Libby, Libby and Short - Sunar Budi · 1. Describe the differences between job-order costing and...

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Job-Order

Costing

CHAPTER

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1. Describe the differences between job-order

costing and process costing, and identify the

types of firms that would use each method.

2. Identify and set up the source documents used

in job-order costing.

3. Describe the cost flows associated with job-

order costing.

4. Appendix: Prepare the journal entries

associated with job-order costing.

Objectives

After studying this

chapter, you should

be able to:

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Comparison of Job-Order and

Process Costing

Process or job-

order costing?

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Characteristics of Job-Order Costing

Wide-variety of services

or products that are quite

distinct from each other

Cost accumulated by job

Unit cost computed by

dividing total job costs

by units produced on that

job

BEAT

SOUTH

HIGH

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Characteristics of Process Costing

Produce large quantities of

similar or homogeneous

products

Cost accumulated by process or

department for a given period

of time

Unit cost computed by dividing

process costs of period by the

units produced in the period

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Process or

job-order

costing?

Process

Process

Job order

Job order

Job order

Process

Job order

Exxon oil refinery

Coca Cola plant

Custom home builder

Shop for customizing vans

Television repair shop

Campbell soup plant

Advertising agency

Law firm Job order

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Job 425 Job 426 Job 427 Total

Beginning balance $58,600 $51,300 $ 0 $109,900

Current costs:

Direct materials 4,800 3,600 23,500 31,900

Direct labor 6,000 9,000 10,000 25,000

Applied overhead 2,400 3,600 4,000 10,000

Total $71,800 $67,500 $37,500 $176,800

This information is used to determine the total

cost of goods manufactured.

Job-Order Costing

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Johnson Leathergoods

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Job-Order Cost Sheet

A job-cost sheet is a document used to

accumulate the cost for a specific job in a job-

cost system Job Cost Sheet

Direct Materials

Direct Labor

Factory Overhead

July 1 100 lbs. @ $ 0.25 = $ 25

3 75 oz. @ $1.40 = 105

July 1 3 hrs. @ $10.00 = $ 30

3 7 hrs @ $10.00 = 70

July 7 10 dlh x $2 = $ 20

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Direct materials $1,000

Direct labor 1,080

Applied Overhead 240

Total cost $2,320

number of units 20

Unit cost $ 116

Johnson Leathergoods

Unit Cost

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Johnson Leathergoods

Date

Department

Job

Authorized Signature

Description Quantity Cost/Unit Total Cost

Jim Lawson

Buckles 10 $30 $300

Material Requisition Form

Material Requisition

Number 12 January 11, 2004

Briefcase

Assembly

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Johnson Leathergoods

Authorized Signature

Start Time Stop Time Total Time Hourly Rate Amount Job Number

Jim Lawson

Job Time Ticket

Job Time Ticket

Number 8

Employee Number

Name

Date

8:00 10:00 2 $9 $18 Backpacks

10:00 11:00 1 9 9 Briefcases

11:00 12:00 1 9 9 Backpacks

1:00 5:00 4 9 36 Backpacks

4

Ed Wilson

January 12, 2003

Department Supervisor

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Through the Accounts

Johnson Leathergoods

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Materials Account

Beginning balance $0

Purchases 2,500

Direct material used 1,500

Ending balance 1,000

Job Order Cost Sheet Job Order Cost Sheet

Job: 20 Backpacks Job: 10 Briefcases

Direct materials 1,000 Direct materials $500

Direct labor Direct labor

Overhead applied Overhead applied

Total cost Total cost

Number of units 20 Number of units 10

Unit cost Unit cost

Summary of Materials Cost Flows

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Summary of Direct Labor Cost Flows

Wages Payable

Direct hours 170

x wage rate x $9

Total direct labor 1,530$

Job Order Cost Sheet Job Order Cost Sheet

Job: 20 Backpacks Job: 10 Briefcases

Direct materials 1,000$ Direct materials 500$

Direct labor 1,080 Direct labor 450

Overhead applied Overhead applied

Total cost Total cost

Number of units 20 Number of units 10

Unit cost Unit cost

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Accounting for Overhead

Actual overhead costs are never

assigned directly to jobs.

Overhead is applied using a

predetermined overhead rate.

Estimated Overhead Overhead rate =

Estimated Direct

Labor Hours

$9,600

4,800

= $2 per direct labor hour

Functional Approach

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Accounting for Overhead—Using ABC

Estimated Overhead ($)

for Each Driver

Expected Demand for

Each Driver

Purchasing $3,000 Purchase orders 100

Machining 4,200 Machine hours 2,800

Other 2,400 Direct labor hours 4,800

$3,000 ÷ 100 = $30 per purchase order

$4,200 ÷ 2,800 = $1.50 per machine hour

$2,400 ÷ 4,800 = $0.50 per direct labor hour

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Accounting for Overhead—Using ABC

Backpacks:

Briefcases:

Purchase orders 3

Machine hours 60

Direct labor hours 120

Purchase orders 1

Machine hours 30

Direct labor hours 50

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Accounting for Overhead—Using ABC

Purchasing:

3 orders x $30 $ 90

1 order x $30 $30

Machining:

60 hours x $1.50 90

30 hours x $1.50 45

Other:

120 DLH x $0.50 60

50 DLH x $0.50 25

Total overhead applied $240 $100

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Summary of Overhead Cost Flows

Actual Overhead

Lease $200

Utilities 50

Equipment depreciation 100

Indirect labor 65

Total actual overhead $415

Job Order Cost Sheet

Job: 20 Backpacks

Job Order Cost Sheet

Job: 10 Briefcases

Direct materials $1,000 Direct materials $500

Direct labor 1,080 Direct labor 450

Overhead applied 240 Overhead applied 100

Total cost Total cost

Number of units Number of units

Unit cost Unit cost

Applied Overhead

Direct labor hours 170

Overhead rate x $2

Total applied overhead $340

120 x $2 50 x $2

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Summary of Overhead Cost Flows

Actual Overhead Applied Overhead

Lease $200 Direct labor hours $170

Utilities 50 Overhead rate x $2

Equipment depreciation 100 Total applied overhead $340

Indirect labor 65

Total actual overhead $415

Job Order Cost Sheet Job Order Cost Sheet

Job: 20 Backpacks Job: 10 Briefcases

Direct materials $1,000 Direct materials $500

Direct labor 1,080 Direct labor 450

Overhead applied 240 Overhead applied 100

Total cost Total cost

Number of units 20 Number of units 10

Unit cost Unit cost

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Summary of Finished Goods Cost Flows

Job Order Cost Sheet Job Order Cost Sheet

Job: 20 Backpacks Job: 10 Briefcases

Direct materials $1,000 Direct materials $500

Direct labor 1080 Direct labor 450

Overhead applied 240 Overhead applied 100

Total cost $2,320 Total cost $1,050

Number of units 20 Number of units

Unit cost $116 Unit cost

Finished Goods Account

Backpacks $2,320

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Johnson Leathergoods

Schedule of Cost of Goods Manufactured

For the Month Ended January 31, 2004

Direct materials:

Beginning raw materials inventory $ 0

Purchases of raw materials 2,500

Total raw materials available for use $2,500

Ending raw materials 1,000

Total raw materials used $1,500

Direct labor 1,530

Overhead:

Lease $ 200

Utilities 50

Depreciation 100

Indirect labor 65

$ 415

Continued

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$ 415

Less: Underapplied overhead 75

Overhead applied 340

Current manufacturing costs $3,370

Add: Beginning work in process 0

Total manufacturing cost $3,370

Less: Ending work in process 1,050

Cost of goods manufactured $2,320

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Statement of Cost of Goods Sold

Beginning finished goods inventory $ 0

Cost of goods manufactured 2,320

Cost of goods available for sale $2,320

Less: Ending finished goods inventory 0

Normal cost of goods sold $2,320

Add: Underapplied overhead 75

Adjusted cost of goods sold $2,395

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Johnson Leathergoods

Income Statement

For the Month Ended January 31, 2004

Sales $3,480

Cost of goods sold 2,395

Gross margin $1,085

Less selling and administrative expenses:

Selling expenses $200

Administrative expenses 550 750

Net operating income $ 335

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Journal Entries

Associated With Job-

Order Costing

Johnson Leathergoods

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1. Materials costing $2,500 were

purchased on account.

