© The McGraw-Hill Companies, Inc., 2007 McGraw-Hill/Irwin Chapter 19 Job Order Costing.

© The McGraw-Hill Companies, Inc., 2007McGraw-Hill/Irwin

Chapter 19

Job Order Costing


Conceptual Learning Objectives

C1: Explain the cost accounting system

C2: Describe important features of job order production

C3: Explain job cost sheets and how they are used in job order cost accounting

A1: Apply job order costing in pricing services


P1: Describe and record the flow of materials costs in job order cost accounting

P2: Describe and record the flow of labor costs in job order cost accounting

P3: Describe and record the flow of overhead costs in job order cost accounting

P4: Determine adjustments for overapplied and underapplied factory overhead

Procedural Learning Objectives


ProcessCosting

JobCosting

Used for production of large, unique, or high-cost items.

Built to order rather than mass produced.

Many costs can be directly traced to each job.

Used for production of large, unique, or high-cost items.

Built to order rather than mass produced.

Many costs can be directly traced to each job.

Job Order Production

Chapter 20 Chapter 20

C 2


ProcessCosting

JobCosting

Typical job order cost applications: Special-order printing Building construction

Also used in service industry Hospitals Law firms

Typical job order cost applications: Special-order printing Building construction

Also used in service industry Hospitals Law firms

Chapter 20 Chapter 20

C 2

Job Order Manufacturing


Receive order from

customers

Predict cost to complete

job

Negotiate a sales price and decide whether to

pursue the job.

Schedule the job

Events in Job Order CostingC 2


Goods in Process

Cost of GoodsSold

Labor

Materials

Ind

irec

tIn

dir

ect

FinishedGoods

FactoryOverhead

Direct

Direct

Allocate

C 2 Job Order Production Activities


The primary document for tracking the

costs associated with a given job is the job cost sheetjob cost sheet.

Let’s investigate

Job Order Cost DocumentsC 3


Road Warriors Job Cost Sheet

Customer Carroll Connor Job No. B15Address 1542 High Point Dr. Portland, OregonJob Description Level I Alarm System on Ford Expedition Date promised 3/15/08 Date started 3/3/08 Date completed

Direct Materials Direct Labor Factory OverheadDate Req. Cost Date Ticket Cost Date Rate Cost

Total Total Total

Remarks Cost SummaryDirect MaterialsDirect LaborFactory OverheadTotal Cost

Job Cost Sheet Exh. 19-2

C 3





Direct Materials Direct Labor Factory OverheadDate Req. Cost Date Ticket Cost Date Rate Cost

Total Total Total

Remarks Cost SummaryDirect MaterialsDirect LaborFactory OverheadTotal Cost

Let’s see one

A materials requisition is used to authorize the

use of materials on a job.

P1


Road Warriors Materials Requisition No. R-4705

Job No. B15 Date 3-7-08

Material Stock No. M-347

Material Description Alarm system wiring

Quantity Requested 1 Requested By

Quantity Provided 1 Date Provided 3-7-08

Filled By Received By

Remarks

C. Luther

C. Luther

M. Bateman

Materials Requisition Exh. 19-5

P1


Materials Requisition








Remarks

C. Luther

C. LutherM. Bateman

Cost of material is charged to

Job B15.

Properauthorization

P1










Remarks

C. Luther

C. Luther

M. Bateman

Type and quantity of material charged to

Job B15.

Pre-printed, sequentially numbered

form.

P1










Remarks

C.Luther

C. Luther

M. Bateman

The materials requisition form also serves as the source document for recording material

usage in the accounting records.

P1


Road Warriors Materials Ledger Card

Item Alarm sys. wiring Stock No. M-347 Location Bin137

Maximum Qty. 5 units Minimum Qty. 1 unit Reorder Qty. 2 units

Received Issued BalanceRec. Unit Total Req. Unit Total Unit Total

Date Rep. Units Cost Cost No. Units Cost Cost Units Cost Cost1 $225 $225

3/4/08 C7117 2 $225 $450 3 $225 $6753/7/08 R4705 1 $225 $225 2 $225 $450

Materials Ledger Card Exh. 19-4

P1




Direct Materials Direct Labor Factory OverheadDate Req. Cost Date Ticket Cost Date Rate Cost3/7/08 R4705 $225

Total $225 Total Total

Remarks Cost SummaryDirect Materials $225Direct LaborFactory OverheadTotal Cost


P1




Direct Materials Direct Labor Factory OverheadDate Req. Cost Date Ticket Cost Date Rate Cost3/7/08 R4705 $225


Remarks Cost SummaryDirect Materials $225Direct LaborFactory OverheadTotal Cost

Accumulate direct labor

costs by means of a

work record, such as a time ticket, for each

employee.

