Module 3 Flashcards
What is Job Order Costing?
- Job Order Costing is a method used to assign costs to specific jobs. A job refers to a specific, distinct project or task that requires resources such as labor, materials, and overhead to complete.
- Job Order costing makes it useful for companies to produce customized products or provide distinct services.
- Job Order Costing is a simple way to track the costs of making a specific product or completing a unique service.
What are the reasons to cost a product, service, or system?
- Calculating the standard costs including landed costs in connection with producing a given cost object (BOM)
- Compare standard costs with actual costs (variance analysis).
- Profitability analysis and pricing
- Make or buy decisions - subcontractor
- Stock costing
How many steps are there in Job Order Costing?
There are 8 steps:
Step 1: Sales order received
Step 2: Sales order reviewed
and approved
Step 3: BOM is created
Step 4: Requisition of materials (direct materials)
Step 5: : Creation of Job sheet (also called work order) (direct materials+direct labour+manufacturing overhead)
Step 6: Initial job costing by manager
Step 7: Job execution begins
Step 8: Ongoing costing by manager
Step 9: Completion of Job and final costing
How do we know the cost of direct materials?
It is in step 4. The production team issues a material requisition form to the inventory or purchasing department to request the materials needed for the job. The requisition form shows the quantity and type of materials needed based on the BOM. Furthermore, it also shows the cost of the materials
How do we know the direct labour cost involved?
It is in step 5. After making the material requisition form, a job sheet or work order is created. A job cost sheet is a form prepared for each separate job that records the materials, labour and overhead costs charged to the job. It outlines the specific tasks needed for the job, labour resources required, deadlines, and special customer required.
How do we allocate manufacturing overhead?
There are issues when allocating manufacturing overhead. Because of these issues, companies use a system to allocate overhead costs to products. This means they spread the overhead cost across all products using an allocation base like machine hours or labor hours which are cost drivers.
What is predetermined overhead rate (POHR) and how is it calculated?
We make esstimates of the overhead and we calculate POHR.
POHR=Estimated total overhead cost/Estimated total allocation base (feks.labour or machine hours)
This rate is used throughout the year to assign overhead to each job based on the number of hours worked or machine hours used. So, we know how much to add to each job based on how long it takes! This helps the company spread its overhead costs across all the jobs fairly!
How do we calculate the overhead applied to a specific job?
Overhead applied to a job=POHR*Amount of Allocation Base Used by the Job
Using this method helps the company keep track of its costs more easily and gives it a clear idea of how much each job costs throughout the year.
What does over and underapplied mean?
Underapplied: The company didn’t apply enough overhead cost to the jobs. In other words, the actual overhead costs turned out to be higher than what the company estimated.
Overapplied: The company applied too much overhead cost to the jobs. The actual overhead costs turned out to be lower than what was estimated.
What is a cost flow analysis and how is it used?
Managers a re facing different challenges related to job costing
One of the effective methods to solve these issues is to perform a cost flow analysis of the job. This process helps break down and analyze all costs associated with a project, helping managers make informed decisions
What is debit and credit?
Debit (Dr): This is like adding to something you own or spend money on. Think of it as an increase in assets (like money or supplies) or expenses (like salaries or raw materials).
Credit (Cr): This is like owing money or taking it away from something you own. Think of it as increasing liabilities (money you owe) or decreasing assets.
