Job-Order Costing Is used when different types of batches or products are produced special order printing, construction, law office

Job Cost Sheet A job cost sheet is used to collect cost information for various jobs direct materials - requisition form Direct labor - time sheets Manufacturing Overhead is ALLOCATED on the job cost sheet.

Manufacturing Overhead We allocate the overhead because we cannot trace it We first decide on a cost driver We estimate the overhead We estimate the level of the cost driver We compute the predetermined overhead rate We apply the overhead.

Job order costing We accumulate costs - direct material & direct labor in the Work in Process account until the batch is complete Manufacturing overhead is applied Complete batch is transferred to Finished Goods

Manufacturing Overhead Control Account We accumulate actual Costs in the account - on the left side We apply overhead to the individual jobs (on the job cost sheet and right side of the t account.) This is an expense account so we need to get rid of the account

Predetermined Overhead Rate Determine the Appropriate Cost Driver Estimate Manufacturing Overhead Estimate the level of the Cost Driver Compute the predetermined overhead rate = Estimated Manufacturing Overhead Estimated Level of Cost Driver

Journal Entries The company estimated $800,000 in overhead and 100,000 of machine hours Raw materials purchased on account $300,000 Raw materials used in production $190,000 of which $178,000 are direct materials & $12,000 are indirect Direct labor of $90,000 and indirect of $110,000 is incurred Depreciation of factory equipment is $40,000 Other manufacturing overhead costs are $70,000 There were 30,000 of machine hours worked. Production orders of $520,000 were completed $480,000 of goods were shipped at a sale price of 25% above cost.

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Over Under applied The balance in Manufacturing Overhead has to go somewhere If it is just a small amount and we have sold most of what we made, we send it to Cost of goods sold Otherwise, we need to spread it between WIP, FG and CGS.

Quality

Quality of Design Measures how closely the product/service meets the demand of customers in terms of design

Conformance Quality Measures how a product/service meets the production and design specifications

COST OF QUALITY PREVENTION Costs incurred to preclude the production of products that do not meet specifications

COST OF QUALITY APPRAISAL/Inspections Costs incurred in detecting which of the units do not conform to specifications

COST OF QUALITY INTERNAL FAILURE Costs incurred when a nonconforming product is detected before it is shipped to customer

COST OF QUALITY EXTERNAL FAILURE Costs incurred when a nonconforming product is detected after it is shipped to customers