Question

Please think about a real life manufacturing or service company (big or small) that would be a good fit for the Job Order Costing method. Explain why you feel that your company would be a good candidate for job order costing (hint: look at the criteria). Also, give at least one example each for direct labor, direct material and manufacturing overhead cost in your company. Finally, explain what allocation base you would suggest for the calculation of the predetermined overhead rate and why

Answer 1

Job Order Costing : If you look at name ,the name itself suggests that this costing relates to particular job.

Example;

1)Take up any manufacturing company,Primary product requires mixture of small child parts which the company cannot prepare on its own,so it opts to send the materials to assign for production of that particular product which is called Job Costing.

2)other way to look at job Order Costing ,Special order which might require special treatment to finish the product on Customers request. For example there is Manufacturing Startup which provides modification and special fittings to Royal Enfield specifically on Customer Request.

So if Company process required any of the aforementioned examples ,Then Job Order Costing would be great in recording Cost.

Direct Material: The materials that are used in manufacturing a product which constitutes for the essence of primary purpose of the product.

If Its Bike :The engine,handle ,and structure material are direct materials since they are solely require for functioning of the Vehicle.

Direct Labour: Similar to Direct material ,Labour that are used to build the core part of Product can be termed as Direct Labour.

Manufacture OH:

Anything other than those can be termed as Manufacturing Over Head.

Third question :

It is case to case basis whether what basis to use to determine Pre Determined over head.

If Manufacturing cosists more prime cost then PDOH can be calculated on Prime Cost Basis.

Similarly Direct Labour hours,works cost,Production OH basis can be used for determination.

(If you are not clear with Pre Determined OH concept ,you can ask for further Explanation)