Job Costing
Chapter 7
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Defining a JobL.O. 1 Explain what job and job 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 InShapeL.O. 2 Assign costs in a job cost system.
• Suppose InShape, Inc. manufactures custom workout and training equipment for schools and gyms.
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Records of Costs at InShape
Materials Work-in-process
Directmaterials
Rawmaterials
Indirectmaterials
Overhead
12-03
01-01
01-02
TotalWIP
LO2
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Records of Costs at InShape
Labor Work-in-process
Directlabor
Labor
Indirectlabor
Overhead
12-03
01-01
01-02
TotalWIP
LO2
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Records of Costs at InShape
Overhead Work-in-process
Overhead
12-03
01-01
01-02
TotalWIP
• OH costs are applied to each job using the POHR.
LO2
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Predetermined RateL.O. 3 Account for overhead using predetermined rates.
• The estimated manufacturing overhead predeterminedrate is the estimated overhead divided by the estimatedactivity for the allocation base.
• InShape uses estimates based on annual manufacturingoverhead and annual production volume.
• Because it does not want erratic or monthly costs orproduction volumes to affect the long-run production costs.
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An Alternative Method of Recordingand Applying Manufacturing Overhead
• Assume InShape maintains two manufacturingoverhead accounts:
• Manufacturing Overhead ControlUsed to track all actual overhead expenses
• Applied Manufacturing OverheadUsed to allocate overhead to jobs basedon the predetermined OH rate
• Some companies combine these two accountsinto one account.
LO3
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An Alternative Method of Recordingand Applying Manufacturing Overhead
• Underapplied overheadThe excess of actual overhead costs incurredover applied overhead costs
• Overapplied overheadThe excess of applied overhead costs overactual overhead costs incurred
LO3
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Writing Off Over- orUnderapplied Overhead
• Some firms use only one OH account.
• In this condition, the debit side of the OH account containsactual data and the credit side contains applied data.
• For either condition of under- or overapplied, actual mustequal applied in the Overhead control account at the end of the period.
Overhead
12,0009,500
13,7505,000
11,20051,450
49,000 2,450
51,450
Cost of Goods Sold
104,0002,450
106,450
LO3
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Allocating Over- orUnderapplied Overhead
• Some companies prorate the over/underapplied MOH to WIP, FG, and COGS.
Work-in-Process Inventory
Finished Goods Inventory
Cost of Goods Sold
Total
$ 31,500
208,500
104,000
$344,000
9.2%
60.6%
30.2%
100.0%
Costs % of Total
Accounts at January 31
LO3
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Using Normal, Actual,and Standard Costing
• Normal:Cost of job determined by actual direct material, actualdirect labor, and applied overhead using the POHRand the actual allocation base.
• Actual:Cost of job determined by actual direct material, actualdirect labor, and applied overhead using actual overheadrate and the actual allocation base.
• Standard:Cost of job determined by standard (budgeted) directmaterial, standard direct labor, and applied overheadusing the POHR and a standard (budgeted) allocation base.
LO3
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Using Job Costing inService Organizations
L.O. 4 Apply job costing methods in service organizations.
• Service organizations use fewer direct materialsthan manufacturing companies.
• Service companies’ overhead accounts haveslightly different names.
• Finished goods (or services) are charged toCost of Services Billed.
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Using Job Costing inService Organizations
Labor Work in process
Directlabor
Labor
Indirectlabor
Overhead
Client A
Client B
Client C
TotalWIP
LO4
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Ethical Issues
L.O. 5 Understand the ethical issues in job costing.
• Improprieties Include:– Misstating the stage of completion– Charging costs to the wrong jobs – Misrepresenting the cost of jobs
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Managing Projects
L.O. 6 Describe the difference between jobs and projects.
• A project is a complex job that often takes monthsor years to complete and requires the work of manydepartments, divisions, or subcontractors.
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End of Chapter 7
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin