CHAPTER 4 Job Costing © 2009 Pearson Prentice Hall. All rights reserved.

Costing Systems Job-Costing: system accounting for distinct cost objects called Jobs. Each job may be different from the next, and consumes different resources Wedding announcements, aircraft, advertising Process-Costing: system accounting for mass production of identical or similar products Oil refining, orange juice, soda pop

Job order costing/Process costing… Manufacturing firms and service-type enterprises that produce goods or services in separately identifiable lots generally will use cob costing to allocate manufacturing or service implementation costs to the individual units of finished goods. Job costing is unsutible for business homogeneous goods or services on a continuing process basis such as in the manufacture of cement, manufacture of flour, or refinement of crude oil. Such firms instead use Process costing.

JOB ORDER COSTING SHEET JOB COSTING JOB ORDER COSTING SHEET Job start:………. Job No: 101 Job end: ……… DIRECT MATERIAL COST Date Description Quantity Total Sub Total DIRECT LABOR COST Hours Rate Sub total FACTORY OVERHEAD COST Allocation Rate Activitiy Tutar TOTAL 11/01/2019 M. Karakaya, Maliyet Muhasebesi

JOB ORDER COSTING SHEET JOB ORDER COSTING SHEET JOB COSTING DIRECT MATERIAL COST DIRECT LABOR COST FACTORY OVERHEAD COST ALLOCATION RATE JOB ORDER COSTING SHEET job start:………… Job No: 101 Job end: ……… DIRECT MATERIAL COST Date Description Quantity Total Sub Total DIRECT LABOR COST Hours Rate Sub total FACTORY OVERHEAD COST Allocation Rate Activitiy Tutar TOTAL JOB ORDER COSTING SHEET Job start:………. Job No: 202 Job end: ……… DIRECT MATERIAL COST Date Description Quantity Total Sub Total DIRECT LABOR COST Hours Rate Sub total FACTORY OVERHEAD COST Allocation Rate Activitiy Tutar TOTAL 11/01/2019 M. Karakaya, Maliyet Muhasebesi

JOB ORDER COSTING SHEET JOB ORDER COSTING SHEET LABOR TIME RECORD Date: 28 Feb. Ali Candan Job No 1th week 2nd week 3rd week 4th week Total Job 101 Job 201 20 25 30 15 45 40 50 125 TOTAL 175 INDIRECT COST POOL As of Dec. 31 Allocation Base: DLH Ind. material Indirect Labor Depreciation Others 100 180 200 45 TOTAL 525 JOB COSTING MATERIAL REQUISITION RECORD Date: 14 Feb. JOB No: 101 Description Quantity Unit Cost Total Material X 200 10 2.000 MATERIAL REQUISITION RECORD Date: 17 Feb. JOB No: 201 Description Quantity Unit Cost Total Material X 150 10 1.500 OH ALLOCATION RATE = 525 / 175 = $3 per DLH JOB ORDER COSTING SHEET job start:………… Job No: 101 Job end: ………” DIRECT MATERIAL COST Date Description Quantity Total DIRECT LABOR COST Hours Rate OH COST Base Activity TOTAL 2550 JOB ORDER COSTING SHEET job start:………… Job No: 201 Job end: ……… DIRECT MATERIAL COST Date Description Quantity Total DIRECT LABOR COST Hours Rate OH COST Base Activitiy Sub total TOTAL 3.500 Dec., 1 M-x 200 2000 Sub total 2000 Dec. 5 M-x 150 1500 Sub total 1500 Dec. 31 50 8 400 Sub total 400 Dec., 31 125 8 1000 Sub total 1000 Dec. 31 DLH 50 3 150 Sub total 150 Dec. 31 DLH 125 3 1000 Sub total 1000 11/01/2019

Sample Job Cost Document

Sample Job Cost Source Documents

Costing Approaches Actual Costing - allocates: Indirect costs based on the actual indirect-cost rates times the actual activity consumption Normal Costing – allocates: Indirect costs based on the budgeted indirect-cost rates times the actual activity consumption Both methods allocate Direct costs to a cost object the same way: by using actual direct-cost rates times actual consumption

Costing Approaches Summarized

Journal Entries Journal entries are made at each step of the production process The purpose is to have the accounting system closely reflect the actual state of the business, its inventories and its production processes.

Journal Entries, continued All Product Costs are accumulated in the Work-in-Process Control Account Direct Materials used Direct Labor incurred Factory Overhead allocated or applied Actual Indirect Costs (overhead) are accumulated in the Manufacturing Overhead Control account

Journal Entries, continued Purchase of Materials on credit: Materials Control XX Accounts Payable Control XX Requisition of Direct and Indirect Materials (OH) into production: Work-in-Process Control X Manufacturing Overhead Control Y Materials Control Z

Journal Entries, continued Incurred Direct and Indirect (OH) Labor Wages Work-in-Process Control X Manufacturing Overhead Control Y Cash Control Z

Journal Entries, continued Incurring or recording of various actual Indirect Costs: Manufacturing Overhead Control X Salaries Payable Control A Accounts Payable Control B Accumulated Depreciation Control C Prepaid Expenses Control D

Journal Entries, continued Allocation or application of Indirect Costs (overhead) to the Work-in-Process account is based on a predetermined overhead rate. Work-in-Process Control X Manufacturing Overhead Allocated X Note: actual overhead costs are never posted directly into Work-in-Process

Journal Entries, continued Products are completed and transferred out of production in preparation for being sold Finished Goods Control X Work-in-Process Control X

Journal Entries, continued Products are sold to customers on credit Accounts Receivable Control X Sales X And the associated costs are transferred to an expense (cost) account Cost of Goods Sold Y Finished Goods Control Y Note: The difference between the sales and cost of goods sold amounts represents the gross margin (profit) on this particular transaction

Illustrated General Ledger in a Job Cost Environment

Accounting for Overhead Recall that two different overhead accounts were used in the preceding journal entries: Manufacturing Overhead Control was debited for the actual overhead costs incurred. Manufacturing Overhead Allocated was credited for estimated (budgeted) overhead applied to production through the Work-in-Process account.

Accounting for Overhead Actual costs will almost never equal budgeted costs. Accordingly, an imbalance situation exists between the two overhead accounts If Overhead Control > Overhead Allocated, this is called Underallocated Overhead If Overhead Control < Overhead Allocated, this is called Overallocated Overhead

Accounting for Overhead This difference will be eliminated in the end-of-period adjusting entry process, using one of three possible methods The choice of method should be based on such issues as materiality, consistency and industry practice

Three Methods for Adjusting Over/Underapplied Overhead Adjusted Allocation Rate Approach – all allocations are recalculated with the actual, exact allocation rate. Proration Approach – the difference is allocated between Cost of Goods Sold, Work-in-Process, and Finished Goods based on their relative sizes Write-Off Approach – the difference is simply written off to Cost of Goods Sold