L-6 Job Order Costing

7/23/2019 L-6 Job Order Costing

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Systems Design:Job-Order Costing


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Types of Costing Systems Used toDetermine Product Costs

ProcessCosting

Job-orderCosting

Many different products are produced each period.

Products are manufactured to order.

Costs are traced or allocated to jobs.

Cost records must be maintained for each distinct product or job.

Many different products are produced each period.

Products are manufactured to order.

Costs are traced or allocated to jobs.

Cost records must be maintained for each distinct product or job.

Chapter 4

Chapter 4


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Job Order Costing System

ProcessCosting

Job-orderCosting

Typical job order cost applications:Special-order printing

uilding construction!lso used in the ser"ice industry#ospitals$a% firms

Typical job order cost applications:Special-order printing

uilding construction!lso used in the ser"ice industry#ospitals$a% firms


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Process Cost System

& Company produces many units of asingle product for long periods

& Examples: orange uice concentrate!paper! mixing and bottlingbe"erages! gasoline#

& Costs are accumulated by eac$department or operation in t$eprocess

& Total costs are di"ided by t$e number

of units produced to get unit product


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Job-Order Costing

Directmaterial

Directmaterial

Directlabor

Directlabor

Manufacturing

overhead (OH)

Applied to eachjob using a

predeterminedrate

Manufacturing

overhead (OH)Applied to each

job using apredetermined

rateTraceddirectlytoeachjob

Tracedd

irectly

toeach

job

The Job

The Job


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Manufacturing'"erhead


Job (o. )

Job (o. )

Job (o. *

Job (o. *

Job (o. +

Job (o. +

Chargedirect

material anddirect labor

costs to each

job as %or,is performed.

Chargedirect

material anddirect labor

costs to eachjob as %or,is performed.

Se%uence of E"ents in a Job-Order

Costing System

irect Materials

irect Materials

irect $abor

irect $abor


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!pplyo"erhead to

each jobusing a

predeter-mined rate.

!pply

o"erhead toeach jobusing a

predeter-mined rate.

Se%uence of E"ents in a Job-Order

Costing System

irect Materialsirect Materials

irect $aborirect $abor

Job (o. )Job (o. )

Job (o. *Job (o. *

Job (o. +Job (o. +Manufacturing'"erhead



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Job-Order Cost &ccounting

T$e primary document for trac'ing t$ecosts associated (it$ a gi"en ob is

t$eob cost s$eet#

$ets in"estigate


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PearCo Job Cost Sheet

Job (umber ! - )4+ ate /nitiated +-4-0)

ate Completed

epartment + 1nits Completed

/tem 2ooden cargo crate

irect Materials irect $abor Manufacturing '"erhead3e. (o. !mount Tic,et #ours !mount #ours 3ate !mount

Cost Summary 1nits Shippedirect Materials ate (umber alance

irect $abor

Manufacturing '"erhead

Total Cost

1nit Product Cost



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PearCo Job Cost Sheet

Job (umber ! - )4+ ate /nitiated +-4-0)

ate Completed

epartment + 1nits Completed

/tem 2ooden cargo crate

irect Materials irect $abor Manufacturing '"erhead3e. (o. !mount Tic,et #ours !mount #ours 3ate !mount

Cost Summary 1nits Shipped

irect Materials ate (umber alance

irect $abor

Manufacturing '"erhead

Total Cost

1nit Product Cost

$ets see one

! materials reuisition

form is used to authori5ethe use of materials on a

job.


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)aterials *e%uisition +orm

PearCo Materials Reuisition !orm

Reuisition "o# $% & '* Date +&,&*-

.ob "o# A & -,+

Department /+

Description 0uantit1 2nit Cost 3otal Cost

4 5 ,6 -4 feet -4 +#**7 +'#**7

- 5 '6 -4 feet 4* ,#** *#**

--'#**7

Authori8ed

9ignature ,ill E# Delite


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PearCo Materials Reuisition !orm

Reuisition "o# $% & '* Date +&,&*-

.ob "o# A & -,+

Department /+

Description 0uantit1 2nit Cost 3otal Cost

4 5 ,6 -4 feet -4 +#**7 +'#**7

- 5 '6 -4 feet 4* ,#** *#**

--'#**7

Authori8ed

9ignature

)aterials *e%uisition +orm

,ill E# Delite

Type6 uantity6 and total cost ofmaterial charged to job !-)4+.

