Job Order Costing Process or JobOrder Costing Manufacturer
Job. Order Costing
Process or Job-Order Costing? • • • Manufacturer of glue textbook publisher An oil refinery Manufacturer of powdered milk Manufacturer of ready-mix cement Custom home builder Shop for customizing vans Chemical manufacturer Auto repair shop Tire manufacturing plant Advertising agency Law office
Job Order Cost Components Materials Labor Overhead
Job Order Cost Components Materials Labor Overhead Work In Process Job Cost Sheet #832 Job Cost Sheet #831 Materials $xxx Job Cost Sheet #830 Direct Labor $xxx Materials Manufacturing Materials Direct Labor$xxx Overhead xxx Direct Labor xxx Manufacturing Overhead xxx Totalxxx $xxx Overhead Total $xxx
Job Order Cost Components Materials Labor Overhead Work In Process Job Cost Sheet #832 Job Cost Sheet #831 Materials $xxx Job Cost Sheet #830 Direct Labor $xxx Materials Manufacturing Materials Direct Labor$xxx Overhead xxx Direct Labor xxx Manufacturing Overhead xxx Totalxxx $xxx Overhead Total $xxx
Job Order Cost Components Materials Labor Overhead Work In Process Job Cost Sheet #832 Job Cost Sheet #831 Materials $xxx Job Cost Sheet #830 Direct Labor $xxx Materials Manufacturing Materials Direct Labor$xxx Overhead xxx Direct Labor xxx Manufacturing Overhead xxx Totalxxx $xxx Overhead Total $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 items being made Cost in this. Sheet production run OAK & GLASS FURNITURE CO. JOB COST SHEET Product French Court dining tables Date started 4/03/97 Number of units manufactured 100 Date completed 4/21/97 MFG. DEPT. DIRECT LABOR MATERIALS HOURS COST 831 MFG. OVERHEAD 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
Job Cost Sheet OAK & GLASS FURNITURE CO. JOB COST SHEET Product French Court dining tables Date started 4/03/97 Number of units manufactured 100 Date completed 4/21/97 MFG. DEPT. DIRECT LABOR MATERIALS HOURS COST 831 MFG. OVERHEAD 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 look at overhead.
Estimated Overhead for the Entire Year Cost Driver = Overhead Rate
$320, 000 Cost Driver = Overhead Rate
$320, 000 40, 000 direct labor hours = Overhead Rate
$320, 000 40, 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 $1, 404 Direct Labor Manufacturing Overhead $180 ?
JOB COST SHEET Direct Materials $1, 404 Direct Labor Manufacturing Overhead $180 ? $8 per DLH
JOB COST SHEET Direct Materials $1, 404 Direct Labor Manufacturing Overhead $180 ? 27 labor hours
JOB COST SHEET Direct Materials $1, 404 Direct Labor Manufacturing Overhead $180 ? 27 labor hours x $8
JOB COST SHEET Direct Materials $1, 404 Direct Labor $180 Manufacturing Overhead $216
JOB COST SHEET Direct Materials $1, 404 Direct Labor $180 $1, 800 Manufacturing Overhead $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
On April 1, Rand Company had $7, 000 in raw materials on hand. Another $60, 000 was purchased (p. 95). Raw Materials 7, 000
On April 1, Rand Company had $7, 000 in raw materials on hand. Another $60, 000 was purchased (p. 95). Raw Materials Accounts Payable Raw Materials 7, 000 60, 000
During April, $52, 000 in raw materials were requisitioned. Of these, $2, 000 were indirect. Work in Process Manufacturing Overhead Raw Materials 7, 000 60, 000 50, 000 2, 000 Note that indirect materials are overhead! Work in Process 30, 000 50, 000
During April, $52, 000 in raw materials were requisitioned. Of these, $2, 000 were indirect. Work in Process Manufacturing Overhead Raw Materials 7, 000 52, 000 60, 000 50, 000 2, 000 52, 000 Work in Process 30, 000 50, 000
