Job Order Costing, Overhead, And Activity Based Costing For Turramurra Furniture Company Are Essay Topics.

(a)Describe the circumstances when a job order costing system should be used
(b)Calculate,showing working, the balance in Turramurra Furniture Company’s Work in Process
Account at 30 June 2017.
(c)Calculate the cost of the chairs in the Finished Goods Inventory at 30 June 2017
(d)Actual manufacturing overhead incurred in June amounted to 217,000 .Calculate the over or underapplied overhead for the year.
(e) Outline two different treatments for the over or underapplied overhead balances when using a job order costing system.
( f)If the Turramurra Furniture Company considers that a variation of $40,000 in the over or underapplication of overhead is material and must be dealt with appropriately in the accounts
is the variation(over or underapplication of overhead) material? If it is what approach does the company use to adjust the over or underapplication of overhead?
(g) The company is concerned with its calculation and application of overhead and has asked you to advise if it should consider using Activity Based Costing as it is considering expanding its product range and its concerns about overhead application .
 

Introduction to Turramurra Furniture Company

Turramurra Furniture Company is a specialist manufacturing organization that concentrates on manufacturing furniture that can be used with computers. The company makes use of the FIFO costing process in order to allocate and assign their costs and expenses to the Finished Goods and has their financial records maintained as a financial report on the basis of an accounting year. The company has their own style of recording accounts and therefore it applies its manufacturing overhead based on the machine hour operations. There are several kinds of furniture with respect to the use of computers are manufactured by the firm and therefore has different job numbers. This paper has therefore been framed in order to discover the related costs of Turramurra Furniture Company and even addresses the process that can be used for the assumption of cost in accordance to the job order process system. There are seven questions that would be addressed in this paper, which would be helpful in identifying the management accounting process of Turramurra Furniture Company.

Job order costing even known as job costing is a process that is used for allocating the cost of manufacturing to a single product or even in product batches. This system of costing is used specifically in circumstances when the products that have been manufactured are uniquely different from each other (Ma and Sakellariou 2017).

As the products that have been produced has differentiations of their own, the process of job order costing is undertaken which would create a job cost record for every item and even in situations of a special order (Öker and Ad?güzelv 2016). The record for the job cost will document the direct labour and direct materials which is utilised over the manufacturing overheads that is allocated to every job. The job cost records even act as a subsidiary documentation or ledger for the expenses in the inventory of the work-in-process, cost of goods sold and the inventory of the finished goods. 

This costing process is exploited by the manufacturing industries in order to record the production process and the total number of products that have been manufactured on batch and even in a day. There are definite circumstances during which the job order costing method can be exploited by any individuals and any organizations (Garibaldi, Moen and Sommervoll 2016). The job order costing system is sued by the companies that manufactures different varieties of products. This process is even used by the organizations that are associated with the service sector. The organizations that are associated with the production units make use of this costing system generally manufacture customised services and items. The services and products that have been produced with a unique identity are known as batches and jobs (Kaplan et al. 2014). When an organization allows jobs and orders for variable products, the cost allotment for the product becomes difficult to ascertain. In accordance to this, record for every cost for every single job is preserved because of the fact that every sort of jobs have several related services and products (Dong, Liu and Lin 2014). The cost per unit for a specific job is generated by dividing the overall cost that is allocated for a job by the total number of specific units linked with the job. The three fundamental elements of job order costing system are the factory overhead, the labour cost and the materials associated with it. 

