Copyright © 2007 Prentice-Hall. All rights reserved 1 Job Costing Chapter 3

Copyright © 2007 Prentice-Hall. All rights reserved 2 Objective 1 Distinguish between job order costing and process costing

Copyright © 2007 Prentice-Hall. All rights reserved 3 Cost Systems Process costing –Assigns costs to large numbers of identical units –Track costs by departments or processes Job costing –Assigns costs to specific unit or small batch of products –Track costs by job

Copyright © 2007 Prentice-Hall. All rights reserved 4 Job Costing Used by companies that produce goods or services to meet customers’ specifications Examples: building construction, custom furniture, accounting firms, health care, mail order catalogs

Copyright © 2007 Prentice-Hall. All rights reserved 5 S3-1 a.A manufacturer of plywood b.A manufacturer of wakeboards c.A manufacturer of luxury yachts d.A professional services firm e.A landscape garden contractor process costing job costing

Copyright © 2007 Prentice-Hall. All rights reserved 6 Work in Process Cost of Goods Sold Labor Materials Indirect Finished Goods Factory Overhead Direct Allocate Cost Flow Indirect

Copyright © 2007 Prentice-Hall. All rights reserved 7 Work in Process Cost of Goods Sold Finished Goods Cost Flow Direct MaterialsDirect LaborManufacturing Overhead

Copyright © 2007 Prentice-Hall. All rights reserved 8 Objective 2 Record materials and labor in a manufacturer’s job costing system

Copyright © 2007 Prentice-Hall. All rights reserved 9 Raw Materials Material Purchases Direct Material Accounting for Materials Actual Overhead Costs Indirect Material Manufacturing Overhead Work in Process

Copyright © 2007 Prentice-Hall. All rights reserved 10 S3-2 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Materials inventory – canvas70,000 Accounts payable70,000 Materials inventory – thread1,100 Accounts payable1,100

Copyright © 2007 Prentice-Hall. All rights reserved 11 S3-3 C865Canvas (black) 7/ $1070,000 Canvas (black) 7000 $1070,000 T444Thread (black) 7/10 55 $20 1,10055 $20 1,100

Copyright © 2007 Prentice-Hall. All rights reserved 12 Materials Requisition Used to authorize the use of materials on a job Serves as source document for recording material usage /03 C865Black canvas6,300 $10 63, T444Black thread 14 $ Total 63,280

Copyright © 2007 Prentice-Hall. All rights reserved 13 S3-3 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Work in process inventory63,000 Materials inventory-canvas63,000 (for direct materials) Manufacturing overhead280 Materials inventory-thread280 (for indirect materials)

Copyright © 2007 Prentice-Hall. All rights reserved 14 S3-3 Raw Materials Beginning bal 35,680 Purchases 70,000 1,100 63,280 Requisitioned Ending bal 43,500

Copyright © 2007 Prentice-Hall. All rights reserved 15 Job Cost Record 562 Happy Campers 2,000 backpacks 8/ ,000

Copyright © 2007 Prentice-Hall. All rights reserved 16 Work in Process Incurred Direct Material Manufacturing Wages Accounting for Labor Manufacturing Overhead Actual Overhead Costs Indirect Labor Direct Labor

Copyright © 2007 Prentice-Hall. All rights reserved 17 Labor Time Ticket J. Khan K13 J hours $11.25 $78.75

Copyright © 2007 Prentice-Hall. All rights reserved 18 S3-4 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Manufacturing wages77,500 Wages payable77,500 ($600 + $900 + $76,000) Work in process76,000 Manufacturing overhead1,500 Manufacturing wages77,500

Copyright © 2007 Prentice-Hall. All rights reserved 19 Objective 3 Allocate manufacturing overhead in a manufacturer’s job costing system

Work in Process Direct Material Accounting for Manufacturing Overhead Manufacturing Overhead Actual Overhead Costs Overhead Applied to Work in Process Overhead Direct Labor

Copyright © 2007 Prentice-Hall. All rights reserved 21 Total estimated manufacturing overhead costs Total estimated quantity of the manufacturing overhead allocation base Predetermined Manufacturing Overhead Rate

Copyright © 2007 Prentice-Hall. All rights reserved 22 Allocate Manufacturing Overhead Predetermined manufacturing overhead x Actual quantity of the allocation based used by each job

Copyright © 2007 Prentice-Hall. All rights reserved 23 E Total estimated manufacturing overhead costs Total estimated quantity of the manufacturing overhead allocation base $97,800 / $61,125 = $1.60 per direct labor dollar

Copyright © 2007 Prentice-Hall. All rights reserved 24 E GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Work in process102,240 Manufacturing overhead102,240 Amount to allocate to the job: $1.60 x $63,900 = $102,240

Copyright © 2007 Prentice-Hall. All rights reserved 25 E Manufacturing Overhead Actual Overhead 104, ,240 Overhead Applied Balance 2,360

Copyright © 2007 Prentice-Hall. All rights reserved 26 E GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Cost of goods sold2,360 Manufacturing overhead2,360

Copyright © 2007 Prentice-Hall. All rights reserved 27 Objective 4 Account for completion and sales of finished goods and close manufacturing overhead

Copyright © 2007 Prentice-Hall. All rights reserved 28 Work in Process Direct Material Direct Labor Manufacturing Overhead Finished Goods Cost of Goods Manufactured Cost of Goods Sold Accounting for Finished Goods Cost of Goods Manufactured

Copyright © 2007 Prentice-Hall. All rights reserved 29 E3-17 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT a.Advertising expense3,400 Cash3,400 b.Manufacturing wages16,000 Cash16,000 c.Raw materials inventory14,750 Accounts payable14,750

Copyright © 2007 Prentice-Hall. All rights reserved 30 E3-17 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT d.Work in process inventory7,000 Manufacturing overhead3,000 Raw materials inventory10,000 e.Work in process inventory10,500 Manufacturing overhead4,500 Manufacturing wages15,000

Copyright © 2007 Prentice-Hall. All rights reserved 31 E3-17 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT f.Manufacturing overhead18,900 Accumulated depreciation, plant13,000 Prepaid insurance1,700 Property tax payable4,200

Copyright © 2007 Prentice-Hall. All rights reserved 32 E3-17 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT g.Work in process inventory21,000 Manufacturing overhead21,000 h.Finished goods inventory33,000 Work in process inventory33,000

Copyright © 2007 Prentice-Hall. All rights reserved 33 E3-17 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT i.Accounts receivable23,000 Sales revenue23,000 Cost of goods sold11,000 Finished goods inventory11,000

Copyright © 2007 Prentice-Hall. All rights reserved 34 Objective 5 Assign noninventoriable costs in job costing

Copyright © 2007 Prentice-Hall. All rights reserved 35 Predetermined Indirect Cost Allocation Rate Expected indirect costs ÷ Expected cost allocation base

Copyright © 2007 Prentice-Hall. All rights reserved 36 E Direct labor cost rate: $2,669,000 / 17,000 hrs = $157 Indirect cost allocation rate: Office rent$350,000 Support staff salaries1,194,300 Utilities324,000 Total$1,868,300 Rate: $1,868,300 / $2,669,000 = 70%

Copyright © 2007 Prentice-Hall. All rights reserved 37 E Predicted cost of job: Direct labor (220 hrs x $157)$34,540 Indirect cost allocation ($34,540 x 70%)24,178 $58,718

Copyright © 2007 Prentice-Hall. All rights reserved 38 E Bid: Cost$58,718 Desired profit (50%)29,359 $88,077

Copyright © 2007 Prentice-Hall. All rights reserved 39 End of Chapter 3