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ACTG 3310

ACTG 3310. Chapter 7 - Job Costing. Job Costing. Must be able to identify product/service Set up each individual product/service as a “job” Jobs serve as a subsidiary ledger of Work in Process and Finished Goods Inventories (depending on whether completed or not). Job Costing.

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ACTG 3310

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  1. ACTG 3310 Chapter 7 - Job Costing

  2. Job Costing • Must be able to identify product/service • Set up each individual product/service as a “job” • Jobs serve as a subsidiary ledger of Work in Process and Finished Goods Inventories (depending on whether completed or not)

  3. Job Costing • Job Cost Sheet • Job 101A • Beginning inventory $20 • Direct materials costs(40 x $10) 400 • Direct labor costs ($10 x 20) 200 • Overhead costs 100 • (Actual or normal costing) • Total job cost $ 720

  4. Source Documents • Materials – materials requisition, sales slip • Labor – time cards • Indirect Manufacturing Costs – • Actual costing– general ledger is used to determine actual rates then actual rates used to apply indirect costs to job cost sheets • Normal costing – use predetermined rates to apply indirect costs to job cost sheets

  5. Journal Entries • Follows flow of costs • Materials Inventory - Subsidiary ledger consists of all types of materials purchased - cost and quantities • MATERIALS PURCHASE • Materials Inventory xxx • Accounts Payable xxx • DIRECT MATERIALS USAGE • Work in process Inventory xxx • Materials Inventory xxx • INDIRECT MATERIALS USAGE • Manufacturing Overhead Control xxx • Materials Inventory xxx

  6. Journal Entries • DIRECT LABOR USAGE • Work in process Inventory xxx • Wages Payable xxx • INDIRECT LABOR COSTS INCURRED • Manufacturing overhead Control xxx • Wages Payable xxx • APPLICATION OF MANU. OVERHEAD • Work in process Inventory xxx • Applied Manufacturing Overhead xxx

  7. Journal Entries • Completed jobs go to Finished Goods Inv.: • Finished Goods Inventory xxx • Work in process Inventory xxx • Sold jobs go to Cost of Goods Sold: • Cost of Goods Sold xxx • Finished Goods Inventory xxx

  8. Normal Costing -Predetermined Overhead Rates • 1) At beginning of period, set overhead rate • Budgeted overhead, $100,000, cost driver = direct labor hours, budgeted DL hours - 2500 for same time period • OH rate = $100,000/2,500 • OH rate = $40 per direct labor hour

  9. Predetermined Overhead Rates • 2) During period, apply overhead to jobs: • Job 201B - Actual direct labor hours - 20, actual machine hours - 15 • Since overhead rate was based on direct labor hours, we use ACTUAL direct labor hours to apply overhead to Job 201B • APPLIED OH = 20 x $40 = $800

  10. Predetermined Overhead Rates • 3) At end of period, compare actual to applied overhead • Actual figures: Direct materials $125,000, Direct labor $160,000, Manu. overhead $112,000, Direct labor hours 2,200, machine hours 2,000 • Overall applied overhead: 2,200 direct labor hours x $40 - $88,000

  11. Predetermined Overhead Rates • Actual overhead $112,000 • Applied overhead 88,000 • Variance 24,000 • Actual > applied = underapplied OH (too little OH assigned to jobs) • Actual < applied = overapplied OH (too much OH assigned to jobs) • For the example, OH was underapplied

  12. Predetermined Overhead Rates • Disposal of variance • 1) Adjusted application rate approach (go back and change job sheets to actual OH costs) • Best for managerial purposes • 2) Prorate between WIP, FG, and COGS accounts • Must allocate when variance is material • 3) Assign entire balance to COGS • Simplest • All costs go to COGS eventually anyway

  13. Multiple Allocation Bases • Can use different rates for different cost pools • Est.OH – activity 1Est. OH – activity 2 • Est. Machine hrs Est. Direct labor hours • = OH rate based on MH = OH rate based on DLH • More accurate costing generally using more than one rate • Departmental rates – can use different rates for each department

  14. Job Costing in Service Organizations • CPA firms • Law firms • Advertising firms • Architects and engineering firms • Computer repair shops • Very similar to manufacturers but they may use a predetermined direct labor rate

  15. Ethical Issues in Job Costing • Misstating stage of completion • Charging costs to wrong jobs • Misrepresenting the cost of jobs • Misclassifying costs in overhead cost pools resulting in too much OH being assigned to products

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