Systems Design: Job-Order costing
-
Upload
ivy-cervantes -
Category
Documents
-
view
39 -
download
1
description
Transcript of Systems Design: Job-Order costing
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Types of Costing Systems Used to Determine Product Costs
ProcessCosting
Job-orderCosting
Many different products are produced each period.
Products are manufactured to order.
Cost are traced or allocated to jobs.
Cost records must be maintained for each distinct product or job.
Chapter 4
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Types of Costing Systems Used to Determine Product Costs
ProcessCosting
Job-orderCosting
Typical job order cost applications: Special-order printing Building construction
Also used in the service industry Hospitals Law firms
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Job-Order Costing
THE JOB
Directmaterial
Direct labor
Traced directly to each job
Traced directly
to each job
Manufacturingoverhead (OH)
Applied to eachjob using a
predeterminedrate
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Sequence of Events in a Job-Order Costing System
Receive orders from customers
Schedulejobs
Ordermaterials
Begin production
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Manufacturing Overhead
Manufacturing Overhead
Job No. 1Job No. 1
Job No. 2Job No. 2
Job No. 3Job No. 3
Charge direct
material and direct labor
costs to each job as
work is performed.
Charge direct
material and direct labor
costs to each job as
work is performed.
Sequence of Events in a Job-Order Costing System
Direct MaterialsDirect Materials
Direct LaborDirect Labor
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Apply overhead to
each job using a
predeter-mined rate.
Apply overhead to
each job using a
predeter-mined rate.
Sequence of Events in a Job-Order Costing System
Direct MaterialsDirect Materials
Direct LaborDirect Labor
Job No. 1Job No. 1
Job No. 2Job No. 2
Job No. 3Job No. 3Manufacturing Overhead
Manufacturing Overhead
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Job-Order CostingDocument Flow Summary
Job Cost Sheets
MaterialsRequisition
Direct materials
Indirect materials
Manufacturing Overhead Account
Materials usedmay be either
direct orindirect.
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Job-Order CostingDocument Flow Summary
Job Cost Sheets
Employee Time Ticket
Manufacturing Overhead Account
Direct Labor
Indirect Labor
An employee’stime may be eitherdirect or indirect.
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Job-Order CostingDocument Flow Summary
EmployeeTime Ticket
Job Cost Sheets
MaterialsRequisition
OtherActual OHCharges
IndirectMaterial
IndirectLabor
AppliedOverhead
Manufacturing Overhead Account
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Estimated total manufacturingoverhead cost for the coming period
Estimated total units in theallocation base for the coming period
POHR =
The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period begins.
Application of Manufacturing Overhead
Ideally, the allocation base is a cost driver that causes overhead.
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Application of Manufacturing Overhead
Overhead applied = POHR × Actual activity
Actual amount of the cost driver such as units produced, direct labor hours, or machine hours.
Incurred during the period.
Based on estimates, and determined before the
period begins.
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
The Need for a Predetermined Manufacturing Overhead Rate
Using a predetermined rate makes itpossible to estimate total job costs sooner.
Actual overhead for the period is notknown until the end of the period.
$$
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
PearCo applies overhead based on direct labor hours. Total estimated overhead
for the year is $640,000. Total estimated labor cost is $1,400,000 and total
estimated labor hours are 160,000.
What is PearCo’s predetermined overhead rate per hour?
Overhead Application Example
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Overhead Application Example
PearCo’s actual overhead for the year was $650,000 for a total of 170,000 direct labor hours.
How much total overhead was applied to PearCo’s jobs during the year? Use PearCo’s predetermined
overhead rate of $4.00 per direct labor hour.
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Application of Manufacturing Overhead
Overhead applied = $4 per DLH × 8 DLH = $32
Overhead applied = POHR × Actual activity
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Raw MaterialsMaterial
Purchases
Direct Materials
Direct Materials
Mfg. Overhead
Indirect Materials
Job-Order System Cost FlowsWork in Process(Job Cost Sheet)
Indirect Materials
Actual Applied
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Job-Order System Cost Flows
Direct Labor
Mfg. Overhead
Salaries and Wages Payable
Work in Process(Job Cost Sheet)
Direct
Materials
OverheadApplied to
Work inProcess
IndirectLabor
Direct Labor
Overhead Applied
IndirectLabor
Indirect Materials
Actual AppliedIf actual and applied
manufacturing overheadare not equal, a year-end adjustment is required.
If actual and applied manufacturing overheadare not equal, a year-end adjustment is required.
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Cost ofGoodsMfd.
Finished Goods
Cost ofGoodsSold
Cost ofGoodsMfd.
Cost of Goods Sold
Cost ofGoodsSold
Job-Order System Cost FlowsWork in Process(Job Cost Sheet)
Direct
MaterialsDirect Labor
Overhead Applied
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
SOLUTIONApplied Overhead = POHR × Actual Direct Labor Hours
Applied Overhead = $4.00 per DLH × 170,000 DLH = $680,000
PearCo’s actual overhead for the year was $650,000 for a total of 170,000 direct labor hours.
How much total overhead was applied to PearCo’s jobs during the year? Use PearCo’s predetermined
overhead rate of $4.00 per direct labor hour,
Overhead Application Example
PearCo has overappliedoverhead for the yearby $30,000. What will
PearCo do?
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Work inProcess
FinishedGoods
Cost of Goods Sold
$30,000may be allocated
to these accounts.
$30,000 may beclosed directly to
cost of goods sold.
Cost of Goods Sold
Overapplied and Underapplied Manufacturing Overhead
PearCo’s Method
OR
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Overapplied and Underapplied Manufacturing Overhead
PearCo’sMfg. Overhead
Actualoverhead
costs
$650,000$30,000
overapplied
PearCo’s Costof Goods Sold
Unadjusted Balance
$30,000
$30,000
AdjustedBalance
OverheadAppliedto jobs
$680,000
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Overapplied and Underapplied Manufacturing Overhead - Summary
Alternative 1 Alternative 2If Manufacturing Close to Cost Overhead is . . . of Goods Sold Allocation
UNDERAPPLIED INCREASE INCREASECost of Goods Sold Work in Process
(Applied OH is less Finished Goodsthan actual OH) Cost of Goods Sold
OVERAPPLIED DECREASE DECREASECost of Goods Sold Work in Process
(Applied OH is greater Finished Goodsthan actual OH) Cost of Goods Sold
PearCo’s Method
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Tiger, Inc. had actual manufacturing overhead costs of $1,210,000 and a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. worked 290,000 machine hours during the period. Tiger’s manufacturing overhead is
a. $50,000 overapplied.
b. $50,000 underapplied.
c. $60,000 overapplied.
d. $60,000 underapplied.
Tiger, Inc. had actual manufacturing overhead costs of $1,210,000 and a predetermined overhead rate of $4.00 per machine hour. Tiger, Inc. worked 290,000 machine hours during the period. Tiger’s manufacturing overhead is
a. $50,000 overapplied.
b. $50,000 underapplied.
c. $60,000 overapplied.
d. $60,000 underapplied.
Overhead Application Question 1
© The McGraw-Hill Companies, Inc., 2000Irwin/McGraw-Hill
Assume that Tiger’s overhead was $60,000 underapplied. This amount would result in an adjustment that would decrease cost of goods sold by $60,000.
a. True
b. False
Assume that Tiger’s overhead was $60,000 underapplied. This amount would result in an adjustment that would decrease cost of goods sold by $60,000.
a. True
b. False
Overhead Application Question 2