Labor cost for April were: direct labor, $60, 000; indirect labor, $15, 000. Work in Process 60, 000 Manufacturing Overhead 15, 000 Salaries and Wages Payable Raw Materials 7, 000 52, 000 60, 000 75, 000 Work in Process 30, 000 50, 000 60, 000
Rand Company experienced actual overhead costs totaling $40, 000. IM IL Manufacturing Overhead 2, 000 15, 000
Rand Company experienced actual overhead costs totaling $40, 000. Manufacturing Overhead IM 2, 000 IL 15, 000 Utilities 21, 000 Rent 16, 000 Misc. 3, 000
Received a bill for accrued property taxes, $13, 000. Manufacturing Overhead IM 2, 000 IL 15, 000 Utilities 21, 000 Rent 16, 000 Misc. 3, 000 Prop. taxes 13, 000
Paid insurance on factory, $7, 000. Manufacturing Overhead IM 2, 000 IL 15, 000 Utilities 21, 000 Rent 16, 000 Misc. 3, 000 Prop. taxes 13, 000 Insurance 7, 000
Depreciation on factory equipment, $18, 000. Manufacturing Overhead IM 2, 000 IL 15, 000 Utilities 21, 000 Rent 16, 000 Misc. 3, 000 Prop. tax 13, 000 Insurance 7, 000 Deprec. 18, 000
Manufacturing Overhead The debit side of Manufacturing IM 2, 000 Overhead is the IL 15, 000 ACTUAL side. Utilities 21, 000 Rent 16, 000 Misc. 3, 000 Prop. tax 13, 000 Insurance 7, 000 Deprec. 18, 000 95, 000
Assume that overhead is applied at the Manufacturing Overhead rate of $6 per machine hour. During the month, 15, 000 machine hours were used on two jobs. By multiplying 15, 000 x 6 we arrive at the applied overhead amount of $90, 000.
During the month, 15, 000 machine hours Overhead overhead were used to. Manufacturing two jobs. Estimated is $90, 000. Work in Process 90, 000 Manufacturing Overhead 90, 000
During the month, 15, 000 machine hours Overhead overhead were used to. Manufacturing two jobs. Estimated is $90, 000. Work in Process 90, 000 Manufacturing Overhead Work in Process 30, 000 50, 000 60, 000 90, 000
Manufacturing Overhead IM 2, 000 Applied O/H 90, 000 IL 15, 000 Utilities 21, 000 Rent 16, 000 15, 000 x $6 Misc. 3, 000 Prop. tax 13, 000 The credit side Insurance 7, 000 is the “applied” Deprec. 18, 000 or “estimated” 95, 000 side.
Manufacturing Overhead IM 2, 000 Applied O/H 90, 000 IL 15, 000 You might Utilities 21, 000 think of it as Rent 16, 000 the EAST side. Misc. 3, 000 Prop. tax 13, 000 Insurance 7, 000 Deprec. 18, 000 95, 000
Job A was completed at a cost of Overhead $158, 000 Manufacturing and transferred to finished goods.
Job A was completed at a cost of Overhead $158, 000 Manufacturing and transferred to finished goods. Finished Goods Work in Process Finished Goods 158, 000 Work in Process 30, 000 158, 000 50, 000 60, 000 90, 000
Three-fourths of the units were sold on Manufacturing Overhead account for $225, 000.
Three-fourths of the units were sold on Manufacturing Overhead account for $225, 000. Accounts Receivable Sales The Retail Portion 225, 000
Three-fourths of the units were sold on Manufacturing Overhead account for $225, 000. Accounts Receivable Sales 225, 000 Cost of Goods Sold Finished Goods 118, 500 The Cost Portion 225, 000 118, 500
Three-fourths of the units were sold on Manufacturing Overhead account for $225, 000. Accounts Receivable Sales 225, 000 Cost of Goods Sold Finished Goods 118, 500 Finished Goods 158, 000 118, 500 225, 000 118, 500
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 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
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