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The use of predetermined overhead rates in a job-order cost system makes it possible to estimate the total cost of a given job as soon as production is completed.
Under a job-order cost system the Work in Process account is debited with the cost of materials purchased.
The cost of a completed job in a job-order costing system typically consists of the actual direct materials cost of the job, the actual direct labor cost of the job, and the actual manufacturing overhead cost of the job.
A debit balance in the Manufacturing Overhead account at the end of the year means that manufacturing overhead is overapplied.
When a job has been completed, the goods are transferred from the production department to the finished goods warehouse and the journal entry would include a credit to Work in Process.
Underapplied or overapplied manufacturing overhead represents the difference between actual overhead costs and applied overhead costs.
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