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Job Order Costing

19. Job Order Costing. Student Version. 2. Describe and illustrate a job order cost accounting system. 19-2. 2. Exhibit 3. Materials Information and Cost Flows. a. To Materials Requisitions. 2. Materials Information and Cost Flows (continued). Exhibit 3.

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Job Order Costing

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  1. 19 Job Order Costing Student Version

  2. 2 Describe and illustrate a job order cost accounting system. 19-2

  3. 2 Exhibit 3 Materials Information and Cost Flows a. To Materials Requisitions

  4. 2 Materials Information and Cost Flows (continued) Exhibit 3 From Materials Ledger Account Materials Requisitions b. b. Job Cost Sheets b. b.

  5. 2 Receiving Report No. 196 Invoice 750 units of No. 8 Maple Wood The journal entry to record the supplier’s invoice related to Receiving Report 196 is as follows:

  6. 2 A summary of the materials requisitions is used as a basis for the journal entry recording the materials used for the month. For the requisition of direct materials, the following entry is made:

  7. 2 Factory Labor When employees report for work, they may use clock cards or in-and-out cards. When employees work on an individual job, they use time tickets.

  8. 2 A Closer Look at Job 72 On December 26, 2010, S. Andrews spent eight hours on Job 72 at an hourly rate of $15 for a cost of $120 (8 hrs. × $15). A total of 500 hours was spent by all employees who worked on Job 72 during December, for a total cost of $7,500.

  9. to Job Cost Sheet 2 Exhibit 4 Labor Information and Cost Flows (a closer look) December Job 72 (500 hours) for a total cost of $7,500 (continued)

  10. 2 Exhibit 4 Labor Information and Cost Flows (continued) from Time Sheets The same procedure is followed for Job 71.

  11. 2 A total of 500 hours was spent by employees on Job 72 during December for a total cost of $7,500. A summary of the time tickets is used as the basis for the following journal entry:

  12. 2 Factory Overhead Cost Factory overhead includes all manufacturing costs except direct materials and direct labor. Factory overhead costs are derived from a variety of sources including the following: • Indirect materials • Indirect labor • Factory power • Factory depreciation

  13. 2 The factory overhead of $4,600 incurred in December for Legend Guitars would be recorded as follows:

  14. 2 Predetermined Factory Overhead Rate To provide current job costs, factory overhead may be allocated or applied to production using a predetermined factory overhead rate. Estimated Total Factory Overhead Costs Predetermined Factory Overhead Rate = Estimated Activity Base

  15. 2 Management estimates factory overhead costs to be $50,000 and the activity base to be 10,000 direct labor hours. The predetermined overhead rate is calculated in Slide 16.

  16. Predetermined Factory Overhead Rate $50,000 = 10,000 direct labor hours Predetermined Factory Overhead Rate = $5 per direct labor hour 2 Predetermined Factory Overhead Rate Estimated Total Factory Overhead Costs = Estimated Activity Base

  17. 2 Two jobs that were worked on in December.When overhead is applied to both jobs, the entry is for $4,250 ($1,750 + $2,500).

  18. 2 Overapplied and Underapplied Factory Overhead Underapplied balance Overapplied balance

  19. 2 Disposal of Factory Overhead Balance The journal entry to eliminate Legend Guitars’ underapplied overhead balance of $150 at the end of the calendar year would be:

  20. 2 Work in Process During the period, Work in Process is increased (debited) for the following: • Direct material cost • Direct labor cost • Applied factory overhead cost

  21. 2 At the end of the accounting period (December 31) the total costs for Job 71 are determined and the following entry is made:

  22. 2 Sales and Cost of Goods Sold During December, Legend Guitars sold 40 Jazz Series guitars for $850, generating total sales of $34,000 ($850 × 40 guitars).

  23. 2 The cost of the guitars sold was $500 per guitar or a total cost of $20,000 ($500 × 40 guitars).

  24. 2 • Selling expenses are incurred in marketing the product and delivering the sold product to the customer. • Administrative expenses are incurred in managing the company, but are not related to the manufacturing or selling functions.

