Chapter 4
Job Order Costing
Cost object is a job or batch
When is it most appropriate?
Actual, Normal, and Standard Costing
How does ABC fit in with Job Order Costing?
Job cost sheet, materials requisitions, time tickets.
Actual versus Normal costing --- Overhead application
Estimating and applying overhead using a predetermined overhead rate
(POHR)
Example 1
Over- and under-applied overhead
Disposition of over- and under-applied overhead
Example 3
Example 1
Powell Company uses a job costing system. During the month of May, Powell spent most of its time on job
A50, which was started late in April. Following information are cost for job A50, other May costs, and
relevant annual estimates.
Materials issued:
80% for Direct Use on job A50 and
20% for Indirect Use through May
Labor:
Direct Labor for job A50
(300 DLH @ $20 per DLH)
Indirect Labor for May
Other May Costs:
Depreciation (70% Factory and 30% Administrative)
Other (70% Factory and 30% Administrative)
Overhead Cost Driver: Direct Labor Hours (DLH)
Estimated Annual Overhead
Estimated Annual DLH
Markup -- as a percent of cost
$ 5,000
6,000
310
1,000
700
21,000
3,000
40%
Required:
(1) What is the overhead to be applied for May to job A50 upon completion on May 15?
(2) What are total manufacturing costs for May for job A50?
(3) Assuming that the May 1 work-in-process inventory for job A50 was $400, how much did finished
goods inventory increase as a result of this job?
(4) What is the profit on job A50 when it is sold on May 15?
(5) Calculate the under- or over-applied overhead for May.
Example 3
The Zaf Radiator Company uses a normal-costing system with a single manufacturing overhead
cost pool and machine-hours as the cost-allocation base. The following data are for 2001:
Budgeted manufacturing overhead
Overhead allocation base
Budgeted machine-hours
Manufacturing overhead incurred
Actual machine-hours
$4,800,000
Machine-hours
80,000
$4,900,000
75,000
Machine-hours data and the ending balances (before proration of under- or overallocated overhead)
are as follows:
Cost of goods sold
Finished goods
Work in process
Actual
Machine-Hours
60,000
11,000
4,000
End of Year 2001
Balance
$8,000,000
1,250,000
750,000
a. Compute the budgeted manufacturing overhead rate for 2001. (5 points)
b. Compute the under- or overallocated manufacturing overhead of Zaf Radiator in 2001 and
determine how much should be allocated to Cost of Goods Sold, Finished Goods, and Work in
process if the allocation is prorated on the ending balances (before proration) in the three
accounts
4-32
Alles Company uses a job costing system that applies factory overhead on the basis
of direct labor. No job was in process on February 1. During the month of February,
the company worked on these three jobs. During the month, the company completed
and transferred Job B10 to the finished goods inventory. Jobs C44 and G15 were not
completed and remain in work in process at the cost of $148,650 at the end of the
month. Actual factory overhead costs during the month totaled $38,500
Direct labor ($8/hour)
Direct materials
Overhead applied
Other data:
C76 and G15 in WIP
Actual overhead costs
B10
$34,000
$42,000
?
Job Number
C44
?
$61,000
$20,750
G15
$10,000
?
$6,000
$148,650
$38,500
Required
1. What is the predetermined factory overhead rate?
2. Compute the amount of underapplied and overapplied overhead for February.
4-33
Johnson Inc. is a job-order manufacturing company that uses a predetermined
overhead rate based on direct labor-hours to apply overhead to individual jobs. For
2013, estimated direct labor-hours are 95,000, and estimated factory overhead is
$617,500. The following information is for September 2013. Job A was completed
during September, and Job B was started but not finished.
September 1, 2013, inventories
Materials inventory
Work-in-process inventory (All Job A)
Finished goods inventory
Material purchases
Direct material requisitioned
Job A
Job B
Direct labor-hours
Job A
Job B
Labor costs incurred
Direct labor ($8.50/hr)
Indirect labor
Supervisory salaries
Rental costs
Factory
Administrative offices
Total equipment depreciation costs
Factory
Administrative offices
Indirect materials used
ESTIMATED factory overhead
ESTIMATED direct labor-hours
$7,500
$31,200
$67,000
$104,000
$65,000
$33,500
4,200
3,500
$65,450
$13,500
$6,000
$7,000
$1,800
$7,500
$1,600
$12,000
$617,500
95,000
Required
1. What is the total Cost of Job A?
2. What is the total factory overhead applied during September?
3. What is the overapplied or underapplied overhead for September?