Universidad CuauhtémocCampus Aguascalientes

Job Order Cost SystemsAnálisis de Costos

Maestría en Administración

Job Order Cost Systems

1 Manufacturing Cost Terms

2 Cost Accounting System

3 Flow of Manufacturing Cost

Manufacturing Cost Terms

FactoryOverhead

DirectMaterials

DirectLabor

ProductCosts

The cost of materials that are an integral part of the product.

The cost of labor directly involved in converting material into the product.

Manufacturing costs other than direct materials and direct labor.

Cost Accounting Systems

Job order cost system Provides a separate record for the cost of each quantity of product that passes through the factory.

Process cost system System in which costs are accumulated for each of the departments or processes within the factory.

*Note that the examples in this presentation use the job order cost accounting system.

The costs of converting the materials into finished products consists of

direct labor and factory overhead. These two costs combined are often

referred to as conversion costs.

Flow of Manufacturing Costs

PRINTING PLANT

Job 73

Work in Process Inventory

• Direct Labor• Factory Overhead

MATERIALS STOREROOM

INK INK

Materials Inventory

Flow of Manufacturing Costs

CAMPUS BOOKSTORE

Cost of Goods Sold

Finished Goods Inventory

WAREHOUSE

Job 69

Job 70

Flow of Manufacturing Costs

Materials received are inspected by the

Receiving Department. Once inspected, a receiving report is

prepared showing the quantity received and

its condition.

Receiving Report No. 196

Flow of Manufacturing Costs

Invoice

The receiving report and the invoice are used to record the receipt of the merchandise and

to control the payment.

Receiving Report No. 196

Flow of Manufacturing Costs

Invoice

a. Materials 10 500 00 Accounts Payable10 500 00 Materials purchased during December.

Receiving Report No. 196

Flow of Manufacturing Costs

The Materials account is a controlling account. A separate account for each

type of material is maintained in a subsidiary materials ledger.

InvoiceReceiving

Report No. 196

MATERIALS LEDGER ACCOUNTMATERIAL: No. 23 Paper ORDER POINT: 1,000 lbs.

RECEIVED ISSUED BALANCE Rec. Mat.Report Req. Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price Dec. 1 1,200 $ 6,000 $5.00

672 400 $ 2,000 4 800 4,000 5.00

Receiving Report No. 196

196 1,500 $10,500 8 800 4,000 5.001,500 10,500 7.00

First-in, first-out

Direct Materials

MATERIALS LEDGER ACCOUNTMATERIAL: No. 23 Paper ORDER POINT: 1,000 lbs.

RECEIVED ISSUED BALANCE Rec. Mat.Report Req. Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price Dec. 1 1,200 $ 6,000 $5.00

672 400 $ 2,000 4 800 4,000 5.00196 1,500 $10,500 8 800 4,000 5.00

1,500 10,500 7.00

Later, Materials Requisition Number 704 is prepared for Job No. 72 requisitioning 1,800 units of No. 23 paper.

to Materials Requisition

Direct Materials

704 1,800 11,000 12 500 3,500 7.00

MATERIALS REQUISITIONSREQUISITION NO. 704JOB NO. 72

Quantity Unit Description Issued Price Amount

No. 23 paper 800 $5.00 $ 4,0001,000 7.00 7,000

Total issued $11,000

from Materials Ledger Account

to Job Cost Sheet

Direct Materials

Job 724,000 units of Algebra

Direct materialsDirect LaborFactory Overhead

from Materials Requisition

$11,000

The receiving report and the invoice are used to record the receipt of the

merchandise and to control the payment.

b. Work in Process 11 000 00

Materials11 000 00 Materials requisitioned to

Job 72.

Direct Materials

Direct Labor

TIME TICKET

Job 72 Time Tickets

No. 6311 Employee Name S. AndrewsDate Dec. 26, 2006Work Description PrintingJob No. 72

Start Finish Hours Hourly Time Time Worked Rate Cost 9:00 12:00 3 $15.00 $45.001:00 6:00 5 15.00 75.00

Total Cost $120.00 Approved by _____________________________A. M.

December Job 72 (500 hours) for a total cost

of $7,500

to Job Cost Sheet

Direct Labor

Job 724,000 units of Algebra

Direct materials $11,000Direct LaborFactory Overhead

from Time Tickets

7,500

The receiving report and the invoice are used to record the receipt of the

merchandise and to control the payment.

c. Work in Process 7 500 00 Wages Payable7 500 00 Factory labor used in

production of Job 72.

When indirect material is used or depreciation of factory equipment is recorded, a cost account (rather than an expense account) needs to be

charged. All manufacturing costs except direct materials and direct labor fall into this category.

d. Factory Overhead 4 600 00

Factory overhead incurred.

Materials 500 00Wages Payable2 000 00Utilities Payable900 00Accumulated Depreciation1 200 00

Factory Overhead

A firm can’t wait until the end of the fiscal year to price a product, so overhead must be estimated (or applied) using this

formula.

