systems design: job-order costing chapter 3 mcgraw-hill/irwin copyright © 2010 by the mcgraw-hill...

Systems Design: Job-Order Costing

Chapter 3

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Types of Product Costing Systems

ProcessCosting

Job-orderCosting

Many different products are produced each period. Many different products are produced each period.

Products are manufactured to order.Products are manufactured to order.

The unique nature of each order requires tracing or The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost allocating costs to each job, and maintaining cost

records for each job.records for each job.

Many different products are produced each period. Many different products are produced each period.

Products are manufactured to order.Products are manufactured to order.

The unique nature of each order requires tracing or The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost allocating costs to each job, and maintaining cost

records for each job.records for each job.

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Comparing Process and Job-Order Costing

Job-Order Process

Number of jobs worked Many Single Product

Cost accumulated byIndividual

Job Department

Average cost computed by Job Department

3-3

Measuring Direct Materials Cost

3-4

Job-Order Cost Accounting

3-5

The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before

the period begins.

Manufacturing Overhead Application

3-6

Determining Predetermined Overhead RatesPredetermined overhead rates are calculated

using a three-step process.

Estimate the level of

production for the period.

Estimate the level of

production for the period.

Estimate total amount of the allocation base

for the period.

Estimate total amount of the allocation base

for the period.

Estimate total manufacturing

overhead costs.

Estimate total manufacturing

overhead costs.

POHR = ÷ 3-7

Job-Order Cost Accounting

3-8

Job-Order CostingDocument Flow Summary

Job Cost Sheets

Job Cost Sheets

MaterialsRequisitionMaterials

Requisition

Manufacturing Overhead Account

Manufacturing Overhead Account

Direct materials

Indirect materials

MaterialsMaterialsused may beused may be

either direct oreither direct orindirect.indirect.

MaterialsMaterialsused may beused may be

either direct oreither direct orindirect.indirect.

3-9

Job-Order CostingDocument Flow Summary

Job Cost Sheets

Job Cost Sheets

Employee Time Ticket

Employee Time Ticket

Manufacturing Overhead Account

Manufacturing Overhead Account

Anemployee’s

time may be eitherdirect orindirect.

Anemployee’s

time may be eitherdirect orindirect.

Direct Labor

Indirect Labor

3-10

Job-Order CostingDocument Flow Summary

Manufacturing Overhead Account

Manufacturing Overhead Account

OtherActual OHCharges

OtherActual OHCharges

Job Cost Sheets

Job Cost Sheets

POHR rate used to apply overhead

MaterialsRequisitionMaterials

Requisition

EmployeeTime TicketEmployee

Time TicketIndirectLabor

IndirectMaterial

3-11

Raw MaterialsMaterial

Purchases

Mfg. Overhead

Work in Process(Job Cost Sheet)

Actual Applied

Direct Materials Direct

Materials

Indirect Materials

Indirect Materials

The Purchase and Issue of Raw Materials

3-12

Cost Flows – Material Purchases

Raw material purchases are recorded in aninventory account.

3-13

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.

3-14

Mfg. Overhead

Salaries and Wages Payable

Work in Process(Job Cost Sheet)

Direct

MaterialsDirect Labor

Direct Labor

Indirect Materials

Actual Applied

IndirectLabor

IndirectLabor

The Recording of Labor Costs

3-15

Mfg. Overhead

Salaries and Wages Payable

Work in Process(Job Cost Sheet)

Direct

MaterialsDirect Labor

Direct Labor

Indirect Materials

Actual Applied

IndirectLabor

IndirectLabor

Applying Manufacturing Overhead

OtherOverhead

Overhead Applied

OverheadApplied to

Work inProcess

If actual and applied manufacturing overheadare not equal, a year-end adjustment is required.

If actual and applied manufacturing overheadare not equal, a year-end adjustment is required.

3-16

Finished GoodsWork in Process(Job Cost Sheet)

Direct

MaterialsDirect Labor

Overhead Applied

Cost ofGoodsMfd.

Cost ofGoodsMfd.

Transferring Completed Units

3-17

End of Chapter 3

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