  25. 2 During December, Legend Guitars recorded the following selling and administrative expenses:

  26. 2 Exhibit 8 Flow of Manufacturing Costs for Legend Guitars Materials Factory Overhead Work in Process Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000 (a) 10,500 Credit Accounts Payable for $10,500 Materials Ledger No. 8 Wood—Maple Dec. 1 6,000 (a) 10,500 Glue Dec. 1 200 a. Materials purchased during December Sandpaper Dec. 1 300

  27. 2 Flow of Manufacturing Costs for Legend Guitars (continued) Exhibit 8 Materials Factory Overhead Work in Process (b) 13,000 Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000 (a) 10,500 (b) 13,000 Materials Ledger Job Cost Sheets No. 8 Wood—Maple 20 Units of Jazz Series Guitars, Job 71 Dec. 1 3,000 Dec. 1 6,000 (b) 13,000 (a) 10,500 (b) Direct materials 2,000 Glue 60 Units of American Series Guitars, Job 72 Dec. 1 200 (b) Direct materials 11,000 Sandpaper b. Materials requisitioned to jobs Dec. 1 300 (continued)

  28. 2 Flow of Manufacturing Costs for Legend Guitars (continued) Exhibit 8 Materials Factory Overhead Work in Process (b) 13,000 Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000 (a) 10,500 (b) 13,000 (c) 11,000 Credit Wages Payable, $11,000 Materials Ledger No. 8 Wood—Maple (b) 13,000 Dec. 1 6,000 (a) 10,500 Glue Dec. 1 200 c. Factory labor used in productions of jobs Sandpaper Dec. 1 300 (continued)

  29. 2 Flow of Manufacturing Costs for Legend Guitars (continued) Exhibit 8 Materials Factory Overhead Work in Process (b) 13,000 Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000 (a) 10,500 (b) 13,000 (c) 11,000 Materials Ledger Job Cost Sheets No. 8 Wood—Maple 20 Units of Jazz Series Guitars, Job 71 Dec. 1 3,000 (b) Direct materials 2,000 (b) 13,000 Dec. 1 6,000 (a) 10,500 (c) Direct labor 3,500 Glue 60 Units of American Series Guitars, Job 72 (b) Direct materials 11,000 Dec. 1 200 (c) Direct labor 7,500 Sandpaper Dec. 1 300 (continued)

  30. 2 Flow of Manufacturing Costs for Legend Guitars (continued) Exhibit 8 Materials Factory Overhead Work in Process (b) 13,000 Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000 (d) 500 (d) 500 (a) 10,500 (b) 13,000 (c) 11,000 Indirect materials used, $500 Materials Ledger No. 8 Wood—Maple (b) 13,000 Dec. 1 6,000 (a) 10,500 Glue Dec. 1 200 (d) 200 d. Factory overhead incurred in production Sandpaper Dec. 1 300 (d) 300 (continued)

  31. 2 Flow of Manufacturing Costs for Legend Guitars (continued) Exhibit 8 Materials Factory Overhead Work in Process (b) 13,000 Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000 (d) 500 (d) 900 (d) 500 (a) 10,500 (b) 13,000 (c) 11,000 Utility bill, $900 Materials Ledger No. 8 Wood—Maple credit Utilities Payable, $900 (b) 13,000 Dec. 1 6,000 (a) 10,500 Glue Dec. 1 200 (d) 200 d. Factory overhead incurred in production Sandpaper Dec. 1 300 (d) 300 (continued)

  32. 2 Flow of Manufacturing Costs for Legend Guitars (continued) Exhibit 8 Materials Factory Overhead Work in Process (b) 13,000 Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000 (d) 500 (d) 900 (d) 500 (a) 10,500 (b) 13,000 (d) 1,200 (c) 11,000 Depreciation on factory machinery, $1,200 credit Accumulated Deprecation, $1,200 Materials Ledger No. 8 Wood—Maple (b) 13,000 Dec. 1 6,000 (a) 10,500 Glue Dec. 1 200 (d) 200 d. Factory overhead incurred in production Sandpaper Dec. 1 300 (d) 300 (continued)

  33. 2 Flow of Manufacturing Costs for Legend Guitars (continued) Exhibit 8 Materials Factory Overhead Work in Process (b) 13,000 Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000 (d) 500 (d) 900 (d) 500 (a) 10,500 (b) 13,000 (d) 1,200 (c) 11,000 (d) 2,000 credit Wages Payable, $2,000 Indirect labor, $2,000 Materials Ledger No. 8 Wood—Maple (b) 13,000 Dec. 1 6,000 (a) 10,500 Glue Dec. 1 200 (d) 200 d. Factory overhead incurred in production Sandpaper Dec. 1 300 (d) 300 (continued)

