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11-12-1
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Job Order Costing
Student Version
11-22-2
1
Describe cost accounting systems used by manufacturing businesses.
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11-32-3
Cost Accounting System Overview
A job order cost system provides product costs for each quantity of product that is manufactured. Each quantity of product that is manufactured is termed a job. Manufacturers that use a job order cost system are sometimes called job shops.
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11-42-4
A process cost system provides product costs for each manufacturing department or process. Process cost systems are often used by companies that manufacture units of a product that are indistinguishable from each other and are manufactured using a continuous production process.
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Cost Accounting System Overview
11-52-52-5
2
Describe and illustrate a job order cost accounting system.
11-62-6
Materials Information and Cost Flows
To Materials Requisitions
a.
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Exhibit 3
11-72-7
From Materials Ledger Account
Job Cost Sheets
Materials Requisitions
b.
b.
b.
b.
2Materials Information and Cost Flows (continued)Exhibit 3
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The journal entry to record the supplier’s invoice related to Receiving Report 196 is as follows:
InvoiceReceiving
Report No. 196
750 units of No. 8 Maple
Wood
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11-92-9
A summary of the materials requisitions is used as a basis for the journal entry recording the materials used for the month. For the requisition of direct materials, the following entry is made:
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11-102-10
On December 26, 2010, S. Andrews spent eight hours on Job 72 at an hourly rate of $15 for a cost of $120 (8 hrs. × $15). A total of 500 hours was spent by all employees who worked on Job 72 during December, for a total cost of $7,500.
A Closer Look at Job 72
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December Job 72 (500 hours) for a total cost
of $7,500
to Job Cost Sheet
Labor Information and Cost Flows (a closer look)
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(continued)
Exhibit 4
11-122-12
The same procedure is followed for Job 71.
from Time
Sheets
Labor Information and Cost Flows (continued)
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Exhibit 4
11-132-13
A total of 500 hours was spent by employees on Job 72 during December for a total cost of $7,500. A summary of the time tickets is used as the basis for the following journal entry:
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11-142-14
Factory Overhead Cost
Factory overhead includes all manufacturing costs except direct materials and direct labor. Factory overhead costs are derived from a variety of sources including the following:1. Indirect materials2. Indirect labor3. Factory power4. Factory depreciation
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11-152-15
The factory overhead of $4,600 incurred in December for Legend Guitars would be recorded as follows:
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11-162-16
To provide current job costs, factory overhead may be allocated or applied to production using a predetermined factory overhead rate.
Predetermined Factory Overhead Rate
Predetermined Factory Overhead Rate
Estimated TotalFactory Overhead Costs
Estimated Activity Base=
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11-172-17
Management estimates factory overhead costs to be $50,000 and the activity base to be 10,000 direct labor hours. The predetermined overhead rate is calculated in Slide 18.
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Estimated Total Factory Overhead Costs Estimated Activity Base
Predetermined Factory
Overhead Rate=
$50,000
10,000 direct labor hours
Predetermined Factory
Overhead Rate=
= $5 per direct labor hour
Predetermined Factory
Overhead Rate
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11-192-19
The textbook shows two jobs that were worked on in December. When overhead is applied to both jobs, the entry is for $4,250 ($1,750 + $2,500).
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Overapplied and Underapplied Factory Overhead
Underapplied balance
Overapplied balance
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Disposal of Factory Overhead Balance
An ending debit balance (underapplied overhead) in the factory overhead account is disposed of by the following entry:
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Disposal of Factory Overhead Balance
An ending credit balance (overapplied overhead) in the factory overhead account is disposed of by the following entry:
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Work in Process
During the period, Work in Process is increased (debited) for the following:1. Direct material cost2. Direct labor cost
3. Applied factory overhead cost
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11-242-24
At the end of the accounting period (December 31) the total costs for Job 71 are determined and the following entry is made:
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11-252-25
Sales and Cost of Goods Sold
During December, Legend Guitars sold 40 Jazz Series guitars for $850, generating total sales of $34,000 ($850 × 40 guitars).
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11-262-26
The cost of the guitars sold was $500 per guitar or a total cost of $20,000 ($500 × 40 guitars).
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• Selling expenses are incurred in marketing the product and delivering the sold product to the customer.
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• Administrative expenses are incurred in managing the company, but are not related to the manufacturing or selling functions.
