ECONOMICS

Detailed explanation-1: -In a standard job-order costing system, factory overhead is applied using predetermined rates times actual input. In a job-order costing system, costs are accumulated for each individual job. When raw materials are placed into production, the materials inventory account is debited.

Detailed explanation-2: -Factory overhead is applied to production using a predetermined overhead rate. A job order cost system would be appropriate for a crude oil refining business. A manufacturer may employ a job order cost system for some of its products and a process cost system for others.

Detailed explanation-3: -Predetermined Overhead Rate Usage Traditional costing systems apply indirect costs to products based on a predetermined overhead rate. Unlike ABC, traditional costing systems treat overhead costs as a single pool of indirect costs. Traditional costing is optimal when indirect costs are low compared to direct costs.

Detailed explanation-4: -A normal job-order costing system is a system that uses: Actual costs for direct materials and direct labor and estimated costs for overhead.

Detailed explanation-5: -Why must a company use predetermined overhead rates when using job order costing? Having predetermined overhead rates allows production managers to allocate overhead costs in advance.