Job Order Costing - Delta Univ · 2018. 8. 12. · Job-Order Costing: An Overview Job-order costing systems are used 1. 2. 3. The unique nature of each order requires tracing or when:

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 1

Job Order Costing

Chapter 4

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 2

Learning Objective 1

Describe the building-block

concepts of costing systems.


Building-Block Concepts

of Costing Systems

Building-Block Concepts

of Costing Systems

Cost Assignment

Direct Costs

Indirect Costs

Cost Tracing

Cost Allocation

Cost Object

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster

Flow of Costs: A Conceptual

Overview

Flow of Costs: A Conceptual

Overview

Finished

Goods

Cost of

Goods

Sold

Selling and

Administrative Period Costs Selling and

Administrative

Manufacturing

Overhead

Work in

Process

Direct Labor

Balance Sheet

Costs Inventories

Income

Statement

Expenses Material Purchases Raw Materials Raw Materials



Distinguish between job

costing and process costing.


Job-Costing and

Process-Costing Systems

Job-Costing and

Process-Costing Systems

Job-costing

system

Process-costing

system

Distinct units

of a product

or service

Masses of identical

or similar units of

a product or service


Job-Order Costing: An Overview Job-Order Costing: An Overview

JobJob--order costing systems are used order costing systems are used

1.1.

2.2.

3.3. The unique nature of each order requires tracing or The unique nature of each order requires tracing or

JobJob--order costing systems are used order costing systems are used when:when:

1.1. Many different products are produced each period.Many different products are produced each period.

2.2. Products are manufactured to order.Products are manufactured to order.

3.3. The unique nature of each order requires tracing or The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost allocating costs to each job, and maintaining cost records for each job.records for each job.


Job No. 1 Job No. 1

Job No. 2 Job No. 2

Job No. 3 Job No. 3

Charge

material and

direct labor

costs to each

job as work

is performed.

Charge

direct

material and

direct labor

costs to each

job as work

is performed.

Job Costing – An Example Job Costing – An Example

Direct Materials Direct Materials

Direct Labor Direct Labor

Direct Costs


Manufacturing Manufacturing

including including indirect indirect

indirect laborindirect labor, are , are

directly traced to directly traced to

Manufacturing Manufacturing

Overhead, Overhead,

including including indirect indirect

materialsmaterials and and

indirect laborindirect labor, are , are

allocated to all allocated to all

jobs rather than jobs rather than

directly traced to directly traced to

each job.each job.

Job Costing – An Example Job Costing – An Example

Direct Materials Direct Materials

Direct Labor Direct Labor

Job No. 1 Job No. 1

Job No. 2 Job No. 2

Job No. 3 Job No. 3 Manufacturing Manufacturing

Overhead

Direct Costs

Indirect Costs


Direct

Direct

Materials

Direct Direct

Labor

Mfg.

Overhead

Mfg.

Overhead

Work-in- Work-in-

Process

Finished Finished

Goods

Cost-of

Goods Sold

Cost-of

Goods Sold


PearCo Job Cost Sheet

Job Number A - 143 Date Initiated 3-4-14

Date Completed

Department B3 Units Completed

Item Wooden cargo crate

Direct Materials Direct Labor Manufacturing Overhead

Req. No. Amount Ticket Hours Amount Hours Rate Amount

Cost Summary Units Shipped

Direct Materials Date Number Balance

Direct Labor

Manufacturing Overhead

Total Cost

Unit Product Cost

The Job Cost Sheet The Job Cost Sheet


The predetermined overhead rate (POHR)

used to apply overhead to jobs is determined

before the period begins.


Application


Application

Estimated total manufacturing overhead cost for the coming period


Estimated total units in the allocation base for the coming period


POHR = POHR =



POHR =


Predetermined overhead rates that rely upon

estimated data are often used because:

1. Actual overhead for the period is not

known until the end of the period, thus inhibiting

the ability to estimate job costs during the period.

2. Actual overhead costs can fluctuate seasonally,

thus misleading decision makers.

The Need for a POHR The Need for a POHR


Quick Check Quick Check

Job No 53 at NW Fab, Inc. required $200 of direct

materials and 10 direct labor hours at $15 per hour.

Estimated total overhead for the year was $760,000 and

estimated direct labor hours were 20,000. What would

be recorded as the cost of job No 53?

a. $200.

b. $350.

c. $380.

d. $730.


Job No 53 at NW Fab, Inc. required $200 of direct

materials and 10 direct labor hours at $15 per hour.

Estimated total overhead for the year was $760,000 and

estimated direct labor hours were 20,000. What would be

recorded as the cost of job No53?

a. $200.

b. $350.

c. $380.

d. $730.


POHR = $760,000/20,000 hours $38

Direct materials $200

Direct labor $15 x 10 hours $150

Manufacturing overhead $38 x 10 hours $380

Total cost $730



Outline a seven-step

approach to job costing.


Seven-Step Approach

to Job Costing

Seven-Step Approach

to Job Costing

Step 1:

Identify the chosen cost object.

