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Job Costing

Chapter 7

Copyright 2011 by The McGraw-Hill Companies, Inc. ll rights reser!e".McGraw-Hill#Irwin

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Defining a Job

L.O. 1 Explain whatjobandjob shop mean.

Job:

Unit of a product that is easily distinguishablefrom other units

Job shop:

Firm that produces jobs

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Production Process at InShape

L.O. 2 Assign costs in a job cost system.

Suppose InShape, Inc. manufactures custom worout

and training e!uipment for schools and gyms.

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Records of Costs at InShape

"aterials #or$in$process

%irect

materials

&aw

materials

Indirect

materials'(erhead

)*$+

+)$+)

+)$+*

-otal

#I

LO

2

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Records of Costs at InShape

/abor #or$in$process

%irect

labor

/abor

Indirect

labor'(erhead

)*$+

+)$+)

+)$+*

-otal

#I

LO

2

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Records of Costs at InShape

'(erhead #or$in$process

'(erhead

)*$+

+)$+)

+)$+*

-otal

#I

'0 costs are applied to each job using the '0&.

LO

2

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Predetermined Rate

L.O. 3 1ccount for o(erhead using predetermined rates.

-he estimated manufacturing o(erhead predetermined

rate is the estimated o(erhead di(ided by the estimated

acti(ity for the allocation base.

InShape uses estimates based on annual manufacturing

o(erhead and annual production (olume.

2ecause it does not want erratic or monthly costs or

production (olumes to affect the long$run production costs.

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An Alternative Method of Recording

and Applying Manufacturing verhead

1ssume InShape maintains two manufacturing

o(erhead accounts:

"anufacturing '(erhead 3ontrol

Used to trac all actual o(erhead e4penses

1pplied "anufacturing '(erhead

Used to allocate o(erhead to jobs based

on the predetermined '0 rate

Some companies combine these two accounts

into one account.

LO

3

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An Alternative Method of Recording

and Applying Manufacturing verhead

Underapplied o(erhead

-he e4cess of actual o(erhead costs incurred

o(er applied o(erhead costs

'(erapplied o(erhead

-he e4cess of applied o(erhead costs o(er

actual o(erhead costs incurred

LO

3

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!riting ff ver" or

#nderapplied verhead

Some firms use only one '0 account.

In this condition, the debit side of the '0 account contains

actual data and the credit side contains applied data.

For either condition of under$ or o(erapplied, actual must

e!ual applied in the '(erhead control account at the end

of the period.

'(erhead

)*,+++

5,6++),76+

6,+++

)),*++

6),86+

85,+++

*,86+

6),86+

3ost of 9oods Sold

)+8,+++

*,86+)+,86+

LO

3

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Allocating ver" or

#nderapplied verhead

Some companies prorate the o(er;under

applied "'0 to #I, F9, and 3'9S.

Work-in-Process Inventory

Finished Goods Inventory

Cost of Goods Sold

Total

$ 31,5

!",5

1#,

$3##,

%!&

'%'&

3%!&

1%&

Costs & of Total

(cco)nts at *an)ary 31

LO

3

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#sing $ormal% Actual%

and Standard Costing

allocation base.

LO

3

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#sing Job Costing in

Service rgani&ations

L.O. 4 Apply job costing methods in service organizations.

Ser(ice organi?ations use fewer direct materials

than manufacturing companies.

Ser(ice companies@ o(erhead accounts ha(e

slightly different names.

Finished goods =or ser(ices> are charged to

3ost of Ser(ices 2illed.

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#sing Job Costing in

Service rgani&ations

/abor #or in process

%irect

labor

/abor

Indirect

labor'(erhead

3lient 1

3lient 2

3lient 3

-otal

#I

LO

4

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'thical Issues

L.O. 5 Understand the ethical issues in job costing.

Improprieties Include:

A "isstating the stage of completion

A 3harging costs to the wrong jobs

A "isrepresenting the cost of jobs

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Managing Pro(ects

L.O. 6 Describe the diference between jobs and projects.

1 project is a comple4 job that often taes months

or years to complete and re!uires the wor of many

departments, di(isions, or subcontractors.

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'nd of Chapter 7

Copyright 2011 by The McGraw-Hill Companies, Inc. ll rights reser!e".McGraw-Hill#Irwin