Test Bank for Managerial Accounting 4th Edition

Job Order Costing and Analysis Questions 1. Factory overhead is not identified with specific units (jobs) or batches (job lots). Therefore, to assign costs, estimates of the relation between factory overhead cost and job or job lot are necessary. Also, since job order cost accounting is a perpetual system, we need to estimate a predetermined overhead rate to compute (perpetual) inventory costs. This estimated amount also helps job order companies determine prices on a timely basis. 2. Several other factors (allocation bases) are possible and reasonable. These common factors often include direct materials or machine hours. 3. The job order cost sheet captures information on cost and quantity of direct material and direct labor, and on the amount of factory overhead applied to the respective job or job lot. Management and employees use this information to monitor costs during production and to estimate total cost of production. 4. Each job is assigned a subsidiary ledger account. This account serves as the “posting account” (accumulates all increases and decreases) during production for direct material, direct labor, and applied factory overhead. The collection of job cost sheets for all of the jobs in process make up a subsidiary ledger controlled by the Goods in Process Inventory account in the general ledger. When a job is finished, its job cost sheet is completed and moved from the file of jobs in process to the file of finished jobs awaiting delivery to customers. This latter file acts as a subsidiary ledger controlled by the Finished Goods Inventory account. In this way, management and employees can obtain the costs, direct and indirect, associated with any job or job lot at any time.