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During December, Legend Guitars recorded the following selling and administrative expenses:
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Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000
Materials Factory Overhead Work in Process
a. Materials purchased during December
Materials LedgerNo. 8 Wood—Maple
Glue
Sandpaper
Dec. 1 6,000
Dec. 1 200
Dec. 1 300
Credit Accounts Payable for $10,500
(a) 10,500
(a) 10,500
Flow of Manufacturing Costs for Legend Guitars
2
Exhibit 8
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Materials Factory Overhead Work in ProcessDec. 1 6,500 Dec. 1 200 Dec. 1 3,000
b. Materials requisitioned to jobs
Materials LedgerNo. 8 Wood—Maple
Glue
Sandpaper
Dec. 1 6,000
Dec. 1 200
Dec. 1 300
(a) 10,500(b) 13,000
(a) 10,500 (b) 13,000
(b) 13,000
20 Units of Jazz Series Guitars, Job 71Dec. 1 3,000
60 Units of American Series Guitars, Job 72
Job Cost Sheets
(b) Direct materials 2,000
(b) Direct materials 11,000
2Flow of Manufacturing Costs for Legend Guitars (continued)
Exhibit 8
(continued)
11-312-31
Materials Factory Overhead Work in Process
c. Factory labor used in productions of jobs
Materials LedgerNo. 8 Wood—Maple
Glue
Sandpaper
Dec. 1 6,000
Dec. 1 200
Dec. 1 300
(a) 10,500(b) 13,000
(a) 10,500 (b) 13,000 (c) 11,000
Credit Wages Payable, $11,000
Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000(b) 13,000
2Flow of Manufacturing Costs for Legend Guitars (continued)
Exhibit 8
(continued)
11-322-32
Materials Factory Overhead Work in Process
Materials LedgerNo. 8 Wood—Maple
Glue
Sandpaper
Dec. 1 6,000
Dec. 1 200
Dec. 1 300
(a) 10,500(b) 13,000
(a) 10,500 (b) 13,000 (c) 11,000
20 Units of Jazz Series Guitars, Job 71Dec. 1 3,000(b) Direct materials 2,000
60 Units of American Series Guitars, Job 72(b) Direct materials 11,000
Job Cost Sheets
Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000(b) 13,000
(c) Direct labor 3,500
(c) Direct labor 7,500
2Flow of Manufacturing Costs for Legend Guitars (continued)
Exhibit 8
(continued)
11-332-33
Materials Factory Overhead Work in Process
d. Factory overhead incurred in production
Materials LedgerNo. 8 Wood—Maple
Glue
Sandpaper
Dec. 1 6,000
Dec. 1 200
Dec. 1 300
(a) 10,500(b) 13,000
(a) 10,500 (b) 13,000
(d) 500
(c) 11,000 (d) 500
Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000(b) 13,000
(d) 200
(d) 300
Indirect materials used, $500
2Flow of Manufacturing Costs for Legend Guitars (continued)
Exhibit 8
(continued)
11-342-34
Materials Factory Overhead Work in Process
d. Factory overhead incurred in production
Materials LedgerNo. 8 Wood—Maple
Glue
Sandpaper
Dec. 1 6,000
Dec. 1 200
Dec. 1 300
(a) 10,500(b) 13,000
(a) 10,500 (b) 13,000
(d) 500
(c) 11,000 (d) 500 (d) 900
Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000(b) 13,000
(d) 200
(d) 300
Utility bill, $900
2Flow of Manufacturing Costs for Legend Guitars (continued)
Exhibit 8
(continued)
credit Utilities Payable, $900
11-352-35
Materials Factory Overhead Work in Process
d. Factory overhead incurred in production
Materials LedgerNo. 8 Wood—Maple
Glue
Sandpaper
Dec. 1 6,000
Dec. 1 200
Dec. 1 300
(a) 10,500(b) 13,000
(a) 10,500 (b) 13,000
(d) 500
(c) 11,000 (d) 500 (d) 900
Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000(b) 13,000
(d) 200
(d) 300
(d) 1,200
Depreciation on factory machinery, $1,200
2Flow of Manufacturing Costs for Legend Guitars (continued)
Exhibit 8
(continued)
credit Accumulated Deprecation, $1,200
11-362-36
Materials Factory Overhead Work in Process
Materials LedgerNo. 8 Wood—Maple
Glue
Sandpaper
Dec. 1 6,000
Dec. 1 200
Dec. 1 300
(a) 10,500(b) 13,000
(a) 10,500 (b) 13,000
(d) 500
(c) 11,000 (d) 500 (d) 900
Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000(b) 13,000
(d) 200
(d) 300
(d) 1,200
Indirect labor, $2,000
(d) 2,000
d. Factory overhead incurred in production
2Flow of Manufacturing Costs for Legend Guitars (continued)
Exhibit 8
(continued)
credit Wages Payable, $2,000
11-372-37
e. Factory overhead is applied to jobs according to the predetermined overhead rate
