CHAPTER

3
LEARNING
OBJECTIVES
After studying Chapter 3, you should be able to:
Distinguish between process costing and job-order costing and identify companies that would use each costing method. 2.

Identify the documents used in a job-order costing system.

3.

Compute predetermined overhead rates and explain why estimated overhead costs (rather than actual overhead costs) are used in the costing process.

4.

Record the journal entries that reflect the flow of costs in a job-order costing system.

5.

Apply overhead cost to Work in Process using a predetermined overhead rate.

6.

Prepare schedules of cost of goods manufactured and cost of goods sold.

7.

Compute under- or overapplied overhead cost and prepare the journal entry to close the balance in
Manufacturing Overhead to the appropriate accounts.

8.

(Appendix 3A) Explain the implications of basing the predetermined overhead rate on activity at capacity rather than on estimated activity for the period.

SYSTEMS DESIGN:
JOB-ORDER COSTING
OVERAPPLIED/UNDERAPPLIED
Cris Griffiths Guitar Works of Saint
Johns, Newfoundland, focuses on repair work and building custom guitars. Late one night while disassembling yet another guitar, Griffiths had a vision of a single bracing piece instead of the three-dozen separate internal reinforcements acoustic guitars typically have. “It was a simple idea that was easy to flesh out, but turning it from an idea into a corporation was a pretty lengthy process,” he recalls. “I often say it took me six minutes to come up with the idea and six years to make it work.”
Part of the problem was that using wood to make a one-piece brace was pretty much out of the question. It would take years to whittle down a wood block into a single piece, but Griffiths realized a composite material that could be punched