1. Chapter 4
Chapter 3
Job Order Costing
Job Order Costing

2. Introduction How much does it cost?
Managers ask this question for many purposes, including formulating overall strategies, product and service-emphasis decisions, and pricing decisions.
This chapter presents basic concepts of job costing.

3. Learning Objectives
Describe the building block concepts of costing systems
Distinguish between job costing and process costing
Outline a seven-step approach to job costing
Distinguish actual costing from normal costing

4. Learning Objectives Track the flow of costs in a job-costing system
Prorate end-of-period under- or overallocated indirect costs using alternative methods
Apply variations of normal costing

5. Describe the building block concepts of costing systems
Learning Objective 1
Describe the building block concepts of costing systems

6. Building Block Concepts of Costing Systems
The following five terms constitute the building blocks that will be used in this chapter:
A cost object is anything for which a separate measurement of costs is desired.

7. Building Block Concepts of Costing Systems
Direct costs of a cost object are costs that are related to the particular cost object and can be traced to it in an economically feasible way.
Indirect costs of a cost object are costs that are related to the particular cost object but cannot be traced to it in an economically feasible way.

8. Building Block Concepts of Costing Systems
The relationship among these three concepts is as follows:
Cost Assignment
Cost Tracing
Direct Costs
Cost Object
Cost Allocation
Indirect Costs

9. Building Block Concepts of Costing Systems
Cost pool is a grouping of individual cost items.
Cost allocation base is a factor that is the common denominator for systematically linking an indirect cost or group of indirect costs to a cost object.

10. Distinguish between job costing and process costing
Learning Objective 2
Distinguish between job costing and process costing

11. Job-Costing and Process-Costing Systems
There are two basic systems used to assign costs to products or services:
Job costing
Process costing

12. Job-Costing and Process-Costing Systems
In a job-costing system, the cost object is an individual unit, batch, or lot of a distinct product or service called a job.
In process costing, the cost object is masses of identical or similar units or a product or service.

13. Job-Costing and Process-Costing Systems
Process costing allocates costs among all the products manufactured during that period.

14. Job-Costing and Process-Costing Systems
Job-costing Process-costing system system Distinct units Masses of identical of a product or similar units of a or service product or service

15. Job-Costing and Process-Costing Systems
Examples of Job Costing and Process Costing
Service
Sector
Accounting firm audits
Advertising agency
campaigns
Deposit processing
Postal delivery
(standard items)
Merchandising
Sending a catalog
to a mailing list
Special promotion of
a new store product
Grain dealing
Processing new
magazine
subscriptions
Manufacturing
Aircraft assembly
House construction
Oil refining
Beverage
production
Job Costing Used
Process Costing Used

16. Outline a seven-step approach to job costing
Learning Objective 3
Outline a seven-step approach to job costing

17. General Approach to Job Costing
The following seven-steps approach is used to assign actual costs to individual jobs:
Identify the chosen cost object(s).
Identify the direct costs of the job.
Select the cost-allocation base(s).
Identify the indirect costs associated with each cost-allocation base.

18. General Approach to Job Costing
Compute the rate per unit of each cost-allocation base used to allocate indirect costs to the job.
Compute the indirect costs allocated to the job.
Compute the cost of the job by adding all direct and indirect costs assigned to it.

19. Job-Costing Overview for Manufacturing Costs at the Robinson Company
INDIRECT-COST POOL
Manufacturing
Overhead
COST-ALLOCATION
BASE
Direct Labor
-Hours
COST OBJECT :
SPECIALIZED
MACHINERY
Indirect Costs
Direct Costs
DIRECT
COSTS
Direct
Manufac.
Labor
Direct
Materials

20. General Approach to Job Costing
D. L. Sports manufactures various sporting goods.
D. L. is planning to sell a batch of 25 special machines (Job 100) to Healthy Gym for $104,800.
A key issue for D. L. Sports in determining this price is the cost of doing the job.

