Job Costing Concepts ACG 4361 1-6 Prepared by Diane Tanner University of North Florida 1-6

Methods of Tracking Costs Process Costing Job Costing Homogeneous products manufactured Costs are traced or allocated to each process Examples: Dog food, frosted flakes, canned green beans, CocaCola Manufactured to order Costs are traced or allocated to jobs Separate cost records for each distinct ‘job’ or project Examples: Patients, printing orders, buildings, audit, law case Operation Costing For products with differing materials and similar processes Material costs are traced while conversion costs are allocated Examples: Men’s suits, Cheerios flavors, wine

Overview of Job Costing Also called job order costing Appropriate for production of Tangible items/projects—ships, bridges, cabinets, etc. Services—tax returns, lawn care, criminal law cases, etc. Involves accumulating costs by ‘job’ usually for a particular order, project, or batch Normal costing is often used to apply MOH Applied using a budgeted overhead rate based on actual activity ABC may be used

Cost Flows Raw Materials Work in process Finished goods Flow of costs is the same under all cost accumulation systems--job costing, process costing, and operation costing: RM → WIP → FG → CGS Inventory Accounts Raw Materials Contains costs of materials acquired to be used on jobs Work in process Contains costs of partially completed jobs Finished goods Contains completed jobs, not yet sold or delivered to customers

Job Cost Accounting = = General ledger Subsidiary ledger One WIP ‘control’ account Subsidiary ledger Used to track individual job costs Consists of multiple job cost sheets One cost sheet (subsidiary account) for each job Month end: Reconcile general ledger account balance with the subsidiary ledger WIP Control Account in the General ledger WIP Subsidiary ledger Total costs posted to all 'jobs‘ = Total costs posted to the control account Total account balances of all jobs = Balance of the control account

Traced from material requisition forms Traced from time tickets Tracking Job Costs Job cost sheet The primary document for tracking individual job costs Job Cost Sheet Job Number A - 143 Date Initiated March 3 Date Completed Department B3 Units Completed Item Wooden cargo crate Direct Materials Direct Labor Manufacturing Overhead Req. No. Amount Ticket Hours Rate Cost Summary Manufacturing overhead Total Cost Unit Cost Direct Materials Traced from material requisition forms Direct Labor Traced from time tickets Manufacturing Overhead Applied using an overhead rate

Journal Entries in Job Costing Entries are recorded in the same manner as basic product costing Direct materials recorded as used Materials requisition forms Direct labor is recorded when incurred (typically at each payroll date) Labor time tickets Overhead is applied using an overhead rate as the activity is incurred

Subsidiary Ledger Individual costs are posted to each job in the WIP subsidiary ledger. The total of direct material, direct labor, and overhead applied is posted to each job cost sheet (represented by subsidiary t-accounts here for simplicity) WIP Control   WIP - Job 27 WIP - Job 28 WIP - Job 30 WIP - Job 31 1,360 800 560 2,110 570 440 780 320 2,265 450 840 600 375 1,812 360 672 480 300  5,687  2,180  2,512  995  1,860  0 1,860 BB   DM DL OH The balance of the WIP control account must equal the balance of the jobs in the WIP subsidiary ledger.

Job Costing Example Sanja Enterprises uses job costing and applies overhead based on machine hours. Sanja’s budgeted annual information follows: Direct labor cost 14,800 hours @ $14.60 per hour Factory overhead $248,492 Machine hours 8,875 machine hours Actual data for Job 178 Direct materials requisitioned $400 Direct labor hours 70 hours @ $15.20 per hour Machine hours 42 machine hours Actual annual direct labor cost for all jobs $220,200 Actual annual manufacturing overhead cost $247,000 Determine the total cost of Job 178. WIP – Job 178 Direct labor = 70 × $15.20 = $1,064 Direct materials 400 Direct labor 1,064 POHR = $248,492 8,875 MOH ($28 × 42) 1,176 = $28.00/MH $2,640

The End