QUESTION
Assignment
You are employed in an organisation that want to design a proper "job costing" system. What steps you would take to design a "job costing"system. Describe several situations that may gives rise to under-applied or over-applied.
[/et_pb_text][et_pb_text _builder_version="4.9.3" _module_preset="default" width_tablet="" width_phone="100%" width_last_edited="on|phone" max_width="100%"]
| Subject | Business | Pages | 3 | Style | APA |
|---|
Answer
Steps to Design Job Costing Systems
Costing is an essential function of any business because of the role it plays in financial management and related decision-making processes. Job costing entails accumulation of costs incurred in a firm and the subsequent allocation to specific jobs (Dutta, 2003). Designing a job costing system involves a variety of steps as outlined below:
- Identifying a job
The step entails the identification of the scope of the jobs in the firm. For instance, for a manufacturing company, it might entail identifying the different orders placed and under the manufacturing process. Subsequently, it is critical to gain knowledge about all that the job entails.
- Identifying the costs
The second step involves identifying direct costs associated with the job. At this stage, it is also important to determine any costs that is specifically related to the job. Some of the costs include labor costs incurred in a job.
- Selecting the allocation base
Apart from the direct costs, the job will also incur some indirect costs. Such might include the cost of power and lighting. The allocation base might be determined by referring to previous jobs to determine how the total of the indirect costs were allocated to different bases. Subsequently, the allocation base will entail the indirect cost figures relating to the completed jobs.
- Computing the rate
A single unit rate is computed by dividing the total cost figure by the number of units attributed to a specific previous job. The single unit rate will then be applied in calculating the indirect costs of the new job. The pre-determined rate is then used to determine the overhead costs in a job or project
- Computing the indirect costs
The total indirect costs attributed to a job are calculated by taking the single unit cost and multiplying it by the volume or number of units that will be produced. Such will give the estimated total indirect costs.
- Computing the total costs
The step entails an addition of the direct and indirect costs that have been calculated to give the estimated total cost of a job. A comparison of this figure with the one quoted to the customer will help in determining the profit or loss related to the completion of a job.
Over-Applied and Under-Applied Overheads
An over-applied overhead occurs when the overhead cost applied to the work in progress is more than the actual overhead cost incurred in a given period (Vanderbeck & Mitchell, 2015). It might occur in such situations as when the units produced are way lower than those of previous projects. On the other hand, an under-applied overhead occurs if the overhead cost applied to a given work in progress is less than the actual overhead cost incurred during a period. It might occur in such situations as when the units produced are higher than those of previous projects.
References
-
Dutta, B. (2003). Cost Accounting: Principles And Practice. India: Pearson Education.
Vanderbeck, E., & Mitchell, M. (2015). Principles of Cost Accounting. New York: Cengage Learning.