Chapter 20 PPT.ppt

7/27/2019 Chapter 20 PPT.ppt

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Job Order Cost Accounting

Chapter 20


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Cost Systems

There are two basic systems used bymanufacturers to assign costs to their

products: Process costing

Job Order costing


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Process Costing

Used by companies that producelarge numbers of identical units

Breakfast cereal Paper mills

Oil refining


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Job Order Costing

Used for production of large, unique,high-cost items

Built to order rather than massproduced

Special-order printing

Building construction Hospitals

Law firms


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Receiveorders fromcustomers.

Schedulejobs.

Ordermaterials.

Begin

production.

Events in Job Order

Manufacturing


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Goods inProcess

Cost ofGoodsSold

Labor

Materials

Indire

ct

FinishedGoods

FactoryOverhead

Direct

Direct

Allocate

Job Order Manufacturing

Activities

In

direct


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Job Order Cost Documents

The primary document for trackingthe costs associated with a given

job is thejob cost sheet.


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Job Cost SheetJob Cost Record

Job No.Customer Name and Address

Job Description

Date Promised Date Started Date Completed

Direct Materials Direct Labor Overhead Costs Applied

Date

Requisi-

tion No. Amount

TimeTicket

No. Amount Date Rate Amount

Overall Cost Summary

Materials

Labor

Overhead

Totals Total Job Cost

J9738Miami Motors

300 boat engines


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Materials Requisition

Used to authorize the use of materialson a job.

Also serves as the source document for

recording material usage in theaccounting records.

Item no. Item Quantity Unit cost Amount

MATERIALS REQUISITION NO. _____

Date: _______ Job No. _____

MR523

8/03

47624 Bar steel stock 3 720 lbs $11.50 $8,280

J9738

A35161 Subassemblies 290 units $38.00 11,020Total $19,300


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Job Description



Date

Requisi-

tion No. Amount

TimeTicket



Materials

Labor

Overhead


J9738Miami Motors

300 automobile engine valves

8/03 MR523 19,300


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Labor Time Ticket

LABOR TIME RECORD

Employee ___________ No. ______

Job _______

Time:

Started: ___________ Rate: ____________

Stopped: __________ Cost of Labor

Elapsed: __________ Charged to Job $___________

Employee: _J K___________ Supervisor: M . M orley

J. Khan M16J9738

1000

17007 hours

$28

$196

Date: 8/03


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Job Description



Date

Requisi-

tion No. Amount

TimeTicket



Materials

Labor

Overhead


J9738Miami Motors


8/03 MR523 19,300 M16 196M17 476

8/04 A25 3,824


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Job Cost Sheet

Assign manufacturing overhead tojobs using predetermined overhead

rate based on direct labor cost.


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Job Description



Date

Requisi-

tion No. Amount

TimeTicket



Materials

Labor

Overhead


J9738Miami Motors


8/03 MR523 19,300 M16 196M17 476

8/04 A25 3,824

8/04 40% 1,798

4,496

Predetermined overhead rate =40% of direct labor costs

19,300

19,300

4,496

1,798

25,594

Cost per valve =$25,594/ 300 = $85.31


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Raw MaterialsMaterial

PurchasesDirect

MaterialDirect

Material

Flow of All Job Order Costs

ActualOverhead

Costs

Indirect

Material

Manufacturing Overhead

Work in Process


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Work in ProcessIncurred Direct

Material

Manufacturing Wages

Actual Appliedoverhead overhead=/an adjustment is needed.

We will look at how toaccomplish this later.

When



ActualOverhead

Costs

Indirect

Labor

DirectLabor

Direct

Labor

OverheadApplied to

Work inProcess

Overhead


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Work in ProcessDirect

MaterialDirect

LaborOverhead

Finished Goods

Cost ofGoods

Mfd.

Cost ofGoods

Mfd.

Cost of Goods Sold

Cost ofGoodsSold

Cost ofGoods

Sold



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Overhead Application

1. Estimate total overhead for theperiod.

2. Select an overhead allocation base.3. Estimate total quantity of the

overhead allocation base.

4. Compute the predeterminedoverhead rate.


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Estimated total manufacturingoverhead cost for the coming period

Estimated total of manufacturingoverhead allocation base.

POHR =

Predetermined Overhead

Allocation Rate Formula


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Overhead Application

5 Obtain actual quantities of theoverhead allocation base.

6 Allocate manufacturing overhead bymultiplying the predeterminedmanufacturing overhead rate by theactual quantity of the allocation basethat pertains to each job.


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Reasons for using a

predetermined overhead rate Overhead is not incurred uniformly

during the year.

Actual Overhead rate might varyfrom month to month.

Predetermined rate makes it possible

to estimate job costs sooner.


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Adjusting of Overapplied and

Underapplied Overhead

The POHR is based on estimates.

What happens if actual results differfrom the estimates?

The result will be either

underapplied or overappliedoverhead and we will adjust Cost ofGoods Sold at the end of the period


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Overhead

applied

Actualoverhead

costsincurred

Overhead isoverapplied.




