Job Order Costing

1. Job Order Costing Chapter Two Professor McDermott

2. Two Types of Costing Systems Process Costing Homogeneous products Example: Paint, pencils, hammers, etc. Job Order Costing Products that are different from one another Custom built homes Battleships Printing shops Auto repair

3. Flow of Costs

4. Journal Entries—Raw Materials

5. Journal Entries—Raw Materials

6. Journal--Factory Labor and Overhead Labor

7. Journal—Transfer from Work in Process to Finished Goods

8. Journal—Transfer from Finished Goods To COGS

9. Overhead Overhead is defined as indirect costs that occur in the factory Examples: Factory supervisor labor, electricity in factory, insurance in factory, cleaning supplies in factory, copy expense in factory, and so on.

10. Three Overhead Categories Budgeted overhead Estimated at the beginning of the year Used for one purpose—calculation of overhead rate Actual overhead Calculated at the end of the year Found in the general ledger Overhead applied The amount of overhead credited from the Manufacturing Overhead account and debited to Work in Process using a rate and a base

11. Overhead Rate Formula Rate = Budgeted Overhead/Base Base should be cost driver Examples of overhead bases include Direct labor hours Direct labor dollars Total costs Units manufactured And so on

12. Overhead Example Jensen Woodworking manufactures custom furniture Overhead is applied on the basis of direct labor hours At the beginning of the year the controller prepares the information shown on the next slide

13. Budget Estimated direct labor hours = 100,000 Estimated overhead cost = $1,000,000 Overhead rate = 1,000,000/100,000 = $10 per labor hour

14. Actual Data Year End Actual direct labor hours worked = 99,500 Actual overhead expense from the general ledger = $1,020,000

15. Overhead Applied Formula: Actual hours worked x overhead rate 99,500 x $10 = $995,000 overhead applied

16. Overhead Account and Work in Process Accounts

17. Overhead Account and Work in Process Accounts

18. Overhead Account and Work in Process Accounts

19. Brief Exercise Three In January, Reyes Tool & Dye requisitions raw materials for production as follows: Job one $900, job two $1200, job three $700, and general factory use $600. Prepare a summary journal entry to record raw material used.

20. Brief Exercise Four Factory labor data for Reyes Tool & Dye is given in BE2-2. During January, time tickets show that the factory labor of $5,000 was used as follows: Job 1 $1,200 Job 2 $1,600 Job 3 $1,400 And general factory use $800 Prepare a summary journal entry to record factory labor used.

21. General Journal Entry

22. Brief Exercise Six Marquis Company estimates that annual manufacturing overhead costs will be $800,000. Estimated annual operating activity bases are: Direct labor costs $500,000 Direct labor hours 50,000 Machine hours 100,000 Compare the predetermined overhead rate for each activity base.

23. Brief Exercise Six Overhead rates using each base: Direct labor costs: $800,000/$500,000 = $1.60 per direct labor dollar (or 160%) Direct labor hour: $800,000/50,000 = $16 per direct labor hour Machine hours: $800,000/100,000 = $8 per machine hour

24. Exercise 2-2 Miller Manufacturing uses a job order costing system. On May 1, the company has a balance in work in process inventory of $3,200 and two jobs in process: Job 429: $2,000 Job 430: $1,200 Information from source documents for May is shown on the following slide.

25. Source Documents

26. Prepare Summary Journals to Record The requisition slips The time tickets The assignment of manufacturing overhead to jobs The completion of job 429 Then post the entries to work in process and prove the agreement of the control account with the job cost sheets.

27. To Record Materials and Labor

28. To Record Overhead and Finished Goods Inventory

29. Work in Process Inventory Account

30. Job Cost Sheets

31. Remaining Problems to Be Worked on Excel or on Board