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Job Costing

Job Costing. Product and service cost determination. Planning, Cost Control, and performance evaluation. Strategic and operational decision making. Product Costing.

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Job Costing

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  1. Job Costing

  2. Product and servicecost determination Planning,Cost Control,and performanceevaluation Strategic andoperational decisionmaking Product Costing Product costing is the process of accumulating,classifying, and assigning direct materials,direct labor, and factory overhead to products or services.

  3. Product Costing Process costing accumulates costs by process or department and then assigns them to a large number of nearly identical products. Job costing accumulates and assigns costs to a specific job.

  4. Cost Measurement Systems

  5. Job Costing • Printing shops • Ship-builders • Custom furniture manufacturers • Contractors • Film-producing companies • Accounting and law firms • Advertising agencies • Medical clinics

  6. Process Costing • Chemical plants • Food processors • Household appliancemanufacturers • Textile companies • Petroleum productsmanufacturers • Paper • Lumber and pulp mills • Glass factories

  7. Comparison of Joband Process Costing • Costs are accumulated by process or department. • Mass production of homogeneous products or services. • Unit cost computed by dividing total process costs of the period by units produced or served. Job Costing Process Costing • Cost are accumulated by jobs. • Wide variety of products or services. • Unit cost computed by dividing total job costs by units produced or served at end of the job.

  8. Job Costing Factory overhead(OH) is applied to each job using apredetermined rate. Directmaterials Traced directly to each job THE JOB Traced directly to each job Direct labor

  9. Job Costing Charge direct material costs to each job as the materials are used. Direct Materials Job No. 1 Direct Labor Job No. 2 Factory Overhead Job No. 3

  10. Job Costing Direct Materials Charge direct labor costs to each job as the work is performed. Job No. 1 Direct Labor Job No. 2 Factory Overhead Job No. 3

  11. Job Costing Direct Materials Apply overhead to each job using a predeter-mined rate. Job No. 1 Direct Labor Job No. 2 Factory Overhead Job No. 3

  12. Job Costing Direct Materials Job No. 1 Special documents are used to track costs for each job. Direct Labor Job No. 2 Factory Overhead Job No. 3

  13. Job Costing The primary document for tracking the costs associated with a given job is the job cost sheet. Let’s investigate

  14. Smith Job Shop Job-Cost Sheet Product RobotJob #351 Date Started June 6, 2001 Quantity 20 Date Completed July 15, 2001 Unit Cost $3.761 Direct Materials Requisition Dept. Date Number Quantity Unit Price Cost A 6/6 A-4024 20 $75.00 $1,500 B 6/26 B-3105 15 26.67 400 C 7/2 C-5051 10 30.00 300 Total $2,200 Job Cost Sheet - Direct Materials

  15. Smith Job Shop Job-Cost Sheet Product RobotJob #351 Date Started June 6, 2001 Quantity 20 Date Completed July 15, 2001 Unit Cost $3.761 A materials requisitionform is the source document used to authorize the use of materials on a job. Direct Materials Requisition Dept. Date Number Quantity Unit Price Cost A 6/6 A-4024 20 $75.00 $1,500 B 6/26 B-3105 15 26.67 400 C 7/2 C-5051 10 30.00 300 Total $2,200 Job Cost Sheet - Direct Materials

  16. Job Cost Sheet - Direct Labor Direct Labor Dept. Date Hours Rate Ticket Amount A 6/6 to A-1101 to 6/25 100 $10 A-1150 $1,000 B 6/26 to B-308 to 6/30 60 15 B-320 900 C 7/1 to C-500 to 7/15 140 12 C-515 1,680 Total $3,580

  17. Accumulate direct labor costs by means of a work record, such as a time ticket, for each employee. Job Cost Sheet - Direct Labor Direct Labor Dept. Date Hours Rate Ticket Amount A 6/6 to A-1101 to 6/25 100 $10 A-1150 $1,000 B 6/26 to B-308 to 6/30 60 15 B-320 900 C 7/1 to C-500 to 7/15 140 12 C-515 1,680 Total $3,580

