ch7.job costing
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Job-Order Costing System
• Job-Order Costing Systems – a product-costing system in which costs are assigned to batches or job orders of production.
• Finished Product can be individually identified
Costing Systems Used to Determine Product Costs
ProcessCosting
Job-orderCosting
Many different jobs are worked on during each period. Products are manufactured to order. (customer satisfaction)
Unit costs are computed by job
Costs accumulated by using job cost sheet
Cost records must be maintained for each distinct product or job. (JOB ORDER SHEET)
Each job assigned number
Chapter 10
Types of Organisations Using Job Costing
ProcessCosting
Job-orderCosting
• A cost accounting system where costs are assigned to each job or batch of goods.
• Custom built factory
• Production of movie
• Batch of menus
• Audit engagement
Typical job order cost applications: Special-order printing Building construction
Also used in the service industry Hospitals Law firms
Comparison of Job-Order andProcess Costing
Job-Order Costing Process Costing
1. Wide variety of distinct 1. Homogeneous productsproducts
2. Cost accumulated by job 2. Costs accumulated byprocess or department
3. Unit cost computed by 3. Unit cost computed bydividing total job costs dividing process costs ofby units produced on that the period by the unitsjob produced in the period
BEAT
SOUTH
HIGH
Process or Process or job-order job-order costing?costing?
Process or Process or job-order job-order costing?costing?
Process
Process
Job order
Job order
Job order
Process
Job order
Exxon oil refinery
Coca Cola plant
Custom home builder
Shop for customizing vans
Television repair shop
Campbell soup plant
Advertising agency
Law firm Job order
Job Order Cost System
Two Jobs: Wedding Invitations and Menus
Each job has distinguishing characteristics and related costs.
Job #9501
Black ink $
Typesetting $
225
Invitations $225 Envelopes
$
Vellum stock $
Job #9502
Typesetting
Yellow Stock
Yellow stock
Lamination$50 Copies $
Illustration 2-1
$$
Colored Ink $
Illustration 3-2Illustration 3-2
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 10,000Total $71,800 $67,500 $37,500 $176,800
This information is used to determine the total cost of goods manufactured.
Job-Order CostingJob-Order Costing
Sequence of Events in a Job-Order Costing System
Receive orders from customers
Schedulejobs
Ordermaterials
Begin production
Job Order Cost Flow
THE JOB
Traced directly to each job
Traced directly to each job
Applied to each
job using a
predetermined
rate
• Accumulating the manufacturing costs incurred– Raw materials inventory
– Factory Labor
– Manufacturing Overhead
• Assigning the accumulated costs to the work done
Two Major Steps in Cost Flow
Manufacturing Overhead
Manufacturing Overhead
Job No. 1Job No. 1
Job No. 2Job No. 2
Job No. 3Job No. 3
Charge direct
material and direct labor
costs to each job as
work is performed.
Charge direct
material and direct labor
costs to each job as
work is performed.
Sequence of Events in a Job-Order Costing System
Direct MaterialsDirect Materials
Direct LaborDirect Labor
Material Inventory RecordEach individual item of raw materials has a
card or record.
The sum of the balances of all these records should equal raw materials in the general ledger.
Item: Handles Part No: AA2746Receipts Issues Balance
Date Units Cost Total Units Cost Total Units Cost Total1/4 2,000 $5 $10,000 2,000 $5 $10,000
Apply overhead to each job using a predeter-mined
rate.
Apply overhead to each job using a predeter-mined
rate.
Sequence of Events in a Job-Order Costing System
Direct MaterialsDirect Materials
Direct LaborDirect Labor
Job No. 1Job No. 1
Job No. 2Job No. 2
Job No. 3Job No. 3Manufacturing OverheadManufacturing Overhead
Estimated total manufacturingoverhead cost for the coming period
Estimated total units in theallocation base for the coming period
POHR =
The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the period begins.
Ideally, the allocation base is a cost driver that causes overhead.
Job Order Cost Accounting
Job-Order Cost Accounting
The primary document for tracking the costs
associated with a given job is the job
cost sheet.
