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Job-Order Costing

CHAPTER. Job-Order Costing. Objectives. 1. Describe the differences between job-order costing and process costing, and identify the types of firms that would use each method. 2. Identify and set up the source documents used in job-order costing.

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Job-Order Costing

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  1. CHAPTER Job-Order Costing

  2. Objectives 1. Describe the differences between job-order costing and process costing, and identify the types of firms that would use each method. 2. Identify and set up the source documents used in job-order costing. 3. Describe the cost flows associated with job-order costing. 4. Appendix: Prepare the journal entries associated with job-order costing. After studying this chapter, you should be able to:

  3. Comparison of Job-Order andProcess Costing Process or job-order costing?

  4. BEAT SOUTH HIGH Characteristics of Job-Order Costing • Wide-variety of services or products that are quite distinct from each other • Cost accumulated by job • Unit cost computed by dividing total job costs by units produced on that job

  5. Characteristics of Process Costing • Produce large quantities of similar or homogeneous products • Cost accumulated by process or department for a given period of time • Unit cost computed by dividing process costs of period by the units produced in the period

  6. Process or job-order costing? Exxon oil refinery Process Process Coca Cola plant Job order Custom home builder Job order Shop for customizing vans Television repair shop Job order Process Campbell soup plant Job order Advertising agency Job order Law firm

  7. This information is used to determine the total cost of goods manufactured. Job-Order Costing Job 425 Job 426 Job 427 Total Beginning balance $58,600 $51,300 $ 0 $109,900 Current costs: Direct materials 4,800 3,600 23,500 31,900 Direct labor 6,000 9,000 10,000 25,000 Applied overhead 2,400 3,600 4,000 10,000 Total $71,800 $67,500 $37,500 $176,800

  8. Johnson Leathergoods

  9. Job Cost Sheet Direct Materials July 1 100 lbs. @ $ 0.25 = $ 25 3 75 oz. @ $1.40 = 105 Direct Labor July 1 3 hrs. @ $10.00 = $ 30 3 7 hrs @ $10.00 = 70 Factory Overhead July 7 10 dlh x $2 = $ 20 Job-Order Cost Sheet • A job-cost sheet is a document used to accumulate the cost for a specific job in a job-cost system

  10. Johnson Leathergoods Unit Cost • Direct materials $1,000 • Direct labor 1,080 • Applied Overhead 240 • Total cost $2,320 •  number of units  20 • Unit cost $ 116

  11. Johnson Leathergoods Date Department Job Material Requisition Number 12 January 11, 2004 Assembly Briefcase Description Quantity Cost/Unit Total Cost Buckles 10 $30 $300 Jim Lawson Authorized Signature Material Requisition Form

  12. Johnson Leathergoods 4 Ed Wilson January 12, 2003 Employee Number Name Date Job Time Ticket Number 8 Start Time Stop Time Total Time Hourly Rate Amount Job Number 8:00 10:00 2 $9 $18 Backpacks 10:00 11:00 1 9 9 Briefcases 11:00 12:00 1 9 9 Backpacks 1:00 5:00 4 9 36 Backpacks Jim Lawson Authorized Signature Department Supervisor Job Time Ticket

  13. The Flow of Costs Through the Accounts Johnson Leathergoods

  14. Summary of Materials Cost Flows

  15. Summary of Direct Labor Cost Flows

  16. Estimated Overhead Overhead rate = Estimated Direct Labor Hours Functional Approach Accounting for Overhead Actual overhead costs are never assigned directly to jobs. Overhead is applied using a predetermined overhead rate. $9,600 4,800 = $2 per direct labor hour

  17. Accounting for Overhead—Using ABC Estimated Overhead ($) for Each Driver Expected Demand for Each Driver Purchasing $3,000 Purchase orders 100 Machining 4,200 Machine hours 2,800 Other 2,400 Direct labor hours 4,800 $3,000 ÷ 100 = $30 per purchase order $4,200 ÷ 2,800 = $1.50 per machine hour $2,400 ÷ 4,800 = $0.50 per direct labor hour

  18. Accounting for Overhead—Using ABC Backpacks: Purchase orders 3 Machine hours 60 Direct labor hours 120 Briefcases: Purchase orders 1 Machine hours 30 Direct labor hours 50

  19. Accounting for Overhead—Using ABC Purchasing: 3 orders x $30 $ 90 1 order x $30 $30 Machining: 60 hours x $1.50 90 30 hours x $1.50 45 Other: 120 DLH x $0.50 60 50 DLH x $0.50 25 Total overhead applied $240 $100

  20. 120 x $2 50 x $2 Summary of Overhead Cost Flows Applied Overhead Actual Overhead Direct labor hours 170 Overhead rate x $2 Total appliedoverhead $340 Lease $200 Utilities 50 Equipment depreciation 100 Indirect labor 65 Total actual overhead $415 Job Order Cost Sheet Job: 20 Backpacks Job Order Cost Sheet Job: 10 Briefcases Direct materials $1,000 Direct materials $500 Direct labor 1,080 Direct labor 450 Overhead applied 240 Overhead applied 100 Total cost Total cost Number of units Number of units Unit cost Unit cost

