for the writer Finance guru only
blank87
l02-job_order_costing_edited.pptxTopic 2: Job Order Costing
1
Introduction
How much does it cost?
Managers ask this question for many purposes, including formulating overall strategies, product and service-emphasis decisions, and pricing decisions.
This topic presents basic concepts of job costing.
2
Structure of lecture
Job costing vs Process costing
The requirement for a pre-determined overhead rate (POHR)
Accumulating costs in a job costing system
Over- and under-applied overhead
Why it happens
How to deal with it
3
Product and Service Costing
Financial Accounting
Product costs are used to value inventory and to compute cost of goods sold.
Managerial Accounting and Cost Management
Product costs are used for planning, control, directing, and management decision making.
4
Job-Costing and Process-Costing Systems
In a job-costing system, the cost object is an individual unit, batch, or lot of a distinct product or service called a job.
In process costing, the cost object is: masses of identical or similar units, of a product or service.
5
Process Costing
Job-Order Costing
Used for production of small, identical, low cost items.
Mass produced in automated continuous production process.
Costs cannot be directly traced to each unit of product.
Types of Product-Costing Systems
6
Typical process cost applications:
Petrochemical refinery
Paint manufacturer
Paper mill
Process Costing
Job-Order Costing
Types of Product-Costing Systems
7
Used for production of large, unique, high-cost items.
Built to order rather than mass produced.
Many costs can be directly traced to each job.
Process Costing
Job-Order Costing
Types of Product-Costing Systems
8
Job-shop operations
Products manufactured in very low volumes or one at a time.
Batch-production operations
Multiple products in batches of relatively small quantity.
Process Costing
Job-Order Costing
Types of Product-Costing Systems
9
Typical job-order cost applications:
Special-order printing
Building construction
Also used in service industry
Hospitals
Law firms
Process Costing
Job-Order Costing
Types of Product-Costing Systems
10
Actual and Normal Costing
Actual direct material and direct labor combined with actual overhead.
Actual direct material and direct labor combined with predetermined overhead.
Using a predetermined rate makes it possible to estimate total job costs sooner
as Actual overhead for the period is not known with certainty until the end of the period.
11
Accumulating Costs in a Job-Order Costing System
THE JOB
Direct materials
Direct labor
Traced directly to each job
Traced directly to each job
Manufacturing overhead (OH)
Allocated to each job using a predetermined rate
12
Overhead is applied to jobs using a predetermined overhead rate (POHR) based on estimates made at the beginning of the accounting period.
Manufacturing Overhead Costs
POHR =
Budgeted manufacturing overhead cost
Budgeted amount of cost driver (or activity base)
Overhead applied = POHR × Actual activity
Based on estimates, and determined before the period begins
Actual amount of the allocation base, such as direct labor hours, incurred during the period
13
The primary document for tracking the costs associated with a given job is the job-cost record.
A closer look
Accumulating Costs in a Job-Order Costing System
14
Job Cost Sheet
15
Job Cost Sheet
Let’s see one
A materials requisition form is used to authorize the use of materials on a job.
16
Materials Requisition Form
Will E. Delite
17
Materials Requisition Form
Will E. Delite
Cost of material is charged to job A-143.
Type, quantity, and total cost of material charged to job A-143.
The materials requisition form is the source document for recording material usage in the accounting records.
18
Job Cost Sheet
19
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
20
Employee Time Ticket
21
Job Cost Sheet
22
Job Cost Sheet
Apply manufacturing overhead to jobs using a predetermined overhead rate based on direct labor hours (DLH).
Let’s do it
23
RoseCo applies overhead based on direct- labor hours.
Total estimated overhead for the year is $640,000.
Total estimated labor hours are 160,000.
Overhead Application Example
What is RoseCo’s predetermined overhead rate?
24
$640,000
160,000 direct-labor hours (DLH)
POHR =
POHR = $4.00 per DLH
For each direct labor hour worked on a job, $4.00 of factory overhead will be applied to the job.
