Job- Order Costing
Jan 16, 2016
Job-Order Costin
g
Process or Job-Order Costing?
• Manufacturer of glueManufacturer of glue• textbook publishertextbook publisher• An oil refineryAn oil refinery• Manufacturer of powdered milkManufacturer of powdered milk• Manufacturer of ready-mix cementManufacturer of ready-mix cement• Custom home builderCustom home builder• Shop for customizing vansShop for customizing vans• Chemical manufacturerChemical manufacturer• Auto repair shopAuto repair shop• Tire manufacturing plantTire manufacturing plant• Advertising agencyAdvertising agency• Law officeLaw office
Job Order Cost Components
MaterialsMaterialsMaterialsMaterials
LaborLaborLaborLabor
OverheadOverheadOverheadOverhead
MaterialsMaterialsMaterialsMaterials
LaborLaborLaborLabor
OverheadOverheadOverheadOverhead
Work In Work In ProcessProcess
Work In Work In ProcessProcess
Job Cost Sheet #832Job Cost Sheet #832
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Cost Sheet #832Job Cost Sheet #832
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Cost Sheet #831Job Cost Sheet #831
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Cost Sheet #831Job Cost Sheet #831
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Cost Sheet #830Job Cost Sheet #830
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Cost Sheet #830Job Cost Sheet #830
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Order Cost Components
MaterialsMaterialsMaterialsMaterials
LaborLaborLaborLabor
OverheadOverheadOverheadOverhead
Work In Work In ProcessProcess
Work In Work In ProcessProcess
Job Cost Sheet #832Job Cost Sheet #832
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Cost Sheet #832Job Cost Sheet #832
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Cost Sheet #831Job Cost Sheet #831
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Cost Sheet #831Job Cost Sheet #831
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Cost Sheet #830Job Cost Sheet #830
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Cost Sheet #830Job Cost Sheet #830
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Order Cost Components
MaterialsMaterialsMaterialsMaterials
LaborLaborLaborLabor
OverheadOverheadOverheadOverhead
Work In Work In ProcessProcess
Work In Work In ProcessProcess
Job Order Cost Components
Job Cost Sheet #832Job Cost Sheet #832
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Cost Sheet #832Job Cost Sheet #832
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Cost Sheet #831Job Cost Sheet #831
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Cost Sheet #831Job Cost Sheet #831
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Cost Sheet #830Job Cost Sheet #830
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
Job Cost Sheet #830Job Cost Sheet #830
MaterialsMaterials $xxx$xxxDirect LaborDirect Labor xxxxxxManufacturingManufacturing OverheadOverhead xxxxxx
TotalTotal $xxx$xxx
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
Job Cost SheetSheet
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% $21,000
Finishing 18,000 300 6,000 150% 9,000
COST SUMMARY AND UNIT COSTS
items being items being made in this made in this production production
runrun
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% $21,000
Finishing 18,000 300 6,000 150% 9,000
COST SUMMARY AND UNIT COSTS
Let’s take a Let’s take a look at look at
overhead.overhead.
Let’s take a Let’s take a look at look at
overhead.overhead.
Estimated Overhead for the Entire Year
Cost Driver
= Overhead Rate
$320,000
Cost Driver
= Overhead Rate
$320,00040,000 direct labor hours
= Overhead Rate
$320,00040,000 direct labor hours
= $8 per dlh
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
Fred accepts an order for 150 special
order gadgets.
JOB COST SHEET
Direct Materials Direct Labor Manufacturing Overhead
JOB COST SHEET
Direct Materials Direct Labor Manufacturing Overhead
$1,404 $180 ?
JOB COST SHEET
Direct Materials Direct Labor Manufacturing Overhead
$8 per DLH
$1,404 $180 ?
JOB COST SHEET
Direct Materials Direct Labor Manufacturing Overhead
27 labor hours
$1,404 $180 ?
JOB COST SHEET
Direct Materials Direct Labor Manufacturing Overhead
27 labor hours x $8
$1,404 $180 ?
JOB COST SHEET
Direct Materials Direct Labor Manufacturing Overhead
$1,404 $180 $216
JOB COST SHEET
Direct Materials Direct Labor Manufacturing Overhead
$1,800
$1,404 $180 $216
So, if 150 of these cost $1,800--unit cost must be $12.
Whatever it is, I’m sure the customer will
love it!
Perfect!!!
Application Exercises 3-1,2,3
• pg 114• 3-1 Predetermined oh rate• 3-2 Apply overhead• 3-3 Total Cost and unit cost
The Flow of Cost in Job-Order Costing
Three Inventory Accounts
• Raw Materials• Work in Process• Finished Goods
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
Raw Materials
7,000
On April 1, Rand Company had On April 1, Rand Company had $7,000 in raw materials on hand. $7,000 in raw materials on hand.
Another $60,000 was purchased (p. Another $60,000 was purchased (p. 95).95).
Raw Materials
7,000
Raw Materials 60,000Accounts Payable 60,000
60,000
On April 1, Rand Company had On April 1, Rand Company had $7,000 in raw materials on hand. $7,000 in raw materials on hand.
Another $60,000 was purchased (p. Another $60,000 was purchased (p. 95).95).
Work in Process 50,000Manufacturing Overhead 2,000
Raw Materials
7,000
60,000
Work in Process
30,000
50,000
Note that indirect
materials are overhead!
During April, $52,000 in raw During April, $52,000 in raw materials were requisitioned. Of materials were requisitioned. Of
these, $2,000 were indirect.these, $2,000 were indirect.
Work in Process 50,000Manufacturing Overhead 2,000
Raw Materials 52,000
Raw Materials
7,000
60,000
52,000
Work in Process
30,000
50,000
During April, $52,000 in raw During April, $52,000 in raw materials were requisitioned. Of materials were requisitioned. Of
these, $2,000 were indirect.these, $2,000 were indirect.
