17-1 Copyright  Houghton Mifflin Company. All rights reserved. Chapter 17 Costing Systems: Job Order Costing Belverd E. Needles, Jr. Marian Powers Sherry K. Mills Henry R. Anderson Multimedia Slides by: Dr. Paul J. Robertson New Mexico State University Steve Leask Steve Leask New Mexico State University

17-2 Copyright  Houghton Mifflin Company. All rights reserved. Job Order Versus Process Costing OBJECTIVE 2 Distinguish between the different types of product costing systems and identify the information each provides.

17-3 Copyright  Houghton Mifflin Company. All rights reserved. Product Costing Systems »Organizations have a range of choices in order to distribute product costs. Two ends of that spectrum are:  Job order costing system.  Process costing system.

17-4 Copyright  Houghton Mifflin Company. All rights reserved. Product Costing Systems »The kind of production process that an organization uses determines which of two approaches is used. »Organizations that make large, unique, or special-order products typically use job order costing.

17-5 Copyright  Houghton Mifflin Company. All rights reserved. A Job Order »A job order is a customer order for a specific number of specially designed, made-to-order products.

17-6 Copyright  Houghton Mifflin Company. All rights reserved. Job Order Costing Systems »Under a job order costing system, the costs of:  direct materials  direct labor  manufacturing overhead are traced or assigned to specific job orders or batches of products.

17-7 Copyright  Houghton Mifflin Company. All rights reserved. Process Costing Systems » Organizations that produce large amounts of similar products or amounts of similar products or liquids that have a continuous liquids that have a continuous production flow use process costing. production flow use process costing. Examples include:  Bricks.  Beverages.  Paper.  Sauces.

17-8 Copyright  Houghton Mifflin Company. All rights reserved. Process Costing Systems »Under a process costing system, the cost of direct materials, direct labor, and manufacturing overhead are first traced to processes or work cells and then assigned to the products produced by that process or work cell.

17-9 Copyright  Houghton Mifflin Company. All rights reserved. Job Order Costing in a Manufacturing Company OBJECTIVE 3 Explain the cost flow in a job order costing system for a manufacturing company. Explain the cost flow in a job order costing system for a manufacturing company.

17-10 Copyright  Houghton Mifflin Company. All rights reserved. Job Order Costing System »A job order costing system records information on the following cost flows:  The costs of materials and supplies are first charged to the Materials Inventory Control account and to the respective materials accounts in the subsidiary ledger.  Labor costs are first accumulated in the Factory Labor account.

17-11 Copyright  Houghton Mifflin Company. All rights reserved. Job Order Costing System  As products are manufactured, the costs of direct materials and direct labor are transferred to the Work in Process Inventory Control account.  The various manufacturing overhead costs are charged to the Manufacturing Overhead Control account.

17-12 Copyright  Houghton Mifflin Company. All rights reserved. Job Order Costing System  Manufacturing overhead costs are applied and charged to the Work in Process Inventory Control account using a predetermined overhead rate. Those charges are used to reduce the balance in the Manufacturing Overhead Control account and increase the Work in Process Inventory Control account.

17-13 Copyright  Houghton Mifflin Company. All rights reserved. Job Order Costing System  When products and jobs are completed, the costs assigned to them are transferred to the Finished Goods Inventory Control account.  When the products are sold and shipped, their costs are transferred to the Cost of Goods Sold account.

17-14 Copyright  Houghton Mifflin Company. All rights reserved. The Job Order Cost Card OBJECTIVE 4 Prepare a job order cost card and compute a job order’s product unit cost.

17-15 Copyright  Houghton Mifflin Company. All rights reserved. The Job Order Cost Card »All costs of  direct materials  direct labor  manufacturing overhead for a particular job are accumulated on a job order cost card. for a particular job are accumulated on a job order cost card.

17-16 Copyright  Houghton Mifflin Company. All rights reserved. Job Order Costing in a Service Organization OBJECTIVE 5 Apply job order costing to a service organization. Apply job order costing to a service organization.

17-17 Copyright  Houghton Mifflin Company. All rights reserved. Job Order Costing in Service Organizations »Job order cost cards for service organizations can be modified to suit their needs, and to determine selling prices in cost-plus contracts. »A significant difference between service and manufacturing organizations is that services are rendered and cannot be held in inventory.

17-18 Copyright  Houghton Mifflin Company. All rights reserved. Job Costs in Service Organizations »Job costs in a service organization include: 1. Labor. 2. Materials and supplies. 3. Service overhead.