ACCT 2102 1st Edition Lecture 7 Outline of Last Lecture:I. Schedule for Calculating the COGSII. ExampleOutline of Current Lecture: III. Job Costing IV. MOH V. Calculating POHRCurrent Lecture: Job Costing (Chapter 3, Part 1)III. Job CostingCommon Product Costing System• Job Costing• Environment: unique, custom-ordered products, or relatively small batches of different products. Each unique product or batch is considered a separate job; costs accumulated by the job• Example: Custom home builder• Process Costing• Environment: homogeneous products; costs are accumulated by department• Example: Hostess snack cakesIV. How Companies Handle MOHBy their very nature, indirect manufacturing can NOT be traced to specific cost object. Yet GAAPrequires that MOH be treated as an inventoriable product cost for financial reporting purposes. Why? 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.• Before the year begins, most manufacturers calculate a predetermined MOH rate (POHR) that will be used throughout the year to allocate MOH to each job. • During the year, manufacturers allocate MOH to each cost object.• At the end of the year, manufacturers must deal with any overallocated OR underallocated overhead.V. Calculating POHR (before the year begins)• How is the POHR computed? Total estimated MOH costsTotal estimated amount of allocation base• What are the most common allocation bases? DL hours because most jobs are labor-intensive jobs.DM because machines are largely used.• What allocation base should be used? Based on what we see happening:Machines- DM; A lot of people used-DL • Why do companies use a predetermined MOH rate, rather than the actual rate?In order to get actual rates, the company would have to wait until the end of the year to set its MOH rate. Managers are willing to sacrifice some accuracy to get timely information on how much each job costs to
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