Chapter 3, Problem 3.56ACT

Discussion Questions

1. 1. Why would it be inappropriate for a custom-home builder to use process costing?
2. 2. For what types of products is job costing appropriate? Why? For what types of products is process costing appropriate? Why?
3. 3. What product costs must be allocated to jobs? Why must these costs be allocated rather than assigned?
4. 4. When the predetermined manufacturing overhead rate is calculated, why are estimated costs and cost driver levels used instead of actual dollars and amounts?
5. 5. Why should manufacturing overhead be allocated to a job even though the costs cannot be directly traced to a job? Give at least two reasons.
6. 6. Why does management need to know the cost of a job? Discuss at least five reasons.
7. 7. Why is it acceptable to close overallocated or underallocated manufacturing overhead to Cost of Goods Sold rather than allocating it proportionately to Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold? Under what circumstances would it be advisable to allocate the overallocated or underallocated manufacturing overhead to Work in Process Inventory, Finished Goods Inventory, and Cost of Goods Sold?
8. 8. Describe a situation that may cause manufacturing overhead to be overallocated in a given year. Also, describe a situation that may cause manufacturing overhead to be underallocated in a given year.
9. 9. Explain why the cost of goods sold should be lower if manufacturing overhead is over-allocated. Should operating income be higher or lower if manufacturing overhead is overallocated? Why?
10. 10. What account is credited when manufacturing overhead is allocated to jobs during the period? What account is debited when manufacturing overhead costs are incurred during the period? Would you expect these two amounts (allocated and incurred manufacturing overhead) to be the same? Why or why not?
11. 11. How can job cost records help to promote sustainability efforts within a company?
12. 12. Why should companies estimate the environmental costs of a given job? Why have EPR (extended producer responsibility) laws come into existence?