Estimated totalfactory overhead costs

Estimated activity base

Predeterminedfactory overhead

rate=

Factory Overhead

An activity base is chosen for the denominator of the formula that is relevant

to overhead and can be realistically measured. There are several possibilities

for Goodwell Printers.

Activity base possibilities

1. Direct labor hours 2. Direct labor dollars 3. Machine hours 4. Direct materials

Factory Overhead

Goodwell Printers estimates factory overhead costs to be

$50,000 and chooses direct labor hours as its activity base.

Factory Overhead

Management estimated that 10,000 direct labor hours would be used during the fiscal period. This allowed for a predetermined

factory overhead rate to be calculated.

Estimated total factory overhead costsEstimated direct labor hours

$50,00010,000 direct labor hours= $5 per direct labor hours

Factory Overhead

TIME TICKET

Job 72 Time Tickets

No. 6311 Employee Name B. AndrewsDate Dec. 26, 2006Work Description PrintingJob No. 72

Start Finish Hours Hourly Time Time Worked Rate Cost 9:00 12:00 3 $15.00 $45.001:00 6:00 5 15.00 75.00

Total Cost $120.00 Approved by _____________________________A. M.

Job 72 required 500 direct labor hours.

December Job 72 (500 hours) for a total cost of

$2,500

Factory Overhead

Job 724,000 units of Algebra

Direct materialsDirect LaborFactory Overhead

500 hours x $5

$11,0007,500

The receiving report and the invoice are used to record the receipt of the

merchandise and to control the payment.

d. Work in Process 2 500 00 Factory Overhead2 500 00 Factory overhead applied to

Job 72.

2,500Total job cost $21,000

Factory Overhead

Completion of Jobs

The receiving report and the invoice are used to record the receipt of the

merchandise and to control the payment.

g. Finished Goods 10 250 00 Work in Process10 250 00 Job 71 completed in

December.

Job 711,000 units of American History

Direct materialsDirect LaborFactory Overhead

2,0003,500

1,750Total job cost $10,250

Balance $ 3,000

Job 71 was started in

November and competed in December.

FINISHED GOODS LEDGERITEM: American History

Manufactured Shipped Balance Job ShipOrder Order Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price

Sale of Product

Sold 2,000 American History textbooks on account, $28,000.

Dec. 1 2,000 $ 20,000 $10.00

Completion of Jobs

The receiving report and the invoice are used to record the receipt of the

merchandise and to control the payment.

g. Finished Goods 10 250 00 Work in Process10 250 00 Job 71 completed in

December.

Job 711,000 units of American History

Direct materialsDirect LaborFactory Overhead

2,0003,500

1,750Total job cost $10,250

Balance $ 3,000

Job 71 was started in

November and competed in December.

The receiving report and the invoice are used to record the receipt of the

merchandise and to control the payment.

h. Cost of Goods Sold 20 000 00

Finished Goods20 000 00 Cost of 2,000 American

History textbooks sold.

Entry to remove books from inventory.

The receiving report and the invoice are used to record the receipt of the

merchandise and to control the payment.

i. Accounts Receivable 28 000 00

Sales 28 000 00 Revenue received from

textbooks sold.

Entry to record sale on account.

Sale of Product

FINISHED GOODS LEDGERITEM: American History

Manufactured Shipped Balance Job ShipOrder Order Unit No. Quantity Amount No. Quantity Amount Date Quantity Amount Price Dec. 1 2,000 $ 20,000 $10.00

643 2,000 $20,000 9 --- --- --- 71 1,000 $10,250 31 1,000 10,250 10.25

Transfer to Finished Goods

Job 71 is transferred to finished goods.

EXAMPLES OF PERIOD COSTS

SELLING EXPENSES

Advertising expenses Sales salaries expenses Commission expenses

EXAMPLES OF PERIOD COSTS

ADMINISTATIVE EXPENSES Office salaries expenses Office supplies expenses Depreciation expense—

office buildings and office equipment

Goodwell PrintersIncome Statement

For the Month Ended December 31, 2006

Sales $28,000Cost of goods sold 20,000Gross profit $ 8,000Selling and admin. expenses:

Sales salaries expense $2,000Office salaries expense 1,500Total selling and admin.

expenses 3,500Income from operations $ 4,500

Overview of Job Order Costing

Product Costs

Costs & ExpensesBalance Sheet

DirectLaborDirectLabor

Factory OverheadFactory

OverheadFinishedGoods

Inventory

Cost of goods manufactured

Work inProcess

Inventory

MaterialsInventory

MaterialsPurchases

Cost of

Goods Sold

Product Costs

Period Costs

Costs & ExpensesBalance Sheet

DirectLaborDirectLabor

Factory OverheadFactory

OverheadFinishedGoods

Inventory

Work inProcess

Inventory

Income Statement

Selling andAdministrative

Selling andAdministrative

Period costs flow directly to the

income statement

Overview of Job Order Costing

MaterialsInventory

MaterialsPurchases

Universidad CuauhtémocCampus Aguascalientes

Questions?

Maestría en Administración