Overhead Application Example
POHR =
Budgeted manufacturing overhead cost
Budgeted amount of cost driver (or activity base)
25
Manufacturing Overhead Costs
Overhead applied = POHR × Actual activity
Therefore for RoseCo, where 8 DLH is used:
Overhead applied = $4 per DLH × 8 DLH = $32
26
Job Cost Sheet
27
Budgeted Overhead Costs
Budgeted overhead cost rates are assigned to individual jobs on an ongoing and timely basis.
However, as budgeted rates are based on estimates made up to 12 months before actual costs are incurred,
Adjustments may need to be made regularly throughout the period.
28
“As costs are incurred, they are added to the Work-In-Process Inventory account in the ledger” (page 84, textbook)
“To keep track of the manufacturing costs assigned to each job, a subsidiary ledger is maintained. The subsidiary ledger account assigned to each job is a document called a job-cost record” (page 84, textbook)
Recording and tracking these transactions have been significantly improved and made easier with IT availability
End-of-Period Adjustments
Under-allocated overhead costs occur when the allocated amount of overhead costs in an accounting period is less than the actual amount incurred.
Over-allocated overhead costs occur when the allocated amount of overhead costs is greater than the actual amount incurred.
30
Under or over-allocated overhead costs: overhead costs incurred minus overhead costs allocated
Under-applied (or Over-applied) overhead costs and under-absorbed (or over-absorbed) overhead costs are equivalent terms.
End-of-Period Adjustments
31
Reasons for the under/over-allocated amounts:
Numerator reason (overhead costs estimation)
Denominator reason (quantity of allocation base/cost driver estimation)
End-of-Period Adjustments
32
Approaches to disposing under-allocated or over-allocated overhead:
Pro-ration approach
Write-off to Cost of Goods Sold approach
End-of-Period Adjustments
33
Pro-ration Approach
Pro-ration is the spreading of under- or over-allocated overhead among ending work-in- progress, finished goods, and cost of goods sold. ( p. 96-97)
Used by a small number of firms (typically large government contractors) that are required to do so under US federal law.
34
Immediate Write-off to Cost of Goods Sold Approach
Manufacturing Overhead (See p. 94) 65,100 62,000 applied actual 3,100 under 0 Cost of Goods Sold 71,500 3,100 74,600
35
Choosing Among Approaches
Proration approach provides the most accurate stock and cost of goods sold figures.(time consuming and not applicable to most businesses)
Immediate write-off approach is the simplest.(as most production is for sale ultimately)
36
Summary of Cost Flow
See Exhibit 3-6 on p.90
Accounting Entries:
Read illustration of Job-Order Costing
p.89 – 96 for Journal Entries recording cost flow.
See Exhibit 3-11 on p.100 for posted Ledger accounts.
