Upload
dominic-bryant
View
222
Download
0
Embed Size (px)
Citation preview
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-1
JOB ORDER COST SYSTEMS AND OVERHEAD ALLOCATIONS
Chapter
17
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-2
Planning andcontrol
functions.
Providingproducts or services tocustomers.
Assessing theefficiency andeffectivenessof operations.
Determining unitmanufacturing
costs.
Cost accounting systems provide information supporting decisions making the business successful.
Cost Accounting SystemsCost Accounting Systems
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-3
Discloseinventoriesand cost ofgoods sold.
Track resourcesconsumed byproducts and
services.
Manage activitiesthat consume
resources.
Evaluate andreward
employeeperformance.
Cost accounting systems are the proceduresand techniques used by management.
Cost Accounting SystemsCost Accounting Systems
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-4
Used for production of large, unique, high-cost items. Built to order rather than mass produced. Many costs can be directly traced to each job.
Used for production of large, unique, high-cost items. Built to order rather than mass produced. Many costs can be directly traced to each job.
Job Order CostingJob Order Costing
Typical job order cost applications: Special-order printing Building construction
Also used in service industry Hospitals Law firms
Typical job order cost applications: Special-order printing Building construction
Also used in service industry Hospitals Law firms
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-5
Receive orders from customers
Begin production
Ordermaterials
Schedulejobs
Job Order CostingJob Order Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-6
THE JOB
Directmaterials
Direct labor
Traced directly to each job
Traced directly
to each job
Manufacturingoverhead (OH)
Applied to eachjob using a
predeterminedrate (POHR)
Job Order CostingJob Order Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-7
Manufacturing Overhead
Manufacturing Overhead
Job No. 1Job No. 1
Job No. 2Job No. 2
Job No. 3Job No. 3
Charge direct
material and direct labor
costs to each job as
work is performed.
Charge direct
material and direct labor
costs to each job as
work is performed.
Direct MaterialsDirect Materials
Direct LaborDirect Labor
Job Order CostingJob Order Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-8
Apply overhead to
each job using a
predeter-mined rate.
Apply overhead to
each job using a
predeter-mined rate.
Direct MaterialsDirect Materials
Direct LaborDirect Labor
Job No. 1Job No. 1
Job No. 2Job No. 2
Job No. 3Job No. 3Manufacturing Overhead
Manufacturing Overhead
Job Order CostingJob Order Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-9
Estimated total manufacturingoverhead cost for the coming period
Estimated total units in theactivity base for the coming period
POHR =
The predetermined overhead rate (POHR) used to apply overhead to jobs is
determined before the period begins.
Ideally, the activity base is a cost driver that causes overhead.
Overhead Application RatesOverhead Application Rates
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-10
Using a predetermined rate makes itpossible to estimate total job costs sooner.
Actual overhead for the period is notknown until the end of the period.
$$
Overhead Application RatesOverhead Application Rates
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-11
Overhead applied = POHR × Actual activity
Actual amount of the cost driver such as units produced, direct labor hours, or machine hours
incurred during the period.
Based on estimates, and determined before the
period begins.
Overhead Application RatesOverhead Application Rates
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-12
Compuline, Inc., applies overhead based on direct labor hours. Total estimated overhead for the year is $360,000. Total estimated labor
hours are 30,000.
What is Compuline’s predetermined overhead rate per hour?
Compuline, Inc., applies overhead based on direct labor hours. Total estimated overhead for the year is $360,000. Total estimated labor
hours are 30,000.
What is Compuline’s predetermined overhead rate per hour?
Overhead Application RatesOverhead Application Rates
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-13
For each direct labor hour worked on a job, $12.00 of manufacturing overhead
will be applied to the job.
POHR = $12.00 per DLH
$360,000
30,000 direct labor hours (DLH)POHR =
Estimated total manufacturingoverhead cost for the coming period
Estimated total units in theallocation base for the coming period
POHR =
Overhead Application RatesOverhead Application Rates
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-14
The primary document for tracking the costs
associated with a given job is the job
cost sheet.
Let’s investigate
Job Order CostingJob Order Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-15
The Job Cost SheetThe Job Cost Sheet
RoseCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-X9Date Completed
Department B3 Units CompletedItem Wooden cargo crate
Direct Materials Direct Labor Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate Amount
Cost Summary Units ShippedDirect Materials Date Number BalanceDirect LaborManufacturing OverheadTotal CostUnit Cost
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-16
The Job Cost SheetThe Job Cost Sheet
RoseCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-X9Date Completed
Department B3 Units CompletedItem Wooden cargo crate
Direct Materials Direct Labor Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-6890 116$
Cost Summary Units ShippedDirect Materials 116$ Date Number BalanceDirect LaborManufacturing OverheadTotal CostUnit Cost
A materials requisition form is used to
authorize the use of materials on a job.
