27-1. Job Order Cost Accounting Section 1: Cost Accounting Chapter 27 Section Objectives 1.Explain how a job order cost accounting system operates. McGraw-Hill©

27-1

Job OrderCost Accounting


Section 1: Cost Accounting

Chapter

27

Section Objectives

1. Explain how a job order cost accounting system operates.

McGraw-Hill © 2009 The McGraw-Hill Companies, Inc. All rights reserved.

27-3

Job Order Cost Accounting

Process Cost Accounting

Standard Cost Accounting

Types of Cost Accounting Systems

Standard cost accounting may be used with either the job order cost system or the process cost system.

27-4

A job order cost accounting system is used by businesses that produce special orders or produce more than one product in batches.

A process cost accounting system is used when standard products are manufactured using a continuous process.

A standard cost accounting system, in which standard costs of production are measured, can be used with a job order or a process cost system.

Types of Cost Accounting Systems

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Cost Flows in a Job Order Cost System

Procurement

Production

Warehousing

Selling

Explain how a job order cost accounting system operates

Objective 1

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Raw MaterialsInventory

Work in Process Inventory

Finished Goods Inventory

Cost of Goods Sold

Purchases Issued Materials

Labor

Overhead

Transferred out

Transferred in

Transferred out

Transferred in

WagesPayable

Charged to Work in Process

Manufacturing Overhead

Indirect Materials

Indirect Labor

Other

Applied to Work in Process

Procurement Production Warehousing Selling

Flow of Costs through a Job Order Cost Accounting System

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The perpetual inventory system tracks

inventories on hand at all times.

The following accounts are involved in a

perpetual inventory system: Raw Materials Inventory

Wages Payable




Cost of Goods Sold

Perpetual Inventory System

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QUESTION:

How is the balance of the Raw Materials Inventory account computed?

Total available foruse xx

Deduct materials used during year xx

Raw Materials Inventory

Beg. inventory ofraw materials xx

Add purchases during period xx

Ending inventory of raw materials xx

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Computing the Balance of the Work in Process Inventory

Beginning inventory of work in process xx

Ending inventory of work in process xx

Reflects the cost of partially completed units

Deduct cost of goods completed xx

Add direct materials, direct labor, and manufacturing overhead charged to production xx xx

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Computing the Balance ofFinished Goods Inventory

Beginning inventory of finished goods xx

Ending inventory of finished goods xx

Represents the cost of finished goods on hand.

Deduct cost of goods sold xx

Add cost of goods manufactured xx xx

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Just-in-Time Inventory Systems

Used by companies who wish to eliminate raw materials inventory.

Raw materials ordered to arrive just in time to be placed into production.

Costs of arriving materials placed immediately into Work in Process Inventory.

Reduces amount of capital tied up in inventory.

Reduces inventory storage space.

Reduces costs for storeroom personnel, insurance, and recordkeeping.

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Supply Dependability: Unless the supply sources are dependable, manufacturing operations are at risk.

Interruption in Production: Late deliveries or damaged materials cause a halt in production.

Risks of Just-in-Time Inventory Systems



Section 2: Job Order Cost

Accounting System

Chapter

27

Section Objectives

2. Journalize the purchase and issuance of direct and indirect materials.

3. Maintain perpetual inventory records.4. Record labor costs incurred and charge labor into production.5. Compute overhead rates and apply overhead to jobs.6. Compute overapplied or underapplied overhead and report it in

the financial statements.


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Job Order Cost AccountingSystem

Record the costs incurred.

Record the costs of items placed into production.

Record the transfer of products to finished goods.

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Raw Materials Inventory

20,000

Accounts Payable

20,000

Purchases of Raw Materials

20--Apr 30 Raw Materials Inventory 20,000.00

Accounts Payable 20,000.00 Cost of materials and supplies purchased during April

Reflects all transactions related to raw materials and supplies.

Journalize the purchase and issuance of direct and indirect materials

Objective 2

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UNITS PRICE AMOUNT UNITS PRICE AMOUNT UNITS PRICE AMOUNT

20-- Bal 0

Apr 4 PO-3 200 1.00 200.00 200 1.00 200.00

8 R-24 100 1.00 100.00 100 1.00 100.00

12 PO-14 150 1.10 165.00 100 1.00

150 1.10 265.00

17 R-51 100 1.00

50 1.10 155.00 100 1.10 110.00

24 PO-32 100 1.16 116.00 100 1.10

100 1.16 226.00

27 R-90 100 1.10 110.00 100 1.16 116.00

RAW MATERIALS LEDGER CARD

(FIFO Cost Method)

ITEM: Brace NUMBER: BRC02

Date REF.

RECEIVED ISSUED BALANCE

Raw Materials Ledger Card

Job Number

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Materials Requisition

Identifies job or purpose

Signed by authorized employee

Materials requisition describes the item and quantity needed.

Braces BRC02

April 8, 2010

Maintain perpetual inventory records

Objective 3

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On a weekly basis, a journal entry should be made to reflect all materials requisitions.

20--

Apr 30 Work in Process Inventory 10,200.00

Manufacturing Overhead 400.00

Raw Materials Inventory 10,600.00

Cost of materials and supplies issued during month.

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When pricing the raw materials inventory, three common methods are used:

FIFO LIFO Average Cost

Each method reflects a different valuation of raw materials inventory.

Each company determines its own pricing policy.

Cost Basis

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XX


Accounting for Labor

Factory Labor Costs (Direct Labor)

Factory Labor Costs (Indirect Labor)

XX

Record labor costs incurred and charge labor into production

Objective 4

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Labor Costs

Workers complete a separate time ticket for each job.

The total charged to all cost sheets must agree with direct labor debited to Work in Process Inventory.

