Costing of Job Orders and Processes Albee Barretto Matt Casilan Patrick Lim

Page 85 9 Chapter 16

How much Does it Cost to Make a Product?

Job Order Costing Job Order costing accumulates costs for each batch or job. “Customized Products ”

Process Costing Process costing system accumulates the costs of each process needed to complete the product

How Job Costs Flow through the Accounts

we basically look at 3 things Direct Materials, Direct Labor Manufacturing overhead

Direct Materials The company basically starts the job cost record when work begins on the job. The company then maintains a “material inventory” which is a general ledger accounting. These direct materials are basically what’s used to make a product. This then goes directly in to the work in process inventory account once processed.

Indirect Materials Indirect materials are basically used for items that are not put directly into a certain product. For example, if one makes a laptop, you’ll need a printer where you can put down ideas, etc, but is not a part of the laptop but still incurred expense. This is an indirect material.

Direct and Indirect Labor This is where the wages, salaries, number of hours used for a job are put in cost.

Allocating Manufacturing Overhead Manufacturing overhead considers depreciation on fixed assets, utilities, insurance, and taxes There is also something that is called the predetermined manufacturing overhead rate which traces the allocated quantity that is allocated for overhead use and overhead costs.

Predetermine Manufacturing overhead rate = Total estimated manufacturing overhead costs / Total estimated quantity of the manufacturing overhead allocation base

Keys to assigning indirect manufacturing costs to jobs: identity a workable manufacturing overhead allocation base. Containing and links the overhead costs of the product

Allocated manufacturing overhead cost = Predetermined manufacturing overhead rate (from the earlier step) x Actual quantity of the allocation base used by each job.

Completion and sales of finished goods and adjusting manufacturing overhead - we must do the following: account for the completion and sales of finished goods, - adjust manufacturing overhead at the end of the period

EXHIBIT 16-8

Completion and Sale of Finished Goods and Manufacturing Overhead Accounting for

To complete Job process: Account for completion and sale of finished goods Adjust manufacturing overhead at the end of the period

Accounting for Completion and Sale of Finished Goods Smart Touch Learning Transactions Occurred: COG Manufactured - $$$ Sales On Account - $$$ COGS - $$$ COG Manufactured: Finished Goods Inventory Work In Process Inventory Sales on Account: Accounts Receivable Sales Revenue COGS: COGS Finished goods inventory

Adjusting Manufacturing Overhead At the end of the period Undercosted Jobs: Actual > Allocated Underallocated Need to Increase COGS COGS Manufacturing Overhead Overcosted Jobs: Allocated > Actual Overallocated Need to Reduce COGS Manufacturing Overhead COGS

Job Order Costing in A Service Company Service Firms = NO INVENTORY Need to know the cost of different jobs to set prices for their services Salary and Benefits = 100K 40 Hour workweek 50 workweeks per year 2,000 available work hours per year Hourly Rate to Employer = 100K per year/2,000 hours per year = $50 per hour 14 direct labor hours X $50 = $700

Job Order Costing in A Service Company Allocation of Indirect costs Office Rent Office Support Stuff Maintaining and Updating law library for case research Sponsorship for the symphony Total Indirect Costs = 300,000 Compute for Predetermined indirect Cost Allocation Rate 300,000/10,000 direct labor hours = $30 per direct labor hour Allocate indirect costs to jobs 14 Direct labor Hours X 30 = $420 Sum of Direct and Indirect Costs 14 X $50 = $ X $30 = $420 Total = $1120