COST ACCOUNTING
JOB ORDER COSTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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costs allocated using direct labor hours or machine hours
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classified as direct costs
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Factory overhead costs fluctuate as units produced fluctuate
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Factory overhead consists of only one type of cost
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Detailed explanation-1: -You can allocate overhead costs by any reasonable measure, as long as it is consistently applied across reporting periods. Common bases of allocation are direct labor hours charged against a product, or the amount of machine hours used during the production of a product.
Detailed explanation-2: -You may also calculate the overhead rate based on direct labor hours. Divide the overhead costs by the direct labor hours over the same measurement period. In the example, the overhead rate is $20 for each direct labor hour ($2, 000/100).
Detailed explanation-3: -Setup costs should not be allocated directly to products via machine hours. Setup costs should be allocated to the batch of products that will be run after the setup occurs. Setup cost is an example of a batch-level cost.
Detailed explanation-4: -To allocate the overhead costs, you first need to calculate the overhead allocation rate. This is done by dividing total overhead by the number of direct labor hours. This means for every hour needed to make a product, you need to allocate $3.33 worth of overhead to that product.