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Question: Now that we have a better understanding of job costing, let's take an example from our childhood entrepreneurial endeavors (running a lemonade stand or neighborhood lawn mowing services, making crafts to sell at a local crafts fair, babysitting, etc.). Imagine these products and services as businesses, in which you are the manager with several teenagers as your employees.
- In your initial post, define the "jobs" in job costing. Explain how you would measure direct materials cost, direct labor cost, and compute predetermined overhead rates.
- What are your actual manufacturing overhead costs, and why aren't they traced to jobs, just as direct materials and direct labor are traced to jobs?
- Give reasons why overhead might be under-applied or over-applied in a given year.
- What factors should be considered in selecting a base to be used in computing the predetermined overhead rate? Why?
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Find not only the optimal production quantities, but also the optimal total cost.
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