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Overhead

appliedActual

overheadcosts

incurred

Overhead isunderapplied.




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Objective 2

Trace Materials and

Labor in a ManufacturersJob Costing System.


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Materials Cost Example

Alec Clothing Co. purchased rawmaterials on account for $15,000.

Materials costing $10,000 wererequisitioned for production.

Of this total, $2,000 was indirect

materials.


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Indirect materials

Direct materials

15,000 10,000

2,000

8,000

Materials Inventory WIP Inventory


Materials Cost Example


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Labor Cost Example

The company incurred $30,000 ofmanufacturing wages for all jobs.

Assume that $25,000 can be traceddirectly to the jobs and $5,000 is forindirect labor.


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Indirect labor

Direct labor

30,000 30,000

5,000

25,000

Manufacturing Wages WIP Inventory


Labor Cost Example


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Objective 3

Allocate Manufacturing Overheadin a Manufacturers Job Costing

System


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(Deprec.-Plant and Equipment) 20,000

Accumulated Depreciation

(Plant and Equipment) 20,000

To record plant and equipment depreciation

Manufacturing Overhead Costs

The company incurred $20,000 ofplant equipment depreciation.


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$243,000 4,500 = $54

Manufacturing Overhead Example

Total estimated overhead for the yearequals $243,000.

The predetermined overhead rate isbased on 4,500 direct labor hours.

What is the predetermined overhead

rate?


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Work-in-Process Inventory 10,800

Manufacturing Overhead 10,800

To record overhead applied to Job 51

Manufacturing Overhead Example

Assume that Job 51 used 200 directlabor hours.

What is the journal entry to record themanufacturing overhead applied?


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Objective 4

Account for Completion and Salesof Finished Goods, and Adjust for

Under-or-OverappliedManufacturing Overhead


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Finished Goods, Sales, and

Cost of Goods Sold As jobs are completed they aretransferred to finished goodsinventory.

In addition to the overhead applied toJob 51, direct labor was $4,000 anddirect materials totaled $30,000.

How much was transferred to FinishedGoods Inventory?


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Cost of Goods SoldDirect materials $30,000Direct labor 4,000

Manufacturing overhead 10,800$44,800

Work in Process44,800

Finished Goods44,800


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Accounts Receivable 74,800Sales Revenue 74,800

Cost of Goods Sold 44,800Finished Goods Inventory 44,800

To record sale of Job 51


Cost of Goods Sold Assume that Job 51 was sold for$74,800.

What are the journal entries?


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Work in Process

44,800

Finished Goods

44,800 44,800

Cost of Goods Sold44,800


Cost of Goods Sold


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Disposing of Underallocated or

Overallocated Overhead Suppose that the company incurred$232,000 of actual manufacturingoverhead during the year, and thatactual direct labor hours worked were4,000.

The actual manufacturing overheadrate would have been $232,000 4,000 = $58.

The predetermined rate was $54.


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Disposing of Underallocated or

Overallocated Overhead How much overhead was allocated tothe various jobs?

4,000 direct labor hours $54 =$216,000

What is the underallocated amount?

$232,000 actual $216,000 allocated= $16,000


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232,000 216,000

16,000


0

Disposing UnderallocatedOverhead to Cost of Goods

Sold


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Disposing OverallocatedOverhead to Cost of Goods

Sold Assume the opposite situation in which

allocated overhead is $232,000 and actual

overhead is $216,000. How do we dispose of overallocated

overhead?

Debit the Manufacturing Overhead account

and credit the Cost of Goods Sold accountto decrease the costs that went to theincome statement.


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216,000 232,000

16,000

0


Disposing OverallocatedOverhead to Cost of Goods

Sold


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Objective 5

Assign Noninventoriable

Costs in Job Costing.


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Job Costing in a

Nonmanufacturing Company How is direct labor traced to individualjobs in a nonmanufacturing company?

Employees complete a weekly timerecord.

Jim, Abby, and Associates is a firmspecializing in composing and

arranging music parts for differentclients.

Musician Judy Lopezs salary is$80,000 per year.


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80,000 2,000 = $40

Job Costing in a

Nonmanufacturing Company Assuming a 40-hour workweek and 50workweeks in each year gives a totalof 2,000 available working hours peryear (40 hours 50 weeks).

What is her hourly rate?


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Advertising $ 15,000Depreciation 6,000Maintenance 12,000

Office rent 60,000Office support 47,000Travel 20,000Total indirect costs $160,000

Job Costing in a

Nonmanufacturing Company Jim and Abby estimated the indirectcosts that will be incurred in 2006.


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160,000 8,000 = $20

Job Costing in a

Nonmanufacturing Company Assume that they estimate that themusicians will work 8,000 direct laborhours in 2006.

What is the predetermined indirectcost rate?


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Direct Labor: 25 hours

$40 = $1,000Indirect costs: 25 hours $20 = 500

Total costs: $1,500

Job Costing in a

Nonmanufacturing Company Records show that Judy Lopezworked 25 hours servicing Los

Abuelos Music Co.

What is the total cost assigned to thisclient?

Chapter 20 PPT.ppt

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