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Chapter 15: Q1DQ (page 694)

Question: Why must a company estimate the amount of factory overhead assigned to individual jobs or job lots?

Short Answer

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Answer

Estimating the relation between factory overhead cost and job or job lot is necessary to assign costs.

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01

Meaning of Factory Overhead

Factory overhead is the portion of a business' operating expenses that aren't directly related to a particular product or service. Overhead is typically connected to manufacturing or production.

02

Explaining why must a company estimate the amount of factory overhead assigned to individual jobs or job lots

Manufacturing overhead isn't connected to specific units (jobs) or bunches (job lots). Estimates of the relationship between manufacturing overhead cost and work or job lot are required to relegate expenses. Also, since work order cost accounting can be a perpetual framework, we must calculate (permanent) stock costs by estimating a predetermined overhead rate. Also, utilizing this anticipated completeness facilitates quick estimation of work arrangement companies.

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Most popular questions from this chapter

Question: What journal entry is recorded when a materials manager receives a materials requisition and then issues materials (both direct and indirect) for use in the factory?

At the beginning of a year, a company predicts total direct materials costs of \(900,000 and total overhead costs of \)1,170,000. If the company uses direct materials costs as its activity base to apply overhead, what is the predetermined overhead rate it should use during the year?

Custom Cabinetry has one job in process (Job 120) as of June 30; at that time, its job cost sheet reports direct materials of \(6,000, direct labor of \)2,800, and applied overhead of \(2,240. Custom Cabinetry applies overhead at the rate of 80% of direct labor cost. During July, Job 120 is sold (on account) for \)22,000, Job 121 is started and completed, and Job 122 is started and still in process at the end of the month. Custom Cabinetry incurs the following costs during July.

July Product Costs

Job 120

Job 121

Job 122

Total

Direct materials

\(1,000

\)6,000

\(2,500

\)9,500

Direct labor

2,200

3,700

2,100

8,000

Overhead applied

?

?

?

?

1. Prepare journal entries for the following transactions and events a through e in July.

  1. Direct materials used in production.
  2. Direct labor used in production.
  3. Overhead applied.
  4. The sale of Job 120
  5. Cost of goods sold for Job 120.

During the current month, a company that uses job order costing incurred a monthly factory payroll of \(180,000. Of this amount, \)40,000 is classified as indirect labor and the remainder as direct. Prepare journal entries to record these transactions.

Refer to the information in QS 16-10. Prepare the November 30 journal entry to record the transfer of units (and costs) from the assembly department to the painting department. Use the weighted-average method.
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