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