Job Order Cost Accounting

PowerPoint Authors:Susan Coomer Galbreath, Ph.D., CPACharles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIACynthia J. Rooney, Ph.D., CPA

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 19

JOB ORDER COST ACCOUNTING

19 - 2

ProcessCosting

JobCosting

Used for production of large, unique, or high-cost items. Built to order rather than mass produced. Many costs can be directly traced to each job.

COST ACCOUNTING SYSTEMS

Chapter 20

C 1

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ProcessCosting

JobCosting

Typical job order cost applications: Special-order printing Building construction

Also used in service industry Hospitals Law firms

Chapter 20

JOB ORDER PRODUCTIONC 1

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Receive order from

customer.

Predict cost to complete

job.

Negotiate a sales price and decide whether to

pursue the job.

Schedule production of

the job.

EVENTS IN JOB ORDER COSTINGC 1

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Goods in Process

Cost of GoodsSold

Labor

Materials

Indi

rect

Indi

rect

FinishedGoods

FactoryOverhead

Direct

Direct

Allocate

JOB ORDER PRODUCTION ACTIVITIES

C 1

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JOB ORDER COST DOCUMENTS

The primary document for

tracking the costs associated with a

given job is the job job cost sheetcost sheet.

Let’s investigate

C 2

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JOB COST SHEET

Road Warriors Job Cost Sheet

Customer Carroll Connor Job No. B15Address 1542 High Point Dr. Portland, OregonJob Description Level I Alarm System on Ford Expedition Date promised 3/15/11 Date started 3/3/11 Date completed

Direct Materials Direct Labor Factory OverheadDate Req. Cost Date Ticket Cost Date Rate Cost

Total Total Total

Remarks Cost SummaryDirect MaterialsDirect LaborFactory OverheadTotal Cost

C 2

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Total Total Total

Remarks Cost SummaryDirect MaterialsDirect LaborFactory OverheadTotal Cost

JOB COST SHEET

Let’s see one

A materials requisition is used to authorize the

use of materials on a job.

C 2

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MATERIALS REQUISITION

Road Warriors Materials Requisition No. R-4705

Job No. B15 Date 3-7-11Material Stock No. M-347Material Description Alarm system wiring

Quantity Requested 1 Requested By

Quantity Provided 1 Date Provided 3-7-11Filled By Received By

Remarks

C. Luther

M. Bateman

C. Luther

P 1

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Remarks

C. Luther

M. Bateman

C. Luther

MATERIALS REQUISITIONProper

authorizationCost of material is

charged to Job B15.

P 1

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Remarks

C. Luther

M. Bateman

C. Luther

MATERIALS REQUISITIONType and quantity of material

charged to Job B15.Pre-printed, sequentially

numbered form

P 1

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Remarks

C. Luther

M. Bateman

C. Luther

MATERIALS REQUISITION

The materials requisition form also serves as the source document for recording material

usage in the accounting records.

P 1

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Road Warriors Materials Ledger Card

Item Alarm sys. wiring Stock No. M-347 Location Bin137Maximum Qty. 5 units Minimum Qty. 1 unit Reorder Qty. 2 units

Received Issued BalanceRec. Unit Total Req. Unit Total Unit Total

Date Rep. Units Cost Cost No. Units Cost Cost Units Cost Cost1 $225 $225

3/4/11 C7117 2 $225 $450 3 $225 $6753/7/11 R4705 1 $225 $225 2 $225 $450

MATERIALS LEDGER CARDP 1

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JOB COST SHEET




3/7/11 R-4705 225$

Total Total Total

Remarks Cost SummaryDirect Materials 225$ Direct LaborFactory OverheadTotal Cost

P 1

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3/7/11 R-4705 225$

Total Total Total

Remarks Cost SummaryDirect Materials 225$ Direct LaborFactory OverheadTotal Cost

JOB COST SHEET

Accumulate direct labor

costs by means of a

work record, such as a time ticket, for each

employee.

Let’s see one

P 2

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Road Warriors Time Ticket No. L-3479

Job No. B15 Date 3/8/11Employee Name T. Zeller Employee Number 3969

TIME AND RATE INFORMATION:

Start Time 9:00 Finish Time 12:00Elapsed Time 3.0 Hourly Rate $20.00 Total Cost $60.00Approved By Remarks

LABOR TIME TICKET

C. Luther

P 2

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JOB COST SHEET




3/7/11 R-4705 225$ 3/8/11 L-3479 60$

Total Total 60$ Total

Remarks Cost SummaryDirect Materials 225$ Direct Labor 60 Factory OverheadTotal Cost

P 2

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3/7/11 R-4705 225$ 3/8/11 L-3479 60$

Total Total 60$

Remarks Cost SummaryDirect Materials 225$ Direct Labor 60 Factory Overhead -$ Total Cost 285$

JOB COST SHEET

Allocate manufacturing overhead to jobs using a predetermined overhead rate

Let’s do it

P 3

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3/7/11 R-4705 225$ 3/8/11 L-3479 60$ 3/08/11 160% 96$

Total Total 60$ Total 96$

Remarks Cost SummaryDirect Materials 225$ Direct Labor 60 Factory Overhead 96$ Total Cost 381$

JOB COST SHEETP 3

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Road Warriors uses a predetermined overhead rate (POHR) based on direct labor cost to apply overhead to jobs.

