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Job-Order Costing Fundamentals

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Questions and Answers

What distinguishes actual manufacturing overhead from applied overhead?

Applied overhead is calculated based on expenses from the previous period.

Actual overhead includes only variable costs, while applied overhead includes fixed costs.

Actual overhead is based on estimates, while applied overhead is actual costs.

Actual overhead is incurred costs during a period, while applied overhead is estimated. (correct)

How does overapplied manufacturing overhead affect Cost of Goods Sold at the end of the period?

It is added to COGS to reflect actual costs incurred.

It has no effect on COGS; it is ignored.

It is subtracted from COGS to adjust for excess applied overhead. (correct)

It is directly expensed and does not affect COGS.

What is the treatment of underapplied manufacturing overhead in relation to Cost of Goods Sold?

It is subtracted from COGS to reflect overapplication.

It is added to COGS to account for the shortfall in applied overhead. (correct)

It is directly expensed on the income statement.

It is ignored and not adjusted in COGS.

How do you determine the Predetermined Overhead Rate (POHR) in manufacturing?

By dividing estimated total manufacturing overhead costs by the estimated allocation base. Signup and view all the answers

What distinguishes actual manufacturing overhead from applied manufacturing overhead?

Actual overhead is incurred costs; applied is the estimated costs charged to jobs. Signup and view all the answers

In what scenario is Job-Order Costing primarily used?

In service businesses or custom manufacturers where each job is unique. Signup and view all the answers

What is the purpose of the Predetermined Overhead Rate in a job-order costing system?

To estimate production costs before actual overhead is known. Signup and view all the answers

Which of the following statements about Job-Order Costing is correct?

It requires tracking direct materials, direct labor, and overhead for each job. Signup and view all the answers

Study Notes

Job-Order Costing

A costing system that assigns costs to specific jobs or batches, ideal for custom manufacturing.
Tracks direct materials, direct labor, and manufacturing overhead separately for each job.

Predetermined Overhead Rate (POHR)

Calculated by dividing estimated total manufacturing overhead costs by the estimated total allocation base (like labor or machine hours).
Used to apply manufacturing overhead to jobs throughout the accounting period.

Actual vs. Applied Overhead

Actual manufacturing overhead includes all costs incurred during a period.
Applied manufacturing overhead refers to overhead costs assigned to jobs using the POHR, serving estimating purposes.

Closing Over or Underapplied Manufacturing Overhead

Overapplied overhead, where more was applied than incurred, is subtracted from Cost of Goods Sold (COGS).
Underapplied overhead indicates that less was applied than incurred, requiring the shortfall to be added to COGS for correction.

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Description

Dive into the essentials of job-order costing, a method that tracks costs for specific jobs in custom manufacturing. Learn about the predetermined overhead rate, the differences between actual and applied overhead, and how to close over or underapplied manufacturing overhead. This quiz will test your understanding of the critical concepts and calculations involved.