CHAPTER 5DISCUSSION QUESTIONS5-1Q5-

CHAPTER 5
DISCUSSION QUESTIONS
5-1
Q5-1.The cost attached to a product is an amountassigned by the costing methods used—anamount controlled by the circumstances,assumptions, and limitations of the methodunder which it was compiled.Product costsare composites of historical outlay that have,perhaps, been modified by estimates or stan-dards, by processes assigning or proratingexpenditures to periods, or by tracing thedirect costs and allocating the indirect coststo particular products so that the total periodoutlay is spread over the aggregate output.Despite these shortcomings, product costsare useful in costing inventories, comparingprices and total unit cost, measuring currentprofit or loss, and indicating the minimum costbelow which a sales price cannot go in thelong run.Some confusion will result at timesin using cost information in making manage-ment decisions unless information relevantonly to the decision is used.Q5-2.The primary objective in job order costing is todetermine the cost of materials, labor, andfactory overhead used to produce a specificorder or contract.Cost estimates are madewhen the order is taken, and the job orderprocedures are designed to reveal costs asthe order goes through production, therebygiving an opportunity to control costs.Q5-3.The type of cost accumulation method usedby a company will be determined by the typeof manufacturing operations performed.Amanufacturing company should use processcost accumulation for product costing pur-poses when like units are continuously massproduced;when custom-made or uniquegoods are produced, job order costing wouldbe more appropriate.Process costing is oftenused in industries such as chemicals, foodprocessing, oil, mining, rubber, and electricalappliances.With a continuous mass produc-tion of like units, the center of attention is theindividual process (usually a department).The unit costs by cost category as well astotal unit cost for each process (department)are necessary for product costing purposes.Q5-4.A job order cost sheet is used:(a)to keep track of the direct materials anddirect labor used on a job plus an appro-priate share of factory overhead;(b)to compare actual costs to estimatedcosts;(c)as a subsidiary ledger for the work inprocess account.Q5-5.The work in process account is a controlaccount in the general ledger, reflecting totalcosts assigned or applied to jobs.The individ-ual job cost sheets form the work in processaccount’s subsidiary ledger, indicating thedirect materials, direct labor, and factory over-head charged to each job.Q5-6.Job order cost sheets serve a control func-tion.Comparisons are made between esti-mates of job costs and costs actuallyaccumulated for the job.In addition, cost con-trol is enhanced by accumulating direct mate-rials and labor as well as factory overheadcosts by cost centers or departments, and bycomparing the actual costs to cost centerbudgets.Q5-7.Actual factory overhead consists of the day-by-day costs that are actually experiencedand incurred by the company.Applied factoryoverhead is the overhead charged to jobsbased on the predetermined factory overheadrate.This rate is created by dividing total esti-mated overhead by total estimated number ofunits (or any other appropriate base).The dif-ference between actual and applied factoryoverhead is the over- or underapplied factoryoverhead.Q5-8.The characteristic of a service business thatmakes likely the use of job order costing isthat all jobs are not alike and cost informationfor each job is desired.

Results (Indonesian) 1:

BAB 5PERTANYAAN-PERTANYAAN DISKUSI5-1Q5-1.The cost attached to a product is an amountassigned by the costing methods used—anamount controlled by the circumstances,assumptions, and limitations of the methodunder which it was compiled.Product costsare composites of historical outlay that have,perhaps, been modified by estimates or stan-dards, by processes assigning or proratingexpenditures to periods, or by tracing thedirect costs and allocating the indirect coststo particular products so that the total periodoutlay is spread over the aggregate output.Despite these shortcomings, product costsare useful in costing inventories, comparingprices and total unit cost, measuring currentprofit or loss, and indicating the minimum costbelow which a sales price cannot go in thelong run.Some confusion will result at timesin using cost information in making manage-ment decisions unless information relevantonly to the decision is used.Q5-2.The primary objective in job order costing is todetermine the cost of materials, labor, andfactory overhead used to produce a specificorder or contract.Cost estimates are madewhen the order is taken, and the job orderprocedures are designed to reveal costs asthe order goes through production, therebygiving an opportunity to control costs.Q5-3.The type of cost accumulation method usedby a company will be determined by the typeof manufacturing operations performed.Amanufacturing company should use processcost accumulation for product costing pur-poses when like units are continuously massproduced;when custom-made or uniquegoods are produced, job order costing wouldbe more appropriate.Process costing is oftenused in industries such as chemicals, foodprocessing, oil, mining, rubber, and electricalappliances.With a continuous mass produc-tion of like units, the center of attention is theindividual process (usually a department).The unit costs by cost category as well astotal unit cost for each process (department)are necessary for product costing purposes.Q5-4.A job order cost sheet is used:(a)to keep track of the direct materials anddirect labor used on a job plus an appro-priate share of factory overhead;(b)to compare actual costs to estimatedcosts;(c)as a subsidiary ledger for the work inprocess account.Q5-5.The work in process account is a controlaccount in the general ledger, reflecting totalcosts assigned or applied to jobs.The individ-ual job cost sheets form the work in processaccount’s subsidiary ledger, indicating thedirect materials, direct labor, and factory over-head charged to each job.Q5-6.Job order cost sheets serve a control func-tion.Comparisons are made between esti-mates of job costs and costs actuallyaccumulated for the job.In addition, cost con-trol is enhanced by accumulating direct mate-rials and labor as well as factory overheadcosts by cost centers or departments, and bycomparing the actual costs to cost centerbudgets.Q5-7.Actual factory overhead consists of the day-by-day costs that are actually experiencedand incurred by the company.Applied factoryoverhead is the overhead charged to jobsbased on the predetermined factory overheadrate.This rate is created by dividing total esti-mated overhead by total estimated number ofunits (or any other appropriate base).The dif-ference between actual and applied factoryoverhead is the over- or underapplied factoryoverhead.Q5-8.The characteristic of a service business thatmakes likely the use of job order costing isthat all jobs are not alike and cost informationfor each job is desired.