Appropriate situation for Job Order Costing System
Turramurra Furniture is the company that has been evaluated under this particular assignment. It has specialization in producing and manufacturing of computers. Under the variant job numbers of this company, several kinds of furniture are produced by organization. In this report, costs of every types of furniture manufactured by company is ascertained and evaluated. Furthermore, it also demonstrates methodology of assuming costs using job order costing process.
Discussion: Appropriate situation for Job Order Costing System:
Job costing is a method of costing that helps in evaluating the total number of products manufactured in a batch and process of manufacturing. Organizations possessing the capability of carrying out manufacturing exploit this method of costing for achieving tailored services and products (Hopper and Bui 2016). It is difficult job for company for allotting costs after it received permit and order for manufacturing several products.
Work in process balance is incorporated in the manufacturing process that requires adding up of all the expenses. Overhead expenses, labour and raw materials that have been incurred in the manufacturing process at various stages are addressed in this process.
Cost of Chairs in Finished Goods Inventory:
Finished products or goods are the goods that are not sold to end users and they are manufactured in a completed manner. Merchandize are the goods that are bought by organization in completed way (Cooper et al. 2017). Table below depicts the chair costs available as finished product.
Calculation of Over or Under Applied Overhead
When the budgeted expenses are less than overhead expenses, the occurrence of overhead is experienced by organization. When the expected budgeted of organization is more than their overhead expenses, then there is occurrence of over applied overhead costs (Dekker 2016). Real hour worked is equal to budgeted overhead at the rate that is pre determined. Following table depicts the calculations of under applied and over applied overhead.
Different Treatments for Adjusting Over Applied Overheads:
In order to treat the adjustments of over applied head, several methods can be undertaken by organization. Supplementary and adjustments incorporated into production is one method. Adjustments of overhead applied rate can be done by taking the amount onto next period. Costing the loss and profit account and writing off the amount can be other method for making the adjustment. Table below depicts the treatment and adjustment of over applied overheads.
Work-in-Process Balance
Approach for Adjusting Over Applied Material Cost:
Issues faced by organization concerns over utilization and under utilization of overhead products. This problem can be resolved by making some adjustment in accounting entries. The cost of goods sold has been credited and the manufacturing overhead account has been debited manufacturing overhead. Another adjustment debit the goods sold costs and work in progress and adjustment has also been made in the production overhead by debiting the manufacturing cost overhead with work in progress. Existing problems of organization would be solved by making these adjustments.
Activity Based Costing
Turramurra Furniture is intending to use Activity Based Costing for calculating overhead. Organization makes use of this costing method for enhancing the availability of information related to costs that is gained during the process of production. This method helps in management of expense on efficient basis and it helps in formation of appropriate strategy for organization. Overhead expenses using this method is allocated using several costing pool carried out in operations. Information gained by management helps in creating efficiency and accumulation and assessment of finished products. The main objective of non-organization is to increase their knowhow of their production and operational process.
Conclusion:
From the analysis of above discussed facts, it can be inferred that costs related to several differential products can be ascertained using method of Job Order Costing. Allocation of overhead expenses has been done by administration at the real rate that is increasing. On the other hand, alterations can be made by management on the over applied overhead concerning every production stage. This will help in reduction of cost of goods sold. Moreover, issues concerning overhead allocation can be optimized by management by employing method of activity based costing. Overhead costs of firm would be allocated in such a way that will be in the interest of organization and would benefit them. Allocation of costs will be done in a more effective way.
Reference and bibliography List:
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