1. Management Accounting
Job Order Costing
Management Accounting

2. Process costing Used when a company uses many units of a single item
Think of our example from yesterday (Chairs/Tables)
Unit Product Cost (Total Cost) = Total Manufacturing Costs (Fixed + Variable or Direct + Indirect) Divided by (/) Total Units Produced

3. Job Order Costing
When a company makes more than one product each job needs to be analyzed separately
Think of our second example of Product A and Product B
Often the allocation of Overheads (Indirect or Fixed Costs) will differ between products, remember product A and Product B

4. Accounting for Jobs
Generally each job will have its own Job Card (Job Cost Sheet/Job Bill)
The Job Card will collect all of the costs, both Direct and Indirect
Therefore you have to be able to measure all of the costs

5. Example Job Card
Turn to page75 and you will see how a job card is set out
At the top of the Job Card there is a lot of details about the Job’s point of reference
Secondly there is a breakdown of all of the components of the costs, these are familiar to you I am sure.
Finally there is a summary and a total for the cost of the whole job

6. Example
Copy the format of the Job Card onto a piece of paper and enter this information
The Job Number is 1234
The Department is Pressing
The Item is a Saucepan
The Date initiated is today
The job is not completed yet
And we don’t know yet about units completed

7. Direct Materials for our Saucepan
The Saucepan requires a body made of steel and a lid made of glass and plastic
Each saucepan requires $10 of steel
Each Sauce pan requires $3 of glass
Each Saucepan requires $1 of plastic
Look at page 74 and you will see a Bill Of Materials

8. Completing a bill of Materials
Copy beneath the Job Cost Sheet the format of the Bill Of Materials
Requisition number is 5678
Date is today
Job Number to be charged is 1234
Department is Pressing
Enter the Data as required

9. Entering Data onto the Job Sheet
Take the total Direct Material cost and enter this into the Job Cost Sheet

10. Measuring Direct Materials
If you look on Page 74 you will see a Time Ticket (Time Sheet)
Copy this format onto a piece of paper
Time ticket number is 159
Date is today
Employee is Tim Skyrme
Station is Lectern

11. Direct Labor Ctd I take 3 hours to make the Steel into a pan
I take one hour to mould the plastic
I take a further half hour to attach the plastic to the glass
I am paid $3 an hour
Enter this information into the Time Ticket

12. Enter this Data onto the Job Sheet

13. Apply the Manufacturing Overheads
To allocate overheads we must choose an allocation basis
Remember what we did with floor space and machine hours yesterday with our tables and chairs
This time we are going to use a Predetermined Overhead Rate

14. Predetermined Overhead Rate
Our Company has predicted that total Fixed Costs (Indirect Costs) are going to be $100,000 for the year
It has also predicted that in total there are going to be 50,000 labor hours in the year
Therefore it has set its Predetermined Overhead Rate at …….. $2 per hour

15. Calculating the Indirect Costs
We know that our Predetermined Overhead rate is $2 per hour worked
Therefore we simply multiply this by the hours worked to produce the Cost Object
Enter this now on the Job Sheet

16. Complete the Job Cost Sheet

17. Problems with the application of Overheads
The information used to calculate the Predetermined Rate is an Estimation
Overheads are not easy to predict and as such they are either
Underapplied OR
Overapplied

18. An Example Two Companies A Plc and B Plc
Both make the same product but A Plc calculates its Predetermined Overhead Rate according to Labor Hours, B Plc calculates according to Machine Hours

19. A PLC B PLC Actual Manufacturing Overheads = $50,000
Basis of Allocation = $5 per machine Hour
Actual Machine Hours 10,500
Overapplication of $2500
Actual Manufacturing Overheads = $50,000
Basis of Allocation = 130% of Direct Materials
Actual Direct Materials $30,000
Under Application of $11,000

20. Reasons for Over or Under Application
Costs are often difficult to predict
The setting or prediction of costs is known as Budgeting
Budgeting is something we are going to come on to in to in later lectures

21. Standard Costs
When we attribute Direct and Indirect (Fixed and Variable Costs) we assume that these costs remain the same
Think Back to what we learnt about cost behavior
Often Fixed Costs are not flat, they are stepped, Often Variable Costs are not linear, there are economies of scale, or diseconomies of scale

22. Tutorial
We are going to do some Job Costings and then we are going to look at some variances and discuss how we can find out why and where these happened
Variance Analysis is an important job for the management accountant