Chapter 17, Problem 1STQ

To determine

State the false statement of Company C uses job order costing from the following options.

Answer to Problem 1STQ

Option B is the correct answer.

Explanation of Solution

Job order costing:

Job order costing is one of the methods of cost accounting under which is collected and gathered for each job, work order, or project separately. It is a system by which a factory maintains a separate record of each particular quantity of product that passes through the factory. Job order costing is used when the products are significantly different from each other.

Justification for Incorrect answers:

Option a:

Individual job cost sheets accumulate all manufacturing costs applicable to each job and together constitute a subsidiary ledger for the work in process inventory account. This is a process of job order costing. Hence option A is incorrect option.

Option c:

The amount of direct materials used in individual’s jobs is recorded by debiting the work in process inventory account and crediting the material inventory account, as well as entering the amount used on the individual job cost sheets. This is a process of job order costing. Hence option Cis incorrect option.

Option d:

The manufacturing overhead applied to each job is transferred from the manufacturing overhead account to the work in process inventory account, as well as entered on the individual job cost sheets. This is a process of job order costing. Hence, option D is incorrect option.

Justification for Correct answer:

Option b:

Direct labor cost applicable to individual jobs is recorded when paid by a debit work in process inventory and a credit to cash, as well as by entering the amount on the job cost sheets. This is a wrong process of job order costing, need to record work in process inventory as debit and need to credit direct labor cost instead of cash. Hence the option B is correct answer.