job-order costing

Job-Order Costin

g

Process or Job-Order Costing?

• Manufacturer of glueManufacturer of glue• textbook publishertextbook publisher• An oil refineryAn oil refinery• Manufacturer of powdered milkManufacturer of powdered milk• Manufacturer of ready-mix cementManufacturer of ready-mix cement• Custom home builderCustom home builder• Shop for customizing vansShop for customizing vans• Chemical manufacturerChemical manufacturer• Auto repair shopAuto repair shop• Tire manufacturing plantTire manufacturing plant• Advertising agencyAdvertising agency• Law officeLaw office

Job Order Cost Components

MaterialsMaterialsMaterialsMaterials

LaborLaborLaborLabor

OverheadOverheadOverheadOverhead

MaterialsMaterialsMaterialsMaterials

LaborLaborLaborLabor

OverheadOverheadOverheadOverhead

Work In Work In ProcessProcess

Work In Work In ProcessProcess

Job Cost Sheet #832Job Cost Sheet #832

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Cost Sheet #832Job Cost Sheet #832

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Cost Sheet #831Job Cost Sheet #831

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Cost Sheet #831Job Cost Sheet #831

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Cost Sheet #830Job Cost Sheet #830

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Cost Sheet #830Job Cost Sheet #830

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Order Cost Components

MaterialsMaterialsMaterialsMaterials

LaborLaborLaborLabor

OverheadOverheadOverheadOverhead

Work In Work In ProcessProcess

Work In Work In ProcessProcess

Job Cost Sheet #832Job Cost Sheet #832

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Cost Sheet #832Job Cost Sheet #832

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Cost Sheet #831Job Cost Sheet #831

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Cost Sheet #831Job Cost Sheet #831

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Cost Sheet #830Job Cost Sheet #830

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Cost Sheet #830Job Cost Sheet #830

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Order Cost Components

MaterialsMaterialsMaterialsMaterials

LaborLaborLaborLabor

OverheadOverheadOverheadOverhead

Work In Work In ProcessProcess

Work In Work In ProcessProcess

Job Order Cost Components

Job Cost Sheet #832Job Cost Sheet #832

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Cost Sheet #832Job Cost Sheet #832

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Cost Sheet #831Job Cost Sheet #831

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Cost Sheet #831Job Cost Sheet #831

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Cost Sheet #830Job Cost Sheet #830

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Job Cost Sheet #830Job Cost Sheet #830

MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx

TotalTotal $xxx$xxx

Source Documents

• Materials – – Bill of Materials- type and quantity for each unit– Materials Requisition – production for each job

• Labor– Time Ticket– For direct labor - hours and rate for each job

• Overhead – predetermined OH rate x driver• All summarized on Job Cost Sheet

Job Cost SheetSheet

OAK & GLASS FURNITURE CO. JOB COST SHEET 831

Product French Court dining tables Date started 4/03/97

Number of units manufactured 100 Date completed 4/21/97 MFG. DIRECT DIRECT LABOR MFG.

OVERHEAD DEPT. MATERIALS HOURS COST RATE COST APPLIED

Milling &Carving $10,000 70 $14,000 150% $21,000

Finishing 18,000 300 6,000 150% 9,000

COST SUMMARY AND UNIT COSTS

items being items being made in this made in this production production

runrun

Job Cost Sheet

OAK & GLASS FURNITURE CO. JOB COST SHEET 831

Product French Court dining tables Date started 4/03/97

Number of units manufactured 100 Date completed 4/21/97 MFG. DIRECT DIRECT LABOR MFG.

OVERHEAD DEPT. MATERIALS HOURS COST RATE COST APPLIED

Milling &Carving $10,000 70 $14,000 150% $21,000

Finishing 18,000 300 6,000 150% 9,000

COST SUMMARY AND UNIT COSTS

Let’s take a Let’s take a look at look at

overhead.overhead.

Let’s take a Let’s take a look at look at

overhead.overhead.

Estimated Overhead for the Entire Year

Cost Driver

= Overhead Rate

$320,000

Cost Driver

= Overhead Rate

$320,00040,000 direct labor hours

= Overhead Rate

$320,00040,000 direct labor hours

= $8 per dlh

Cost Driver

• Drives the cost up or down with the associated activity

• Use the following drivers (there are others)– Direct Labor Dollars– Direct Labor Hours– Machine Hours– Material Dollars

Fred accepts an order for 150 special

order gadgets.

JOB COST SHEET

Direct Materials Direct Labor Manufacturing Overhead

JOB COST SHEET

Direct Materials Direct Labor Manufacturing Overhead

$1,404 $180 ?

