Job vs. Process Costing Product (service) costing systems are customized to provide accurate and timely cost data. A company should select a costing system that is appropriate for its production process. The following is a list of different organizations and selected products or services they provide. Indicate whether each of the preceding organizations would most likely choose job costing or process costing. Job Costing Love’s Pottery Barn had the following costs for June: Direct Labor � � � � � � � � � � � $400 Manufacturing Overhead � � � � � � �$375 Beginning work in process � � � � � � $0 Ending work in process � � � � � � � $0 Costs of goods manufactured � � � � � � $1,050 Beginning finished goods � � � � � � � $2,450 Ending finished goods � � � � � � � � $3,400 What was the cost of direct material used during June? Direct Labor vs. Indirect Labor Jim Wilson is a typical manufacturing employee who commonly works 40 hours per week and is paid $14 per hour. During the last pay period, Jim performed the the following activities: Assembling products � � � � � � � � � � � � � � � 29.5 hours Cleaning his work area � � � � � � � � � � � � � � � 5.0 hours Attending a workplace safety meeting � � � � � � � � � � 2.5 hours Talking with a supervisor about football � � � � � � � � � 1.0 hours Giving a tour of the plant to schoolchildren � � � � � � � � 2.0 hours Jim’s employer uses job costing to measure and track production costs. The company is very concerned with maintaining accurate cost data. Determine the amount of labor costs that should be allocated to direct labor and indirect labor as manufacturing overhead. Walter Meyer Productions had the following costs for March: Purchases of direct materials � � � � � � � � � � � $30,000 Indirect Labor � � � � � � � � � � � � � � � � $20,000 Ending direct materials inventory � � � � � � � � � � $10,000 Beginning direct materials inventory � � � � � � � � � $0 Total manufacturing costs � � � � � � � � � � � � � $115,000 Direct Labor � � � � � � � � � � � � � � � � $25,000 How much manufacturing overhead was incurred during March? Identification of Cost Drivers Overhead costs are rarely directly linked to the production of a specific product or group of products. Generally, overhead costs are only indirectly linked to production, so they must be allocated. Understanding the relationship between overhead costs and production activities is challenging for most businesses. Consider the following: Overhead Costs, Cost Pools, Cost Drivers The following statements describe various aspects of overhead costs and the roles of cost pools and cost drivers in the allocation of overhead. Case 44
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