Management Accounting - Hansen Mowen CH05

Job-Order Job-Order CostingCosting

CHAPTERCHAPTER

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.

ObjectivesObjectivesObjectivesObjectives

After studying this After studying this chapter, you should chapter, you should

be able to:be able to:

After studying this After studying this chapter, you should chapter, you should

be able to:be able to:

Comparison of Job-Order andProcess Costing

Process or job-order costing?

Characteristics of Job-Order CostingCharacteristics 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

Characteristics of Process CostingCharacteristics 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

Process or Process or job-order job-order costing?costing?

Process

Job order

Process

Job order

Exxon oil refinery

Coca Cola plant

Custom home builder

Shop for customizing vans

Television repair shop

Campbell soup plant

Advertising agency

Law firm Job order

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 10,000Total $71,800 $67,500 $37,500 $176,800

This information is used to determine the total cost of goods manufactured.

Job-Order CostingJob-Order Costing

Johnson LeathergoodsJohnson LeathergoodsJohnson LeathergoodsJohnson Leathergoods

Job-Order Cost SheetJob-Order Cost Sheet

A job-cost sheet is a document used to

accumulate the cost for a specific job in a job-

cost system

A job-cost sheet is a document used to

accumulate the cost for a specific job in a job-

cost systemJob Cost Sheet

Direct Materials

Direct Labor

Factory Overhead

July 1 100 lbs. @ $ 0.25 = $ 25

3 75 oz. @ $1.40 = 105

July 1 3 hrs. @ $10.00 = $ 30

3 7 hrs @ $10.00 = 70

July 7 10 dlh x $2 = $ 20

Direct materials $1,000

Direct labor 1,080

Applied Overhead 240

Total cost $2,320

number of units 20

Unit cost $ 116

Unit Cost

DateDepartmentJob

Authorized Signature

Description Quantity Cost/Unit Total Cost

Jim Lawson

Buckles 10 $30 $300

Material Requisition FormMaterial Requisition Form

Material Requisition Number 12January 11, 2004

Briefcase

Assembly

Authorized Signature

Start Time Stop Time Total Time Hourly Rate Amount Job Number

Jim Lawson

Job Time TicketJob Time Ticket

Job Time Ticket

Number 8Employee Number

8:00 10:00 2 $9 $18 Backpacks10:00 11:00 1 9 9 Briefcases11:00 12:00 1 9 9 Backpacks1:00 5:00 4 9 36 Backpacks

Ed Wilson

January 12, 2003

Department Supervisor

Through the Accounts

Materials AccountBeginning balance $0Purchases 2,500Direct material used 1,500Ending balance 1,000

Job Order Cost Sheet Job Order Cost Sheet Job: 20 Backpacks Job: 10 BriefcasesDirect materials 1,000 Direct materials $500Direct labor Direct laborOverhead applied Overhead appliedTotal cost Total costNumber of units 20 Number of units 10 Unit cost Unit cost

Summary of Materials Cost FlowsSummary of Materials Cost Flows

Summary of Direct Labor Cost FlowsSummary of Direct Labor Cost Flows

Wages PayableDirect hours 170 x wage rate x $9Total direct labor 1,530$

Job Order Cost Sheet Job Order Cost Sheet Job: 20 Backpacks Job: 10 BriefcasesDirect materials 1,000$ Direct materials 500$ Direct labor 1,080 Direct labor 450 Overhead applied Overhead appliedTotal cost Total costNumber of units 20 Number of units 10 Unit cost Unit cost

Accounting for Overhead

Actual overhead costs are never assigned directly to jobs.

Overhead is applied using a predetermined overhead rate.

Actual overhead costs are never assigned directly to jobs.

Overhead is applied using a predetermined overhead rate.

Estimated OverheadOverhead rate =

Estimated Direct Labor Hours

$9,600

= $2 per direct labor hour

Functional Approach

Accounting for Overhead—Using 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

Backpacks:

Briefcases:

Purchase orders 3

Machine hours 60

Direct labor hours 120

Purchase orders 1

Machine hours 30

Direct labor hours 50

Purchasing:3 orders x $30 $ 901 order x $30

$30Machining:

60 hours x $1.50 9030 hours x $1.50

45Other:

120 DLH x $0.50 6050 DLH x $0.50

Total overhead applied $240 $100

Summary of Overhead Cost FlowsSummary of Overhead Cost Flows

Actual OverheadLease $200Utilities 50Equipment depreciation 100Indirect labor 65Total actual overhead $415

Job Order Cost SheetJob: 20 Backpacks

Job Order Cost SheetJob: 10 Briefcases

Direct materials $1,000 Direct materials $500Direct labor 1,080 Direct labor 450Overhead applied 240 Overhead applied 100Total cost Total costNumber of units Number of unitsUnit cost Unit cost

Applied OverheadDirect labor hours 170Overhead rate x $2Total applied overhead $340

