3-9 Assigning overhead costs to jobs does not
A on the basis of $8,000 of direct labor cost, the
ensure a profit. The units produced may not be
company’s predetermined overhead rate must be
sold and if they are sold, they may not in fact be
75% of direct labor cost. Thus, $3,000 of over-
head should be applied to Job B at year-end:
sold at prices sufficient to cover all costs. It is a
myth that assigning costs to products or jobs en-
$4,000 direct labor cost × 75% = $3,000 applied
sures that those costs will be recovered. Costs are
overhead cost.
recovered only by selling to customers—not by
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