Job costing Tutorial
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Transcript of Job costing Tutorial
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Job Costing
Presentation
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To Teach Job Costing
Objective 1
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Job order costing
Process costing
Cost Systems
• There are two basic systems used by manufacturers to assign costs to their products:
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Chopping Mixing and Canning
Process Costing Example
• Laxmi Foods Company produces a garlic flavored tomato sauce.
• Production of the sauce requires two major processes:
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$20,000 ÷ 100,000 = $0.20/pint
Process Costing Example
• Assume that Laxmi incurred $20,000 in the Mixing and Canning process to mix 100,000 pints of tomato sauce.
• What is the Mixing and Canning cost per pint?
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Job Costing
• It is used by a manufacturer who produces products as individual units or in distinct batches or jobs.
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Job Costing Example
• Ram, Sham, and Co. is a small furniture manufacturing business in Texas.
• They received an order for 10 chairs from a customer in Kansas City.
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$500 ÷ 10 = $50/chair
Job Costing Example
• Total cost for the job was $500.
• How much was the cost per chair?
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Job Costing
• Job cost record is a document used to accumulate the costs of a job.
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Job Number: J9738 Date Promised: 9/11/06Customer: Miami Motors Date Started: 8/03/06Job Description: 300 automobile engine valvesEngineering Design Number: JJJ-100
Job Cost Record Example
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MaterialRequisitionNumber Description Quantity Rate Amount
47624 Bar steel 720 lbs $11.50 $ 8,280stock 3”
A35161 Subassemblies 290 units $38.00 11,020
Total direct materials cost: $19,300
Job Cost Record Example
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Dates Number Hours Rate Amount
8/2,3,4,5 M16 24 $28 $ 672
8/2,3,4,5 M18, M19, M20 64 $26 1,664
8/6,7,8,9,10 A25, A26, A27 120 $18 2,1608/6,7,8,9,10 A32, A34, A35 61 $17 1,037
Total direct labor cost: 269 $5,533
Job Cost Record Example
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Manufacturing Overhead Amount118 machine hours @ $40 per hour $ 4,720269 direct labor hours @ 36 per hour 9,684
Total overhead cost: $14,404
Job Cost Record Example
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Total cost $39,237Number of units produced 300Cost per unit $130.79
Job Cost Record Example
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Trace Materials andLabor in a
Manufacturer’sJob Costing System.
Objective 2
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Materials Cost
• Companies using job costing often use a perpetual system to account for direct materials.
• A materials requisition is used to request transfer of materials to the production floor.
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Materials Cost Example
• Alec Clothing Co. purchased raw materials on account for $15,000.
• Materials costing $10,000 were requisitioned for production.
• Of this total, $2,000 was indirect materials.
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Indirect materials
Direct materials
15,000 10,000
2,000
8,000Materials Inventory WIP Inventory
Manufacturing Overhead
Materials Cost Example
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Labor Costs
• Labor costs are accumulated using the payroll register and time records.
• Labor time records identify the employee, the amount of time spent, and the cost charged to each job.
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Labor Cost Example
• The company incurred $30,000 of manufacturing wages for all jobs.
• Assume that $25,000 can be traced directly to the jobs and $5,000 is for indirect labor.
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Indirect labor
Direct labor
30,000 30,000
5,000
25,000Manufacturing Wages WIP Inventory
Manufacturing Overhead
Labor Cost Example
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Allocate Manufacturing Overhead in a
Manufacturer’s Job Costing System
Objective 3
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Manufacturing Overhead(Deprec.-Plant and Equipment) 20,000
Accumulated Depreciation(Plant and Equipment) 20,000
To record plant and equipment depreciation
Manufacturing Overhead Costs
• The company incurred $20,000 of plant equipment depreciation.
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Estimated overhead ÷ Estimated base = Rate
Manufacturing Overhead Rate
• At the beginning of the year, a predetermined manufacturing overhead application rate is computed.
• This rate is used to apply overhead to all jobs completed during the year.
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Six Steps in Allocating Manufacturing Overhead Cost
1 Estimate total overhead for the period.
2 Select an overhead allocation base.
3 Estimate total quantity of the overhead allocation base.
4 Compute the predetermined overhead rate.
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Six Steps in Allocating Manufacturing Overhead Cost
5 Obtain actual quantities of the overhead allocation base.
6 Allocate manufacturing overhead by multiplying the predetermined manufacturing overhead rate by the actual quantity of the allocation base that pertains to each job.
