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For each item listed, determine whether a job order costing system or a process costing system is most appropriate. The items include cereal, team uniforms, houses, beach chairs, plastic, restaurant-specific pizza boxes, and sneakers customized with number and colors.

Additionally, complete the relevant cost computations, including the calculation of the cost of goods manufactured assuming overhead is allocated based on direct labor hours. Calculate the predetermined overhead rate, the overhead applied during the year, and assess whether overhead was over- or underapplied, including the necessary journal entry to dispose of the over- or underapplied overhead. Prepare journal entries for various manufacturing transactions such as raw materials purchase, raw materials used for jobs (direct and indirect), direct and indirect labor, factory utilities and depreciation, application of manufacturing overhead, transfer of jobs to finished goods, sale of jobs, and adjustment for overapplied overhead.

Paper For Above instruction

Introduction

Manufacturing environments vary significantly, and selecting the appropriate cost system is critical for effective cost control and product valuation. Job order costing and process costing are two primary methods used to assign manufacturing costs. This paper discusses which system is suitable for various items, performs detailed cost computations, and identifies journal entries necessary for typical manufacturing transactions.

Determining Suitable Costing Systems for Different Items

Job order costing is best suited for customized or distinct products where costs are accumulated for individual jobs. Process costing applies efficiently to homogeneous products produced on an ongoing basis. Based on this, the appropriateness for each item is as follows:

• Cereal: Process costing because it is manufactured in a continuous process where costs are accumulated per process or department.
• Team uniforms: Job order costing since each batch or uniform set may vary in design and customer specifications.
• Houses: Job order costing because each house is a distinct project with unique features, requiring specific cost accumulation.
• Beach chairs: Job order costing as these are often customized or produced in batches with specific designs or features.
• Plastic: Process costing if produced in large, continuous quantities; job order if production is customized or small batches.
• Restaurant-specific pizza boxes: Job order costing owing to the customized nature based on restaurant specifications.
• Sneakers customized with number and colors: Job order costing because each pair can be unique, with specific customer preferences.

Cost Computation and Analysis

Calculating Cost of Goods Manufactured

Suppose Freeman Furnishings has the following data: raw materials used, direct labor hours, factory overhead costs, and production figures. To compute the cost of goods manufactured (COGM), we sum the total direct materials used, direct labor, and manufacturing overhead applied, then adjust for work-in-process inventory changes.

Overhead Rate Calculation

The predetermined overhead rate (POHR) is calculated as:

POHR = Estimated Manufacturing Overhead / Estimated Direct Labor Hours

Assuming the estimate of overhead is $100,000 and estimated direct labor hours are 10,000 hours, then:

POHR = $100,000 / 10,000 hours = $10 per direct labor hour.

Overhead Application and Variance

During the year, if actual direct labor hours total 9,500, the applied overhead would be:

Applied Overhead = POHR x Actual Direct Labor Hours = $10 x 9,500 = $95,000.

If actual overhead incurred was $97,000, then overhead was underapplied by $2,000. Conversely, if actual overhead was $93,000, it would be overapplied by $2,000.

Journal Entries

To record the transactions, journal entries would include debits to raw materials, work-in-process, and manufacturing overhead (based on application), and credits to accounts payable, cash, and factory utilities. Entries for overapplied overhead involve adjusting the manufacturing overhead account and cost of goods sold as appropriate.

Conclusion

Choosing between job order and process costing depends on product similarity and production method. Proper cost allocation through accurate overhead calculation and journal entries ensures reliable product costing and financial reporting. These processes support effective managerial decisions and improve cost control within manufacturing firms.

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