Chapter 6 Job Costing

6-2 Learning Objectives 1. Explain what job and job shop mean.2. Assign costs in a job cost system. 3.Account for overhead using predetermined rates. 4.Apply job costing methods in service organizations. 5.Describe the difference between jobs and projects.

6-3 Job Costing L.O. 1 Explain what a job and job shop mean. Job Cost object that can be distinguished easily and for which a cost is desired Job shop Firm that produces jobs Job cost sheet Record of the cost of the job kept in the accounting system

6-4 Job Costing Continued Subsidiary ledger account Control account Account that records financial transactions for a specific job Account in the general ledger that summarizes a set of subsidiary ledger accounts Job 1 WIP Job 2 WIP Job 3 WIP Work-In-Process

6-5 The Cost of A Job L.O. 2 Assign costs in a job cost system. Suppose Room With a View (RWV) builds custom homes. Room With a View Job Cost Sheet SubdivisionDate Initiated Date Completed Lot Direct MaterialsDirect LaborManufacturing Overhead Req. No.AmountTicketHoursAmountHoursRateAmount Cost Summary Direct Materials DateNumberBalance Direct Labor Manufacturing Overhead Total Cost 10 May 15, 200XLa Cresta

6-6 The Cost of A Job Continued MaterialsWork-In-Process Direct Materials Indirect Materials Raw Materials Overhead Total WIP Lot 10 Lot 12 Lot 14

6-7 The Cost of A Job Continued LaborWork-In-Process Direct Labor Indirect Labor Labor Overhead Total WIP Lot 10 Lot 12 Lot 14

6-8 The Cost of A Job Continued OverheadWork-In-Process Overhead OH costs applied to each job using the POHR. Lot 10 Lot 12 Lot 14 Total WIP

6-9 Recording OH L.O. 3 Account for overhead using predetermined rates. Predetermined Overhead Rate (POHR) Estimated overhead $ Estimated allocation base RWV $900,000 $1,200,000.75/DM$ Direct Material Costs

6-10 During June RWV worked on three homes, Lot 10, 12 and 14. On June 1 RWV had one home, Lot 10, in process with costs of $255,000. Let’s record June activities for RWV. WIP Lot 10 6/1255,000 RWV’s Job Cost System

6-11 Room With a View RWV purchased $100,000 of Raw Materials on account. RM Inventory 100,000 Accounts Payable 100,000

6-12 Room With a View Used $10,000 materials for Lot 10. Started Lots 12 and 14 and used $40,000 and $30,000 respectively. Used $20,000 indirect materials. Raw Materials WIP Lot 10WIP Lot 12WIP Lot 14Overhead 100,000 10,00040,00030,00020,000

6-13 Room With a View Incurred labor of $62,000. $10,000 for Lot 10, $30,000 Lot 12, $20,000 Lot 14 and $2,000 indirect labor. WIP Lot 10WIP Lot 12WIP Lot 14 10,00030,00020,000 OverheadWages Payable 2,00062,000

6-14 Room With a View Recorded depreciation of $30,000 and incurred other indirect costs of $15,000 on account. Overhead Accumulated Depreciation Accounts Payable 45,000 30,00015,000

6-15 Room With a View Applied overhead for June based on the POHR. WIP Lot 10WIP Lot 12WIP Lot 14Overhead 7,50030,00022,500 60,000.75/DM$

6-16 Room With a View Sold Lot 10 for $550,000. Cash 550,000 Sales Revenue COGS 282,500 WIP Lot 10 7, ,000 10,000 Record sale 550,000 Record COGS 282,500

6-17 Room With a View At June 30 Lot 12 is completed but not sold. WIP Lot 12 40,000 30,000 FG Lot ,000

6-18 Room With a View Accounts at June 30 WIP 72,500 COGS 282,500 Finished Goods 100,000 Lot 10 Lot 12Lot 14

6-19 The excess of actual overhead costs incurred over applied overhead costs The excess of applied overhead costs over actual overhead costs incurred Over and Under Applied Overhead Underapplied Overhead Overapplied Overhead

6-20 Ending Balance in MOH Accounts Not a balance sheet account Ending balance must be ZERO Ø Overhead 60,00020,000 2,000 45,000 67,00060,000 MOH underapplied $7,000

6-21 Ending Balance in MOH Accounts Charge underapplied overhead to cost of good sold. Overhead 60,00020,000 2,000 45,000 COGS 7,000

6-22 Room With a View Accounts at June 30 WIP72,500 COGS$282,500 Finished Goods100,000 % of total Total$455, % 62.1% 22.0% 100% Costs

6-23 Ending Balance in MOH Accounts Allocate underapplied overhead to finished goods, cost of good sold and WIP. Overhead 60,00020,000 2,000 40,000 7,000 WIP 72,500 COGS 282,500 Finished Goods 100,000 4,347 a 1,540 b 1,113 c a 7,000 x.621 b 7,000 x.220 c 7,000 x.159

6-24 Ending Balance in MOH Accounts Not a balance sheet account Ending balance must be ZERO Ø Overhead 60,00020,000 2,000 45,000 67,000 7,000 Ending balance equals zero

6-25 Normal, Actual and Standard Costing Normal Actual Standard Cost of job determined by actual direct material, actual direct labor and applied overhead using the POHR and the actual allocation base. Cost of job determined by actual direct material, actual direct labor and applied overhead using actual overhead rate and the actual allocation base. Cost of job determined by standard (budgeted) direct material, standard direct labor and applied overhead using the POHR and a standard (budgeted) allocation base.

6-26 Service Organization L.O. 4 Apply job costing methods in service organizations. JobClient Direct Labor Indirect Labor Labor Overhead WIP Client A Client B Client C Total WIP

6-27 Job Managing Projects L.O. 5 Describe the difference between jobs and projects. Project Complex job that spans several periods and requires the work of many different departments, divisions, or subcontractors Cost object that can be distinguished easily and for which a cost is desired

6-28 Managing Projects Example Project A WIP Project B WIP Project C WIP Road Construction One job; several projects.

6-29 Chapter 6