Question

Jensen fences uses job order costing. manufacturing overhead is charged to individual jobs through the use of a predetermined overhead rate based on direct labor costs. the following information appears in the company's work in process inventory account for the month of june. What is the method used by Jensen fences to charge manufacturing overhead to individual jobs?

1) Job order costing
2) Process costing
3) Activity-based costing
4) Standard costing

Answer 1

Jensen Fences applies manufacturing overhead to individual jobs using job order costing with a predetermined overhead rate based on direct labor costs.

Step-by-step explanation:

Jensen Fences uses job order costing as a method to charge manufacturing overhead to individual jobs. This approach allocates overhead based on a predetermined overhead rate, which in Jensen Fences' case, is applied to the direct labor costs. To determine this rate, the company will estimate the total manufacturing overhead costs for a coming period and divide it by the estimated total amount of the allocation base, which could be total direct labor hours or direct labor costs, depending on the company's policy.

The application of this overhead rate allows Jensen Fences to accurately assign manufacturing overhead costs to individual jobs, rather than using a broad average that could over- or under-apply costs to jobs. Such precision helps the company gauge the profitability of each project more accurately, providing essential information for pricing, budgeting, and financial reporting.