Title: Systems Design: Job-Order costing
1Systems DesignJob-Order costing
2Types 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.
3Types 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
4Job-Order Costing
Manufacturingoverhead (OH) Applied to eachjob
using apredeterminedrate
Directmaterial
Traced directly to each job
Traced directly to each job
Direct labor
5Sequence of Events in a Job-Order Costing System
Receive orders from customers
Begin production
Schedulejobs
Ordermaterials
6Sequence 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
7Sequence 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
8Job-Order Cost Accounting
- The primary document for tracking the costs
associated with a given job is the job cost sheet.
Lets investigate
9Job-Order Cost Accounting
10Job-Order Cost Accounting
11Materials Requisition Form
Will E. Delite
12Job-Order Cost Accounting
13Job-Order Cost Accounting
14Employee Time Ticket
15Job-Order Cost Accounting
16Job-Order Cost Accounting
17Job-Order Cost Accounting
18Application 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.
19Application 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.
20The 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.
21Overhead 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?
22Overhead 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.
23Job-Order CostingDocument Flow Summary
IndirectLabor
EmployeeTime Ticket
OtherActual OHCharges
Manufacturing Overhead Account
AppliedOverhead
Job Cost Sheets
MaterialsRequisition
IndirectMaterial
24Job-Order System Cost Flows
Work in Process(Job Cost Sheet)
Finished Goods
Cost of Goods Sold
25Job-Order System Cost Flows
Lets return to PearCo and see what we do when
actual and applied overhead are not equal.
26Overhead 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.
27Overhead 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
28Overapplied 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
29Overapplied and Underapplied Manufacturing
Overhead - Summary
PearCos Method
30Overhead 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.
31Overhead 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
32Job-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.
33Cost Flows Material Purchases
- Raw material purchases are recorded in
aninventory account.
34Cost 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.
35Cost Flows Labor
- The cost of direct labor incurred increases
Work in Process and the cost of indirect labor
increases Manufacturing Overhead.
36Cost 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.
37Cost Flows Overhead Applied
- Work in Process is increased when
Manufacturing Overhead is applied to jobs.
38Cost Flows Period Expenses
- Nonmanufacturing costs (period expenses) are
charged to expense as they are incurred.
39Cost Flows Cost of Goods Manufactured
- As jobs are completed, the cost of goods
manufactured is transferred to Finished Goods
from Work in Process.
40Cost 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.