Step 2:

Identify the direct costs of the job.

Step 3:

Select the cost-allocation bases.

Step 4:

Identify the indirect costs.


Seven-Step Approach

to Job Costing

Seven-Step Approach

to Job Costing

Step 5:

Compute the rate per unit.

Step 6:

Compute the indirect costs.

Step 7:

Compute the total cost of the job.


General Approach to Job Costing General Approach to Job Costing

A manufacturing company is planning to sell

a batch of 25 special machines (Job 650) to a

retailer for $114,800.

Step 1:

The cost object is Job 650.

Step 2:

Direct costs are: Direct materials = $50,000

Direct manufacturing labor = $19,000



Step 3:

The cost allocation base is machine-hours.

Job 650 used 500 machine-hours.

2,480 machine-hours were used by all jobs.

Step 4:

Manufacturing overhead costs were $65,100.



Step 5:

Actual indirect cost rate is

$65,100 ÷ 2,480 = $26.25 per machine-hour.

Step 6:

$26.25 per machine-hour × 500 hours = $13,125



Step 7:

Direct materials $50,000

Direct labor 19,000

Factory overhead 13,125

Total $82,125


General Approach to Job Costing

What is the gross margin of this job?

Revenues $114,800

Cost of goods sold 82,125

Gross margin $ 32,675

What is the gross margin percentage?

$32,675 ÷ $114,800 = 28.5%


Source Documents Source Documents

Job cost record

Materials requisition record

Labor time record



Distinguish actual costing

from normal costing.

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 26

Costing system Production cost

Actual costing Actual direct materials + Actual

labour + Actual overhead

Normal costing Actual direct material + Actual

direct labour + Applied overhead

(I.e. Per-determined overhead

rate * actual level of productivity)

Standard costing Standard direct material +

standard direct labor + applied

overhead


Which one better? Which one better?

Normal product costing and standard

costing are preferable


Reasons 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 price

Since monthly productivity may vary due to holiday

periods and seasonal variation, actual overhead is

fluctuating and cannot reflect normal production conditions



Track the flow of costs

in a job-costing system.


Transactions Transactions

Purchase of materials and other manufacturing inputs

Conversion into work in process inventory

Conversion into finished goods inventory

Sale of finished goods



$80,000 worth of materials (direct and

indirect) were purchased on credit.

Materials Control 80,000

Accounts Payable 80,000


Transactions

Materials costing $75,000 were sent to the

manufacturing plant floor.

$50,000 were issued to Job No. 650 and

$10,000 to Job 651.

$15,000 of indirect materials were issued.

What is the journal entry?



Work in Process Control:

Job No. 650 50,000

Job No. 651 10,000

Factory Overhead Control 15,000

Materials Control 75,000


Transactions

Total manufacturing payroll for

the period was $27,000.

Job No. 650 incurred direct labor costs

of $19,000 and Job No. 651 incurred

direct labor costs of $3,000.

$5,000 of indirect labor was also incurred.




Work in Process Control:

Job No. 650 19,000

Job No. 651 3,000

Manufacturing Overhead Control 5,000

Wages Payable 27,000



Wages payable were paid.

Wages Payable Control 27,000

Cash Control 27,000



Assume that depreciation for the

period is $26,000.


Manufacturing Overhead Control 26,000

Accumulated Depreciation Control 26,000



Assume the factory uses a predetermined overhead

rate of $25 per machine-hour. During the month,

500 machine-hours were worked on jobs.

Work in Process Control 12,500

Manufacturing Overhead Control 12,500 (500 machine-hours × $25 overhead rate per machine-hour)




During the period, Jobs 650 completed with

a total cost of $104,000.


Finished Goods Control 104,000

Work in Process Control 104,000



Job 650 was sold for $114,800.


Accounts Receivable Control 114,800

Revenues/ Sales 114,800

Cost of Goods Sold 81,500

Finished Goods Control 81,500



Assume that marketing and administrative

salaries were $9,000 and $10,000.


Marketing and Administrative Costs 19,000

Salaries Payable Control 19,000



Beginning raw materials inventory was $32,000.

During the month, $276,000 of raw material was

purchased. A count at the end of the month revealed

that $28,000 of raw material was still present. What

is the cost of direct material used?

a. $276,000

b. $272,000

c. $280,000

d. $ 2,000


Beginning raw materials inventory was $32,000.

During the month, $276,000 of raw material was

purchased. A count at the end of the month revealed

that $28,000 of raw material was still present. What is

the cost of direct material used?

a. $276,000

b. $272,000

c. $280,000

d. $ 2,000


Beg. raw materials 32,000$

+ Raw materials

purchased 276,000

= Raw materials available

for use in production 308,000$

– Ending raw materials

inventory 28,000

= Raw materials used

in production 280,000$

©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster ©2003 Prentice Hall Business Publishing, Cost Accounting 11/e, Horngren/Datar/Foster 4 - 44

End of Chapter 4