturing overhead account o Applied overhead cost which is added to jobs in the work-in-process inventory account throughout the year and credited to the manufacturing overhead account The manufacturing overhead account is a holding account for the actual overhead costs (debits) and applied over costs (credits). o
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This note was uploaded on 06/01/2011 for the course ACCOUNTING 102 taught by Professor All during the Spring '11 term at Harper.

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ac102_ch2 - Revised Summer 2010 CHAPTER 2 SYSTEMS DESIGN:...

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