copyright © 2007 prentice-hall. all rights reserved 1 job order costing chapter 19

Copyright © 2007 Prentice-Hall. All rights reserved 1

Job Order CostingJob Order CostingJob Order CostingJob Order Costing

Chapter 19


Objective 1Objective 1Objective 1Objective 1

Distinguish between job order costing and process costing


Cost SystemsCost SystemsCost SystemsCost Systems

• There are two basic systems used by manufacturers to assign costs to their products:– Job order costing

• Used by companies that produce unique products or specialized services

• Costs are accumulated by jobs

– Process costing• Used by companies that produce identical units• Costs are accumulated by each process that is

needed to complete a product


S19-1S19-1S19-1S19-1

a. A manufacturer of plywood would use

b. A manufacturer of wakeboards would use

c. A manufacturer of luxury yachts would use

d. A professional services firm would use

e. A landscape garden contractor would use

process costing.

process costing.

job costing.

job costing.

job costing.



Record materials and labor in a job order costing system


Work in Process

Cost of GoodsSold

Labor

Materials

Ind

irec

t

FinishedGoods

FactoryOverhead

Direct

Direct

Allocate

Cost FlowCost FlowCost FlowCost FlowIn

dir

ect


Raw MaterialsMaterial

PurchasesDirectDirect

MaterialMaterialDirectDirect

MaterialMaterial

Accounting for MaterialsAccounting for Materials

ActualOverhead

Costs

Indirect Material

Manufacturing Overhead

Work in Process


S19-3S19-3S19-3S19-3GENERAL JOURNAL

DATE DESCRIPTION REF DEBIT CREDIT

Materials inventory – canvas 70,000

Accounts payable 70,000

Materials inventory – thread 1,000



S19-3S19-3S19-3S19-3

Date Units Cost Total Mat Req No Units Cost Total Units Cost Total

SUBSIDIARY MATERIALS LEDGER RECORD

Received Used BalanceItem No._________ Description: ______________________C865 Canvas (black)

7/10 7000 $10 70,000 7000 $10 70,000

Date Units Cost Total Mat Req No Units Cost Total Units Cost Total

Received Used BalanceItem No._________ Description: ______________________

SUBSIDIARY MATERIALS LEDGER RECORD

T444 Thread (black)

7/10 50 $20 1,000 50 $20 1,000


Materials RequisitionMaterials RequisitionMaterials RequisitionMaterials Requisition

• Used to authorize the use of materials on a job

• Serves as source document for recording material usage

Item no. Item Quantity Unit cost Amount

MATERIALS REQUISITION NO. _____Date: _______ Job No. _____

89668/03

C865 Black canvas 6,300 $10 63,000

562

T444 Black thread 15 $20 300 Total 63,300




Work in process inventory 63,000

Materials inventory-canvas 63,000

(for direct materials)

Manufacturing overhead 300

Materials inventory-thread 300

(for indirect materials)


S19-3S19-3S19-3S19-3

Raw MaterialsBeginning bal 35,000Purchases 70,000

1,000 63,300 Requisitioned

Ending bal 42,700


Job Cost RecordJob Cost RecordJob Cost RecordJob Cost RecordJob Cost Record

Job No.Customer Name and AddressJob DescriptionDate Promised Date Started Date Completed

Direct Materials Direct Labor Overhead Costs Applied

DateRequisi-tion No. Amount

Time Ticket

No. Amount Date Rate Amount

Overall Cost SummaryMaterialsLaborOverhead

Totals Total Job Cost

562Happy Campers

2,000 backpacks

8/03 8966 63,000

•Subsidiary ledger to work in process inventory•A separate record is kept for each job in process


Work in ProcessIncurred Direct

Material

Manufacturing Wages

Accounting for LaborAccounting for Labor

Manufacturing OverheadActual

OverheadCosts

Indirect Labor

DirectDirectLaborLabor



Labor Time TicketLabor Time TicketLabor Time TicketLabor Time Ticket

LABOR TIME RECORDEmployee ___________ No. ______Job _______

Time: Started: ___________ Rate: ____________ Stopped: __________ Cost of Labor Elapsed: __________ Charged to Job $___________

Employee: _J K ___________ Supervisor: M . M orley

J. Khan K13J9738

80015007 hours

$11.25

$78.75




Manufacturing wages 76,500

Wages payable 76,500

($600 + $900 + $75,000)

Work in process 75,900

Manufacturing overhead 600




Record overhead in a job order costing system

Work in ProcessDirectDirect

MaterialMaterial

Accounting for Manufacturing Accounting for Manufacturing OverheadOverhead

Manufacturing OverheadActual

OverheadCosts

OverheadOverheadApplied to Applied to

Work inWork inProcessProcess

OverheadOverhead


Actual manufacturing overhead costs are debited to the account – indirect labor, indirect materials, plant utilities, depreciation expense on plant assets, etc. Because these costs can not be traced directly to a particular job, an overhead application rate is used to allocate overhead to each job in a systematic way


Total estimated manufacturing overhead costs

Total estimated quantity of the manufacturing overhead allocation base

Predetermined Manufacturing Predetermined Manufacturing Overhead RateOverhead Rate

Predetermined Manufacturing Predetermined Manufacturing Overhead RateOverhead Rate

At the beginning of the year, the overhead rate is determined so that the cost of a job can be computed when the job is completed instead of waiting until the end of the year


Allocate Manufacturing OverheadAllocate Manufacturing OverheadAllocate Manufacturing OverheadAllocate Manufacturing Overhead

Predetermined manufacturing overhead x Actual quantity of the allocation based used by each job


E19-19 1.E19-19 1.E19-19 1.E19-19 1.

Total estimated manufacturing overhead costs

Total estimated quantity of the manufacturing overhead allocation base

$100,000 / $80,000 = $1.25 per direct labor dollar


E19-19 2.E19-19 2.E19-19 2.E19-19 2.

GENERAL JOURNALDATE DESCRIPTION REF DEBIT CREDIT

Work in process 80,000

Manufacturing overhead 80,000

Amount to allocate to the job:

$1.25 x $64,000 = $80,000


E19-19 3.E19-19 3.E19-19 3.E19-19 3.

Manufacturing OverheadActual Overhead 83,000 80,000 Overhead Applied

Balance 3,000

Since the overhead rate is an estimate, it is not surprising that there is a balance remaining in the manufacturing overhead account. If the account has a debit balance, actual costs were greater than applied amounts – manufacturing overhead is underapplied.If the account has a credit balance, actual costs were less than the amount applied – manufacturing overhead is overapplied.In this exercise, there is a $3,000 debit balance….overhead is underapplied


E19-19 4.E19-19 4.E19-19 4.E19-19 4.

GENERAL JOURNALDATE DESCRIPTION REF DEBIT CREDIT

Cost of goods sold 3,000


As long as the balance is immaterial, close the manufacturing overhead account against cost of goods sold



Record completion and sales of finished goods and the adjustment for

under- or overallocated overhead


Work in Process•Direct MaterialDirect Material

•Direct LaborDirect Labor

•Manufacturing Manufacturing OverheadOverhead

Finished Goods

Cost of Goods

Manufactured

Cost of Goods Sold

Cost ofGoodsSold

Cost of Goods Sold

Accounting for Finished GoodsAccounting for Finished Goods

Cost of Goods

Manufactured


P19-34BP19-34BP19-34BP19-34BMaterials Finished goods

17,000 Job 90- 44,000

Work in process

61,000

GENERAL JOURNAL


a. Accounts payable 81,000

Cash 81,000

b. Marketing & general expense 22,000

Cash 22,000



17,000 Job 90- 44,000

Work in process

61,000

GENERAL JOURNAL


c. Cash 195,000

Accounts receivable 195,000

d. Materials inventory 55,000


55,000



17,000 44,000

Work in process

61,000

GENERAL JOURNAL


e. Work in process-job 90 4,000

Work in process-job 91 38,000


Materials inventory 49,000

55,00049,000

42,000


P19-34BP19-34BP19-34BP19-34BJob Cost Record




Time Ticket




91Wicom Company

components

e. 8966 38,000



17,000 44,000

Work in process

61,000

GENERAL JOURNAL


f. Manufacturing wages 56,000



Cash 50,500

55,00049,000

42,000



17,000 44,000

Work in process

61,000

GENERAL JOURNAL


g. Work in process-job 90 6,000




55,00049,000

42,00034,000






Time Ticket




91Wicom Company

components

e. 8966 38,000g. T523 28,000



17,000 44,000

Work in process

61,000

GENERAL JOURNAL


h. Manufacturing overhead 7,500

Accumulated depreciation,plant & equipment 7,500

55,00049,000

42,00034,000



17,000 44,000

Work in process

61,000

GENERAL JOURNAL


i. Work in process-job 90 7,200



55,00049,000

42,00034,00040,800






Time Ticket




91Wicom Company

components

e. 8966 38,000g. T523 28,000

i. 120% 33,600



17,000 44,000

Work in process

61,000

GENERAL JOURNAL


j. Finished goods inventory 61,200


55,00049,000

42,00034,00040,800

Job 90: In process, beginning $44,000Direct materials added 4,000Direct labor added 6,000Overhead applied (6,000 x 120%) 7,200 $61,200

61,20061,200



17,000 44,000

Work in process

61,000

GENERAL JOURNAL


k. Accounts receivable 125,000

Sales revenue 125,000


Finished goods inventory 61,200

55,00049,000

42,00034,00040,800

61,20061,200 61,200


P19-34BP19-34BP19-34BP19-34B

e. 7,000

Manufacturing overhead

GENERAL JOURNAL


l. Manufacturing overhead 4,300


g.22,000h. 7,500

i. 40,800

Bal 4,300 4,300

Bal 0

Manufacturing overhead was overapplied by $4,300


P19-34BP19-34BP19-34BP19-34B

Materials Finished goods17,000 44,000

Work in process

61,00055,000

49,00042,00034,00040,800

61,20061,200 61,200

23,000

99,600

61,000

Compare the balance in work in process with the total costs accumulated so far on Job 91



Calculate unit costs for a service company

The costs to track are direct labor and indirect costs. A predetermined indirect cost allocation rate is computed in the same way the manufacturing overhead allocation rate is determined


E19-22E19-22E19-22E19-22

1. Direct labor cost rate:$2,550,000 / 17,000 hrs = $150

Indirect cost allocation rate:Office rent $300,000Support staff salaries 900,000Utilities 330,000 Total $1,530,000

Rate: $1,530,000 / $2,550,000 = 60%


E19-22E19-22E19-22E19-22

2. Predicted cost of job:

Direct labor (220 hrs x $150)$33,000

Indirect cost allocation ($33,000 x 60%)19,800

$52,800


E19-22E19-22E19-22E19-22

3. Bid:

Cost $52,800

Desired profit (50%) 26,400$79,200


End of Chapter 19End of Chapter 19End of Chapter 19End of Chapter 19

copyright © 2007 prentice-hall. all rights reserved 1 job order costing chapter 19

Documents

process slide

use of materials

indirect materials

product slide

record materials

job costing

job order costing system

materials requisition