Libby, Libby and Short

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CHAPTER
Job-Order Costing
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Objectives
1. Describe the differences between job-order
costing and process costing, and identify the
types of firms that would use each
method. 2. Identify and set up the source
documents used in job-order costing. 3. Describe
the cost flows associated with job-order
costing. 4. Appendix Prepare the journal
entries associated with job-order costing.
After studying this chapter, you should be able
to
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Comparison of Job-Order andProcess Costing
Process or job-order costing?
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Characteristics of Job-Order Costing

• Wide-variety of services or products that are
  quite distinct from each other
• Cost accumulated by job
• Unit cost computed by dividing total job costs by
  units produced on that job

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Characteristics of Process Costing

• Produce large quantities of similar or
  homogeneous products
• Cost accumulated by process or department for a
  given period of time
• Unit cost computed by dividing process costs of
  period by the units produced in the period

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Process or job-order costing?
Process
Exxon oil refinery
Process
Coca Cola plant
Job order
Custom home builder
Job order
Shop for customizing vans
Job order
Television repair shop
Process
Campbell soup plant
Job order
Advertising agency
Job order
Law firm
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Job-Order Costing
Job 425 Job 426 Job 427 Total
Beginning balance 58,600 51,300
0 109,900 Current costs Direct
materials 4,800 3,600 23,500 31,900 Direct
labor 6,000 9,000 10,000 25,000 Applied
overhead 2,400 3,600 4,000
10,000 Total 71,800 67,500 37,500 176,800
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Johnson Leathergoods
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Job-Order Cost Sheet
A job-cost sheet is a document used to
accumulate the cost for a specific job in a
job-cost system
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Johnson Leathergoods
Unit Cost

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

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Johnson Leathergoods
Date Department Job
Material Requisition Number 12
January 11, 2004
Assembly
Briefcase
Description Quantity
Cost/Unit Total Cost
Buckles 10
30 300
Jim Lawson
Authorized Signature
Material Requisition Form
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Johnson Leathergoods
4 Ed Wilson January 12, 2003

Job Time Ticket Number 8
Employee Number Name
Date
Start Time Stop Time Total Time Hourly Rate
Amount Job Number
800 1000 2 9 18 Backpacks 1000 1100 1 9 9
Briefcases 1100 1200 1 9 9 Backpacks 100 500
4 9 36 Backpacks

