What is a job order cost system?
What is the difference between a purchase requisition and a materials requisition?
How do you tell if materials costs belong in work in process or in factory overhead?
What is a job cost sheet?
How do you allocate factory overhead cost to a job?
What happens to the balance in the factory overhead account at the end of the year?
Job order costing is an accounting system used by companies that manufacture a product to a customer's specifications or orders. The products are unique or few of a kind. With this system, a company is able to allocate costs to a specific job. This system is also used when standard products are manufactured in batches instead of on a continuous basis.
What is the difference between a purchase requisition and a materials requisition?
A purchase requisition is a document prepared by the scheduling department, informing the purchasing department of materials that will be needed. It is prepared well in advance of the production date. A materials requisition is a document prepared by the manufacturing or scheduling department, requesting that materials be moved from storage to the factory floor so that production can start. It is the source document for journalizing the materials cost in the work in process and factory overhead accounts.
How do you tell if materials costs belong in work in process or in factory overhead?
If materials costs are direct, meaning that they enter directly into the manufacture of the product and are a significant amount of the product's total cost, they are debited to Work in Process. Otherwise, the materials costs are indirect and are debited to Factory Overhead.
What is a job cost sheet?
A job cost sheet is an account in the work in process subsidiary cost ledger. It lists the direct materials, direct labor, and applied factory overhead of each job order. When a job is completed, it is summarized on the sheet and a per unit cost is calculated. The sheet is then pulled from the cost ledger, along with other completed jobs, and is used to debit the finished goods account.
How do you allocate factory overhead cost to a job?
Factory overhead costs are allocated based on a predetermined rate. The rates are computed by accountants in advance of production. The best available measure that relates factory overhead cost to production volume is chosen. This measure is called an activity base or driver. Some activity bases used are direct labor cost, direct labor hours, and machine hours. The predetermined rate is established by dividing the total budgeted overhead by the activity driver. Factory overhead is applied by multiplying the predetermined rate by the actual activity-base data.
What happens to the balance in the factory overhead account at the end of the year?
The factory overhead balance at the end of the year applies to current operations. It should not be carried into the next fiscal year. The overapplied or underapplied balance should be transferred to the cost of goods sold account.
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