Job Order Costing

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CHAPTER 15

• Job Order Costing Analysis

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Cost Accounting Systems

• determine the costs associated with products (or
  services).
• ________ Cost System (this chapter)
• used for unique or custom ordered products
• ________ Cost System (next chapter)
• is used for mass produced items

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Job-Order Costing

• ____ or job lots are used as the means of
  collecting costs.
• Used for production of large, unique, or
  high-cost items.
• Built to order rather than mass produced.
• Many costs can be directly traced to each job
• Jobs are easily distinguished from one another
• Examples professional services, printing,
  construction, custom furniture, jumbo jet
  airplanes, hospitals, law firms

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Events in Job Costing
Receive order from customers
Schedule the job
Predict cost to complete job
Negotiate a sales price and decide whether to
pursue the job.
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Uses of Cost Information

• We can use the job costs to help with the
  following types of activities.
• pricing the job
• controlling cost
• budgeting

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Job Order Cost Flows

• You must understand the ____ of costs through the
  accounting system
• Remember the elements of cost of products from
  the previous chapter
• You can use T-Accounts and/or journal entries to
  understand the flow.

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Cost Flows in Job Costing
Direct
Materials
Indirect
Goods in Process
FactoryOverhead
Allocate
Indirect
Direct
Labor
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Factory (direct) Labor

• This account is used to account for all wages
  paid to workers within the _______.
• We debit Factory Labor as labor costs are
  incurred and recognized
• Whats the credit?
• We determine what portion of this is ______ labor
  and which represents ______ labor
• Direct labor goes into ______________
• Why?
• Indirect labor goes into ____________
• Why?

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Factory Overhead (OH)

• We use the ________ account for two reasons
• We debit it as the overhead items are incurred
  and recognized in the accounting system.
• We credit it as we apply (______) overhead to
  individual jobs
• WIP X
• OH X

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Applying OH to Jobs

• How do we know how much overhead to apply to the
  various jobs in process?
• We determine an application base and a rate to
  use in applying the OH.
• ? ?_____________ (POHR)
  ?
• where the activity level is usually some measure
  of direct labor hours, direct labor cost or
  machine hours (i.e. the ________)

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Under or Over Applied Overhead

• _____________ OH rate actual activity
  (POHR) for the period
• At the end of the year, the OH account may have a
  debit or a credit balance
• amount incurred during the year did not equal the
  amount applied to individual jobs
• In other words, our estimates arent perfect!
• We will close out this account at the end of the
  year to _____.

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Why allocate OH instead of using actual?

• Reasons for using a predetermined OH rate
• Overhead is not incurred _______ throughout the
  year
• Actual overhead rate might _____ from month to
  month
• Predetermined rates make estimating job costs
  ________
• Actual overhead is _______ until after it has
  been incurred (i.e. at the end of the year)

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Predetermined Factory Overhead Rates
Activity base examples

• 1. Direct labor hours
• 2. Direct labor dollars
• 3. Machine hours
• 4. Direct materials
• 5. Other

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Predetermined Factory Overhead Rates
Predetermined factory overhead rate

5 per direct labor hour

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Predetermined Factory Overhead Rates
Predetermined factory overhead rate

5 per direct labor hour

For each direct labor hour worked, factory
overhead applied is 5.
Direct Factory Labor Overhead Hours Applied
Job 71 350 x 5 1,750 Job 72 500 x 5
2,500
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Recording Factory Overhead
Factory Overhead
4,400
ACTUAL Based on actual costs incurred
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Recording Factory Overhead
Factory Overhead
4,400
4,250
ACTUAL Based on actual costs incurred
APPLIED Based on estimated rate (5 x 850 hrs)
What account is charged (debited)?
Is factory overhead overapplied or underapplied?
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Recording Factory Overhead
Factory Overhead
4,400
4,250
ACTUAL Based on actual costs incurred
APPLIED Based on estimated rate (5 x 850 hrs)
Work in Process is charged (debited).
150
BALANCE Underapplied
How would this balance be closed at year end?
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Recording Factory Overhead
Factory Overhead
4,400
4,250
ACTUAL Based on actual costs incurred
APPLIED Based on estimated rate (5 x 850 hrs)
Work in Process is charged (debited).
150
BALANCE Underapplied
An immaterial balance is closed to Cost of Goods
Sold at year end.
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Job Cost Sheets

• A __________ is prepared for each and every job
  undertaken. The job sheet is used to keep track
  of all the costs applied to that job
• direct materials, direct labor, OH
• When a job is complete, we
• decrease ___ inventory and
• increase __ inventory by the cost of the job that
  is done.
• When jobs are sold, we transfer the costs to ____

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Purpose of Job Cost Information and Sheets

• Job Cost sheets are maintained to aid in the
  following
• Tracking the cost of ____________
• Transferring costs from ___ to __ to ____
• Serving as a subsidiary ledger of information for
  WIP and FG.
• Any time you make an entry to WIP, then you
  should also enter information on the related job
  cost tickets.

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Reporting of Cost Data

• The balance sheet will contain the _____ _______
  of the various inventory accounts.
• The income statement will show the COGM and the
  COGS as described in the previous chapter, with
  one exception.
• COGM WIP, beg (DM used DL actual OH)
  overapplied overhead (or underapplied overhead)
  - WIP, end.

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Cost of Good Sold

• ____________is still equal to
• FG inventory, beg
• COGM
• Goods Available for Sale
• - FG inventory, end
• Cost of Goods Sold

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Review the Flow of Costs

• 1. Purchase raw materials
• 2. Incur factory wages
• 3. Incur overhead
• 4. Raw materials used
• 5. Factor labor is applied to jobs
• 6. Overhead is applied to jobs
• 7. Completed jobs are recognized
• 8. Cost of goods sold is recognized.

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Summary of Cost Flows
P3
Dr Cr
Dr Cr
Material Purchases
Dr Cr
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Summary of Cost Flows
P4
DirectMaterial
Incurred
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Summary of Cost Flows
P4
DirectMaterialDirectLaborOverhead