job order costing
DESCRIPTION
TRANSCRIPT
Chapter 4
Job Order Costing
Cost AccountingFoundations and Evolutions
Kinney, Prather, Raiborn
Learning Objectives (1 of 3)
• Contrast the job order and process costing systems and their valuation methods
• Define what the term ‘job’ means
• Explain the purpose of the documents used in a job order costing system
Learning Objectives (2 of 3)
• List the journal entries used to accumulate costs in a job order costing system
• Identify how technology impacts the gathering and use of information in job order costing systems
Learning Objectives (3of 3)
• Explain how standard costs are used in a job order costing system
• Describe how job order costing information supports management decision making
• Explain how losses are treated in a job order costing system
Job Order or Process CostingJob Order
• Small quantities• Batches of
identifiable, tailor-made products
• User-specific services
• Tracks costs by job
Job Order or Process CostingJob Order
• Small quantities• Batches of
identifiable, tailor-made products
• User-specific services
• Tracks costs by job
Process
• Large quantities
• Homogeneous goods
• Tracks costs by batch of goods by department
Job Order Costing
• A job is a single unit or group of units identifiable as being produced to distinct customer specifications
• A job can be a– Client– Engagement– Project – Contract
Costing Systems
Job order costing Process costing
COLA
Product Costing
• Cost identification
• Cost measurement
• Product cost assignment
Methods of Product Costing
• Cost Accumulation System defines
– cost object – method of assigning costs to production
• Valuation Method specifies
– how product costs will be measured
Six Possibilities
Job Order• Actual• Normal• Standard
Process • Actual• Normal• Standard
VAL MU EA TT HI OO DN
COSTING SYSTEM
Valuation Methods
• Actual– Actual direct material
– Actual direct labor
– Actual overhead
• Normal– Actual direct material
– Actual direct labor
– Predetermined overhead
• Standard– Standard direct material
– Standard direct labor
– Standard overhead
The Difference
Job Order Costing System
• Each job is a cost object
• Costs are accumulated for each job
• A job can consist of one or more units of output
• There is a subsidiary ledger for each job
Job Order Costing System
WIP ControlJob 2Job 1 Job 3
Job 1 + Job 2 + Job 3 = WIP Control
WIP Subsidiary Ledger
= Job 1 100Job 2 200Job 3 500Total 800
100 200 500
Material Requisition Form
• Tracks who is responsible for materials
• Verifies flow of materials from warehouse to department to job
Material Requisition Form
• Tracks who is responsible for materials• Verifies flow of materials from warehouse to
department to job• Journal entry
Work in Process Inventory (direct material)
Manufacturing Overhead (indirect material)
Raw Material Inventory
Materials Requisition Form
Date ___________________ No. ###
Job No. _________________
Authorized by ___________
Department _______________Issued by _________________Inspected by _______________
Item Part Unit of Quantity Quantity Unit Total
No. No. Descrip. Measure Required Issued Cost Cost
Received by _____________
Job Order Cost Sheet
• All financial information about a job– direct material (from material requisition)– direct labor (from time sheets or labor tickets)– applied overhead– budgeted cost information
Job Order Cost Sheet
• All financial information about a job– direct material (from material requisition)– direct labor (from time sheets or labor tickets)– applied overhead– budgeted cost information
• When job is complete, use job order cost sheet to analyze actual costs to budgeted costs
Job Order Cost Sheet
Customer ____________ Job No. ###
Starting Date _________ Job Description ____________
Completion Date ______ Contract Price _____________ MaterialsDate Ref# Amount
Direct LaborDate Ref # Amount
Overhead AppliedDate Ref# Amount
Total Materials _________
Total Labor _________ Total Cost of Job
Total OH Applied _________ ========
Employee Time Sheet
• Time worked on each job
Employee Time Sheet
• Time worked on each job• Journal entry
Work in Process Inventory (direct labor)
Manufacturing Overhead (indirect labor)
Salaries and Wages Payable
Employee Time Sheet
Employee Name _______________
Employee No. _______________
Department _______________
For week ending
_______
Start Stop Total Type of Work Job No. Time Time Day Hours
Employee Signature Supervisor’s Signature
Manufacturing Overhead
Overhead Account
Actual Overhead Applied Overhead
• Journal EntryWork in Process Inventory
Manufacturing Overhead (applied)
Completion of a Job
• Move job cost sheet from WIP subsidiary to Finished Goods subsidiary
Completion of a Job
• Move job cost sheet from WIP subsidiary to Finished Goods subsidiary
• Journal entryFinished Goods Inventory
Work in Process Inventory
Standard Cost System
• Actual cost
• Normal cost
• Standard cost– Predetermined norms (or standards) for
materials, labor, and overhead– Compare actual costs to standard costs -
difference is a variance
Management Use of Job Order Costing Systems
• Estimate future job costs
• Establish realistic bids and selling prices
• Develop budgets and standards
• Compare actual costs to estimated costs
• Determine which jobs are profitable
• Manage inventory
Product and Material Losses
• Shrinkage – Evaporation– Leakage– Oxidation
• Production errors– Defects can be economically reworked– Spoilage cannot be economically reworked
Product and Material Losses
• Normal Loss – expected during production
• Abnormal Loss – exceeds that expected during production
Normal Loss
• Anticipated on all jobs– Include cost when calculating predetermined
overhead application rate– Include cost less the estimated disposal value
• Specific to a job– Applied to the specific job– Include cost less the estimated disposal value
Abnormal Spoilage
• Period cost – includes cost of abnormal loss less any disposal value
Product and Material Losses
NormalLoss
AbnormalLoss
Loss for most jobs
Loss identifiedwith a
specific job
In overheadrate
Period cost
Charge tospecific job
Period cost
Questions
• What is the difference between job order and process costing systems?
• How do actual, normal, and standard costing valuation methods differ?
• How is the job order cost sheet used?