systems design: job-order costing
DESCRIPTION
Systems Design: Job-Order Costing. Types of Product Costing Systems. Many different products are produced each period. Products are manufactured to order. The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost records for each job. - PowerPoint PPT PresentationTRANSCRIPT
Chapter 2Chapter 2
© The McGraw-Hill Companies, Inc., 2007McGraw-Hill /Irwin
Systems Design: Job-Order Costing
2-2
Types of Product Costing Systems
ProcessCosting
Job-orderCosting
Many different products are produced each period. Many different products are produced each period.
Products are manufactured to order.Products are manufactured to order.
The unique nature of each order requires tracing or The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost allocating costs to each job, and maintaining cost
records for each job.records for each job.
Many different products are produced each period. Many different products are produced each period.
Products are manufactured to order.Products are manufactured to order.
The unique nature of each order requires tracing or The unique nature of each order requires tracing or allocating costs to each job, and maintaining cost allocating costs to each job, and maintaining cost
records for each job.records for each job.
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Types of Product Costing Systems
ProcessCosting
Job-orderCosting
Example companies:Example companies:1. Boeing (aircraft manufacturing)1. Boeing (aircraft manufacturing)2. Bechtel International (large scale construction)2. Bechtel International (large scale construction)3. Walt Disney Studios (movie production)3. Walt Disney Studios (movie production)
Example companies:Example companies:1. Boeing (aircraft manufacturing)1. Boeing (aircraft manufacturing)2. Bechtel International (large scale construction)2. Bechtel International (large scale construction)3. Walt Disney Studios (movie production)3. Walt Disney Studios (movie production)
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Manufacturing Overhead
Manufacturing Overhead
Job No. 1Job No. 1
Job No. 2Job No. 2
Job No. 3Job No. 3
Charge Charge direct direct
material and material and direct labor direct labor
costs to costs to each job as each job as
work is work is performed.performed.
Charge Charge direct direct
material and material and direct labor direct labor
costs to costs to each job as each job as
work is work is performed.performed.
Job-Order Costing
Direct MaterialsDirect Materials
Direct LaborDirect Labor
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Manufacturing Manufacturing Overhead, Overhead, including including indirect indirect
materialsmaterials and and indirect laborindirect labor, ,
are allocated to are allocated to jobs rather than jobs rather than directly traced directly traced to each job.to each job.
Manufacturing Manufacturing Overhead, Overhead, including including indirect indirect
materialsmaterials and and indirect laborindirect labor, ,
are allocated to are allocated to jobs rather than jobs rather than directly traced directly traced to each job.to each job.
Job-Order Costing
Direct MaterialsDirect Materials
Direct LaborDirect Labor
Job No. 1Job No. 1
Job No. 2Job No. 2
Job No. 3Job No. 3Manufacturing Overhead
Manufacturing Overhead
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Manufacturing Overhead Application
Manufacturing overhead is applied to jobs that Manufacturing overhead is applied to jobs that are in process. An allocation base, such as are in process. An allocation base, such as
direct labor hours, direct labor dollars, or direct labor hours, direct labor dollars, or machine hours, is used to assign machine hours, is used to assign
manufacturing overhead to individual jobs.manufacturing overhead to individual jobs.
Manufacturing overhead is applied to jobs that Manufacturing overhead is applied to jobs that are in process. An allocation base, such as are in process. An allocation base, such as
direct labor hours, direct labor dollars, or direct labor hours, direct labor dollars, or machine hours, is used to assign machine hours, is used to assign
manufacturing overhead to individual jobs.manufacturing overhead to individual jobs.
We use an allocation base because:
1. It is impossible or difficult to trace overhead costs to particular jobs.
2. Manufacturing overhead consists of many different items ranging from the grease used in machines to a production manager’s salary.
3. Many types of manufacturing overhead costs are fixed even though output fluctuates during the period.
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Learning Objective
To compute predetermined
overhead rates and explain why estimated overhead costs (rather than actual overhead costs) are used in the
costing process
LO3LO3
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Using a predetermined overhead rate (POHR) makes it possible to estimate total job costs sooner.
Actual overhead for the period is notknown until sometime after the period has ended.
Manufacturing Overhead Application
$
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Actual amount of the allocation based upon the actual level of
activity.