21. General Approach to Job Costing
Step 1: The cost object is Job 100.
Step 2: Identify the direct costs of Job 100.
- Direct material = $45,000
- Direct manufacturing labor = $14,000

22. General Approach to Job Costing
Step 3: Select the cost-allocation base.
- D.L. chose machines hours as the only allocation base for linking all indirect manufacturing costs to jobs.
- Job 100 used 500 machine hours.
- 2,480 machine hours were used by all jobs.

23. General Approach to Job Costing
Step 4: Identify the indirect costs.
- Actual manufacturing overhead costs were $65,100.
Step 5: Compute the rate per unit.
- Actual indirect cost rate is $65,100 / 2, = $26.25 per machine hour.

24. General Approach to Job Costing
Step 6: Compute the indirect costs allocated to the job.
- $26.25 per machine hour *500 hours = $13,125

25. General Approach to Job Costing
Step 7: Compute the cost of Job No. 100.
Direct materials $45,000
Direct labor ,000
Factory overhead ,125
Total $72,125

26. General Approach to Job Costing
What is the gross margin of this job?
Revenues $104,800
Cost of goods sold ,125
Gross margin $ 32,675
What is the gross margin percentage?
$32,675 /$104,800 = 31.2%

27. Cost Allocation Bases Used for Manufacturing Overhead
S U R V E Y S O F C O M P A N Y P R A C T I C E
Cost Allocation Bases Used for Manufacturing Overhead
Direct labor-hours
Direct labor-dollars
Machine-hours
Direct materials dollar
Units of production
Prime cost(%)
Other
31% 31 12 4 5 - 17
36% 21 19 12 20 1 -
30% 22 19 10 28 - 9
50% 7 12 11 16 21 -
31% 29 27 17 22 10 -

28. Distinguish actual costing from normal costing
Learning Objective 4
Distinguish actual costing from normal costing

29. Actual Costing System...
is a job-costing system that uses actual costs to determine the cost of individual jobs.
Actual costing is a method of job costing that traces indirect costs to a cost object by using the actual direct-cost rate(s) times the actual quantity of the direct cost input(s).

30. Normal Costing...
is a costing method that allocates indirect costs based on the budgeted indirect-cost rate(s) times the actual quantity of the cost allocation base(s).

31. Normal Costing
Assume that D. L. Sports budgets $60,000 for total manufacturing overhead costs and 2,400 machine hours.
What is the budgeted indirect-cost rate?
$60,000 /2,400 = $25 per hour
How much indirect cost was allocated to Job 100?
500 machine hours *$25 = $12,500

32. Normal Costing What is the cost of Job 100 under normal costing?
Direct materials , Direct labor ,000 Factory overhead , Total $71,500

33. Track the flow of costs in a job-costing system
Learning Objective 5
Track the flow of costs in a job-costing system

34. General Ledger and Subsidiary Ledgers
The Work-in-Process Control account presents the totals of the separate job-cost records pertaining to all unfinished jobs.
The job-cost record and Work-in-Process Control account track job costs from the time jobs are started until they are completed.

35. Transactions
Purchase of Conversion into Materials Work-in-Process and Other Inventory Manufacturing Inputs
Conversion into Sale of Finished Finished Goods Goods
Inventory

36. Explanations of Transactions Accounts Payable Control
1. Purchases of material(direct and indirect),
$89,000 on account
Journal Entry
Materials Control ,000
Accounts Payable Control ,000
Post to General Ledger
Materials Control
Accounts Payable Control
89,000
89,000

37. Explanations of Transactions
2. Materials sent to manufacturing plant floor :
direct materials $81,000 , and indirect materials
$4,000
Journal Entry
Work-in-Process Control ,000
Manufacturing Overhead Control ,000
Materials Control ,000
Post to General Ledger
Materials Control
Work-in-Process Control
89,000
85,000
81,000
Manufacturing Overhead Control
4,000

