Week 7 - Job Costing

Question 1

Process Costing is

Answer 1

a method of costing used mainly in manufacturing where units are continuously mass-produced through one or more processes. Used where a company produces many units of a single product for long periods of time. Accumulate costs for an entire period and divide by the number of units produced during the period.
ex: paint, glass, and cement manufacturer; oil refining; food production

Question 2

Job Costing is

Answer 2

an accounting method designed to help you track the cost of individual projects and jobs. For unique jobs (services/build to order). Need to collect cost information for each job for pricing purposes/evaluation.
ex: dental practice; construction; car repairs; consultancy

Question 3

Job Cost Record (Job Sheet)

Answer 3

• Direct Material (source document: materials requisition)
• Direct labor (source document: time card)
• Overhead (Absorbed using a predetermined overhead rate)

Question 4

Blanket Overhead Rate

Answer 4

A single overhead rate for the organization, known as a company-wide rate

Question 5

Departmental Overhead Rates

Answer 5

Overhead rates for individual departments rather than having a company-wide rate

Question 6

Blanket vs Departmental Overhead Rates

Answer 6

Blanket rates are less accurate but easier to calculate

Question 7

Why us budgeted rather than actual overhead rates?

Answer 7

• To facilitate price quotes for jobs
• to enable the preparation of interim financial statements
• actual overheads will not be available until the end of a period (month, quarter, year)

Question 8

Problem of using Budgeted Overhead rates

Answer 8

• estimating overhead costs
• estimating the volume of activity
• over/under absorption arises where overheads absorbed using the budgeted rate is different from the actual overhead incurred