Chapter 15 Job Order Costing and Analysis. 15-2 Conceptual Learning Objectives C1: Explain the cost...

Chapter 15

Job Order Costing and Analysis

15-2

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.

15-3

A1: Apply job order costing in pricing services.

Analytical Learning Objectives

15-4

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

15-5

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 16 Chapter 16

C 2

15-6

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 16 Chapter 16

C 2

Job Order Manufacturing

15-7

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

15-8

Goods in Process

Cost of GoodsSold

Labor

Materials

Ind

irec

tIn

dir

ect

FinishedGoods

FactoryOverhead

Direct

Direct

Allocate

C 2 Job Order Production Activities

15-9

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 3/15/09 Date started 3/3/09 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 SheetC 3

15-10

Road Warriors Materials Requisition No. R-4705

Job No. B15 Date 3-7-09

Material Stock No. M-347

Material Description Alarm system wiring

Quantity Requested 1 Requested By

Quantity Provided 1 Date Provided 3-7-09

Filled By Received By

Remarks

C. Luther

C. Luther

M. Bateman

Materials RequisitionP1

15-11

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

3/4/09 C7117 2 $225 $450 3 $225 $6753/7/09 R4705 1 $225 $225 2 $225 $450

Materials Ledger CardP1

15-12



Direct Materials Direct Labor Factory OverheadDate Req. Cost Date Ticket Cost Date Rate Cost3/7/09 R4705 $225

Total $225 Total Total

Remarks Cost SummaryDirect Materials $225Direct LaborFactory OverheadTotal Cost

Job Cost SheetP1

15-13



Direct Materials Direct Labor Factory OverheadDate Req. Cost Date Ticket Cost Date Rate Cost3/7/09 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

Job Cost SheetP2

15-14

Road Warriors Time Ticket No. L-3479

Job No. B15 Date 3/8/09

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 TicketP2

15-15


Customer Carroll Connor Job No. B15Address 1542 High Point Dr. Portland, OregonJob Description Level I Alarm System on Ford Expedition Date promised 3/15/09 Dated started 3/3/09 Date completed

Direct Materials Direct Labor Factory OverheadDate Req. Cost Date Ticket Cost Date Rate Cost3/7/09 R4705 $225 3/8/09 L3479 $60

Total $225 Total $60 Total

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

Job Cost SheetP2

15-16



Direct Materials Direct Labor Factory OverheadDate Req. Cost Date Ticket Cost Date Rate Cost3/7/09 R4705 $225 3/8/09 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

Job Cost SheetP3

15-17

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 3/15/09 Date started 3/3/08 Date completed 3/11/08

Direct Materials Direct Labor Factory OverheadDate Req. Cost Date Ticket Cost Date Rate Cost3/7/09 R4705 $225 3/8/09 L3479 $60 3/8/09 160% $96

Total $225 Total $60 Total $96

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

P3

15-18

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

15-19

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

15-20

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

P3

Cost Flows and Documents

15-21

MaterialPurchases

DirectMaterial

DirectMaterial

Raw Materials Goods in Process

Factory Overhead

ActualOverhead

Costs

Indirect Material

P3

Summary of Cost Flows

Dr Cr

Dr Cr Dr Cr

15-22

Incurred DirectMaterial

Actual Applied factory factoryoverhead overhead

=/an adjustment is needed.

We will look at how to accomplish this later.

When

Goods in ProcessFactory Payroll

Factory Overhead

DirectLabor

DirectLabor

Indirect Labor

ActualOverhead

Costs

Overhead

OverheadApplied to

Work inProcess

P4


15-23

DirectMaterialDirectLabor

Overhead

Cost ofGoodsMfd.

Cost ofGoodsMfd.

Cost ofGoodsSold

Cost ofGoodsSold

Goods in Process Finished Goods

Cost of Goods Sold

P4


15-24

We multiply the POHRtimes the number of

activity units (direct labor cost for Road Warriors)

incurred for the job.

Tell me again how we use the POHR to

assign overhead to jobs.

Overhead ApplicationP4

15-25

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

15-26

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 or Underapplied Overhead

P4

15-27

Overhead is overapplied.


Overheadapplied to

Work in Process

(POHR × Activity)

Actualoverhead

costsincurred

Adjusting of Overapplied and Underapplied Overhead

P4

15-28

Overhead is underapplied.


Actualoverhead

costsincurred

Overheadapplied to

Work in Process

(POHR × Activity)


P4

15-29

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

15-30

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

15-31



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

15-32



Factory Payroll XXXXX

Cash (and other accounts) XXXXX

To record salaries and wages of factory

workers (including various payroll

liabilities).


15-33





To assign costs of direct labor used.



To record indirect labor as overhead.


15-34




Prepaid Insurance XXXXX

Accrued Utilities Payable XXXXX

Cash XXXXX

Accumulated Depreciation XXXXX

To record factory overhead costs.


15-35





To apply overhead using a

predetermined overhead rate


15-36



Finished Goods Inventory XXXXX


To record completion of jobs


15-37



Cost of Goods Sold XXXXX

Finished Goods Inventory XXXXX

To record the sale of goods.


Adjusting Overhead

Overhead applied rarely equals that incurred because a predetermined overhead rate is used in applying factory overhead costs to jobs.

15-39



Actualoverhead

costsincurred

Overheadapplied to

Work in Process

(POHR × Activity)


P4

Under-applied overhead•Overhead incurred is more than amount applied.•Results in a debit balance in Factory Overhead.•Reflects manufacturing costs not charged to jobs.•If immaterial —Factory Overhead balance is (credited) closed and charged (debited) to Cost of Goods Sold.

15-41



Overheadapplied to

Work in Process

(POHR × Activity)

Actualoverhead

costsincurred


P4

Over-applied overhead•Overhead applied exceeds overhead incurred.•Results in a credit balance in the Factory Overhead.•If immaterial —Factory Overhead balance is (debited) closed to (credited) Cost of Goods Sold resulting in a reduction.

Material overhead balances are allocated among Goods in Process, Finished Goods, and Cost of Goods Sold.

Chapter 15 Job Order Costing and Analysis. 15-2 Conceptual Learning Objectives C1: Explain the cost...

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Transcript of Chapter 15 Job Order Costing and Analysis. 15-2 Conceptual Learning Objectives C1: Explain the cost...