ACCTG 231 – 1st Edition Lecture 4 Outline of Last Lecture I. Least-Squares Regression MethodII. Assigning CostsIII. Cost ClassificationsOutline of Current Lecture I. Job-order CostingII. Allocation Basea. Manufacturing Overheadb. Predetermined Overhead RateCurrent LectureJob-order Costing:- Job-order costing systems are used when:o Many different products are produced each period.o Products are manufactured to order.o The unique nature of each order requires tracing or allocation costs to each job, and maintaining cost records for each job.- Examples of companies that would use job-order costing include:o Boeing (aircraft manufacturing)o Bechtel International (large-scale construction)o Walt Disney Studios (movie production)- Job-order Costing Changes:o Charge direct material and direct labor costs to each job as work is performed.o Manufacturing Overhead (including indirect materials and indirect labor) is allocated to all jobs rather than directly traced to each job.Allocation Base:- An allocation base, such as direct labor-hours, direct labor dollars, or machine-hours, is used to assign manufacturing overhead to individual jobs.- We us an allocation base because:o It is impossible or difficult to trace overhead costs to particular jobs.o Manufacturing overhead consists of many different items ranging from the grease used in machines to the production manager’s salary.These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.o Many types of manufacturing overhead costs are fixed even though output fluctuates during the period.- Manufacturing Overhead Applicationo The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period begins.o POHR =  (Estimated total manufacturing overhead cost for the coming period) / (Estimated total units in the allocation base for the coming period)o Ideally, the allocation base is a cost driver that cause overhead.o Predetermined overhead rates rely upon estimated data because: Actual overhead for the period is not known until the end of the period. Actual overhead costs can fluctuate seasonally, thus misleading decision makers.- Computing Predetermined Overhead Rates:o The predetermined overhead rate is computed before the period begins using a four-step process:1) Estimate the total amount of the allocation base (the denominator) that will be required for next period’s estimated level of production. 2) Estimate the total fixed manufacturing overhead cost for the coming period and the variable manufacturing overhead cost per unit of the allocation base.3) Use the following equation to estimate the total amount of manufacturing overhead:4) Compute the predetermined overhead rate.Y = a + bXWhere: Y = the estimated total manufacturing overhead cost a = the estimated total fixed manufacturing overhead cost b = the estimated variable manufacturing overhead cost per unit of the allocation base X = the estimated total amount of the allocation