JobOrder
Costing
Process or Job-Order Costing?
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Manufacturer of glue
textbook publisher
An oil refinery
Manufacturer of powdered milk
Manufacturer of ready-mix cement
Custom home builder
Shop for customizing vans
Chemical manufacturer
Auto repair shop
Tire manufacturing plant
Advertising agency
Law office
Job Order Cost Components
Materials
Labor
Overhead
Job Order Cost Components
Materials
Labor
Overhead
Work In
Process
Job Cost Sheet
#832
Job Cost Sheet
#831
Materials
$xxx
Job Cost Sheet
#830
Direct Labor $xxx xxx
Materials
Manufacturing
Materials
Direct
Labor$xxx xxx
Overhead
xxx
Direct Labor
xxx
Manufacturing
Manufacturing
Overhead
xxx
Totalxxx
$xxx
Overhead
Total
$xxx
Total
$xxx
Job Order Cost Components
Materials
Labor
Overhead
Work In
Process
Job Cost Sheet
#832
Job Cost Sheet
#831
Materials
$xxx
Job Cost Sheet
#830
Direct Labor $xxx xxx
Materials
Manufacturing
Materials
Direct
Labor$xxx xxx
Overhead
xxx
Direct Labor
xxx
Manufacturing
Manufacturing
Overhead
xxx
Totalxxx
$xxx
Overhead
Total
$xxx
Total
$xxx
Job Order Cost Components
Materials
Labor
Overhead
Work In
Process
Job Cost Sheet
#832
Job Cost Sheet
#831
Materials
$xxx
Job Cost Sheet
#830
Direct Labor $xxx xxx
Materials
Manufacturing
Materials
Direct
Labor$xxx xxx
Overhead
xxx
Direct Labor
xxx
Manufacturing
Manufacturing
Overhead
xxx
Totalxxx
$xxx
Overhead
Total
$xxx
Total
$xxx
Source Documents
• Materials –
– Bill of Materials- type and quantity for each unit
– Materials Requisition – production for each job
• Labor
– Time Ticket
– For direct labor - hours and rate for each job
• Overhead – predetermined OH rate x driver
• All summarized on Job Cost Sheet
Job
items being
Cost
Sheet
made
in this
production run
OAK & GLASS FURNITURE CO.
JOB COST SHEET
831
Product French Court dining tables
Date started 4/03/97
Number of units manufactured 100
Date completed 4/21/97
MFG.
DEPT.
DIRECT
DIRECT LABOR
MATERIALS HOURS COST
MFG. OVERHEAD
RATE COST APPLIED
Milling &
Carving
$10,000
70
$14,000
150%
$21,000
Finishing
18,000
300
6,000
150%
9,000
COST SUMMARY AND UNIT COSTS
Job Cost Sheet
OAK & GLASS FURNITURE CO.
JOB COST SHEET
831
Product French Court dining tables
Date started 4/03/97
Number of units manufactured 100
Date completed 4/21/97
MFG.
DEPT.
DIRECT
DIRECT LABOR
MATERIALS HOURS COST
MFG. OVERHEAD
RATE COST APPLIED
Milling &
Carving
$10,000
70
$14,000
150%
$21,000
Finishing
18,000
300
6,000
150%
9,000
COST SUMMARY AND UNIT COSTS
Let’s take a
look at
overhead.
Estimated Overhead for
the Entire Year
Cost Driver
=
Overhead Rate
$320,000
Cost Driver
=
Overhead Rate
$320,000
40,000 direct labor hours
=
Overhead Rate
$320,000
40,000 direct labor hours
=
$8 per dlh
Cost Driver
• Drives the cost up or down with the
associated activity
• Use the following drivers (there are others)
– Direct Labor Dollars
– Direct Labor Hours
– Machine Hours
– Material Dollars
Fred accepts
an order for
150 special
order gadgets.
JOB COST SHEET
Direct Materials
Direct Labor
Manufacturing
Overhead
JOB COST SHEET
Direct Materials
$1,404
Direct Labor
Manufacturing
Overhead
$180
?
