Traditions and Innovations Cost Accounting Traditions and Innovations Barfield, Raiborn, Kinney Chapter 5 Job Order Costing

Learning Objectives (1 of 2) Explain the difference between job order and process costing systems Define actual, normal, and standard costing valuation methods for job order and process costing systems Explain when to use a job order costing system Define what the term ‘job’ means

Learning Objectives (2 of 2) Describe the documents and prepare the journal entries in a job order costing system Identify how technology is used in job order costing systems Explain how standard costs are used in a job order costing system Describe decisions that are made based on job order costing information

Methods of Product Costing Product Costing System defines cost object method of assigning costs to production Valuation Method specifies how product costs will be measured

Six Possibilities V A L M U E A T T H I O O D N COSTING SYSTEM Job Order Actual Normal Standard Process Actual Normal Standard

Valuation Methods Actual Normal Standard Actual direct material Actual direct labor Actual overhead Normal Predetermined overhead Standard Standard direct material Standard direct labor Standard overhead

Costing Systems Job order costing Process costing COLA

Which Costing System? Tax Return

Job Order Costing System Each job is a cost object Accumulate costs for each job Use subsidiary ledger WIP Subsidiary Ledger Job 2 Job 1 Job 3 WIP Control = 100 200 500 Job 1 100 Job 2 200 Job 3 500 Total 800 Job 1 + Job 2 + Job 3 = WIP Control

Material Requisition Form Tracks who is responsible for materials Verifies flow of materials from warehouse to department to job Journal entry Work in Process Inventory (direct material) Manufacturing Overhead (indirect material) Raw Material Inventory

Materials Requisition Form Date ___________________ No. ### Job No. _________________ Department _______________ Issued by _________________ Authorized by ___________ Inspected by _______________ Received by _____________ Item Part Unit of Quantity Quantity Unit Total No. No. Descrip. Measure Required Issued Cost Cost

Job Order Cost Sheet All financial information about a job direct material (from material requisition) direct labor (from time sheets or labor tickets) applied overhead budgeted cost information When job is complete, use job order cost sheet to analyze actual costs to budgeted costs

Job Order Cost Sheet Customer ____________ Job No. ### Starting Date _________ Job Description ____________ Completion Date ______ Contract Price _____________ Materials Date Ref# Amount Direct Labor Date Ref # Amount Overhead Applied Date Ref# Amount Total Materials _________ Total Labor _________ Total Cost of Job Total OH Applied _________ ========

Employee Time Sheet Time worked on each job Journal entry Work in Process Inventory (direct labor) Overhead (indirect labor) Salaries and Wages Payable

Employee Time Sheet Employee Name _______________ Employee No. _______________ Department _______________ For week ending _______ Start Stop Total Type of Work Job No. Time Time Day Hours Employee Signature Supervisor’s Signature

Overhead Overhead Account Journal Entry Actual Overhead Applied Overhead Journal Entry Work in Process Inventory Overhead (applied)

Completion of a Job Move job cost sheet from WIP subsidiary to Finished Goods subsidiary Journal entry Finished Goods Inventory Work in Process Inventory

Sale Journal entry Accounts Receivable Sale Cost of Goods Sold Finished Goods Inventory

Job Order Costing and Technology Automate data collection and data entry Accounting software includes Job Costing modules Share information using intranet

Journal Entries WIP consists of job cost sheets W & Sal Pay Materials WIP-Job 1 FG Accts Pay WIP-Job 2 Overhead CGS WIP consists of job cost sheets

Purchase Materials on Account (a) W & Sal Pay Materials WIP-Job 1 FG a Accts Pay WIP-Job 2 Overhead CGS a

Use Materials Requisition to Request Materials for Jobs (b) W & Sal Pay Materials WIP-Job 1 FG a b b Accts Pay WIP-Job 2 Overhead CGS a b b Direct materials to WIP Indirect materials to Overhead

Record Labor from Employee Time Sheets (c) W & Sal Pay Materials WIP-Job 1 FG c a b b c Accts Pay WIP-Job 2 Overhead CGS a b b c c Direct labor to WIP Indirect labor to Overhead

Apply Overhead (d) c b a b c d b a b d c c d W & Sal Pay Materials WIP-Job 1 FG c b a b c d Accts Pay WIP-Job 2 Overhead CGS b a b d c c d

Complete Job 1 (e) c b e e a b c d b a b d c c d W & Sal Pay Materials WIP-Job 1 FG c b e e a b c d Accts Pay WIP-Job 2 Overhead CGS b a b d c c d

Sell Job (f,g) b e e c f a b c d b f a b d c c d g g W & Sal Pay Materials WIP-Job 1 FG b e e c f a b c d Accts Pay WIP-Job 2 CGS Overhead b f a b d c c d Accts Rec Sales g g

Standard Cost System Actual cost Normal cost Standard cost Predetermined norms (or standards) for materials, labor, and overhead Compare actual costs to standard costs - difference is a variance

Management Use of Job Order Costing Systems Estimate future job costs Establish realistic bids and selling prices Develop budgets and standards Compare actual costs to estimated costs Determine which jobs are profitable Manage inventory

Questions What is the difference between job order and process costing systems? What is meant by actual, normal, and standard costing valuation methods? How is the job order cost sheet used?