copyright © 2007 prentice-hall. all rights reserved 1 job order costing chapter 19
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Copyright © 2007 Prentice-Hall. All rights reserved 1
Job Order CostingJob Order CostingJob Order CostingJob Order Costing
Chapter 19
Copyright © 2007 Prentice-Hall. All rights reserved 2
Objective 1Objective 1Objective 1Objective 1
Distinguish between job order costing and process costing
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Cost SystemsCost SystemsCost SystemsCost Systems
• There are two basic systems used by manufacturers to assign costs to their products:– Job order costing
• Used by companies that produce unique products or specialized services
• Costs are accumulated by jobs
– Process costing• Used by companies that produce identical units• Costs are accumulated by each process that is
needed to complete a product
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S19-1S19-1S19-1S19-1
a. A manufacturer of plywood would use
b. A manufacturer of wakeboards would use
c. A manufacturer of luxury yachts would use
d. A professional services firm would use
e. A landscape garden contractor would use
process costing.
process costing.
job costing.
job costing.
job costing.
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Objective 2Objective 2Objective 2Objective 2
Record materials and labor in a job order costing system
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Work in Process
Cost of GoodsSold
Labor
Materials
Ind
irec
t
FinishedGoods
FactoryOverhead
Direct
Direct
Allocate
Cost FlowCost FlowCost FlowCost FlowIn
dir
ect
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Raw MaterialsMaterial
PurchasesDirectDirect
MaterialMaterialDirectDirect
MaterialMaterial
Accounting for MaterialsAccounting for Materials
ActualOverhead
Costs
Indirect Material
Manufacturing Overhead
Work in Process
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S19-3S19-3S19-3S19-3GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Materials inventory – canvas 70,000
Accounts payable 70,000
Materials inventory – thread 1,000
Accounts payable 1,000
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Date Units Cost Total Mat Req No Units Cost Total Units Cost Total
SUBSIDIARY MATERIALS LEDGER RECORD
Received Used BalanceItem No._________ Description: ______________________C865 Canvas (black)
7/10 7000 $10 70,000 7000 $10 70,000
Date Units Cost Total Mat Req No Units Cost Total Units Cost Total
Received Used BalanceItem No._________ Description: ______________________
SUBSIDIARY MATERIALS LEDGER RECORD
T444 Thread (black)
7/10 50 $20 1,000 50 $20 1,000
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Materials RequisitionMaterials RequisitionMaterials RequisitionMaterials Requisition
• Used to authorize the use of materials on a job
• Serves as source document for recording material usage
Item no. Item Quantity Unit cost Amount
MATERIALS REQUISITION NO. _____Date: _______ Job No. _____
89668/03
C865 Black canvas 6,300 $10 63,000
562
T444 Black thread 15 $20 300 Total 63,300
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S19-3S19-3S19-3S19-3GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Work in process inventory 63,000
Materials inventory-canvas 63,000
(for direct materials)
Manufacturing overhead 300
Materials inventory-thread 300
(for indirect materials)
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S19-3S19-3S19-3S19-3
Raw MaterialsBeginning bal 35,000Purchases 70,000
1,000 63,300 Requisitioned
Ending bal 42,700
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Job Cost RecordJob Cost RecordJob Cost RecordJob Cost RecordJob Cost Record
Job No.Customer Name and AddressJob DescriptionDate Promised Date Started Date Completed
Direct Materials Direct Labor Overhead Costs Applied
DateRequisi-tion No. Amount
Time Ticket
No. Amount Date Rate Amount
Overall Cost SummaryMaterialsLaborOverhead
Totals Total Job Cost
562Happy Campers
2,000 backpacks
8/03 8966 63,000
•Subsidiary ledger to work in process inventory•A separate record is kept for each job in process
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Work in ProcessIncurred Direct
Material
Manufacturing Wages
Accounting for LaborAccounting for Labor
Manufacturing OverheadActual
OverheadCosts
Indirect Labor
DirectDirectLaborLabor
DirectDirectLaborLabor
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Labor Time TicketLabor Time TicketLabor Time TicketLabor Time Ticket
LABOR TIME RECORDEmployee ___________ No. ______Job _______
Time: Started: ___________ Rate: ____________ Stopped: __________ Cost of Labor Elapsed: __________ Charged to Job $___________
Employee: _J K ___________ Supervisor: M . M orley
J. Khan K13J9738
80015007 hours
$11.25
$78.75
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S19-5S19-5S19-5S19-5GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