Type6 uantity6 and total cost ofmaterial charged to job !-)4+.

Cost of material is charged to job!-)4+.

Cost of material is charged to job!-)4+.


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PearCo .ob Cost 9heet

.ob "umber A & -,+ Date :nitiated +&,&*-

Date Completed

Department /+ 2nits Completed

:tem ;ooden cargo crate

Direct Materials Direct


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Date Completed





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Employee Time Tic'et

PearCo >mplo1ee 3ime 3ic=et

3ime 3ic=et "o# +' Date +?@?*-

>mplo1ee :# M# 9=illed 9tation ,4

9tarting >nding Hours Hourl1

3ime 3ime Completed Rate Amount .ob "o#

*** -'** #** --#**7 #**7 A&-,+

3otals #** --#**7 #**7 A&-,+

9upervisor C. M. Workman


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Date Completed





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Date Completed +&@&*-

Department /+ 2nits Completed 4




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stimated total manufacturingo"erhead cost for the coming period

stimated total units in theallocation base for the coming period

P'#3 ;

The predetermined overheadrate (POHR) used to apply

overhead to jobs is determinedbeore the period be!ins.

&pplication of )anufacturing

O"er$ead

/deally6 the allocation base isa cost dri"er that causes

o"erhead.

/deally6 the allocation base isa cost dri"er that causes

o"erhead.


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!ctual amount of the allocationbase such as units produced6direct labor hours6 or machine

hours incurred during the period.

!ctualamount of the allocationbasesuch as units produced6direct labor hours6 or machine

hours incurred during the period.

ased on estimates6 anddetermined before the

period begins.

ased onestimates6 anddetermined before the

period begins.

&pplication of )anufacturingO"er$ead

'"erhead applied ; P'#3 < !ctual acti"ity


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&pplication of )anufacturing

O"er$eadPearCo .ob Cost 9heet







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"sin! a predetermined rate makes itpossible to estimate total job #osts sooner.

$#tual overhead or the period is notkno%n until the end o the period.

T$e eed for a Predetermined)anufacturing O"er$ead *ate

7


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PearCo applies overhead basedon dire#t labor hours. Total

estimatedoverhead or the year is

&'*. Totalestimatedlabor#ost is &+** and totalestimatedlabor hours are

+'*.

What is Pear Co.,s predetermined

overhead rate per hour-

O"er$ead &pplicationExample


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!or each direct labor hour or=ed on ajob6 7,#** of factor1 overhead ill be

applied to the job#

!or each direct labor hour or=ed on ajob6 7,#** of factor1 overhead ill be

applied to the job#

O"er$ead &pplicationExample

P'#3 ; 74.00 per $#

7=406000

)=06000 direct labor hours 8$#9P'#3 ;

stimated total manufacturingo"erhead cost for the coming period

stimated total units in theallocation base for the coming period

P'#3 ;


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.ob "umber $ & +4 Date :nitiated +&&*-

Date Completed +&--&*-

Department /+ 2nits Completed '




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.ob "umber $ & +4 Date :nitiated +&&*-

Date Completed +&--&*-

Department /+ 2nits Completed '




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.uic' C$ec'

Job ,*/0 at , +ab! 1nc# re%uired2344 of direct materials and 54direct labor $ours at 25/ per $our#

Estimated total o"er$ead for t$eyear (as 2674!444 and estimateddirect labor $ours (ere 34!444# ,$at(ould be recorded as t$e cost of ob

,*/08a# 2344#

b# 20/4#

c# 2094#

Job ,*/0 at , +ab! 1nc# re%uired2344 of direct materials and 54direct labor $ours at 25/ per $our#Estimated total o"er$ead for t$eyear (as 2674!444 and estimateddirect labor $ours (ere 34!444# ,$at(ould be recorded as t$e cost of ob

,*/08a# 2344#

b# 20/4#

c# 2094#

Pred. o"hd. rate 7>=06000?*06000hours 7+@

-irect materials 7*00

-irect labor 7)A B )0 hours 7)A0Manufacturing o"erhead 7+@ B )0 hours 7+@0

Total cost 7>+0


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&llocation ase

& & Cost Dri"er is a factor t$at directlycauses o"er$ead costs to be incurred

& T$e Cost Dri"er must be common toall company products and ser"ices

& Cost Dri"ers include mac$ine-$ours!direct labor! computer time! direct

material cost! etc#

& Selection of an appropriate CostDri"er is essential to proper

o"er$ead allocation


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$ets summari5ethe document flo%

in a job-ordercosting system.

