Question

Assume a company is a job-order firm that follows a normal costing approach. Which of the following statements reflect the correct approach of accounting for overheads.............

Answer 1

In a job-order firm that follows a normal costing approach, overhead costs are allocated to jobs based on a predetermined overhead rate. Spreading the overhead means assigning a portion of the overhead costs to each job to determine the total cost of producing each product or service.

Step-by-step explanation:

When accounting for overheads in a job-order firm that follows a normal costing approach, the correct approach is to allocate overhead costs to jobs based on a predetermined overhead rate. This rate is calculated by dividing the estimated total overhead costs for a period by the estimated activity level (such as direct labor hours or machine hours). The overhead costs are then assigned to individual jobs based on the actual activity level consumed by each job.

Spreading the overhead refers to the allocation of overhead costs to jobs. By assigning a portion of the overhead costs to each job, the firm can more accurately determine the total cost of producing each product or service. This helps in decision-making, pricing, and evaluating the profitability of different jobs.