Manufacturing wages 76,500
Wages payable 76,500
($600 + $900 + $75,000)
Work in process 75,900
Manufacturing overhead 600
Manufacturing wages 76,500
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Objective 3Objective 3Objective 3Objective 3
Record overhead in a job order costing system
Work in ProcessDirectDirect
MaterialMaterial
Accounting for Manufacturing Accounting for Manufacturing OverheadOverhead
Manufacturing OverheadActual
OverheadCosts
OverheadOverheadApplied to Applied to
Work inWork inProcessProcess
OverheadOverhead
DirectDirectLaborLabor
Actual manufacturing overhead costs are debited to the account – indirect labor, indirect materials, plant utilities, depreciation expense on plant assets, etc. Because these costs can not be traced directly to a particular job, an overhead application rate is used to allocate overhead to each job in a systematic way
Copyright © 2007 Prentice-Hall. All rights reserved 19
Total estimated manufacturing overhead costs
Total estimated quantity of the manufacturing overhead allocation base
Predetermined Manufacturing Predetermined Manufacturing Overhead RateOverhead Rate
Predetermined Manufacturing Predetermined Manufacturing Overhead RateOverhead Rate
At the beginning of the year, the overhead rate is determined so that the cost of a job can be computed when the job is completed instead of waiting until the end of the year
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Allocate Manufacturing OverheadAllocate Manufacturing OverheadAllocate Manufacturing OverheadAllocate Manufacturing Overhead
Predetermined manufacturing overhead x Actual quantity of the allocation based used by each job
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E19-19 1.E19-19 1.E19-19 1.E19-19 1.
Total estimated manufacturing overhead costs
Total estimated quantity of the manufacturing overhead allocation base
$100,000 / $80,000 = $1.25 per direct labor dollar
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E19-19 2.E19-19 2.E19-19 2.E19-19 2.
GENERAL JOURNALDATE DESCRIPTION REF DEBIT CREDIT
Work in process 80,000
Manufacturing overhead 80,000
Amount to allocate to the job:
$1.25 x $64,000 = $80,000
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E19-19 3.E19-19 3.E19-19 3.E19-19 3.
Manufacturing OverheadActual Overhead 83,000 80,000 Overhead Applied
Balance 3,000
Since the overhead rate is an estimate, it is not surprising that there is a balance remaining in the manufacturing overhead account. If the account has a debit balance, actual costs were greater than applied amounts – manufacturing overhead is underapplied.If the account has a credit balance, actual costs were less than the amount applied – manufacturing overhead is overapplied.In this exercise, there is a $3,000 debit balance….overhead is underapplied
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E19-19 4.E19-19 4.E19-19 4.E19-19 4.
GENERAL JOURNALDATE DESCRIPTION REF DEBIT CREDIT
Cost of goods sold 3,000
Manufacturing overhead 3,000
As long as the balance is immaterial, close the manufacturing overhead account against cost of goods sold
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Objective 4Objective 4Objective 4Objective 4
Record completion and sales of finished goods and the adjustment for
under- or overallocated overhead
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Work in Process•Direct MaterialDirect Material
•Direct LaborDirect Labor
•Manufacturing Manufacturing OverheadOverhead
Finished Goods
Cost of Goods
Manufactured
Cost of Goods Sold
Cost ofGoodsSold
Cost of Goods Sold
Accounting for Finished GoodsAccounting for Finished Goods
Cost of Goods
Manufactured
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P19-34BP19-34BP19-34BP19-34BMaterials Finished goods
17,000 Job 90- 44,000
Work in process
61,000
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
a. Accounts payable 81,000
Cash 81,000
b. Marketing & general expense 22,000
Cash 22,000
Copyright © 2007 Prentice-Hall. All rights reserved 28
P19-34BP19-34BP19-34BP19-34BMaterials Finished goods
17,000 Job 90- 44,000
Work in process
61,000
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
c. Cash 195,000
Accounts receivable 195,000
d. Materials inventory 55,000
Accounts payable 55,000
55,000
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P19-34BP19-34BP19-34BP19-34BMaterials Finished goods
17,000 44,000
Work in process
61,000
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
e. Work in process-job 90 4,000
Work in process-job 91 38,000
Manufacturing overhead 7,000
Materials inventory 49,000
55,00049,000
42,000
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P19-34BP19-34BP19-34BP19-34BJob Cost Record
Job No.Customer Name and AddressJob DescriptionDate Promised Date Started Date Completed
Direct Materials Direct Labor Overhead Costs Applied