Estimated total manufacturingoverhead cost for the coming period

Estimated total direct labor costsfor the coming period

POHR =

POHR = = 160% of direct labor $$200,000$125,000

PREDETERMINED OVERHEAD RATE

P 3

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JOB ORDER COST FLOWS AND REPORTS

Let’s summarize the document flow we have

been discussing in a job-order

costing system.

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Materials Ledger CardsMaterials

Ledger CardsMaterials Ledger CardsMaterialsRequisition

Direct materials

The materials requisition

indicates the cost of direct materials

to charge tojobs

and the cost of indirect materials

to charge to overhead.

Indirect materials

Job Cost SheetsJob Cost SheetsJob Cost SheetsJob Cost Sheets

Factory Overhead Account

Material Cost Flows and DocumentsP 1

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Employee time tickets indicate

the cost of direct laborto charge to

jobsand the cost

of indirect labor to charge to

overhead.

Job Cost Sheets

Factory Overhead Account

Job Cost SheetsJob Cost SheetsJob Cost Sheets

Direct Labor

Indirect Labor

Employee Time TicketEmployee Time

TicketEmployee Time TicketEmployee Time

Ticket

Labor Cost Flows and DocumentsP 2

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Summary of Cost Flows

Let’s examine the cost flows in a job

order system.We will use

T-accounts and start with materials.

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MaterialPurchases

DirectMaterial

DirectMaterial

Raw Materials Goods in Process

Factory Overhead

ActualOverhead

Costs

Indirect Material

Dr Cr

Dr Cr Dr Cr

Summary of Cost FlowsP 1

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Incurred DirectMaterial

Actual Applied factory factoryoverhead overhead=/an adjustment is needed.

We will look at how to accomplish this later.

When

Goods in ProcessFactory Payroll

Factory Overhead

DirectLabor

DirectLabor

Indirect Labor

ActualOverhead

Costs

Overhead

OverheadApplied to

Work inProcess

Dr Cr

Dr Cr Dr Cr


P 3

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DirectMaterialDirectLabor

Overhead

Cost ofGoodsMfd.

Cost ofGoodsMfd.

Cost ofGoodsSold

Cost ofGoodsSold

Goods in Process Finished Goods

Cost of Goods Sold Dr Cr

Dr Cr Dr Cr


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We multiply the POHRtimes the number of

activity units (direct labor cost for Road Warriors)

incurred for the job.

Tell me again how we use the POHR to

assign overhead to jobs.

OVERHEAD APPLICATIONP 4

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OVERHEAD APPLICATION

Overhead is notincurred uniformly

during the year.

Actual overhead rateActual overhead ratemight vary from might vary from month to month.month to month.

Predetermined ratemakes it possible to

estimate job costs sooner.

Reasons for using a POHRReasons for using a POHR(predetermined overhead rate)(predetermined overhead rate)

P 4

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The result will be either underapplied or overapplied

overhead and wewill adjust Cost of Goods

Sold at the end of the period.Here, let me show you.

The POHR is basedon estimates.

What happens ifactual results differfrom the estimates?

ADJUSTMENT OF OVERAPPLIED OR UNDERAPPLIED OVERHEAD

P 4

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Overhead is overapplied.

Overheadapplied to

Work in Process

(POHR × Activity)

Actualoverhead

costsincurred


P 4

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Overhead is underapplied.

Actualoverhead

costsincurred

Overheadapplied to

Work in Process

(POHR × Activity)


P 4

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Cost of Goods

Overhead is: Sold is: Adjustment will:

Actual overhead > applied overhead Underapplied Too low Increase Cost

of Goods Sold

Actual overhead < applied overhead Overapplied Too high Decrease Cost

of Goods Sold

Adjusting Cost of Goods Sold for underapplied or overapplied overhead


P 4

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GLOBAL VIEW

Expensive European sports cars are often built according to individual customer specifications.

Customers place orders for their dream cars, and then each car is built to order and shipped to the customer.

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PRICING FOR SERVICES

Pricing for services is based on direct labor. Any material costs are usually incidental and are a part of overhead.

Acme Consulting prepared the following bid for a jobthat will require a total of 1,000 hours of direct labor.

Direct Labor: Consultants (600 hours @ $75) 45,000$ Research staff (400 hours @ $40) 16,000 Total direct labor costs 61,000$ Overhead: Consultant related (600 hours @ $50) 30,000 Research staff related (400 hours @ $30) 12,000 Total overhead cost 42,000 Total bid amount 103,000$

A 1

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Let’s look at summary accounting journal

entries for the job order cost system at Road Warriors. The dollar

amounts are from Exhibit 19.12 in your textbook.

ENTRIES FOR JOB ORDERPRODUCTION COSTS

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P 1

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P 1

P 2

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P 2

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P 3

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P 3

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END OF CHAPTER 19