Job Costing

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detailed presentation of job costing for A-level. Study guide for exam.

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  • * Job Costing

  • *Job CostingJob costing is a product costing method adopted by an enterprise that provides limited quantities of unique productsThis kind of enterprise produces tailor-made goods or services that conform to the specifications designed by customersCosts can be determined separately for each job order

  • *Costing under three different methodActual costingNormal costingStandard costing

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    Costing systemProduction costActual costingActual direct materials + Actual labour + Actual overheadNormal costingActual direct material + Actual direct labour + Applied overhead (I.e. Per-determined overhead rate * actual level of productivity) Standard costingStandard direct material + standard direct labour + applied overhead

  • *Which one better?Normal product costing and standard costing are preferable

  • *Reasons Under actual costing, the product cost will be delayed until the end of the accounting period. However, the product cost should be obtained beforehand for setting selling priceSince monthly productivity may vary due to holiday periods and seasonal variation, actual overhead is fluctuating and cannot reflect normal production conditions

  • *Job-Order Costing Basic Records

    Job-cost records contain all costs for a particular product, service, or batch of products.Materials requisitions are records of materials used in particular jobs.Labor time cards record the time aparticular direct laborer spends on each job.

  • *Job-Cost SheetDate Started: 1/7/20X7Job Number: 963Date Completed: 1/14/20X7Units completed: 12CostDateRef. Quantity Amount SummaryDirect Materials:6 Bars1/7N4124120.00Casings1/9K5612340.00460.00Direct Labor:Drill1/87Z47.0105.001/97Z55.5 82.50Grind1/139Z24.0 80.00267.50Overhead:Applied1/149.0 mach. hrs.180.00180.00Total cost907.50Unit cost75.625

  • *Flow chartDelivery of materials to jobPayment of wages to workersCharging of applied overheadCosts to work in progress

    Work

    In

    Progress

    Cost of salessoldindirectdirectdirectindirect

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    Accounting entriesDr. Materials InventoryCr. Cash/AccountsPayableTo record the purchase of materialsDr. WIP (direct)Dr. manufacturing overhead (indirect)Cr. Materials inventoryTo assign direct and indirect material issuedDr. Manufacturing wages/Factory WagesCr. Cash/Manufacturing wages payableCr. Employer Payroll Taxes payableCr. Fringe benefitsTo record factory labour costsDr. WIP (direct)Dr. Manufacturing overhead (indirect)Cr. Manufacturing wagesTo assign direct and indirect wages incurred

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    Accounting entriesDr. Manufacturing overheadCr. Individual expensesTo record other indirect expenses

    Dr. WIP Cr. manufacturing overhead To apply overhead using predetermined overhead absorption rate Dr. Finished Goods inventoryCr. WIP To record cost of finished goodsDr. Cost of salesCr. Finished goods InventoryTo record cost of goods sold

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    Accounting entriesDr. Cash/Accounts ReceivableCr. SalesTo record sale of finished goodsDealing with over/under applied overheadsWhen monthly financial statements are prepared under and over applied overhead is reported in the balance sheet. Under-applied overhead is shown as a prepaid expense and over-applied overhead is reported as unearned revenue

    At the end of the year the following adjusting entry is made:Dr. Manufacturing overheadsCr. Cost of goods soldTo transfer over applied overheads to Cost of Goods Sold

    Dr. Cost of Goods SoldCr. Manufacturing overheadsTo transfer under-applied overheads to Cost of Goods Sold