End of Topic 2
38
RoseCo Job-Cost Record
Job Number A - 143Date Initiated 3-4-X2
Date Completed
Department B3Units Completed
Item Wooden cargo crate
Direct MaterialsDirect LaborManufacturing Overhead
Req. No.AmountTicketHoursAmountHoursRateAmount
Cost SummaryUnits Shipped
AmountDateNumberBalance
Direct Materials
Direct Labor
Manufacturing Overhead
Total Cost
Unit Cost
Product Costs
Sheet1
| RoseCo Job-Cost Record | |||||||||
| Job Number A - 143 | Date Initiated 3-4-X2 | ||||||||
| Date Completed | |||||||||
| Department B3 | Units Completed | ||||||||
| Item Wooden cargo crate | |||||||||
| Direct Materials | Direct Labor | Manufacturing Overhead | |||||||
| Req. No. | Amount | Ticket | Hours | Amount | Hours | Rate | Amount | ||
| Cost Summary | Units Shipped | ||||||||
| Product Costs | Amount | Date | Number | Balance | |||||
| Direct Materials | |||||||||
| Direct Labor | |||||||||
| Manufacturing Overhead | |||||||||
| Total Cost | |||||||||
| Unit Cost |
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Sheet7
Sheet8
Sheet9
Sheet10
Sheet11
Sheet12
Sheet13
Sheet14
Sheet15
Sheet16
RoseCo Job-Cost Record
Job Number A - 143Date Initiated 3-4-X2
Date Completed
Department B3Units Completed
Item Wooden cargo crate
Direct MaterialsDirect LaborManufacturing Overhead
Req. No.AmountTicketHoursAmountHoursRateAmount
Cost SummaryUnits Shipped
AmountDateNumberBalance
Direct Materials
Direct Labor
Manufacturing Overhead
Total Cost
Unit Cost
Product Costs
Sheet1
| RoseCo Job-Cost Record | |||||||||
| Job Number A - 143 | Date Initiated 3-4-X2 | ||||||||
| Date Completed | |||||||||
| Department B3 | Units Completed | ||||||||
| Item Wooden cargo crate | |||||||||
| Direct Materials | Direct Labor | Manufacturing Overhead | |||||||
| Req. No. | Amount | Ticket | Hours | Amount | Hours | Rate | Amount | ||
| Cost Summary | Units Shipped | ||||||||
| Product Costs | Amount | Date | Number | Balance | |||||
| Direct Materials | |||||||||
| Direct Labor | |||||||||
| Manufacturing Overhead | |||||||||
| Total Cost | |||||||||
| Unit Cost |
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Sheet7
Sheet8
Sheet9
Sheet10
Sheet11
Sheet12
Sheet13
Sheet14
Sheet15
Sheet16
RoseCo Materials Requisition Form
Requisition No. X7 - 6890Date 3-4-X2
Job No. A - 143
Department B3
DescriptionQuantityUnit CostTotal Cost
2 x 4, 12 feet123.00$ 36.00$
1 x 6, 12 feet204.00 80.00
116.00$
Authorized
Signature
Sheet1
| RoseCo Materials Requisition Form | |||||
| Requisition No. X7 - 6890 | Date 3-4-X2 | ||||
| Job No. A - 143 | |||||
| Department B3 | |||||
| Description | Quantity | Unit Cost | Total Cost | ||
| 2 x 4, 12 feet | 12 | $ 3.00 | $ 36.00 | ||
| 1 x 6, 12 feet | 20 | 4.00 | 80.00 | ||
| $ 116.00 | |||||
| Authorized | |||||
| Signature |
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Sheet7
Sheet8
Sheet9
Sheet10
Sheet11
Sheet12
Sheet13
Sheet14
Sheet15
Sheet16
Sheet1
| RoseCo Materials Requisition Form | |||||
| Requisition No. X7 - 6890 | Date 3-4-X2 | ||||
| Job No. A - 143 | |||||
| Department B3 | |||||
| Description | Quantity | Unit Cost | Total Cost | ||
| 2 x 4, 12 feet | 12 | $ 3.00 | $ 36.00 | ||
| 1 x 6, 12 feet | 20 | 4.00 | 80.00 | ||
| $ 116.00 | |||||
| Authorized | |||||
| Signature |
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Sheet7