JOB COST SHEET
Direct Materials
$1,404
Direct Labor
Manufacturing
Overhead
$180
?
$8 per DLH
JOB COST SHEET
Direct Materials
$1,404
Direct Labor
Manufacturing
Overhead
$180
?
27 labor hours
JOB COST SHEET
Direct Materials
$1,404
Direct Labor
Manufacturing
Overhead
$180
?
27 labor hours
x $8
JOB COST SHEET
Direct Materials
$1,404
Direct Labor
$180
Manufacturing
Overhead
$216
JOB COST SHEET
Direct Materials
$1,404
Direct Labor
$180
$1,800
Manufacturing
Overhead
$216
So, if 150 of these
cost $1,800--unit
cost must be $12.
Whatever it is, I’m sure
the customer will love
it!
Perfect!!!
Application Exercises 3-1,2,3
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pg 114
3-1 Predetermined oh rate
3-2 Apply overhead
3-3 Total Cost and unit cost
The Flow of Cost in
Job-Order Costing
Three Inventory Accounts
• Raw Materials
• Work in Process
• Finished Goods
Three Costs of any product
• Direct Materials
• Direct Labor
• Overhead
• How do costs flow in and out of the three
inventory accounts and the three costs
On April 1, Rand Company had $7,000 in
raw materials on hand. Another $60,000
was purchased (p. 95).
Raw Materials
7,000
On April 1, Rand Company had $7,000 in
raw materials on hand. Another $60,000
was purchased (p. 95).
Raw Materials
Accounts Payable
Raw Materials
7,000
60,000
60,000
60,000
During April, $52,000 in raw materials
were requisitioned. Of these, $2,000 were
indirect.
Work in Process
Manufacturing Overhead
Raw Materials
7,000
60,000
50,000
2,000
Note that
indirect
materials are
Work in Process
overhead!
30,000
50,000
During April, $52,000 in raw materials
were requisitioned. Of these, $2,000 were
indirect.
Work in Process
Manufacturing Overhead
Raw Materials
Raw Materials
7,000
60,000
52,000
50,000
2,000
52,000
Work in Process
30,000
50,000
Labor cost for April were: direct labor,
$60,000; indirect labor, $15,000.
Work in Process
60,000
Manufacturing Overhead
15,000
Salaries and Wages Payable
Raw Materials
7,000
60,000
52,000
75,000
Work in Process
30,000
50,000
60,000
Rand Company experienced actual
overhead costs totaling $40,000.
IM
IL
Manufacturing Overhead
2,000
15,000
Rand Company experienced actual
overhead costs totaling $40,000.
Manufacturing Overhead
IM
2,000
IL
15,000
Utilities 21,000
Rent
16,000
Misc.
3,000
Received a bill for accrued property
taxes, $13,000.
Manufacturing Overhead
IM
2,000
IL
15,000
Utilities 21,000
Rent
16,000
Misc.
3,000
Prop. taxes13,000
Paid insurance on factory, $7,000.
Manufacturing Overhead
IM
2,000
IL
15,000
Utilities 21,000
Rent
16,000
Misc.
3,000
Prop. taxes13,000
Insurance7,000
Depreciation on factory equipment,
$18,000.
Manufacturing Overhead
IM
2,000
IL
15,000
Utilities 21,000
Rent
16,000
Misc.
3,000
Prop. tax13,000
Insurance7,000
Deprec. 18,000
Manufacturing Overhead
The debit side of
Manufacturing
IM
2,000
Overhead is the
IL
15,000
ACTUAL side.
Utilities 21,000
Rent
16,000
Misc.
3,000
Prop. tax13,000
Insurance7,000
Deprec. 18,000
95,000
Assume that overhead is applied at the
Manufacturing
Overhead
rate of $6 per
machine hour.
During the
month, 15,000 machine hours were used
on two jobs. By multiplying 15,000 x 6
we arrive at the applied overhead amount
of $90,000.
During the month, 15,000 machine hours
Overhead overhead
were used toManufacturing
two jobs. Estimated
is $90,000.