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-17
The Job Cost SheetThe Job Cost Sheet
RoseCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-X9Date Completed
Department B3 Units CompletedItem Wooden cargo crate
Direct Materials Direct Labor Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-6890 116$ 36 8 88$
Cost Summary Units ShippedDirect Materials 116$ Date Number BalanceDirect Labor 88$ Manufacturing OverheadTotal CostUnit Cost
Accumulate direct labor
costs by means of a
work record, such as a time ticket, for each
employee.
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-18
The Job Cost SheetThe Job Cost Sheet
RoseCo Job Cost Sheet
Job Number A - 143 Date Initiated 3-4-X9Date Completed 3-5-X9
Department B3 Units Completed 2Item Wooden cargo crate
Direct Materials Direct Labor Manufacturing OverheadReq. No. Amount Ticket Hours Amount Hours Rate AmountX7-6890 116$ 36 8 88$ 8 4$ 32$
Cost Summary Units ShippedDirect Materials 116$ Date Number BalanceDirect Labor 88$ Manufacturing Overhead 32$ Total Cost 236$ Unit Cost 118$
Apply manufacturing overhead to jobs using a predetermined overhead rate (POHR) based on
direct labor hours (DLH).
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-19
Let’s summarize the document flow we have
been discussing in a job order
costing system.
Job Order CostingDocument Flow Summary
Job Order CostingDocument Flow Summary
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-20
Materials Ledger CardsMaterials
Ledger CardsMaterials Ledger CardsMaterialsRequisition
Direct materials
The materials requisition
indicates the cost of direct
materialto charge to
jobsand the cost of
indirect material to charge to overhead.
Indirect materials
Job Cost Sheets
Job Cost Sheets
Job Cost Sheets
Job Cost Sheets
Manufacturing Overhead Account
Job Order CostingDocument Flow Summary
Job Order CostingDocument Flow Summary
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-21
Employee time tickets indicate
the cost of direct labor
to charge tojobs
and the cost of indirect labor
to charge to overhead.
Job Cost Sheets
Manufacturing Overhead Account
Job Cost Sheets
Job Cost Sheets
Job Cost Sheets
Direct Labor
Indirect Labor
Employee Time TicketEmployee Time
TicketEmployee Time TicketEmployee Time
Ticket
Job Order CostingDocument Flow Summary
Job Order CostingDocument Flow Summary
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-22
EmployeeTime Ticket
MaterialsRequisition
OtherActual OHCharges
IndirectMaterial
IndirectLabor
OverheadApplied
withPOHR
Manufacturing Overhead Account
Job Cost Sheets
Job Order CostingDocument Flow Summary
Job Order CostingDocument Flow Summary
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-23
Let’s examine the cost flows in a
job order costing system. We will use T-accounts and start with
materials.
Flow of Costs in Job CostingFlow of Costs in Job Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-24
•MaterialPurchases
•Direct Material
•Direct Material
Mfg. Overhead•Indirect Material
Work in Process(Job Cost Sheet)
•Indirect Material
Materials Inventory
Flow of Costs in Job CostingFlow of Costs in Job Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-25
Next let’s add labor costs and
applied manufacturing overhead to the job order cost flows. Are you
with me?
Flow of Costs in Job CostingFlow of Costs in Job Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-26
•Direct Labor
Mfg. Overhead
Work in Process(Job Cost Sheet)
•Indirect Material
•Direct Material
•OverheadApplied to
Work inProcess
•IndirectLabor
•Direct Labor
•Overhead Applied
•IndirectLabor
the difference is closed to cost of goods sold.
When Actual Applied factory factoryoverhead overhead
=/
Labor
Flow of Costs in Job CostingFlow of Costs in Job Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-27
If Manufacturing Effect of Closing toOverhead is . . . Cost of Goods Sold
UNDERAPPLIED INCREASE(Applied OH is less Cost of Goods Sold
than actual OH)
OVERAPPLIED DECREASE(Applied OH is greater Cost of Goods Sold
than actual OH)
Closing Under- or OverappliedManufacturing Overhead
Closing Under- or OverappliedManufacturing Overhead
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-28
Now let’s complete the
goods and sell them. Still with
me?
Flow of Costs in Job CostingFlow of Costs in Job Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-29
•Cost ofGoodsMfd.
Finished Goods
•Cost ofGoodsSold
•Cost ofGoodsMfd.
