Job Order Cost Accounting

1. Chapter 19 Job Order Cost Accounting

2. ProcessCosting JobCosting Cost Accounting Systems C 1 Chapter 20 • Used for production of large, unique, or high-cost items. • Built to order rather than mass produced. • Many costs can be directly traced to each job.

3. ProcessCosting JobCosting Job Order Production C 1 Chapter 20 Typical job order cost applications: • Special-order printing • Building construction Also used in service industry • Hospitals • Law firms

4. Events in Job Order Costing C 1 Schedule production of the job. Receive order from customer. Negotiate a sales price and decide whether to pursue the job. Predict cost to complete job.

5. FinishedGoods Cost of GoodsSold Job Order Production Activities C 1 Direct Materials Indirect FactoryOverhead Goods in Process Allocate Indirect Direct Labor

6. The primary document for tracking the costs associated with a given job is the job cost sheet. Let’s investigate Job Order Cost Documents C 2

7. Job Cost Sheet C 2

8. Job Cost Sheet C 2 Amaterials requisitionis used to authorize the use of materials on a job. Let’s see one

9. C. Luther M. Bateman Materials Requisition P 1 C. Luther

10. C. Luther M. Bateman Materials Requisition P 1 Properauthorization Cost of material is charged to Job B15. C. Luther

11. C. Luther M. Bateman Materials Requisition P 1 Type and quantity of material charged to Job B15. Pre-printed, sequentially numbered form C. Luther

12. C. Luther M. Bateman Materials Requisition P 1 The materials requisition form also serves as the source document for recording material usage in the accounting records. C. Luther

13. Materials Ledger Card P 1

14. Job Cost Sheet P 1

15. Job Cost Sheet P 2 Accumulate direct labor costs by means of a work record, such as atime ticket, for each employee. Let’s see one

16. Labor Time Ticket P 2 C. Luther

17. Job Cost Sheet P 2

18. Job Cost Sheet P 3 Allocatemanufacturing overhead to jobs using apredetermined overhead rate Let’s do it

19. Job Cost Sheet P 3

20. Estimated total manufacturingoverhead cost for the coming period POHR = Estimated total direct labor costsfor the coming period $200,000 $125,000 POHR = = 160% of direct labor $ Predetermined Overhead Rate P 3 Road Warriors uses apredeterminedoverhead rate (POHR) based on direct labor cost to apply overhead to jobs.

21. Job Order Cost Flows and Reports Let’s summarize the document flow we have been discussing in a job-order costing system.

22. Job Cost Sheets Job Cost Sheets Job Cost Sheets Job Cost Sheets Factory Overhead Account Material Cost Flows and Documents P 1 Direct materials The materials requisition indicates the cost ofdirect materialsto charge tojobsand the cost ofindirect materials to charge to overhead. Materials Ledger Cards Materials Ledger Cards Materials Ledger Cards MaterialsRequisition Indirect materials

23. Labor Cost Flows and Documents P 2 Direct Labor Employee time tickets indicate the cost ofdirect laborto charge tojobsand the cost of indirect labor to charge to overhead. Job Cost Sheets Job Cost Sheets Job Cost Sheets Job Cost Sheets Employee Time Ticket Employee Time Ticket Employee Time Ticket Employee Time Ticket Factory Overhead Account Indirect Labor

24. Summary of Cost Flows Let’s examine the cost flows in a job order system.We will useT-accounts and start withmaterials.

25. DirectMaterial DirectMaterial Indirect Material ActualOverheadCosts Summary of Cost Flows P 1 Dr Cr Dr Cr Material Purchases Dr Cr

26. DirectLabor Indirect Labor DirectLabor Overhead When Actual Applied factory factoryoverhead overhead ActualOverheadCosts OverheadApplied to Work inProcess / = an adjustment is needed.We will look at how to accomplish this later. Summary of Cost Flows P 2 P 3 Dr Cr Dr Cr DirectMaterial Incurred Dr Cr

27. Cost ofGoodsMfd. Cost ofGoodsMfd. Cost ofGoodsSold Cost ofGoodsSold Summary of Cost Flows P 3 Dr Cr Dr Cr DirectMaterialDirectLaborOverhead Dr Cr

28. Tell me again how we use the POHR to assign overhead to jobs. We multiply the POHRtimes the number ofactivity units (direct labor cost for Road Warriors)incurred for the job. Overhead Application P 4

29. Overhead is notincurred uniformlyduring the year. Actual overhead ratemight vary from month to month. Predetermined ratemakes it possible toestimate job costs sooner. Overhead Application P 4 Reasons for using a POHR(predetermined overhead rate)

30. The POHR is basedon estimates. What happens ifactual results differfrom the estimates? The result will be eitherunderappliedoroverappliedoverhead and wewill adjust Cost of Goods Sold at the end of the period. Here, let me show you. Adjustment of Overapplied or Underapplied Overhead P 4

31. Overhead is overapplied. Actualoverheadcostsincurred Overheadapplied toWork in Process (POHR × Activity) Adjustment of Overapplied or Underapplied Overhead P 4

32. Overhead is underapplied. Overheadapplied toWork in Process (POHR × Activity) Actualoverheadcostsincurred Adjustment of Overapplied or Underapplied Overhead P 4

33. Adjustment of Overapplied or Underapplied Overhead P 4 Adjusting Cost of Goods Sold for underapplied or overapplied overhead

34. Global View Expensive European sports cars are often built according to individual customer specifications. Customers place orders for their dream cars, and then each car is built to order and shipped to the customer.

35. Pricing for Services A 1 Pricing for services is based on direct labor. Any material costs are usually incidental and are a part of overhead. Acme Consulting prepared the following bid for a jobthat will require a total of 1,000 hours of direct labor.

36. Entries for Job OrderProduction Costs Let’s look at summary accounting journal entries for the job order cost system at Road Warriors. The dollar amounts are from Exhibit 19.12 in your textbook.

37. Entries for Job OrderProduction Costs P 1

38. Entries for Job OrderProduction Costs P 1 P 2

39. Entries for Job OrderProduction Costs P 2

40. Entries for Job OrderProduction Costs P 3

41. Entries for Job OrderProduction Costs P 3

42. End of Chapter 19