Job Order Costing for Unique Products

The work-in process balance, even known as the work-in-progress is known as the total of the expenditures that has been invested in the production process for the manufacturing of a product which has been manufactured partially (Tsai et al. 2014). It even explains the overhead costs, the cost of the raw materials and the labour costs that have been invested for a product that can be seen in various phases in the production process. With this respect, the balance for Turramurra Furniture has been put forth in the table below:

The Finished Goods are referred to the goods and the products that are in nature have been completed by the manufacturing units or have even been bought as a finished product, however, has not been sold in the market to the customers (Kassler, Tomoyasu and Conway 2015). The products that are finished are known as merchandise. The cost of chairs for Turramurra Furniture that is seen in the inventory of the finished goods are shown in the table below:  

The process of under applied overhead refers to a scenario, when a company has their overhead costs higher than the budgeted costs. Additionally, the over applied overhead expenses occur when a company has their overhead expenditure less than the anticipated budget costs (Boukherroub et al. 2015). The budgeted overhead expense is corresponding to the actual hours functioned in the overhead rate that is predetermined in nature. Therefore, the calculation of the under and the over applied overhead for the company in this report is shown in the below constructed table.

The question that has been explained earlier has given an explanation of the over applied overhead. It is seen that there are numerous treatments can be made in order to post such adjustments. The over applied overhead cost is adjusted by carrying the amount forward to the next accounting period (Wagenhofer 2016). The other method for the process of adjustment is pricing the profit and loss account and the value that can be written off (Van der Stede 2016). The other process for making an adjustment is associated to manufacturing and therefore an additional rate can be sorted and thereby can be implied. The treatment for the same is explained in the table below:       

The issue that has been highlighted with respect to the over and under usage of the overhead products for Turramurra has measures with the help of which it can be mitigated. The answer to the issue has been that Turramurra Company has tried to debit the manufacturing overhead cost and thereby credit the cost of goods sold with the same. The next treatment for the manufacturing overhead cost involves debiting the manufacturing overhead expense with the work in process and thereafter debit the work in process with the cost of goods sold. This treatment will be able to mitigate the issues that is prevalent in the over and under application of the production overhead.  

Overhead Allocation in Job Order Costing

The method of Activity Based Costing is one of the essential accounting process that have been in use in the service and the product industries and is even used by individual entities (Tucker and Parker 2014). This question would therefore look to address the method of costing. 

Turramurra Furniture Company has been facing issue with respect to the calculation and the implementation of the overhead costs and has the wish to incorporate Activity Based Costing as the company has the desire to expand and improve and develop their variety of products and therefore is concerned about the overhead treatment (Taylor and Scapens 2016). The process of Activity Based Costing is generally used by the manufacturing organizations as it improves the reliability of the costing information and therefore the companies can gain idea about the true and authentic costs and enhanced categorisation of the expenses that the company has incurred during the process of production (Luft 2016). The process of costing is exploited for the purpose of understanding the customer profitability, product costing and evaluation of the level of profit, target costing and service costing. This process has been extensively popular as the companies can frame an appropriate corporate plan and policy and concentrate on if the costs are treated effectively (Suomala, Lyly-Yrjänäinen and Lukka 2014). The process of Activity Based Costing makes use of several costing pools managed by the activities in order to allocate the overhead costs. The idea is that the activities are needed to manufacture products and evaluating the finished goods and gathering the product. These activities can be expensive and therefore the operational cost needs to be allocated to the product by relying on the usage of the product activities.

An operation is a method that tries to exploit the overhead expenses. The aim is to have some idea about all the activities that is required to manufacture the product and the services for the organization (Shields 2015). This method requires the overhead expenses related with every activity that is to be assigned to the operational activities. Thus, Activity Based Costing is helpful for managing the overhead applications and the variety of the products. 

Conclusion

It can be explained that by observing the case scenario that has been put forth earlier, it can be said that Job Order Costing is an effective mechanism for the purpose of determining the expenses of several differentiated products. The management has allocated the overhead to the expenditure of the product at a higher rate rather than the actual overhead expenditure (Nuhu, Baird and Bala Appuhamilage 2017). However, the administration can even make transformations on the over applied expenses in their several operational procedures and in every methods, there will a fall in the cost of goods sold.

Calculation of Under and Over Applied Overhead for Turramurra Furniture Company

The company can even look to augment the concerns related to the assignment of the overhead expenses by implementing the Activity Based Costing method. It would aid the company to allocate the overhead costs in relation to the benefits received by each and every product and even to determine the expenses in an effective way.  

Reference List

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