The Hondasaki Motorcycle Company has a normal two-stage absorption job-order costing system. They close over - or under-applied overhead directly into Cost of Goods Sold, and use expected production as their activity base. Assume that their projections for total fixed costs and variable costs per unit are accurate.

Taking on an additional job that remains in inventory at the end of the period will:

a. Reduce adjusted cost of goods sold

b. Increase adjusted cost of goods sold

c. Have no effect on adjusted cost of goods sold

d. Impossible to predict without additional information

Question

Paula Poole

Business

26 August, 11:33

The Hondasaki Motorcycle Company has a normal two-stage absorption job-order costing system. They close over - or under-applied overhead directly into Cost of Goods Sold, and use expected production as their activity base. Assume that their projections for total fixed costs and variable costs per unit are accurate.

Taking on an additional job that remains in inventory at the end of the period will:

a. Reduce adjusted cost of goods sold

b. Increase adjusted cost of goods sold

c. Have no effect on adjusted cost of goods sold

d. Impossible to predict without additional information

+3

Answers (1)

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Gross · Answer 1

a. Reduce adjusted cost of goods sold

Explanation:

As the fixed cost are distribute accurate taking an additional job will distribute the fixed cost among a higher activity base therefore, the cost per unit once adjusted will decrease as the company produced more unit than expected with the same costs (remember we should assume expectation are accurate)

Therefore, we will apply overhead to that job, making it lower than actual overhead thus, making an adjustment to reduce it.