Learning Objectives

1
Learning Objectives

• Describe the differences between job-order
  costing and process costing, and identify the
  types of firms that would use each method.
• Describe the cost flows and prepare the journal
  entries associated with job-order costing.
• Identify and set up the source documents used in
  job-order costing.

2
Comparison of Job-Order andProcess Costing

• Job-Order Costing Process Costing
• 1. Wide variety of distinct 1. Homogeneous
  products products
• 2. Cost accumulated by job 2. Costs accumulated
  by process or department
• 3. Unit cost computed by 3. Unit cost computed
  by dividing total job costs dividing process
  costs of by units produced on that the period
  by the units job produced in the period

3
Johnson Leathergoods - Example

• Suppose that Stan Johnson forms a new company,
  Johnson Leathergoods, which specializes in the
  production of custom leather products. Stan
  believes that there is a market for one-of-a-kind
  leather purses, briefcases, and backpacks. In
  its first month of operation, he obtains two
  orders the first is for 20 leather backpacks for
  a local sporting goods store the second is for
  10 distinctively tooled briefcases for the
  coaches of a local college. Stan agrees to
  provide these orders at a price of cost plus 50
  percent.

4
Johnson Leathergoods - Unit Cost

• Direct materials 1,000
• Direct labour 1,080
• Overhead 240
• Total cost 2,320
• ? number of units ? 20
• Unit cost 116

5
Job-Order Costing Material Purchases

• A. Raw materials account is debited for the
  cost of materials purchased

Raw Materials
Work in Process
(A)
6
Exercise 5-10

• A. Materials costing 3,000 were purchased on
  account.
• Raw Materials 3,000
• Accounts Payable 3,000

7
Job-Order Costing Material Requisitions

• B. Raw Materials is credited for the cost of
  materials issued to jobs.
• Work in Process is debited for the cost of
  materials issued to jobs.

Raw Materials
Work in Process
(A)
(B) (B)
8
Exercise 5-10 (continued)

• B. Materials totaling 1,700 were requisitioned
  for use in production, 500 for Job 443 and the
  remainder for Job 444.
• Work in Process 1,700
• Raw Materials 1,700

9
Job-Order Costing Direct Labour Incurred

• C. Wages Payable is credited for the cost of
  direct labour.
• Work in Process is debited for the cost of
  direct labour.

Wages Payable
Work in Process
(C) (C)
10
Exercise 5-10 (continued)

• C. During the month, direct labourers worked 50
  hours on Job 443 and 100 hours on Job 444.
  Direct labourers are paid at the rate of 8 per
  hour.
• Work in Process 1,200
• Wages Payable 1,200

11
Job-Order Costing Actual Overhead

• D. Overhead Control is debited for actual
  overhead.

Overhead Control
Work in Process
(D)
12
Exercise 5-10 (continued)

• D. Actual overhead for the month was 1,230 and
  was paid in cash.
• Overhead Control 1,230
• Cash 1,230

13
Job-Order Costing Applied Overhead

• E. Overhead Control is credited for applied
  overhead.
• Work in Process is debited for applied
  overhead.

Overhead Control
Work in Process
(D)
(E) (E)
14
Exercise 5-10 (continued)

• E. Overhead is applied using a plantwide rate of
  7.50 per direct labour hour.
• Work in Process 1,125
• Overhead Control 1,125

15
Job-Order Costing Transfer of Completed Goods

• F. Credit Work in Process for the COGM.
• Debit Finished Goods for the COGM.

Work in Process
Finished Goods
(B) (C) (E)
(F) (F)
16
Exercise 5-10 (continued)

• F. Job 443 was completed and transferred to
  Finished Goods.
• Finished Goods 1,275
• Work in Process 1,275

17
Job-Order Costing Recognition of Expense

• G. Credit Finished Goods for value of units sold.
• Debit Cost of Goods Sold for value of units
  sold.

Finished Goods
Cost of Goods Sold
(G) (G)
18
Exercise 5-10 (continued)

• G. Job 442, which had been completed and
  transferred to Finished Goods in March, was sold
  on account for cost (2,000) plus 25 percent.
• Cost of Goods Sold 2,000
• Finished Goods 2,000
• Accounts Receivable 2,500
• Sales Revenue 2,500

19
General Contractor Example

• Direct Materials House 1
  90,000
• House 2 100,000
• House 3 30,000
• Direct labour House 1 65,000
• House 2 70,000
• House 3 15,000
• Overhead is applied at 50 percent of DLC.
• Houses 1 and 2 are completed during the period
• House 1 is sold for 200,000 cash.

20
General Contractor Example Solution
Work in Process
Finished Goods
(1) 220,000 (4) 187,500 (2) 150,000 (4) 187,500
(5) 205,000 (6) 187,500 (3) 75,000 (5) 205,000
52,500 205,000

Cost of Goods Sold
(6) 187,500 187,500
21
Job Cost Sheets (Example)
House 1
House 2
(1) 90,000 (2) 65,000 (3) 32,500
(1) 100,000 (2) 70,000 (3)
35,000
187,500
205,000
House 3
(1) 30,000 (2) 15,000 (3) 7,500
52,500
22
A Job Order Cost Sheet
Drill Bits
16-C
Item Description _________ Job
Order Number _______ Quantity Competed ______
Date Started _____________

Date Completed_________ Direct Materials
Direct labour
Overhead
100
1/25/01
1/31/01
Req. No. Amount Ticket Hours Rate Amt.
Hours Rate Amt.
24-A 500 49 40
10 400 40 1.60 64 46-B
650 71 30
8 240 30 3.00 90
Cost Summary Direct Materials_______
Total Costs_________ Direct
labour _______ Unit
Cost _________ Overhead _______
1,150
1,944
640
19.44
154
23
A Materials Requisition Form
24-A
Requisition No._______ Date______
Department___________ Job No._____
Fabrication
1/25/01
16-C
Description Quantity Cost/Unit
Total Cost
100
5.00
500
Steel Stock
J. Jones
D. Reller
Delivered By___________ Received
by______________
24
A Job Time Ticket
49
Ticket No._________
101
1/24/01
F. Flintstone
Employee No.______ Name____________
Date_________
Start Time Stop Time Total Time Rate
Amt. Job No.
1000 a.m. 400 p.m. 6.0 hours
10 60 16-C
Approved by __________________________
Department Supervisor
25
The Basic Concept of Overhead Application
Applied overhead Overhead rate x Actual
production
activity
Two Basic Points to Emphasized

• Applied overhead is the basis for computing
  per-unit overhead cost.
• Applied overhead is rarely equal to a period's
  actual overhead costs.