Financial and Managerial Accounting John J. Wild Third Edition John J. Wild Third Edition McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 15 Job Order Costing and Analysis

15-3 Conceptual Learning Objectives C1: Explain the cost accounting system. C2: Describe important features of job order production. C3: Explain job cost sheets and how they are used in job order cost accounting.

15-4 A1: Apply job order costing in pricing services. Analytical Learning Objectives

15-5 P1: Describe and record the flow of materials costs in job order cost accounting. P2: Describe and record the flow of labor costs in job order cost accounting. P3: Describe and record the flow of overhead costs in job order cost accounting. P4: Determine adjustments for overapplied and underapplied factory overhead. Procedural Learning Objectives

15-6 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 Chapter 16 C 2

15-7 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 Chapter 16 C 2 Job Order Manufacturing

15-8 Receive order from customers Predict cost to complete job Negotiate a sales price and decide whether to pursue the job. Schedule the job Events in Job Order Costing C 2

15-9 Goods in Process Cost of Goods Sold Labor Materials Indirect Finished Goods Factory Overhead Direct Allocate C 2 Job Order Production Activities

15-10 Job Cost Sheet C 3

15-11 C. Luther M. Bateman Materials Requisition P1

15-12 Materials Ledger Card P1

15-13 Job Cost Sheet P1

15-14 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 P2

15-15 C. Luther Labor Time Ticket P2

15-16 Job Cost Sheet P2

15-17 Allocate manufacturing overhead to jobs using a predetermined overhead rate Let’s do it Job Cost Sheet P3

15-18 Job Cost Sheet P3

15-19 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 P3

15-20 Materials Ledger Cards Materials Requisition Direct material s 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 P1

15-21 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

15-22 Material Purchases Direct Material Actual Overhead Costs Indirect Material P3 Summary of Cost Flows DrCr

15-23 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

15-24 Direct Material Direct Labor Overhead Cost of Goods Mfd. Cost of Goods Sold P4 Summary of Cost Flows

15-25 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 P4

15-26 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 P4

15-27 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 P4

15-28 Overhead is overapplied. Overhead applied to Work in Process (POHR × Activity) Actual overhead costs incurred Adjusting of Overapplied and Underapplied Overhead P4

15-29 Overhead is underapplied. Actual overhead costs incurred Overhead applied to Work in Process (POHR × Activity) Adjusting of Overapplied and Underapplied Overhead P4

15-30 Adjusting Cost of Goods Sold for underapplied or overapplied overhead Adjusting of Overapplied and Underapplied Overhead P4

15-31 Job Order Costing Typical Accounting Entries P1

15-32 P1 Job Order Costing Typical Accounting Entries

15-33 P2 Job Order Costing Typical Accounting Entries

15-34 P2 Job Order Costing Typical Accounting Entries

15-35 P3 Job Order Costing Typical Accounting Entries

15-36 P3 Job Order Costing Typical Accounting Entries

15-37 P3 Job Order Costing Typical Accounting Entries

15-38 P3 Job Order Costing Typical Accounting Entries

15-39 End of Chapter 15