Chapter 5 Notes

Chapter 5 Notes - THE FLOW OF DOCUMENTS IN A JOB-ORDER...

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Unformatted text preview: THE FLOW OF DOCUMENTS IN A JOB-ORDER COSTING SYSTEM Predetermined Ovhd. Rates Direct Labor Time Ticket Materials Requisition Job Cost Sheet A sales order is prepared as a basis for issuing a ... A production order initiates work on a job, whereby costs are charged through ... The various costs of production are accumulated on a form, prepared by the accounting department, known as a ... The job cost sheet forms the basis for valuing ending inventories and Cost of Goods Sold. Production Order Sales Order MATERIALS REQUISITION FORM EMPLOY EE TIME TICKET JOB COST SHEET APPLYING OVERHEAD In a job-order costing system, the cost of a job consists of: 1. Actual direct material costs traced to the job. 2. Actual direct labor costs traced to the job. 3. Manufacturing overhead applied to the job using a predetermined overhead rate . Actual overhead costs are not assigned to jobs. A predetermined overhead rate is used to assign overhead cost to products and services. It is: Based on estimated data. Established before the period begins. Why use estimated data? Waiting until the year is over to determine actual overhead costs would be too late. Managers want cost data immediately. Overhead rates, if based on actual costs and activity, would vary substantially from month to month. Much of this variation would be due to random changes in activity. PREDETERMINED OVERHEAD RATE FORMULA The formula for computing a predetermined overhead rate is: The company in the preceding example applies overhead costs to jobs on the basis of direct labor-hours. In other words, direct labor-hours is the allocation base. At the beginning of the year, the company estimated that it would incur $320,000 in manufacturing overhead costs and would work 40,000 direct labor-hours. The companys predetermined overhead rate is: APPLYING OVERHEAD TO JOBS The process of assigning overhead to jobs is known as applying overhead . In the preceding example, Job 2B47 required 27 direct labor-hours. Therefore, $216 of overhead cost was applied to the job as follows: Predetermined overhead rate...................... $8 per DLH Direct labor-hours required for Job 2B47..... 27 DLHs Overhead applied to Job 2B47.................... $216 JOB-ORDER COSTING EXAMPLE In the example appearing on the next few pages, we will trace how costs flow through Reeder...
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This document was uploaded on 10/26/2011 for the course ACC 222 at Miami University.

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Chapter 5 Notes - THE FLOW OF DOCUMENTS IN A JOB-ORDER...

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