Job Order Cost Accounting

1. Job Order Cost Accounting Chapter 20

2. Cost Systems There are two basic systems used by manufacturers to assign costs to their products: Process costing Job Order costing

3. Process Costing Used by companies that produce large numbers of identical units Breakfast cereal Paper mills Oil refining

4. Job Order Costing Used for production of large, unique, high-cost items Built to order rather than mass produced Special-order printing Building construction Hospitals Law firms

5. Events in Job Order Manufacturing

6. Job Order Manufacturing Activities

7. Job Order Cost Documents The primary document for tracking the costs associated with a given job is the job cost sheet.

8. Job Cost Sheet

9. Materials Requisition Used to authorize the use of materials on a job. Also serves as the source document for recording material usage in the accounting records.

10. Job Cost Sheet

11. Labor Time Ticket

12. Job Cost Sheet

13. Job Cost Sheet Assign manufacturing overhead to jobs using predetermined overhead rate based on direct labor cost.

14. Job Cost Sheet

18. Overhead Application Estimate total overhead for the period. Select an overhead allocation base. Estimate total quantity of the overhead allocation base. Compute the predetermined overhead rate.

19. Predetermined Overhead Allocation Rate Formula

20. Overhead Application Obtain actual quantities of the overhead allocation base. Allocate manufacturing overhead by multiplying the predetermined manufacturing overhead rate by the actual quantity of the allocation base that pertains to each job.

21. Reasons for using apredetermined overhead rate Overhead is not incurred uniformlyduring the year. Actual Overhead rate might vary from month to month. Predetermined rate makes it possible to estimate job costs sooner.

22. Adjusting of Overapplied and Underapplied Overhead The POHR is based on estimates. What happens if actual results differfrom the estimates? The result will be either underapplied or overapplied overhead and we will adjust Cost of Goods Sold at the end of the period

23. Adjusting of Overapplied and Underapplied Overhead

24. Adjusting of Overapplied and Underapplied Overhead

25. Objective 2 Trace Materials and Labor in a Manufacturer’s Job Costing System.

26. Materials Cost Example Alec Clothing Co. purchased raw materials on account for $15,000. Materials costing $10,000 were requisitioned for production. Of this total, $2,000 was indirect materials.

27. Materials Cost Example

28. Labor Cost Example The company incurred $30,000 of manufacturing wages for all jobs. Assume that $25,000 can be traced directly to the jobs and $5,000 is for indirect labor.

29. Labor Cost Example

30. Objective 3 Allocate Manufacturing Overhead in a Manufacturer’s Job Costing System

31. Manufacturing Overhead Costs The company incurred $20,000 of plant equipment depreciation.

32. Manufacturing Overhead Example Total estimated overhead for the year equals $243,000. The predetermined overhead rate is based on 4,500 direct labor hours. What is the predetermined overhead rate?

33. Manufacturing Overhead Example Assume that Job 51 used 200 direct labor hours. What is the journal entry to record the manufacturing overhead applied?

34. Objective 4 Account for Completion and Sales of Finished Goods, and Adjust for Under-or-Overapplied Manufacturing Overhead

35. Finished Goods, Sales, and Cost of Goods Sold As jobs are completed they are transferred to finished goods inventory. In addition to the overhead applied to Job 51, direct labor was $4,000 and direct materials totaled $30,000. How much was transferred to Finished Goods Inventory?

36. Finished Goods, Sales, and Cost of Goods Sold Direct materials $30,000 Direct labor 4,000 Manufacturing overhead 10,800 $44,800

37. Finished Goods, Sales, and Cost of Goods Sold Assume that Job 51 was sold for $74,800. What are the journal entries?

38. Finished Goods, Sales, and Cost of Goods Sold

39. Disposing of Underallocated or Overallocated Overhead Suppose that the company incurred $232,000 of actual manufacturing overhead during the year, and that actual direct labor hours worked were 4,000. The actual manufacturing overhead rate would have been $232,000 ÷ 4,000 = $58. The predetermined rate was $54.

40. Disposing of Underallocated or Overallocated Overhead How much overhead was allocated to the various jobs? 4,000 direct labor hours × $54 = $216,000 What is the underallocated amount? $232,000 actual – $216,000 allocated = $16,000

41. Disposing Underallocated Overhead to Cost of Goods Sold

42. Disposing Overallocated Overhead to Cost of Goods Sold Assume the opposite situation in which allocated overhead is $232,000 and actual overhead is $216,000. How do we dispose of overallocated overhead? Debit the Manufacturing Overhead account and credit the Cost of Goods Sold account to decrease the costs that went to the income statement.

43. Disposing Overallocated Overhead to Cost of Goods Sold

44. Objective 5 Assign Noninventoriable Costs in Job Costing.

45. Job Costing in a Nonmanufacturing Company How is direct labor traced to individual jobs in a nonmanufacturing company? Employees complete a weekly time record. Jim, Abby, and Associates is a firm specializing in composing and arranging music parts for different clients. Musician Judy Lopez’s salary is $80,000 per year.

46. Job Costing in a Nonmanufacturing Company Assuming a 40-hour workweek and 50 workweeks in each year gives a total of 2,000 available working hours per year (40 hours × 50 weeks). What is her hourly rate?

47. Job Costing in a Nonmanufacturing Company Jim and Abby estimated the indirect costs that will be incurred in 2006.

48. Job Costing in a Nonmanufacturing Company Assume that they estimate that the musicians will work 8,000 direct labor hours in 2006. What is the predetermined indirect cost rate?

49. Job Costing in a Nonmanufacturing Company Records show that Judy Lopez worked 25 hours servicing Los Abuelos Music Co. What is the total cost assigned to this client?