1. Job- Order Costing

2. Process or Job-Order Costing? Manufacturer of glue Manufacturer of glue textbook publisher textbook publisher An oil refinery An oil refinery Manufacturer of powdered milk Manufacturer of powdered milk Manufacturer of ready-mix cement Manufacturer of ready-mix cement Custom home builder Custom home builder Shop for customizing vans Shop for customizing vans Chemical manufacturer Chemical manufacturer Auto repair shop Auto repair shop Tire manufacturing plant Tire manufacturing plant Advertising agency Advertising agency Law office Law office

3. Job Order Cost Components MaterialsMaterials LaborLabor OverheadOverhead

4. MaterialsMaterials LaborLabor OverheadOverhead Work In Process Job Cost Sheet #832 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Cost Sheet #832 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Cost Sheet #831 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Cost Sheet #831 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Cost Sheet #830 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Cost Sheet #830 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Order Cost Components

5. MaterialsMaterials LaborLabor OverheadOverhead Work In Process Job Cost Sheet #832 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Cost Sheet #832 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Cost Sheet #831 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Cost Sheet #831 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Cost Sheet #830 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Cost Sheet #830 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Order Cost Components

6. MaterialsMaterials LaborLabor OverheadOverhead Work In Process Job Order Cost Components Job Cost Sheet #832 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Cost Sheet #832 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Cost Sheet #831 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Cost Sheet #831 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Cost Sheet #830 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx Job Cost Sheet #830 Materials$xxx Direct Laborxxx Manufacturing Overheadxxx Overheadxxx Total$xxx Total$xxx

7. Source Documents Materials – – Bill of Materials- type and quantity for each unit – Materials Requisition – production for each job Labor – Time Ticket – For direct labor - hours and rate for each job Overhead – predetermined OH rate x driver All summarized on Job Cost Sheet

8. Sheet Job Cost Sheet OAK & GLASS FURNITURE CO. JOB COST SHEET 831 Product French Court dining tables Date started 4/03/97 Number of units manufactured 100 Date completed 4/21/97 MFG. DIRECT DIRECT LABOR MFG. OVERHEAD DEPT. MATERIALS HOURS COST RATE COST APPLIED Milling & Carving $10,00070$14,000150%$21,000 Finishing18,0003006,000150%9,000 COST SUMMARY AND UNIT COSTS items being made in this production run

9. Job Cost Sheet OAK & GLASS FURNITURE CO. JOB COST SHEET 831 Product French Court dining tables Date started 4/03/97 Number of units manufactured 100 Date completed 4/21/97 MFG. DIRECT DIRECT LABOR MFG. OVERHEAD DEPT. MATERIALS HOURS COST RATE COST APPLIED Milling & Carving $10,00070$14,000150%$21,000 Finishing18,0003006,000150%9,000 COST SUMMARY AND UNIT COSTS

10. Let’s take a look at overhead. Let’s take a look at overhead.

11. Estimated Overhead for the Entire Year Cost Driver =Overhead Rate

12. $320,000 Cost Driver =Overhead Rate

13. $320,000 40,000 direct labor hours =Overhead Rate

14. $320,000 40,000 direct labor hours =$8 per dlh

15. Cost Driver Drives the cost up or down with the associated activity Use the following drivers (there are others) – Direct Labor Dollars – Direct Labor Hours – Machine Hours – Material Dollars

16. Fred accepts an order for 150 special order gadgets.

17. JOB COST SHEET Direct MaterialsDirect Labor Manufacturing Overhead

18. JOB COST SHEET Direct MaterialsDirect Labor Manufacturing Overhead $1,404$180 ?

19. JOB COST SHEET Direct MaterialsDirect Labor Manufacturing Overhead $8 per DLH $1,404$180 ?

20. JOB COST SHEET Direct MaterialsDirect Labor Manufacturing Overhead 27 labor hours $1,404$180 ?

21. JOB COST SHEET Direct MaterialsDirect Labor Manufacturing Overhead 27 labor hours x $8 $1,404$180 ?

22. JOB COST SHEET Direct MaterialsDirect Labor Manufacturing Overhead $1,404$180 $216

23. JOB COST SHEET Direct MaterialsDirect Labor Manufacturing Overhead $1,800 $1,404$180 $216

24. So, if 150 of these cost $1,800--unit cost must be $12.

25. Whatever it is, I’m sure the customer will love it!

26. Perfect!!!

27. Application Exercises 3-1,2,3 pg 114 3-1 Predetermined oh rate 3-2 Apply overhead 3-3 Total Cost and unit cost

28. The Flow of Cost in Job-Order Costing

29. Three Inventory Accounts Raw Materials Work in Process Finished Goods

30. Three Costs of any product Direct Materials Direct Labor Overhead How do costs flow in and out of the three inventory accounts and the three costs

31. Raw Materials 7,000 On April 1, Rand Company had $7,000 in raw materials on hand. Another $60,000 was purchased (p. 95).

32. Raw Materials 7,000 Raw Materials60,000 Accounts Payable60,000 60,000 On April 1, Rand Company had $7,000 in raw materials on hand. Another $60,000 was purchased (p. 95).

33. Work in Process50,000 Manufacturing Overhead2,000 Raw Materials 7,000 60,000 Work in Process 30,000 50,000 Note that indirect materials are overhead! During April, $52,000 in raw materials were requisitioned. Of these, $2,000 were indirect.

34. Work in Process50,000 Manufacturing Overhead2,000 Raw Materials52,000 Raw Materials 7,000 60,000 52,000 Work in Process 30,000 50,000 During April, $52,000 in raw materials were requisitioned. Of these, $2,000 were indirect.

