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Systems Design: Job-Order Costing - CPA Diary · 5/3/2013 · Systems Design: Job-Order Costing Chapter 3 ... Types of Product Costing Systems Process Costing Job-order ... Job-Order

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  • Systems Design: Job-Order Costing

    Chapter 3

    McGraw-Hill/Irwin Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

  • Types of Product Costing Systems

    ProcessCosting

    Job-orderCosting

    Many different products are produced each period. Many different products are produced each period. Products are manufactured to order.Products are manufactured to order. 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.

    3-2

  • Comparing Process and Job-Order Costing

    Job-Order ProcessNumber of jobs worked Many Single ProductCost accumulated by

    Individual Job Department

    Average cost computed by Job Department

    3-3

  • Measuring Direct Materials Cost

    3-4

  • Job-Order Cost Accounting

    3-5

  • The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the

    period begins.

    Manufacturing Overhead Application

    Estimated total manufacturingoverhead cost for the coming period

    Estimated total manufacturingoverhead cost for the coming period

    Estimated total units in theallocation base for the coming period

    Estimated total units in theallocation base for the coming period

    POHR =POHR =Estimated total manufacturing

    overhead cost for the coming periodEstimated total units in the

    allocation base for the coming period

    POHR =

    Ideally, the allocation base is a cost driver that causes

    overhead.

    Ideally, the allocation base is a cost driver that causes

    overhead.

    3-6

  • Determining Predetermined Overhead RatesPredetermined overhead rates are calculated

    using a three-step process.

    Estimate the level of

    production for the period.

    Estimate total amount of the allocation base

    for the period.

    Estimate total manufacturing

    overhead costs.

    POHR = 3-7

  • Job-Order Cost Accounting

    3-8

  • Job-Order CostingDocument Flow Summary

    Job Cost Sheets

    MaterialsRequisition

    Manufacturing Overhead Account

    Direct materials

    Indirect materials

    MaterialsMaterialsused may beused may be

    either direct oreither direct orindirect.indirect.

    3-9

  • Job-Order CostingDocument Flow Summary

    Job Cost Sheets

    Employee Time Ticket

    Manufacturing Overhead Account

    Manufacturing Overhead Account

    Anemployees

    time may be eitherdirect orindirect.

    Direct Labor

    Indirect Labor

    3-10

  • Job-Order CostingDocument Flow Summary

    Manufacturing Overhead Account

    OtherActual OHCharges

    Job Cost Sheets

    POHR rate used to apply

    overhead

    MaterialsRequisition

    EmployeeTime Ticket

    IndirectLabor

    IndirectMaterial

    3-11

  • Raw MaterialsMaterial

    Purchases

    Mfg. Overhead

    Work in Process(Job Cost Sheet)

    Actual Applied

    DirectMaterials Direct

    Materials

    IndirectMaterials

    IndirectMaterials

    The Purchase and Issue of Raw Materials

    3-12

  • Cost Flows Material Purchases Raw material purchases are recorded in an

    inventory account.

    3-13

  • Cost Flows Material UsageDirect materials issued to a job increase Work in

    Process and decrease Raw Materials. Indirect materials used are charged to Manufacturing Overhead and also decrease Raw Materials.

    3-14

  • Mfg. Overhead

    Salaries and Wages Payable

    Work in Process(Job Cost Sheet)Direct

    MaterialsDirectLabor

    DirectLabor

    IndirectMaterials

    Actual Applied

    IndirectLabor

    IndirectLabor

    The Recording of Labor Costs

    3-15

  • Mfg. Overhead

    Salaries and Wages Payable

    Work in Process(Job Cost Sheet)Direct

    MaterialsDirectLabor

    DirectLabor

    IndirectMaterials

    Actual Applied

    IndirectLabor

    IndirectLabor

    Applying Manufacturing Overhead

    OtherOverhead

    OverheadApplied

    OverheadApplied to

    Work inProcess

    If actual and applied manufacturing overheadare not equal, a year-end adjustment is required.

    3-16

  • Finished GoodsWork in Process(Job Cost Sheet)DirectMaterialsDirectLabor

    OverheadApplied

    Cost ofGoods

    Mfd. Cost ofGoods

    Mfd.

    Transferring Completed Units

    3-17

  • End of Chapter 3

    3-18