1. Copyright © 2007 Prentice-Hall. All rights reserved 1 Job Order Costing Chapter 19

2. Copyright © 2007 Prentice-Hall. All rights reserved 2 Objective 1 Distinguish between job order costing and process costing

3. Copyright © 2007 Prentice-Hall. All rights reserved 3 Cost Systems There are two basic systems used by manufacturers to assign costs to their products: –Job order costing Used by companies that produce unique products or specialized services Costs are accumulated by jobs –Process costing Used by companies that produce identical units Costs are accumulated by each process that is needed to complete a product

4. Copyright © 2007 Prentice-Hall. All rights reserved 4 S19-1S19-1 a.A manufacturer of plywood would use b.A manufacturer of wakeboards would use c.A manufacturer of luxury yachts would use d.A professional services firm would use e.A landscape garden contractor would use process costing. job costing.

5. Copyright © 2007 Prentice-Hall. All rights reserved 5 Objective 2 Record materials and labor in a job order costing system

6. Copyright © 2007 Prentice-Hall. All rights reserved 6 Work in Process Cost of Goods Sold Labor Materials Indirect Finished Goods Factory Overhead Direct Allocate Cost Flow Indirect

7. Copyright © 2007 Prentice-Hall. All rights reserved 7 Raw Materials Material Purchases Direct Material Accounting for Materials Actual Overhead Costs Indirect Material Manufacturing Overhead Work in Process

8. Copyright © 2007 Prentice-Hall. All rights reserved 8 S19-3S19-3 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Materials inventory – canvas70,000 Accounts payable70,000 Materials inventory – thread1,000 Accounts payable1,000

9. Copyright © 2007 Prentice-Hall. All rights reserved 9 S19-3S19-3 C865Canvas (black) 7/10 7000 $1070,000 Canvas (black) 7000 $1070,000 T444Thread (black) 7/10 50 $20 1,00050 $20 1,000

10. Copyright © 2007 Prentice-Hall. All rights reserved 10 Materials Requisition Used to authorize the use of materials on a job Serves as source document for recording material usage 8966 8/03 C865Black canvas6,300 $10 63,000 562 T444Black thread 15 $20 300 Total 63,300

11. Copyright © 2007 Prentice-Hall. All rights reserved 11 S19-3S19-3 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Work in process inventory63,000 Materials inventory-canvas63,000 (for direct materials) Manufacturing overhead300 Materials inventory-thread300 (for indirect materials)

12. Copyright © 2007 Prentice-Hall. All rights reserved 12 S19-3S19-3 Raw Materials Beginning bal 35,000 Purchases 70,000 1,000 63,300 Requisitioned Ending bal 42,700

13. Copyright © 2007 Prentice-Hall. All rights reserved 13 Job Cost Record 562 Happy Campers 2,000 backpacks 8/03 896663,000 Subsidiary ledger to work in process inventory A separate record is kept for each job in process

14. Copyright © 2007 Prentice-Hall. All rights reserved 14 Work in Process Incurred Direct Material Manufacturing Wages Accounting for Labor Manufacturing Overhead Actual Overhead Costs Indirect Labor Direct Labor

15. Copyright © 2007 Prentice-Hall. All rights reserved 15 Labor Time Ticket J. Khan K13 J9738 800 1500 7 hours $11.25 $78.75

16. Copyright © 2007 Prentice-Hall. All rights reserved 16 S19-5S19-5 GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Manufacturing wages76,500 Wages payable76,500 ($600 + $900 + $75,000) Work in process75,900 Manufacturing overhead600 Manufacturing wages76,500

17. Copyright © 2007 Prentice-Hall. All rights reserved 17 Objective 3 Record overhead in a job order costing system

18. Work in Process Direct Material Accounting for Manufacturing Overhead Manufacturing Overhead Actual Overhead Costs Overhead Applied to Work in Process Overhead Direct Labor Actual manufacturing overhead costs are debited to the account – indirect labor, indirect materials, plant utilities, depreciation expense on plant assets, etc. Because these costs can not be traced directly to a particular job, an overhead application rate is used to allocate overhead to each job in a systematic way

