 Discover which products are most profitable.  product mix or expansion decisions  Help set prices.  Value product inventory.  reporting; insurance.

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Presentation transcript:

 Discover which products are most profitable.  product mix or expansion decisions  Help set prices.  Value product inventory.  reporting; insurance  Identify inefficiencies or non-value added costs. 3 System Design: Job-Order Costing Chapter Why Assign Costs to Products?

Indirect Costs Product / Service Direct Costs Direct Costs Costs that cannot easily be traced to a particular product. Traced to a particular product or service. Pooled together and allocated using cost driver. Allocating Costs

Job Costing Challenges of job costing  Allocating the manufacturing overhead costs.  ABC = elaborate method of dividing costs  Keeping track of individual jobs.

Process Costing FG WIP Challenge of process costing  Splitting the total cost between WIP and FG.

B.xxx Materials B.10B.4B.0 Purchase materials a Raw materials used b Prob 3-18, p.131 Recording Transactions

Cash B.xxx WIP B.4 (b)120 MOH Control (b)20 Payroll c Insurance d B.xxx

WIP B.4 (b)120 (c)90 MOH Control (b)20 (c)60 (d)13 Factory utilities e Advertising f Depreciation on equipment g Cash B.xxx

B. WIP B.4 (b)120 (c)90 Allocated OH (£2.2 per mh) h Goods completed and transferred i MOH Control (b)20 (c)60 (d)13 (e)10 (g)20

B.xxx Finished Goods B.8 (i)310 Sales revenue j Cost of goods sold j

MOH Control (b)20 (c)60 (d)13 (e)10 (g)20 CGS (j)308 (h)110 To close overhead accts k 0

Materials B.10 (a)160 (b)140 WIP B.4 (b)120 (c)90 (h)110 (i)310 Finished Goods B.8 (i)310(j)308 Inventory Accounts

 Calculate actual indirect cost rate.  Recompute allocation of costs to each job.  Determine how much overhead, allocated in the current period, is in WIP, FG and CGS.  Prorate the over- or under-applied overhead based on these amounts. Disposing of Over / Underapplied Overhead Adjusted Allocation Rate Prorate Based on Indirect Costs Allocated

4 £ 14 £5 5 3 £ 10 £ 4 3 WIPFGCGS Current costs DL Total DM OH Old costs £ £ 308 £ WIP FG CGS

WIPB.10 (b)120 (c)90 (h)110 (i)310 Finished GoodsB.8 (i)310(j)308 MOH Control(b)20 (c)60 (d)13 (e)10 (g)20 CGS (j)308 (h)110 To close overhead accts k

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