Sheet8
Sheet9
Sheet10
Sheet11
Sheet12
Sheet13
Sheet14
Sheet15
Sheet16
RoseCo Job-Cost Record
Job Number A - 143Date Initiated 3-4-X2
Date Completed
Department B3Units Completed
Item Wooden cargo crate
Direct MaterialsDirect LaborManufacturing Overhead
Req. No.AmountTicketHoursAmountHoursRateAmount
X7-6890116$
Cost SummaryUnits Shipped
AmountDateNumberBalance
Direct Materials116$
Direct Labor
Manufacturing Overhead
Total Cost
Unit Cost
Product Costs
Sheet1
| RoseCo Job-Cost Record | |||||||||
| Job Number A - 143 | Date Initiated 3-4-X2 | ||||||||
| Date Completed | |||||||||
| Department B3 | Units Completed | ||||||||
| Item Wooden cargo crate | |||||||||
| Direct Materials | Direct Labor | Manufacturing Overhead | |||||||
| Req. No. | Amount | Ticket | Hours | Amount | Hours | Rate | Amount | ||
| X7-6890 | $ 116 | ||||||||
| Cost Summary | Units Shipped | ||||||||
| Product Costs | Amount | Date | Number | Balance | |||||
| Direct Materials | $ 116 | ||||||||
| Direct Labor | |||||||||
| Manufacturing Overhead | |||||||||
| Total Cost | |||||||||
| Unit Cost |
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Sheet7
Sheet8
Sheet9
Sheet10
Sheet11
Sheet12
Sheet13
Sheet14
Sheet15
Sheet16
RoseCo Job-Cost Record
Job Number A - 143Date Initiated 3-4-X2
Date Completed
Department B3Units Completed
Item Wooden cargo crate
Direct MaterialsDirect LaborManufacturing Overhead
Req. No.AmountTicketHoursAmountHoursRateAmount
X7-6890116$
Cost SummaryUnits Shipped
AmountDateNumberBalance
Direct Materials116$
Direct Labor
Manufacturing Overhead
Total Cost
Unit Cost
Product Costs
Sheet1
| RoseCo Job-Cost Record | |||||||||
| Job Number A - 143 | Date Initiated 3-4-X2 | ||||||||
| Date Completed | |||||||||
| Department B3 | Units Completed | ||||||||
| Item Wooden cargo crate | |||||||||
| Direct Materials | Direct Labor | Manufacturing Overhead | |||||||
| Req. No. | Amount | Ticket | Hours | Amount | Hours | Rate | Amount | ||
| X7-6890 | $ 116 | ||||||||
| Cost Summary | Units Shipped | ||||||||
| Product Costs | Amount | Date | Number | Balance | |||||
| Direct Materials | $ 116 | ||||||||
| Direct Labor | |||||||||
| Manufacturing Overhead | |||||||||
| Total Cost | |||||||||
| Unit Cost |
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Sheet7
Sheet8
Sheet9
Sheet10
Sheet11
Sheet12
Sheet13
Sheet14
Sheet15
Sheet16
RoseCo Employee Time Ticket
Time Ticket No. 36 Date3-5-X2
EmployeeI. M. Skilled Station42
StartingEndingHoursHourly
TimeTimeCompletedRateAmountJob No.
080016008.0011.00$ 88.00$ A-143
Totals8.0011.00$ 88.00$ A-143
Supervisor
C. M. Workman
Sheet1
| RoseCo Employee Time Ticket | |||||||
| Time Ticket No. 36 | Date | 3-5-X2 | |||||
| Employee | I. M. Skilled | Station | 42 | ||||
| Starting | Ending | Hours | Hourly | ||||
| Time | Time | Completed | Rate | Amount | Job No. | ||
| 0800 | 1600 | 8.00 | $ 11.00 | $ 88.00 | A-143 | ||
| Totals | 8.00 | $ 11.00 | $ 88.00 | A-143 | |||
| Supervisor | C. M. Workman |
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Sheet7
Sheet8
Sheet9
Sheet10
Sheet11
Sheet12
Sheet13
Sheet14
Sheet15
Sheet16
RoseCo Job-Cost Record
Job Number A - 143Date Initiated 3-4-X2
Date Completed
Department B3Units Completed
Item Wooden cargo crate