  21. Summary of Overhead Cost Flows

  22. Summary of Finished Goods Cost Flows

  23. Johnson Leathergoods Schedule of Cost of Goods Manufactured For the Month Ended January 31, 2004 Direct materials: Beginning raw materials inventory $ 0 Purchases of raw materials 2,500 Total raw materials available for use $2,500 Ending raw materials 1,000 Total raw materials used $1,500 Direct labor 1,530 Overhead: Lease $ 200 Utilities 50 Depreciation 100 Indirect labor 65 $ 415 Continued

  24. $ 415 Less: Underapplied overhead 75 Overhead applied 340 Current manufacturing costs $3,370 Add: Beginning work in process 0 Total manufacturing cost $3,370 Less: Ending work in process 1,050 Cost of goods manufactured $2,320

  25. Statement of Cost of Goods Sold Beginning finished goods inventory $ 0 Cost of goods manufactured 2,320 Cost of goods available for sale $2,320 Less: Ending finished goods inventory 0 Normal cost of goods sold $2,320 Add: Underapplied overhead 75 Adjusted cost of goods sold $2,395

  26. Johnson Leathergoods Income Statement For the Month Ended January 31, 2004 Sales $3,480 Cost of goods sold 2,395 Gross margin $1,085 Less selling and administrative expenses: Selling expenses $200 Administrative expenses 550 750 Net operating income $ 335

  27. Appendix Journal Entries Associated With Job-Order Costing Johnson Leathergoods

  28. Johnson Leathergoods 1 Materials 2 500 00 The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. Accounts Payable 2 500 00 1. Materials costing $2,500 were purchased on account.

  29. Johnson Leathergoods 2 Work in Process 1 500 00 The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. Materials 1 500 00 2. Materials costing $1,500 were requisitioned for use in production.

  30. Johnson Leathergoods 3 Work in Process 1 530 00 The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. Wages Payable 1 530 00 3. Direct labor costing $1,530 was recognized.

  31. Johnson Leathergoods 4 Work in Process 340 00 The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. Overhead Control 340 00 4. Overhead was applied to production at the rate of $2 per direct labor hour. A total of 170 direct labor hours were worked.

  32. Johnson Leathergoods 5 Overhead Control 415 00 The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. Lease Payable 200 00 Utilities Payable 50 00 Accumulated Depreciation 100 00 Wages Payable 65 00 5. Actual overhead costs of $415 were incurred: lease, $200; utilities, $50; depreciation, $100; accrued wages, $65.

  33. Johnson Leathergoods 6 Finished Goods 2 320 00 The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. Work in Process 2 320 00 6. The backpacks were completed and transferred to finished goods.

  34. Johnson Leathergoods 7 Cost of Goods Sold 2 320 00 The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. Finished Goods 2 320 00 7 Accounts Receivable 3 480 00 Sales Revenue 3 480 00 7. The backpacks were sold at cost plus 50 percent.

  35. Johnson Leathergoods 8 Cost of Goods Sold 75 00 The receiving report and the invoice are used to record the receipt of the merchandise and to control the payment. Overhead Control 75 00 8. Underapplied overhead was closed to cost of goods sold.

  36. Johnson Leathergoods Materials (1) 2,500 (1) Purchased of materials

  37. (2) 1,500 Johnson Leathergoods Materials Work in Process (1) 2,500 (2) 1,500 (2) Issue of materials

  38. Wages Payable Johnson Leathergoods Work in Process (3) 1,530 (2) 1,500 (3) 1,530 (3) Incurrence of direct labor cost

  39. Overhead Control Johnson Leathergoods Work in Process (4) 340 (2) 1,500 (3) 1,530 (4) 340 (4) Estimated overhead applied to Work in Process

  40. Overhead Control Johnson Leathergoods Work in Process (2) 1,500 (5) 415 (4) 340 (3) 1,530 (4) 340 (5) Actual overhead recorded

  41. Finished Goods (2) 1,500 (6) 2,320 (3) 1,530 (4) 340 Johnson Leathergoods Work in Process (6) 2,320 (6) Transfer of Job 1 to finished goods

  42. Johnson Leathergoods Finished Goods Cost of Goods Sold (6) 2,320 (7) 2,320 (6) 2,320 Accounts Receivable Sales Revenue (7) 3,480 (7) 3,480 (7) Cost of goods sold for Job 1 and revenue from sale on account

  43. Johnson Leathergoods Overhead Control Cost of Goods Sold (5) 415 (4) 340 (7) 2,320 (8) 75 (8) 75 (8) Underapplied overhead closed

  44. Chapter Five The End

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