Explain briefly: (a) actual factory overhead (b) applied factory overhead. See answer.
When a sale is made, an asset is debited and sale is credited. If a cost system, including perpetual inventory accounts, is used, what additional entry is required for this transaction? See answer.
Select the answer which best completes the statement:
(a) Of the following production operations, the one most likely to employ job order cost accumulation is: (1) soft drink manufacturing; (2) shipbuilding; (3) crude oil refining; (4) candy manufacturing. (b) Under job order cost accumulation, the dollar amount of the entry involved in the transfer of inventory from work in process (WIP) to finished goods is the sum of the costs charged to all jobs: (1) started in process during the period; (2) in process during the period; (3) completed and sold during the period; (4) completed during the period. See answer.
The three phases of cost accounting (managerial accounting) are: cost determination; cost planning and control through budgets and standards; and cost analysis for decision making.
Four control accounts concerned primarily with cost determination are: materials; factory overhead; work in process and finished goods.
Materials–materials ledger cards or other forms of perpetual inventory. Factory overhead control–expense ledger and departmental expense analysis sheet. Work in process (WIP)–cost sheets or cost of production reports. Finished goods–finished goods ledger cards.
The primary objective in job order costing is to determine the cost of materials, labor, and factory overhead used to produce a specific order or contract. Cost estimates are made when the order is taken, and the job order procedures are designed to reveal costs as the order goes through production, thereby giving an opportunity to control costs.
The type of cost accumulation method used by a company will be determined by the type of manufacturing operation performed. A manufacturing company should use process cost accumulation for product costing purposes when like units are continuously mass production, when custom made or unique goods are produced, job order costing would be more appropriate. Process costing is often used in industries such as chemicals, food processing, oil, mining, rubber and clerical appliances. With a continuous mass production of like units, the center of attention is the individual process (usually a department). The unit costs by cost category as well as total unit cost for each process (department) are necessary for product costing purposes.
A cost sheet is a convenient printed form for collecting classifying and summarizing the costs incident to a particular job, lot, or contract. In essence, it is a statement of profit or loss for each job, prepared as the work progresses, and is therefore a guide to management in controlling costs.
Job order cost sheet serve a control function. Comparisons are made between estimates of a job costs and costs actually accumulated for the job. In addition, cost control is enhanced by accumulating direct materials and labor as well as factory overhead costs by cost centers or departments, and by comparing the actual costs to cost center budgets.