Systems Design: Job-Order Costing Chapter 3 McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
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Systems Design: Job-Order Costing
Chapter 3
McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Types of Product Costing Systems
ProcessCosting
Job-orderCosting
Many different products are produced each period. Many different products are produced each period. Products are manufactured to order.Products are manufactured to order. The unique nature of each order requires tracing or The unique nature of each order requires tracing or
allocating costs to each job, and maintaining cost allocating costs to each job, and maintaining cost records for each job.records for each job.
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Comparing Process and Job-Order Costing
Job-Order ProcessNumber of jobs worked Many Single ProductCost accumulated by
Individual Job Department
Average cost computed by Job Department
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Measuring Direct Materials Cost
3-4
Job-Order Cost Accounting
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The predetermined overhead rate (POHR) used to apply overhead to jobs is determined before the
period begins.
Manufacturing Overhead Application
Estimated total manufacturingoverhead cost for the coming period
Estimated total manufacturingoverhead cost for the coming period
Estimated total units in theallocation base for the coming period
Estimated total units in theallocation base for the coming period
POHR =POHR =Estimated total manufacturing
overhead cost for the coming periodEstimated total units in the
allocation base for the coming period
POHR =
Ideally, the allocation base is a cost driver that causes
overhead.
Ideally, the allocation base is a cost driver that causes
overhead.
3-6
Determining Predetermined Overhead RatesPredetermined overhead rates are calculated
using a three-step process.
Estimate the level of
production for the period.
Estimate total amount of the allocation base
for the period.
Estimate total manufacturing
overhead costs.
POHR = ÷ 3-7
Job-Order Cost Accounting
3-8
Job-Order CostingDocument Flow Summary
Job Cost Sheets
MaterialsRequisition
Manufacturing Overhead Account
Direct materials
Indirect materials
MaterialsMaterialsused may beused may be
either direct oreither direct orindirect.indirect.
3-9
Job-Order CostingDocument Flow Summary
Job Cost Sheets
Employee Time Ticket
Manufacturing Overhead Account
Manufacturing Overhead Account
Anemployee’s
time may be eitherdirect orindirect.
Direct Labor
Indirect Labor
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Job-Order CostingDocument Flow Summary
Manufacturing Overhead Account
OtherActual OHCharges
Job Cost Sheets
POHR rate used to apply
overhead
MaterialsRequisition
EmployeeTime Ticket
IndirectLabor
IndirectMaterial
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Raw MaterialsMaterial
Purchases
Mfg. Overhead
Work in Process(Job Cost Sheet)
Actual Applied
DirectMaterials Direct
Materials
IndirectMaterials
IndirectMaterials
The Purchase and Issue of Raw Materials
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Cost Flows – Material Purchases Raw material purchases are recorded in an
inventory account.
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Cost Flows – Material UsageDirect materials issued to a job increase Work in
Process and decrease Raw Materials. Indirect materials used are charged to Manufacturing Overhead and also decrease Raw Materials.
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Mfg. Overhead
Salaries and Wages Payable
Work in Process(Job Cost Sheet)Direct
MaterialsDirectLabor
DirectLabor
IndirectMaterials
Actual Applied
IndirectLabor
IndirectLabor
The Recording of Labor Costs
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Mfg. Overhead
Salaries and Wages Payable
Work in Process(Job Cost Sheet)Direct
MaterialsDirectLabor
DirectLabor
IndirectMaterials
Actual Applied
IndirectLabor
IndirectLabor
Applying Manufacturing Overhead
OtherOverhead
OverheadApplied
OverheadApplied to
Work inProcess
If actual and applied manufacturing overheadare not equal, a year-end adjustment is required.
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Finished GoodsWork in Process(Job Cost Sheet)DirectMaterialsDirectLabor
OverheadApplied
Cost ofGoods
Mfd. Cost ofGoods
Mfd.
Transferring Completed Units
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End of Chapter 3
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