REVIEW of Chapter 14

Completed products for sale. Materials waiting to be processed. Can be direct or indirect. Partially complete products. Material to which some labor and/or overhead have been added. Balance Sheet of a Manufacturer Raw Materials Finished Goods Goods in Process C

Beginning Merchandise Inventory Beginning Finished Goods Inventory Cost of Goods Purchased Cost of Goods Manufactured Ending Merchandise Inventory Ending Finished Goods Inventory Cost of Goods Sold Merchandiser Manufacturer + _ + == _ The major difference Income Statement of a Manufacturer C

Cost of goods sold for manufacturers differs only slightly from cost of goods sold for merchandisers. Income Statement of a Manufacturer P

Summarizes the types and amounts of costs Incurred in a company’s manufacturing process. Direct Materials Used +Direct Labor +Factory Overhead =Total Manufacturing Costs +Beginning Work in Process – Ending Work in Process =Cost of Goods Manufactured Manufacturing Statement P

Chapter 15 Job Order Costing and Analysis

Process Costing Job Costing Soda Cereal Gravel Cement Soap Soda Cereal Gravel Cement Soap Chapter 16 C 1 Job Order Manufacturing 15-7 Car repair Custom home Custom suit Home repair Airplane maker Car repair Custom home Custom suit Home repair Airplane maker

Process Costing Job Costing  Used for production of large, unique, or high-cost items.  Built to order rather than mass produced.  Many costs can be directly traced to each job.  Used for production of large, unique, or high-cost items.  Built to order rather than mass produced.  Many costs can be directly traced to each job. Job Order Production C

Process Costing Job Costing Typical job order cost applications:  Special-order printing  Building construction Also used in service industry  Hospitals  Law firms Typical job order cost applications:  Special-order printing  Building construction Also used in service industry  Hospitals  Law firms C 1 Job Order Manufacturing 15-9

Receive order from customers Predict cost to complete job Negotiate a sales price and decide whether to pursue the job. Schedule the production of job Events in Job Order Costing C

Goods in Process Cost of Goods Sold Labor Materials Indirect Finished Goods Factory Overhead Direct Allocate C 1 Job Order Production Activities 15-11

Job Cost Sheet C

C. Luther M. Bateman Materials Requisition P

Materials Ledger Cards Materials Requisition Direct materials The materials requisition indicates the cost of direct materials to charge to jobs and the cost of indirect materials to charge to overhead. Indirect materials Job Cost Sheets Factory Overhead Account Cost Flows and Documents P

Materials Ledger Card P

Job Cost Sheet P

Accumulate direct labor costs by means of a work record, such as a time ticket, for each employee. Let’s see one Job Cost Sheet P

Employee time tickets indicate the cost of direct labor to charge to jobs and the cost of indirect labor to charge to overhead. Job Cost Sheets Factory Overhead Account Job Cost Sheets Direct Labor Indirect Labor Employee Time Ticket P3 Cost Flows and Documents 15-18

C. Luther Labor Time Ticket P

Job Cost Sheet P

Allocate manufacturing overhead to jobs using a predetermined overhead rate Let’s do it Job Cost Sheet P

Job Cost Sheet P

Road Warriors uses a predetermined overhead rate (POHR) based on direct labor cost to apply overhead to jobs. Estimated total manufacturing overhead cost for the coming period Estimated total direct labor costs for the coming period POHR = POHR = = 160% of direct labor $ $200,000 $125,000 Predetermined Overhead Allocation Rate Formula P

Material Purchases Direct Material Actual Overhead Costs Indirect Material P3 Summary of Cost Flows DrCr 15-24

Incurred Direct Material Actual Applied factory factory overhead overhead = / an adjustment is needed. We will look at how to accomplish this later. When Direct Labor Indirect Labor Actual Overhead Costs Overhead Overhead Applied to Work in Process P4 Summary of Cost Flows 15-25

Direct Material Direct Labor Overhead Cost of Goods Mfd. Cost of Goods Sold P4 Summary of Cost Flows 15-26

We multiply the POHR times the number of activity units (direct labor cost for Road Warriors) incurred for the job. Tell me again how we use the POHR to assign overhead to jobs. Overhead Application P

Overhead Application Overhead is not incurred uniformly during the year. Actual overhead rate might vary from month to month. Predetermined rate makes it possible to estimate job costs sooner. Reasons for using a predetermined overhead rate P

The result will be either underapplied or overapplied overhead and we will adjust Cost of Goods Sold at the end of the period. Here, let me show you. The POHR is based on estimates. What happens if actual results differ from the estimates? Adjusting of Overapplied or Underapplied Overhead P

Overhead is overapplied. Overhead applied to Work in Process (POHR × Activity) Actual overhead costs incurred Adjusting of Overapplied and Underapplied Overhead P

Overhead is underapplied. Actual overhead costs incurred Overhead applied to Work in Process (POHR × Activity) Adjusting of Overapplied and Underapplied Overhead P

Adjusting Cost of Goods Sold for underapplied or overapplied overhead Adjusting of Overapplied and Underapplied Overhead P

Apply Job Order Costing to Pricing Services Estimate the cost of any supplies (shampoo/conditioner) Estimate the cost of the labor (stylist’s rate X time of service) Estimate the amount of overhead to be allocated to all customers Add a mark up A typical haircut 15-33