JOB COST SHEET

Direct Materials Direct Labor Manufacturing Overhead

$8 per DLH

$1,404 $180 ?

JOB COST SHEET

Direct Materials Direct Labor Manufacturing Overhead

27 labor hours

$1,404 $180 ?

JOB COST SHEET

Direct Materials Direct Labor Manufacturing Overhead

27 labor hours x $8

$1,404 $180 ?

JOB COST SHEET

Direct Materials Direct Labor Manufacturing Overhead

$1,404 $180 $216

JOB COST SHEET

Direct Materials Direct Labor Manufacturing Overhead

$1,800

$1,404 $180 $216

So, if 150 of these cost $1,800--unit cost must be $12.

Whatever it is, I’m sure the customer will

love it!

Perfect!!!

Application Exercises 3-1,2,3

• pg 114• 3-1 Predetermined oh rate• 3-2 Apply overhead• 3-3 Total Cost and unit cost

The Flow of Cost in Job-Order Costing

Three Inventory Accounts

• Raw Materials• Work in Process• Finished Goods

Three Costs of any product

• Direct Materials• Direct Labor• Overhead

• How do costs flow in and out of the three inventory accounts and the three costs

Raw Materials

7,000

On April 1, Rand Company had On April 1, Rand Company had $7,000 in raw materials on hand. $7,000 in raw materials on hand.

Another $60,000 was purchased (p. Another $60,000 was purchased (p. 95).95).

Raw Materials

7,000

Raw Materials 60,000Accounts Payable 60,000

60,000

On April 1, Rand Company had On April 1, Rand Company had $7,000 in raw materials on hand. $7,000 in raw materials on hand.

Another $60,000 was purchased (p. Another $60,000 was purchased (p. 95).95).

Work in Process 50,000Manufacturing Overhead 2,000

Raw Materials

7,000

60,000

Work in Process

30,000

50,000

Note that indirect

materials are overhead!

During April, $52,000 in raw During April, $52,000 in raw materials were requisitioned. Of materials were requisitioned. Of

these, $2,000 were indirect.these, $2,000 were indirect.

Work in Process 50,000Manufacturing Overhead 2,000

Raw Materials 52,000

Raw Materials

7,000

60,000

52,000

Work in Process

30,000

50,000

During April, $52,000 in raw During April, $52,000 in raw materials were requisitioned. Of materials were requisitioned. Of

these, $2,000 were indirect.these, $2,000 were indirect.

Raw Materials

7,000

Work in Process 60,000Manufacturing Overhead 15,000

Salaries and Wages Payable 75,000

60,000

52,000

Work in Process

30,000

50,000

60,000

Labor cost for April were: direct Labor cost for April were: direct labor, $60,000; indirect labor, labor, $60,000; indirect labor,

$15,000.$15,000.

Manufacturing OverheadIM 2,000IL 15,000

Rand Company experienced actual Rand Company experienced actual overhead costs totaling $40,000.overhead costs totaling $40,000.

Manufacturing OverheadIM 2,000IL 15,000Utilities 21,000Rent 16,000Misc. 3,000

Rand Company experienced actual Rand Company experienced actual overhead costs totaling $40,000.overhead costs totaling $40,000.

Manufacturing OverheadIM 2,000IL 15,000Utilities 21,000Rent 16,000Misc. 3,000Prop. taxes13,000

Received a bill for accrued Received a bill for accrued property taxes, $13,000.property taxes, $13,000.

Manufacturing OverheadIM 2,000IL 15,000Utilities 21,000Rent 16,000Misc. 3,000Prop. taxes13,000Insurance7,000

Paid insurance on factory, Paid insurance on factory, $7,000.$7,000.

Manufacturing OverheadIM 2,000IL 15,000Utilities 21,000Rent 16,000Misc. 3,000Prop. tax13,000Insurance7,000Deprec. 18,000

Depreciation on factory Depreciation on factory equipment, $18,000.equipment, $18,000.

Manufacturing OverheadIM 2,000IL 15,000Utilities 21,000Rent 16,000Misc. 3,000Prop. tax13,000Insurance7,000Deprec. 18,000 95,000

The debit side of Manufacturing Overhead is the ACTUAL side.

Manufacturing OverheadAssume that overhead is applied Assume that overhead is applied

at the rate of $6 per machine at the rate of $6 per machine hour. During the month, 15,000 hour. During the month, 15,000 machine hours were used on two machine hours were used on two jobs. By multiplying 15,000 x 6 jobs. By multiplying 15,000 x 6

we arrive at the we arrive at the appliedapplied overhead overhead amount of $90,000amount of $90,000. .

Manufacturing OverheadDuring the month, 15,000 machine During the month, 15,000 machine

hours were used to two jobs. hours were used to two jobs. Estimated overhead is $90,000.Estimated overhead is $90,000.

Work in Process 90,000Manufacturing Overhead 90,000

Work in Process 90,000Manufacturing Overhead 90,000

Work in Process

30,000

50,000

60,000

90,000

Manufacturing OverheadDuring the month, 15,000 machine During the month, 15,000 machine

hours were used to two jobs. hours were used to two jobs. Estimated overhead is $90,000.Estimated overhead is $90,000.

Manufacturing OverheadIM 2,000IL 15,000Utilities 21,000Rent 16,000Misc. 3,000Prop. tax13,000Insurance7,000Deprec. 18,000 95,000

Applied O/H 90,000

15,000 x $6

The credit side is the “applied” or “estimated”

side.

Manufacturing OverheadIM 2,000IL 15,000Utilities 21,000Rent 16,000Misc. 3,000Prop. tax13,000Insurance7,000Deprec. 18,000 95,000

Applied O/H 90,000

You might think of it as

the EAST side.

Manufacturing OverheadJob A was completed at a cost of Job A was completed at a cost of

$158,000 and transferred to $158,000 and transferred to finished goods.finished goods.

Manufacturing OverheadJob A was completed at a cost of Job A was completed at a cost of

$158,000 and transferred to $158,000 and transferred to finished goods.finished goods.

Finished Goods 158,000 Work in Process 158,000

Work in Process

30,000

50,000

60,000

90,000

Finished Goods

158,000 158,000

Manufacturing OverheadThree-fourths of the units were Three-fourths of the units were sold on account for $225,000.sold on account for $225,000.

Manufacturing OverheadThree-fourths of the units were Three-fourths of the units were sold on account for $225,000.sold on account for $225,000.

Three-fourths of the units were Three-fourths of the units were sold on account for $225,000.sold on account for $225,000.

Accounts Receivable 225,000 Sales 225,000

The Retail Portion

Manufacturing OverheadThree-fourths of the units were Three-fourths of the units were sold on account for $225,000.sold on account for $225,000.

Three-fourths of the units were Three-fourths of the units were sold on account for $225,000.sold on account for $225,000.

Accounts Receivable 225,000 Sales 225,000

Cost of Goods Sold 118,500Finished Goods 118,500

The Cost Portion

Accounts Receivable 225,000 Sales 225,000

Cost of Goods Sold 118,500Finished Goods 118,500

Finished Goods

158,000 118,500

Manufacturing OverheadThree-fourths of the units were Three-fourths of the units were sold on account for $225,000.sold on account for $225,000.

Application

• Exercise 3-4 pg 114-5

How do you handle the difference in Overhead

• 1. Close out to Cost of Goods Sold• 2. Allocate among WIP, FG, COGS

1. Close out to Cost of Goods Sold

under applied – need to increase COGS

Overhead-----------------1500 |1400

COGS 100 OH 100

over applied - decrease COGS Overhead-----------------------1400 | 1500

OH 100 COGS 100

Application

• Exercise 3-5 pg 115 • includes under/over applied overhead basic

method

2. Allocate among WIP, FG, COGS

• Determine the OH cost per unit• Determine the number of units in each

WIP,FG,COGS• Multiply the number of units by the OH cost

per unit to determine the cost• Determine the percentage of costs in each • Multiply the under or over applied by %

• Journal Entry

• WIP• FG• COGS• OH

Application

• Exercise 3-16 pg 119• Allocate to WIP, FG and COGS

How do we report the three inventories and costs?

Cost of Goods Manufactured (COGM)

– Direct Material – uses Raw Materials Inventory– Direct Labor– Overhead=Total Manufacturing Costs- Work In Process Inventory=COGM

Cost of Direct Materials

– Direct Material• Beginning Raw Materials• Plus: net purchases• Available raw materials• Less Ending Raw Materials• = Cost of Materials Used in Production• Less Indirect materials• =Cost of Direct Materials

Cost of Direct Labor/Overhead

• Direct Labor• Applied Overhead• =Total Manufacturing Cost• +beginning WIP• -ending WIP• COGM

Cost Of Goods Sold-Income Statement Acct

• Beginning Finished Goods Inventory• + COGM• Available for Sale• Less Ending Finished Goods Inventory• = Cost of Goods Sold ( unadjusted)• Adjustment (underapplied/overapplied)• Adjusted Cost of Goods Sold

Application

• Exercise 3-6• Schedule of COGM and COGS

• HOMEWORK 3-9 Applying overhead• 3-10 Computing unit cost• 3-11 Journal Entries• 3-12 Overhead rates• 3-13 COGM