Raw Materials
7,000
Work in Process 60,000Manufacturing Overhead 15,000
Salaries and Wages Payable 75,000
60,000
52,000
Work in Process
30,000
50,000
60,000
Labor cost for April were: direct Labor cost for April were: direct labor, $60,000; indirect labor, labor, $60,000; indirect labor,
$15,000.$15,000.
Manufacturing OverheadIM 2,000IL 15,000
Rand Company experienced actual Rand Company experienced actual overhead costs totaling $40,000.overhead costs totaling $40,000.
Manufacturing OverheadIM 2,000IL 15,000Utilities 21,000Rent 16,000Misc. 3,000
Rand Company experienced actual Rand Company experienced actual overhead costs totaling $40,000.overhead costs totaling $40,000.
Manufacturing OverheadIM 2,000IL 15,000Utilities 21,000Rent 16,000Misc. 3,000Prop. taxes13,000
Received a bill for accrued Received a bill for accrued property taxes, $13,000.property taxes, $13,000.
Manufacturing OverheadIM 2,000IL 15,000Utilities 21,000Rent 16,000Misc. 3,000Prop. taxes13,000Insurance7,000
Paid insurance on factory, Paid insurance on factory, $7,000.$7,000.
Manufacturing OverheadIM 2,000IL 15,000Utilities 21,000Rent 16,000Misc. 3,000Prop. tax13,000Insurance7,000Deprec. 18,000
Depreciation on factory Depreciation on factory equipment, $18,000.equipment, $18,000.
Manufacturing OverheadIM 2,000IL 15,000Utilities 21,000Rent 16,000Misc. 3,000Prop. tax13,000Insurance7,000Deprec. 18,000 95,000
The debit side of Manufacturing Overhead is the ACTUAL side.
Manufacturing OverheadAssume that overhead is applied Assume that overhead is applied
at the rate of $6 per machine at the rate of $6 per machine hour. During the month, 15,000 hour. During the month, 15,000 machine hours were used on two machine hours were used on two jobs. By multiplying 15,000 x 6 jobs. By multiplying 15,000 x 6
we arrive at the we arrive at the appliedapplied overhead overhead amount of $90,000amount of $90,000. .
Manufacturing OverheadDuring the month, 15,000 machine During the month, 15,000 machine
hours were used to two jobs. hours were used to two jobs. Estimated overhead is $90,000.Estimated overhead is $90,000.
Work in Process 90,000Manufacturing Overhead 90,000
Work in Process 90,000Manufacturing Overhead 90,000
Work in Process
30,000
50,000
60,000
90,000
Manufacturing OverheadDuring the month, 15,000 machine During the month, 15,000 machine
hours were used to two jobs. hours were used to two jobs. Estimated overhead is $90,000.Estimated overhead is $90,000.
Manufacturing OverheadIM 2,000IL 15,000Utilities 21,000Rent 16,000Misc. 3,000Prop. tax13,000Insurance7,000Deprec. 18,000 95,000
Applied O/H 90,000
15,000 x $6
The credit side is the “applied” or “estimated”
side.
Manufacturing OverheadIM 2,000IL 15,000Utilities 21,000Rent 16,000Misc. 3,000Prop. tax13,000Insurance7,000Deprec. 18,000 95,000
Applied O/H 90,000
You might think of it as
the EAST side.
Manufacturing OverheadJob A was completed at a cost of Job A was completed at a cost of
$158,000 and transferred to $158,000 and transferred to finished goods.finished goods.
Manufacturing OverheadJob A was completed at a cost of Job A was completed at a cost of
$158,000 and transferred to $158,000 and transferred to finished goods.finished goods.
Finished Goods 158,000 Work in Process 158,000
Work in Process
30,000
50,000
60,000
90,000
Finished Goods
158,000 158,000
Manufacturing OverheadThree-fourths of the units were Three-fourths of the units were sold on account for $225,000.sold on account for $225,000.
Manufacturing OverheadThree-fourths of the units were Three-fourths of the units were sold on account for $225,000.sold on account for $225,000.
Three-fourths of the units were Three-fourths of the units were sold on account for $225,000.sold on account for $225,000.
Accounts Receivable 225,000 Sales 225,000
The Retail Portion
Manufacturing OverheadThree-fourths of the units were Three-fourths of the units were sold on account for $225,000.sold on account for $225,000.
Three-fourths of the units were Three-fourths of the units were sold on account for $225,000.sold on account for $225,000.
Accounts Receivable 225,000 Sales 225,000
Cost of Goods Sold 118,500Finished Goods 118,500
The Cost Portion
Accounts Receivable 225,000 Sales 225,000
Cost of Goods Sold 118,500Finished Goods 118,500
Finished Goods
158,000 118,500
Manufacturing OverheadThree-fourths of the units were Three-fourths of the units were sold on account for $225,000.sold on account for $225,000.
Application
• Exercise 3-4 pg 114-5
How do you handle the difference in Overhead
• 1. Close out to Cost of Goods Sold• 2. Allocate among WIP, FG, COGS
1. Close out to Cost of Goods Sold
under applied – need to increase COGS
Overhead-----------------1500 |1400
COGS 100 OH 100
over applied - decrease COGS Overhead-----------------------1400 | 1500
OH 100 COGS 100
Application
• Exercise 3-5 pg 115 • includes under/over applied overhead basic
method
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 %
• Journal Entry
• WIP• FG• COGS• OH
Application
• Exercise 3-16 pg 119• Allocate to WIP, FG and COGS
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
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
Cost of Direct Labor/Overhead
• Direct Labor• Applied Overhead• =Total Manufacturing Cost• +beginning WIP• -ending WIP• COGM
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
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