Let’s investigate
Job-Order Cost SheetJob-Order Cost Sheet
• A job-cost sheet is a document used to
accumulate the cost for a specific job in a
job-cost system to determine the total and unit cost of the
completed job
• A job-cost sheet is a document used to
accumulate the cost for a specific job in a
job-cost system to determine the total and unit cost of the
completed job
Job Cost Sheet
Direct Materials
Direct Labor
Factory Overhead
July 1 100 lbs. @ $ 0.25 = $ 25
3 75 oz. @ $1.40 = 105July 1 3 hrs. @ $10.00 = $ 30
3 7 hrs @ $10.00 = 70
July 7 10 dlh x $2 = $ 20
Job-Order Cost Accounting
Job-Order Cost Accounting
Let’s see one
A materials requisition form is used to
authorize the use of materials on a job.
Materials Requisition Form
Will E. Delite
A document authorizing the issuance of raw materials from the store to production.
Materials Requisition Form
Will E. Delite
Type, quantity, and total cost of material charged to job A-143.
Cost of material is charged to job A-143.
The materials requisition form also serves as the source document for recording material usage in the accounting records.
Materials Requisition FormA document authorizing the issuance of raw
materials from the store to production.
Job-Order Cost Accounting
Job-Order Cost Accounting
Accumulate direct labor costs by means of a work record, such as a time ticket, for each employee
Let’s see one
Employee Time TicketA document that indicates the employee, the hours
worked, the account and the job to be charged, and the total labor cost.
Employee Time TicketA document that indicates the employee, the hours
worked, the account and the job to be charged, and the total labor cost.
Job-Order Cost Accounting
Let’s summarize the document flow we have
been discussing in a job-order
costing system.
Job-Order CostingDocument Flow Summary
Job-Order CostingDocument Flow Summary
Job Cost Sheets
MaterialsRequisition
Direct materials
Indirect materials
Manufacturing Overhead Account
Materials usedmay be either
direct orindirect.
Materials Ledger CardsMaterials
Ledger CardsMaterials Ledger CardsMaterialsRequisitionThe materials requisition
indicates the cost of direct materialto charge tojobs and the cost of indirect materialindirect material to charge to overhead.
Job-Order CostingDocument Flow Summary
Job Cost Sheets
Employee Time Ticket
Manufacturing Overhead Account
Direct Labor
Indirect Labor
An employee’stime may be eitherdirect or indirect.
Employee time tickets indicate the cost of
direct laborto charge to
jobsand the cost
of indirect laborindirect labor to charge to overhead.
Job-Order CostingDocument Flow Summary
EmployeeTime Ticket
Job Cost Sheets
MaterialsRequisition
OtherActual OHCharges
IndirectMaterial
IndirectLabor
AppliedOverhead
WithPOHR
Manufacturing Overhead Account
Flow of CostsFlow of Costs
Accum ulation Assignm ent1. Purchase raw m aterials 4. Raw m aterials are used2. Incur factory labor 5. Factory labor is used3. Incur m anufacuring 6. O verhead is applied
overhead 7. Com pleted goods arerecognized
8. Cost of goods sold isrecognized
Key to Entries:
Factory Labor (2) 32,000 (5) 32,000
R a w M a t e r ia ls In v e n t o r y( 1 ) 4 2 ,0 0 0 ( 4 ) 3 0 ,0 0 0B a l . 1 2 ,0 0 0
M a n u f a c t u r i n g O v e r h e a d( 3 ) 1 3 , 8 0 0 ( 6 ) 2 2 , 4 0 0( 4 ) 6 , 0 0 0( 5 ) 4 , 0 0 0B a l . 1 , 4 0 0
F in is h e d G o o d s In v e n to r y( 7 ) 3 9 ,0 0 0 ( 8 ) 3 9 ,0 0 0
W o r k i n P r o c e s s I n v e n t o r y( 4 ) 2 4 , 0 0 0 ( 7 ) 3 9 , 0 0 0( 5 ) 2 8 , 0 0 0( 6 ) 2 2 , 4 0 0B a l . 3 5 , 4 0 0
C o s t o f G o o d s S o ld(8 ) 3 9 ,0 0 0
7
5
84
6
Job Order Cost AccountingLet’s examine the
cost flows in a job-order costing
system. We will use T-accounts and start
with materials.
