2. Describe and illustrate job order costing for a manufacturing business- QUIZ YOURSELF Problem \( =2 \) of 3 During luff. Iamal Company incurred factory overhead as follows: utilities, \( \$ 6,600 \); accumulated depreciation, \( \$ 2,500 \); and indirect salaries, \( \$ 3,500 \). Which of the following journal entries is correct? 1 a. Uulinifs Expense, \( \$ 6,500 \mathrm{Dr} \); Depreciation Expense, \( \$ 2,500 \mathrm{Dr} \); Wages Expense, \( \$ 3,500 \mathrm{Dr} \); Accounts Payable, \( \$ 12,600 \mathrm{Cr} \). 2 b. Factory Overhead, \( \$ 12,600 \mathrm{Dr} \); Utlities Payable, \( \$ 6,600 \mathrm{Cr} \); Accumulated Depreciation, \( \$ 2,500 \mathrm{Cr} \); Wages Payable, \( \$ 3,500 \mathrm{Cr} \). 3 c Accounts Payable, \( \$ 12,600 \mathrm{Dr} \); Utlities Expense, \( \$ 6,600 \mathrm{Cr} \); Depreciation Expense, \( \$ 2,500 \mathrm{Cr} \); Wages Payable, \( \$ 3,500 \mathrm{Cr} \). d. Work in Process, \( \$ 12,600 \mathrm{Dr} \); Utilities Expense, \( \$ 6,600 \mathrm{Cr} \); Accumulated Depreciation, \( \$ 2,500 \mathrm{Cr} \); Wages Payable, \( \$ 3,500 \mathrm{Cr} \).

Job order costing is a method used by manufacturing businesses to track costs separately for each job or batch of products manufactured. Costs are accumulated for each distinct job, including direct materials, direct labor, and applied manufacturing overhead. Manufacturing overhead, in a job order costing system, includes all indirect manufacturing costs such as utilities, depreciation of factory equipment, and indirect labor (e.g., salaries of supervisors or maintenance staff). These costs are first recorded in a Factory Overhead control account. Later, they are allocated to individual jobs via an applied overhead rate based on an activity driver (like direct labor hours or machine hours). This helps ensure that each job absorbs its share of total production costs. Let’s illustrate how factory overhead is recorded when incurred: Suppose Luff Iamal Company incurred the following factory overhead costs during a period: • Utilities: $6,600 • Accumulated Depreciation: $2,500 • Indirect Salaries: $3,500 Total overhead incurred = $6,600 + $2,500 + $3,500 = $12,600 Rather than expensing these amounts directly, they are debited to the Factory Overhead account. The credits go to the various accounts that represent the sources of the costs (such as Utilities Payable, Accumulated Depreciation, and Wages Payable). The correct journal entry for recording the incurrence of these factory overhead costs is:   Factory Overhead $12,600 Dr     Utilities Payable $6,600 Cr     Accumulated Depreciation $2,500 Cr     Wages Payable $3,500 Cr This entry (which corresponds to option b) properly records the incurrence of overhead costs in the period and aggregates them in the Factory Overhead account. Later on, as jobs are completed, these overhead costs will be applied (allocated) to individual jobs using a predetermined overhead rate. QUIZ YOURSELF PROBLEM – THINK ABOUT IT: Once overhead is applied to a job, if overhead costs are over- or underapplied at the end of the period, the resulting difference will be adjusted in the cost of goods sold or allocated between Work in Process, Finished Goods, and Cost of Goods Sold. So, the correct answer is: b. Factory Overhead, $12,600 Dr; Utilities Payable, $6,600 Cr; Accumulated Depreciation, $2,500 Cr; Wages Payable, $3,500 Cr.