Job-Order Costing

Document +lo( Summary


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Job-Order Costing


.ob Cost9heets

.ob Cost9heets

MaterialsReuisition

MaterialsReuisition

ManufacturingOverhead Account


Directmaterials

:ndirectmaterials

Materials usedmay be either

direct orindirect.

Materials usedmay be either

direct orindirect.


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Job-Order Costing


.ob Cost9heets

.ob Cost9heets

>mplo1ee 3ime3ic=et

>mplo1ee 3ime3ic=et



!n employeestime may be eitherdirect or indirect.

!n employeestime may be eitherdirect or indirect.

Direct


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Job-Order Costing


Manufacturing'"erhead !ccount

Manufacturing'"erhead !ccount

OtherActual OHCharges

OtherActual OHCharges

Job CostSheets

Job CostSheets

!pplied

'"erhead

MaterialsReuisition

MaterialsReuisition

>mplo1ee3ime 3ic=et

>mplo1ee3ime 3ic=et

:ndirect

Material

:ndirect


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Job-Order System Cost+lo(s

$ets eBamine thecost flo%s in a job-

order costingsystem..


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3a% Materials MaterialPurchases

Mfg. '"erhead

2or, in Process8Job Cost Sheet9 irect

Materials irectMaterials

/ndirectMaterials

/ndirect

Materials

Actual Applied



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Mfg. '"erhead

Salaries and2ages Payable


Materials

'"erhead!pplied

'"erhead!pplied to 2or,

inProcess

irect$abor

irect$abor

/ndirect$abor6 !ll

'ther

/ndirect$abor

/ndirectMaterials

Actual Applied

/f actual and appliedmanufacturing o"erheadare not eual6 a year-endadjustment is reuired.

/f actual and appliedmanufacturing o"erheadare not eual6 a year-endadjustment is reuired.



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inished Doods

Cost ofDoodsMfd.

Cost ofDoods

Mfd.

Cost of Doods Sold


Materials

irect$abor

'"erhead!pplied

Cost ofDoodsSold

Cost ofDoodsSold



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$ets return to PearCoand see %hat %e %ill do

if actual and applied

o"erhead are not eual.


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PearCo;s actual o"er$ead for t$e year(as 27/4!444 for a total of 564!444

direct labor $ours#


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2or, inProcess

inishedDoods

Cost ofDoods Sold

7+06000may be allocated

to these accounts.

O"erapplied and Underapplied)anufacturing O"er$ead

7+06000 may beclosed directly to

cost of goods sold.

Cost ofDoods Sold

PearCos Method

'3


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O"erapplied and Underapplied)anufacturing O"er$ead

PearCos

Mfg. '"erhead!ctual

o"erheadcosts

7=A06000

7+06000o"erapplied

PearCos Cost

of Doods Sold2nadjusted

/alance

7+06000

7+*6***

Adjusted/alance

'"erhead!pplied

to jobs

7=@06000


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O"erapplied and Underapplied)anufacturing O"er$ead - Summary

Alternative - Alternative 4

:f Manufacturing Close to Cost

Overhead is # # # of Foods 9old Allocation

2"D>RAPPD :"CR>A9> :"CR>A9>

Cost of Foods 9old ;or= in Process

(Applied OH is less !inished Foods

than actual OH) Cost of Foods 9old

OG>RAPPD D>CR>A9> D>CR>A9>Cost of Foods 9old ;or= in Process

(Applied OH is greater !inished Foods

than actual OH) Cost of Foods 9old

PearCosMethod


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Over/"nder si!ni0#ant*$llo#ate 1et%een $##ounts

