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Systems Design: Job-Order costing

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predetermined overhead rate of $4 per direct labor hour (DLH). Let's do it ... Tiger, Inc. ... Assume that Tiger's overhead was $60,000 underapplied. ... – PowerPoint PPT presentation

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Title: Systems Design: Job-Order costing


1
Systems DesignJob-Order costing
2
Types of Costing Systems Used to Determine
Product Costs
ProcessCosting
Job-orderCosting
Chapter 4
  • Many different products are produced each
    period.
  • Products are manufactured to order.
  • Cost are traced or allocated to jobs.
  • Cost records must be maintained for each
    distinct product or job.

3
Types of Costing Systems Used to Determine
Product Costs
ProcessCosting
Job-orderCosting
  • Typical job order cost applications
  • Special-order printing
  • Building construction
  • Also used in the service industry
  • Hospitals
  • Law firms

4
Job-Order Costing
Manufacturingoverhead (OH) Applied to eachjob
using apredeterminedrate
Directmaterial
Traced directly to each job
Traced directly to each job
Direct labor
5
Sequence of Events in a Job-Order Costing System
Receive orders from customers
Begin production
Schedulejobs
Ordermaterials
6
Sequence of Events in a Job-Order Costing System
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
7
Sequence of Events in a Job-Order Costing System
Direct Materials
Job No. 1
Apply overhead to each job using a predetermined
rate.
Direct Labor
Job No. 2
Manufacturing Overhead
Job No. 3
8
Job-Order Cost Accounting
  • The primary document for tracking the costs
    associated with a given job is the job cost sheet.

Lets investigate
9
Job-Order Cost Accounting
10
Job-Order Cost Accounting
11
Materials Requisition Form
Will E. Delite
12
Job-Order Cost Accounting
13
Job-Order Cost Accounting
14
Employee Time Ticket
15
Job-Order Cost Accounting
16
Job-Order Cost Accounting
17
Job-Order Cost Accounting
18
Application of Manufacturing Overhead
  • The predetermined overhead rate (POHR) is
    determined before the period begins.

Ideally, the allocation base is a cost driver
that causes overhead.
19
Application of Manufacturing Overhead
Based on estimates, and determined before the
period begins.
Actual amount of the cost driver such as units
produced, direct labor hours, or machine hours.
incurred during the period.
20
The Need for a Predetermined Manufacturing
Overhead Rate
  • Using a predetermined rate makes itpossible to
    account for total job costs sooner, since
  • actual overhead for the period is
    notknown until the end of the period.


21
Overhead Application Example
  • PearCo applies overhead based on direct labor
    hours. Total estimated overhead for the year is
    640,000. Total estimated labor cost is
    1,400,000 and total estimated labor hours are
    160,000.What is PearCos predetermined overhead
    rate per hour?

22
Overhead Application Example
POHR 4.00 per DLH
For each direct labor hour worked on a job, 4.00
of factory overhead will be applied (charged) to
the job.
23
Job-Order CostingDocument Flow Summary
IndirectLabor
EmployeeTime Ticket
OtherActual OHCharges
Manufacturing Overhead Account
AppliedOverhead
Job Cost Sheets
MaterialsRequisition
IndirectMaterial
24
Job-Order System Cost Flows
Work in Process(Job Cost Sheet)
Finished Goods
  • Direct Materials
  • Cost ofGoodsMfd.
  • Cost ofGoodsMfd.
  • Cost ofGoodsSold
  • Direct Labor
  • Overhead Applied

Cost of Goods Sold
  • Cost ofGoodsSold

25
Job-Order System Cost Flows
Lets return to PearCo and see what we do when
actual and applied overhead are not equal.
26
Overhead Application Example
  • PearCos actual overhead for the year was
    650,000, and there were actually 170,000
  • direct labor hours.
  • How much total overhead was applied to PearCos
    jobs during the year? Use PearCos predetermined
    overhead rate of 4.00 per direct labor hour.

27
Overhead Application Example
  • PearCos actual overhead for the year was
    650,000 for a total of 170,000 direct labor
    hours.
  • How much total overhead was applied to PearCos
    jobs during the year? Use PearCos predetermined
    overhead rate of 4.00 per direct labor hour.

SOLUTION Applied Overhead POHR Actual
Direct Labor Hours Applied Overhead 4.00 per
DLH 170,000 DLH 680,000
28
Overapplied and Underapplied Manufacturing
Overhead
PearCos Method
30,000may be allocatedto these accounts.
30,000 may beclosed directly to cost of goods
sold.
OR
Work inProcess
FinishedGoods
Cost of Goods Sold
Cost of Goods Sold
29
Overapplied and Underapplied Manufacturing
Overhead - Summary
PearCos Method
30
Overhead Application Question 1
  • Tiger, Inc. had actual manufacturing overhead
    costs of 1,210,000 and a predetermined overhead
    rate of 4.00 per machine hour. Tiger worked
    290,000 machine hours during the period. Tigers
    manufacturing overhead is
  • a. 50,000 overapplied.b. 50,000
    underapplied.c. 60,000 overapplied.d.
    60,000 underapplied.

31
Overhead Application Question 2
  • Assume that Tigers overhead was 60,000
    underapplied. This amount would result in an
    adjustment that would decrease cost of goods sold
    by 60,000.
  • a. True
  • b. False

32
Job-Order Costing Typical Accounting Entries
Lets look at summary journal entries for a
job-order costing system. Well omit the
numbers so that we can focus on accounts.
33
Cost Flows Material Purchases
  • Raw material purchases are recorded in
    aninventory account.

34
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.

35
Cost Flows Labor
  • The cost of direct labor incurred increases
    Work in Process and the cost of indirect labor
    increases Manufacturing Overhead.

36
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.

37
Cost Flows Overhead Applied
  • Work in Process is increased when
    Manufacturing Overhead is applied to jobs.

38
Cost Flows Period Expenses
  • Nonmanufacturing costs (period expenses) are
    charged to expense as they are incurred.

39
Cost Flows Cost of Goods Manufactured
  • As jobs are completed, the cost of goods
    manufactured is transferred to Finished Goods
    from Work in Process.

40
Cost Flows Sales
  • When finished goods are sold, two separate
    entries are required (1) to record the sale at
    the selling price and (2) to record Cost of
    Goods Sold and reduce Finished Goods by the Cost
    of Goods Manufactured.
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