  34. 2 Flow of Manufacturing Costs for Legend Guitars (continued) Exhibit 8 e. Factory overhead is applied to jobs according to the predetermined overhead rate (continued)

  35. 2 Flow of Manufacturing Costs for Legend Guitars (continued) Exhibit 8 Materials Factory Overhead Work in Process (b) 13,000 Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000 (d) 500 (e) 4,250 (d) 900 (d) 500 (a) 10,500 (b) 13,000 (d) 1,200 (c) 11,000 (d) 2,000 (e) 4,250 Materials Ledger Job Cost Sheets No. 8 Wood—Maple 20 Units of Jazz Series Guitars, Job 71 Dec. 1 3,000 (b) Direct materials 2,000 (c) Direct labor 3,500 (b) 13,000 Dec. 1 6,000 (a) 10,500 (e) Factory overhead 1,750 Glue Dec. 1 200 (d) 200 60 Units of American Series Guitars, Job 72 (b) Direct materials 11,000 (c) Direct labor 7,500 Sandpaper (e) Factory overhead 2,500 Dec. 1 300 (d) 300 (continued)

  36. 2 Flow of Manufacturing Costs for Legend Guitars (continued) Exhibit 8 Materials Factory Overhead Work in Process (b) 13,000 Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000 (d) 500 (e) 4,250 (d) 900 (d) 500 (a) 10,500 (b) 13,000 (f) 150 (d) 1,200 (c) 11,000 (d) 2,000 (e) 4,250 debit Cost of Goods Sold, $150 Materials Ledger No. 8 Wood—Maple (b) 13,000 Dec. 1 6,000 (a) 10,500 Glue Dec. 1 200 (d) 200 f. Closed underapplied factory overhead to cost of goods sold Sandpaper Dec. 1 300 (d) 300 (continued)

  37. 2 Flow of Manufacturing Costs for Legend Guitars (continued) Exhibit 8 Materials Factory Overhead Work in Process (g) 10,250 (b) 13,000 Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000 (d) 500 (e) 4,250 (d) 900 (d) 500 (a) 10,500 (b) 13,000 (f) 150 (d) 1,200 (c) 11,000 (d) 2,000 (e) 4,250 Materials Ledger Job Cost Sheets No. 8 Wood—Maple 20 Units of Jazz Series Guitars, Job 71 Dec. 1 3,000 (b) Direct materials 2,000 (c) Direct labor 3,500 (d) Factory overhead 1,750 10,250 (b) 13,000 Dec. 1 6,000 (a) 10,500 Glue Dec. 1 200 (d) 200 Sandpaper g. Job 71 completed in December Dec. 1 300 (d) 300 (continued)

  38. 2 Flow of Manufacturing Costs for Legend Guitars (continued) Exhibit 8 Materials Factory Overhead Work in Process (g) 10,250 (b) 13,000 Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000 (d) 500 (e) 4,250 (d) 900 (d) 500 (a) 10,500 (b) 13,000 (f) 150 (d) 1,200 (c) 11,000 (d) 2,000 (e) 4,250 Finished Goods Materials Ledger Dec. 1 20,000 No. 8 Wood—Maple (g) 10,250 (b) 13,000 Dec. 1 6,000 (a) 10,500 Glue Dec. 1 200 (d) 200 Finished Goods Ledger Jazz Series Guitars Dec. 1 20,000 (g) 10,250 Sandpaper Dec. 1 300 (d) 300 (continued)

  39. 2 Flow of Manufacturing Costs for Legend Guitars (continued) Exhibit 8 Cost of Goods Sold Work in Process (g) 10,250 (f) 150 Dec. 1 3,000 (b) 13,000 (c) 11,000 (e) 4,250 Finished Goods Dec. 1 20,000 (g) 10,250 h. Sold 40 units of Jazz Series guitars on account Finished Goods Ledger Accounts Receivable XXX Sales XXX Jazz Series Guitars Dec. 1 20,000 (g) 10,250 (continued)

  40. 2 Flow of Manufacturing Costs for Legend Guitars (continued) Exhibit 8 Cost of Goods Sold Work in Process (g) 10,250 (f) 150 Dec. 1 3,000 (i) 20,000 (b) 13,000 (c) 11,000 (e) 4,250 Finished Goods (i) 20,000 Dec. 1 20,000 (g) 10,250 i. Cost of 40 units of Jazz Series guitars sold Finished Goods Ledger Jazz Series Guitars (i) 20,000 Dec. 1 20,000 (g) 10,250 (continued)

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