Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fourth Edition Wild, Shaw, and Chiappetta Fourth Edition Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

Chapter 15 Job Order Costing and Analysis

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

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

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 15-5

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

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 1 Job Order Manufacturing 15-7

Receive order from customers Predict cost to complete job Negotiate a sales price and decide whether to pursue the job. Schedule the production of job Events in Job Order Costing C1 15-8

Goods in Process Cost of Goods Sold Labor Materials Indirect Finished Goods Factory Overhead Direct Allocate C 1 Job Order Production Activities 15-9

Job Cost Sheet C

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 P

Materials Ledger Cards Materials Requisition Direct materials 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 P

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 15-13

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 15-14

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 P

Adjusting Cost of Goods Sold for underapplied or overapplied overhead Adjusting of Overapplied and Underapplied Overhead P

End of Chapter