Actual amount of the allocation based upon the actual level of
activity.
Based on estimates, and determined before the
period begins.
Based on estimates, and determined before the
period begins.
Manufacturing Overhead Application
Overhead applied = POHR × Actual activity
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For each direct labor hour worked on a particular job, $4.00 of factory overhead
will be applied to that job.
For each direct labor hour worked on a particular job, $4.00 of factory overhead
will be applied to that job.
Manufacturing Overhead Application
POHR = $4.00 per DLH
$640,000
160,000 direct labor hours (DLH)POHR =
Estimated total manufacturingoverhead cost for the coming period
Estimated total units in theallocation base for the coming period
POHR =
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Raw MaterialsMaterial
Purchases
Mfg. Overhead
Work in Process(Job Cost Sheet)
Actual Applied
Direct Materials Direct
Materials
Indirect Materials
Indirect Materials
Summary of Cost Flows
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Cost Flows – Material Usage
Direct materials issued to a job increase Work in Process and decrease Raw Materials. Indirect materials used are charged to Manufacturing Overhead and also decrease Raw Materials.
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Mfg. Overhead
Salaries and Wages Payable
Work in Process(Job Cost Sheet)
Direct
Materials
Direct Labor
Direct Labor
IndirectLabor
Indirect Materials
Actual Applied
IndirectLabor
Summary of Cost Flows
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Cost Flows – Labor
The cost of direct labor incurred increases Work in Process and the cost of indirect labor
increases Manufacturing Overhead.
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Mfg. Overhead
Indirect Materials
Actual Applied
IndirectLabor
Summary of Cost Flows
OtherOverhead
In addition to indirect materials and indirect
labor, other actual manufacturing
overhead costs are debited to the Manufacturing
Overhead account.
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Mfg. OverheadWork in Process(Job Cost Sheet)
Direct
Materials
Overhead Applied
OverheadApplied to
Work inProcess
Direct Labor
Indirect Materials
Actual Applied
If actual and applied manufacturing overheadare not equal, a year-end adjustment is
required.
If actual and applied manufacturing overheadare not equal, a year-end adjustment is
required.
IndirectLabor
Summary of Manufacturing Overhead Cost Flows
OtherOverhead
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Cost Flows – Overhead Applied
Work in Process is increased when Manufacturing Overhead is applied to jobs.
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Finished Goods
Cost ofGoodsMfd.
Cost ofGoodsMfd.
Work in Process(Job Cost Sheet)
Direct
MaterialsDirect Labor
Overhead Applied
Summary of Goods Manufactured Cost Flows
2-20
Cost Flows – Cost of Goods Manufactured
As jobs are completed, the Cost of Goods Manufactured is transferred to Finished
Goods from Work in Process.
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Learning Objective
To prepare schedules of cost of goods
manufactured and cost of goods sold
LO6LO6
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Finished Goods
Cost of Goods Sold
Work in Process(Job Cost Sheet)
Direct
MaterialsDirect Labor
Overhead Applied
Cost ofGoodsMfd.
Cost ofGoodsMfd.
Cost ofGoodsSold
Cost ofGoodsSold
Job-Order System Cost Flows
2-23
Defining Under- and Overapplied Overhead
The difference between the overhead cost applied to Work in Process and the actual overhead costs of a period is termed either underapplied or overapplied
overhead.
Underapplied overhead exists when the amount of overhead applied to jobs
during the period using the predetermined overhead rate is less than the total
amount of overhead actually incurred during the period.
Underapplied overhead exists when the amount of overhead applied to jobs
during the period using the predetermined overhead rate is less than the total
amount of overhead actually incurred during the period.
Overapplied overheadOverapplied overhead exists when the amount of exists when the amount of overhead applied to jobs overhead applied to jobs
during the period using the during the period using the predetermined overhead predetermined overhead
rate is rate is greater thangreater than the total the total amount of overhead actually amount of overhead actually incurred during the period.incurred during the period.
Overapplied overheadOverapplied overhead exists when the amount of exists when the amount of overhead applied to jobs overhead applied to jobs
during the period using the during the period using the predetermined overhead predetermined overhead
rate is rate is greater thangreater than the total the total amount of overhead actually amount of overhead actually incurred during the period.incurred during the period.