P1: 5.1 Job Order Costing

Question 1

Steps in job order costing

Answer 1

A) receipt of a sales order from a customer requesting a product or special group of products.
B) sales order is approved and a production order is issued.
C) cost or recorded by classification, such as direct materials, direct labor, and manufacturing overhead, on a job cost sheet( manual or electronic) which is specifically prepared for each job.

Question 2

Normal Spoilage

Answer 2

Is the amount of spoilage expected in the ordinary course of production

• cost of normal spoilage is included in the cost of good units produced.
• accomplished by allowing the net cost of the normal spoilage to remain in the WIP account of the job that generated it.
  I) if the normal spoilage is worthless, it is discarded as scrap.
  Ii) if the normal spoilage can be sold, its value should not be included in the cost of the good units produced.

Question 3

Abnormal spoilage

Answer 3

Is spoilage over and above the amount expected in the ordinary course of production.

• —not treated as a manufacturing cost and is not included in the cost of the good units produced.
• —expensed in the period the occurred or the loss can be accrued…by charging a loss account for the net cost of the spoilage.

Question 4

Use of job order costing

Answer 4

Job order costing is concerned with accumulating costs by specific job.
- this method is appropriate when producing products with individual characteristics (eg yachts) or when identifiable groupings are possible (eg jewelry). Units ( jobs) should be dissimilar enough to warrant the special record keeping required by job order costing. Products are usually custom made for a specific customer.