Job Order Costing and Overhead Allocation

The assignment delves into the application of Job Order Costing to determine costs associated with various products. It discusses the real-rate overhead allocation method and its implications. The analysis emphasizes the role of management in adjusting overapplied overhead across production stages to minimize the cost of goods sold. Furthermore, it explores Activity Based Costing as a means to optimize overhead allocation for organizational benefit.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................2
Appropriate situation for Job Order Costing System:............................................................2
Work-in-Process Balance:......................................................................................................2
Cost of Chairs in Finished Goods Inventory:.........................................................................3
Calculation of Over or Under Applied Overhead..................................................................4
Different Treatments for Adjusting Over Applied Overheads:..............................................5
Approach for Adjusting Over Applied Material Cost:...........................................................5
Activity Based Costing..........................................................................................................6
Conclusion:................................................................................................................................6
Reference and bibliography List:...............................................................................................7

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Introduction:
Turramurra Furniture is the company that has been evaluated under this particular
assignment. It has specialization in producing and manufacturing of computers. Under the
variant job numbers of this company, several kinds of furniture are produced by organization.
In this report, costs of every types of furniture manufactured by company is ascertained and
evaluated. Furthermore, it also demonstrates methodology of assuming costs using job order
costing process.
Discussion:
Appropriate situation for Job Order Costing System:
Job costing is a method of costing that helps in evaluating the total number of
products manufactured in a batch and process of manufacturing. Organizations possessing the
capability of carrying out manufacturing exploit this method of costing for achieving tailored
services and products (Hopper and Bui 2016). It is difficult job for company for allotting
costs after it received permit and order for manufacturing several products.
Work-in-Process Balance:
Work in process balance is incorporated in the manufacturing process that requires
adding up of all the expenses. Overhead expenses, labour and raw materials that have been
incurred in the manufacturing process at various stages are addressed in this process.

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Particulars SE523 PS612 CH421 DS174 Total
Opening WIP 20000 25000 15000 0
Quantity Completed 20000 0 15000 5000
Closing WIP Units 0 25000 0 0
Opening Value of Work-in-Process $ 3,00,000 $ 3,00,000
Raw Material $ 2,21,000 $ 2,21,000
Labor Cost $ 2,00,500 $ 2,00,500
Manufacturing Overhead $ 97,500 $ 97,500
Closing Value of Work-in-Process $ 0 $ 8,19,000 $ 0 $ 0 $ 8,19,000
Cost of Chairs in Finished Goods Inventory:
Finished products or goods are the goods that are not sold to end users and they are
manufactured in a completed manner. Merchandize are the goods that are bought by
organization in completed way (Cooper et al. 2017). Table below depicts the chair costs
available as finished product.
Particulars Amount
Direct Raw Material $ 13,800
Labor Cost $ 43,200
Manufacturing Overhead $ 22,000
$ 79,000
Opening WIP $ 4,31,000
Less: Closing WIP $ 0
Cost of Goods Manufactured $ 5,10,000
Quanity Completed 15000
Cost per Units completed $ 34

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Particulars
Opening
Inventory
Units
Completed Total
Total Units 19400 15000 34400
Units Sold 19400 1600 21000
Closing Units 0 13400 13400
Cost per unit $ 35 $ 34
Value of Closing Inventory $ 0 $ 4,55,600 $ 4,55,600
Calculation of Over or Under Applied Overhead
When the budgeted expenses are less than overhead expenses, the occurrence of
overhead is experienced by organization. When the expected budgeted of organization is
more than their overhead expenses, then there is occurrence of over applied overhead costs
(Dekker 2016). Real hour worked is equal to budgeted overhead at the rate that is pre
determined. Following table depicts the calculations of under applied and over applied
overhead.
Particulars Amount
Annual Predetermined Ovehead $ 45,00,000
Budgeted Machine Hours $ 9,00,000
Predetermined Overhead Rate $ 5
Machine Hours upto May'17 835000
Machine Hours in June'17 49900
Total Machine Hours 884900
Applied Manufacturing Overhead $ 44,24,500
Actual Oveehead upto May'17 $ 41,05,000
Actual Overhead in June'17 $ 2,17,000
Total Actual Overhead $ 43,22,000
Over Applied Overhead Expenses $ 1,02,500

