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ACC3200. Job Order Costing. Learning Objectives. Describe the key differences between job order costing and process costing. Describe the source documents used to track direct material and indirect labor costs to the job cost sheet.
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ACC3200 Job Order Costing
Learning Objectives • Describe the key differences between job order costing and process costing. • Describe the source documents used to track direct material and indirect labor costs to the job cost sheet. • Calculate a predetermined overhead rate and use it to apply manufacturing overhead cost to jobs. • Describe how costs flow through the accounting system in job order costing. • Calculate the cost of goods manufactured and cost of goods sold.
2-3 Job Order versus Process Costing
2-4 Process Costing AverageUnitCost = Costs are traced to the process and then divided by units produced to obtain an average unit cost.
2-5 Manufacturing Cost Categories
2-6 Assignment of Manufacturing Costs to Jobs
2-7 Materials Requisition Form
2-8 Direct Labor Time Tickets
2-9 Job Cost Sheet
2-10 Predetermined Overhead Rates Manufacturing overhead is applied to jobs that are in process. An allocation base, such as direct labor hours, direct labor dollars, or machine hours, is used to assign manufacturing overhead to individual jobs. • We use an allocation base to apply manufacturing overhead because: • It is impossible or difficult to trace overhead costs to particular jobs.
The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period begins using estimates. 2-11 Predetermined Overhead Rates PredeterminedOverhead Rate = Ideally, the allocation base is a cost driver that causes overhead.
Because home building is a labor intensive business, Toll Brothers uses direct labor hours as the overhead allocation base. Toll Brothers estimates the total manufacturing overhead cost for the year to be $750,000, while direct labor hours are estimated to be 10,000. What is Toll Brothers predetermined overhead rate? 2-12 POHR = Predetermined Overhead Rates POHR = For each direct labor hour worked on a job, $75.00 of manufacturing overhead will be applied to the job.
2-13 Predetermined Overhead Rates Based onestimates, and determined before the period begins. Actual Value of theAllocation Base forEach Job Overhead Appliedto an Individual Job PredeterminedOverheadRate = × Actualamount of thecost driversuch as units produced, direct labor hours, or machine hours incurred during the period.
2-14 Predetermined Overhead Rates OverheadAppliedto Job #2719 PredeterminedOverheadRate Actual Direct Labor Hours for Job #2719 = ×
2-15 Predetermined Overhead Rates
2-16 Recording the Flow of Costs in Job Order Costing
2-17 Recording the Purchase and Issue of Materials Toll Brothers purchased $150,000 in raw materials on account. Toll Brothers withdraws $150,000 worth of materials from inventory, $100,000 for Job #2719 (Simpson home), $40,000 for Job #3335 (Flintstone Home) and $10,000 for supplies.
2-18 Recording Labor Costs Toll Brothers incurs $55,000 in labor costs, $30,000 for Job #2719 (Simpson home), $20,000 for Job #3335 (Flintstone Home) and $5,000 for indirect labor.
2-19 Recording Actual Manufacturing Overhead • In addition to indirect materials and indirect labor, Toll Brothers incurs other manufacturing overhead costs including: • Salary paid to construction site supervisor, $12,000. • Salary owed to a construction engineer, $8,000. • Property taxes owed but not yet paid, $6,000. • Expired insurance premium for construction, $4,000. • Depreciation on construction equipment, $18,000.
2-20 Recording Applied Manufacturing Overhead Toll Brothers applies manufacturing overhead to jobs using a predetermined overhead rate of $75 per direct labor hour. Time tickets for the month show a total of 800 direct labor hours, 600 hours for Job #2719 (Simpson home) and 200 hours for Job #3335 (Flintstone Home).
2-21 Recording Actual and Applied Manufacturing Overhead Actual Applied MOH MOH / = The difference is closed to cost of goods sold.
2-22 Transferring Costs to Finished Goods Inventory and Cost of Goods Sold Summary section of job cost sheet for Job #2719 after all costs are updated.
2-23 Transferring Costs to Finished Goods Inventory and Cost of Goods Sold Assume Job 3719, the Simpson home was sold.
2-24 Recording Nonmanufacturing Costs In addition to manufacturing costs, Toll Brothersincurs non-manufacturing overhead costs. Commissions to sales agent, $20,000. Advertising expense, $5,000. Depreciation on office equipment, $6,000. Other selling and administrative expenses, $4,000. These non-manufacturing costs would be recorded in individual expense accounts, including commission expense, advertising expense, depreciation expense, and other expenses. The total of the selling and administrative expense would be subtracted from gross margin on the income statement.
2-25 Calculating Overapplied andUnderapplied Overhead
2-26 Disposing of Overapplied and Underapplied Overhead The most common method for disposing of the balance in Manufacturing Overhead is to make a direct adjustment to Cost of Goods Sold. DecreasesCost of Goods Sold OverappliedManufacturingOverhead(credit balance) IncreasesCost of Goods Sold UnderappliedManufacturingOverhead(debit balance)
2-27 Summary of Recorded Manufacturing and Nonmanufacturing Costs
2-28 Cost of Goods Manufactured Report
2-29 Cost of Goods Manufactured Report
Supplement Journal Entries for Job Order Costing
2-31 Recording the Purchase and Issue of Materials Toll Brothers purchased $150,000 of raw materials on account. The company issued $100,000 of raw materials to Job 2719 and $40,000 to Job 3335. Indirect material of $10,000 were issued.
2-32 Recording Labor Costs The following labor costs were incurred during the period.
2-33 Recording Actual Manufacturing Overhead The following overhead costs were incurred during the period.
2-34 Recording Applied Manufacturing Overhead Here is how we applied overhead during the period.
2-35 Transferring Costs to Finished Goods Inventory and Cost of Goods Sold. Job 2719, the Simpson home, was completed at a cost of $175,000. The Simpson home was purchased for $275,000 cash.
2-36 Recording Nonmanufacturing Costs Toll Brothers incurs non-manufacturing overhead costs. Commissions to sales agent, $20,000. Advertising expense, $5,000. Depreciation on office equipment, $6,000. Other selling and administrative expenses, $4,000.
2-37 Overapplied or Underapplied Manufacturing Overhead At the end of the period, Toll Brothers has a $3,000 debit balance in the Manufacturing Overhead account (underapplied overhead).
