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Job Costing. Chapter 6. 1. Explain what job and job shop mean. 2. Assign costs in a job cost system. Account for overhead using predetermined rates. Apply job costing methods in service organizations. Describe the difference between jobs and projects. Learning Objectives. Job Costing.
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Job Costing Chapter 6
1. Explain what job and job shop mean. 2. Assign costs in a job cost system. • Account for overhead using predetermined rates. • Apply job costing methods in service organizations. • Describe the difference between jobs and projects. Learning Objectives
Job Costing L.O. 1 Explain what a job and job shop mean. Job Cost object that can be distinguished easily and for which a cost is desired Job shop Firm that produces jobs Job cost sheet Record of the cost of the job kept in the accounting system
Job Costing Continued Subsidiary ledger account Account that records financial transactions for a specific job Job 1 WIP Job 2 WIP Job 3 WIP Controlaccount Account in the general ledger that summarizes a set of subsidiary ledger accounts Work-In-Process
Room With a View Job Cost Sheet La Cresta May 15, 200X Subdivision Date Initiated Date Completed 10 Lot Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount Date Number Balance Cost Summary Direct Materials Direct Labor Manufacturing Overhead Total Cost The Cost of A Job L.O. 2 Assign costs in a job cost system. Suppose Room With a View (RWV) builds custom homes.
The Cost of A Job Continued Materials Work-In-Process Lot 10 Direct Materials Total WIP Lot 12 Raw Materials Lot 14 Indirect Materials Overhead
The Cost of A Job Continued Labor Work-In-Process Lot 10 Direct Labor Total WIP Lot 12 Labor Lot 14 Indirect Labor Overhead
The Cost of A Job Continued Overhead Work-In-Process Lot 10 Overhead Total WIP Lot 12 Lot 14 OH costs applied to each job using the POHR.
Recording OH L.O. 3 Account for overhead using predetermined rates. RWV Predetermined Overhead Rate (POHR) Estimated overhead $ Estimated allocation base Direct Material Costs $900,000 .75/DM$ $1,200,000
RWV’s Job Cost System During June RWV worked on three homes, Lot 10, 12 and 14. On June 1 RWV had one home, Lot 10, in process with costs of $255,000. Let’s record June activities for RWV. WIP Lot 10 6/1 255,000
Room With a View RWV purchased $100,000 of Raw Materials on account. RM Inventory Accounts Payable 100,000 100,000
Room With a View Used $10,000 materials for Lot 10. Started Lots 12 and 14 and used $40,000 and $30,000 respectively. Used $20,000 indirect materials. Raw Materials 100,000 WIP Lot 10 WIP Lot 12 WIP Lot 14 Overhead 10,000 40,000 30,000 20,000
Room With a View Incurred labor of $62,000. $10,000 for Lot 10, $30,000 Lot 12, $20,000 Lot 14 and $2,000 indirect labor. WIP Lot 10 WIP Lot 12 WIP Lot 14 10,000 30,000 20,000 Overhead Wages Payable 2,000 62,000
Room With a View Recorded depreciation of $30,000 and incurred other indirect costs of $15,000 on account. Accumulated Depreciation Accounts Payable Overhead 30,000 15,000 45,000
Room With a View Applied overhead for June based on the POHR. .75/DM$ WIP Lot 10 WIP Lot 12 WIP Lot 14 Overhead 60,000 7,500 30,000 22,500
Room With a View Sold Lot 10 for $550,000. Cash Sales Revenue Record sale 550,000 550,000 Record COGS COGS WIP Lot 10 282,500 255,000 282,500 10,000 10,000 7,500
Room With a View At June 30 Lot 12 is completed but not sold. WIP Lot 12 FG Lot 12 40,000 100,000 100,000 30,000 30,000
Room With a View Accounts at June 30 COGS Finished Goods WIP 282,500 100,000 72,500 Lot 12 Lot 14 Lot 10
Over and Under Applied Overhead Underapplied Overhead The excess of actual overhead costs incurred over applied overhead costs Overapplied Overhead The excess of applied overhead costs over actual overhead costs incurred
Ending Balance in MOH Accounts Not a balance sheet account Ending balance must be ZERO Ø Overhead 20,000 60,000 2,000 45,000 MOH underapplied $7,000 67,000 60,000
Ending Balance in MOH Accounts Charge underapplied overhead to cost of good sold. Overhead COGS 20,000 60,000 7,000 2,000 7,000 45,000
Room With a View Accounts at June 30 % of total Costs COGS $282,500 62.1% Finished Goods 100,000 22.0% WIP 72,500 15.9% Total $455,000 100%
Ending Balance in MOH Accounts Allocate underapplied overhead to finished goods, cost of good sold and WIP. COGS Finished Goods WIP 282,500 100,000 72,500 4,347a 1,540b 1,113c Overhead 20,000 60,000 2,000 7,000 a 7,000 x .621 40,000 b 7,000 x .220 c 7,000 x .159
Ending Balance in MOH Accounts Not a balance sheet account Ø Ending balance must be ZERO Overhead 20,000 60,000 2,000 7,000 45,000 Ending balance equals zero 67,000 67,000
Normal, Actual and Standard Costing Normal Cost of job determined by actual directmaterial, actual direct labor and applied overhead using the POHR and the actual allocation base. Actual Cost of job determined by actual directmaterial, actual direct labor and applied overhead using actual overheadrate and the actual allocation base. Standard Cost of job determined by standard (budgeted) direct material, standard direct labor and applied overhead using the POHR and a standard (budgeted) allocation base.
Service Organization L.O. 4 Apply job costing methods in service organizations. Job Client WIP Client A Direct Labor Total WIP Client B Client C Labor Indirect Labor Overhead
Managing Projects L.O. 5 Describe the difference between jobs and projects. Job Cost object that can be distinguished easily and for which a cost is desired Project Complex job that spans several periods and requires the work of many different departments, divisions, or subcontractors
Managing Projects Example Road Construction Project A WIP Project B WIP Project C WIP One job; several projects.
Chapter 6 The End