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Different Treatments for Adjusting Over Applied Overheads:
In order to treat the adjustments of over applied head, several methods can be
undertaken by organization. Supplementary and adjustments incorporated into production is
one method. Adjustments of overhead applied rate can be done by taking the amount onto
next period. Costing the loss and profit account and writing off the amount can be other
method for making the adjustment. Table below depicts the treatment and adjustment of over
applied overheads.
Dr. Cr.
Date Amount Amount
First Treatment:
30-06-2017 Manufacturing Overhead A/c. Dr. $ 1,02,500
To, Cost of Goods Sold A/c. $ 1,02,500
Second Treatment:
30-06-2017 Manufacturing Overhead A/c. Dr. $ 1,02,500
To, Work-in Process A/c. $ 1,02,500
Work-in-Process A/c. Dr. $ 1,02,500
To, Cost of Goods Sold A/c. $ 1,02,500
Particulars
Approach for Adjusting Over Applied Material Cost:
Issues faced by organization concerns over utilization and under utilization of
overhead products. This problem can be resolved by making some adjustment in accounting
entries. The cost of goods sold has been credited and the manufacturing overhead account has
been debited manufacturing overhead. Another adjustment debit the goods sold costs and
work in progress and adjustment has also been made in the production overhead by debiting
the manufacturing cost overhead with work in progress. Existing problems of organization
would be solved by making these adjustments.

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Activity Based Costing
Turramurra Furniture is intending to use Activity Based Costing for calculating
overhead. Organization makes use of this costing method for enhancing the availability of
information related to costs that is gained during the process of production. This method
helps in management of expense on efficient basis and it helps in formation of appropriate
strategy for organization. Overhead expenses using this method is allocated using several
costing pool carried out in operations. Information gained by management helps in creating
efficiency and accumulation and assessment of finished products. The main objective of non-
organization is to increase their knowhow of their production and operational process.
Conclusion:
From the analysis of above discussed facts, it can be inferred that costs related to
several differential products can be ascertained using method of Job Order Costing.
Allocation of overhead expenses has been done by administration at the real rate that is
increasing. On the other hand, alterations can be made by management on the over applied
overhead concerning every production stage. This will help in reduction of cost of goods
sold. Moreover, issues concerning overhead allocation can be optimized by management by
employing method of activity based costing. Overhead costs of firm would be allocated in
such a way that will be in the interest of organization and would benefit them. Allocation of
costs will be done in a more effective way.

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Reference and bibliography List:
Cooper, D.J., Ezzamel, M. and Qu, S.Q., 2017. Popularizing a management accounting idea:
The case of the balanced scorecard. Contemporary Accounting Research.
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Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting
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Hopper, T. and Bui, B., 2016. Has management accounting research been
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Lavia López, O. and Hiebl, M.R., 2014. Management accounting in small and medium-sized
enterprises: current knowledge and avenues for further research. Journal of Management
Accounting Research, 27(1), pp.81-119.
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P. Tucker, B. and D. Lowe, A., 2014. Practitioners are from Mars; academics are from
Venus? An investigation of the research-practice gap in management
accounting. Accounting, Auditing & Accountability Journal, 27(3), pp.394-425.

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Shields, M.D., 2015. Established management accounting knowledge. Journal of
Management Accounting Research, 27(1), pp.123-132.
Suomala, P., Lyly-Yrjänäinen, J. and Lukka, K., 2014. Battlefield around interventions: A
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Vosselman, E., 2014. The ‘performativity thesis’ and its critics: Towards a relational
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Wagenhofer, A., 2016. Exploiting regulatory changes for research in management
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