1. Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fifth Edition Wild, Shaw, and Chiappetta Fifth Edition McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Chapter 15 Job Order Costing and Analysis

3. Conceptual Learning Objectives C1: Describe important features of job order production. C2: Explain job cost sheets and how they are used in job order cost accounting. 15-3

4. A1: Apply job order costing in pricing services. Analytical Learning Objectives 15-4

5. P1: Describe and record the flow of materials costs in job order cost accounting. P2: Describe and record the flow of labor costs in job order cost accounting. P3: Describe and record the flow of overhead costs in job order cost accounting. P4: Determine adjustments for overapplied and underapplied factory overhead. Procedural Learning Objectives 15-5

6. Process Costing Job Costing  Used for production of large, unique, or high-cost items.  Built to order rather than mass produced.  Many costs can be directly traced to each job.  Used for production of large, unique, or high-cost items.  Built to order rather than mass produced.  Many costs can be directly traced to each job. Job Order Production Chapter 16 C 1 15-6

7. Process Costing Job Costing Typical job order cost applications:  Special-order printing  Building construction Also used in service industry  Hospitals  Law firms Typical job order cost applications:  Special-order printing  Building construction Also used in service industry  Hospitals  Law firms Chapter 16 C 1 Job Order Manufacturing 15-7

8. Receive order from customers Predict cost to complete job Negotiate a sales price and decide whether to pursue the job. Schedule the production of job Events in Job Order Costing C1 15-8

9. Goods in Process Inventory Cost of Goods Sold (Income Statement) Labor Materials Indirect Finished Goods Inventory (Balance Sheet) Factory Overhead Direct Allocate C 1 Job Order Production Activities 15-9

10. Job Cost Sheet C 2 15-10

11. C. Luther M. Bateman Materials Requisition P1 15-11

12. Materials Ledger Card P1 15-12

13. Job Cost Sheet (Materials used) P1 15-13

14. Accumulate direct labor costs by means of a work record, such as a time ticket, for each employee. Let’s see one Job Cost Sheet (Direct Labor used) P2 15-14

15. C. Luther Labor Time Ticket P2 15-15 Road Warriors Time Ticket No. L-3479 Job No. B15Date 3/8/13 Employee Name T. ZellerEmployee Number 3969 TIME AND RATE INFORMATION: Start Time 9:00Finish Time 12:00 Elapsed Time 3.0Hourly Rate $20.00Total Cost $60.00 Approved By Remarks

16. Job Cost Sheet (Direct Labor Cost) P2 15-16

17. Allocate manufacturing overhead to jobs using a predetermined overhead rate Let’s do it Job Cost Sheet (Factory Overhead) P3 15-17

18. Job Cost Sheet (Factory Overhead) P3 15-18

19. Road Warriors uses a predetermined overhead rate (POHR) based on direct labor cost to apply overhead to jobs. Estimated total manufacturing overhead cost for the coming period Estimated total direct labor costs for the coming period POHR = POHR = = 160% of direct labor $ $200,000 $125,000 Predetermined Overhead Allocation Rate Formula P3 15-19

20. Materials Ledger Cards Materials Requisition Direct materials The materials requisition indicates the cost of direct materials to charge to jobs and the cost of indirect materials to charge to overhead. Indirect materials Job Cost Sheets Factory Overhead Account Cost Flows and Documents P1 15-20

21. Employee time tickets indicate the cost of direct labor to charge to jobs and the cost of indirect labor to charge to overhead. Job Cost Sheets Factory Overhead Account Job Cost Sheets Direct Labor Indirect Labor Employee Time Ticket P3 Cost Flows and Documents 15-21

22. Material Purchases Direct Material Actual Overhead Costs Indirect Material P3 Summary of Cost Flows DrCr 15-22

23. Incurred Direct Material Actual Applied factory factory overhead overhead = / an adjustment is needed. We will look at how to accomplish this later. When Direct Labor Indirect Labor Actual Overhead Costs Overhead Overhead Applied to Work in Process P4 Summary of Cost Flows Underapplied or Overapplied Overhead 15-23

24. Direct Material Direct Labor Overhead Cost of Goods Mfd. Cost of Goods Sold P4 Summary of Cost Flows 15-24

25. We multiply the *POHR times the number of activity units (direct labor cost for Road Warriors) incurred for the job. Tell me again how we use the *POHR to assign overhead to jobs. Overhead Application P4 15-25 *POHR = Predetermined Overhead Rate

26. Overhead Application Overhead is not incurred uniformly during the year. Actual overhead rate might vary from month to month. Predetermined rate makes it possible to estimate job costs sooner. Reasons for using a predetermined overhead rate P4 15-26

27. The result will be either underapplied or overapplied overhead and we will adjust Cost of Goods Sold at the end of the period. Here, let me show you. The *POHR is based on estimates. What happens if actual results differ from the estimates? Adjusting of Overapplied or Underapplied Overhead P4 15-27 *POHR = Predetermined Overhead Rate

28. Overhead is overapplied. Overhead applied to Work in Process (POHR × Activity) Actual overhead costs incurred Adjusting of Overapplied and Underapplied Overhead P4 15-28

29. Overhead is underapplied. Actual overhead costs incurred Overhead applied to Work in Process (POHR × Activity) Adjusting of Overapplied and Underapplied Overhead P4 15-29

30. Adjusting Cost of Goods Sold for underapplied or overapplied overhead Adjusting of Overapplied and Underapplied Overhead P4 15-30

31. Job Order Costing Typical Accounting Entries P1 15-31

32. P1 Job Order Costing Typical Accounting Entries 15-32

33. P2 Job Order Costing Typical Accounting Entries 15-33

34. P2 Job Order Costing Typical Accounting Entries 15-34

35. P3 Job Order Costing Typical Accounting Entries 15-35

36. P3 Job Order Costing Typical Accounting Entries 15-36

37. P3 Job Order Costing Typical Accounting Entries 15-37

38. P3 Job Order Costing Typical Accounting Entries 15-38

39. Apply Job Order Costing to Pricing Services Estimate the cost of any supplies (shampoo/conditioner) Estimate the cost of the labor (stylist’s rate X time of service) Estimate the amount of overhead to be allocated to all customers Add a markup A typical haircut 15-39 A1

40. End of Chapter 15 15-40