The receiving report and the invoice are

used to record the receipt of the

merchandise and to control the payment.

1 Materials 2 500 00

Accounts Payable 2 500 00

Johnson Leathergoods

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2. Materials costing $1,500 were

requisitioned for use in production.

The receiving report and the invoice are

used to record the receipt of the

merchandise and to control the payment.

2 Work in Process 1 500 00

Materials 1 500 00

Johnson Leathergoods

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3. Direct labor costing $1,530 was

recognized.

The receiving report and the invoice are

used to record the receipt of the

merchandise and to control the payment.

3 Work in Process 1 530 00

Wages Payable 1 530 00

Johnson Leathergoods

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4. Overhead was applied to production at the

rate of $2 per direct labor hour. A total of

170 direct labor hours were worked.

The receiving report and the invoice are

used to record the receipt of the

merchandise and to control the payment.

4 Work in Process 340 00

Overhead Control 340 00

Johnson Leathergoods

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5. Actual overhead costs of $415 were

incurred: lease, $200; utilities, $50;

depreciation, $100; accrued wages, $65.

The receiving report and the invoice are

used to record the receipt of the

merchandise and to control the payment.

5 Overhead Control 415 00

Lease Payable 200 00

Utilities Payable 50 00

Accumulated Depreciation 100 00

Wages Payable 65 00

Johnson Leathergoods

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6. The backpacks were completed and transferred

to finished goods.

The receiving report and the invoice are

used to record the receipt of the

merchandise and to control the payment.

6 Finished Goods 2 320 00

Work in Process 2 320 00

Johnson Leathergoods

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7. The backpacks were sold at

cost plus 50 percent.

The receiving report and the invoice are

used to record the receipt of the

merchandise and to control the payment.

7 Cost of Goods Sold 2 320 00

Finished Goods 2 320 00

Johnson Leathergoods

7 Accounts Receivable 3 480 00

Sales Revenue 3 480 00

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8. Underapplied overhead was closed to cost of

goods sold.

The receiving report and the invoice are

used to record the receipt of the

merchandise and to control the payment.

8 Cost of Goods Sold 75 00

Overhead Control 75 00

Johnson Leathergoods

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Materials

(1) 2,500

Johnson Leathergoods

(1) Purchased of materials

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Johnson Leathergoods

(2) Issue of materials

Work in Process

(2) 1,500 (2) 1,500

Materials

(1) 2,500

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Johnson Leathergoods

(3) Incurrence of direct labor cost

Work in Process

(2) 1,500

(3) 1,530

Wages Payable

(3) 1,530

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Johnson Leathergoods

(4) Estimated overhead applied to Work in

Process

Work in Process

(2) 1,500

(3) 1,530

(4) 340

Overhead Control

(4) 340

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(5) Actual overhead recorded

Work in Process

(2) 1,500

(3) 1,530

(4) 340

Overhead Control

(4) 340 (5) 415

Johnson Leathergoods

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Johnson Leathergoods

(6) Transfer of Job 1 to finished goods

Work in Process Finished Goods

(6) 2,320 (6) 2,320 (2) 1,500

(3) 1,530

(4) 340

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Johnson Leathergoods

(7) Cost of goods sold for Job 1 and

revenue from sale on account

Finished Goods

(6) 2,320

Cost of Goods Sold

Accounts Receivable

(7) 3,480

Sales Revenue

(7) 3,480

(7) 2,320 (6) 2,320

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Johnson Leathergoods

(8) Underapplied overhead closed

Overhead Control

(4) 340 (5) 415

(8) 75

Cost of Goods Sold

(7) 2,320

(8) 75

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The End

Chapter Five

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