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Job Order Costing

Job Order Costing. KHALID AZIZ 0322-3385752 CLASSES ICMAP STAGE 1,2,3 PIPFA INTERMEDIATE MA-ECONOMICS JOIN NOW. Describe the building-block concepts of costing systems. Learning Objective 1. KHALID AZIZ 0322-3385752. Building-Block Concepts of Costing Systems. Cost object. Direct costs

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Job Order Costing

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  1. Job Order Costing KHALID AZIZ 0322-3385752 CLASSES ICMAP STAGE 1,2,3 PIPFA INTERMEDIATE MA-ECONOMICS JOIN NOW

  2. Describe the building-block concepts of costing systems. Learning Objective 1 KHALID AZIZ 0322-3385752

  3. Building-Block Conceptsof Costing Systems Cost object Direct costs of a cost object Indirect costs of a cost object KHALID AZIZ 0322-3385752

  4. Building-Block Conceptsof Costing Systems Cost Assignment Direct Costs Cost Object Cost Tracing Indirect Costs Cost Allocation KHALID AZIZ 0322-3385752

  5. Building-Block Conceptsof Costing Systems Cost pool Cost allocation base KHALID AZIZ 0322-3385752

  6. Distinguish between job costing and process costing. Learning Objective 2 KHALID AZIZ 0322-3385752

  7. Job-Costing andProcess-Costing Systems Job-costing system Process-costing system Distinct units of a product or service Masses of identical or similar units of a product or service KHALID AZIZ 0322-3385752

  8. Outline a seven-step approach to job costing. Learning Objective 3 KHALID AZIZ 0322-3385752

  9. Seven-Step Approachto Job Costing Step 1: Identify the chosen cost object. Step 2: Identify the direct costs of the job. Step 3: Select the cost-allocation bases. Step 4: Identify the indirect costs. KHALID AZIZ 0322-3385752

  10. Seven-Step Approachto Job Costing Step 5: Compute the rate per unit. Step 6: Compute the indirect costs. Step 7: Compute the total cost of the job. KHALID AZIZ 0322-3385752

  11. General Approach to Job Costing A manufacturing company is planning to sell a batch of 25 special machines (Job 650) to a retailer for Rs114,800. Step 1: The cost object is Job 650. Step 2: Direct costs are: Direct materials = Rs50,000 Direct manufacturing labor = Rs19,000 KHALID AZIZ 0322-3385752

  12. General Approach to Job Costing Step 3: The cost allocation base is machine-hours. Job 650 used 500 machine-hours. 2,480 machine-hours were used by all jobs. Step 4: Manufacturing overhead costs were Rs65,100. KHALID AZIZ 0322-3385752

  13. General Approach to Job Costing Step 5: Actual indirect cost rate is Rs65,100 ÷ 2,480 = Rs26.25 per machine-hour. Step 6: Rs26.25 per machine-hour × 500 hours = Rs13,125 KHALID AZIZ 0322-3385752

  14. General Approach to Job Costing Step 7: Direct materials Rs50,000 Direct labor 19,000 Factory overhead 13,125 Total Rs82,125 KHALID AZIZ 0322-3385752

  15. General Approach to Job Costing What is the gross margin of this job? Revenues Rs114,800 Cost of goods sold 82,125 Gross margin Rs 32,675 What is thegross margin percentage? Rs32,675 ÷ Rs114,800 = 28.5% KHALID AZIZ 0322-3385752

  16. Source Documents Job cost record Materials requisition record Labor time record KHALID AZIZ 0322-3385752

  17. Distinguish actual costing from normal costing. Learning Objective 4 KHALID AZIZ 0322-3385752

  18. Costing Systems Actual costing is a system that uses actual costs to determine the cost of individual jobs. It allocates indirect costs based on the actual indirect-cost rate(s) times the actual quantity of the cost-allocation base(s). KHALID AZIZ 0322-3385752

  19. Costing Systems Normal costing is a method that allocates indirect costs based on the budgeted indirect-cost rate(s) times the actual quantity of the cost allocation base(s). KHALID AZIZ 0322-3385752

  20. Normal Costing Assume that the manufacturing company budgets $60,000 for total manufacturing overhead costs and 2,400 machine-hours. What is the budgeted indirect-cost rate? Rs60,000 ÷ 2,400 = Rs25 per hour How much indirect cost was allocated to Job 650? 500 machine-hours × Rs25 = Rs12,500 KHALID AZIZ 0322-3385752

  21. Normal Costing What is the cost of Job 650 under normal costing? Direct materials Rs50,000 Direct labor 19,000 Factory overhead 12,500 Total Rs81,500 KHALID AZIZ 0322-3385752

  22. Track the flow of costs in a job-costing system. Learning Objective 5 KHALID AZIZ 0322-3385752

  23. Transactions Purchase of materials and other manufacturing inputs Conversion into work in process inventory Conversion into finished goods inventory Sale of finished goods KHALID AZIZ 0322-3385752

  24. Transactions Rs80,000 worth of materials (direct and indirect) were purchased on credit. Materials Control Accounts Payable Control 1. 80,000 1. 80,000 KHALID AZIZ 0322-3385752

  25. Transactions Materials costing Rs75,000 were sent to the manufacturing plant floor. Rs50,000 were issued to Job No. 650 and Rs10,000 to Job 651. Rs15,000 of indirect materials were issued. What is the journal entry? KHALID AZIZ 0322-3385752

  26. Transactions Work in Process Control: Job No. 650 50,000 Job No. 651 10,000 Factory Overhead Control 15,000 Materials Control 75,000 KHALID AZIZ 0322-3385752