  18. Job Cost Sheet - Factory Overhead Factory Overhead Machine Application Dept. Hours Rate Amount A 50 $10.00 $500 B 60 6.70 402 C 35 24.00 840 Total $1,742 Direct materials $2,200 Department A $3,000 Direct labor 3,580 Department B 1,702 Overhead 1,742 Department C 2,820 Total$7,522 Total $7,522

  19. Job Cost Sheet - Factory Overhead Applyfactory overheadto jobs using a predetermined overhead rate. Factory Overhead Machine Application Dept. Hours Rate Amount A 50 $10.00 $500 B 60 6.70 402 C 35 24.00 840 Total $1,742 Direct materials $2,200 Department A $3,000 Direct labor 3,580 Department B 1,702 Overhead 1,742 Department C 2,820 Total$7,522 Total $7,522

  20. Use of PredeterminedFactory Overhead Predetermined overhead rates are established using a four-step approach: • Determine the budgeted factory overhead costs for the period. • Select the appropriate cost driver(s). • Estimate the total amount of the chosen cost driver(s) for the period. • Compute the predetermined overhead rate by dividing the results of step 1 by the results of step 3.

  21. Budgeted factory overheadamount for the year POHR = Expected level of costdriver for the year Use of PredeterminedFactory Overhead The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period begins. 1. direct labor hours 2. machine hours 3. number of set-ups 4. number of orders 5. manufacturing cycle time

  22. Budgeted factory overheadamount for the year POHR = Expected level of costdriver for the year Based on estimates, and determined before the period begins Actualamount of the allocation base, such as direct labor hours, incurred during the period Use of PredeterminedFactory Overhead The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period begins. Overhead applied = POHR × Actual activity

  23. $ Use of PredeterminedFactory Overhead 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.

  24. Overhead Application Example Champion, Inc. applies overhead based on machine hours. Total estimated overhead for the year is $640,000. Total estimated machine hours are 160,000.What is Champion’s predeterminedoverhead rate?

  25. Budgeted factory overheadamount for the year POHR = $640,000 Expected level of costdriver for the year POHR = 160,000 machine hours (MH) POHR = $4.00 per MH Overhead Application Example For each machine hour worked on a job, $4.00 of factory overhead will be applied to the job.

  26. Job CostingDocument Flow Summary The materials requisition indicates the cost of direct materialsto charge tojobsand the cost of indirect materials to charge to overhead. Direct materials Job Cost Sheets Job Cost Sheets Job Cost Sheets Job Cost Sheets Materials Ledger Cards Materials Ledger Cards Materials Ledger Cards MaterialsRequisition Factory Overhead Account Indirect materials

  27. Job CostingDocument Flow Summary Direct Labor Employee time tickets indicate the cost of direct laborto charge tojobsand the costof indirect labor to charge to overhead. Job Cost Sheets Job Cost Sheets Job Cost Sheets Job Cost Sheets Employee Time Ticket Employee Time Ticket Employee Time Ticket Employee Time Ticket Factory Overhead Account Indirect Labor

  28. Job CostingDocument Flow Summary IndirectLabor EmployeeTime Ticket OtherActual OHCharges Factory Overhead Account AppliedOverhead Job Cost Sheets MaterialsRequisition IndirectMaterials

  29. Job Cost Flows Let’s examine the cost flows in a job costing system. We will useT-accountsand start with materials.

  30. Direct Materials • Direct Materials • Indirect Materials • Indirect Materials Job Cost Flows Materials Inventory Work-in-ProcessInventory(Job Cost Sheet) • Material • Purchases Factory Overhead

  31. Job Cost Flows Next let’s add labor costs and applied factory overhead to the job cost flows. Are you with me?

  32. Direct Labor • Indirect Labor • Direct Labor • Overhead Applied • OverheadApplied to Work inProcess • Indirect Labor Job Cost Flows Work-in-ProcessInventory(Job Cost Sheet) Accrued Payroll • Direct Materials Factory Overhead If actual and applied factory overhead are not equal, a year-end adjustment is required. We will look at the procedure to accomplish this later. • Indirect Materials