120 x $2 50 x $2

Summary of Overhead Cost FlowsSummary of Overhead Cost Flows

Actual Overhead Applied OverheadLease $200 Direct labor hours $170Utilities 50 Overhead rate x $2Equipment depreciation 100 Total applied overhead $340Indirect labor 65Total actual overhead $415

Job Order Cost Sheet Job Order Cost Sheet Job: 20 Backpacks Job: 10 BriefcasesDirect materials $1,000 Direct materials $500Direct labor 1,080 Direct labor 450Overhead applied 240 Overhead applied 100Total cost Total costNumber of units 20 Number of units 10Unit cost Unit cost

Summary of Finished Goods Cost FlowsSummary of Finished Goods Cost Flows

Job Order Cost Sheet Job Order Cost Sheet Job: 20 Backpacks Job: 10 BriefcasesDirect materials $1,000 Direct materials $500Direct labor 1080 Direct labor 450Overhead applied 240 Overhead applied 100Total cost $2,320 Total cost $1,050Number of units 20 Number of unitsUnit cost $116 Unit cost

Finished Goods AccountBackpacks $2,320

5 -23 Johnson LeathergoodsJohnson Leathergoods

Schedule of Cost of Goods ManufacturedSchedule of Cost of Goods ManufacturedFor the Month Ended January 31, 2004For the Month Ended January 31, 2004

Direct materials:Beginning raw materials inventory $ 0Purchases of raw materials 2,500Total raw materials available for use $2,500Ending raw materials 1,000Total raw materials used $1,500

Direct labor 1,530Overhead:

Lease $ 200Utilities 50Depreciation 100Indirect labor 65

$ 415ContinuedContinuedContinuedContinued

$ 415Less: Underapplied overhead 75Overhead applied 340

Current manufacturing costs $3,370Add: Beginning work in process 0Total manufacturing cost $3,370Less: Ending work in process 1,050Cost of goods manufactured $2,320

Statement of Cost of Goods SoldStatement of Cost of Goods SoldBeginning 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

Johnson LeathergoodsIncome Statement

For the Month Ended January 31, 2004Sales $3,480Cost of goods sold 2,395Gross margin $1,085Less selling and administrative expenses:

Selling expenses $200Administrative expenses 550 750

Net operating income $ 335

Journal Entries Associated With Job-

Order Costing

1. Materials costing $2,500 were purchased on account.

The receiving report and the invoice are used to record the receipt of the

merchandise and to control the payment.

1 Materials 2 500 00

Accounts Payable 2 500 00

2. Materials costing $1,500 were requisitioned for use in production.

2 Work in Process 1 500 00

Materials 1 500 00

3. Direct labor costing $1,530 was recognized.

3 Work in Process 1 530 00

Wages Payable 1 530 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.

4 Work in Process 340 00

Overhead Control 340 00

5. Actual overhead costs of $415 were incurred: lease, $200; utilities, $50; depreciation, $100; accrued wages, $65.

5 Overhead Control 415 00

Lease Payable200 00

Utilities Payable50 00

Accumulated Depreciation100 00

Wages Payable65 00

6. The backpacks were completed and transferred to finished goods.

6 Finished Goods 2 320 00

Work in Process 2 320 00

7. The backpacks were sold at cost plus 50 percent.

7 Cost of Goods Sold 2 320 00

Finished Goods 2 320 00

7 Accounts Receivable 3 480 00

Sales Revenue 3 480 00

8. Underapplied overhead was closed to cost of goods sold.

8 Cost of Goods Sold 75 00

Overhead Control 75 00

Materials

(1) 2,500

(1) Purchased of materials

(2) Issue of materials

Work in Process

(2) 1,500 (2) 1,500

Materials

(1) 2,500

(3) Incurrence of direct labor cost

Work in Process

(2) 1,500(3) 1,530

Wages Payable

(3) 1,530

(4) Estimated overhead applied to Work in Process

Work in Process

(2) 1,500(3) 1,530(4) 340

Overhead Control

(4) 340

(5) Actual overhead recorded

Work in Process

(2) 1,500(3) 1,530(4) 340

Overhead Control

(4) 340(5) 415

(6) Transfer of Job 1 to finished goods

Work in Process Finished Goods

(6) 2,320 (6) 2,320(2) 1,500(3) 1,530(4) 340

(7) Cost of goods sold for Job 1 and revenue from sale on account

Finished Goods

(6) 2,320

Cost of Goods Sold

Accounts Receivable

(7) 3,480

Sales Revenue

(7) 3,480

(7) 2,320 (6) 2,320

(8) Underapplied overhead closed

Overhead Control

(4) 340(5) 415(8) 75

Cost of Goods Sold

(7) 2,320(8) 75

The EndThe EndThe EndThe End

Chapter FiveChapter Five

Management Accounting - Hansen Mowen CH05

direct labor hour

units unit cost

johnson leathergoodswork

johnson leathergoodsmaterials

goods manufactured

units produced

joborder costing

goods sold

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