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    Cost Ch4

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    Ferb Cruzada
    The document discusses several aspects of job-order costing systems: 1) Issuing supplies to a production department increases factory overhead control by debiting overhead and crediting accounts payable and stores. 2) Applying factory overhead is usually reflected as an increase in work-in-process control by charging WIP and crediting factory overhead applied using a predetermined rate. 3) A direct labor overtime premium caused by a customer's job completion requirement should be a direct cost of that job, rather than an allocated overhead cost.

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    Cost Ch4

    Uploaded by

    Ferb Cruzada
    28 views1 page
    The document discusses several aspects of job-order costing systems: 1) Issuing supplies to a production department increases factory overhead control by debiting overhead and crediting accounts payable and stores. 2) Applying factory overhead is usually reflected as an increase in work-in-process control by charging WIP and crediting factory overhead applied using a predetermined rate. 3) A direct labor overtime premium caused by a customer's job completion requirement should be a direct cost of that job, rather than an allocated overhead cost.

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    The document discusses several aspects of job-order costing systems: 1) Issuing supplies to a production department increases factory overhead control by debiting overhead and crediting accounts payable and stores. 2) Applying factory overhead is usually reflected as an increase in work-in-process control by charging WIP and crediting factory overhead applied using a predetermined rate. 3) A direct labor overtime premium caused by a customer's job completion requirement should be a direct cost of that job, rather than an allocated overhead cost.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    28 views1 page

    Cost Ch4

    Uploaded by

    Ferb Cruzada
    The document discusses several aspects of job-order costing systems: 1) Issuing supplies to a production department increases factory overhead control by debiting overhead and crediting accounts payable and stores. 2) Applying factory overhead is usually reflected as an increase in work-in-process control by charging WIP and crediting factory overhead applied using a predetermined rate. 3) A direct labor overtime premium caused by a customer's job completion requirement should be a direct cost of that job, rather than an allocated overhead cost.

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    © All Rights Reserved
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    of 1

    1.

    In a traditional job-order cost system, the issuance of supplies to a production department increases
     Factory overhead control.
     As overhead is incurred, factory overhead control is debited, and accounts payable, stores, etc., are
    credited. When overhead is applied, work-in-process is debited, and factory overhead applied is
    credited. The difference between the debited and credited amounts is over- or underapplied
    overhead.

    2. In a job-order cost system, the application of factory overhead is usually reflected in the general
    ledger as an increase in
     Work-in-process control.
     The entry to record the application of factory overhead to specific jobs is to charge WIP control and
    credit factory overhead applied (or factory overhead control) using a predetermined overhead rate.
    The effect is to increase the WIP control account.

    3. A direct labor overtime premium should be charged to a specific job when the overtime is caused by
    the
     Customer's requirement for early completion of the job.
     A direct labor overtime premium is ordinarily an indirect cost, charged to overhead, and allocated to
    all jobs. The association of overtime with a specific job may be attributable solely to random
    scheduling and an abnormally large production volume, a condition affecting all jobs. However, if
    overtime directly results from the demands of a specific job, it is a direct cost of that job.

    4. Units of production is an appropriate method of assigning overhead when


     Only one product is manufactured.
     Assigning overhead on the basis of the number of units produced is usually not appropriate. Costs
    should be assigned on the basis of some plausible relationship between the cost object and the
    incurrence of the cost, preferably cause and effect. Overhead costs, however, may be incurred
    regardless of the level of production. Nevertheless, if a firm manufactures only one product, this
    method may be acceptable because all costs are to be charged to the single product.

    5. Application rates for factory overhead best reflect anticipated fluctuations in sales over a cycle of
    years when they are computed under the concept of
     Normal capacity.
     Normal capacity is the output level that will approximate demand over a period of years that
    includes seasonal, cyclical, and trend variations. Deviations in one year will be offset in other years.

    6. Cox Company found that the differences in product costs resulting from the application of
    predetermined overhead rates rather than actual overhead rates were immaterial even though actual
    production was substantially less than planned production. The most likely explanation is that
     Overhead was composed chiefly of variable costs.
     Total variable overhead costs change in proportion to changes in the activity level. Total fixed costs
    do not. For the difference between applied and actual overhead to be immaterial when actual
    production is substantially less than planned production, overhead costs must be composed chiefly
    of variable costs.

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