35. Raw Materials 7,000 Work in Process60,000 Manufacturing Overhead15,000 Salaries and Wages Payable75,000 60,000 52,000 Work in Process 30,000 50,000 60,000 Labor cost for April were: direct labor, $60,000; indirect labor, $15,000.

36. Manufacturing Overhead IM 2,000 IL15,000 Rand Company experienced actual overhead costs totaling $40,000.

37. Manufacturing Overhead IM 2,000 IL15,000 Utilities21,000 Rent16,000 Misc.3,000 Rand Company experienced actual overhead costs totaling $40,000.

38. Manufacturing Overhead IM 2,000 IL15,000 Utilities21,000 Rent16,000 Misc.3,000 Prop. taxes13,000 Received a bill for accrued property taxes, $13,000.

39. Manufacturing Overhead IM 2,000 IL15,000 Utilities21,000 Rent16,000 Misc.3,000 Prop. taxes13,000 Insurance7,000 Paid insurance on factory, $7,000.

40. Manufacturing Overhead IM 2,000 IL15,000 Utilities21,000 Rent16,000 Misc.3,000 Prop. tax13,000 Insurance7,000 Deprec.18,000 Depreciation on factory equipment, $18,000.

41. Manufacturing Overhead IM 2,000 IL15,000 Utilities21,000 Rent16,000 Misc.3,000 Prop. tax13,000 Insurance7,000 Deprec.18,000 95,000 The debit side of Manufacturing Overhead is the ACTUAL side.

42. Manufacturing Overhead Assume that overhead is applied at the rate of $6 per machine hour. During the month, 15,000 machine hours were used on two jobs. By multiplying 15,000 x 6 we arrive at the appliedoverhead amount of $90,000. Assume that overhead is applied at the rate of $6 per machine hour. During the month, 15,000 machine hours were used on two jobs. By multiplying 15,000 x 6 we arrive at the applied overhead amount of $90,000.

43. Manufacturing Overhead During the month, 15,000 machine hours were used to two jobs. Estimated overhead is $90,000. Work in Process90,000 Manufacturing Overhead90,000

44. Work in Process90,000 Manufacturing Overhead90,000 Work in Process 30,000 50,000 60,000 90,000 Manufacturing Overhead During the month, 15,000 machine hours were used to two jobs. Estimated overhead is $90,000.

45. Manufacturing Overhead IM 2,000 IL15,000 Utilities21,000 Rent16,000 Misc.3,000 Prop. tax13,000 Insurance7,000 Deprec.18,000 95,000 Applied O/H 90,000 15,000 x $6 The credit side is the “applied” or “estimated” side.

46. Manufacturing Overhead IM 2,000 IL15,000 Utilities21,000 Rent16,000 Misc.3,000 Prop. tax13,000 Insurance7,000 Deprec.18,000 95,000 Applied O/H 90,000 You might think of it as the EAST side.

47. Manufacturing Overhead Job A was completed at a cost of $158,000 and transferred to finished goods.

48. Manufacturing Overhead Job A was completed at a cost of $158,000 and transferred to finished goods. Finished Goods158,000 Work in Process158,000 Work in Process 30,000 50,000 60,000 90,000 Finished Goods 158,000

49. Manufacturing Overhead Three-fourths of the units were sold on account for $225,000.

50. Manufacturing Overhead Three-fourths of the units were sold on account for $225,000. Accounts Receivable225,000 Sales225,000 The Retail Portion

51. Manufacturing Overhead Three-fourths of the units were sold on account for $225,000. Accounts Receivable225,000 Sales225,000 Cost of Goods Sold118,500 Finished Goods118,500 The Cost Portion

52. Accounts Receivable225,000 Sales225,000 Cost of Goods Sold118,500 Finished Goods118,500 Finished Goods 158,000 118,500 Manufacturing Overhead Three-fourths of the units were sold on account for $225,000.

53. Application Exercise 3-4 pg 114-5

54. How do you handle the difference in Overhead 1. Close out to Cost of Goods Sold 2. Allocate among WIP, FG, COGS

55. 1. Close out to Cost of Goods Sold under applied – need to increase COGS Overhead ----------------- 1500|1400 COGS 100 OH100

56. over applied - decrease COGS Overhead ----------------------- 1400| 1500 OH100 COGS100

57. Application Exercise 3-5 pg 115 includes under/over applied overhead basic method

58. 2. Allocate among WIP, FG, COGS Determine the OH cost per unit Determine the number of units in each WIP,FG,COGS Multiply the number of units by the OH cost per unit to determine the cost Determine the percentage of costs in each Multiply the under or over applied by %

59. Journal Entry WIP FG COGS OH

60. Application Exercise 3-16 pg 119 Allocate to WIP, FG and COGS

61. How do we report the three inventories and costs? Cost of Goods Manufactured (COGM) – Direct Material – uses Raw Materials Inventory – Direct Labor – Overhead =Total Manufacturing Costs - Work In Process Inventory =COGM

62. Cost of Direct Materials – Direct Material Beginning Raw Materials Plus: net purchases Available raw materials Less Ending Raw Materials = Cost of Materials Used in Production Less Indirect materials =Cost of Direct Materials

63. Cost of Direct Labor/Overhead Direct Labor Applied Overhead =Total Manufacturing Cost +beginning WIP -ending WIP COGM

64. Cost Of Goods Sold- Income Statement Acct Beginning Finished Goods Inventory + COGM Available for Sale Less Ending Finished Goods Inventory = Cost of Goods Sold ( unadjusted) Adjustment (underapplied/overapplied) Adjusted Cost of Goods Sold

65. Application Exercise 3-6 Schedule of COGM and COGS HOMEWORK 3-9 Applying overhead 3-10 Computing unit cost 3-11 Journal Entries 3-12 Overhead rates 3-13 COGM