  27. Transactions Materials Control 1. 80,000 2. 75,000 Work in Process Control 2. 60,000 Manufacturing Overhead Control 2. 15,000 Job 650 2. 50,000 KHALID AZIZ 0322-3385752

  28. Transactions Total manufacturing payroll for the period was Rs27,000. Job No. 650 incurred direct labor costs of Rs19,000 and Job No. 651 incurred direct labor costs of Rs3,000. Rs5,000 of indirect labor was also incurred. What is the journal entry? KHALID AZIZ 0322-3385752

  29. Transactions Work in Process Control: Job No. 650 19,000 Job No. 651 3,000 Manufacturing Overhead Control 5,000 Wages Payable 27,000 KHALID AZIZ 0322-3385752

  30. Transactions Wages Payable Control 3. 27,000 Work in Process Control 2. 60,000 3. 22,000 Manufacturing Overhead Control 2. 15,000 3. 5,000 Job 650 2. 50,000 3. 19,000 KHALID AZIZ 0322-3385752

  31. Transactions Wages payable were paid. Wages Payable Control 27,000 Cash Control 27,000 Wages Payable Control Cash Control 4. 27,000 3. 27,000 4. 27,000 KHALID AZIZ 0322-3385752

  32. Transactions Assume that depreciation for the period is Rs26,000. Other manufacturing overhead incurred amounted to Rs19,100. What is the journal entry? KHALID AZIZ 0322-3385752

  33. Transactions Manufacturing Overhead Control 45,100 Accumulated Depreciation Control 26,000 Various Accounts 19,100 What is the balance of the Manufacturing Overhead Control account? KHALID AZIZ 0322-3385752

  34. Transactions Rs62,000 of overhead was allocated to the various jobs of which Rs12,500 went to Job 650. Work in Process Control 62,000 Manufacturing Overhead Control 62,000 What are the balances of the control accounts? KHALID AZIZ 0322-3385752

  35. Transactions Manufacturing Overhead Control Work in Process Control 2. 60,000 3. 22,000 6. 62,000 Bal. 144,000 2. 15,000 3. 5,000 5. 45,100 Bal. 3,100 6. 62,000 KHALID AZIZ 0322-3385752

  36. Transactions The cost of Job 650 is: Job 650 2. 50,000 3. 19,000 6. 12,500 Bal. 81,500 KHALID AZIZ 0322-3385752

  37. Transactions Jobs costing Rs104,000 were completed and transferred to finished goods, including Job 650. What effect does this have on the control accounts? KHALID AZIZ 0322-3385752

  38. Transactions Work in Process Control Finished Goods Control 7. 104,000 2. 60,000 3. 22,000 6. 62,000 Bal. 40,000 7. 104,000 KHALID AZIZ 0322-3385752

  39. Transactions Job 650 was sold for Rs114,800. What is the journal entry? Accounts Receivable Control 114,800 Revenues 114,800 Cost of Goods Sold 81,500 Finished Goods Control 81,500 KHALID AZIZ 0322-3385752

  40. Transactions What is the balance in the Finished Goods Control account? Rs104,000 – Rs81,500 = Rs22,500 Assume that marketing and administrative salaries were Rs9,000 and Rs10,000. What is the journal entry? KHALID AZIZ 0322-3385752

  41. Transactions Marketing and Administrative Costs 19,000 Salaries Payable Control 19,000 KHALID AZIZ 0322-3385752

  42. Transactions Direct Materials Used Rs60,000 + Direct Labor and Overhead Rs84,000 – Cost of Goods Manufactured Rs104,000 = Ending WIP Inventory Rs40,000 KHALID AZIZ 0322-3385752

  43. Transactions Cost of Goods Manufactured Rs104,000 – Ending Finished Goods Inventory Rs22,500 = Cost of Goods Sold Rs81,500 KHALID AZIZ 0322-3385752

  44. Account for end-of-period underallocated or overallocated indirect costs using alternative methods. Learning Objective 6 KHALID AZIZ 0322-3385752

  45. End-Of-Period Adjustments Manufacturing Overhead Control Manufacturing Overhead Applied Bal. 65,100 Bal. 62,000 Underallocated indirect costs Overallocated indirect costs KHALID AZIZ 0322-3385752

  46. End-Of-Period Adjustments How was the allocated overhead determined? 2,480 machine-hours × Rs25 budgeted rate = Rs62,000 Rs65,100 – Rs62,000 =Rs$3,100 (underallocated) KHALID AZIZ 0322-3385752

  47. End-Of-Period Adjustments Actual manufacturing overhead costs of Rs65,100 are more than the budgeted amount of Rs60,000. Actual machine-hours of 2,480 are more than the budgeted amount of 2,400 hours. KHALID AZIZ 0322-3385752

  48. End-Of-Period Adjustments Approaches to disposing underallocated or overallocated overhead: 1. Adjusted allocation rate approach 2. Proration approaches 3. Immediate write-off to Cost of Goods Sold approach KHALID AZIZ 0322-3385752

  49. Adjusted AllocationRate Approach Actual manufacturing overhead (Rs65,100) exceeds manufacturing overhead allocated (Rs62,000) by 5%. 3,100 ÷ 62,000 = 5% Actual manufacturing overhead rate is Rs26.25 per machine-hour (Rs65,100 ÷ 2,480) rather than the budgeted Rs25.00. KHALID AZIZ 0322-3385752

  50. Adjusted AllocationRate Approach The manufacturing company could increase the manufacturing overhead allocated to each job by 5%. Manufacturing overhead allocated to Job 650 under normal costing is Rs12,500. Rs12,500 × 5% = Rs625 Rs12,500 + Rs625 = Rs13,125, which equals actual manufacturing overhead. KHALID AZIZ 0322-3385752

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