‘In a job costing system, it is necessary to divide up the business into departments. Fixed costs

(or overheads) will be collected for each department. Where a particular fixed cost relates to the business as a whole, it must be divided between the departments. Usually this is done on the basis of area of floor space occupied by each department relative to the entire business.

When the total fixed costs for each department have been identified, this will be divided by the number of hours that were worked in each department to deduce an overhead recovery rate.

Each job that was worked on in a department will have a share of fixed costs allotted to it according to how long it was worked on. The total cost for each job will therefore be the sum of the variable costs of the job and its share of the fixed costs. It is essential that this approach is taken in order to deduce a selling price for the business’s output.’

Required:

Prepare a table of two columns. In the first column you should show any phrases or sentences in the above statement with which you do not agree, and in the second column you should show your reason for disagreeing with each one.

Many businesses charge overheads to jobs on a departmental basis.

Required:

(a) What is the advantage that is claimed for charging overheads to jobs on a departmental basis, and why is it claimed?