& Determine t$e amount of o"er$eadapplied to ,1P! +inis$ed >oods andCO>S

& Calculate t$e ? of total O"er$eadapplied to eac$ account

& )ultiply t$e O"er@Under amount

times t$e ?;s and allocate to eac$account

& See example


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Cost +lo(s A )aterialPurc$ases

*a( material purc$ases are recorded in anin"entory account#

F>">RA< .O2R"A< Page +

Date Description

Post#

Ref# Debit Credit

Ra Materials $$$$$

Accounts Pa1able $$$$$


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Direct materials issued to a ob increase ,or' inProcess and decrease *a( )aterials# 1ndirectmaterials used are c$arged to )anufacturing

O"er$ead and also decrease *a( )aterials#

Cost +lo(s A )aterial Usage


Date Description

Post#

Ref# Debit Credit

;or= in Process $$$$$

Manufacturing Overhead $$$$$

Ra Materials $$$$$


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Cost +lo(s A Babour

T$e cost of direct labour incurred increases,or' in Process and t$e cost of indirect

labour increases )anufacturing O"er$ead#


Date Description

Post#

Ref# Debit Credit



9alaries and ;ages Pa1able $$$$$

C t +l & t l


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Cost +lo(s A &ctualO"er$ead


Date Description

Post#

Ref# Debit Credit



Propert1 3a5es Pa1able $$$$$

Prepaid :nsurance $$$$$

Accumulated Depreciation $$$$$

1n addition to indirect materials and indirectlabour! ot$er manufacturing o"er$ead costsare c$arged to t$e )anufacturing O"er$ead

account as t$ey are incurred#

C t +l O $ d


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Cost +lo(s A O"er$ead&pplied

,or' in Process is increased ($en)anufacturing O"er$ead is appliedto obs#


Date Description

Post#

Ref# Debit Credit



C t +l P i d


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Cost +lo(s A PeriodExpenses

on-manufacturing costs period expensesare c$arged to expense as t$ey are incurred#


Date Description

Post#

Ref# Debit Credit

9alaries >5pense $$$$$

9alaries and ;ages Pa1able $$$$$

Advertising >5pense $$$$$



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Cost +lo(s A Cost of >oods

)anufactured

&s obs are completed! t$e cost of goodsmanufactured is transferred to +inis$ed

>oods from ,or' in Process#


Date Description

Post#

Ref# Debit Credit

!inished Foods $$$$$



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Cost +lo(s A Sales

,$en nis$ed goods are sold! t(o entriesare re%uired: 5 to record t$e saleF and 3

to record Cost of >oods Sold and reduce

+inis$ed >oods#F>">RA< .O2R"A< Page +

Date Description

Post#

Ref# Debit Credit

Accounts Receivable $$$$$

9ales $$$$$

Cost of Foods 9old $$$$$

!inished Foods $$$$$


52/57

Scrap and *e(or'

n#reased

2uality

n#rease

dPro0tabi

lity

Beads to

mprovin! 3uality redu#es the #osts asso#iated%ith re%ork* delays in produ#tion* %arranty #ost*and poor #ustomer relations.


53/57

Scrap

T$e loss from scrap can be:5# &llocated across all good units! or

3# C$arged to o"er$ead and in turn

c$arged to all obs#1f scrap items are sold! t$e reco"erycan t$en be credited to:

5# T$e ob! or

3# )anufacturing o"er$ead#


54/57

Re%ork

2hen some re%or, is underta,en6 thematerials and labour in"ol"ed in there%or, could be charged to:

). The job6 or*. Manufacturing o"erhead and spread

o"er all the jobs.


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T$e PredeterminedO"er$ead *ate and

Capacity

Appendix

0&


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The Capa#ity ssue

2hen estimated acti"ity is less than acti"ityat capacity6 t%o problems arise:

). 1nit product costs %ill fluctuate

depending on the budgeted le"el ofacti"ity for the period. !s budget le"elsdecrease6 o"erhead cost per unit 8and unit product costs9 %ill increase.

*. Products %ill be charged for resources

they did not use.


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T$e End

Documents

L-6 Job Order Costing