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$243,000 ÷ 4,500 = $54
Manufacturing Overhead Example
• Alec Clothing Co.’s total estimated overhead for the year equals $243,000.
• The predetermined overhead rate is based on 4,500 direct labor hours.
• What is the predetermined overhead rate?
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Work-in-Process Inventory 10,800Manufacturing Overhead 10,800
To record overhead applied to Job 51
Manufacturing Overhead Example
• Assume that Job 51 used 200 direct labor hours.
• What is the journal entry to record the manufacturing overhead applied?
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Account for Completion and Sales of Finished Goods, and
Adjust for Under-or-Overapplied Manufacturing
Overhead
Objective 4
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Accounting for Finished Goods, Sales, and Cost of Goods Sold
• As jobs are completed they are transferred to finished goods inventory.
• In addition to the overhead applied to Job 51, direct labor was $4,000 and direct materials totaled $30,000.
• How much was transferred to Finished Goods Inventory?
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Direct materials$30,000
Direct labor 4,000Manufacturing overhead
10,800
$44,800Work in Process44,800
Finished Goods44,800
Accounting for Finished Goods, Sales, and Cost of Goods Sold
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Accounts Receivable 74,800Sales Revenue 74,800
Cost of Goods Sold 44,800Finished Goods Inventory 44,800
To record sale of Job 51
Accounting for Finished Goods, Sales, and Cost of Goods Sold
• Assume that Job 51 was sold for $74,800.
• What are the journal entries?
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Work in Process44,800
Finished Goods 44,800 44,800
Cost of Goods Sold 44,800
Accounting for Finished Goods, Sales, and Cost of Goods Sold
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Disposing of Underallocated or Overallocated Overhead
• Suppose that the company incurred $232,000 of actual manufacturing overhead during the year, and that actual direct labor hours worked were 4,000.
• The actual manufacturing overhead rate would have been $232,000 ÷ 4,000 = $58.
• The predetermined rate was $54.
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Disposing of Underallocated or Overallocated Overhead
• How much overhead was allocated to the various jobs?
• 4,000 direct labor hours × $54 = $216,000
• What is the underallocated amount?
• $232,000 actual – $216,000 allocated = $16,000
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Manufacturing Overhead 232,000 216,000
16,000
Cost of Goods Sold16,000
0
Disposing Underallocated Overhead to Cost of Goods Sold
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Disposing Overallocated Overhead to Cost of Goods Sold
• Assume the opposite situation in which allocated overhead is $232,000 and actual overhead is $216,000.
• How do we dispose of overallocated overhead?• Debit the Manufacturing Overhead account and
credit the Cost of Goods Sold account to decrease the costs that went to the income statement.
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Manufacturing Overhead 216,000 232,000
16,000
0
Cost of Goods Sold16,000
Disposing Overallocated Overhead to Cost of Goods Sold
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Assign Noninventoriable
Costs in Job Costing.
Objective 5
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Job Costing in a Nonmanufacturing Company
• How is direct labor traced to individual jobs in a nonmanufacturing company?
• Employees complete a weekly time record.• Jim, Abby, and Associates is a firm
specializing in composing and arranging music parts for different clients.
• Musician Judy Lopez’s salary is $80,000 per year.
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80,000 ÷ 2,000 = $40
Job Costing in a Nonmanufacturing Company
• Assuming a 40-hour workweek and 50 workweeks in each year gives a total of 2,000 available working hours per year (40 hours × 50 weeks).
• What is her hourly rate?
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Advertising $ 15,000Depreciation 6,000Maintenance 12,000Office rent 60,000Office support 47,000Travel 20,000Total indirect costs $160,000
Job Costing in a Nonmanufacturing Company
• Jim and Abby estimated the indirect costs that will be incurred in 2006.
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160,000 ÷ 8,000 = $20
Job Costing in a Nonmanufacturing Company
• Assume that they estimate that the musicians will work 8,000 direct labor hours in 2006.
• What is the predetermined indirect cost rate?
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Direct Labor: 25 hours × $40 = $1,000Indirect costs: 25 hours × $20 = 500Total costs: $1,500
Job Costing in a Nonmanufacturing Company
• Records show that Judy Lopez worked 25 hours servicing Los Abuelos Music Co.
• What is the total cost assigned to this client?
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