Let’s see one


P2


Road Warriors Time Ticket No. L-3479

Job No. B15 Date 3/8/08

Employee Name T. Zeller Employee Number 3969

TIME AND RATE INFORMATION:

Start Time 9:00 Finish Time 12:00

Elapsed Time 3.0 Hourly Rate $20.00 Total Cost $60.00

Approved By

RemarksC. Luther

Labor Time Ticket Exh. 19-7

P2



Customer Carroll Connor Job No. B15Address 1542 High Point Dr. Portland, OregonJob Description Level I Alarm System on Ford Expedition Date promised 3/15/08 Dated started 3/3/08 Date completed

Direct Materials Direct Labor Factory OverheadDate Req. Cost Date Ticket Cost Date Rate Cost3/7/08 R4705 $225 3/8/08 L3479 $60

Total $225 Total $60 Total

Remarks Cost SummaryDirect Materials $225Direct Labor 60Factory OverheadTotal Cost


P2




Direct Materials Direct Labor Factory OverheadDate Req. Cost Date Ticket Cost Date Rate Cost3/7/05 R4705 $225 3/8/05 L3479 $60


Remarks Cost SummaryDirect Materials $225Direct Labor 60Factory OverheadTotal Cost

Allocate manufacturing overhead to jobs using a predetermined overhead rate

Let’s do it


P3


Job Cost SheetRoad Warriors Job Cost Sheet

Customer Carroll Connor Job No. B15Address 1542 High Point Dr. Portland, OregonJob Description Level I Alarm System on Ford Expedition Date promised 3/15/08 Date started 3/3/08 Date completed 3/11/08

Direct Materials Direct Labor Factory OverheadDate Req. Cost Date Ticket Cost Date Rate Cost3/7/05 R4705 $225 3/8/05 L3479 $60 3/8/05 160% $96

Total $225 Total $60 Total $96

Remarks Cost SummaryDirect Materials $225Direct Labor 60Factory Overhead 96Total Cost $381

Exh. 19-2

P3


Road Warriors uses a predetermined overhead rate (POHR) based on direct labor cost to apply overhead to jobs.

Estimated total manufacturingoverhead cost for the coming period

Estimated total direct labor costsfor the coming period

POHR =

POHR = = 160% of direct labor $$200,000

$125,000

Predetermined OverheadAllocation Rate Formula

P3


Materials Ledger CardsMaterials

Ledger CardsMaterials Ledger CardsMaterialsRequisition

Direct materials

The materials requisition

indicates the cost of direct materials

to charge tojobs

and the cost of indirect materials

to charge to overhead.

Indirect materials

Job Cost Sheets

Job Cost Sheets

Job Cost Sheets

Job Cost Sheets

Factory Overhead Account

Cost Flows and DocumentsP1

Let’s summarize the document flow we have been discussing in a job-order costing system


Employee time tickets indicate

the cost of direct laborto charge to

jobsand the cost

of indirect labor to charge to

overhead.

Job Cost Sheets

Factory Overhead Account

Job Cost Sheets

Job Cost Sheets

Job Cost Sheets

Direct Labor

Indirect Labor

Employee Time TicketEmployee Time

TicketEmployee Time TicketEmployee Time

Ticket

Exh. 19-6

P3

Cost Flows and Documents


MaterialPurchases

DirectMaterial

DirectMaterial

Exh. 19-11

Raw Materials Goods in Process

Factory Overhead

ActualOverhead

Costs

Indirect Material

P3

Summary of Cost Flows

Dr Cr

Dr Cr Dr Cr

Let’s examine the cost flows in a job order system.We will use T-accounts and start with materials.


Incurred DirectMaterial

Actual Applied factory factoryoverhead overhead

=/an adjustment is needed.

We will look at how to accomplish this later.

When

Exh. 19-11

Goods in ProcessFactory Payroll

Factory Overhead

DirectLabor

DirectLabor

Indirect Labor

ActualOverhead

Costs

Overhead

OverheadApplied to

Work inProcess

P4


Next let’s add labor costs and applied factory overhead

to the job order cost flows. Are you with me?


DirectMaterialDirectLabor

Overhead

Cost ofGoodsMfd.

Cost ofGoodsMfd.

Cost ofGoodsSold

Cost ofGoodsSold

Goods in Process Finished Goods

Cost of Goods Sold

P4


Now let’s complete the goods and sell them. Still with me?