DateRequisi-tion No. Amount
Time Ticket
No. Amount Date Rate Amount
Overall Cost SummaryMaterialsLaborOverhead
Totals Total Job Cost
91Wicom Company
components
e. 8966 38,000
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P19-34BP19-34BP19-34BP19-34BMaterials Finished goods
17,000 44,000
Work in process
61,000
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
f. Manufacturing wages 56,000
Wages payable 56,000
Wages payable 50,500
Cash 50,500
55,00049,000
42,000
Copyright © 2007 Prentice-Hall. All rights reserved 32
P19-34BP19-34BP19-34BP19-34BMaterials Finished goods
17,000 44,000
Work in process
61,000
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
g. Work in process-job 90 6,000
Work in process-job 91 28,000
Manufacturing overhead 22,000
Manufacturing wages 56,000
55,00049,000
42,00034,000
Copyright © 2007 Prentice-Hall. All rights reserved 33
P19-34BP19-34BP19-34BP19-34BJob Cost Record
Job No.Customer Name and AddressJob DescriptionDate Promised Date Started Date Completed
Direct Materials Direct Labor Overhead Costs Applied
DateRequisi-tion No. Amount
Time Ticket
No. Amount Date Rate Amount
Overall Cost SummaryMaterialsLaborOverhead
Totals Total Job Cost
91Wicom Company
components
e. 8966 38,000g. T523 28,000
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P19-34BP19-34BP19-34BP19-34BMaterials Finished goods
17,000 44,000
Work in process
61,000
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
h. Manufacturing overhead 7,500
Accumulated depreciation,plant & equipment 7,500
55,00049,000
42,00034,000
Copyright © 2007 Prentice-Hall. All rights reserved 35
P19-34BP19-34BP19-34BP19-34BMaterials Finished goods
17,000 44,000
Work in process
61,000
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
i. Work in process-job 90 7,200
Work in process-job 91 33,600
Manufacturing overhead 40,800
55,00049,000
42,00034,00040,800
Copyright © 2007 Prentice-Hall. All rights reserved 36
P19-34BP19-34BP19-34BP19-34BJob Cost Record
Job No.Customer Name and AddressJob DescriptionDate Promised Date Started Date Completed
Direct Materials Direct Labor Overhead Costs Applied
DateRequisi-tion No. Amount
Time Ticket
No. Amount Date Rate Amount
Overall Cost SummaryMaterialsLaborOverhead
Totals Total Job Cost
91Wicom Company
components
e. 8966 38,000g. T523 28,000
i. 120% 33,600
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P19-34BP19-34BP19-34BP19-34BMaterials Finished goods
17,000 44,000
Work in process
61,000
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
j. Finished goods inventory 61,200
Work in process-job 90 61,200
55,00049,000
42,00034,00040,800
Job 90: In process, beginning $44,000Direct materials added 4,000Direct labor added 6,000Overhead applied (6,000 x 120%) 7,200 $61,200
61,20061,200
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P19-34BP19-34BP19-34BP19-34BMaterials Finished goods
17,000 44,000
Work in process
61,000
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
k. Accounts receivable 125,000
Sales revenue 125,000
Cost of goods sold 61,200
Finished goods inventory 61,200
55,00049,000
42,00034,00040,800
61,20061,200 61,200
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P19-34BP19-34BP19-34BP19-34B
e. 7,000
Manufacturing overhead
GENERAL JOURNAL
DATE DESCRIPTION REF DEBIT CREDIT
l. Manufacturing overhead 4,300
Cost of goods sold 4,300
g.22,000h. 7,500
i. 40,800
Bal 4,300 4,300
Bal 0
Manufacturing overhead was overapplied by $4,300
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P19-34BP19-34BP19-34BP19-34B
Materials Finished goods17,000 44,000
Work in process
61,00055,000
49,00042,00034,00040,800
61,20061,200 61,200
23,000
99,600
61,000
Compare the balance in work in process with the total costs accumulated so far on Job 91
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Objective 5Objective 5Objective 5Objective 5
Calculate unit costs for a service company
The costs to track are direct labor and indirect costs. A predetermined indirect cost allocation rate is computed in the same way the manufacturing overhead allocation rate is determined
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E19-22E19-22E19-22E19-22
1. Direct labor cost rate:$2,550,000 / 17,000 hrs = $150
Indirect cost allocation rate:Office rent $300,000Support staff salaries 900,000Utilities 330,000 Total $1,530,000
Rate: $1,530,000 / $2,550,000 = 60%
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E19-22E19-22E19-22E19-22
2. Predicted cost of job:
Direct labor (220 hrs x $150)$33,000
Indirect cost allocation ($33,000 x 60%)19,800
$52,800
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E19-22E19-22E19-22E19-22
3. Bid:
Cost $52,800
Desired profit (50%) 26,400$79,200
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End of Chapter 19End of Chapter 19End of Chapter 19End of Chapter 19
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