Lesson 20: Normal Job Costing System Flashcards
What is a Cost-unit?
A cost unit is a unit or multiple units of a distinct product or service
Why would a job-order costing system be useful?
It will be useful to determine the various cost components of each kind of product manufactured/service offered.
What are the uses of Normal Job Order Costing?
-Pricing and Output decisions
-Exercising Control (eg. if the full cost is too high, the individual elements of the cost may be examined to see if there are opportunities for savings.)
-Assessing relative efficiency (eg. a business may want to compare the cost of manufacturing at one plant as compared to another.)
-Assessing performance
Why would finding overheads incurred in a job be difficult?
-Overheads are not easily traceable to a particular unit of product/service
-Some of the actual overhead cost information will not be available until the end of the accounting period
What are the steps to assigning overhead costs to a job?
What is a Allocation Base?
The allocation base should be a cost driver or a measure that causes or influences the amount of manufacturing overhead cost
What are the Allocation Bases for overhead allocation?
-Units of Production
-Machine Hours
-Direct Labour Hours
-Direct Labour Cost
Why is predetermined overhead rate useful for managers?
Predetermined overhead rates helps to provide more timely information as managers who need cost information to make price-setting and inventory valuation decisions cannot afford to wait until the end of the financial year when all the invoices have been received.
What are the reasons for over/under application of manufacturing overhead?
-An unsuitable base was used to assign factory overhead. There was no correlation between factory overhead and allocation base chosen
-Unexpected changes in factory overhead items
-Changes in activity level