Direct MaterialsDirect LaborManufacturing Overhead
Req. No.AmountTicketHoursAmountHoursRateAmount
X7-6890116$ 36888$
Cost SummaryUnits Shipped
AmountDateNumberBalance
Direct Materials116$
Direct Labor88$
Manufacturing Overhead
Total Cost
Unit Cost
Product Costs
Sheet1
| RoseCo Job-Cost Record | |||||||||
| Job Number A - 143 | Date Initiated 3-4-X2 | ||||||||
| Date Completed | |||||||||
| Department B3 | Units Completed | ||||||||
| Item Wooden cargo crate | |||||||||
| Direct Materials | Direct Labor | Manufacturing Overhead | |||||||
| Req. No. | Amount | Ticket | Hours | Amount | Hours | Rate | Amount | ||
| X7-6890 | $ 116 | 36 | 8 | $ 88 | |||||
| Cost Summary | Units Shipped | ||||||||
| Product Costs | Amount | Date | Number | Balance | |||||
| Direct Materials | $ 116 | ||||||||
| Direct Labor | $ 88 | ||||||||
| Manufacturing Overhead | |||||||||
| Total Cost | |||||||||
| Unit Cost |
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Sheet7
Sheet8
Sheet9
Sheet10
Sheet11
Sheet12
Sheet13
Sheet14
Sheet15
Sheet16
RoseCo Job-Cost Record
Job Number A - 143Date Initiated 3-4-X2
Date Completed
Department B3Units Completed
Item Wooden cargo crate
Direct MaterialsDirect LaborManufacturing Overhead
Req. No.AmountTicketHoursAmountHoursRateAmount
X7-6890116$ 36888$
Cost SummaryUnits Shipped
AmountDateNumberBalance
Direct Materials116$
Direct Labor88$
Manufacturing Overhead
Total Cost
Unit Cost
Product Costs
Sheet1
| RoseCo Job-Cost Record | |||||||||
| Job Number A - 143 | Date Initiated 3-4-X2 | ||||||||
| Date Completed | |||||||||
| Department B3 | Units Completed | ||||||||
| Item Wooden cargo crate | |||||||||
| Direct Materials | Direct Labor | Manufacturing Overhead | |||||||
| Req. No. | Amount | Ticket | Hours | Amount | Hours | Rate | Amount | ||
| X7-6890 | $ 116 | 36 | 8 | $ 88 | |||||
| Cost Summary | Units Shipped | ||||||||
| Product Costs | Amount | Date | Number | Balance | |||||
| Direct Materials | $ 116 | ||||||||
| Direct Labor | $ 88 | ||||||||
| Manufacturing Overhead | |||||||||
| Total Cost | |||||||||
| Unit Cost |
Sheet2
Sheet3
Sheet4
Sheet5
Sheet6
Sheet7
Sheet8
Sheet9
Sheet10
Sheet11
Sheet12
Sheet13
Sheet14
Sheet15
Sheet16
RoseCo Job-Cost Record
Job Number A - 143Date Initiated 3-4-X2
Date Completed 3-5-X2
Department B3Units Completed2
Item Wooden cargo crate
Direct MaterialsDirect LaborManufacturing Overhead
Req. No.AmountTicketHoursAmountHoursRateAmount
X7-6890116$ 36888$ 84$ 32$
Cost SummaryUnits Shipped
AmountDateNumberBalance
Direct Materials116$
Direct Labor88$
Manufacturing Overhead32$
Total Cost236$
Unit Cost118$
Product Costs
Sheet1
| RoseCo Job-Cost Record | |||||||||
| Job Number A - 143 | Date Initiated 3-4-X2 | ||||||||
| Date Completed | 3-5-X2 | ||||||||
| Department B3 | Units Completed | 2 | |||||||
| Item Wooden cargo crate | |||||||||
| Direct Materials | Direct Labor | Manufacturing Overhead | |||||||
| Req. No. | Amount | Ticket | Hours | Amount | Hours | Rate | Amount | ||
| X7-6890 | $ 116 | 36 | 8 | $ 88 | 8 | $ 4 | $ 32 | ||
| Cost Summary | Units Shipped | ||||||||
| Product Costs | Amount | Date | Number | Balance | |||||
| Direct Materials | $ 116 | ||||||||
| Direct Labor | $ 88 | ||||||||
| Manufacturing Overhead | $ 32 | ||||||||
| Total Cost | $ 236 | ||||||||
| Unit Cost | $ 118 |
