job costing and process costing problems
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ise304.01-132-lec16-ch07-jobcosting-3.pptxJob Costing
Lecture 16
Chapter 7
* Modified from PPT slides of McGraw-Hill/Irwin
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Product Costing Systems
Job Costing
An accounting system that traces costs to individual units or to specific jobs, or batches of goods.
Process Costing
An accounting system used when identical units are produced through a series of uniform production steps.
Operation Costing
A hybrid costing system often used in manufacturing of goods that have some common characteristics plus some individual characteristics.
Automobiles
Computers
Custom Homes
Services
Cornflakes
Paint
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Overview
1. Explain what job and job shop mean.
3. Account for overhead using predetermined rates.
2. Assign costs in a job cost system.
4. Apply job costing methods in service organizations.
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Job Costing
Job
Unit of a product that is easily distinguishable from other units
Job shop
Firm that produces jobs
Job cost sheet
A record of the cost of the job kept in the accounting system
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The Cost of a Job
Job Cost Sheet
Customer
Date Initiated
Date Completed
Job Number
Direct Materials
Direct Labor
Manufacturing Overhead
Req. No.
Amount
Ticket
Hours
Amount
Hours
Rate
Amount
Cost Summary
Direct Materials
Date
Number
Balance
Direct Labor
Manufacturing Overhead
Total Cost
01-01
March 31, 2014
KFUPM
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Job Costing
Subsidiary ledger account
Control account
Account that records financial transactions for a specific job, customer, or vendor.
Account in the general ledger that summarizes a set of subsidiary ledger accounts
Job 1 WIP
Job 2 WIP
Job 3 WIP
Work-In-Process
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The Cost of a Job, Continued. . .
Materials
Work-In-Process
Direct Materials
Indirect Materials
Raw Materials
Overhead
Total WIP
12-03
01-01
01-02
Suppose InShape, Inc. manufactures custom sports and training equipment for schools and gyms.
Suppose InShape, Inc. begins with 12-03, 01-01, and 01-02
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The Cost of a Job, Continued. . .
Labor
Work-In-Process
Direct Labor
Indirect Labor
Labor
Overhead
Total WIP
12-03
01-01
01-02
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The Cost of a Job, Continued. . .
Overhead
Work-In-Process
Overhead
Total WIP
OH costs applied to each job using the POHR.
12-03
01-01
01-02
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InShape’s Job Cost System
On January 1st, InShape has the following balances in each of its three inventory accounts:
Raw Materials
$ 30,000
Work-In-Process
$ 41,000
Finished Goods
$ 27,000
Now, let’s record January’s activities for InShape.
Job 12-3
Job 12-2
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T-Accounts
You have given me 1000SR
Your Account
5,000
1,000
My Account
0
1,000
BB
(1)
BB
(1)
Account 1
Debit
Account 2
Credit
4,000
EB
1,000
EB
Every single transaction must be debited and credited in the balance sheet
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Example: InShape, Inc. (Purchase RM)
Beginning balance of account payable is $17,000
Accounts Payable
17,000
135,000
RM Inventory
30,000
135,000
BB
(1)
BB
(1)
InShape purchased $135,000 of Raw Materials on credit
Raw Materials
$ 30,000
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Example: InShape, Inc. (Direct Materials)
InShape used $12,000 of direct materials for 12-03. They also started 01-01 and 01-02 and used $102,000 and $15,000 of direct materials respectively.
WIP 12-03
41,000
BB
12,000
(2)
WIP 01-01
102,000
(2)
WIP 01-02
15,000
(2)
RM Inventory
30,000
135,000
(1)
129,000
(2)
BB
WIP
41,000
129,000
(2)
BB
Work-In-Process
$ 41,000
Job 12-3
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Example: InShape, Inc. (Direct Labor)
WIP
41,000
129,000
(2)
BB
98,000
(3)
WIP 12-03
41,000
BB
12,000
(2)
16,000
(3)
WIP 01-01
102,000
(2)
71,000
(3)
WIP 01-02
15,000
(2)
11,000
(3)
Wages Payable
98,000
(3)
Incurred direct labor of $98,000. $16,000 for 12-03, $71,000 for 01-01, and $11,000 for 01-02.
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Example: InShape, Inc. (Overhead)
InShape maintains two overhead accounts:
Overhead - Control
Overhead - Applied
Used to track all actual overhead expenses.
Used to allocate overhead to jobs based on the predetermined OH rate
Overhead is allocated to jobs using direct labor costs as its base.