19. Copyright © 2007 Prentice-Hall. All rights reserved 19 Total estimated manufacturing overhead costs Total estimated quantity of the manufacturing overhead allocation base Predetermined Manufacturing Overhead Rate At the beginning of the year, the overhead rate is determined so that the cost of a job can be computed when the job is completed instead of waiting until the end of the year

20. Copyright © 2007 Prentice-Hall. All rights reserved 20 Allocate Manufacturing Overhead Predetermined manufacturing overhead x Actual quantity of the allocation based used by each job

21. Copyright © 2007 Prentice-Hall. All rights reserved 21 E19-19 1. Total estimated manufacturing overhead costs Total estimated quantity of the manufacturing overhead allocation base $100,000 / $80,000 = $1.25 per direct labor dollar

22. Copyright © 2007 Prentice-Hall. All rights reserved 22 E19-19 2. GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Work in process80,000 Manufacturing overhead80,000 Amount to allocate to the job: $1.25 x $64,000 = $80,000

23. Copyright © 2007 Prentice-Hall. All rights reserved 23 E19-19 3. Manufacturing Overhead Actual Overhead 83,000 80,000 Overhead Applied Balance 3,000 Since the overhead rate is an estimate, it is not surprising that there is a balance remaining in the manufacturing overhead account. If the account has a debit balance, actual costs were greater than applied amounts – manufacturing overhead is underapplied. If the account has a credit balance, actual costs were less than the amount applied – manufacturing overhead is overapplied. In this exercise, there is a $3,000 debit balance….overhead is underapplied

24. Copyright © 2007 Prentice-Hall. All rights reserved 24 E19-19 4. GENERAL JOURNAL DATEDESCRIPTION REF DEBITCREDIT Cost of goods sold3,000 Manufacturing overhead3,000 As long as the balance is immaterial, close the manufacturing overhead account against cost of goods sold

25. Copyright © 2007 Prentice-Hall. All rights reserved 25 Objective 4 Record completion and sales of finished goods and the adjustment for under- or overallocated overhead

26. Copyright © 2007 Prentice-Hall. All rights reserved 26 Work in Process Direct MaterialDirect Material Direct LaborDirect Labor Manufacturing OverheadManufacturing Overhead Finished Goods Cost of Goods Manufactured Cost of Goods Sold Accounting for Finished Goods Cost of Goods Manufactured

27. Copyright © 2007 Prentice-Hall. All rights reserved 27 P19-34BP19-34B MaterialsFinished goods 17,000Job 90- 44,000 Work in process 61,000 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT a.Accounts payable81,000 Cash81,000 b.Marketing & general expense22,000 Cash22,000

28. Copyright © 2007 Prentice-Hall. All rights reserved 28 P19-34BP19-34B MaterialsFinished goods 17,000Job 90- 44,000 Work in process 61,000 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT c.Cash195,000 Accounts receivable195,000 d.Materials inventory55,000 Accounts payable55,000 55,000

29. Copyright © 2007 Prentice-Hall. All rights reserved 29 P19-34BP19-34B MaterialsFinished goods 17,00044,000 Work in process 61,000 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT e.Work in process-job 904,000 Work in process-job 9138,000 Manufacturing overhead7,000 Materials inventory49,000 55,000 49,000 42,000

30. Copyright © 2007 Prentice-Hall. All rights reserved 30 P19-34BP19-34B 91 Wicom Company components e. 896638,000

31. Copyright © 2007 Prentice-Hall. All rights reserved 31 P19-34BP19-34B MaterialsFinished goods 17,00044,000 Work in process 61,000 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT f.Manufacturing wages56,000 Wages payable56,000 Wages payable50,500 Cash50,500 55,000 49,000 42,000

