Chapter 3 Summary
Chapter three discusses Job-Order Cost System. According to Dr. Zaidi provided PowerPoint slides, Job-Order System Costing is used to produce large, unique, high cost items and are made to order. Particular cost order system is not used for mass production and most of the costs could be allocated to each job order. Using this cost system, costs are accumulated for each job order, so each job order has separate record that gets produced in the same factory; however, this cost system is not limited to be used only by manufactures, other business and organizations such as hospitals and law firms use this system due to the fact that needs of each patient and client are unique. To keep track of the accumulated costs, document called job-cost-sheet is used to register direct materials, direct labor, and manufacturing costs of the particular job. Due to the fact that manufacturing overhead has to be recorded to for each job, there is a need for predetermined overhead rate (POHR). POHR is determined at the beginning of the year and gets calculated as follows: dividing total budgeted manufacturing overhead rate by total budgeted amount of the cost driver or activity base. In order to calculate manufacture overhead for the specific job, POHR gets multiplied by actual direct labor-hours used in particular job. The chapter also discusses the flow of the manufacturing costs and concept of a clearing accounts identifying necessity for allocation for debit balance if underapplied or credit balance if overapplied manufacture overhead between Work in Process, Finished Goods, and Cost of Goods Sold thus resulting decrease or increase in