job-order costing is used when different types of batches or products are produced special order...

Job-Order CostingJob-Order Costing• Is used when different types of

batches or products are produced• special order printing, construction,

law office

Job Cost SheetJob Cost Sheet

• A job cost sheet is used to collect cost information for various jobs

• direct materials - requisition form• Direct labor - time sheets• Manufacturing Overhead is ALLOCATED on the job

cost sheet.

Manufacturing OverheadManufacturing Overhead• We allocate the overhead because we cannot

trace it• We first decide on a cost driver• We estimate the overhead• We estimate the level of the cost driver• We compute the predetermined overhead rate• We apply the overhead.

Job order costing

• We accumulate costs - direct material & direct labor in the Work in Process account until the batch is complete

• Manufacturing overhead is applied• Complete batch is transferred to Finished Goods

Manufacturing Overhead Control Account

• We accumulate actual Costs in the account - on the left side

• We apply overhead to the individual jobs (on the job cost sheet and right side of the t account.)

• This is an expense account so we need to get rid of the account

Predetermined Overhead Rate

• Determine the Appropriate Cost Driver• Estimate Manufacturing Overhead• Estimate the level of the Cost Driver• Compute the predetermined overhead rate =

Estimated Manufacturing OverheadEstimated Level of Cost Driver

Journal Entries• The company estimated $800,000 in overhead and 100,000 of

machine hours• Raw materials purchased on account $300,000• Raw materials used in production $190,000 of which $178,000

are direct materials & $12,000 are indirect• Direct labor of $90,000 and indirect of $110,000 is incurred• Depreciation of factory equipment is $40,000• Other manufacturing overhead costs are $70,000• There were 30,000 of machine hours worked.• Production orders of $520,000 were completed• $480,000 of goods were shipped at a sale price of 25% above

cost.

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Over Under applied

• The balance in Manufacturing Overhead has to go somewhere

• If it is just a small amount and we have sold most of what we made, we send it to Cost of goods sold

• Otherwise, we need to spread it between WIP, FG and CGS.

Quality

Quality of Design

• Measures how closely the product/service meets the demand of customers in terms of design

Conformance Quality

• Measures how a product/service meets the production and design specifications

COST OF QUALITY

• PREVENTION• Costs incurred to preclude the

production of products that do not meet specifications

COST OF QUALITY

• APPRAISAL/Inspections• Costs incurred in detecting which of

the units do not conform to specifications

COST OF QUALITY

• INTERNAL FAILURE• Costs incurred when a nonconforming

product is detected before it is shipped to customer

COST OF QUALITY

• EXTERNAL FAILURE• Costs incurred when a nonconforming

product is detected after it is shipped to customers