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Chapter 5 Notes - Sales Order A sales order is prepared as...

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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
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MATERIALS REQUISITION FORM
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EMPLOY EE TIME TICKET
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JOB COST SHEET
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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.
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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 company’s predetermined overhead rate is: APPLYING OVERHEAD TO JOBS The process of assigning overhead to jobs is known as  applying  overhead .
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