Question

In the lecture video I used Boeing and an imaginary company (Pear Co.) as examples to explain Job Order Costing. 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. (Min. 150 words).

Answer 1

A real life company that will be a good fit for the job order costing method is GE (General Electric). I feel that GE will be a good candidate for job order costing because the company manufactures a number of different products. GE, as a company, accepts orders for different products and to ensure that assignment of costs becomes easier GE records its costs on a per job basis. The company is present in different business segments and industries like additive, aviation, renewable energy, power, healthcare etc. For example in the renewable energy industry the company makes wind turbines and takes orders from other companies to manufacture turbines as per their requirements. Each order and hence each job differ in nature and so use of job costing is optimal here.

One example of direct labor is the wages that GE pays to its assembly line workers. One example of direct material is the cost of aluminum and steel that GE uses to make turbines, aviation engines etc. One example of manufacturing overhead cost at GE is the depreciation expenses on its manufacturing equipment. Salaries paid to maintenance personnel will also be an example of manufacturing overhead cost at GE.

The allocation base that I will suggest here in case of GE for the computation of predetermined overhead rate is “machine hours”. This is because GE is a highly capital intensive company and its manufacturing is highly dependent on the equipment and machines used by it.

(245 words)