Cost of Goods Sold
•Cost ofGoodsSold
Work in Process(Job Cost Sheet)•Direct
Material•Direct Labor
•Overhead Applied
Flow of Costs in Job CostingFlow of Costs in Job Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-30
A
B CA
CB
Activity-Based Costing (ABC)Activity-Based Costing (ABC)
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-31
One of the most difficult tasks in
computing accurate unit costs lies in determining the
proper amount of overhead cost to
assign to each job.
One of the most difficult tasks in
computing accurate unit costs lies in determining the
proper amount of overhead cost to
assign to each job.
Assigningoverhead is
difficult. I agree!
Activity-Based Costing (ABC)Activity-Based Costing (ABC)
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-32
Level of C
omplexity
Overhead Allocation
Plantwide Overhead
Rate
DepartmentalOverhead
Rates
Activity-BasedCosting
Activity-Based Costing (ABC)Activity-Based Costing (ABC)
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-33
In the ABC method, we recognize that many
activities within a department drive overhead costs.
In the ABC method, we recognize that many
activities within a department drive overhead costs.A
B CA
CB
Activity-Based Costing (ABC)Activity-Based Costing (ABC)
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-34
Identify activities and assign indirect costs to those activities.
Central idea . . .Products require activities.Activities consume resources. A
B CA
CB
Activity-Based Costing (ABC)Activity-Based Costing (ABC)
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-35
More detailed measures of costs.Better understanding of activities.More accurate product costs for . . .
Pricing decisions.Product elimination decisions.Managing activities that cause costs.
Benefits should always be compared tocosts of implementation.
More detailed measures of costs.Better understanding of activities.More accurate product costs for . . .
Pricing decisions.Product elimination decisions.Managing activities that cause costs.
Benefits should always be compared tocosts of implementation.
The Benefits of ABCThe Benefits of ABC
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-36
Most cost drivers are related to either volume or complexity of production. Examples: machine time, machine setups, purchase
orders, production orders.
Three factors are considered in choosing a cost driver: Causal relationship. Benefits received. Reasonableness.
Most cost drivers are related to either volume or complexity of production. Examples: machine time, machine setups, purchase
orders, production orders.
Three factors are considered in choosing a cost driver: Causal relationship. Benefits received. Reasonableness.
Identifying Cost Drivers Identifying Cost Drivers
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-37
Overhead Actual Rate Activity
×
Rate = Estimated overhead costs in activity cost pool
Estimated number of activity units
Identify activities that consume resources. Assign costs to a cost pool for each activity. Identify cost drivers associated with each
activity. Compute overhead rate for each cost pool:
Assign costs to products:
Activity-Based CostingProcedures
Activity-Based CostingProcedures
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-38
Let’s look at anexample comparingtraditional costing
with ABC. We will start with
traditional costing.
Activity-Based CostingActivity-Based Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-39
Pear Company manufactures a product in regular and deluxe models. Overhead is assigned on the basis of direct labor hours. Budgeted overhead for the current year is $2,000,000. Other information:
Deluxe RegularModel Model
Direct Material 150$ 112$ Direct Labor Cost 16 8 Direct Labor Time 1.6 hours 0.8 hoursExpected Volume (units) 5,000 40,000
First, determine the unit cost of each model using traditional costing methods.
Traditional Costing vs. ABCExample
Traditional Costing vs. ABCExample
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-40
DirectLabor Hours
Deluxe Model 5,000 units @ 1.6 hours 8,000 Regular Model 40,000 units @ 0.8 hours 32,000
Total Direct Labor Hours (DLH) 40,000
Overhead Estimated overhead costs Rate Estimated activity
=
Overhead $2,000,000 Rate 40,000 DLH
= = $50 per DLH
Traditional CostingTraditional Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-41
Deluxe RegularModel Model
Direct Material 150$ 112$ Direct Labor 16 8 Manufacturing Overhead$50 per hour × 1.6 hours 80 $50 per hour × 0.8 hours 40 Total Unit Cost 246$ 160$
ABC will have differentoverhead per unit.
Traditional CostingTraditional Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-42
Pear Company plans to adopt activity-based costing. Using the following activity center
data, determine the unit cost of the two products using activity-based costing.
