Chapter 8

Question 1

Process Costing

Answer 1

Process costing is used when a business manufactures a large number of identical products, such as, shoes or kettles or television sets.

Question 2

Job Order Costing

Answer 2

Job order costing is used when a business manufactures a small number of identical products (known as a batch) or when each product made is unique. Service businesses also use job order costing. A job is a product that is being manufactured for a customer or is a service being carried out.

Question 3

The Job Order Costing System

Answer 3

direct materials + direct labour + factory overhead + profit percentage x qty

Question 4

Departmental Overhead Application Rates

Answer 4

A manufacturing business can set out different overhead rates for each department of the factory.

Question 5

Job Order Costing for a Service Business

Answer 5

Job order costing is also used by service businesses. Some service businesses, such as painters, will incur direct material costs. Other service businesses, such as tax accountants or solicitors, will only have direct labour and overhead costs.