Topic Four

1. Job-Order costing Topic Four

2. A company produces many units of a single product. • One unit of product is indistinguishable from other units of product. • The identical nature of each unit of product enables assigning the same average cost per unit. Types of Product Costing Systems ProcessCosting Job-orderCosting

3. A company produces many units of a single product. • One unit of product is indistinguishable from other units of product. • The identical nature of each unit of product enables assigning the same average cost per unit. Types of Product Costing Systems ProcessCosting Job-orderCosting Example companies:1. Weyerhaeuser (paper manufacturing)2. Reynolds Aluminum (refining aluminum ingots) 3. Coca-Cola (mixing and bottling beverages)

4. Many different products are produced each period. • Products are manufactured to order. • The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. Types of Product Costing Systems ProcessCosting Job-orderCosting

5. Many different products are produced each period. • Products are manufactured to order. • The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. Types of Product Costing Systems ProcessCosting Job-orderCosting Example companies:1. Boeing (aircraft manufacturing)2. Bechtel International (large scale construction) 3. Walt Disney Studios (movie production)

6. Comparing Process and Job-Order Costing Example products: Process order costing: paper manufacturing, mixing and bottling beverages. Job-order costing: aircraft manufacturing, movie production.

7. Similarities Between Job-Order and Process Costing • Both systems assign material, labor and overhead costs to products and they provide a mechanism for computing unit product cost. • Both systems use the same manufacturing accounts, including Manufacturing Overhead, Raw Materials, Work in Process, and Finished Goods. • The flow of costs through the manufacturing accounts is basically the same in both systems.

8. Differences Between Job-Order and Process Costing • Process costing is used when a single product is produced on a continuing basis or for a long period of time. Job-order costing is used when many different jobs are worked on each period. • Process costing systems accumulate costs by department. Job-order costing systems accumulated costs by individual jobs. • Process costing systems use department production reports to accumulate costs. Job-order costing systems use job cost sheets to accumulate costs. • Process costing systems compute unit costs by department. Job-order costing systems compute unit costs by job.

9. FinishedGoods Work inProcess Cost of GoodsSold Costing System Direct Materials Direct Labor ManufacturingOverhead

10. Job-Order Costing Costs are traced andapplied to individualjobs in a job-ordercost system. Direct Materials FinishedGoods Jobs Direct Labor ManufacturingOverhead Cost of GoodsSold

11. Process Costing Costs are traced and applied to departments in a process cost system. Direct Materials FinishedGoods Processing Department Direct Labor ManufacturingOverhead Cost of GoodsSold

12. Job-Order Costing:Manufacturing Costs Charge direct material and direct labor costs to each job as work is performed. Direct Materials Job No. 1 Direct Labor Job No. 2 Manufacturing Overhead Job No. 3

13. Manufacturing Costs Manufacturing Overhead, including indirect materials and indirect labor, are allocated to jobs rather than directly traced to each job. Direct Materials Job No. 1 Direct Labor Job No. 2 Manufacturing Overhead Job No. 3

14. PearCo Job Cost Sheet Job Number A - 143 Date Initiated 3-4-05 Date Completed Department B3 Units Completed Item Wooden cargo crate Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Amount Hours Rate Amount Cost Summary Units Shipped Direct Materials Date Number Balance Direct Labor Manufacturing Overhead Total Cost Unit Product Cost Job-Order Cost Accounting

15. Will E. Delite Materials Requisition Form

16. Job-Order Cost Accounting

17. Employee Time Ticket

18. Job-Order Cost Accounting

19. Estimated total manufacturingoverhead cost for the coming period POHR = Estimated total units in theallocation base for the coming period $640,000 POHR = 160,000 direct labor hours (DLH) Overhead Application Rate POHR = $4.00 per DLH For each direct labor hour worked on a particular job, $4.00 of factory overhead will be applied to that job.

20. Job-Order Cost Accounting

21. Job-Order Cost Accounting

22. Interpreting the Average Unit Cost The average unit cost should not be interpreted as the costs that would actually be incurred if anadditional unit were produced.Fixed overhead would not change if another unitwere produced, so the incremental cost of another unit may be somewhat less than $118.

23. Let’s summarize the cost flow in a job-order costing system. Job-Order Costing: Cost Flow Summary

24. Job-Order Costing: Cost Flow Summary A sales order is the basis of issuing a production order. A production order initiates work on a job.

25. Cost Flows – Material Purchases Raw material purchases are recorded in aninventory account.

26. Cost Flows – Material Usage Direct materials issued to a job increase Work in Process and decrease Raw Materials. Indirect materials used are charged to Manufacturing Overhead and also decrease Raw Materials.

27. Direct Materials • Direct Materials • Indirect Materials • Indirect Materials Job-Order System Cost Flows Raw Materials Work in Process(Job Cost Sheet) • Material Purchases Mfg. Overhead Actual Applied

28. Cost Flows – Labor The cost of direct labor incurred increases Work in Process and the cost of indirect labor increases Manufacturing Overhead.

29. Direct Labor • IndirectLabor • Direct Labor • IndirectLabor Job-Order System Cost Flows Work in Process(Job Cost Sheet) Salaries and Wages Payable • Direct Materials Mfg. Overhead Actual Applied • Indirect Materials

30. Cost Flows – Actual Overhead In addition to indirect materials and indirect labor, other manufacturing overhead costs are charged to the Manufacturing Overhead account as they are incurred.

31. Job-Order System Cost Flows Work in Process(Job Cost Sheet) Salaries and Wages Payable • Direct Labor • Direct Materials • IndirectLabor • Direct Labor Mfg. Overhead Actual Applied • Indirect Materials • IndirectLabor • OtherOverhead

32. Cost Flows – Overhead Applied Work in Process is increased when Manufacturing Overhead is applied to jobs.

33. Overhead Applied • OverheadApplied to Work inProcess Job-Order System Cost Flows Work in Process(Job Cost Sheet) Salaries and Wages Payable • Direct Labor • Direct Materials • IndirectLabor • Direct Labor Mfg. Overhead Actual Applied • Indirect Materials If actual and applied manufacturing overheadare not equal, a year-end adjustment is required. • IndirectLabor • OtherOverhead

34. Cost Flows – Cost of Goods Manufactured As jobs are completed, the Cost of Goods Manufactured is transferred to Finished Goods from Work in Process.

35. Cost ofGoodsMfd. • Cost ofGoodsMfd. Job-Order System Cost Flows Work in Process(Job Cost Sheet) Finished Goods • Direct Materials • Direct Labor • Overhead Applied

36. Cost Flows – Sales When finished goods are sold, two entries are required: (1) to record the sale, and (2) to record COGS and reduce Finished Goods.

37. Cost ofGoodsSold • Cost ofGoodsSold Job-Order System Cost Flows Work in Process(Job Cost Sheet) Finished Goods • Cost ofGoodsMfd. • Direct Materials • Cost ofGoodsMfd. • Direct Labor • Overhead Applied Cost of Goods Sold

38. End of Chapter 5