38. Explanations of Transactions
3. Manufacturing labor wages liability incurred,
direct($39,000) and indirect($15,000)
Journal Entry
Work-in-Process Control ,000
Manufacturing Overhead Control ,000
Wages Payable Control ,000
Post to General Ledger
Wages Payable Control
Work-in-Process Control
54,000
81,000
39,000
Manufacturing Overhead Control
4,000
15,000

39. Explanations of Transactions
4. Payment of total manufacturing payroll for the
month, $54,000
Journal Entry
Wage Payable Control ,000
Cash Control ,000
Post to General Ledger
Wages Payable Control
Cash Control
54,000
54,000
54,000

40. Explanations of Transactions
5. Additional manufacturing overhead costs
incurred during the month, $75,000. These costs
consist of engineering and supervisory salaries
$44,0000; utilities and repairs, $11,000;
insurance expired, $2,000; and depreciation
on equipment, $18,000.
Journal Entry
Manufacturing Overhead Control ,000
Salaries Payable Control ,000
Accounts Payable Control ,000
Accumulated Depreciation Control ,000
Prepaid Insurance Control ,000

41. Accounts Payable Control
Post to General Ledger
Accounts Payable Control
Manufacturing Overhead Control
89,000
4,000
11,000
15,000
75,000
Prepaid Insurance Control
Accumulated Depreciation Control
18,000
2,000
Salaries Payable Control
44,000

42. Explanations of Transactions
6. Allocation of manufacturing overhead to
products, $80,000
Journal Entry
Work-in-Process Control ,000
Manufacturing Overhead Allocated ,000
Post to General Ledger
Manufacturing Overhead Allocated
Work-in-Process Control
80,000
81,000
39,000
80,000

43. Explanations of Transactions
7. Completion and transfer to finished goods of
eight individual jobs, $188,800
Journal Entry
Finished Goods Control ,800
Work-in-Process Control ,800
Post to General Ledger
Work-in-Process Control
Finished Goods Control
81,000
188,800
188,800
39,000
80,000

44. Explanations of Transactions Finished Goods Control
8. Cost of Goods Sold, $180,000
Journal Entry
Cost of Goods Sold ,000
Finished Goods Control ,000
Post to General Ledger
Finished Goods Control
Cost of Goods Sold
188,800
180,000
180,000

45. Explanations of Transactions
9. Marketing and customer-service payroll and
advertising costs accrued;
Marketing Department salaries $35,000
Advertising costs ,000
Customer-Service Department salaries ,000
Journal Entry
Marketing and Advertising Costs ,000
Customer-Service Costs ,000
Salaries Payable Control ,000
Accounts Payable Control ,000

46. Explanations of Transactions
Post to General Ledger
Marketing and Advertising Costs
Accounts Payable Control
89,000
⑨ ,000
11,000
⑨ ,000
Salaries Payable Control
Customer-Service Costs
44,000
⑨ ,000
⑨ ,000

47. Explanations of Transactions Accounts Receivable Control
10. Sales revenues, all on credit, $270,000
Journal Entry
Accounts Receivable Control ,000
Revenues(Sales) ,000
Post to General Ledger
Accounts Receivable Control
Revenues
⑩ ,000
⑩ ,000

48. Learning Objective 6
Prorate end-of-period under- or overallocated indirect costs using alternative methods

49. Budgeted Indirect Costs
Budgeted indirect-cost rates can be assigned to individual jobs on an ongoing and timely basis.
However, budgeted rates are based on estimates made up to 12 months before actual costs are incurred.
Adjustments may need to made by year end.

50. End-of-Period Adjustments
Underallocated indirect costs occur when the allocated amount of indirect costs in an accounting period is less than the actual amount incurred.
Overallocated indirect costs occur when the allocated amount of indirect costs is greater than the actual amount incurred.

51. End-of-Period Adjustments
Under- or overallocated indirect costs = Indirect costs incurred - Indirect costs allocated
Underapplied (or overapplied) indirect costs and underabsorbed (or overabsorbed) indirect costs are equivalent terms.