Raw MaterialsMaterial
Purchases
Direct Materials
Mfg. Overhead
Job-Order System Cost FlowsWork in Process(Job Cost Sheet)
Indirect Materials
Actual Applied
Raw materials account
is debited for the cost
of materials purchased
Raw materials account
is credited for the cost
of materials issued to jobs
WIP debited for the cost of materials issued to jobs
Overhead control is debited for the cost of actual overhead
Direct Materials
Indirect Materials
Next let’s add labor costs and
applied manufacturing overhead to the job-order cost
flows.
Job-Order System Cost Flows
Job-Order System Cost Flows
Direct Labor
Mfg. Overhead
Salaries and Wages Payable
Work in Process(Job Cost Sheet)
Direct
Materials
OverheadApplied to
Work inProcess
Overhead Applied
IndirectLabor
Actual Applied
If actual and applied manufacturing overheadare not equal, a year-end adjustment is required.
If actual and applied manufacturing overheadare not equal, a year-end adjustment is required.
Wages payable is
credited for the cost
of direct labour WIP is debited for the cost of direct labour
Overhead is credited for applied overhead
WIP is debited for applied overhead
Overhead applied using a plant wide rate
Direct Labor
IndirectLabor
Indirect Materials
Now let’s complete the
goods and sell them.
Job-Order System Cost Flows
Cost ofGoodsMfd.
Finished Goods
Cost ofGoodsSold
Cost ofGoodsMfd.
Cost of Goods Sold
Cost ofGoodsSold
Job-Order System Cost FlowsWork in Process(Job Cost Sheet)
Direct
MaterialsDirect Labor
Overhead Applied
Credit WIP for COGM
Debit finished goods for COGM
Credit finished goods for value of units sold
Debit COGS for value of units sold
Let’s look at summary journal entries for a job-
order costing system. We’ll omit
the numbers so that we can focus
on accounts.
Job-Order Costing – Typical Accounting Entries
Cost Flows – Material Purchases
Raw material purchases are recorded in aninventory account.
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.
Cost Flows – Material Usage
Cost Flows – Labor The cost of direct labor incurred increases Work in
Process and the cost of indirect labor increases Manufacturing Overhead.
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.
Cost Flows – Overhead Applied Work in Process is increased when Manufacturing
Overhead is applied to jobs.
Cost Flows – Period Expenses Nonmanufacturing costs (period expenses) are charged
to expense as they are incurred.
Cost Flows – Cost of Goods Manufactured
As jobs are completed, the cost of goods manufactured is transferred to Finished Goods from Work in Process.
Cost Flows – Sales When finished goods are sold, two entries are required:
(1) to record the sale; and (2) to record Cost of Goods Sold and reduce Finished Goods.
JOB COSTING-TREATMENT• MATERIAL
– REQUISTIONED FOR EACH JOB SEPERATELY– INFORMATION FROM MATRL REQUISITION– D.MATL DIRECTLY CHARGED TO JOB– I.MATL ALLOCATED TO VARIOUS JOBS
• LABOUR– CHARGED FOR EACH JOB– INFORMATION FROM JOB TIME TICKET
• OVERHEADS– ESTIMATED FOR VARIOUS COST CENTRES– ALLOCTAED TO VARIOUS JOBS ON SUITABLE BASIS– CAHRGED TO WIP BY ABSORBTION RATE
JOB COSTING-RECORDING• JOB
– JOB No. OR WORK ORDER No.
– JOB COST CARD (COLLECTS ALL COST DATA RELATED TO JOB FROM
• MATERIAL REQUISITION NOTE
• JOB TIME SHEET
• JOB TICKETS
JOB ORDER COST SHEETPRODUCTIONORDERS
COST SHEET IDENTIFIED BY JOB NoSET UP IN A/CG DEPTT
UNIT COST FOR JOB ORDERCOMPLETED
JOB ORDERFINISHED
JOB ORDERNOT FINISHED
PRIME COST+ABSORBD OVHD•COST SHEET THAN MARKED COMPLETE•REMOVED FROM JOB LEDGER•ENTRY MADE IN FINISHED GOODS LEDGER
DONETHROUGH
•TOTAL COST INCURRED ON JOB ORDER BRCOMES WIP•CARRIED FORWARD TO SUBSEQUENT A/CG PERIOD AS OPENING STOCK
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