Work in Process
90,000
Manufacturing Overhead
90,000
During the month, 15,000 machine hours
Overhead overhead
were used toManufacturing
two jobs. Estimated
is $90,000.
Work in Process
90,000
Manufacturing Overhead
Work in Process
30,000
50,000
60,000
90,000
90,000
Manufacturing Overhead
IM
2,000
Applied O/H 90,000
IL
15,000
Utilities 21,000
Rent
16,000
15,000 x $6
Misc.
3,000
Prop. tax13,000
The credit side
Insurance7,000
is the “applied”
Deprec. 18,000
or “estimated”
95,000
side.
Manufacturing Overhead
IM
2,000
Applied O/H 90,000
IL
15,000
You might
Utilities 21,000
think of it as
Rent
16,000
the EAST side.
Misc.
3,000
Prop. tax13,000
Insurance7,000
Deprec. 18,000
95,000
Job A was completed at a cost of
Overhead
$158,000Manufacturing
and transferred
to finished
goods.
Job A was completed at a cost of
Overhead
$158,000Manufacturing
and transferred
to finished
goods.
Finished Goods
Work in Process
Finished Goods
158,000
158,000
158,000
Work in Process
30,000
50,000
60,000
90,000
158,000
Three-fourths of the units were sold on
Manufacturing
Overhead
account
for $225,000.
Three-fourths of the units were sold on
Manufacturing
Overhead
account
for $225,000.
Accounts Receivable
Sales
The Retail Portion
225,000
225,000
Three-fourths of the units were sold on
Manufacturing
Overhead
account
for $225,000.
Accounts Receivable
Sales
225,000
Cost of Goods Sold
Finished Goods
118,500
The Cost Portion
225,000
118,500
Three-fourths of the units were sold on
Manufacturing
Overhead
account
for $225,000.
Accounts Receivable
Sales
225,000
Cost of Goods Sold
Finished Goods
118,500
Finished Goods
158,000
118,500
225,000
118,500
Application
• Exercise 3-4 pg 114-5
How do you handle the difference in
Overhead
• 1. Close out to Cost of Goods Sold
• 2. Allocate among WIP, FG, COGS
1. Close out to Cost of Goods Sold
under applied – need to increase COGS
Overhead
----------------1500 |1400
COGS
OH
100
100
over applied - decrease COGS
Overhead
----------------------1400 | 1500
OH
100
COGS
100
Application
• Exercise 3-5 pg 115
• includes under/over applied overhead basic
method
2. Allocate among WIP, FG, COGS
• Determine the OH cost per unit
• Determine the number of units in each
WIP,FG,COGS
• Multiply the number of units by the OH cost
per unit to determine the cost
• Determine the percentage of costs in each
• Multiply the under or over applied by %
• Journal Entry
• WIP
• FG
• COGS
•
OH
Application
• Exercise 3-16 pg 119
• Allocate to WIP, FG and COGS
How do we report the three
inventories and costs?
Cost of Goods Manufactured
(COGM)
– Direct Material – uses Raw Materials Inventory
– Direct Labor
– Overhead
=Total Manufacturing Costs
- Work In Process Inventory
=COGM
Cost of Direct Materials
– Direct Material
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Beginning Raw Materials
Plus: net purchases
Available raw materials
Less Ending Raw Materials
= Cost of Materials Used in Production
Less Indirect materials
=Cost of Direct Materials
Cost of Direct Labor/Overhead
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Direct Labor
Applied Overhead
=Total Manufacturing Cost
+beginning WIP
-ending WIP
COGM
Cost Of Goods SoldIncome Statement Acct
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Beginning Finished Goods Inventory
+ COGM
Available for Sale
Less Ending Finished Goods Inventory
= Cost of Goods Sold ( unadjusted)
Adjustment (underapplied/overapplied)
Adjusted Cost of Goods Sold
Application
• Exercise 3-6
• Schedule of COGM and COGS
• HOMEWORK 3-9 Applying overhead
•
3-10 Computing unit cost
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3-11 Journal Entries
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3-12 Overhead rates
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3-13 COGM