Jim Lawson
Authorized Signature
Department Supervisor
Job Time Ticket
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The Flow of Costs
Through the Accounts
Johnson Leathergoods
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Summary of Materials Cost Flows
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Summary of Direct Labor Cost Flows
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Accounting for Overhead
Actual overhead costs are never assigned directly
to jobs. Overhead is applied using a
predetermined overhead rate.
9,600
4,800
2 per direct labor hour
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Accounting for OverheadUsing ABC
Estimated Overhead () for Each Driver
Expected Demand for Each Driver
Purchasing 3,000 Purchase orders 100 Machining 4,
200 Machine hours 2,800 Other 2,400 Direct labor
hours 4,800
3,000 100 30 per purchase order
4,200 2,800 1.50 per machine hour
2,400 4,800 0.50 per direct labor hour
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Accounting for OverheadUsing ABC
Backpacks
Purchase orders 3 Machine hours 60 Direct labor
hours 120
Briefcases
Purchase orders 1 Machine hours 30 Direct labor
hours 50
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Accounting for OverheadUsing ABC
Purchasing 3 orders x 30 90 1 order x
30 30 Machining 60 hours x 1.50 90 30
hours x 1.50 45 Other 120 DLH x 0.50 60 50
DLH x 0.50 25
Total overhead applied 240 100
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Summary of Overhead Cost Flows
Applied Overhead
Actual Overhead
Direct labor hours 170 Overhead rate x 2 Total
applied overhead 340
Lease 200 Utilities 50 Equipment
depreciation 100 Indirect labor 65 Total actual
overhead 415
Job Order Cost Sheet Job 20 Backpacks
Job Order Cost Sheet Job 10 Briefcases
Direct materials 1,000 Direct materials 500 Dire
ct labor 1,080 Direct labor 450 Overhead
applied 240 Overhead applied 100 Total
cost Total cost Number of units Number of
units Unit cost Unit cost
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Summary of Overhead Cost Flows
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Summary of Finished Goods Cost Flows
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Johnson Leathergoods Schedule of Cost of Goods
Manufactured For the Month Ended January 31, 2004
Direct materials Beginning raw materials
inventory 0 Purchases of raw
materials 2,500 Total raw materials available
for use 2,500 Ending raw materials 1,000 Total
raw materials used 1,500 Direct
labor 1,530 Overhead Lease
200 Utilities 50 Depreciation 100 Indirect
labor 65 415
Continued
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415 Less Underapplied overhead
75 Overhead applied 340 Current
manufacturing costs 3,370 Add Beginning work
in process 0 Total manufacturing
cost 3,370 Less Ending work in
process 1,050 Cost of goods manufactured 2,320
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Statement of Cost of Goods Sold
Beginning finished goods inventory 0 Cost
of goods manufactured 2,320 Cost of goods
available for sale 2,320 Less Ending finished
goods inventory 0 Normal cost of goods
sold 2,320 Add Underapplied overhead
75 Adjusted cost of goods sold 2,395
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Johnson Leathergoods Income Statement For the
Month Ended January 31, 2004
Sales 3,480 Cost of goods sold 2,395 Gross
margin 1,085 Less selling and administrative
expenses Selling expenses 200 Administrative
expenses 550 750 Net operating income 335
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Appendix
Journal Entries Associated With Job-Order Costing
Johnson Leathergoods
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Johnson Leathergoods
1 Materials 2 500 00
The receiving report and the invoice are used to
record the receipt of the merchandise and to
control the payment.
Accounts Payable
2 500 00
1. Materials costing 2,500 were purchased on
account.
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Johnson Leathergoods
2 Work in Process 1 500 00
The receiving report and the invoice are used to
record the receipt of the merchandise and to
control the payment.
Materials
1 500 00
2. Materials costing 1,500 were requisitioned
for use in production.
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Johnson Leathergoods
3 Work in Process 1 530 00
The receiving report and the invoice are used to
record the receipt of the merchandise and to
control the payment.
Wages Payable
1 530 00
3. Direct labor costing 1,530 was recognized.
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Johnson Leathergoods
4 Work in Process 340 00
The receiving report and the invoice are used to
record the receipt of the merchandise and to
control the payment.
Overhead Control
340 00
4. Overhead was applied to production at the rate
of 2 per direct labor hour. A total of 170
direct labor hours were worked.
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Johnson Leathergoods
5 Overhead Control 415 00
The receiving report and the invoice are used to
record the receipt of the merchandise and to
control the payment.
Lease Payable 200 00 Utilities Payable 50
00 Accumulated Depreciation 100 00 Wages
Payable 65 00
5. Actual overhead costs of 415 were incurred
lease, 200 utilities, 50 depreciation, 100
accrued wages, 65.
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Johnson Leathergoods
6 Finished Goods 2 320 00
The receiving report and the invoice are used to
record the receipt of the merchandise and to
control the payment.
Work in Process
2 320 00
6. The backpacks were completed and transferred
to finished goods.
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Johnson Leathergoods
7 Cost of Goods Sold 2 320 00
The receiving report and the invoice are used to
record the receipt of the merchandise and to
control the payment.
Finished Goods
2 320 00
7 Accounts Receivable 3 480 00
Sales Revenue
3 480 00
7. The backpacks were sold at cost plus 50
percent.
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Johnson Leathergoods
8 Cost of Goods Sold 75 00
The receiving report and the invoice are used to
record the receipt of the merchandise and to
control the payment.
Overhead Control
75 00
8. Underapplied overhead was closed to cost of
goods sold.
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Johnson Leathergoods
Materials
(1) 2,500
(1) Purchased of materials
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Johnson Leathergoods
Work in Process
Materials
(2) 1,500
(1) 2,500
(2) Issue of materials
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Johnson Leathergoods
Work in Process
(3) 1,530
(2) 1,500
(3) 1,530
(3) Incurrence of direct labor cost
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Johnson Leathergoods
Work in Process
(4) 340
(2) 1,500
(3) 1,530
(4) 340
(4) Estimated overhead applied to Work in Process
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Johnson Leathergoods
Work in Process
(2) 1,500
(4) 340
(5) 415
(3) 1,530
(4) 340
(5) Actual overhead recorded
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Johnson Leathergoods
Work in Process
(6) 2,320
(6) Transfer of Job 1 to finished goods
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Johnson Leathergoods
Finished Goods
Cost of Goods Sold
(6) 2,320
(7) 2,320
(6) 2,320
Accounts Receivable
Sales Revenue
(7) 3,480
(7) 3,480
(7) Cost of goods sold for Job 1 and revenue
from sale on account
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Johnson Leathergoods
Overhead Control
Cost of Goods Sold
(4) 340
(5) 415
(7) 2,320
(8) 75
(8) 75
(8) Underapplied overhead closed
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Chapter Five
The End