  33. Job Cost Flows Now let’s complete the goods and sell them. Still with me?

  34. Cost ofGoodsSold • Cost ofGoodsMfd. • Cost ofGoodsMfd. • Cost ofGoodsSold Job Cost Flows Finished GoodsInventory Work-in-ProcessInventory(Job Cost Sheet) • Direct Materials • Direct Labor • Overhead Applied Cost of Goods Sold

  35. Job Cost Flows Let’s return to Champion, Inc. and see what we will do if actual and applied overhead are not equal.

  36. Underapplied and Overapplied Factory Overhead Champion’s actual overhead for the year was $650,000 and a total of 170,000 machinehours were worked. Using Champion’s predetermined overhead rate of $4.00 per machine hour, how much overhead was appliedto all of Champion’s jobs during the year?

  37. $640,000 POHR = 160,000 machine hours (MH) POHR = $4.00 per MH Underapplied and Overapplied Factory Overhead Champion’s actual overhead for the year was $650,000 and a total of 170,000 machinehours were worked. Using Champion’s predetermined overhead rate of $4.00 per machine hour, how much overhead was appliedto all of Champion’s jobs during the year? Remember:

  38. Underapplied and Overapplied Factory Overhead Champion’s actual overhead for the year was $650,000 and a total of 170,000 machinehours were worked. Using Champion’s predetermined overhead rate of $4.00 per machine hour, how much overhead was appliedto all of Champion’s jobs during the year? SOLUTION Applied Overhead = POHR × Actual Machine Hours Applied Overhead = $4.00 per MH × 170,000 MH = $680,000

  39. Underapplied and Overapplied Factory Overhead Champion’s actual overhead for the year was $650,000 and a total of 170,000 machinehours were worked. Using Champion’s predetermined overhead rate of $4.00 per machine hour, how much overhead was appliedto all of Champion’s jobs during the year? Champion has overappliedoverhead for the yearby $30,000. What willChampion do? SOLUTION Applied Overhead = POHR × Actual Machine Hours Applied Overhead = $4.00 per MH × 170,000 MH = $680,000

  40. $30,000may be allocatedto these accounts. $30,000 may beassigned directly to cost of goods sold. OR Work inProcess FinishedGoods Cost of Goods Sold Cost of Goods Sold Champion’s Method Underapplied and Overapplied Factory Overhead

  41. $30,000 $30,000 AdjustedBalance Underapplied and Overapplied Factory Overhead Champion’sFactory Overhead Champion’s Costof Goods Sold Unadjusted Balance Actualoverheadcosts $650,000 OverheadAppliedto jobs $680,000 $30,000 overapplied

  42. Underapplied and Overapplied Factory Overhead

  43. Underapplied and Overapplied Factory Overhead Tiger, Inc. had actual factory 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 factory overhead is a. $50,000 overapplied. b. $50,000 underapplied. c. $60,000 overapplied. d. $60,000 underapplied.

  44. Underapplied and Overapplied Factory Overhead Tiger, Inc. had actual factory 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 factory overhead is a. $50,000 overapplied. b. $50,000 underapplied. c. $60,000 overapplied. d. $60,000 underapplied. Overhead Applied $4.00 per hour × 290,000 hours = $1,160,000 Underapplied Overhead $1,210,000 - $1,160,000 = $50,000

  45. Underapplied and Overapplied Factory Overhead 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

  46. Underapplied and Overapplied Factory Overhead 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 If overhead is underapplied, cost of goods sold is understated. The adjustment will increase cost of goods sold.

  47. Schedule of Cost of Goods Manufactured and Sold Now, let’s look ata schedule ofcost of goodsmanufacturedand sold.

  48. Exh. 19-16 Schedule of Cost of Goods Manufactured and Sold Continued

  49. Manufacturing Statement Continued

  50. Schedule of Cost of Goods Manufactured and Sold

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