Chapter 17 Job Order Costing - lrbrasher.comlrbrasher.com/images/Chapter_17_Powerpoint.pdfCosting Chapter 17 Learning Objectives 1. Distinguish between job order costing and process
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8/28/2019
1
Chapter 17Job OrderCosting
Chapter 17 Learning Objectives
1. Distinguish between job order costing and process costing
2. Record materials and labor costs in a job order costing system
3. Record actual and allocated overhead costs in a job order costing system
HOW DO MANUFACTURING COMPANIES USE JOB ORDER AND PROCESS COSTING
SYSTEMS?
• Cost accounting systems measure, record, and report product costs.
• Knowing unit costs helps managers:– Determine which products to produce.– Set sales prices that will lead to profits.– Determine how many products to produce.– Compute cost of goods sold for the income
statement.– Compute the cost of inventory for the balance
When materials are received on the production floor, the direct materials are recorded on the job cost record.
Using Materials
Using MaterialsTransaction 2—Materials Used: In 2020, Smart Touch Learning uses direct materials costing $355,000 and indirect materials costing $17,000. The $17,000 of indirect materials are transferred from Raw Materials Inventory to Work-in-Process through the Manufacturing Overhead account.
Transaction 3—Labor Costs Incurred: During 2020, Smart Touch Learning incurs total labor costs of $197,000, of which $169,000 is direct labor and $28,000 is indirect labor.
Transactions 4–7—Actual Overhead Costs Incurred: In addition to indirect materials and indirect labor, other overhead costs are incurred:• Depreciation on manufacturing plant and equipment
of $20,000• Plant utilities of $7,000• Plant insurance of $6,000• Plant property taxes incurred but not yet paid of
At the end of 2019, Smart Touch Learning estimated that total overhead costs for 2020 would be $68,000 and direct labor costs would total $170,000. Using this information, the predetermined overhead allocation rate is calculated as follows:
• As jobs are completed in 2020, Smart Touch Learning will allocate overhead costs using the predetermined overhead allocation rate.
• The total direct labor cost for Job 27 is $1,250, and the predetermined overhead allocation rate is 40% of direct labor costs. Job 27 produced 15 tablets.
Transaction 8—Overhead Allocation: Smart Touch Learning’s total direct labor cost for 2020 is $169,000. Using an overhead allocation rate of 40%, Manufacturing Overhead is $67,600.
WHAT HAPPENS WHEN PRODUCTS ARE COMPLETED AND SOLD?
• After accumulating, assigning, and allocating the costs of direct materials, direct labor, and overhead to jobs, a company:– Accounts for the completion of jobs– Accounts for the sale of jobs– Adjusts Manufacturing Overhead at the end of
HOW IS THE MANUFACTURING OVERHEAD ACCOUNT ADJUSTED?
Transaction 12—Adjust Manufacturing Overhead:During the year, the Manufacturing Overhead account is debited for actual overhead costs incurred and credited for overhead costs allocated to jobs.
A credit to Manufacturing Overhead of $15,400 is needed to bring the account balance to zero.
HOW DO SERVICE COMPANIES USE A JOB ORDER COSTING SYSTEM?
• Fox’s salary and benefits total $100,000 per year. Assuming a 40-hour workweek and 50 workweeks in each year, Fox has 2,000 available work hours per year. Fox’s hourly pay rate is as follows:
• The following indirect costs are estimated for 2018:
HOW DO SERVICE COMPANIES USE A JOB ORDER COSTING SYSTEM?
• To summarize, the total costs assigned and allocated to Client 367 are as follows:
• The total hourly rate for the company is $80, which is $50 per hour for direct labor plus $30 per hour for indirect costs. If the firm desires a profit equal to 75% of the firm’s cost, then the price would be calculated as follows: