acc3200 job order costing. learning objectives describe the key differences between job order...
TRANSCRIPT
Learning ObjectivesDescribe the key differences between job order costing and
process costing.
Describe the source documents used to track direct material and indirect labor costs to the job cost sheet.
Calculate a predetermined overhead rate and use it to apply manufacturing overhead cost to jobs.
Describe how costs flow through the accounting system in job order costing.
Calculate the cost of goods manufactured and cost of goods sold.
Job Order versus Process Costing
Description Job Order Costing Process CostingType of product
Unique products and services, such as a custom-built ship.
Homogeneous products and services, such as cans of soda
Manufacturing approach
Customized to the needs of the customer or client
Mass-production of products in series of standardized processes
Cost accumulation
Costs accumulated by job or customer
Costs accumulated by process
Major cost report
Job cost sheet for each unique unit, customer, or job
Production report for each major production process
Job Order Costing versus Process Costing
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Process Costing
Costs are traced to the process and then divided by units produced to obtain an average unit cost.
AverageUnitCost
=
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Materials Requisition Form
Materials Requisition Number: MR #5236 Date 8/11/2008Job Number #2719Description: Simpson Home, Lot #79, Cambridge Subdivision
Material Description Quantity Unit Cost Total Cost2 X 6 Exterior Studs 6,362 board ft. 0.50$ 3,181$ 2 X 6 Double Plate 2,600 board ft. 0.49 1,274 2 X 6 Pressure Treated 450 board ft. 0.68 306 2 X 4 Interior Studs 5,400 board ft. 0.21 1,134 2 X 4 Pressure Treated 300 board ft. 0.35 105 Total Cost 6,000$
Authorized Signature
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Direct Labor Time TicketsWeekly Time Report Dates: Monday 8/11 - Friday 8/15, 2008Ticket Number: TT335Employee Bill Robertson
Time Time Total Hourly Total JobDate Started Ended Hours Rate Amount Number
8/11/2008 7:00 am 3:00 pm 8 hours 25$ 200$ 27198/12/2008 7:00 am 3:00 pm 8 hours 25 200 27198/13/2008 7:00 am 3:00 pm 8 hours 25 200 27198/14/2008 7:00 am 11:00 am 4 hours 25 100 2719
8/14/2008 12:00 pm 4:00 pm 4 hours 25 100 33358/15/2008 7:00 am 3:00 pm 8 hours 25 200 3335
40 hours 1,000$
Authorized Signature
Weekly Totals
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Job Cost Sheet
Job Number #2719Date Started: 7/12/2008Date Completed:Description: Simpson Home, Lot #79, Cambridge Subdivision
AppliedDirect Materials Direct Labor Manufacturing Overhead
Req. No. Amount Ticket Hours AmountMR #5236 6,000$ TT335 300 700$
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Manufacturing overhead is applied to jobs that are in process. An allocation base, such as direct labor
hours, direct labor dollars, or machine hours, is used to assign manufacturing overhead to individual jobs.
Manufacturing overhead is applied to jobs that are in process. An allocation base, such as direct labor
hours, direct labor dollars, or machine hours, is used to assign manufacturing overhead to individual jobs.
We use an allocation base to apply manufacturing overhead because:
1. It is impossible or difficult to trace overhead costs to particular jobs.
Predetermined Overhead Rates
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Predetermined Overhead Rates
The predetermined overhead rate (POHR) used to apply overhead to jobs is determined
before the period begins using estimates.
PredeterminedOverhead
Rate
Ideally, the allocation base is a cost driver that causes overhead.
=
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Predetermined Overhead Rates
Because home building is a labor intensive business, Toll Brothers uses direct labor hours as the overhead allocation
base. Toll Brothers estimates the total manufacturing overhead cost for the year to be $750,000, while direct labor
hours are estimated to be 10,000. What is Toll Brothers predetermined overhead rate?
For each direct labor hour worked on a job, $75.00 of manufacturing overhead will be applied to the job.
POHR =
POHR =
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Actual amount of the cost driver such as units produced, direct labor hours, or machine
hours incurred during the period.
Based on estimates, and determined before the
period begins.
