Non-production overheads might be added to the cost of the job:

Related MCQs

• . Production Overheads are costs related to the production process other than direct labour and materials. They are also known as factory overheads since they are incurred inside the factory, other overheads such as selling and administrative overheads are always charged to in the period in which they are incurred
• Allocation is where overheads are allocated to cost centres. If a cost centre is responsible for the entire cost of an item of expenditure, the entire cost is charged directly to the cost centre.
• Which of the following procedure is incorrect for attributing overhead costs to cost units? I. Collecting production overhead costs by item II. Establishing cost centres III. Allocating and apportioning overhead costs to cost centres IV. Apportioning service cost centre costs to production cost centres V. Absorbing production cost centre costs into cost units
• In Job costing a cost is calculated for each individual job, and this cost can be used to establish the profit or loss from doing the job.
• When overheads have been allocated and apportioned to production cost centres, they are charged to the cost of products manufactured in the cost centre.
• It is possible to add non-production overheads to the full production cost of units produced and sold (i.e. No cost will be carried forward to the next period in the form of closing stock), to obtain a full cost of sale.
• Administration overheads and sales and distribution overheads are not absorbed into product costs. Instead, they are treated in full as an expense in the financial period to which they relate.
• Overheads are usually added to cost units using a predetermined overhead absorption rate, which is calculated using figures from the budget.
• A job costing system is usually based on absorption costing principles, and in addition a cost is included for non-production overheads.
• Overheads can be absorbed into cost units by means of: • Physical unit produced • Percentage of prime cost • Percentage of direct wages • Direct labour hour rate • Machine hour rate