chap3a

1
Job-Order Costing
2
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

3
Job Order Cost Components
Materials
Labor
Overhead
4
Job Order Cost Components
Work In Process
Materials
Labor
Overhead
5
Job Order Cost Components
Work In Process
Materials
Labor
Overhead
6
Job Order Cost Components
Work In Process
Materials
Labor
Overhead
7
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

8
items being made in this production run
Job Cost Sheet
OAK GLASS FURNITURE CO. JOB COST SHEET
831
Product French Court dining tables
Date started 4/03/97 Number of units
manufactured 100 Date completed
4/21/97
MFG. DIRECT DIRECT LABOR
MFG. OVERHEAD DEPT. MATERIALS
HOURS COST RATE COST APPLIED
Milling Carving 10,000 70 14,000 150 21,00
0 Finishing 18,000 300 6,000 150 9,000 COST
SUMMARY AND UNIT COSTS
9
Job Cost Sheet
OAK GLASS FURNITURE CO. JOB COST SHEET
831
Product French Court dining tables
Date started 4/03/97 Number of units
manufactured 100 Date completed
4/21/97
MFG. DIRECT DIRECT LABOR
MFG. OVERHEAD DEPT. MATERIALS
HOURS COST RATE COST APPLIED
Milling Carving 10,000 70 14,000 150 21,00
0 Finishing 18,000 300 6,000 150 9,000 COST
SUMMARY AND UNIT COSTS
10
Lets take a look at overhead.
11
Estimated Overhead for the Entire Year
Cost Driver

Overhead Rate
12
320,000
Cost Driver

Overhead Rate
13
320,000
40,000 direct labor hours

Overhead Rate
14
320,000
40,000 direct labor hours

8 per dlh
15
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

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Fred accepts an order for 150 special order
gadgets.
17
JOB COST SHEET
Manufacturing Overhead
Direct Materials
Direct Labor
18
JOB COST SHEET
Manufacturing Overhead
Direct Materials
Direct Labor
1,404
180
?
19
JOB COST SHEET
Manufacturing Overhead
Direct Materials
Direct Labor
1,404
180
?
8 per DLH
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JOB COST SHEET
Manufacturing Overhead
Direct Materials
Direct Labor
1,404
180
?
27 labor hours
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JOB COST SHEET
Manufacturing Overhead
Direct Materials
Direct Labor
1,404
180
?
27 labor hours x 8
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JOB COST SHEET
Manufacturing Overhead
Direct Materials
Direct Labor
216
1,404
180
23
JOB COST SHEET
Manufacturing Overhead
Direct Materials
Direct Labor
216
1,404
180
1,800
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So, if 150 of these cost 1,800--unit cost must
be 12.
25
Whatever it is, Im sure the customer will love
it!
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Perfect!!!
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Application Exercises 3-1,2,3

• pg 114
• 3-1 Predetermined oh rate
• 3-2 Apply overhead
• 3-3 Total Cost and unit cost

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The Flow of Cost in Job-Order Costing
29
Three Inventory Accounts

• Raw Materials
• Work in Process
• Finished Goods

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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

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On April 1, Rand Company had 7,000 in raw
materials on hand. Another 60,000 was purchased
(p. 95).
Raw Materials
7,000
32
On April 1, Rand Company had 7,000 in raw
materials on hand. Another 60,000 was purchased
(p. 95).
Raw Materials 60,000 Accounts Payable 60,000
Raw Materials
7,000
60,000
33
During April, 52,000 in raw materials were
requisitioned. Of these, 2,000 were indirect.
Work in Process 50,000 Manufacturing
Overhead 2,000
Note that indirect materials are overhead!
Raw Materials
Work in Process
7,000
30,000 50,000
60,000
34
During April, 52,000 in raw materials were
requisitioned. Of these, 2,000 were indirect.
Work in Process 50,000 Manufacturing
Overhead 2,000 Raw Materials 52,000
Raw Materials
Work in Process
7,000
52,000
30,000 50,000

60,000
35
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 75,000
Raw Materials
Work in Process
7,000
52,000
30,000 50,000 60,000

60,000
36
Rand Company experienced actual overhead costs
totaling 40,000.
Manufacturing Overhead
IM 2,000 IL 15,000
37
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
38
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
39
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
40
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 7,00
0 Deprec. 18,000
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Manufacturing Overhead
The debit side of Manufacturing Overhead is the
ACTUAL side.
IM 2,000 IL 15,000 Utilities 21,000 Rent
16,000 Misc. 3,000 Prop. tax 13,000 Insurance 7,00
0 Deprec. 18,000 95,000
42
Assume that overhead is applied at the 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.
Manufacturing Overhead
43
During the month, 15,000 machine hours were used
to two jobs. Estimated overhead is 90,000.
Manufacturing Overhead
Work in Process 90,000 Manufacturing
Overhead 90,000
44
During the month, 15,000 machine hours were used
to two jobs. Estimated overhead is 90,000.
Manufacturing Overhead
Work in Process 90,000 Manufacturing
Overhead 90,000
Work in Process
30,000 50,000 60,000 90,000
45
Manufacturing Overhead
IM 2,000 IL 15,000 Utilities 21,000 Rent
16,000 Misc. 3,000 Prop. tax 13,000 Insurance 7,00
0 Deprec. 18,000 95,000
Applied O/H 90,000
15,000 x 6
The credit side is the applied or estimated
side.
46
Manufacturing Overhead
IM 2,000 IL 15,000 Utilities 21,000 Rent
16,000 Misc. 3,000 Prop. tax 13,000 Insurance 7,00
0 Deprec. 18,000 95,000
Applied O/H 90,000
You might think of it as the EAST side.
47
Job A was completed at a cost of 158,000 and
transferred to finished goods.
Manufacturing Overhead
48
Job A was completed at a cost of 158,000 and
transferred to finished goods.
Manufacturing Overhead
Finished Goods 158,000 Work in
Process 158,000
Work in Process
Finished Goods
30,000 50,000 60,000 90,000
158,000
158,000
49
Three-fourths of the units were sold on account
for 225,000.
Manufacturing Overhead
50
Three-fourths of the units were sold on account
for 225,000.
Manufacturing Overhead
Accounts Receivable 225,000 Sales 225,000
The Retail Portion
51
Three-fourths of the units were sold on account
for 225,000.
Manufacturing Overhead
Accounts Receivable 225,000
Sales 225,000 Cost of Goods Sold 118,500 Finis
hed Goods 118,500
The Cost Portion
52
Three-fourths of the units were sold on account
for 225,000.
Manufacturing Overhead
Accounts Receivable 225,000
Sales 225,000 Cost of Goods Sold 118,500 Finis
hed Goods 118,500
Finished Goods
158,000
118,500
53
Application

• Exercise 3-4 pg 114-5

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How do you handle the difference in Overhead

• 1. Close out to Cost of Goods Sold
• 2. Allocate among WIP, FG, COGS

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1. Close out to Cost of Goods Sold

• under applied need to increase COGS
• Overhead
• -----------------
• 1500 1400
• COGS 100
• OH 100

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• over applied - decrease COGS
• Overhead
• -----------------------
• 1400 1500
• OH 100
• COGS 100

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Application

• Exercise 3-5 pg 115
• includes under/over applied overhead basic method

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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

59

• Journal Entry
• WIP
• FG
• COGS
• OH

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Application

• Exercise 3-16 pg 119
• Allocate to WIP, FG and COGS

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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

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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

63
Cost of Direct Labor/Overhead

• Direct Labor
• Applied Overhead
• Total Manufacturing Cost
• beginning WIP
• -ending WIP
• COGM

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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

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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