5-1 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Job-Order Costing 5 PowerPresentation® prepared by David J. McConomy, Queen’s University

5-2 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Learning Objectives l Describe the differences between job-order costing and process costing, and identify the types of organizations that would use each method. l Identify and set up the source documents used in job-order costing.

5-3 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Learning Objectives l Discuss the cost flows associated with job- order costing. l Prepare the journal entries associated with job-order costing (Appendix).

5-4 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Comparison of Job-Order and Process Costing Job-Order CostingProcess Costing 1.Wide variety of distinct1.Homogeneous products products 2.Cost accumulated by job2.Costs accumulated by process or department 3.Unit cost computed by 3.Unit cost computed by dividing total job costs dividing process costs ofby units produced on that the period by the unitsjob produced in the period

5-5 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Johnson Leathergoods - Example Suppose that Stan Johnson forms a new company, Johnson Leathergoods, which specializes in the production of custom leather products. Stan believes that there is a market for one-of-a-kind leather purses, briefcases, and backpacks. In its first month of operation, he obtains two orders: the first is for 20 leather backpacks for a local sporting goods store; the second is for 10 distinctively tooled briefcases for the coaches of a local college. Stan agrees to provide these orders at a price of cost plus 50 percent.

5-6 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Johnson Leathergoods - Unit Cost Direct materials$1,000 Direct labour1,080 Overhead 240 Total cost$2,320  number of units  20 Unit cost$ 116 ======

5-7 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Job Order Cost Sheet (1) 1,000 (2) 1,080 (3) 240 (1) 500 (2) 450 (3) 100 2,320 1,050 Backpacks Briefcases

5-8 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. A Job Order Cost Sheet Item Description: _________ Job Order Number: _______ Quantity Competed: ______ Date Started: _____________ Date Completed:_________ Direct Materials Direct labour Overhead Req. No. Amount Ticket # Hours Rate Amt. Hours Rate Amt. 24-A $ $9 $ $2.00 $80 46-B Cost Summary Direct Materials_______ Total Costs_________ Direct labour _______ Unit Cost _________ Overhead _______ $1,000 $1,080 $ 240 $2,320 $ Backpacks C 1/25/01 1/31/01

5-9 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. A Materials Requisition Form Requisition No._______ Date:______ Department___________ Job No._____ Description Quantity Cost/Unit Total Cost Delivered By___________ Received by______________ 24-A 1/25/01 Fabrication 16-C Buckles 10$3.00$30 J. Jones D. Reller

5-10 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. A Job Time Ticket Employee No.______ Name____________ Date_________ Start Time Stop Time Total Time Rate Amt. Job No. 8:00 a.m. 4:00 p.m. 8.0 hours $9 $ C Ticket No._________ F. Flintstone 1/24/01 Approved by __________________________ Department Supervisor 8:00 a.m. 4:00 p.m. 8.0 hours $9 $ C

5-11 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Job-Order Costing – Material Purchases A. Raw materials account is debited for the cost of materials purchased Raw MaterialsWork in Process 2,500 0

5-12 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Johnson Leathergoods A.Materials costing $2,500 were purchased on account. Raw Materials2,500 Accounts Payable2,500

5-13 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Job-Order Costing – Material Requisitions B.Raw Materials is credited for the cost of materials issued to jobs. Work in Process is debited for the cost of materials issued to jobs. Raw MaterialsWork in Process 2,500 1,500 1,500 0

5-14 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Johnson Leathergoods (continued) B.Materials totaling $1,500 were requisitioned for use in production, $1,000 for 20 Backpacks and the remainder for the 10 Briefcases. Work in Process1,500 Raw Materials1,500

5-15 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Job-Order Costing – Direct Labour Incurred C. Wages Payable is credited for the cost of direct labour. Work in Process is debited for the cost of direct labour. Wages PayableWork in Process 1,530 1,530 1,500

5-16 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Johnson Leathergoods (continued) C.During the month, direct labourers worked 120 hours on the Backpacks and 50 hours on the Briefcases. Direct labourers are paid at the rate of $9 per hour. Work in Process1,530 Wages Payable1,530

5-17 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Job-Order Costing Actual Overhead D.Overhead Control is debited for actual overhead. Overhead ControlWork in Process 415

5-18 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Johnson Leathergoods(cont’d) D.Actual overhead for the month was $415 and was paid in cash. Overhead Control415 Cash415

5-19 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Job-Order Costing Applied Overhead E.Overhead Control is credited for applied overhead. Work in Process is debited for applied overhead. Overhead ControlWork in Process ,500 1,530

5-20 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Johnson Leathergoods (continued) E.Overhead is applied using a plantwide rate of $2.00 per direct labour hour. Work in Process340 Overhead Control340

5-21 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Job-Order Costing – Transfer of Completed Goods F.Credit Work in Process for the COGM. Debit Finished Goods for the COGM. Work in Process Finished Goods 1,500 1, ,320

5-22 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Johnson Leathergoods (continued) F.The Backpacks were completed and transferred to Finished Goods. Finished Goods2,320 Work in Process2,320

5-23 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Job-Order Costing – Recognition of Expense G.Credit Finished Goods for value of units sold. Debit Cost of Goods Sold for value of units sold. Finished Goods Cost of Goods Sold 2,320

5-24 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Johnson Leathergoods (continued) G.The Backpacks which had been completed and transferred to Finished Goods in January, were sold on account for cost ($2,320) plus 50 percent. Cost of Goods Sold2,320 Finished Goods2,320 Accounts Receivable3,480 Sales Revenue3,480

5-25 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. The Basic Concept of Overhead Application Applied overhead = Overhead rate x Actual production activity l Applied overhead is the basis for computing per-unit overhead cost. l Applied overhead is rarely equal to a period's actual overhead costs. Two Basic Points to Emphasized :