OverheadActivity Cost Cost for Units of ActivityCenter Driver Activity Deluxe Regular
Purchasing Orders 84,000$ 400 800 Scrap Rework Orders 216,000 300 600 Testing Tests 450,000 4,000 11,000 Machine Related Hours 1,250,000 20,000 30,000 Total Overhead 2,000,000$
Activity-Based CostingActivity-Based Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-43
Overhead UnitsActivity Cost Cost for ofCenter Driver Activity Activity Rate
Purchasing Orders 84,000$ 1,200 Scrap Rework Orders 216,000 900 Testing Tests 450,000 15,000 Machine Related Hours 1,250,000 50,000 Total Overhead 2,000,000$
400 deluxe + 800 regular = 1,200 total
Activity-Based CostingActivity-Based Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-44
Overhead UnitsActivity Cost Cost for ofCenter Driver Activity Activity Rate
Purchasing Orders 84,000$ 1,200 $ 70 per orderScrap Rework Orders 216,000 900 $240 per orderTesting Tests 450,000 15,000 $ 30 per testMachine Related Hours 1,250,000 50,000 $ 25 per hourTotal Overhead 2,000,000$
Rate = Overhead Cost for Activity ÷ Units of Activity
Activity-Based CostingActivity-Based Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-45
Deluxe Model Regular ModelActual Cost Actual Cost
Units of Allocated Units of AllocatedActivity Rate Activity to Product Activity to Product
Purchasing $ 70/order 400 ? 800 ?Scrap Rework $240/order 300 ? 600 ?Testing $ 30/test 4,000 ? 11,000 ?Machine Related $ 25/hour 20,000 ? 30,000 ?Total Overhead ? ?
Activity-Based CostingActivity-Based Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-46
Deluxe Model Regular ModelActual Cost Actual Cost
Units of Allocated Units of AllocatedActivity Rate Activity to Product Activity to Product
Purchasing $ 70/order 400 28,000$ 800 56,000$ Scrap Rework $240/order 300 ? 600 ? Testing $ 30/test 4,000 ? 11,000 ? Machine Related $ 25/hour 20,000 ? 30,000 ? Total Overhead ? ?
Cost Allocated to Product = Actual Units of Activity × Rate
Let’s completethe table.
Activity-Based CostingActivity-Based Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-47
Deluxe Model Regular ModelActual Cost Actual Cost
Units of Allocated Units of AllocatedActivity Rate Activity to Product Activity to Product
Purchasing $ 70/order 400 28,000$ 800 56,000$ Scrap Rework $240/order 300 72,000 600 144,000 Testing $ 30/test 4,000 120,000 11,000 330,000 Machine Related $ 25/hour 20,000 500,000 30,000 750,000 Total Overhead 720,000$ 1,280,000$
Cost Allocated to Product = Actual Units of Activity × Rate
Activity-Based CostingActivity-Based Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-48
Deluxe Model Regular ModelActual Cost Actual Cost
Units of Allocated Units of AllocatedActivity Rate Activity to Product Activity to Product
Purchasing $ 70/order 400 28,000$ 800 56,000$ Scrap Rework $240/order 300 72,000 600 144,000 Testing $ 30/test 4,000 120,000 11,000 330,000 Machine Related $ 25/hour 20,000 500,000 30,000 750,000 Total Overhead 720,000$ 1,280,000$
Cost Allocated to Product = Actual Units of Activity × Rate
Total overhead = $720,000 + $1,280,000 = $2,000,000Recall that $2,000,000 was the original amount of
overhead assigned to the products using traditional overhead costing.
Activity-Based CostingActivity-Based Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-49
Overhead Costs Assigned to Products: Deluxe Model $720,000 ÷ 5,000 units = $144 per unit Regular Model $1,280,000 ÷ 40,000 units = $32 per unit
Deluxe RegularModel Model
Direct Materials 150$ 112$ Direct Labor 16 8 Manufacturing Overhead 144 32 Total Unit Cost 310$ 152$
Activity-Based CostingActivity-Based Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-50
This result is not uncommon when activity-based costing is used. Many companies have found that low-
volume, specialized products have greater overhead costs than previously realized.
Traditional Costing ABCDeluxe Regular Deluxe RegularModel Model Model Model
Direct materials 150$ 112$ 150$ 112$ Direct labor 16 8 16 8 Overhead 80 40 144 32 Total cost 246$ 160$ 310$ 152$
Activity-Based CostingActivity-Based Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-51
Cost Cost DriverMaterials purchasing Number of purchase ordersMaterials handling Number of materials
requisitionsPersonnel processing Number of employees hired
or laid offEquipment depreciation Number of products
produced or hours of useQuality inspection Number of units inspectedIndirect labor for Number of setups required equipment setupsEngineering costs for Number of modifications product modifications
Costs and Cost Drivers inActivity-Based Costing
Costs and Cost Drivers inActivity-Based Costing
© The McGraw-Hill Companies, Inc., 2005McGraw-Hill/Irwin
17-52
End of Chapter 17End of Chapter 17