32. Copyright © 2007 Prentice-Hall. All rights reserved 32 P19-34BP19-34B MaterialsFinished goods 17,00044,000 Work in process 61,000 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT g.Work in process-job 906,000 Work in process-job 9128,000 Manufacturing overhead22,000 Manufacturing wages56,000 55,000 49,000 42,000 34,000

33. Copyright © 2007 Prentice-Hall. All rights reserved 33 P19-34BP19-34B 91 Wicom Company components e. 896638,000 g. T52328,000

34. Copyright © 2007 Prentice-Hall. All rights reserved 34 P19-34BP19-34B MaterialsFinished goods 17,00044,000 Work in process 61,000 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT h.Manufacturing overhead7,500 Accumulated depreciation, plant & equipment7,500 55,000 49,000 42,000 34,000

35. Copyright © 2007 Prentice-Hall. All rights reserved 35 P19-34BP19-34B MaterialsFinished goods 17,00044,000 Work in process 61,000 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT i.Work in process-job 907,200 Work in process-job 9133,600 Manufacturing overhead40,800 55,000 49,000 42,000 34,000 40,800

36. Copyright © 2007 Prentice-Hall. All rights reserved 36 P19-34BP19-34B 91 Wicom Company components e. 896638,000 g. T52328,000 i. 120%33,600

37. Copyright © 2007 Prentice-Hall. All rights reserved 37 P19-34BP19-34B MaterialsFinished goods 17,00044,000 Work in process 61,000 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT j.Finished goods inventory61,200 Work in process-job 9061,200 55,000 49,000 42,000 34,000 40,800 Job 90: In process, beginning$44,000 Direct materials added4,000 Direct labor added6,000 Overhead applied (6,000 x 120%)7,200 $61,200 61,200

38. Copyright © 2007 Prentice-Hall. All rights reserved 38 P19-34BP19-34B MaterialsFinished goods 17,00044,000 Work in process 61,000 GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT k.Accounts receivable125,000 Sales revenue125,000 Cost of goods sold61,200 Finished goods inventory61,200 55,000 49,000 42,000 34,000 40,800 61,200

39. Copyright © 2007 Prentice-Hall. All rights reserved 39 P19-34BP19-34B e. 7,000 Manufacturing overhead GENERAL JOURNAL DATEDESCRIPTIONREFDEBITCREDIT l.Manufacturing overhead4,300 Cost of goods sold4,300 g.22,000 h. 7,500 i. 40,800 Bal 4,300 4,300 Bal 0 Manufacturing overhead was overapplied by $4,300

40. Copyright © 2007 Prentice-Hall. All rights reserved 40 P19-34BP19-34B MaterialsFinished goods 17,00044,000 Work in process 61,000 55,000 49,000 42,000 34,000 40,800 61,200 23,000 99,600 61,000 Compare the balance in work in process with the total costs accumulated so far on Job 91

41. Copyright © 2007 Prentice-Hall. All rights reserved 41 Objective 5 Calculate unit costs for a service company The costs to track are direct labor and indirect costs. A predetermined indirect cost allocation rate is computed in the same way the manufacturing overhead allocation rate is determined

42. Copyright © 2007 Prentice-Hall. All rights reserved 42 E19-22E19-22 1. Direct labor cost rate: $2,550,000 / 17,000 hrs = $150 Indirect cost allocation rate: Office rent$300,000 Support staff salaries900,000 Utilities330,000 Total$1,530,000 Rate: $1,530,000 / $2,550,000 = 60%

43. Copyright © 2007 Prentice-Hall. All rights reserved 43 E19-22E19-22 2. Predicted cost of job: Direct labor (220 hrs x $150)$33,000 Indirect cost allocation ($33,000 x 60%)19,800 $52,800

44. Copyright © 2007 Prentice-Hall. All rights reserved 44 E19-22E19-22 3.Bid: Cost$52,800 Desired profit (50%)26,400 $79,200

45. Copyright © 2007 Prentice-Hall. All rights reserved 45 End of Chapter 19