All labor time tickets are sorted by job, summarized at end of the payroll period, and entered on job order cost sheets.

David Whitt________________

April 8__________

12.00__________28.00__________

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Recording Labor Costs

Payroll Direct Indirect Total Period Labor Labor

Apr 8 $1,700 $ 300 $2,000 15 1,600 240 1,840 22 1,400 260 1,660 27 1,200 200 1,400Totals $5,900 $1,000 $6,900

20--

Apr 30 Work in Process Inventory (Direct Labor) 5,900.00 Manufacturing Overhead (Indirect Labor) 1,000.00 Social Security Tax Payable 427.80 Medicare Tax Payable 100.05 Employee Income Tax Payable 1,035.00 Salaries and Wages Payable 5,337.15 (Total labor costs for Apr.)

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Includes all manufacturing costs except direct materials and direct labor.

Examples:

Indirect materials

Indirect labor

Depreciation

Insurance

Utilities

Rent


Compute overhead rates and apply overhead to jobs

Objective 5

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Overhead costs are applied to specific jobs based on an overhead application rate.

Several methods can be used to develop the overhead application rate:

Based on direct labor costs.

Based on direct labor hours.

Based on estimates of overhead and labor costs.

Applying Overhead to Jobs

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Coastal Manufacturing Corporation uses direct labor costs as the base for applying overhead.

QUESTION:

How is Coastal’s overhead application rate computed?

Estimated overhead costs

Estimateddirect labor costsEstimated costs ÷ Base

$ 90,000

$120,000= 75%

Computing the Overhead Application Rate

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Applying Overhead to Specific Jobs

Apr 30 Work in Process Inventory 4,425.00

Manufacturing Overhead Applied 4,425.00 Overhead applied to jobs in

April at 75% of direct labor costs.

Overhead Application x Direct Labor = Overhead Rate Costs Applied

75% x $5,900 = $4,425

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At month-end, compare the total credits in Manufacturing Overhead Applied to the total debits in Manufacturing Overhead.

If credits in Manufacturing Overhead Applied are less than debits in Manufacturing Overhead, overhead has been underapplied.

If debits in Manufacturing Overhead are less than credits in Manufacturing Overhead Applied, overhead has been overapplied.

Compute overapplied or underapplied overhead and report it in the financial statements

Objective 6

Determining Overapplied or Underapplied Overhead

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400

Manufacturing Overhead Applied

4,425

Computing Overapplication or Underapplication of Overhead

1,000

Indirect materials and supplies

Indirect labor

Other Overhead 2,425

3,825

Actual – Applied

$3,825 – $4,425 = ($600)

Overhead was overapplied by $600.



Section 3: Accounting for

Job Orders

Chapter

27

Section Objectives

7. Maintain job order cost sheets.

8. Record the cost of jobs completed and the cost of goods sold under a perpetual inventory system.


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Each job started in production has its own job order cost sheet.

The cost sheets constitute the subsidiary ledger for the Work in Process account. The job cost sheet totals should equal the general ledger account balance.

The cost sheet shows: Direct materials Direct labor Overhead

Maintain job order cost sheetsObjective 7

Job Order Cost Sheet

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Apply overhead using predetermined rate.

Total the costs when the job is completed.

Job Order Cost SheetJob Order Cost Sheet

Enter materials used.

Enter labor costs.

__Apr. 3, 2010_______Apr. 15, 2010_______

__J-8

_Date Apr. 15, 2007

225.50__

169.13__

644.63__

25.785__

Stang Tables__________

Apr. 8 150.00 Apr 8 150.50 Apr 8 75% 112.88

100.00 Apr. 15 100.00 Apr 15 75.00 Apr 15 75% 56.25

250.00 225.50 169.13

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Transfer Goods from Work in Process to Finished Goods

Transfer Goods from Work in Process to Finished Goods

Work in Process Inventory 15,000.00

Finished Goods Inventory 15,000.0020-- Apr 30

Cost of jobs completed during April.

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Record the cost of jobs completed and the cost of goods sold under a perpetual inventory system.

Objective 8

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Cost of Goods SoldCost of Goods Sold

Recall that in a periodic inventory system, the cost of goods sold is determined by using the Purchases and Inventory accounts.

A perpetual inventory system uses an actual Cost of Goods Sold general ledger account.

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Cost of Goods Sold (Perpetual Inventory)Cost of Goods Sold (Perpetual Inventory)

As goods are sold, sales invoices are prepared for customers.

The cost information for the invoice comes from the finished goods ledger card.

A journal entry is made to transfer the items from Finished Goods Inventory to Cost of Goods Sold.

On the income statement, the Cost of Goods Sold account is adjusted for underapplied or overapplied overhead.

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Recording Cost of Goods Sold


9,000

Cost of Goods Sold

9,000

Finished Goods Inventory 9,000.00April 30 Cost of Goods Sold 9,000.00

Cost of goods soldduring April.

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Cost of Goods Sold (Perpetual Inventory)Cost of Goods Sold (Perpetual Inventory)

Sales $20,000Cost of Goods Sold (per ledger account) $9,000Add Underapplied Manufacturing Overhead 600Cost of Goods Sold (adjusted) 9,600Gross Profit on Sales $10,400

Instead of showing overapplied or underapplied overhead on the income statement, the accountant might prefer to show actual manufacturing costs on the statement of cost of goods manufactured.

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Cost Flow Through Inventory Accounts

Raw MaterialsInventory

Work in ProcessInventory


Cost of Goods Sold

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Thank Youfor using

College Accounting, 12th Edition

Price • Haddock • Brock

Documents

27-1. Job Order Cost Accounting Section 1: Cost Accounting Chapter 27 Section Objectives 1.Explain how a job order cost accounting system operates. McGraw-Hill©