Question

Kindly provide an explanation as to why overhead rate is used in Job Order costing. why is it important to keep current cost in lined with planned cost? With the use of examples, illustrate what method of Job Costing is used in Non-profit Organisations.

Answer 1

Job Order Costing: Job order costing is a system for assigning and accumulating manufacturing costs of an individual unit of output. The job cost record will report each item's direct materials and direct labor that were actually used and an assigned amount of manufacturing overhead.the job order costing system requires a separate job cost record for each item (or each job or special order). The job cost record will report each item's direct materials and direct labor that were actually used and an assigned amount of manufacturing overhead.

overhead rate is used to apply manufacturing overhead to products or job orders and is usually computed at the beginning of each period by dividing the estimated manufacturing overhead cost by an allocation base (also known as activity base or activity driver). Commonly used allocation bases are direct labor hours, direct labor dollars, machine hours, and direct materials.

By using of overhead rates, we will know that what and all overhead and expenses will occur in completion of Job. It helps us to find out the current cost and planned cost. Planned cost means an estimated cost or standard cost which a company or organisation decided for future .