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Example: InShape, Inc. (Predetermined OH Rate)
Predetermined Overhead Rate (POHR)
Estimated overhead $
Estimated allocation base
InShape, Inc. estimated overhead is $600,000 and estimated direct labor cost $1,200,000
$600,000
$1,200,000
.50%
Direct Labor Costs
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Example: InShape, Inc. (Apply Overhead)
WIP 12-03
41,000
BB
12,000
(2)
16,000
(3)
8,000
(9)
WIP 01-01
102,000
(2)
71,000
(3)
35,500
(9)
WIP 01-02
15,000
(2)
11,000
(3)
5,500
(9)
| Job # | DL$ | Rate | OH-Applied |
| 12-03 | $ 16,000 | 0.50 | $ 8,000 |
| 01-01 | 71,000 | 0.50 | 35,500 |
| 01-02 | 11,000 | 0.50 | 5,500 |
| Total | 98,000 | 0.50 | 49,000 |
MOH - Applied
49,000
(9)
WIP
41,000
129,000
(2)
BB
98,000
(3)
49,000
(9)
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Example: InShape, Inc. (Actual Overhead)
InShape incurred the following ‘actual’ overhead costs in January:
| Tr# | Item | Amount |
| (4) | Indirect material requisitioned | $ 12,000 |
| (5) | Indirect labor incurred | 9,500 |
| (6) | Utilities & other factory expenses (credit A/P) | 13,750 |
| (7) | Prepaid factory expenses used | 5,000 |
| (8) | Factory depreciation | 11,200 |
| Total Actual Overhead Expenses | $ 51,450 |
With this information, let’s continue recording InShape’s activities.
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Example: InShape, Inc. (Actual Overhead)
MOH - Control
12,000
(4)
9,500
(5)
13,750
(7)
5,000
(6)
11,200
(8)
Accumulated Depreciation
(8)
11,200
A/P
BB
17,000
(1)
135,000
(6)
13,750
Wages Payable
(3)
98,000
(5)
9,500
| Tr # | Item | Amount |
| (4) | Indirect material requisitioned | $ 12,000 |
| (5) | Indirect labor incurred | 9,500 |
| (6) | Utilities & other factory expenses (credit A/P) | 13,750 |
| (7) | Prepaid factory expenses used | 5,000 |
| (8) | Factory depreciation | 11,200 |
| Total Actual Overhead Expenses | $ 51,450 |
RM Inventory
(2)
129,000
(4)
12,000
BB
30,000
(1)
135,000
Prepaid Exp.
(7)
5,000
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Example: InShape, Inc. (Finished Goods)
InShape completed jobs 12-03 and 01-01 and transferred them to Finished Goods.
| Job 12-03 | Job 01-01 | |
| Beg. Inv. Jan 1st | $41,000 | $ -0- |
| Direct Materials – January | 12,000 | 102,000 |
| Direct Labor – January | 16,000 | 71,000 |
| OH Applied – January | 8,000 | 35,500 |
| Total Cost on Job Tickets | $ 77,000 | $ 208,500 |
Summary of Job Tickets:
transfer from WIP?
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Example: InShape, Inc. (Finished Goods)
(10)
(10)
77,000
208,500
InShape’s T accounts after transferring to finished goods.
FG Inventory
27,000
77,000
(10)
BB
208,500
(10)
WIP
41,000
129,000
(2)
BB
98,000
(3)
49,000
(9)
(10)
77,000
(10)
208,500
WIP 12-03
41,000
BB
12,000
(2)
16,000
(3)
8,000
(9)
WIP 01-01
102,000
(2)
71,000
(3)
35,500
(9)
Job12-02
Job 12-03
Job 01-01
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Example: InShape, Inc. (COGS)
InShape sold and shipped Job 12-02 and 12-03.
Record COGS:
FG Inventory
27,000
77,000
BB
(10)
208,500
(10)
(11)
27,000
(11)
77,000
Cost of Goods Sold
(11)
27,000
(11)
77,000
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Example: InShape, Inc. (Ending Balances)
24,000
EB
31,500
EB
RM Inventory
(2)
129,000
(4)
12,000
BB
30,000
(1)
135,000
(10)
(10)
77,000
208,500
WIP
41,000
129,000
(2)
BB
98,000
(3)
49,000
(9)
FG Inventory
27,000
77,000
BB
(10)
208,500
(10)
(11)
27,000
(11)
77,000
Cost of Goods Sold
(11)
27,000
(11)
77,000
208,500
EB
104,000
EB
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