Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 24

Company A has a number of jobs that are processed through similar manufacturing processes. However, most jobs have labor-hour requirements ranging from 100 to 130 hours, while these jobs differ significantly in the number of machine-hours required for each job—some as low as 50, other as high as 5,000 hours. One reason for this is a well-trained labor pool that has the ability to work cross-functionally and perform a variety of duties. What do you think is the best overhead rate basis for this firm—labor-hours, machine-hours, or some other rate basis? Explain your answer.

Step 1 of 2

Job Costing:

Job Costing is the one of the method of costing approach where different costs are identified, accumulated and are assigned to the specific jobs. Under job costing, a job cost sheet is prepared wherein costs are identified as direct and indirect and are recorded in the job cost sheet.