Predetermined Overhead Rates
=× Overhead Applied
to an Individual Job
PredeterminedOverhead
Rate
Actual Value of theAllocation Base for
Each Job
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Job Number #2719Date Started: 7/12/2008Date Completed:Description: Simpson Home, Lot #79, Cambridge Subdivision
AppliedDirect Materials Direct Labor Manufacturing Overhead
Req. No. Amount Ticket Hours Amount Hours Rate AmountMR #3345 8,000$ TT335 28 700$ 28 75$ 2,100$ MR #3372 6,000 TT340 90 2,250 90 75 6,750 MR #4251 4,500 TT385 90 2,250 90 75 6,750 MR #4827 5,500 TT425 52 1,300 52 75 3,900 MR #5236 6,000 TT445 40 1,000 40 75 3,000
30,000$ 300 7,500$ 300 75 22,500$
Predetermined Overhead RatesOverheadApplied
to Job #2719
PredeterminedOverhead
Rate =Actual Direct Labor
Hours for Job #2719×
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Job Number #2719Date Started: 7/12/2008Date Completed:Description: Simpson Home, Lot #79, Cambridge Subdivision
AppliedDirect Materials Direct Labor Manufacturing Overhead
Req. No. Amount Ticket Hours Amount Hours Rate AmountMR #3345 8,000$ TT335 28 700$ 28 75$ 2,100$ MR #3372 6,000 TT340 90 2,250 90 75 6,750 MR #4251 4,500 TT385 90 2,250 90 75 6,750 MR #4827 5,500 TT425 52 1,300 52 75 3,900 MR #5236 6,000 TT445 40 1,000 40 75 3,000
30,000$ 300 7,500$ 300 75 22,500$
Direct Materials Cost 30,000$ Direct Labor Cost 7,500 Applied Manufacturing Overhead 22,500 Total cost 60,000$
Cost Summary
Predetermined Overhead Rates
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Purchases 150,000 Issued to production 150,000Raw Materials Inventory
10,000 Manufacturing Overhead 140,000
Work in Process Inventory
Recording the Purchase and Issue of Materials
Toll Brothers purchased $150,000 in raw materials on account. Toll Brothers withdraws $150,000 worth of materials from
inventory, $100,000 for Job #2719 (Simpson home), $40,000 for Job #3335 (Flintstone Home) and $10,000 for supplies.
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Recording Labor Costs
Toll Brothers incurs $55,000 in labor costs, $30,000 for Job #2719 (Simpson home), $20,000 for Job
#3335 (Flintstone Home) and $5,000 for indirect labor.
5,000 Manufacturing Overhead
50,000 Work in Process Inventory
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Recording Actual Manufacturing Overhead
In addition to indirect materials and indirect labor, Toll Brothers incurs other manufacturing overhead costs including:• Salary paid to construction site supervisor, $12,000.• Salary owed to a construction engineer, $8,000.• Property taxes owed but not yet paid, $6,000.• Expired insurance premium for construction, $4,000.• Depreciation on construction equipment, $18,000.
Actual AppliedIndirect materials 10,000Indirect labor 5,000
Manufacturing Overhead
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Recording Applied Manufacturing Overhead
Toll Brothers applies manufacturing overhead to jobs using a predetermined overhead rate of $75 per direct labor
hour. Time tickets for the month show a total of 800 direct labor hours, 600 hours for Job #2719 (Simpson home) and
200 hours for Job #3335 (Flintstone Home).
Direct Overhead AppliedJob # Labor Hrs Rate Overhead
Simpson home 2719 600 75$ 45,000$ Flintstone home 3335 200 75 15,000 Total direct labor hours 800 60,000$
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Recording Actual and Applied Manufacturing Overhead
The difference is closed to cost of goods sold.
Actual Applied MOH MOH =/
Actual AppliedIndirect materials 10,000 Applied OH 60,000Indirect labor 5,000Supervisor salary 12,000Engineer salary 8,000Property taxes 6,000Insurance expense 4,000Depreciation 18,000
Manufacturing Overhead
60,000 Work in Process Inventory
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Transferring Costs to Finished Goods Inventory and Cost of Goods Sold
Job Number #2719Date Started: 7/12/2008Date Completed:Description: Simpson Home, Lot #79, Cambridge Subdivision
Direct Materials Cost 100,000$ Direct Labor Cost 30,000 Applied Manufacturing Overhead 45,000 Total cost 175,000$
Cost Summary
Summary section of job cost sheet for
Job #2719 after all costs are
updated.
Direct material 140,000 Job 2719 completed 175,000 Direct labor 50,000 Applied MOH 60,000 Balance 75,000
Work in Process Inventory
Cost of goods completed 175,000 Finished Goods Inventory
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Transferring Costs to Finished Goods Inventory and Cost of Goods Sold
Cost of goods completed 175,000 When job is sold 175,000 Finished Goods Inventory
Job 2719 sold 175,000 Cost of Goods Sold
Assume Job 3719, the Simpson home was sold.