2Flow of Manufacturing Costs for Legend Guitars (continued)
Exhibit 8
(continued)
11-382-38
Materials Factory Overhead Work in Process
Materials LedgerNo. 8 Wood—Maple
Glue
Sandpaper
Dec. 1 6,000
Dec. 1 200
Dec. 1 300
(a) 10,500(b) 13,000
(a) 10,500 (b) 13,000
(d) 500
(c) 11,000 (d) 500 (d) 900
Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000(b) 13,000
(d) 200
(d) 300
(d) 1,200 (d) 2,000
(e) 4,250
(e) 4,250
20 Units of Jazz Series Guitars, Job 71Dec. 1 3,000(b) Direct materials 2,000(c) Direct labor 3,500
60 Units of American Series Guitars, Job 72(b) Direct materials 11,000(c) Direct labor 7,500
Job Cost Sheets
(e) Factory overhead 1,750
(e) Factory overhead 2,500
2Flow of Manufacturing Costs for Legend Guitars (continued)
Exhibit 8
(continued)
11-392-39
f. Closed underapplied factory overhead to cost of goods sold
Materials Factory Overhead Work in Process
Materials LedgerNo. 8 Wood—Maple
Glue
Sandpaper
Dec. 1 6,000
Dec. 1 200
Dec. 1 300
(a) 10,500(b) 13,000
(a) 10,500 (b) 13,000
(d) 500
(c) 11,000 (d) 500 (d) 900
Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000(b) 13,000
(d) 200
(d) 300
(d) 1,200 (d) 2,000
(e) 4,250
(e) 4,250
(f) 150
debit Cost of Goods Sold, $150
2Flow of Manufacturing Costs for Legend Guitars (continued)
Exhibit 8
(continued)
11-402-40
g. Job 71 completed in December
Materials Factory Overhead Work in Process
Materials LedgerNo. 8 Wood—Maple
Glue
Sandpaper
Dec. 1 6,000
Dec. 1 200
Dec. 1 300
(a) 10,500(b) 13,000
(a) 10,500 (b) 13,000
(d) 500
(c) 11,000 (d) 500 (d) 900
Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000(b) 13,000
(d) 200
(d) 300
(d) 1,200 (d) 2,000
(e) 4,250
(e) 4,250
(f) 150
(g) 10,250
20 Units of Jazz Series Guitars, Job 71Dec. 1 3,000(b) Direct materials 2,000(c) Direct labor 3,500(d) Factory overhead 1,750
10,250
Job Cost Sheets
2Flow of Manufacturing Costs for Legend Guitars (continued)
Exhibit 8
(continued)
11-412-41
Materials Factory Overhead Work in Process
Materials LedgerNo. 8 Wood—Maple
Glue
Sandpaper
Dec. 1 6,000
Dec. 1 200
Dec. 1 300
(a) 10,500(b) 13,000
(a) 10,500 (b) 13,000
(d) 500
(c) 11,000 (d) 500 (d) 900
Dec. 1 6,500 Dec. 1 200 Dec. 1 3,000(b) 13,000
(d) 200
(d) 300
(d) 1,200 (d) 2,000
(e) 4,250
(e) 4,250
(f) 150
(g) 10,250
Dec. 1 20,000 (g) 10,250
Finished Goods
Dec. 1 20,000 (g) 10,250
Finished Goods Ledger
Jazz Series Guitars
2Flow of Manufacturing Costs for Legend Guitars (continued)
Exhibit 8
(continued)
11-422-42
Work in Process (b) 13,000 (c) 11,000
Dec. 1 3,000
(e) 4,250
(g) 10,250
Dec. 1 20,000 (g) 10,250
Finished Goods
Dec. 1 20,000 (g) 10,250
Finished Goods LedgerJazz Series Guitars
(f) 150
Cost of Goods Sold
h. Sold 40 units of Jazz Series guitars on account
Accounts Receivable XXX Sales XXX
2Flow of Manufacturing Costs for Legend Guitars (continued)
Exhibit 8
(continued)
11-432-43
Work in Process (b) 13,000 (c) 11,000
Dec. 1 3,000
(e) 4,250
(g) 10,250
Dec. 1 20,000 (g) 10,250
Finished Goods
Dec. 1 20,000 (g) 10,250
Finished Goods LedgerJazz Series Guitars
(i) 20,000(f) 150
Cost of Goods Sold
i. Cost of 40 units of Jazz Series guitars sold
(i) 20,000
(i) 20,000
2Flow of Manufacturing Costs for Legend Guitars (continued)
Exhibit 8
(continued)
11-442-44
3
Describe the use of job order cost information for decision making.
2-44
11-452-45
Job Order Costing for Decision Making
A job order cost accounting system accumulates and records product costs by jobs. The resulting total and unit product costs can be compared to similar jobs, compared over time, or compared to expected costs.
3
11-462-46
4
Describe the flow of costs for a service business that uses a job order cost accounting system.
2-46
11-472-47
Job Order Cost Systems for Professional Service Businesses
Since the “product” of a service business is service, management’s focus is on direct labor and overhead costs. A job cost sheet is used to accumulate the costs for each client’s job. When the job is completed and the client billed, the costs are transferred to a Cost of Services account.
4
11-482-48