If FishCo budgets overhead at $200,000 andestimates its activity to be 25,000 direct labor hours for 2008, what is the POHR per direct labor hour?

a. $10.00 per hour

b. $ 6.00 per hour

c. $ 8.00 per hour

d. $12.00 per hour


a. $10.00 per hour

b. $ 6.00 per hour

c. $ 8.00 per hour

d. $12.00 per hour

QuestionP4



a. $10.00 per hour

b. $ 6.00 per hour

c. $ 8.00 per hour

d. $12.00 per hour


a. $10.00 per hour

b. $ 6.00 per hour

c. $ 8.00 per hour

d. $12.00 per hour

Estimated Overhead Estimated Activity

$200,000 25,000 hours

POHR = $8.00 per hour

P4

Question


If FishCo actually worked 24,000 direct labor hours for 2008, what amount of overhead would be assigned to jobs in goods in process?

a. $200,000

b. $192,000

c. $208,000

d. $196,000


a. $200,000

b. $192,000

c. $208,000

d. $196,000

P4

Question



a. $200,000

b. $192,000

c. $208,000

d. $196,000


a. $200,000

b. $192,000

c. $208,000

d. $196,000

24,000 hours × $8.00 per hour = $192,000

P4

Question


Overhead Application

Overhead is notincurred uniformly

during the year.

Actual overhead ratemight vary from month to month.

Predetermined ratemakes it possible to

estimate job costs sooner.

Reasons for using apredetermined overhead rate

Reasons for using apredetermined overhead rate

P4


The result will be either underapplied or overapplied

overhead and wewill adjust Cost of Goods

Sold at the end of the period.

Here, let me show you.

The POHR is basedon estimates.

What happens ifactual results differfrom the estimates?

Adjusting of Overapplied and Underapplied Overhead

P4


Overhead is overapplied.

Overhead is overapplied.

Overheadapplied to

Work in Process

(POHR × Activity)

Actualoverhead

costsincurred


P4


Overhead is underapplied.

Overhead is underapplied.

Actualoverhead

costsincurred

Overheadapplied to

Work in Process

(POHR × Activity)


P4


Cost of Goods

Overhead is: Sold is: Adjustment will:

Actual overhead > applied overhead

Underapplied Too lowIncrease Cost of Goods Sold

Actual overhead < applied overhead

Overapplied Too highDecrease Cost of Goods Sold

Adjusting Cost of Goods Sold for underapplied or overapplied overhead


P4


FishCo had actual manufacturing overhead costs of $180,000. FishCo applied $192,000 of manufacturing overhead to jobs based on

a POHR of $8.00 per direct labor hour. FishCo’s manufacturing overhead is:

a. $12,000 overapplied.

b. $12,000 underapplied.

c. $96,000 overapplied.

d. $96,000 underapplied.







P4

Question














Applied overhead 192,000$

Less actual overhead 180,000

Overapplied overhead 12,000$

P4

Question


The difference between FishCo's actual and applied overhead will result in

an adjustment that decreasescost of goods sold.

a. True

b. False



a. True

b. False

P4

Question




a. True

b. False



a. True

b. False

If overhead is overapplied, cost of goods sold is too high. The

adjustment will decrease cost of goods sold.

P4

Question


GENERAL JOURNAL Page 21

Date DescriptionPost. Ref. Debit Credit

Raw Materials Inventory XXXXX

Accounts Payable XXXXX

Acquired materials on credit for

factory use.

Job Order CostingTypical Accounting Entries

P1




Goods in Process Inventory XXXXX


To assign costs of direct materials used.

Factory Overhead XXXXX


To record use of indirect materials.

P1 Job Order CostingTypical Accounting Entries




Factory Payroll XXXXX

Cash (and other accounts) XXXXX

To record salaries and wages of factory

workers (including various payroll

liabilities).







To assign costs of direct labor used.



To record indirect labor as overhead.






Prepaid Insurance XXXXX

Accrued Utilities Payable XXXXX

Cash XXXXX

Accumulated Depreciation XXXXX

To record factory overhead costs.







To apply overhead using a

predetermined overhead rate





Finished Goods Inventory XXXXX


To record completion of jobs





Cost of Goods Sold XXXXX

Finished Goods Inventory XXXXX

To record the sale of goods.



End of Chapter 19

© The McGraw-Hill Companies, Inc., 2007 McGraw-Hill/Irwin Chapter 19 Job Order Costing.

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Transcript of © The McGraw-Hill Companies, Inc., 2007 McGraw-Hill/Irwin Chapter 19 Job Order Costing.