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Recording Nonmanufacturing CostsIn addition to manufacturing costs, Toll Brothersincurs non-manufacturing overhead costs.1. Commissions to sales agent, $20,000.2. Advertising expense, $5,000.3. Depreciation on office equipment, $6,000.4. Other selling and administrative expenses, $4,000.
These non-manufacturing costs would be recorded in individual expense accounts, including
commission expense, advertising expense, depreciation expense, and other expenses. The total of the selling and administrative expense would be subtracted from gross margin on the
income statement.
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Calculating Overapplied andUnderapplied Overhead
Actual AppliedIndirect materials 10,000 Applied OH 60,000Indirect labor 5,000Supervisor salary 12,000Engineer salary 8,000Property taxes 6,000Insurance expense 4,000Depreciation 18,000Balance 3,000
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Disposing of Overapplied and Underapplied Overhead
The most common method for disposing of the balance in Manufacturing Overhead is to make
a direct adjustment to Cost of Goods Sold.
OverappliedManufacturing
Overhead(credit balance)
UnderappliedManufacturing
Overhead(debit balance)
DecreasesCost of Goods
Sold
IncreasesCost of Goods
Sold
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Cost of Goods Manufactured Report
Beginning raw materials inventory -$ Plus: Raw material purchases 150,000 Less: Indirect materials (10,000) Less: Ending raw materials inventory - Direct materials used 140,000 Direct labor 50,000 Manufacturing overhead applied 60,000 Total current manufacturing costs 250,000 Plus: Beginning work in process inventory - Less: Ending work in process inventory (75,000) Cost of goods manufactured 175,000
Toll BrothersCost of Goods Manufactured Report
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Cost of Goods Manufactured Report
Sales revenue 275,000$ Cost of goods sold Beginning finished goods inventory -$ Plus: Cost of goods manufactured 175,000 Less: Ending finished goods inventory - Unadjusted cost of goods sold 175,000 Plus: Underapplied manufacturing overhead 3,000 178,000 Gross profit 97,000 Selling and administrative expenses 35,000 Net income from operations 62,000$
Toll BrothersIncome Statement
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Recording the Purchase and Issue of Materials
Debit Credit
Raw Materials Inventory 150,000
Accounts Payable 150,000
Accounts
Debit CreditAccounts
Toll Brothers purchased $150,000 of raw materials on account.
The company issued $100,000 of raw materials to Job 2719 and $40,000 to Job 3335. Indirect material of $10,000 were issued.
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Recording Labor Costs
Debit CreditAccounts
Direct labor on Job 2719 30,000$ Direct labor on Job 3335 20,000 Indirect labor 5,000 Total 55,000$
The following labor costs were incurred during the period.
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Recording Actual Manufacturing Overhead
The following overhead costs were incurred during the period.
Actual AppliedSupervisor salary 12,000Engineer salary 8,000Property taxes 6,000Insurance expense 4,000Depreciation 18,000
Manufacturing Overhead
Debit CreditAccounts
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Recording Applied Manufacturing Overhead
Here is how we applied overhead during the period.Direct Overhead Applied
Job # Labor Hrs Rate OverheadSimpson home 2719 600 75$ 45,000$ Flintstone home 3335 200 75 15,000 Total direct labor hours 800 60,000$
Debit CreditAccounts
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Transferring Costs to Finished Goods Inventory and Cost of Goods Sold.Job 2719, the Simpson home, was completed at a cost of $175,000.
Debit Credit
Finished Goods Inventory 175,000
Work in Process Inventory 175,000
Accounts
The Simpson home was purchased for $275,000 cash.Debit CreditAccounts
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Recording Nonmanufacturing Costs
Debit Credit
Commission Expense 20,000
Commissions Payable 20,000
Advertising Expense 5,000
Prepaid Advertising 5,000
Accounts
Toll Brothers incurs non-manufacturing overhead costs.1. Commissions to sales agent, $20,000.2. Advertising expense, $5,000.3. Depreciation on office equipment, $6,000.4. Other selling and administrative expenses, $4,000.
Debit CreditAccounts
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Overapplied or Underapplied Manufacturing Overhead
At the end of the period, Toll Brothers has a $3,000 debit balance in the Manufacturing Overhead account (underapplied overhead).
Debit CreditAccounts
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