R1 - Job Order

Process costing is used in those situations where many different products or services are produced each period to customer specifications.

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The basic approach in job-order costing is to accumulate costs in a particular operation or department for an entire period (month, quarter, year) and then to divide this total by the number of units produced during the period.

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If a company uses predetermined overhead rates, actual manufacturing overhead costs of a period will be recorded in the Manufacturing Overhead account, but they will not be recorded on the job cost sheets for the period.

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In a job-order cost system, indirect labor is assigned to a job by using the labor time ticket as a source document.

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The formula for computing the predetermined overhead rate is: Estimated total units in base ÷ Estimated total manufacturing costs

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The fact that one department may be labor intensive while another department is machine intensive may explain in part the existence of multiple predetermined overhead rates in larger companies.

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If a company closes any under- or overapplied overhead to the Cost of Goods Sold account, then Cost of Goods Sold will be credited if manufacturing overhead is overapplied for the period.

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If a job is not completed at the end of the year, then no manufacturing overhead cost should be applied to that job

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When raw materials are purchased, they are recorded as an expense.

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In a job-order cost system, depreciation on factory equipment should be charged directly to the Work in Process account.

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