52. Budgeted Indirect Costs and End-of-Period Adjustments
Under- or overallocated Indirect costs Indirect costs =
indirect costs incurred allocated
overallocated
overapplied
overabsorbed
Indirect
costs
incurred
allocated
underallocated
underapplied
underabsorbed
Indirect
costs
incurred
allocated

53. End-of-Period Adjustments
Assume the following annual data for D. L. Sports: Manufacturing Overhead Control Bal. 65, Manufacturing Overhead Applied Bal. 62,000

54. End-of-Period Adjustments
How was the allocated overhead determined?
2,480 machine hours * $25 budgeted rate = $62,000
$65,100 -$62,000 = $3,100 (underallocated)

55. End-of-Period Adjustments
Reasons for the underallocated amount:
Numerator reason (indirect costs)
Denominator reason (quantity of allocation base)

56. End-of-Period Adjustments
Actual manufacturing overhead costs of $65,100 are more than the budgeted amount of $60,000.
Actual machines hours of 2,480 are more than the budgeted amount of 2,400 hours.

57. End-of-Period Adjustments
Approaches to disposing underallocated or overallocated overhead:
Adjusted allocation rate approach
Proration approaches
Immediate write-off to Cost of Goods Sold approach

58. Adjusted Allocation Rate Approach...
restates all entries in the general and subsidiary ledgers by using actual cost rates rather than budgeted cost rates.
Actual indirect-cost rate is computed at the end of the year.
Every job to which indirect costs were allocated during the year has its amount recomputed.

59. Adjusted Allocation Rate Approach...
Actual manufacturing overhead ($65,100) exceeds manufacturing overhead allocated ($62,000) by 5%.
3,100 /62,000 = 5%
Actual manufacturing overhead rate is $26.25 per machine hour ($65,100 /2,480) rather than the budgeted $25.00.

60. Adjusted Allocation Rate Approach...
D. L. Sports could increase the manufacturing overhead allocated to each job by 5%.
Manufacturing overhead allocated to Job 100 under normal costing is $12,500.
$12,500 *5% = $625
$12,500 + $625 = $13,125 which equals
actual manufacturing overhead.

61. Proration Approach
Proration is the spreading of under- or overallocated overhead among ending work in process, finished goods, and cost of goods sold.

62. Proration Approach Basis to prorate under- or overallocated overhead:
Total amount of manufacturing overhead allocated (before proration)
Ending balances of Work-in-Process, Finished Goods, and Cost of Goods Sold

63. Proration Approach-원가요소기준법
Manufacturing overhead component of year-end balances (before proration):
Work-in-Process $23, % Finished Goods 26, % Cost of Goods Sold 12, % Total $62, %

64. Proration Approach-원가요소기준법
$3,100 *38% = $1,178 to Work-in-Process
$3,100 *42% = $1,302 to Finished Goods
$3,100 *20% = $620 to Cost of Goods Sold

65. Proration Approach-원가요소기준법
Manufacturing Overhead Finished Goods , , , , , , Cost of Goods Sold Work-in-Process , , , , ,178

66. Proration Approach-제조원가기준법
Ending balance of Work-in-Process, Finished Goods, and Cost of Goods Sold
Work-in-Process $ 30, % Finished Goods , % Cost of Goods Sold , % Total $134, %

67. Proration Approach-제조원가기준법
Manufacturing Overhead Finished Goods , , , , , Cost of Goods Sold Work-in-Process , , , , ,682

68. Immediate Write-off to Cost of Goods Sold Approach
Manufacturing Overhead , , , Cost of Goods Sold , , ,600

69. Choosing Among Approaches
The adjusted allocation rate approach provides the most accurate record of individual job costs.
Indirect-cost-allocated components provides the most accurate inventory and cost of goods sold figures.
Immediate write-off approach is the simplest.

70. 숙 제
End of Chapter 3