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Job Costing
Chapter 7
Copyright 2011 by The McGraw-Hill Companies, Inc. ll rights reser!e".McGraw-Hill#Irwin
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Defining a Job
L.O. 1 Explain whatjobandjob shop mean.
Job:
Unit of a product that is easily distinguishablefrom other units
Job shop:
Firm that produces jobs
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Production Process at InShape
L.O. 2 Assign costs in a job cost system.
Suppose InShape, Inc. manufactures custom worout
and training e!uipment for schools and gyms.
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Records of Costs at InShape
"aterials #or$in$process
%irect
materials
&aw
materials
Indirect
materials'(erhead
)*$+
+)$+)
+)$+*
-otal
#I
LO
2
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Records of Costs at InShape
/abor #or$in$process
%irect
labor
/abor
Indirect
labor'(erhead
)*$+
+)$+)
+)$+*
-otal
#I
LO
2
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Records of Costs at InShape
'(erhead #or$in$process
'(erhead
)*$+
+)$+)
+)$+*
-otal
#I
'0 costs are applied to each job using the '0&.
LO
2
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Predetermined Rate
L.O. 3 1ccount for o(erhead using predetermined rates.
-he estimated manufacturing o(erhead predetermined
rate is the estimated o(erhead di(ided by the estimated
acti(ity for the allocation base.
InShape uses estimates based on annual manufacturing
o(erhead and annual production (olume.
2ecause it does not want erratic or monthly costs or
production (olumes to affect the long$run production costs.
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An Alternative Method of Recording
and Applying Manufacturing verhead
1ssume InShape maintains two manufacturing
o(erhead accounts:
"anufacturing '(erhead 3ontrol
Used to trac all actual o(erhead e4penses
1pplied "anufacturing '(erhead
Used to allocate o(erhead to jobs based
on the predetermined '0 rate
Some companies combine these two accounts
into one account.
LO
3
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An Alternative Method of Recording
and Applying Manufacturing verhead
Underapplied o(erhead
-he e4cess of actual o(erhead costs incurred
o(er applied o(erhead costs
'(erapplied o(erhead
-he e4cess of applied o(erhead costs o(er
actual o(erhead costs incurred
LO
3
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!riting ff ver" or
#nderapplied verhead
Some firms use only one '0 account.
In this condition, the debit side of the '0 account contains
actual data and the credit side contains applied data.
For either condition of under$ or o(erapplied, actual must
e!ual applied in the '(erhead control account at the end
of the period.
'(erhead
)*,+++
5,6++),76+
6,+++
)),*++
6),86+
85,+++
*,86+
6),86+
3ost of 9oods Sold
)+8,+++
*,86+)+,86+
LO
3
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Allocating ver" or
#nderapplied verhead
Some companies prorate the o(er;under
applied "'0 to #I, F9, and 3'9S.
Work-in-Process Inventory
Finished Goods Inventory
Cost of Goods Sold
Total
$ 31,5
!",5
1#,
$3##,
%!&
'%'&
3%!&
1%&
Costs & of Total
(cco)nts at *an)ary 31
LO
3
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#sing $ormal% Actual%
and Standard Costing
allocation base.
LO
3
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#sing Job Costing in
Service rgani&ations
L.O. 4 Apply job costing methods in service organizations.
Ser(ice organi?ations use fewer direct materials
than manufacturing companies.
Ser(ice companies@ o(erhead accounts ha(e
slightly different names.
Finished goods =or ser(ices> are charged to
3ost of Ser(ices 2illed.
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#sing Job Costing in
Service rgani&ations
/abor #or in process
%irect
labor
/abor
Indirect
labor'(erhead
3lient 1
3lient 2
3lient 3
-otal
#I
LO
4
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'thical Issues
L.O. 5 Understand the ethical issues in job costing.
Improprieties Include:
A "isstating the stage of completion
A 3harging costs to the wrong jobs
A "isrepresenting the cost of jobs
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Managing Pro(ects
L.O. 6 Describe the diference between jobs and projects.
1 project is a comple4 job that often taes months
or years to complete and re!uires the wor of many
departments, di(isions, or subcontractors.
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'nd of Chapter 7
Copyright 2011 by The McGraw-Hill Companies, Inc. ll rights reser!e".McGraw-Hill#Irwin