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Analysis of Job Order Costing and Manufacturing Overhead Allocation at Wall D�cor

An analysis of job order costing and the allocation of manufacturing overhead at Wall D�cor.

Adam Morris
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1Analysis of Job Order Costing and Manufacturing Overhead Allocation atWall DécorCase 1.Greetings Inc. Job Order Costing1. Define and explain the meaning of a predetermined manufacturing overhead rate that isapplied in a job-order costing system.In a job order costing system, the actual direct materials and direct labor cost to particular jobs,can be allocated directly by the company. Although the overhead costs of production cannot beallocated to particular jobs on the base of the actual costs incurred. This s because the productionoverhead relates to the production process in total and also that the actual overhead costs are notknown until after the entire process is complete. Hence, production overhead costs are calculatedon a estimation basisusing predetermined production overhead rates. Companies approximatethe total overhead costs at the start of the year, the level of business and come up with apredetermined overhead rate based on these approximations.The rate that is applied to the work process inventory and to particular jobs, is called the Apredetermined manufacturing overhead rate, which is calculated by dividing the estimated annualoverhead costs by theexpected annual operating activity, and can beexpressed in terms of acommon activity base. Directlabor costs, direct labor hours, machine hours, production units, orany other measure that can provide an equitable basis for apply overhead costs to jobs are a fewcommon activity bases that can be used to make calculations. With reference to theWall Décorcase, every product id given an amount of manufacturing overhead on the basis of the cost of theprint.

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Accounting

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